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Kulula: Erik Venter and Gidon Novick

Erik Venter and Gidon Novick made history eight years ago when the two Comair employees, with some help from senior management, launched South Africa’s first no-frills airline on a tiny budget. In 2008, Kulula generated turnover of R1,8 billion through its website. It’s no wonder that the carrier’s competitors are green with envy.

Monique Verduyn

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Erik Venter of Kulula

I put the Kulula story down to healthy paranoia and a deep-seated fear of lagging behind. The Comair culture has always been entrepreneurial. I discovered the true extent of that when I read a book about the history of the airline dating back to 1946. We have always had to battle against extreme odds to compete with SAA and that fighting spirit has won through, right to the present.


A lot of that is because we have remarkable consistency in the top management team. The company chair and deputy chair, who played key roles in getting Kulula off the ground, have been in the organisation for over 40 years, and in 65 years Comair has had only four CEOs. Because the churn at the top is so minimal, the organisation has always been able to focus on the future, to look at new trends in global aviation, identify potential threats to business, and determine how best to change the organisation in response to new environments and fresh opportunities.

We don’t seek out people with flair; rather, we aim to promote an entrepreneurial approach throughout the company so that everyone buys into the same philosophy. It’s a strategy that is quite unorthodox compared to many companies, most of which have set mission, vision and strategy statements. But we are in such a volatile industry that we have to keep changing targets all the time. As a result, we home in more on behaviours that make the company successful. Currently, for example, we maintain a great focus on the airline, but we are also moving into e-commerce, thanks to the cultivation of behaviours that are equally applicable to both sides of the business. Innovation and market leadership are at the heart of what we do. The ability to innovate comes from recognising proactive people and building recognition into performance assessments and measurements. We don’t single out people – it’s a process that we develop from the bottom up.

The biggest challenge in creating Kulula was that South Africa had not seen anything like this before. It was an extreme deviation from the traditional airline model which is all we had known since World War II. But while it was radical for the market, it wasn’t for us. The organisation had been in aviation for so long and was so familiar with the industry that it was a welcome challenge. Internationally, so many airlines have given up on their low-cost airlines, saying that it’s not possible to run a conventional carrier along with a low-cost offering. The truth is that Comair has always operated as a low-cost carrier anyway, because it is the underdog to SAA. The challenge therefore did not lie there; it was more about how to differentiate the new product to the customer. We did that by identifying elements of air travel that people would be prepared to pay for separately so that they could travel by air at a lower price.

We had seen what was happening overseas and we knew that it would have an impact on the local market. There were some carriers already looking at setting up a low-cost airline and we had to get to market first and quickly. And we did – we went from conceptualisation to first flight in just two months, taking to the skies in August 2001. Being first gave us huge traction in the market which has continued to the present. One of the biggest advantages at the time was that we launched it as kulula.com. The term “dot com”, which today is almost incidental, was new and in vogue, and had strong associations with the Internet – of course it was part of our strategy to incorporate the term into the name.  It got us immediate attention and gave us a fresh and fun image.

It’s very easy to lose monumental amounts of money in aviation, so we set it up on a shoestring budget, which enabled us to see profits from day one. Comair funded Kulula, but the amount was really negligible. Yes, we had to be entrepreneurial in our approach and take risks, but we also had to be cautious. Our first reservation system was built in six weeks at a cost of R300 000, which is just bizarre. When I think of it now, it’s amazing that it ever worked. The current version of the system is multiple generations ahead of that one, has a team of 30 people working on it, and is worth millions.
The airline industry is currently experiencing tough times because of volatile oil prices and the economic crisis, but Kulula is healthy, handling over 100 flights day. A lot of the reason behind that comes back to institutional memory, which is a great strength. The absence of that constantly catches out other aviation businesses, where management have no idea how to deal with challenges because the team is always experiencing them for the first time. We on the other hand have been through 9/11, the SARS virus, and a dollar that cost R12 – hard times don’t really phase us.

The other thing about long service is that it paves the way for long-term focus. Many companies make the fatal mistake of sacrificing long-term sustainability for short-term profits. You have to resist that temptation. A long-term view makes a business so much more robust, especially in a recession. As an example, when we bought our aircraft we decided to pay them off over five years and not ten. Sure, we would have had a better cash flow if we’d stretched out the repayments, but it would also have cost us much more interest and we would have had to carry that during a downturn; instead, today we sit with a large portion of our fleet paid off.

It’s a way of thinking that has spurred on the recession – greed over sustainability. The international banking sector has revolved around massive bonuses for quick profits. In airlines too, contractors and consultants are brought in and paid huge amounts to deliver short-term gains.
The point is that they do not have the future of the business at heart and they are only around for a fixed period, which is where all their energies are targeted. After that they walk away. Our approach is that there are no surface solutions; if you need a consultant to perform a task in your business, chances are you will continue to require that task to be done, so rather bring someone on board and have what they do permeate the business.
We’re known for our branding and advertising, all of which is targeted towards being current, exciting and fun, a little like the Nando’s of the airline sector. We have our own internal graphics department which handles our promotions, and while our advertising is outsourced, we place a strong emphasis on building the image and culture of the brand internally too.

The recession has worked in our favour in several ways. There has been a lot of downgrading from premium to low-cost carriers. Many international companies once had a ban on cut-price airlines; that has fallen away. Instead, the management of travel costs has become a key concern for most companies. Both the corporate and leisure markets are keen on getting the best deal. This also favours the direct selling model which cuts down on admin costs.

