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Vox Telecom: Douglas Reed

The inside story of how telecommunications entrepreneur, Douglas Reed, believes in generating wealth, not competing for it.

Monique Verduyn

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Douglas Reed

Economic pressures are set to accelerate convergence of telecoms and the Internet, affecting telecom services in unexpected ways in 2009, according to North American consultancy inCode. That’s good news for Vox Telecom CEO Douglas Reed, who has built a conglomerate that crossed the divide a while ago and is already maximising convergence. An entrepreneur at heart, Reed completed the first year of his BCom and followed this with a job on a North Sea oil rig. At the age of 22 he took over Sandton City Hardware, a career move that culminated with his appointment as MD of Mica Distributors. “I’ve always focused strongly on growth,” he says, referring to his early ability to grow retail stores by between 45% and 50% per year.

One of the first management lessons Reed learnt was that entrepreneurs have to be managed loosely but stringently. “That sounds like a contradiction, but the first MD I worked for was very clear on this. I had the freedom to run my store as I wished, but I was measured on four things – debtors’ days, creditors’ days, stock turnover and profit. Reed realised during these early days that leaders must have good benchmarks in place across all areas of management. “I was great at sales and merchandising, but not so good at accounts. Luckily, I learn very quickly, and my time with Mica Hardware also gave me a solid understanding of cash flow.” In his late 30s, Reed realised that he was wasting his time working for other people. He wanted to go into his own business, but could not afford to start at the bottom. He had also had enough of an industry that was confined to four walls. It was at that point that he got an offer from Control Instruments to head up its IT business DataPro, a company that had provided IT support for Reed’s stores. The incumbent MD knew Reed well and was moving into another area of the group. “I made the decision based on gut feel,” Reed says. “DataPro was a small company at the time, turning over R150 000 a month. I took a salary cut and bought 30% of the business.”
The move from hardware retail to IT was not too much of a leap. Reed had always had a keen interest in technology and had rolled out systems that were ahead of their time in the somewhat conservative hardware sector.

“My goal was to transform DataPro into a national Internet service provider. I took over a company that had no business plan in place. The first three years demanded 12-hour days, six days a week.” In 1998, DataPro launched Internet services aimed at small and medium businesses, and was the first company to offer cheap dial-up-based email. By the end of that year, monthly recurring revenue exceeded R183 000. DataPro had 257 business clients and 51 contract customers. In 2000, it was one of the first ISPs in the country to become cash positive. “This was a big thing for us,” says Reed. “Even when you have budgeted to lose money, it’s horrid.”

Control Instruments, an electronics company that dealt with aviation and vehicle tracking, decided it was time to sell DataPro. “We were not core to Control Instruments’ business, and it would have been pointless for us to remain within the group. This was Internet boom time and I wanted to grow the company.”

Reed approached three financiers. BoE Private Equity Investments took the bait and agreed to fund a management buy-out from Control Instruments. DataPro was sold at a premium: the company was worth R15 million at the time, but Reed and his team paid twice that, recognising the value of a customer base that no other ISP could match. The relationship between DataPro and BoE got off to a good start, with a five-year plan in place that would have seen the shareholders make R50 million, but then Nedbank took over BoE and, as Reed says, their objectives were no longer aligned. “The bank wanted to sell us to the highest bidder and we had no desire to be owned by anyone.” Fortunately, a R65 million offer from MWeb was turned down. But while the bankers focused on the numbers, Reed and his team were looking to the future and the relationship grew ever more tenuous. The company ended off 2001 with monthly revenue exceeding R890 000 and with first-tier ISP status. It seemed there was no stopping DataPro. A year later it was achieving organic sales growth of 218% and launched South Africa’s first SOHO leased line solution. It also switched its international links from satellite to fibre, boosting the speed of its services. Monthly revenue soon exceeded R3,8 million.
In 2003, the company launched a least cost routing (LCR) division, as well as a high speed Internet access solution for the hospitality industry, enabling in-room and wireless connectivity. This was also a year of rapid consolidation and rationalisation in the Internet industry, and DataPro emerged as a strong player with significant market share. In 2004, BoE and DataPro parted ways when the company reverse listed on the JSE’s AltX. Ask Reed what he learnt from the transaction and his answer is blunt. “If you ask for money from a bank, you’re screwed. But if there is no alternative, the best thing to do is hold onto as many shares as possible, and then double the size of the company so that your money doubles, work hard for five years and buy back your business.”

