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Primi Piatti: How Francesco Zanasi & Peter Castle Built Their Restaurant Chain

Success in the food industry is not easily won but Francesco Zanasi and Peter Castle, co-founders of Primi Piatti, have cooked up a profitable recipe of passion and energy.

Juliet Pitman

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Francesco Zanasi & Peter Castle of Primi Piatti

Peter Castle was never looking to own a restaurant empire. But then neither was Francesco Zanasi. Which makes the story of how the two entrepreneurs got together to form Primi Piatti (today a 30 store empire) an interesting one. Castle, a quantity surveyor by training, came to the food industry quite by accident. “I was busy building a small retail centre in Tyger Valley and Spur Steak Ranches were going to put a Panarotti’s and a Hard Rock Café franchise in it. But when it came to it, things didn’t work out with the two prospective franchisees they’d been talking to. So there I was with a building that had been purpose-built for these two restaurants, and no tenants. I decided the only way to make sense of the development was to become a franchisee myself,” he relates. In his extremely limited spare time, Castle did the Spur training course during the evenings. “Here I was – 35 years old and this was not what I had planned to be doing. I was trying to run a full-time development business during the day and do this course at night, but I went through with it,” he says.

 

The restaurants opened their doors in 1990 but, as Castle relates, neither of them worked. “I always say I got together with Francesco because of my business failures – and those were two of them. But I guess I didn’t learn my lesson because I continued in the restaurant trade, opening a Spur in the Waterfront.” He secured a lease at the Waterfront extension and a franchise agreement with Spur for a Hard Rock Café. “And then one of the best deals of my life landed in my lap. The Americans who own the Hard Rock Café brand in the US wanted the Waterfront store and they paid me $2 million to hand back the franchise agreement and cede the lease to them,” he recalls. If Castle thought his restaurant fortunes had changed, he was about to be proved wrong. Cash-flush and with his Waterfront Spur doing well, he sunk his capital into a Waterfront version of London’s prestigious Sloane Street Joseph Ltd clothing store and affiliated Joe’s Café. “We took a bath!” he laughs, “Neither the clothing store nor the restaurant worked. My partners and I lost about R5,5 million in that store over three years.”

 

You’d think that by this stage, a man who’d never wanted to be in restaurants in the first place would have been put off them for life. But, asked why he didn’t throw in his apron, Castle is characteristically philosophical, “I knew the industry backwards by then – I certainly knew how to lose money in it! And remember that I came from the property development industry where no one ever wants to pay you and if the market turns bad, you just sit. The restaurant trade is a cash business where you don’t have to carry debtors. Even with failed restaurants, I was always attracted by the positive cash flow.” One day as Castle was pondering the sad state of his fortunes, the idea for Primi was born. “I was eating lunch in a place called Nino in Greenmarket Square. It was run by this maverick old Italian guy called Nino Zanasi and his two sons, Christian and Francesco and let me tell you, this place was the buzz.
It was an institution in Cape Town – if you wanted good food, that’s where you went. It was the kind of place where people didn’t mind queueing. The energy and the vibe were intoxicating – it was a unique dining experience,” he recalls. “At Primi we have a concept called Urban Energy and that describes exactly what these guys were about – from father and sons to the waiters, everyone was passionate about that restaurant.” Castle’s idea was for the Zanasis to help him create a new restaurant on the site of his failed Joe’s Café Waterfront shop. But the Zanasis had other ideas. “I approached Francesco and he just batted me for a six,” he laughs. “Old man Nino ran the floor with Francesco in the kitchen and Christian at the bar – they had a thriving family business over which they had total control. Why fix something that’s not broken, right? So they had no intention of helping me to open a restaurant,” he explains.

 

 

Castle was nothing if not persistent, however, and for a year tried to convince Francesco to join him. “During that year, they were approached by investors to open a Nino in Kuwait City which Francesco managed there for six months, and they took over a restaurant in Camp’s Bay.” With those forays into ‘expansion’ Francesco finally agreed to Castle’s offer. “I told them to come and look at the business and that I’d change anything they wanted and they could have 50% of the profits,” he says.

So Primi Piatti opened its doors in the Waterfront in August 1999 and made a fortune. “Joe’s Café never did more than R200 000 a month. In the first ten days that our new restaurant was open, we did R250 000, and R800 000 in the first month,” says Castle. The reason for the success? “The Zanasi family following. Simple,” he answers. “The buzz in Cape Town was that the Zanasis had opened in the Waterfront.” In fact, for the first six months, the public referred to Primi as Nino at the Waterfront. “It was a year before I heard the name Primi being used,” he says.

 

With the success of the Waterfront store, Castle set his sites on expansion. “I just knew we were onto something big.” But, as anyone who has tried to set up a restaurant franchise and failed will tell you, running a tightly-controlled family operation is very different from running an extended restaurant empire. The essence of the Zanasis’ success lay in their personal and passionate attention to service and the quality of the food, and Castle was warned by colleagues in the restaurant trade to leave well alone and not try to replicate the success of the Waterfront Primi store. “They said it couldn’t be done,” he says. And yet, that’s precisely what Castle and Zanasi have managed to achieve. How? Castle explains:  “I remember in the early days when we spoke about expanding, Nino always used to say to me: ‘Yes Peter, but what about the food?’ and it’s something I’ve never forgotten. Never forget the quality – the food has to be outstanding. That’s a given and it’s something we’ve never deviated from.”

 

But there was something else as well. “At the end of the day, you can probably make a Napolitano sauce as well as we can, so it can’t only be about the food. Back in the days of the Greenmarket Square store, the thing that the Zanasis had that attracted people was passion. Passion that led to a level of customer-centricity that had people lining up outside. And that’s what we needed to capture and keep,” he says. Today, if you walk into any Primi Piatti, one of the first things you’ll notice is the iconic orange overalls worn by the waiters with the words “Work is Love made Visible” emblazoned on the back. It’s a principle Castle says is absolutely central to the company’s success. But passion, unlike Napolitano sauce, is not easy to bottle. Castle and Zanasi know this better than anyone. “The biggest challenge, back then and still today, is the human one. To find passionate people, train them properly and keep them motivated,” says Castle. And motivation, he says, comes not purely from money, but from the ability to grow and develop. So Primi has focused on two things – stringent, comprehensive, fanatical training and developing people from the inside.