Our products – Kulula Air, Kulula Travel, Kulula Connect, Kulula Card – are not in themselves driving our strategy. Kulula Connect, for example, is more about attracting people to the Kulula brand before they’re even ready to fly. The cellphone is ubiquitous in South Africa, so what better way to get the brand into the market early than with airtime. Kulula Card is different from other airline loyalty cards which apply some mystical formula to give customers miles which are extremely difficult to exchange for a specially allocated freebie seat. With Kulula, you earn moolah on every booking and you can use it anytime you want to for your next ticket. It’s that simple.

The move into Kulula Travel is really just leveraging off what we already have in the business: a great brand, a lot of marketing spend around that brand, and an excellent technology platform. In addition, it’s a product that is positioned well to complement our flight offering.We’ve seen many businesses launch travel platforms, but they have to start from scratch. With Kulula Air we already have a huge anchor tenant and all the support structures we need in place. It’s about having all the ingredients to enable the logical extension of the brand. And it’s a market that has enormous potential – in Europe, over 40% of hotel bookings are done online; in South Africa that figure is just 1%.

3G cards and the expected improvements and cost-reduction of bandwidth bode very well for the ongoing growth of Internet purchasing. E-commerce is still in its infancy in South Africa, but the recession may favour us once again as cost and convenience factors come into play.

The brand extensions help in that regard – we are doing something new all the time and we are never stagnant. The company spends a vast amount of time and energy researching Internet usage, how users interact with our own website, and how to improve the layout and processes. The drive is always to keep it user-friendly and exciting. Regular users of the internet no longer have tolerance for poor websites, so any e-tailer must keep their website functioning optimally. Consumers are becoming fussier about the Internet, from usability and Interface to uptime and speed of processing, your support infrastructure must be robust, backup must be in place and redundancy must be built in.

One of the tricks is managing the impact of fraud. Bearing in mind that 99% of our customers are genuine, we have avoided putting in place complex and extremely detrimental security products that penalise legitimate users; instead, we have gone for the back-office approach, in which we constantly profile users and credit card numbers to spot irregularities. We do not force our need for controls onto our customers. One of the main projects over the last 24 months has been to cultivate cultural awareness of what makes us stronger or weaker. This forms part of a huge plan to deliberately identify and communicate the corporate culture, and has led our people to accept things they have begrudged in the past. It’s all about seeing things from the customer’s point of view. Our new business ventures are all a product of instilling that culture – that is what drives innovation and spurs people on to look for opportunities.

Agility is key. You achieve it by creating a culture in which change is normal. We have never gone through what companies call a “period of consolidation” which is a euphemism for sitting back and doing nothing. We simply don’t expect stability, so change is not an issue. Interestingly, we have no systems to manage constant change – it’s something that is just accepted as part of the business. At more senior level, we hire people with a dynamic rather than maintenance approach to business. 2010 is difficult to gauge, for example.

We’ve planned to increase our capacity by 50%, but will only do so as we see demand growing. No one knows how many visitors will actually come to South Africa, or how much internal travel there will be. No doubt, the impact will be positive, but we don’t know by how much – we’ll respond when we do.
That’s what has enabled us to survive and grow in an airline market that is almost permanently overtraded. A lot of that is because of the government airlines, which fuel the constant battle over capacity. We have an aggressive, cut-throat relationship with our competitors and there is not much love lost between us and Mango. The state subsidy makes it jolly hard for us to compete. If for example, we look at upgrading our fleet, it’s very difficult to raise the finance in this climate, but SAA can go out there and buy a whole lot of new planes with government funds. As a business, we have to build momentum and get our balance sheet right, while the State keeps on ploughing money into Mango and SAA. That’s what pushed Nationwide out of the market. There really is no reason for Mango to exist other than to take out the competition.

Having two joint CEOs has enabled both of us to do what we enjoy, which means we do it well. Gidon and I have quite different approaches. His preference is for PR and marketing; mine lies in operations. The board must have decided that by putting the two of us together, they would get the best of both worlds. It’s hard to find one person who enjoys every single facet of a business, so I believe we are lucky we can share the duties.
Our roles are clearly defined and if anyone tries to play one of us off against the other, they are quickly told who to talk to about specific aspects of the business. It’s also allowed us to spread ourselves further and create a flat organisational structure. There are ten people at the next level of management, which a single CEO would not typically be able to handle. We are able to do much more and with a greater depth of detail.

Kulula at a glance
Kulula employs 1 800 staff.
Comair’s turnover has doubled in size every four years since the launch of Kulula in 2001.
The domestic air travel market has grown by 74% since 2001.
In the five years prior to that, there had been zero market growth.
Until the fuel price went ballistic, airfares had declined by 25% despite inflation since the launch of Kulula, a fact, says Venter, that makes it impossible to argue about the correlation between low-cost carrier prices and passenger volumes.
Kulula is one of South Africa’s biggest online retailers with some R3,5 million in sales daily.
In isiZulu, “kulula” means it is light, or it is easy or simple.

Outlook for airlines
Kulula flies against a backdrop of global gloom:
Passenger traffic worldwide is expected to decline 8% in 2009, with corporate travel projected to drop by 15%.
The International Air Transport Association has warned that the world’s airlines will collectively lose $9 billion this year.
Aircraft buyers are cancelling or delaying orders. Since January, European plane maker Airbus has booked a net total of 11 orders, after 21 were cancelled. Boeing – which is cutting 10 000 jobs – has taken orders for 73 planes, but with cancellations of 66, the net order intake is only seven jets. Fuel prices remain volatile as ever and continue to rise driven by the surge in crude oil prices, which topped $70 per barrel in August.