Shopping spree

In 2005, DataPro branded its voice division as Vox Telecom. A number of significant acquisitions followed: WickIT, a regional Durban-based ISP; @lantic, a consumer-focused ISP; Pretoria-based corporate ISP Netralink; Definity Telecom, South Africa’s fourth largest LCR provider; Orion Telecom, the biggest LCR provider in the country and consumer ISPs MJVNET, XsiNet and Shisas. “Every acquisition has been a learning experience,” says Reed. “These transactions have a major impact on both the company being bought and the buyer. Each time we conclude a deal, both sides stop in their tracks for a few months, which costs us a lot of money. It’s vital to plan everything in great detail beforehand so that you minimise downtime. Rather take longer to conclude the deal and have the ability to hit the ground running. When we bought Storm Telecom, we did not have enough time to plan properly and it took four months to get the business going.”

Reed believes in being ruthless. “If the company you take over is your core business, then people are not an issue and we take virtually none of them into the fold; however, if it’s not our core business, it’s vital to buy a company that is well run, which means we bring the people on board.” Having consolidated its position in the market, DataPro became the largest listed company on the AltX in 2007, with a market capitalisation of R2,3 billion. The DataPro Group changed its name to Vox Telecom that same year to re-position it as a full-service telecommunications provider.What kind of personality does it take to build a R2 billion business? Reed refuses to work with people who are not self-motivated and driven. “Experience and education come second for me, because managing someone has to be the biggest waste of time. I believe in strong controls, but few of them.”
This philosophy runs deep throughout the group, with all companies having their own teams and cultures. Some are conservative and process-driven, while others are far more relaxed in their approach. “I make snowballs, roll them down the hill with my team, and then others take over and run with them. Most companies in the group manage themselves, so I spend my time focusing on innovation and getting new ideas off the ground. We introduce a major innovation every eight months; it’s critical in our industry, but I believe it’s a strategy that should be applied everywhere.” Reed says he treats everyone in the business as a partner, and leaves the hiring and firing of people up to line managers so that each employee knows that they will be rewarded or punished by the person who employed them. He believes in continuous learning and reads a business book at least every two weeks. Among his favourite writers is John Kehoe, who appeals to Reed’s naturally optimistic and positive personality. He also enjoys stories about real entrepreneurs, rather than books written by “professional managers”.

Re-Writing the rules: The Vox Telepreneur Story

Reed is sanguine about the fact that all Vox Telecom’s products lose money for the first 12 to 18 months. “Six months before we listed, we went big on uncapped ADSL; we ran it at a loss, but today it accounts for 30% of our earnings. The reality of this business is that you launch innovative products that gain traction over time and then become hugely cash generative.”

That’s how Vox Telecom’s latest offering, Vox Telepreneur, came about. “I always had it at the back of my mind that telcos are particularly well suited to multi-level marketing – telecommunication is an annuity product and it’s basically a necessity,” says Reed.

Then he read Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. “I realised we were on a hiding to nothing by selling what everybody else is selling. The book got me thinking about how we could differentiate and grow our market share by selling something different to different people.

Because Vox Telecom cannot compete with the service provided by tiny IT companies, or with the products supplied by Telkom, Reed decided to create a market segment that no-one else is in: “I saw that the best way to grow the business is to bring in customers as part of the team and to harness small entrepreneurs. If we could bring them in, we would have an 18-month lead on other companies by the time they caught on. By the end of January 2009 it will be a year since we launched Vox Telepreneur, and it has been our most successful start-up ever, with the customer base growing by 20% a month.” The business model aims to empower entrepreneurs to endorse telecommunication products and services through their own social networks and, in return, have the opportunity to both save on their telephony costs and earn residual income. It’s new in the local market, but has proved to be successful in the US and Europe, with companies like Sprint and MCI (now part of Verizon) having used similar methodologies to achieve great success.
Leverage and community are the two key elements.
Leverage, says Reed, is a particularly powerful method of harnessing entrepreneurial energy to achieve rapid market penetration. By adopting a referral-marketing strategy, Vox Telepreneur is able to achieve lower overheads and do something that no telco has done before – reinvest in its customers. Up to 57% of gross profit is redistributed to the communities that generate it, and up to 43% is redistributed to product-focused resellers such as small IT outlets and PBX vendors. Vox Telepreneur aims to grow its community to more than 300 000 customers by 2010, which will make it the largest reseller of telco services in South Africa.
Vox Telepreneur’s community of customers and dealers are at the heart of the business model. “Telecommunications has entrenched itself in the daily lives of people,” says Reed. But telco costs, particularly in South Africa, are still high. Add to this the fact that debt is rising, disposable income is shrinking and convergence is gaining popularity, and it is clear that there is a consumer need for choice – a lower-cost, cutting-edge, converged, easy-to-use choice.” The growth of this new venture proves one of Reed’s business tenets: “To grow, any business has to improve a little every day. Many become stale after a few years, not noticing that the window display is dusty and faded. To avoid this, you have to constantly keep up to speed with what is happening in your market, understand the latest trends, and know what the theoretical driving forces of the business you are in. Remember that you don’t have to be original; use ideas that have worked in other countries and make them work here.”