 

“In the early days we had a training barracks. Anyone who wanted to work at Primi Piatti, from a waiter or chef to a franchisee, had to go and live there while undergoing training. The only separation was between men and women so you literally lived with the people you were going to work with. It was like an army camp – in fact, that’s where the chevrons on the waiter’s overalls come from – it was like a ranking system,” Castle explains. The barracks itself may be a thing of the past but the training programme is no less rigorous; it takes between six to 12 months to train operators and staff before opening a new Primi store. “To operate and run a restaurant successfully you need to have empathy. And empathy only comes from knowing how to do everything that everyone else in the restaurant has to do. So our operators have to be the best at everything – the best waiter, the best griller, the best barman,” explains Castle.

 

Finding the right operators is an ongoing challenge, as Castle explains, “We need people who are aligned with our belief system but once a restaurant brand is perceived to be successful, you get inundated by people with money who want to invest in it. In this industry there is no easy way to make money – there are no short cuts. You can’t sit on the sidelines and expect to be successful. The operational intensity is very high and you can’t just have managers and investors – you have to have owner-operators.” Finding people with the right mix is a tough job, which is perhaps why Primi has focused so much on internal development. “We don’t actually care what skills or experience people have. What we’re looking for is passion – for people and food and the Primi way of doing things. You can train people to do tasks but you can’t train them to be passionate. So taking people from the inside who have the right attitude and giving them the potential to grow and develop and improve has really worked well for us. We have people here who started in the scullery and are now general managers of stores.”

 

But while he concedes that it’s not the easiest or fastest approach, it’s certainly the most effective. This is why development is so close to the heart of the company. “Sixty percent of our stores are operated by people from historically disadvantaged backgrounds – but this hasn’t really been by design. It’s because we’ve taken people from the inside and given them opportunities.” A search for new opportunities is what compelled the birth of Primi and it’s what continues to drive the growth of the brand. The company has diversified into hotels and currently owns and operates three. “Hotels are something I’ve been involved in over the years and it made sense to link the two in the way we have. We cross sell between the hotels and the restaurants,” says Castle.

 

Other exciting developments in the pipeline include the launch of Primi Caffé and Primi Espress, which will diversify the business into the European coffee bar and fast-food take-out markets. All existing Primi restaurants serve take-aways but the company wanted to have a specifically-focused outlet to avoid having to ‘serve two masters’ in the restaurant. Primi Espress stores will be suited to residential nodes, food courts, high streets and the like, with a lower capital outlay and a higher return on equity. “Everything we do is about redefining the restaurant experience and we want to continue to push boundaries.” The company recently won the international MAPIC Award for Retail Regeneration for its sustainability-driven store at the Lifestyle Garden Centre in Randburg as well as the Spectrum Award – Celebration of Retail Excellence from the South African Council of Shopping Centres. Castle concludes, “You need to continually be innovating and looking to the future. This means pulling through young blood in the company that will infuse new energy into the brand.”

 

Finding the right franchisees

Finding the right franchisees is a challenge with which Primi’s franchise director, Hitesh Patel, is intimately familiar. He explains: “Screening franchisees is probably the single most important thing to do at the outset. That rests with the directors of Primi. The prospective franchisee meets with Peter and me initially and then gets to meet with Francesco and Gavin Burnard, our operations directors. We make every effort to be upfront and realistic about owning a Primi. We do not create a false illusion. Key to franchising is what is known as the disclosure document, where you disclose every single piece of information that would be relevant to a prospective franchisee. We also insist that they spend time in the restaurant with Gavin or Francesco in order to experience it first hand. We do not make use of psychometric tests as we find that they are too subjective. If after all of this, the franchisee wants to proceed, we begin the training process and site selection suitable to the specific franchisee.”

There are a range of mistakes to avoid. Of these, he lists the following as the most common:

1. Insufficient support from the franchisor with regard to training, regular menu updates, area management support, brand awareness, point of sale database support, purchasing power and negotiating with suppliers

2. The concept that is being franchised has to have critical mass, be unique and identifiable and must have good food first and foremost, which often is not the case.

3. Many restaurants try to grow their brand by opening stores too quickly, without bedding down the foundation and getting it right first; 

4. The franchisor gets franchisees to sign rental deals that are onerous and unaffordable, placing undue pressure on the franchisee;

5. Businesses are over-capitalised, again placing undue pressure on the franchisee and ultimately the brand.

 

Adapting models for greater efficiency

Franchising and growth bring other challenges as well, as Primi’s franchise director Hitesh Patel explains: “A challenge that we continually face is the signing of good rental deals with landlords. Interest rates have risen, building costs are higher than ever before and land is at a premium, which ultimately results in excessive rentals being charged. This places a burden on the franchisee’s business, particularly at the outset when they are redeeming high debt. Coupled with this are the excessive labour costs associated with running a restaurant. In order to address these problems, we have opted for smaller premises, more efficient kitchens, multi skilled staff and an intensive training programme. It makes more sense to turn tables faster than to have half the restaurant empty for most of the day. We have also been successful in negotiating with the IDC and various banks good finance packages that ease the pressure on the franchisee at the outset.”

Juliet Pitman is a features writer at Entrepreneur Magazine.

Entrepreneur Profiles

How To Adapt And Thrive Like Arnoux Maré of Innovative Solutions Group

Arnoux Maré is a quintessential entrepreneur. Not only is he wildly competitive (if his business doesn’t triple its own annual projections and targets he’ll review the company top to bottom), but he’s also re-engineered the art of ‘adapt or die’ to, ‘adapt and thrive’.

Nadine Todd

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arnoux-mare

Vital Stats

  • Player: Arnoux Maré
  • Company: Innovative Solutions Group
  • Launched: 2011
  • Turnover: R780 million
  • Growth: From R32 million to R780 million in four years
  • Accolades:
    • Winner of Best Outsourcing Service Provider in Africa, Africa Leadership Awards 2017. Arnoux Maré: Winner of CEO of the Year, Africa Leadership Awards 2017
  • Visit: innovative-group.co.za

In 2011 Arnoux launched a labour consultancy with R500 that grew into a staff outsourcing company. By 2013, recognising the inherent issues in his industry, he completely reworked his business model to create a solution that employers, employees and trade unions alike could benefit from and support.

