- Players: Trevor Bernberg, Bongani Chinkanda and Mike Silver
- Company: Elevator
- Established: 2017
- Combined turnover: R50 million
- About: Elevator was created earlier this year when Trevor Bernberg of Point Blank and Mike Silver of Stretch decided to merge their advertising agencies and create a R50 million below the line company called Elevator. The two founders are now joint CEOs, and Bongani Chinkanda has been appointed as business and strategy director to form a new leadership triumvirate.
- Visit: www.elevator.co.za
Having both been around for about eight years, agencies Stretch and Point Blank needed a change to take their businesses to the next level.
“We were out of the start-up phase and business was okay, but it felt as if we had hit a plateau. A big change was needed to take the business to the next level,” says Point Blank founder Trevor Bernberg.
When your competitor becomes your partner in growth
“Stretch had reached the same place. I knew Mike, and in many ways I had viewed Stretch as Point Blank’s biggest competition, but I also realised that the cultures and ethos of the companies were similar, so a team-up could be very successful.”
It was a realisation that Stretch founder Mike Silver had also come to, which was why he invited Trevor for dinner one evening in 2016. While discussions were furtive and purely exploratory at first, it quickly became clear that a merger was the right way to go.
Fast forward to 2017, and the companies have become a new entity called Elevator. Entrepreneur spoke to Trevor and Mike, as well as Elevator’s new business and strategy director Bongani Chinkanda about the lessons they learnt from this exciting but tumultuous process.
1Next-level growth often requires a new way of doing things
Trevor Bernberg: We enjoyed some terrific growth for the first five years, or so, but then things started to slow down. To keep that same level of success going, we had to grow the company, and that meant more investment.
There are a few ways in which you can bring more money and resources into the company. You can be acquired by a large corporate, or you can opt for a big buy-out. You can also perhaps find a new outside investor. But none of these appealed to me. Profit was too much of a focus.
I didn’t want someone else to take over and simply look at how profit can be maximised. I wanted to play a significant role in taking the business to the next level, and that’s why a merger was appealing.
By combining the forces of Stretch and Point Blank, we could both continue this journey in a meaningful way.
2You need a good fit
Mike Silver: There were a lot of similarities between Stretch and Point Blank from a culture perspective, which is why the merger worked so well. A merger is very difficult if the companies are fundamentally different. Two companies can’t become one if they operate completely differently.
Trevor: Mike and I also had the same aims with this merger, which is very important. If you don’t want the same things, merging is a bad idea. We settled on the name Elevator, for instance, because we wanted to elevate our clients, our employees and South African society in general. It wasn’t just about profit for us. If one of us had just been after profit, the merger would have been a disaster.
3Mergers are always (really) hard
Bongani Chinkanda: I always say that managing a merger is like building a car while you’re driving it. Even though you’re busy with this huge internal process, you still need to deliver the same level of service to clients.
In many ways, it’s business as usual. You can’t drop the ball. A merger will demand a lot of operational resources, and you can’t allow it to impact clients. Also, a merger will often require more work after it’s happened than before. It’s like an organ transplant. You don’t want the body to reject the organ after it’s been transplanted, and that requires work. A merger requires work daily.
Mike: Mergers are hard. Initially, things went so well during the planning phase, and the two companies were so similar in terms of culture that we thought the merger would be easy. It wasn’t. Things crop up, especially when it comes to systems and processes. Point Blank had more of a start-up culture, while Stretch was very systems-and-processes driven.
Both benefitted from the integration, but it wasn’t easy. There is what you think will happen during a merger, and then there’s what will actually happen. It is not a process that can be measured in weeks or months, but in years. Give yourself two to three years to get everything bedded down properly.
4Employees will have plenty of opinions
Bongani: As management, you might think that the benefits of a merger are obvious, but don’t assume that employees will see it that way. Change is hard, and people don’t always respond well to it.
Communication is incredibly important. Make sure that you explain the process to employees. There is no such thing as too much communication. You need to be patient and have an open-door policy.