What you can learn from kulula

Speed to market
Kulula had first-mover advantage, a lead gained by being the first significant company to move into a new market. Realising that other carriers were eyeing the local scene, Kulula’s founders got the business up and running in two months, achieving an insurmountable advantage over its potential rivals. If a business is first into a market, it can capture market share much more easily without having to worry about rivals trying to lure the same customers.
When the rivals do come along – as they inevitably will – the first-mover will have advantages in the ensuing competition. In Kulula’s case these include familiar products, brand loyalty, and a great website. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but also continuing to expand and innovate.

Long-term focus
Short-term gain often equals long-term pain. Don’t make the mistake of putting all your efforts into making a quick buck now; rather broaden your focus and work on long-term sustainability. That will make your business resilient and help see it through the recession.

Consistent brand communication
Exceptional brand awareness is a direct result of consistent, integrated internal and external communication. It begins with a clear brand strategy, such as being customers’ number one choice by delivering outstanding value, continuous innovation and an exceptional experience. Exemplary brands always begin with strategy. Brand communication is merely a way to articulate and reinforce the strategy. Make all aspects of your marketing communications cohesive and consistent. Track and refine all your programmes and watch how that impacts on company culture, enhancing service delivery and increasing sales.

Keep costs down, pay off debt
Kulula’s launch budget was minimal, with the founders opting to focus on profitability from the outset. Time and again, successful business owners highlight the need to keep costs at a minimum – especially for a new venture. In addition, tackle your business’s highest-interest rate debt first. Kulula opted to cut its payment period for an expensive capital investment by half, radically reducing the amount of interest it had to pay into the future. Better yet, the company does not have to service this debt in the midst of a recession.

Partner for success
The joint leadership model, which brings together two CEOs with complementary skills, has helped the company achieve its goals. It’s a valuable lesson for SMEs as partners have a vested interest in the business, more so than employees. When a business is new, and there are all sorts of unpredictability and challenges, two heads are better than one. You have someone to lean on, and you can strategise together. It means two leaders can focus their abilities where they are best suited without being distracted by other issues.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

Entrepreneur Profiles

In Touch Media’s Margie Carr Shares How She Made An Out-Of-Home Media Agency A Solid Competitor

Out-of-home media agencies are growing and In Touch Media’s Margie Carr is leading the way with an approach that embraces trust, simplicity and the power of networks.

Monique Verduyn

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Vital Stats

With content playing an increasingly central role, out-of-home media agencies can no longer just be real estate companies. They must evolve to become publishers. That’s according to a recent article in US advertising trade publication Adweek.

It’s an approach that has worked for Margie Carr, owner and MD of In Touch Media, a business she has built over 20 years in a cutthroat industry. Having gone through several key growth phases, today the company has a level 2 B-BBEE rating, and is accredited with the Association for Communication and Advertising (ACA).

Margie is positive about the future of out-of-home, thanks to the increasing digitisation of the media, consumer demands for responsive experiences, and an explosion of location data.

Related: Funding For Women Entrepreneurs – A Collective Effort

“Advertisers are fundamentally changing their perception of out-of-home advertising,” says Margie. “Where we have differentiated our services is that we simplify the entire process, from idea to execution, so that our clients can focus on managing their brands.”

When Margie started the business, she had experience as an account manager and copywriter. Initially she was ‘selling out-of-home stock’, but her passion for strategic campaign management got in the way, and the business evolved into a full-service out-of-home media agency. That shift required a change in mindset.

“To book, plan and execute an out-of-home campaign is a much more complex process than selling space,” says Margie. “It was a major adjustment. A tangible product is easier to sell than an intangible service.”

That’s because a tangible product can more easily demonstrate value, whereas with a service, you create a vision and sell the vision to the customer.

“Our promise to the client is that once they brief us, we do the rest. We handle the communication across all the teams contracted into campaigns, keeping clients updated on progress every step of the way. Out-of-home is an extremely complex medium, and knowledge of both buyers and sellers is critical. We have differentiated the business on our depth of knowledge and extensive experience in the market.”

Believe in your employees

Margie admits that one of her biggest challenges was learning to trust employees. It’s a common one for entrepreneurs. One of the key requirements of ‘learning to let go’ is showing your people what it means to walk in your shoes, and to avoid the temptation of trying to protect them from reality.

“Giving employees the ability to see things from your perspective helps to make them feel more like partners, rather than staff who are in it for the salary at the end of the month. This makes it easier to establish trust, and a mutual commitment to the business and its long-term goals.”

Become part of a network

Margie also acknowledges that it’s important to have a professional network. For her, membership of the local chapter of Women Presidents’ Organisation (WPO), of which she is also a founder member, has been beneficial. It’s an organisation for female CEOs and managing directors, and the South African chapter, launched in 2008 by Anni Hoare, is the first to be established beyond North America. Margie credits the organisation with empowering her to grow her company.

“The WPO aims to accelerate business growth, enhance competitiveness, and promote economic security through confidential and collaborative peer-learning groups,” she says. “For me it has been a platform to learn from, and to be inspired by and work with incredible people who are determined to succeed.”