Why the listing

Fearing that the company was going to be sold to the highest bidder, Reed and his team wanted to make sure that DataPro remained independent. The reverse listing sped up the move to autonomy.

Reverse listing defined

A reverse listing is a complex transaction that occurs when an unlisted company uses an already listed entity as a vehicle to bring its assets to market. Rather than starting from scratch, the unlisted company sells its assets into the existing listed company. You have to comply with all the same requirements as a totally new listing. The big benefits lie in timing and discussing and transacting with current owners. By using an existing listed entity you have the certainty that you are already listed and you start out with an existing shareholder base. Even with the need to meet the JSE’s requirements, the process does not take as long. The costs of the reverse listing route are similar to those involved in a new listing.

How DataPro did it

The company listed at a premium with Reed and his team buying back the business from BoE and listing it for double the amount the next day. “We were lucky because deregulation had been announced just three weeks before,” says Reed. “We only had to raise R36 million, but because it was a reverse listing, it was expensive and no cash went into the business. Had we not reverse listed, we could have pumped R30 million into the company.”

What was involved in the listing?

Aside from raising the cash, DataPro also had to prove that its expensive shares were priced correctly. The share price ran on sentiment and it ran high. “We had to rapidly grow the business into the rating it had received,” says Reed. “As a result, we had to do exceptionally well just to remain in the same position. That took an enormous amount of time and money. We made a few mistakes which cost us in the short-term, but we also did a lot of things right.”

The pros and cons of listing

“The biggest con is that listing makes the company very visible,” says Reed. “It also means that you are reliant on others, which is not great considering that the stock market is based on fear and greed.” Reed also points out that South Africans view a long-term investment as six months. “That means you have to grow the value of the shares like mad and build a telco at the same time,” he adds. “All the while you are told what your gross profit should be and what is wrong with your business model. Brokers use your price to earnings ration (stock price divided by per share earnings over the previous year), but you cannot be measured by PE only when you are building a business for the future.” On the positive side, Reed and his team would never have acquired the business back without the listing. “Being public property is unpleasant, but we had to do it.”

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+.

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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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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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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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Entrepreneur Profiles

Jason English On Growing Prommac’s Turnover Tenfold And Being Mindful Of The ‘Oros Effect’

Rapid growth and expansion can lead to a dilution of the foundational principles that defined your company in its early days. Jason English of Prommac discusses how you can retain your company’s culture and vision while growing quickly.

GG van Rooyen

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Vital stats

  • Player: Jason English
  • Position: CEO
  • Company: Prommac
  • Associations: Young President’s Organisation (YPO)
  • Turnover: R300 million (R1 billion as a group)
  • Visit: prommac.com
  • About: Prommac is a construction services business specialising in commissioning, plant maintenance, plant shutdowns and capital projects. Jason English purchased the majority of the company late in 2012, and currently acts as its CEO. Under his leadership, the company has grown from a small business to an international operation.

Since Jason English purchased Prommac in 2012, the company has experienced phenomenal growth. At the time he took over as owner and CEO, it was a small operation that boasted a turnover below R50 million.

Today, Prommac is part of a diversified group of companies under the CG Holdings umbrella and alone has grown it’s turnover nearly ten fold since Jason English took over. As a group, CG Holdings, of which Jason is a founder, is generating in excess of R1 billion. How has Prommac managed such phenomenal growth? According to Jason, it’s all about company culture… and about protecting your glass of Oros.

Jason English

Related: 5 Top Lessons From LAWTrust To Prepare For Super-Charged Growth

“As your business grows, it suffers from something that I call the Oros Effect. Think of your small start-up as an undiluted glass of Oros. When you’re leading a small company, it really is a product of you. You know everything about the business and you make every decision. The systems, the processes, the culture — these are all a product of your actions and beliefs. As you grow, though, things start to change. With every new person added to the mix, you dilute that glass of Oros.

“That’s not to say that your employees are doing anything wrong, or that they are actively trying to damage the business, but the culture — which was once so clear — becomes hazy. The company loses that singular vision. As the owner, you’re forced to share ‘your Oros’ with an increasing number of people, and by pouring more and more of it into other glasses, it loses the distinctive flavour it once had. By the time you’re at the head of a large international company, you can easily be left with a glass that contains more water than Oros.