Not only did this move allow the business to survive — it’s thrived. Within one year he grew his turnover from R20 million to R32 million. Four years later and Innovative Solutions Group has hit the R780 million turnover mark. Here’s how he did it.

The start-up

Be brave, believe in your idea and sell your vision

Imagine waking up at 6am and spending the next 12 hours on the road between Pretoria, Johannesburg and Middelburg in Mpumalanga, knocking on doors and trying to sell your services. At 6pm you return home (aka your office), spend time with your infant daughter, and then sit down to study by 9pm. By 3am you’re able to crawl into bed, catch a quick three hours of sleep, and by 6am the alarm is going off and you’re up, out the house and doing it all over again.

Related: Managing Your Schedule Like A Boss: Tips The Experts Never Tell You

This was Arnoux Maré’s life for nine months. In 2011 he started his business with R500, which was all he had left of his salary after paying his bills. It was a big move. He was leaving the safety of corporate employment, but he knew he wanted more, and that the only way he would achieve his goals was to do it for himself.

“I had a list of SMEs I wanted to target. Corporates have HR and payroll divisions filled with human capital specialists. SMEs do not. After five years in corporate I’d seen the common HR problems we faced. I particularly believed SMEs needed this solution. Human capital is a specialist field, and yet any available manager tends to be assigned the role. This is such an important part of an SME’s business; I thought there was room for an expert.”

The reality was far more complicated. “Having a list wasn’t enough. Business doesn’t work like that. You need to prove yourself in the market before people will trust you. I had to go from company to company. I’d been a sales rep earlier in my career, and I was back to doing what I’d done then: I was knocking on doors, explaining what I did. I heard ‘no’ 15 times for every yes, but I didn’t let that deter me. I stayed focused. The most important step is to get started.

“You need to be brave. You have to find the courage to go out and sell yourself as the brand you’re planning to be, not what you are at the moment. You can’t be dishonest, but you do need to sell your vision. I had a plan and everything worked around that plan. It was painstakingly slow in the beginning, but I kept plugging away and knocking on doors until slowly I built up a client base.”

The benefits of client referals

Arnoux signed his first client, Yankee Diners for a retainer of R780 per month. For that princely sum, Arnoux gave his client the full benefit of a vast experience in labour relations that a full-time employee would provide at a cost-to-company of R50 000 to R60 000 per month.

The owner of Yankees had a friend who ran a butchery. His referral secured Arnoux his second client. He was essentially the in-house HR manager for two businesses while he focused on selling and completing his labour law studies at night.

“I was determined to become the expert in this field. South African labour law is complex, but if you’re prepared and understand procedures and legislation, you will always be on the right side of the Commission for Conciliation, Mediation and Arbitration (CCMA). This was the function I performed for my clients”.

Arnoux was soon consulting for clients and dealing with human resources cases that had been taken to the CCMA. After a year he was providing consulting services to companies in the areas of fair labour practices, labour legislation and industrial relations.

“I knew that to build a name for myself in this industry I needed to take a big risk. In the early days of a start-up you’re in make-or-break territory, so I went big and put everything on the line. I guaranteed clients that we would pay the settlements if we lost a case – provided we were involved in the process from start to finish.”

Going all in when you’re starting out

Arnoux admits that although he still takes risks today, he doesn’t bet the business on them — not with 7 500 full-time employees relying on his company. But those start-up days were different. He needed to go all in, and the result was that he never lost a case. He made sure he was prepared and up-to-date with all labour legislation.

“There are two things you need to prove in every labour dispute: Was the case procedurally correct and was the sanction substantively fair? If you can prove these two things, you’ll win. If you can’t, you either haven’t followed procedures correctly, or you’re in contravention of South Africa’s labour legislation.”

It was 2011. Labour broking and outsourcing were big business in Europe and the US, and Arnoux’s own experiences showed him the benefits of the industry. However, it was at this point that he realised he needed to go back to the drawing board. In no way should he be considered a labour broker or temporary employment service. In South Africa, labour brokers weren’t yet persona non grata, but the writing was on the wall.

Arnoux firmly believed in the concept that companies should not employ their own employees though. “It’s such a specialist field — managing a workforce involves recruitment, HR, processes, management and so on — these are all highly specialised, and yet managers who are specialists in other fields are tasked with them.”

Time to pivot

Arnoux had another problem as well. There was a loophole in labour legislation that all consultants at the time exploited. The law said that a company employee had to represent the company at a CCMA hearing, so that outside consultants couldn’t. The loophole? Accept temporary employment and handle the hearing anyway.

By 2012 this loophole was closing. Arnoux’s entire business model was built on the fact that he would personally be at each hearing, handling the full process. Add to this the fact that Namibia had outlawed labour brokers, even going so far as to jail some directors, and South Africa was heading in a similar direction, and he knew it was time to radically change his model. The question was, to what?

Ultimately, this question and the sheer volume of mediation and CCMA cases Arnoux was handling for clients would lead to the start-up’s first subsidiary, Innovative Staffing Solutions, in 2013. Assuming the responsibility and accountability for each clients’ labour needs, ISS was not a labour broker, however, it did grow from a labour law consultancy into a full-scale outsourcing company, boosting turnover growth thanks to the pivot.

innovative-solutions-group


Start-up Lessons

  • Offer advice and share your expertise freely. The more your clients are educated, the more empowered they will feel, and the more they will view you as a trusted advisor. I gave my clients material to help them develop the best labour policies and procedures. It didn’t make my service redundant — it built trust between us.
  • Don’t hold back when you’re a start-up. You’ll need to change this down the line, but in the early days, you’re building a brand and relationships. You need to give as much of yourself as possible to achieve this. Later you can find ways to build what you do into systems and processes others can follow.
  • Don’t be emotional about your business. Entrepreneurs tend to be very emotional, and this leads to subjective decisions that aren’t always best for the business. Treat employees well, understand their side, but make a business decision and move on. Always ask the question, is this the best decision for what the business needs? Remember, it’s also your duty to support the majority of your employees who rely on the business doing well. Sometimes that requires tough choices.
  • Never stop learning. This is important throughout your business journey, but particularly as a start-up. The more you’re able to build your expertise, the more gravitas you will have with clients and prospects.