As an entrepreneur, she points out that you do not have a board that meets regularly. Instead you are expected to have all the answers. With a dedicated board, you have people who are focused on what you need to be successful, guide you on the risks you should take or avoid, and can help you to achieve your long-term goals and strategic objectives. Boards expand networks, promote accountability, and give a company a level of credibility that is reassuring for customers and employees.

Related: Watch List: 50 Top SA Business Women To Watch

“In the absence of that, membership of a powerful network can make all the difference. Having the ability to meet with fellow entrepreneurs once a month, to work through different sets of challenges together and come up with creative solutions, is a proactive learning experience that really helps you to grow as a business owner and leader. It’s an opportunity to come to grips with your own strengths and weaknesses, and to understand the value of high-level advice.”

Simplicity is the key to success

Ken Seagall, author and former Apple creative director, said ‘The most important thing we do is give people a simple solution, so they can do amazing things.’ The connection between simplicity and success has contributed to the success of In Touch Media. Keeping it simple has been a guiding principle for the business.

“We had to make changes to our systems to make them more client friendly as the out-of-home environment evolved. In some instances, clients are required to sign more than a dozen different contracts with diverse providers — we have streamlined our processes so that clients sign one agreement with us and we manage all the suppliers.”

The future is digital

Looking ahead, Margie expects ongoing change with the growth of digital out-of-home. PricewaterhouseCoopers (PwC) valued South Africa’s out-of-home market — the biggest in Africa — at R4,4 billion in 2016, with growth of 2,7% forecast over the next five years. More than a quarter of the country’s out-of-home revenue is now sourced via digital screens. UK research has shown that digital out-of-home reaches 92% of Londoners.

“There are exciting times ahead. On average, out-of-home super-users increase profits by 26%. Consumer trust is a key element, and  familiarity nurtures trust. A consumer passing your ad every time they go shopping will develop confidence in the brand. They see you are here for the long haul, and that you have confidence in your brand.”

Related: 8 Codes Of Success That Helped Priven Reddy of Kagiso Interactive Media Achieve A Networth Of Over R4 Billion

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Entrepreneur Profiles

The House That Moladi Built – How Challenging Traditional Building Empowers Local Entrepreneurs

Hennie Botes is a true entrepreneur — through a combination of passion and resilience, he has pressed on despite challenges, developing an unrelenting ability to sell his vision, and execute it. His goal has always been to use the technology he created — which challenges traditional building techniques — to empower other entrepreneurs.

Monique Verduyn

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hennie-botes

Vital Stats

  • Player: Hennie Botes
  • Company: Moladi
  • Est: 1986
  • Visit: moladi.co.za

South Africa has a housing backlog of between 2,5 million to three million and it’s continuing to grow. The country also has a persistently high number of unemployed people at 5,98 million, according to the latest numbers from Stats SA.

One entrepreneur who is committed to helping address both crises is Hennie Botes. A toolmaker by trade, the Port Elizabeth-based founder and designer of construction system Moladi developed this innovative building technology as a means to address many of the cumbersome and costly aspects of conventional construction methods, without compromising on the quality or integrity of the structure. The system replaces the bricklaying process with an approach similar to plastic injection moulding.

Founded back in 1986, when Hennie first realised how difficult it was for the poor to get good quality housing, his solution was the development of a whole new building system, which he named Moladi. The company has been in existence for more than three decades, and exports to 22 countries around the world.

“I built the first house based on the Moladi system in Benoni, in 1987,” Hennie says. “Substandard craftsmanship has resulted in South Africa’s poor living in inferior housing structures. I wanted to fix this problem, and I wanted to show people that the concept I had developed actually worked in real life.”

Like many truly innovative entrepreneurs, however, he discovered that a brilliant business idea is no guarantee of success. Converting an idea into a reality (regardless of the required investment of time and money) is never an easy task. In fact, it can be extremely difficult.

“I was naïve to think that a phenomenal breakthrough in the way we build houses would have people beating a path to my door, but academics and politicians speak different languages from entrepreneurs. I discovered that the saying, ‘Eat the elephant one bite at a time’ really does apply to entrepreneurship.”

Related: Construction Business Plan

Hennie learnt that you have to believe in yourself enough to handle the consequences of your decisions. “When you take on the responsibility of developing something that had not existed before, you become accountable. To turn that opportunity into a reality, you have to believe in yourself 100%. Great ideas fail because the unexpected challenges become more than you think you can handle, and the risk is that you lose the belief in yourself to see things through all the way to the end. In many ways, it’s like competing in a triathlon — you achieve one goal, and you have to move on straight to the next one.”

Hennie says his goal is not to enrich himself, but to use his technology to help empower other entrepreneurs. His methodology has been used to build thousands of houses all around the world — from Mexico to Sri Lanka. Today, Moladi exports to multiple countries, including Mexico, Trinidad and Tobago, Panama, Nigeria, Ghana, Tanzania, and Kenya. Moladi recently built a showhouse for a low-cost housing development in Trinidad and Tobago — the structure went up in 12 days. Another big win has been the construction of the 1 600m2 Kibaha District Courthouse in Tanzania. It was built in six months, at a cost of 4 250 per m2, which is less than half the cost of a conventional building. In Mauritius. the technology is being used to build 2 000 low-cost homes on 250 acres of coastline.

building-houses

“Despite the housing backlog in this country, what has sustained my business over 32 years is the work we have done beyond our borders,” he says. “But that is changing. Earlier this year we were contracted by the Western Cape Department of Education to build four classrooms in Philippi, as well as a double-storey building with eight classrooms in Robertson. We completed these projects in a record four months, at a third of the price. Usually, the construction of just one classroom can take between four to six months. This kind of government project is exactly the foot-in-the door that Moladi is after. The Western Cape has to build 20 schools a year to provide for its growing population.”