“Protecting and nurturing a company’s culture isn’t easy, but it’s worth the effort. Prommac has enjoyed excellent growth, and I ascribe a lot of that success to our company culture. Whenever we’ve spent real time and money on replenishing the Oros, we’ve seen the benefits of it directly afterwards.

“There have been times when we have made the tough decision to slow growth and focus on getting the culture right. Growth is great, of course, but it’s hard to get the culture right when new people are joining the company all the time and you’re scaling aggressively. So, we’ve slowed down at times, but we’ve almost always seen immediate benefits in terms of growth afterwards. We focus heavily on training that deals with things like the systems, processes and culture of the company. We’ve also created a culture and environment that you won’t necessarily associate with engineering and heavy industries. In fact, it has more in common with a Silicon Valley company like Google than your traditional engineering firm.

“Acquisitions can be particularly tricky when it comes to culture and vision. As mentioned, CG Holdings has acquired several companies over the last few years, and when it comes to acquisition, managing the culture is far trickier than it is with normal hiring. When you hire a new employee, you can educate them in the ways and culture of the business. When you acquire an entire company, you import not only a large number of new people, but also an existing organisation with its own culture and vision. Because of this, we’ve created a centralised hub that manages all training and other company activities pertaining to culture. We don’t allow the various companies to do their own thing. That helps to manage the culture as the company grows and expands, since it ensures that everyone’s on the same page.

“Systems and processes need to make sense. One of the key reasons that drove us to create a central platform for training is the belief that systems and processes need to make sense to employees. Everyone should understand the benefits of using a system. If they don’t understand a system or process, they will revert to what they did in the past, especially when you’re talking about an acquired company. You should expect employees to make use of the proper systems and processes, but they need to be properly trained in them first. A lot of companies have great systems, but they aren’t very good at actually implementing them, and the primary reason for this is a lack of training.

“Operations — getting the work done — is seen as the priority, and training is only done if and when a bit of extra time is available. We fell into that trap a year ago. We had enjoyed a lot of growth and momentum, so we didn’t slow down. Eventually, we could see that this huge push, and the consequent lack of focus on the core values of the business, were affecting operations. So, we had to put the hammer down and refocus on systems, processes and culture. Today Prommac is back at the top of it’s game having been awarded the prestigious Service Provider of the year for 2017 by Sasol for both their Secunda and Sasolburg chemical complexes.

Related: Establishing The Wheels Of Change In Business

“If you want to know about the state of your company’s culture, go outside the business. We realised that we needed to ‘pour more Oros into the company’ by asking clients. We use customer surveys to track our own performance and to make sure that the company is in a healthy state. It’s a great way to monitor your organisation, and there are trigger questions that can be asked, which will give you immediate insight into the state of the culture.

prommac

“It’s important, of course, to ask your employees about the state of the business and its culture as well, but you should also ask your customers. Your clients will quickly pick up if something is wrong. The fact of the matter is, internal things like culture can have a dramatic effect on the level of service offered to customers. That’s why it’s so important to spend time on these internal things — they have a direct impact on every aspect of the business.

“Remember that clients understand the value of training. There is always a tension between training and operational requirements, but don’t assume that your clients will automatically be annoyed because you’re sending employees on training. Be open and honest, explain to a client that an employee who regularly services the company will be going on training. Ultimately, the client benefits if you spend time and money on an employee that they regularly deal with.

“For the most part, they will understand and respect your decision. At times, there will be push back, both from clients and from your own managers, but you need to be firm. In the long term, training is win-win for everyone involved. Also, you don’t want a client to become overly dependent on a single employee from your company. What if that employee quits? Training offers a good opportunity to swop out employees, and to ensure that you have a group of individuals who can be assigned to a specific client. We rotate our people to make sure that no single person becomes a knowledge expert on a client’s facility, so when we need to pull someone out of the system for training, it’s not the end of the world.

“Managers will often be your biggest challenge when it comes to training. Early on, we hired a lot of young people we could train from scratch. As we grew and needed more expertise, we started hiring senior employees with experience. When it came to things like systems, processes and culture, we actually had far more issues with some of the senior people.

“Someone with significant experience approaches things with preconceived notions and beliefs, so it can be more difficult to get buy-in from them. Don’t assume that training is only for entry-level employees. You need to focus on your senior people and make sure that they see the value of what you are doing. It doesn’t matter how much Oros you add to the mix if managers keep diluting it.”

Exponential growth

When Jason English purchased Prommac late in 2012, the company had a turnover of less than R50 million. This has grown nearly ten fold in just under five years. How? By focusing on people, culture and training.

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