Related: 20 Quotes On Coping With Change From Successful Entrepreneurs And Leaders

The pivot

Business is managing your risk – even if that means changing the business

Many large successful businesses have failed because they didn’t see the landscape changing. Technology, legislation and community pressures have all played hugely disruptive roles across various industries over the years, resulting in the now standard business phrase that businesses need to ‘adapt or die’.

Unlike many other businesses, Arnoux did just that. He took his business apart and re-engineered it before he became a casualty of the times.

“I pulled a big white board into my office and started mapping two things. First, how do we ensure that we are truly a staff outsourcing company, and second, what challenges were we facing as a business? Where did these intersect, and how could we develop solutions that addressed both areas?”

The exercise revealed a number of key points that would ultimately help Arnoux develop the business model Innovative Solutions Group has today. Within a year his turnover went from R20 million to R32 million based on the new model, and four years later this has grown exponentially to R780 million.

Re-evaluating your business

The lesson? Never take anything for granted. Arnoux was forced to evaluate his business and industry, which led to real solutions. Too often, businesses do what they’ve always done — or an industry has always done — simply because that’s the way it’s always been done. If you want to grow, you need to start challenging those assumptions.

In Arnoux’s case, the exercise revealed the following key points, some were strengths, and some were weaknesses:

  • CCMA commissioners were becoming stricter about consultants representing companies at the CCMA. The loophole his company relied upon was closing.
  • Arnoux was making large, sweeping promises to protect clients. As the business grew, the risk associated with these promises was no longer acceptable.
  • As an extremely competitive individual, Arnoux wanted to achieve higher growth than the company was currently delivering — he knew he’d need a different model if he wanted to exceed his current results.
  • On the positive side, labour legislation is an ever-growing field of inter-connected laws. Only an expert dedicated to staying up-to-date can understand them all.

Understand your business and your industry

Arnoux didn’t just analyse his own business — key to the exercise was understanding the difference between staff outsourcing and labour broking as a whole.

“I started by researching labour broking internationally. What were the roots of the bad sentiments around labour broking in South Africa, and why had Namibia criminalised an entire industry?

“I realised two main things: Locally, a labour broker is actually recognised as a temporary employment agency. This brings with it a host of problems. First, temporary employers can do what they want. Limited duration contracts don’t need to give you notice. There’s no protection for employees, and this was at the heart of the problem for trade unions.

“I then reviewed what we did — we focused on payroll outsourcing and admin, labour law, and contractor pack outsourcing, which included recruitment. These are specialised, intense functions. I looked at everything relevant to the function, including invoicing and a cost analysis for us and our clients. How could we get employees off the books of employers without the labour broker function, in such a way that employees are protected, companies are protected and we offer a sustainable solution to both parties?”

Ask around to find out all the answers

To answer these questions, Arnoux went out into the field. “I approached one of our engineering clients and played open cards. I knew I needed to understand the problem from all sides. I let him know this was an idea that was still in development phase, and then I asked him if he’d be willing to be our guinea pig. We called it ‘staff management’, and developed a system that ensured we were the employer of a pool of employees rather than our clients. This starts with who an individual takes instruction from, and who they believe they report to.

“In our test case, we took over the full employment of 63 employees. I personally negotiated with their union, so that everyone was on board. We were not temporary employers, but full-time employers — everyone had a permanent contract with all the benefits and legal protections that come with full-time employment.”

Take the time to get the strategy right the first time

This signalled the birth of Innovative Staffing Solutions, and within two months Arnoux’s client referred him to another business. Although the owner was sceptical, he agreed that Arnoux could take over the employment of 103 of his 160 employees.

The third company Innovative Staffing Solutions secured was in Middleburg, and had close to 300 employees in the hospitality and agricultural sectors. Today, Innovative Solutions Group employs 7 500 people based on this model.

“Every site we manage has a contract manager, and in-house IR and HR functions are their responsibility. They also have administrative support based on the size of the site. The contract manager is completely responsible for our employees on the site. The client goes to them. For example, if the client plans to plant 500Ha, they do the ops planning, but the manager gets the employees inducted, ready and briefed on the ops planning.”

Today, the holding company, Innovative Solutions Group, operates in transport, engineering, manufacturing, agriculture, hospitality, retail, admin and labour.

Related: Leadership: Total Commitment To The Purpose Of The Business

arnoux-mare-entrepreneur


Lessons in Pivoting

  • Is it riskier to stay the same or to change? All business is a risk, and we tend to resist change as a result. Often however, it’s even riskier to stay the same. Only 40% of our initial clients moved over to Innovative Staffing Solutions’ model, but the word-of-mouth referrals we received from that 40% based on the new offering skyrocketed our growth.
  • Market your offering in a way that customers understand what you do. It’s easy to come up with fancy terms and names. If your customers don’t understand exactly what you do though, it’s meaningless. We called our solution Staff Management because it let everyone know exactly what we did. We could have used a sexier name, and no-one would have understood what Innovative Staffing Solutions was.
  • Business is all about managing risk. I believe you need to take risks to grow, but you also need to mitigate them as much as possible. You can’t foresee all problems and plan for all eventualities, but you can evaluate all the risk factors within your operations. Based on this, develop a solution to nullify risk functions and implement methods to minimise risk as much as possible.
  • Focus on cash reserves. We’ve always banked a percentage of income to save up for retrenchments. This is a legislative requirement, and it’s essential for all businesses. You never know what’s headed your way, and how cash reserves will protect you.
  • Communication is key, but results are more important. I often hear business owners talking about how important it is to be transparent with clients. I agree. But I also think results are more important. If you make a promise, stick to it. Make it a non-negotiable, instead of thinking that as long as you’re transparent it will all be okay. Your promise influences the operations of your client. Rather plot and plan properly to ensure delivery, and then you won’t need to be transparent about problems.
  • Don’t sell services; sell a solution. When you sell a solution, you’re talking about your client’s needs, instead of what your business does.
  • Operations are the bedrock of any business. We are operationally strong. 60% of what I do today is operationally focused. We plan extensively, which means we are always prepared. I train the contract managers, and I wrote the procedures and training manuals they use.

Scale-up for growth

What do our clients need? What do we need? What do our employees need?

Shortly after the birth of Innovative Staffing Solutions, Arnoux recognised that if he wanted to aggressively scale the business, he would need to offer his clients solutions across the labour spectrum. He didn’t want to do this through Innovative Staffing Solutions alone, but rather through specialist divisions that could work together and share client bases.