5Get outside advice
Trevor: We were lucky enough to find an outside advisor who could help us navigate the process. If you’re going to enter into a merger, you need an external advisor. We all have blind spots — things we don’t even consider until it’s too late.
Someone who is neutral can help you look at the situation in a more objective manner. As the founder of one of the companies, you’re too close to the merger. You can’t see all the angles and focus on everything. In fact, you often won’t even know what the right questions are, never mind the right answers.
6It’s about synergy
Mike: The aim of any merger should be to create a company that can offer clients more than previously possible. It’s about synergy – leveraging the capabilities of the other company to create a more rounded offering. As Elevator, we can now offer clients more services than Stretch or Point Blank ever could. Our clients benefit more than anyone through this merger, which is what makes it a success.
7A name is important
Trevor: Name recognition and brand building is important, of course, but we ultimately decided that we needed to let go of Stretch and Point Blank. If we kept one of those names, the merger wouldn’t have felt equal. One of us would have felt as if we’d been absorbed into someone else’s company. It took a while, but we finally decided on Elevator as the name for the new company. It’s a name everyone can get behind and feel excited about.
(Slideshow) Top Advice From Local Entrepreneurs That Will Change Your Business In 2019
Here’s my collection of game-changing words of wisdom from top local entrepreneurs.
If I had to summarise my own learnings since starting CEOwise, it would be these ten points:
- I need to know the critical numbers in my business.
- The magic number is two co-founders. Teams build entities, individuals might start them, but teams build them.
- Don’t be scared of failure, that’s how we learn.
- It’s better to earn 10% of a bigger pie than 100% of a smaller one.
- Businesses in the service industry should create products out of their services, or sell value and not hours.
- Stick to your core competencies and outsource the rest.
- Make small incremental changes everyday.
- Your team is your biggest asset.
- It’s cheaper to retain clients than attain new ones.
- If you’re worrying about paying too much tax, you’re not earning enough.
After each interview, there is generally one main word of advice that sticks in my mind, and which I ponder on for days afterwards. The following advice from local entrepreneurs may stay with you too:
- Benji Coetzee, Empty Trips
- Allon Raiz, Raizcorp
- Joel Stransky, Pivotal Group
- Gideon Galloway, King Price Insurance
- Adriaan Rootman, Luxury Time
- Brian Mills, New Concept Projects
- Byron Clatterbuck, SEACOM
- John Sanei, Global speaker and trend specialist
- Ryan Kahan, CallCabinet
- Regine Le Roux, Reputation Matters
- Miles Kubheka, Vuyo’s brand
- Eben Uys, Mad Giant
- Mark van Diggelen, GameZBoost
- Erik Kruger, Mental Performance Lab
- Musa Kalenga, Public speaker
- Marnus Broodryk, SME Africa
- Rich Mulholland, Missing Link
- Mike Sharman, Retroviral
- Cairo Howarth, EFC Worldwide
- Dinesh Patel, OrderIn
- Andrew McLean, Cycle Lab
- Albé Geldenhuys, USN
- Ran Neu-Ner, The Creative Council
- Nic Haralambous, NicHarry
- Mark Sham, Suits & Sneakers
- William Wertheim Aymes, Artemis Brands
- Matt Brown, Matt Brown Media
- Pat Pillai, Lifeco Unltd
- Vuyo Tofile, EntBanc
- Ian Fuhr, Sorbet
- Colin Timmis, Xero
- Felix Martin-Aguilar, ReWare
- Fritz Pienaar, Advendurance
How Yoco Successfully Secured Capital And The Importance Of A Pitch
Yoco entered the market in 2015. In 2018, the founders raised R248 million in Series B Funding. Here’s how they’ve built a business that funders will back.
- Players: Bradley Wattrus (chief financial officer), Katlego Maphai (CEO), Carl Wazen (chief business officer) and Lungisa Matshoba (chief technology officer).
- Company: Yoco
- What they do: Yoco is an African technology company that builds tools and services to help small businesses get paid, run their businesses better and grow.