Moladi provides training in the construction of its houses and licences people who finish the course to build Moladi houses. Training is free, but trainees need to pay for the moulds and admixture. Licensees are supplied with viable business plans to help them secure loans for their start-ups. Hennie has a vested interest in the success of the licensees, since poor outcomes reflect badly on the business. He also prefers working with cooperatives rather than individuals, as it means that people will check up on each other. This is especially important when it comes to cash flow. Many new entrepreneurs fail, he says, because they splurge on cars and cell phones instead of the must-haves required to make a business grow.

Hennie has kept his team small. Low overhead costs have enabled Moladi to remain profitable in the low cost housing market. Companies with high overheads simply cannot compete in this small-margin, big-volume space.

“The real market requires a vast amount of homes below the R500 000 range, and that’s where our focus lies. Also, I did most of the work alone for many years after I started the company. These days my daughters, Shevaughn and Camalynne, are key to the successful running of Moladi and they fulfil vital roles. We outsource work to keep overheads down and have very good relationships with various suppliers, building experts, engineers, town planners, architects, and funding institutions. Our biggest differentiator is the pride we take in our ‘land to stand’ approach’ — we are a one-stop-shop for home building.”

Related: Engineering Consulting Business Plan Sample

His goal now is to find ways to work together with organisations like the National Development Plan (NDP) and the National Youth Development Agency (NYDA). Hennie refers to his customers as partners, which forms part of his holistic approach to construction. Typical clients include private construction firms and property developers. Governments can often play indirect roles, as they would usually contract state-funded housing programmes through the tender process.

“I believe we need entrepreneurship that looks beyond spaza shops, hairdressers and car washes,” he says. “There is an enormous and pressing need to provide dignified housing for South Africans, and to address our appalling unemployment levels. What better way to begin to do that than by using accredited, affordable technology that can achieve both goals at an accelerated rate? Moreover, to fulfil the supply chain, work would be provided for painters, plumbers, electricians and roofers.”

The Moladi building system uses a removable, reusable, recyclable and lightweight plastic formwork mould, which is filled with mortar to form the wall structure of a house in only one day.

Hennie describes it as the ‘Henry Ford’ of mass housing. “We produce components and products that reduce the cost of building, and we work on a production-line basis, from production to homeowner, bypassing the middleman in the supply chain.”

The process involves the assembly of a temporary plastic formwork mould, the size of the designed house, with all the electrical services plumbing and steel reinforcing located within the wall structure, which is then filled with a specially formulated mortar mix to form all the walls of the house simultaneously.

All the steel reinforcing, window and door block-outs, conduits, pipes and other fittings are positioned within the wall cavity to be cast in-place when filled with the Moladi mortar mix. The mix is a fast curing aerated mortar that flows easily, is waterproof and possesses good thermal and sound insulating properties.

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Entrepreneur Profiles

Swipe Successful – How Sureswipe Scaled To A R250 Million Turnover

Here’s how Sureswipe cornered a niche market with limited funding and continues to enjoy double-digit year-on-year growth.

Nadine Todd

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Vital Stats

  • Player: Paul Kent
  • Company: Sureswipe
  • What they do: Sureswipe is one of South Africa’s first card Payment Service Providers (PSPs), established to make card payment acceptance easy and accessible to all independent retailers and service providers.
  • Est: 2008
  • Turnover: R251 million
  • Visit: sureswipe.co.za

Four years ago, Paul Kent received a Request for Proposal (RFP) from a tier one retailer. He ran around the office high-fiving everyone. Sureswipe had made it. They were officially on the map.

Two days later, Paul and his COO, Richard Flack, turned the RFP down, choosing not to pitch for the business, even though it would have been a huge deal if they’d secured it. It took two brutal days to make the decision, but ultimately, Paul and Richard understood that sometimes you have to say no to business, particularly if it doesn’t align with your vision.

“I was so excited, but Richard immediately said, ‘let’s think carefully about this before making any decisions,’ and so we did. We went back to our vision to make card acceptance easy and accessible for all independent retailers. The more we thought about the RFP, the more we realised that we’re not geared to service tier one retailers. Our team has a deep connection with independents. That’s who we want to support and where our expertise lies. Our business model is geared to support that market sector. Extending our focus to tier one retailers would require a change in our business and a new division to service them. It wasn’t the right move for us.”

Paul learnt what many successful entrepreneurs before him have discovered: In business, what you say no to is as important as what you take on. The more focused you are and the better you understand your core customers, the more successfully you will service them. That’s the foundation of a sustainable, high-growth company.

It took Paul and his team five years to get 3 000 Sureswipe card payment machines into the market. They were growing rapidly by the time they received the RFP. Today they have 10 000 devices in the market, and expect to hit 30 000 within three years. The business has grown 30% in the last year alone.

Here are the lessons Paul has learnt since launching Sureswipe in 2008, from the leanest way to start (and run) a business, to minimising customer churn and maximising market loyalty.

1. Launch a solution, not just a company

sureswipe-machine

The idea for Sureswipe was born inside Healthbridge, a company that processed claims between doctors and medical insurers. It was the mid-2000s and medical aids were changing. Where previously doctors submitted directly to medical aids, co-payments and limited annual benefits compelled medical practices to start accepting cash and card payments.