“We needed strong foundations in place before we could aggressively start scaling the business, but by 2013 I was confident that we had the right systems in place and the company was running smoothly. It was time to spread our wings.”

At that stage, Innovative Staffing Solutions outsourced its accounting function to a small entrepreneurial accounting firm. “I already knew that I wanted to start a group of companies, of which Innovative Staffing Solutions would be one division. The vision was to offer all labour and human capital related solutions under a roof. However, I recognised that it’s easy to be seen as a jack of all trades and master of none, and wanted to avoid that perception.”

Employee experts to head each division

The solution was to ensure subject matter experts ran each division, and the best way to do that was to purchase existing companies and bring them into the fold, rather than starting from scratch. “In this case our accounting firm already had all the necessary registrations in place as well as an existing client base.”

The firm joined Innovative Staffing Solutions, and Arnoux created a holding company, Innovative Solutions Group, with two divisions: Innovative Staffing Solutions and Innovative Accounting Solutions. Both operated as independent companies with their own client bases, and as entities within a group. By bringing the accounting function in-house, Innovative Solutions Group was also saving on costs — a saving that would increase, thanks to economies of scale.

The next company to join the fold was a small BEE consultancy, and the subsidiary Innovative BEE Solutions was formed.

Ask the questions that keep your business growing

Today there are 17 subsidiaries in the group as a whole. Some offer services to a Innovative Solutions Group client base, others primarily service Innovative Solutions Group. For example, Innovative PPE Solutions was created because it made more financial sense for Innovative Solutions Group to source personal protective equipment for its 7 500 employees itself than to outsource this essential function to another company.

“Our focus has always been three-fold: What do our clients need? What do we need? What do our employees need? That’s how you grow; you need to keep asking these questions.”

Growth does not come without its challenges, and Arnoux’s acceptance of a certain level of risk to scale the company has led to some extremely challenging situations that Innovative Solutions Group has needed to weather. One of the first clients signed to ISS in 2012 ended up costing the business R3,6 million one year later. At the time, the loss was the equivalent of 10% of the business’s annual turnover.

“Our process was simple: We paid our payroll, invoiced clients, and they paid us. One year into the contract, and the client in question cancelled our service — without paying us the final month’s salary bill. We carried the entire R3,6 million payroll ourselves.”

The dangers of one big client

This hit the company hard, but it also raised a very real problem for Arnoux and his general manager, Liza Trollip. “We realised that 40% of our sales came from contracts and subcontracts of our biggest client who insisted everyone he worked with used us. On the one hand this was great and had fuelled our growth. On the other, it was dangerous. We had a lot of eggs in one basket and needed to diversify our client base.”

There was a more immediate problem at hand though: Innovative Staffing Solutions was faced with a cancelled contract, and the employees who were, for all intents and purposes, Innovative Staffing Solutions employees.

“We immediately looped in the trade union. Some staff members wanted to go back to the client. They saw their current jobs as safe. We were happy to agree to that without implementing restraints of trade. We promote job security, and you need to live by that, even if it means losing good employees — the ethos comes first.

Keep everyone in the loop

“We then let the union know that we had some positions we could redeploy people into at other sites, but we didn’t have positions for everyone. The union was clear that they had agreed to our business model in the first place because we promised job security. We knew we had to make this work. That trust is the foundation of our business. You don’t mess around with bargaining councils, and for us, that relationship is sacrosanct. We couldn’t break our word simply because we’d run into an obstacle, even if it was a big one.

“We ended up with 10% of the workforce whom we couldn’t immediately place, and we carried their salaries until we could. That’s 32 employees who we had on our books without positions.”

As it turned out, having 32 staff members who could start immediately worked in Innovative Staffing Solutions’ favour, and today the company always has a few extra people on its books.

Look for solutions to ensure growth

The lesson? If you’re serious about business growth, look for solutions, don’t dwell on the problems — and learn from every challenge you face, it might just provide an unexpected opportunity.

In the case of Innovative Staffing Solutions, this incident cemented trust between the company and the trade unions it works with. It also allowed Arnoux to approach his clients, explain their situation, play open cards that he would be having cash flow issues while the company recovered, but also showed the lengths the business would go to protect its employees and retain good relations with the trade unions. Word of mouth referrals were boosted as a result.

“We started receiving calls from companies we’d never heard of because of the efficiency and professional way we dealt with this. We got smacked to the tune of R4 million, and instead of liquidating, we kept employees on our books and labour relations good; everyone was happy.

“The result was that business owners knew we would protect them, and that we were fighters. We even had to say no to contracts because they were coming in faster than we could open offices around the country to support them. Everything happens for a reason, provided you know how to capitalise on the opportunity.”

Related: 8 Lessons Rugby Can Teach Us On Achieving Peak Performance In Business And Life

successful-entrepreneur


Scaling Lessons

  • When you’re challenged, don’t mope. Look to the future instead. It’s easy to get swept away by emotions and rush to solve problems. We took a completely different stance when we had to cover R3,6 million in lost revenue. We focused on the business problem first, instead of rushing to litigation with our ex-client. Focus on the problem, and most importantly, find a solution. If you can do that, you’ll always continue to grow and open new opportunities.
  • With big negatives come big lessons. When we get thrown in the deep end, we look for solutions. We always have, and it’s allowed us to expand beyond our operational depth.
  • Never give up. The uphill battle I faced during my start-up years taught me to never give up, which has been critical in building this business. We suffered three months of hardship, wondering if we were going to make it. But we had worked so hard to build this business, and wouldn’t quit. That tenacity saw us through.
  • What you put in is what you get out. As an employer, we’re strict, but we give back as well. If you’re willing to work hard, you’ll be rewarded. For example, we run a regional competition where the best drivers on our books win a Chevrolet Utility vehicle.

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Entrepreneur Profiles

4 Lessons From The Pivotal Group Founders On Growing And Disrupting All At Once

Here’s how they’ve built what they believe to be the foundations of a successful group of businesses in five years.