- Visit: www.yoco.com
From scrappy start-up to professional contender
Yoco launched in 2015 as a Silicon Valley-type fintech start-up (above). Today, the brand is an established business that wants to change the way SMEs are supported in the payment, funding and financial management space.
When Yoco went live with its card machines in 2015, it wasn’t just a late entry to market, it was a full nine months behind many other entries. The founders weren’t worried. They had a very specific business model and weren’t going to let a noisy market distract them from their vision.
In fact, instead of rushing, they spent the next year growing the business to 500 happy merchants. They were late to market, but getting the model right was more important than being fast.
Since late 2016, the team has closed Series A and Series B rounds of funding, totalling close to R300 million. Slow and steady has worked. That doesn’t mean raising capital was easy, just ultimately successful. Here’s how Yoco did it.
Starting with Angels
“In a strange way, we were lucky that we didn’t receive venture capital funds early on,” says Katlego Maphai, founder and CEO. “We had a funder pull out at the last minute, which was scary, but also a blessing in disguise. It meant we had only angel investors and family offices invested in the business, which gave us the capacity to think long term and not take shortcuts. We’ve since realised the importance of only taking on VC investment at the last possible moment. It’s imperative to have product/market fit before you chat to VCs, and we only really achieved that at the end of 2016.”
The team learnt this lesson in hindsight though, and like so many start-ups, did approach VCs too early. “We tried to raise VC in early 2015 when we started our beta programme,” recalls Katlego.
“In our minds, we’d been running the company for two years. We thought we had two years’ worth of traction. When we started talking to investors though, the conversations didn’t go as expected. As far as they were concerned, we’d only been operating for two months, and the valuation we were asking for just didn’t make sense.”
Two years later, Yoco was in a completely different position. “From the beginning, we recognised that although tech is important, our business model would differentiate us. We needed to be fast, cheap, use digital channels to onboard clients and aggregate our merchants so that our banking partner has only one point of contact — us. This was what we were quietly investing into, removing friction for merchants who were onboarding themselves onto our platform.
“This was our big focus — to make the entire process as simple, efficient and low cost as possible. Merchants need to be able to onboard themselves, with no hand-holding. The problem in this market has always been one of distribution. How do you get to market in the cheapest, most efficient way possible, when the traditional people-intensive distribution model doesn’t work because it’s just not economically viable? Once we achieved that, the ability to manage merchants at scale became a reality, and that’s when we were ready for VC funds.”
In reality, Yoco only achieved product market fit and growth at the end of 2016. “By then, we’d grown ten times our size over the space of 12 months to 5 000 merchants, we had traction, incredible unit economics, and we’d built up infrastructure that allowed us to be efficient. We could really concentrate on growth. In particular, we weren’t worried about anything breaking or the system toppling over.”
It’s an important point for any start-up to consider. Often, the unit economics of businesses experiencing growth are out of kilter, as the business’s efficiencies struggle with the increased pressures of growth. By the end of 2016, Yoco was growing while remaining efficient, which was a big advantage when they started approaching investors again.
Teams and ecosystems
In the two years preceding Yoco’s official launch, the founding team, Katlego Maphai, Carl Wazen, Bradley Wattrus and Lungisa Matshoba, didn’t just research the technology to make card payments possible for merchants in the informal, rural and SME sectors, but were working on a business model that could achieve their business vision at scale.
“We were a multi-disciplinary team that had come together wanting to make a real entrepreneurial play,” says Katlego, who brought the team together. Having grown up with Lungisa, Katlego met Carl while working for a telecoms advisory and investment firm in Dubai, and Bradley at an incubator for online businesses in Cape Town that hired ex-management consultants to assist start-ups.
By 2012, all four partners were living in Cape Town and had savings they could live off while they planned their entrepreneurial play. “We kept coming back to the payment space. I’d seen Square, a mobile point of sale system, in action in San Francisco in early 2011, and experienced a small restaurant business that would have been cash-based accepting cards. We knew how under-serviced SMEs were in South Africa, and that card payments presented opportunities to support them. We also knew we could build a suite of services to help our micro and SME clients run and grow their businesses once they were on our platform.”