Sureswipe was launched as a division that supplied card payment machines to support this shift. Paul, who was heading up the business development key account team at Healthbridge, realised that there was a much bigger market that needed a value-for-money, high service level card payment solution, and that was independent retailers.

“Growing up in the UK, I spent a lot of time in my grandfather’s fruit and florist store and in high school I worked weekends at a local clothing retailer. As a result I understood the challenges of retail, particularly the time-bound administrative burdens,” he says.

Paul researched the market and developed a value proposition based on two key factors. First, although paying for payments is a grudge purchase, particularly for small, independent retailers, cash-based businesses that adopt card payments typically experience a 50% increase in monthly turnover. Second, independent retailers with point of sale (POS) machines were paying a 5% transaction fee, while those that hadn’t adopted POS systems weren’t the core focus of banks. Paul found a frustrated customer base eager for an alternative service provider.

“Most retailers either thought that card payments were too expensive, or that they could only access POS machines through their banks. They’d often wait up to 30 days for a machine, and if it broke, it would be another week before a technician came to fix it. At that time, the large banks weren’t geared to service that market.”

With a clear value proposition in mind, Paul convinced Healthbridge to ring-fence Sureswipe and launch it as a separate business. In October 2008, Sureswipe opened its doors with Heathbridge as the majority shareholder. The business model had two core focuses: Converting cash-based businesses and switching independent retailers who already had POS systems but were dissatisfied with their current service providers.

“We were strategic in picking the right market, but luck also played a part,” says Paul. “When we entered this space, a similar company was launched to focus on tier one and two retailers. But, the banks were highly competitive in that market segment and new entrants found it difficult to compete. We targeted a market that was largely ignored and today, 70% of our business is from single-store owners.”

While they were fine-tuning their offering, Paul and his team found that their customers were so grateful for an alternative solution that they tended to forgive start-up wobbles as Sureswipe found its groove.

Related: If You Want Scale, Fail Fast And Learn Quickly

Stress-testing your business

In the early days, the Sureswipe team leveraged its relationship with Capitec Bank to secure meetings and make sales. “We’re not a bank, so we need a banking sponsor to help us meet regulations and operate within this market,” explains Paul. “When Capitec secured its licence to do merchant acquiring, they had no customers and were developing their product in-house. They were also looking for a distribution partner. We aligned Sureswipe with Capitec as our sponsor and provided them with a distribution partner and a solid footprint in the medical market — it was a perfect solution.”

When you’re dealing with people’s money, you need a strong level of trust, so the relationship with Capitec was essential while Sureswipe built its own brand. “It wasn’t always easy,” says Paul. “We had six people who went from retailer to retailer explaining who we were and what we did. At one restaurant, two off-duty cops heard one of our reps and decided it was a con. They arrested him and he called me from the back of the police van. I had to convince them that we were a legitimate business before they’d let him go.”

After five years, Sureswipe and Capitec found that they were competing with each other. When the contract came to an end, both parties decided not to renew it. But Sureswipe had 3 000 devices in the market, all of which were on Capitec’s technology platform. By not renewing the agreement with Capitec, Sureswipe needed to recontract all 3 000 of their customers. It was a massive project.

“It was also a huge lesson for us, and I’m glad it happened when we only had 3 000 machines in the market. We realised the risk in working with one bank, particularly because the technology that processed our customers’ payments wasn’t our own. We needed to licence our own technology and develop a dual sponsor system to mitigate this risk.”

The entire project took more than six months to complete. “People in the industry were sceptical — a project of this scope had never been done before,” says Paul. “We started with a small, ring-fenced team. By the end of the six months every employee was working on the migration of customers onto the new platform.”

The lesson: There will always be challenges, particularly during growth phases. Stress-test your business as much as possible. The earlier you spot a potential risk or problem, the sooner you can address it and implement a solution, even if it means adjusting your business model.

To stress-test your business, ask yourself these four questions regularly: What happens if everything goes right (ie, we grow too fast)? If I remove one piece that’s central to the functionality of my business (this is what Sureswipe faced), what happens? Is my business valued (ie, do you know if your buyers love you and why)? What’s the worst that could happen?

2.Variable cost models keep businesses lean

One of Sureswipe’s success factors is that its product isn’t cutting edge — what the business does is not unique, and the technology is available to be licensed. Nothing had to be built from scratch.

This allowed Paul and his team to launch the business with a variable cost model, outsourcing sales, the call centre and even their technology.

“The biggest outlay was the initial investment into the product, funded by Healthbridge, but within a year we were cashflow positive,” says Paul. “We’ve been funding ourselves organically ever since.”

At the time, launching the business wasn’t a big risk because it didn’t involve a huge upfront investment. Healthbridge was happy to see where it went. Paul and his team of eight kept costs down and slowly built up the business to the point where it became bigger than its initial shareholder.

“It was the ideal business model to start with. Don’t try to build the biggest — do the minimum required and don’t use a lot of capital. If you use a lot of capital upfront shareholders will put you under immense pressure. We were under no pressure. We weren’t drawing anything; we were just a little side thing that may or may not work.

“We were the first mover in this space in South Africa, but everything we do has been done somewhere else. The machines are sourced from a few companies in the world that manufacture them. The mPOS machine is licensed from a company in Iceland. Software is licensed. Everything Sureswipe needs exists — it’s just a case of sourcing it and building a solid service-delivery business around the tech.”