Nadine Todd

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paul-hutton-joel-stransky-and-bruce-arnold-of-pivotal-group

Vital stats

  • Company: Pivotal Group
  • Players: Paul Hutton, Joel Stransky and Bruce Arnold
  • What they do:  Pivotal pioneered voice biometrics in the financial and telecommunications market. Over time, the company has grown to include nine divisions across multiple sectors.
  • Launched: 2012
  • Visit: pivotalgroup.co.za

How do you build a disruptive business while also focusing on growth? Disruptive ideas are by definition new and unknown to the market. They defy traditional and established solutions and ways of doing business, and they require the market to be educated before you can really onboard clients or even sell your product or service.

The answer is to build parallel solutions: Business units that bring in revenue while the more disruptive ideas are being developed and introduced to the market. Here are the four top lessons the founders of the Pivotal Group have learnt while building their business and pursuing disruptive opportunities simultaneously.

1. Know who your competitors (and potential competitors) are

Great ideas that are economically viable and solve a need that consumers are willing to pay for are few and far between. Great ideas alone are a dime a dozen, but if you’ve spotted a need, chances are someone else has as well. You then need to step back and critically evaluate why someone else hasn’t done this before; if they have done it and they’ve failed; or if you’re entering shark-infested waters riddled with competitors.

Once you’ve determined there is a gap in the market, you need to evaluate who your potential competitors are, and the impact if they suddenly started offering a similar solution to the market.

For Paul Hutton, Bruce Arnold and Joel Stransky, the founders of OneVault, competition was always a factor, particularly as a start-up, and given that potential competitors included Bytes and Dimension Data, this was a very real factor to consider. After careful analysis, however, the founders decided to go for it. Their differentiator was their business model. They wouldn’t be selling OneVault as a software solution, but as a service.

Related: Which Of These 7 Personality Traits Do You Share With The World’s Richest People?

The idea had taken root while Paul was still CEO of TransUnion Credit Bureau. “I came across voice biometrics in Canada. There’s been a surge in identity fraud around the world, and I really understood the value of voice recognition as a verification tool,” he explains. “It can’t be faked, and it’s the only remote biometrics solution available, because you don’t physically need to be there to verify yourself.”

Paul had presented the idea to Transunion’s global board, and while they were intrigued, nothing came of it. “TransUnion’s model is to buy companies that are experts in their specific fields, not launch a new disruptive division from scratch.”

But this meant there was an opportunity for Paul to pursue the idea independently. Joel (former MD of Altech Netstar and CEO of Hertz SA) and Bruce (formerly Group CFO of TransUnion Africa and CFO at Unitrans Freight) were immediately interested in partnering with Paul. Both wanted to pursue entrepreneurship, although neither could do so immediately. The commitment was enough for Paul to get directly involved and start working on the business while he waited for his partners to join him.

In January 2011, Paul and Joel travelled to the UK and started investigating voice biometric solutions. “Voice biometrics was fairly new, but good technology was available, and there were global leaders in the sector,” says Joel.

It was important to choose the right product for the South African market, as this would form the basis of their offering. A contact at Dimension Data (one of whom became an investor in the business) offered this simple and straightforward advice:

When you’re choosing a technology partner, go with the company whose tech you’re confident in, and whose leadership is stable. You’re basing so much on this company and their longevity, so don’t disregard this criteria.

For Paul, Joel and Bruce, a US-based company, Nuance, ticked those boxes. But, from a competitive perspective, OneVault wasn’t the only potential player in the market. “Neither Bytes nor Dimension Data had gone into voice, but they had the potential to do so,” says Bruce. “The products were available to them through their partners.”

To mitigate this very clear risk, the founders made two critical decisions. “Our intention was to sell voice biometrics as a service, instead of a software solution that customers bought and owned, with the necessary infrastructure to go with it. The idea for OneVault was that there would be one place where your voice print lived, and different businesses could plug into our solution.”

The business model of large technology players in South Africa is to sell integrated software solutions, so OneVault’s business model was a differentiator. The next differentiator Paul, Bruce and Joel focused on was becoming specialists in their field.

“This is Paul’s baby,” says Bruce. “We’ve needed to build up a niche, expert team that specialises in voice biometrics. Because we aren’t generalists, 100% of our focus goes into this, instead of 5% or 10%.”

To attract the best in their fields, the founders needed a very appealing culture and a strong recruitment strategy. “We focused on what we wanted from our work environment, and then applied the same rules across the business,” says Joel. “Our goals were to drink good coffee, have no leave forms — ever; be able to take the time to ride our bikes and watch our kids play sports. If someone can’t make it work, or takes advantage without putting in the work, they come and go, but on the whole, we’ve had extremely low churn, and we’ve attracted — and kept — incredible talent.”

This differentiator would prove to be important for two reasons. First, two and a half years into the business, with investors on board and having pumped a significant amount of their own capital into the business, the team hit a major stumbling block. For a few weeks, they didn’t even know if they had a business.

“We had been operating on one major, and as it turned out, faulty, assumption,” says Paul. “We thought South African companies had the right telephony structure to implement our solution. We’d been building our solution on top of Nuance’s software, and were ready to start piloting the entire system with a few key customers, and we found out that in order to meet global voice biometric standards, the telephone technology had to be G711 compliant. South Africa was operating on G729.”

This was OneVault’s make or break moment. The team had six weeks to come up with a solution that ensured it met the necessary levels of accuracy. Without a highly skilled team this would have been impossible.

Even as a start-up, the strategy had been to only bring the best of the best on board. “We didn’t interview,” says Bruce. “We approached people whom we knew. We approached the best in the industry, and convinced them to take a chance with us. There was risk, but there were also rewards.” One of those people was Bradley Scott, a brilliant engineer whom both Paul and Bruce had worked with at Transunion.

Today, OneVault is one of the most specialist companies in the world, and often asked to speak at events in the US.

Being the niche specialists paid off, and OneVault achieved the almost impossible. But this had its downside.

Once you’ve shown something can be done, the bar of what’s impossible moves. Competitors enter your space.

This was the second reason why being such focused, niche experts paid off. “We demo’d the solution for a large local corporate, they loved it, and then went to a ‘then’ competitor  to implement it,” says Paul.

“We always knew this was a real danger. Players like Bytes and Dimension Data have solid, existing client relationships with the same companies we’re targeting.”