The team didn’t focus on the tech — it existed elsewhere and could be outsourced. Instead, they focused on their business model. “We focused on why banks hadn’t traditionally serviced this sector,” explains Katlego. “Our business model needed to address those challenges and the pain points of our target market, and it needed to do so in a way that allowed the business to scale efficiently and cost-effectively.”
Yoco’s team came from the mobile space. “You walk into a mobile store, fill in forms, have a credit check, get approved, sign the agreement, receive your phone and sim card and walk out the store. You’re now a customer, and hopefully you grow in value and don’t leave the network. That’s what we wanted to do for the card payment space. We wanted to take a process that takes weeks and strip it down to minutes by applying mobile thinking and using ecommerce as a channel.”
Until that point, merchants would source card payment tech from providers, but sign the bank’s merchant agreement, and this was where many small and micro merchants struggled to access services: Banks were just not set up to validate small businesses. It wasn’t economically viable, mainly because it tended to be a high-touch process. It was also a lengthy process.
“We knew that for us to reach smaller businesses, we needed to be able to sign up, vet and onboard applicants digitally, limiting people in the process, as this adds time and costs. This was probably our single most important insight. Once we understood this, we knew we needed to aggregate merchants, so that the partner bank we signed with would treat us like a ‘super-merchant’ — they manage the risk with us, vet us, take us through a rigorous process, and then allow us to aggregate sub-merchants under our umbrella.”
There was just one catch — for any of this to work, Yoco needed a partner bank that would agree to them aggregating merchants. “We moved to Joburg, moved back in with our parents and spent a year lobbying our partner bank,” says Katlego.
Consider what that took — ex-management consultants who had been earning impressive salaries had to return to their childhood homes so that they could focus on building their business and securing the trust of a partner bank.
“Our backgrounds had taught us how to gather information, package it and present it in such a way that we could build credibility quickly and effectively,” says Katlego. “We also knew what we didn’t know, which in this case was the payments space.”
To fill that gap, the team built an advisory board and approached the ex-head of Visa Sub-Saharan Africa to join their board for an equity stake in the business. “LinkedIn gives anyone access to the experts in every field, and networking plays a part as well. We were asking the right questions, and ended up with a few introductions to the same person.
“From there, you just need a strong value proposition. This was a vital component for us. Not only did he coach and advise us on the payments space, but he had a strong network, and it helped convince the banks that if we could convince him that we knew what we were talking about, we were worth meeting. The same was true of funders. You need a strong team, and that includes domain expertise, which at the time we didn’t have.”
There was a challenge though: In order for Yoco to secure a licence from a partner bank, they needed to show they were capitalised, but to secure funding, they needed a licence from a partner bank, as this was core to their business model.
“It was a bit of a conundrum,” says Katlego. “We solved it by approaching investors and getting firm commitments based on the licence. With that, we could secure the agreement with our partner bank, which in turn enabled us to trigger the draw-downs with our investors.”
The entire process taught the team how to de-risk the business at every stage of the journey. “We learnt to always think in milestones, and each milestone increases the value of the business. For example, securing the licence was a stage of value. By the end of 2014 we had moved back to Cape Town and were certified by Visa and Mastercard. We launched our first early beta with 20 merchants. The next milestone was our first transaction.
Related: Is Venture Capital Right For You?
The fact that Yoco’s founding team had four members with varied and successful backgrounds dramatically increased the business’s chances of securing funding, but they still needed to learn some lessons.
“In mid-2016 we went on our Series A road show, and it was a choppy start. First, we realised that we were thinking globally, and those were the conversations we were having, which didn’t match up with the conversations local VCs were having with us. You need to all be on the same page, and we weren’t.”
Once the team realised this key point, they started looking at international investors, but things still weren’t going smoothly.
“We started recognising that part of the problem was the way we were approaching the whole funding process,” says Katlego. “We’d just had an investor meeting that didn’t go well, and we weren’t feeling good. We knew we needed funding — our runway was almost out and our current funding model wasn’t sustainable.