Without the burden of heavy research and development and other start-up costs, Sureswipe channels all internally-generated cash into finding ways to do things better and faster for their customers.

 “Today fintech is a buzzword. Disruption within the financial services sector is expected. Ten years ago, fintech wasn’t even a word. Everyone thought you could only deal with banks.

“What we had going for us when we launched was our card machines. People understood them so we didn’t need to educate our market on what we did. We just needed to make them aware that there was an alternative to banks, and because we focused on an untapped market, there weren’t really competitors in the space. We weren’t trying to bring in new technology like mobile payments. The market wasn’t ready for that in 2008.”

Sureswipe launched with traditional stand-alone card machines, followed by Integrated payments for larger retail franchise stores, mobile MOVE card readers for businesses on the go, and Sureswipe POS LITE, an app-based point-of-sale software for start-ups and smaller retailers.

“When it came to mPOS, we were happy to be followers. We had a product ready to launch, but we made the decision to wait for the banks to launch their offerings and educate the market first. We were then in a perfect position to be fast followers — without needing to educate the market ourselves.

“It was a strategic play and it worked for us. We’ve also had good growth in our MOVE product and we’re doing the same with QR code payments. There have been trailblazers in the market who have done phenomenally well, but they operate on separate platforms. We can now offer a QR code that accepts almost any QR Wallet.

“On the other hand, a peer-to-peer mobile wallet was developed within Healthbridge that never gained the traction needed for success. It was too early for the market and deep pockets were needed to fund the business. The business had a great team that worked on the project and Sureswipe benefited from accessing them.”

Today, Sureswipe has integrated many functions that were previously outsourced. “Our variable cost-model allowed us to enter the market without huge financial backing, but where it’s made financial sense, or it offers us a strong competitive advantage, we have brought services or products in-house.”

Related: How to Build a Lean and Efficient Business Plan

3. Understand — and leverage — your competitive advantage

sureswipe-product

Since entering the market ten years ago, transaction fees have more than halved. This is good for retailers, but it makes the space more competitive for service providers who must maintain quality products and service as profit margins narrow.

Sureswipe’s value proposition is captured in one sentence: They come for price, they stay for service. “Everything we do needs to adhere to that,” says Paul. “We need to bring technology to market at a lower price point than incumbents are offering, and then secure customer loyalty with our superior service offering.”

Within an increasingly competitive space, Sureswipe is not always the most cost-effective solution in the market, but a focus on service and convenience means that retailers are willing to pay a premium if the offering is good for their business.

“Our focus is value for money, not price. Retailers want to be able to accept any legal currency from their customers. As a service provider, we needed to figure out a way to do that in the most cost-effective way possible, without increasing our administrative burden as the business grew. With its low margins, this business only works at scale. If our internal costs escalate with each new user, that’s not a scalable business.”

So, what is Sureswipe’s competitive edge? “We’ve always understood retailers,” says Paul. “Their biggest burden is time — they never have enough of it. If you have an unreliable product, or an administrative burden, you’re essentially losing time and revenue.”

This was the business’s entry into the market, but growth has been the result of continuously fine-tuning Sureswipe’s offering based on its knowledge of customer needs. “The more time we spend understanding our target market, the more we’re able to recognise their pain points. Everything we do is focused on simplifying the lives of retailers and helping them to grow their businesses.”

In a highly competitive space, you need to create an edge for yourself. Some businesses create a moat around the business with tech, but often there is a competitor who can do things faster and cheaper.

Successful companies find a different competitive edge, one that focuses on delivering value to the customer beyond the product.

Sureswipe has a two-pronged approach. First, convenience and simplicity are a must — if Sureswipe isn’t making the lives of its clients easier (and more convenient for their customers in turn), then the business isn’t living up to its core values. The second is keeping costs as low as possible. Sureswipe needs to be able to offer its products and services to the market at highly competitive prices. This is only possible if the business has lean operations and is scalable.

So, how have Paul and his team managed to offer exceptional service while keeping costs low? “You need to sweat the details,” he says. “This landscape has become increasingly competitive. Banks have caught up to us. An independent retailer can pick up the phone and the bank will send someone the following day to chat to them.”

To counter competition, Sureswipe focuses on service and cost to serve. It’s one thing acquiring a customer, it’s another keeping them, and this has been where Sureswipe’s team focuses their passion and energy.

“We’ve found that complex structures hinder service levels and so we’ve kept our structure flat. Our internal culture is extremely important for customer service. Hiring the right people who are passionate about retail and business means we are able to service our clients better. We care about their businesses. 86% of calls get resolved by our call centres. If they can’t solve the problem, a technician is sent to the store to fix or swap a faulty machine.”

From a cost perspective, Sureswipe needs to continuously get to market cheaper than before, while simultaneously offering products that are better, more seamless and more integrated into the business.

“There is always an initial cost when introducing a new product, whether it’s a device or an app. However, each new offering increases our clients’ revenue, which in turn increases our revenue. Scale is critical — we’re in the red until we achieve scale.

“We’ve had to be ruthless about achieving great service levels at low costs. We don’t believe in either low cost or good service — we need to deliver both. If something is too expensive for us or our clients, we either don’t do it, or we find a more cost-effective way to bring it to market.”