18 months later the project still wasn’t working. “This is deep specialist knowledge,” says Paul. “Knowledge we built while we created our offering.” OneVault won the contract, and developed a partnership with Bytes at the same time. Today, OneVault works with all the major software integrators in the market. “We’re a specialist service they can offer their clients, without needing to put the same time and energy we needed to put in to become the specialists.”

Through a focused strategy, OneVault has become a partner, rather than a competitor, of some of the largest players in the industry.

2. Understand the nature of disruption so that you can prepare for it

pivotal-group

In today’s ever-changing and fast-paced business world, most business experts are in agreement that as a company, you’re either the disruptor, or you’re being disrupted. The problem is that disruption comes with its own set of challenges.

“Our entire business model was built around a subscription service. Instead of a company buying a software solution, installing it and running it internally, we would do all of that. We would carry the infrastructure burden, and the high upfront cost,” says Joel.

In theory, this sounded like a clear win for businesses that would benefit from a voice biometrics solution. The reality is never so simple, particularly when you’re a disruptor.

“The software is expensive, and so we thought this would be seen as an excellent solution,” says Paul. “Instead, we faced a lot of reticence over the cloud. Businesses didn’t trust it yet.”

On top of that, first movers are often faced with a lag in corporate governance guidelines. As technology becomes more sophisticated, so governance guidelines change — but it’s a slow process, and the lag can impede disruptors.

“You also can’t give proper reference cases, because it’s all brand new to your market,” says Paul. “The best we had was a case study of how well it had worked in Turkey.”

To compound matters, proof of revenue is essential for businesses wanting to trade with large corporates, but non-existent in the start-up phase.

So, what’s the solution? According to Joel, Bruce and Paul, it’s all about being patient, never giving up, building gravitas and getting a few clients on board, even if it’s free of charge to build up your reputation and prove your concept. Finally, you need to bring in revenue from more traditional channels to support your disruptive products and solutions.

“Disruptive solutions are by their nature new and different, which means change management for your customers. This makes the sales cycle long and complex, and you have to be prepared for that,” says Bruce.

Don’t stop laying your groundwork. While disruptors are ahead of the curve, you need to be ready for the uptake when it arrives. “We’ve now concluded a partnership with South Africa Fraud Prevention Services,” says Paul. “When an imposter calls we won’t only  terminate the transaction but we will alert the identity being compromised in the attempt and we will actively prevent fraud by contacting Fraud Prevention. The ultimate vision is for every South African’s voice biometric signature to live in our vault, and we are already receiving imposter information.”

3. Cultivate additional revenue streams

So, what do you do while you are living through the extremely long sales turnaround time of your disruptive, game-changing solution? Bills still have to be paid and investment is needed to develop truly disruptive ideas.

First, the team realised that while an annuity subscription service was their ultimate goal and where the industry was heading, initially they needed to be able to sell and implement the software.

It’s worth noting that one of OneVault’s earliest customers who bought the software has since launched a new business, which is on OneVault’s annuity service model. The shift has just taken time. “The change is happening, but it’s been slower than we anticipated,” says Bruce. “We needed to accept that fact and sell the software to bring revenue into the business while we were waiting for the market to catch up.”

It’s an important lesson. You don’t want to get distracted from your vision, but you need to be bringing in revenue, even if that means your short-term strategy differs from your long-term goals.

“It took three years before we really started seeing a move towards hosted solutions,” he adds. “Outsourced and offsite solutions are opex environments, not capex. They are more cost-effective for customers, but they require a shift in thinking. It’s a move away from how things have always been done, and that takes time.”

But, while Paul, Bruce and Joel were learning the art of patience, they also needed to start bringing revenue into the business.

Related: 8 Inspirational Quotes From Movie Mogul Steven Spielberg

“It was clear that we needed to find other opportunities,” says Joel. The result is the Pivotal Group, a diversified holding company with different businesses that are interlinked and complementary.

The group’s first business outside of OneVault, Pivotal Data, was based on a large call centre contract Joel, Paul and Bruce secured. “You can’t be an expert in everything – when you specialise you will always be more successful. The trick is to partner with other experts,” says Joel. In this case, three entrepreneurs were opening a call centre — this was their area of expertise; they were absolute subject matter experts. What they weren’t experts in was technology or facilities management. Instead of doing it themselves, they were looking for partners.

“We manage everything aside from the people element,” explains Joel. “We found and leased a building, built the bespoke workspace, put in the technology, and managed the facility and IT on an opex basis back to them.”

The business immediately had a good anchor client, and Pivotal Data has built on that. The annuity income has supported further growth.

“This was a base for us, but we’ve acquired a few businesses on the back of this success, and created our own cloud contact centre solution — which also feeds into what we’re doing with OneVault,” says Bruce. “Our vision is to create a technology stack that’s world-class and provides a range of services that no other businesses provide as a single solution.”

Because of this pivot into call centre management, a new opportunity has presented itself, and Pivotal’s ambition has grown to include a solution that calls, authenticates, and then analyses all the data that is collected during those calls.

“Through partnerships, my team has developed a predictive analytics system that gives contact centres deep diagnostic tools. We can predict why agents are having the conversations they have, and what to tweak to improve them. We see the agent’s problem before they do. This isn’t just value add, it’s a revenue generating tool if it improves lead conversion rates and customer service. It’s also all geared to lowering call volumes.

“We know we need to keep looking forward. OneVault is starting to gain real traction, but we need to be working on the next disruptive solution and model. We can’t sit back and relax,” says Bruce.

“Three years ago we said that’s it; no more start-ups or investing in pre-adoption phase businesses. From now on, everything we do will be revenue generating,” says Paul. “We’d stretched three years of runway to five years in OneVault, and we didn’t want to keep doing that. We wanted instant revenue businesses. And the very next thing we did was invest in a start-up. It’s a crazy space, but it’s also very rewarding.”

To sustain it, the group continues to grow, focusing on investing in businesses and entrepreneurs who are subject matter experts and therefore already know and understand the market, and then positioning each new business or service to plug into the current offering.

“Data is our golden thread — technology and the disruptive space,” says Joel.

4. Be open to new ideas and opportunities

pivotal-group-south-africa-founders

Integral to the Pivotal Group’s positioning is Paul, Bruce and Joel’s focus on supporting other business owners whose offerings align with the group’s own growth goals, and who would benefit from joining a group.