“Instead of focusing on investors, we looked at ourselves. What were our objectives? What were we looking for? We ended up with six key objectives.”
- Completing an investment round that gives us at least 12 to 18 months runway
- Working with an investment partner who has experience growing a fintech business
- Working with an investment partner that backs the team, and understands that one of our core strengths is our ability to operate autonomously
- Taking on investors who have respect for our existing stakeholders, who had walked a long path with us when very few believed in what we were doing
- Arriving at a fair deal, with terms negotiated in the right spirit
- Having the Yoco founder group, organisation, and stakeholders coming out feeling energised and ready for the next phase after the round. The wrong terms and conditions can have the opposite effect, crippling our sense of self-belief and achievements to date. Something not to be trivialised for an organisation that is looking to win.
It was a powerful exercise. From that moment onwards, the team walked into meetings knowing what they wanted, which in many ways levelled the playing field. “We had more confidence and we asked more questions, which lead to richer discussions with potential investors. We could also walk away if we saw a key objective wouldn’t be met, which saved everyone time.”
Through this process, Yoco secured Series A funding from Velocity Capital in the Netherlands and US-based Quona Capital for $3 million in new capital and a further $1 million in secondary buyouts, allowing some early angel investors to exit.
Since launch, Yoco was run based on formal governance and structures, which also played a big role in securing investment. “When a business is run pristinely and the due diligence is based on well-organised numbers and data, investors have comfort that their money will be managed properly. Our advice is to run your business clean from day zero. Keep good books and don’t put any other expenses through the business. We learnt this lesson from a real estate developer who told us to always be ready for the exit. She didn’t mean selling the business, but rather that if someone took a look, within moments you could produce whatever they want to see. I can’t stress enough how this has helped us.”
Understanding your pitch
Yoco raised $16 million in its Series B fund, which closed in 2018, and although it was the same process, the focus of the pitch was very different. “Series A is often about survival. Series B is about how big this thing can become.
“During our Series A roadshow, a big part of our pitch was proving that there’s a market for people who want to accept cards, and that there was a new way to reach this market that is not people intensive.
“In the Series B round, we could show that we’d been able to grow our base to three times its size with continued good economics and a healthy, good payback. We also showed that the market is ready to be taken with the right type of capital.
“The message was simple: We’ve figured it out and we think we can win with additional capital. There’s a huge opportunity to build an entire SME operating system, bringing payments, software and capital into one home that can essentially look after a small business and build an ecosystem around them. This in turn allows third parties access to our distribution network.
“There’s an overarching need that we’re plugging into. SMEs lack access to tools, capital and payment acceptance. It’s a big gap that we want to solve, and we’re open to partnering with anyone who wants to help solve it. It’s an open commerce ecosystem.
“Our next step of growth was to democratise access to software, because software is where the magic happens. Our app allows small businesses to manage their business finances through what is essentially a mini ERP for micro enterprises and SMEs. We are making a deep investment into building this out, because we believe it’s where the stickiness and value of our product lies.
“Customers came to us for a card reader, but they’ll stay for a much wider service offering, including access to capital and a platform that they can run their businesses from. Up until this point Yoco has signed up innovators and early adopters. Now we’re taking the brand to the mass market.”
Danie Venter Saw A Gap In The Informal Segment And Grew Within Just A Few Months
Stoffelberg Biltong is a FMCG start-up that attracted the interest of Secha Capital. Here’s why.
In 2014, Danie Venter lost his business. He owned a Spar supermarket, but the business wasn’t doing well, and he knew his only option was to sell it back to the franchisor. While his wife, Nikki, continued to run the store as the sale was finalised, Danie turned his attention to something else: Sourcing and selling fresh chickens to the informal segment in Mamelodi and surrounds.
“I needed to find a way to pay the bills, and I recognised how under-serviced the informal sector was,” he explains. “Only frozen chickens were available to a community that didn’t have microwaves to defrost them. I knew there would be a market for fresh chickens.”