Related: Why Start-ups Like Uber Stumble When They Scale

4. Ensure you have a ‘stickiness’ factor

One of the dangers of a highly competitive market is that it’s simple for customers to switch service providers if they are only looking at price. If a retailer only has a POS machine with Sureswipe for example, it can be swopped out for another device. With this in mind, Paul started looking at value-added services that increase brand loyalty and reduce churn.

“We call it preventable churn,” says Paul. “If business owners have a POS device and take just one more product from us, the stickiness factor is exponential. This can include a cash advance product, or creating a gift and loyalty programme through our platform, or both. As a business owner you can still switch to another service provider, but it’s more complicated and you’re receiving a bundle of services that all add value to your business.”

To achieve this, Sureswipe has partnered with Retail Capital to offer its customers cash advance products, while a loyalty programme allows consumers to swipe their loyalty cards and gift cards at all Sureswipe terminals, accumulating points.

“We’ve seen a small increase in revenue since we added these offerings, but more importantly, our customers’ revenues have increased. For example, if someone has a gift card, they will generally spend a bit extra in-store as well. Our merchant discount fee means we offer these products to our customers at a low cost, but our churn rate has lowered by 70%.”

Everything Sureswipe introduces to the market is based on a long-term view. “We offer a commoditised product and so our success relies on scale and volume. As long as you can do that at the right cost, with the right returns, you have a sustainable business. These extra products reduce churn, solve pain points for our customers and in the long term will increase our revenue.”

Paul’s long-term focus is consolidation. “We’ve been in this space for ten years, we have a great customer base, and we believe that we can consolidate our market. Our long-term view informs any decision we make about acquisitions or mergers.”

In 2016, Sureswipe acquired Concord, a company running software that integrated banks with retailers’ till systems.

The acquisition enabled Sureswipe to reduce costs by offering customers one point of contact for their POS system, tills and the processing between the two. “It removes complexities from the value chain, reduces costs and reduces retailer admin.”

With new generation mPOS offerings encroaching on Sureswipe’s standalone devices on the one side, and Integrated payments on the other, Sureswipe is effectively cannibalising its own market, but as Paul is quick to point out — that’s the idea.

5. Always look to the future

paul-kent-sureswipe

Sureswipe’s potential is huge. With 10 000 devices in the market, the business will facilitate R10 billion in transactions this year alone, which accounts for only 6% of its target sector, 2% overall, and 1% if you consider that the biggest competitor to electronic payments isn’t other service providers or banks, but cash.

“Markets change and adapt, particularly in this space where there has been incredible innovation and growth over the past few years. We know that in the long run, if we want to sustain growth, we will need to cannibalise the stand-alone devices, which we’re already doing. Ultimately though, what we really want to bring to market are products that can compete with cash.”

According to Paul, everything comes down to two things: Convenience and cost. mPOS is a lower cost option; contactless payments are all about convenience. Sureswipe needs both — and to keep looking ahead to see what’s next for their market.

“In the UK this year, for the first time, there were more electronic payments than cash, thanks to the convenience of contactless purchases for small ticket items. This is a big driver for us.”

To stay ahead of the game, Paul focuses on the business’s capabilities, and his own. “I need to pay attention to what’s happening internationally and how we can adapt our product offerings based on international innovations, but I also need to continuously focus on personal growth.

“One of my biggest fears is that the business will outgrow me. It’s a common founder’s fear, and for good reason. Many founders are great at launching businesses, but they don’t possess the skills the business needs to grow.”

To avoid this pitfall, Paul has consciously developed his business acumen over the past 15 years, beginning with Wits Business School’s Management Advancement Programme in 2003, and completing his MBA in 2015 through IE Business School in Madrid.

“I think it’s essential for all entrepreneurs and business owners to keep the pencil sharp and learn as much as possible. If I reached a stage where I didn’t think I was the right person for this position, I’d step back. We’ve built a team to complement each other; I’m not a details guy, but someone who is can fill that role. Part of my journey has been working my way out of a job by bringing in someone who can do what I’m doing, and often they do it better than me.

Related: How To Scale Your Business Effectively


LESSONS LEARNT

Become an expert in a niche

Our focus on the independent retailer space has given us a deep understanding of our customers and their needs. We’ve had international companies that are interested in acquiring us state that companies in other markets don’t have our level of understanding for each element of the business.

Look at problems with fresh eyes

We were naive about banking and financial businesses; we’re more retailers than bankers. This meant we didn’t have legacy systems when we launched, which allowed us to look at the independent retail sector without preconceived ideas and ask: What does this market need and how can we service it?

Always seek to remove pain points from your customers, no matter how small

In our sector, as businesses grow, their owners go back to the bank each year to renegotiate their fees. We removed this administrative burden by signing them up on a sliding scale, and as they grow, they automatically move into new segments and their fees drop — both new entrants and incumbent banks have copied this pricing model.

Understand where you’re innovating and why

We knew we didn’t need to innovate on the tech side. Everything we needed existed, and it was far more cost-effective to licence products than build from scratch. Instead, we innovated around our business model and service offering.

Everything starts with your people

Our employees are friendly and helpful, even though we now have a staff complement of 139 people. We foster a passion for learning, promote from within, where possible, and champion a can-do attitude. We’re a service-based organisation, which means everyone’s visions need to align with our service goal.

Pay attention locally and internationally

Read a lot, find out what’s trending, be well networked and have associations overseas. For example, Mastercard and Visa let us know what’s happening in other markets. We’re not at the forefront of technology, but we need to know what’s happening with technology to be able to follow it.

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