“If your goal is to be disruptive, you need to be open to all kinds of new ideas,” says Joel. Some will be better than others, and the co-founders have made the decision to focus on the ‘jockey’ rather than the business as a result. Business offerings and ideas need to pivot. If you have the right partners, finding a solution is all part of the challenge.

Pivotal’s move into the world of artificial intelligence is due to one such partnership. “One of our clients approached us with a concept. But he needed a partner to develop it into a proper AI solution,” says Joel.

It’s an augmented intelligence solution that focuses on recruitment, talent management and career guidance. The solution screens, ranks and matches candidates against a job profile, or a number of profiles. It’s a multidisciplinary platform that predicts the performance of the individual in a role.

“Our partner is a former Accenture consultant and a leader in this field. His focus is on the IP and science of the product, ours is on the business component.”

The challenge is how to commercialise and scale the business in as short a time frame as possible. Like many disruptive products, the adoption process is a stumbling block. “We invest at the pre-adoptive curve — not at the revenue generating stage, which means a big focus is always on how we can take an idea and build it into a revenue generating business,” says Bruce.

The business uses capital selectively. “We want to invest in and drive our own agenda,” says Paul. “We’re in charge of our own destiny, but it’s not comfortable or simple. We came from corporate. Big machines that you need to direct and keep on course. This is an entirely different challenge and we are still learning.”

Related: Listen And Learn: Why Podcasts Aren’t Just For Start-up Founders


Listen to the podcast

Matt BrownMatt Brown interviews Paul, Joel and Bruce and discusses what it’s like to invest in pre-adoptive start-ups and staying ahead of the curve.

To listen to the podcast, go to mattbrownmedia.co.za/matt-brown-show or find the Matt Brown Show on iTunes or Stitcher.

The Matt Brown Show is a podcast with a listenership in over 100 countries and is designed to empower entrepreneurs around the world through information sharing.

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Entrepreneur Profiles

Afritorch Digital An Overnight Success That Was Years In The Making

By any standard, local start-up AfriTorch Digital has seen phenomenal growth and traction. But, while the company’s success might seem quick and effortless, there is a lot of hard work behind it.

GG van Rooyen

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michel-m-katuta-and-thabo-mphate-of-afritorch-digital

Vital stats

  • Players: Michel M. Katuta and Thabo Mphate
  • Company: Afritorch Digital
  • Established: 2017
  • Visit: afritorchdigital.com
  • About: Afritorch Digital assists research agencies in conducting market research through its in-depth knowledge of the African continent and its use of the latest digital technologies.

There is a saying that goes: It takes years to become an overnight success. While a company or individual might seem to enjoy sudden (and seemingly effortless) success, there is often more to the story. The results are usually public and well-publicised, but the years of hard work that came before go unnoticed.

Local start-up AfriTorch Digital is a great example of this. Since launching in May 2017, the business has seen excellent growth. “To be honest, we were very surprised by the level of success. Things progressed a lot quicker than we anticipated,” says co-founder Thabo Mphate.

 “All the goals we had hoped to reach in four or sixth months, we managed to hit in the first month. It was just amazing.”

Related: Edward Moshole Founder Of Chem-Fresh Started With R68 And Turned It Into A R25 Million Business

Preparing to launch

While AfriTorch Digital has certainly seen quick growth and success, it would be a mistake to assume that the same is true of the two founders. For them, the creation of AfriTorch was years in the making.

“The goal was always to start our own business,” says Thabo. “I think we’re both entrepreneurs at heart, and we saw an opportunity to create a unique kind of business that offered an innovative solution to clients, but we also realised the value of getting some experience first. Without the knowledge, experience, network and intimate understanding of the industry landscape, getting AfriTorch off the ground would have been incredibly difficult.”

Entrepreneurs tend to dislike working for other people. They want to forge their own path. However, as AfriTorch Digital’s case illustrates, spending time in the industry that you’d like to launch your business in is tremendously useful.

“Finding clients when we launched AfriTorch was relatively easy,” says company co-founder and CEO Michel Katuta. “One reason for this, I think, was that we were offering potential clients a great solution, but the other was that we had established a name for ourselves in the industry. People knew us. We had worked for respected companies, and we had done work for large clients. So, when we launched, we were able to provide a new start-up with credibility in the industry.”

The Lesson: Becoming an entrepreneur doesn’t always start with the launch of a company. Spending time in an established business, gaining experience and making contacts, can be invaluable. Very often, it’s the relationships you build during this time and the knowledge you accumulate that will help make your company a success.

Solving a problem

Everyone knows that launching a successful business means solving a burning problem, but what does that mean in practice? Aren’t all the burning problems already being addressed? And how do you attempt this without any money?

Thabo and Michel identified a small group of potential clients with a burning problem. Crucially, it was a problem that no one outside of the research field could have identified. Having spent years in the trenches, they saw a massive gap waiting to be filled.

Related: AutoTrader South Africa’s George Mienie Knows Disruptive Innovation Is More Than Shifting Gears

“A decade ago, researchers were still debating whether the future of the field was in the digital space. That debate is now over. Everyone agrees that online is the way to go. What once took months now takes days or hours, and the cost of research can be reduced by a factor of five,” says Michel.

“But researchers are not technology specialists. If made available, they are eager to adopt digital tools, but they aren’t eager to develop these tools themselves. That’s not their area of expertise.”

AfriTorch Digital stepped up to provide these tools. Katuta has a background in software engineering, so he could approach research problems with the eye of a tech specialist. Very soon, research agencies were lining up to make use of AfriTorch Digital’s services.

“We work with research agencies that conduct research on behalf of their clients. We provide the digital tools needed to conduct research online, and we provide the online communities. A big reason for our success is that we understand Africa. A lot of companies want to conduct research in Africa, but traditionally, this has been very hard. There was a lack of access and a lack of infrastructure that made research very hit-and-miss. Thanks to the continent’s adoption of mobile technology, it’s now much easier. If you have the technological know-how and an understanding of the environment, you can do amazing things,” says Michel.

The Lesson: Find a niche and own it. Research agencies might not have seemed like an obvious and lucrative market, but having spent time in the industry, the AfriTorch founders were able to identify clients who would be desperate for their offering. Spending time in an industry will help you see where the opportunities lie.


Take note

Before launching a business, get to know an industry from the inside out. This will give you an unparalleled view into gaps you can service.

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