Danie was right. Within a few months the business had grown so big he was supplying chickens to other retailers in the area, and he approached Oom Stoffel, the owner of JC’s Meat Traders, to expand his product offering.
Over the next 18 months a friendship developed, which led to inevitable discussions around an industry they both knew well, and eventually settled on the idea of packaged biltong.
“It’s a fragmented market and none of us could think of a single brand of packaged biltong that we loved. Instead, we had local butcheries or suppliers that we bought from. We recognised there was a gap for a quality packaged biltong brand, and started working on it.”
From planning and designing the product and packaging to market took three months. Before the business launched though, Danie’s life changed forever. He was declared legally blind as a result of a condition called Optic Neuritis, and approached his business partner to say he could no longer participate in the venture.
“Oom Stoffel refused to accept the fact that I couldn’t participate in the business. His area of expertise was the product — the abattoir and ingredients — but mine was the trading side of the business. Together we could really make this brand work, and he didn’t believe my eyesight (or lack thereof) would get in our way.”
Oom Stoffel was right. Danie’s wife reads him his emails at night, but most of his business is done the old-fashioned way — over the phone or in person. Despite challenges, Stoffelberg Biltong launched and soon started securing a footprint.
Leading a market
The business has a number of verticals and strategies to ensure cash flow and build cash reserves, but the primary vision and mission is a market-leading packaged biltong brand.
For example, Stoffelberg supplies other biltong outlets. While this may seem like Danie and Oom Stoffel are supplying their competitors, the reality is that in many respects, biltong is price sensitive and most retail stores will change suppliers from week to week. This results in a level of inconsistency when it comes to quality, the exact opposite of what Stoffelberg stands for through its branded products.
“We’re consistent, while most of our competitors are not. It’s a big, fragmented market. The current market leader only holds 6% of the market. We believe it’s important to build our brand, but we’re comfortable supplying others at the same time. It adds to our revenue stream, and more importantly, our positive cash flow.”
Going forward, the team at Stoffelberg also plans to open retail outlets and already has a kiosk. The company is also investing in continuous research and development.
“When everyone is offering the same products, you need to differentiate yourself. We want to think outside the normal verticals. When you own the entire value chain you can be innovative. If we want to try something, like chilli packets in biltong bags for example, we can do it and get immediate feedback. We’ve also launched a natural range with no preservatives or sugar for consumers with allergies, diabetes, or who just want a more natural product.”
Stoffelberg is a premium product, from its packaging to the product itself, but because of the vertical integration and the fact that the business holds the entire value chain, the brand remains competitively priced.
“Our goal is to reinvigorate a fragmented market,” says Danie. “That takes focus, brand building, a premium product and constant research and development.” It’s also taken an investment equity partner in the form of Secha Capital.
Within a year of launching, Danie received a call from Brendan Mullen from Secha Capital. “We weren’t too keen to discuss investments at that stage, primarily because we didn’t want to give away equity in the business,” says Danie. “We were supplying some Spar stores and we’d already begun chatting to Shoprite Checkers.
Brendan continued to reach out and we realised that if we wanted to grow the business, there could be value in accessing capital to fund the growth we were experiencing.”
The initial meeting with Brendan revealed that although both Oom Stoffel and Danie are subject matter experts, there was a clear marketing gap that Secha Capital could help fill. In addition, as an FMCG and Agri-focused funder, Brendan and his partner, Rushil Vallabh, came with a network and connections that would be beneficial to the business as well.
“We had one of three game-certified abattoirs in the country, and we were Halaal, HACCP and export certified, but we needed to invest in a drying room and other facilities necessary for large-scale biltong production. Once we understood our needs and the value Brendan and his team could bring to the business from a growth perspective, the deal made sense. Giving away equity if it results in growth is worth it. But you need to make sure you’re selling to the right partners who add value beyond a capital contribution. It’s not just about the money.”
“Look for opportunities in fragmented value chains, where there are no clear brands in that specific section of the market. Find that, and you can find a slice of that value.”
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