- Players: Gareth Leck and Pepe Marais
- Main shareholders: Pepe Marais, Gareth Leck, Laurent Marty and Xolisa Dyeshana
- Company: Joe Public United, an integrated brand and communications agency
- Launched: 1998
- Turnover: R700 million
- Gross Profit: R218 million
- Visit: joepublic.co.za
It was a July morning like any other. Little did Pepe Marais and Gareth Leck know they were about to get a call that would shake the company to its foundations, and result in 35 people being retrenched overnight.
In 2006, eight years after launching their business, and five years after selling it, Pepe and Gareth’s biggest client fired them. The account brought in 40% of their revenue, and the company needed to retrench 50% of its employees as a result.
It was the single worst day of Pepe and Gareth’s careers. They no longer owned Joe Public, but it was theirs in name and brand.
Three years later, the business almost went bankrupt — but it was theirs again. How were these two drastic events related, and why did losing their biggest client allow Gareth and Pepe to not only buy back their business, but find their purpose and change the course of the company as well?
The art of zigging when others zag
To understand how losing their biggest client could actually be the best thing that happened to Joe Public, we need to rewind to 2001, when three business partners at the cusp of their thirties decided to sell their start-up to a multinational.
Joe Public was launched in 1998 as a rebellious, young agency that wanted to do things differently from the rest of the advertising world. Pepe and Noel Cottrell were creatives, and Gareth was a young hotshot account manager. Together, they believed they covered all the angles to run a new, disruptive business.
“I’d had this idea for a business, which I wanted to call Fresh Advertising, after a night of red wine and brainstorming,” recalls Pepe. “My dad had a café, and I liked the idea of doing ‘fresh’ ideas and an office with a fridge door as the front door. Our third partner at the time, Noel, took the idea further, and we developed the concept into a café-style menu. We were the creatives, and we needed a business guy to make it work. Noel knew Gareth, and so we approached him to join us.”
Gareth loved the idea — he was in his mid-20s, and didn’t have anything to lose. There was another power at play as well. During their initial meeting, Gareth learnt Pepe was a boat man, and recounted a story of how he’d rescued a drowning paddleskier and placed him on a raft of piping until the NSRI could pick him up. A chill came over Pepe as he realised Gareth was talking about him. He’d been knocked unconscious paddleskiing during the first storm of the season in April 1995, and to that day hadn’t known how he’d come to be lying on the piping. They saw the business and the partnership as fate and dived in, head first.
The sleepless nights of starting a business
It was nothing like they’d imagined — particularly for Gareth. “It’s a massive jump from account management to running a business,” he says. “VAT, PAYE, salaries, traffic control, production. Suddenly these were all my problem. I was getting up at 3am so that I could get to the office and do cost estimates before going to see clients. I didn’t sleep for a year. When I did manage to get into bed, I woke up in the middle of the night wanting to throw up because we didn’t have cash in the bank and I had no idea how we were going to pay salaries.”
The partners had hit on something special though: They were selling Rare, Medium and Well-Done ideas, not time, and because they were delivering quality work ‘done well’, they were turning a decent profit. The first few months were extremely tight while they built up a client base, but by their second year they’d netted R1,5 million in profit.
“We were a small, dynamic team. We could take a concept to market within two weeks, so we were fast, and we were also very good. In 2000 we won five Loeries with a staff of five people,” says Pepe.
“We offered quality,” agrees Gareth. “We were quick and slick, and well-priced by the time you reached the end product. The menu concept also offered clients real transparency in an industry known for smoke and mirrors.”
The idea was based on the fact that as youngsters who hadn’t yet made a name for themselves, they needed to be disruptive and innovative out the gate, with a solid business model that would make great returns. “We wanted to zig while others zagged,” says Pepe.
When a buyer comes knocking
All that zigging and zagging had the desired effect, and business soon picked up, but it also had another, unintended consequence — a potential buyer came knocking. “We’d already realised there was a scalability issue with our business model,” says Gareth. “How could we replicate it without people as creative and driven as ourselves? You hit a ceiling when growth requires people of the same calibre as yourself. Anyone in our business will tell you that you can’t have a company full of creative directors. It doesn’t work.”
But there was a second option. A multi-national was offering to buy the business, and part of the deal was that they would roll out the menu option to their subsidiaries and offices around the world.
“Noel was spearheading the deal — he really wanted to move to the US, and the deal gave him the opportunity to join the international network’s New York office,” says Gareth. “From our side, the idea of spreading our model, having an international office, and of course making money from the business all sounded great.”
Why selling was the worst decision they ever made
In a nutshell, they were young, the offer was appealing — and it was the worst decision they ever made.
“We sold completely prematurely and got shafted,” says Pepe. “But more than that, we ended up in a corporate environment that was the exact opposite of everything we’d built our business on.”
The local multinational sold to a larger US-based holding company, and before they knew it, they were just another subsidiary of an international giant. Everything became about the bottom line, and Pepe and Gareth soon found they were compromising great work in the pursuit of greater margins.
And then the worst — and as it turned out, best — thing happened. Their single biggest client fired them.
A blessing in disguise
Pepe had made the decision to fire a senior executive. “We couldn’t work with him. He was toxic to our business. We fired him on good intention, with a full view of how his attitude was harming our business and staff morale,” he explains.
The problem was that the executive in question was very close to the company’s biggest client. So close in fact that once he was fired he was offered the position of marketing director at their company. His first order of business? To fire Joe Public.
“We were devastated. We hadn’t fully comprehended the danger that such a big client posed — and how drastically our business would be affected if we lost them,” says Gareth.
But there was another unexpected consequence of the loss — the value of the business depreciated. “We realised that for the first time in five years, we had an opportunity to buy our business back. We immediately started negotiating with the holding company. The problem was that they wanted an astronominical amount for the business, which was nowhere near what we’d been paid for it. We didn’t have that kind of money. We fought for three years, and eventually resigned. We just said to them, ‘Take it all. We don’t want this.’ That’s when they came back with a reasonable number that we could manage.”
Buying the business back
On the 26th of January 2009, the business partners bought their company back. The day is memorialised in their offices by a plaque that reads ‘Never, ever sell your soul, Joe Public Independence’.
On their way back to the office, they received a call: A media mistake had been made that would cost the company R800 000. Gareth and Pepe had put all of their eggs in one basket. They’d leveraged themselves to the hilt to be able to buy back their business. They’d also kept profits and cash flow low since 2006.
“We didn’t have R1 million in our bank account. We’d basically been breaking even for the last three years,” says Gareth. “Our revenue was R13 million, but that left very little positive cash flow after salaries and expenses were paid each month, and we had no cash reserves. It had been part of our strategy to keep our PE ratio low so that we would be able to buy back the business. We were doing well, winning Loeries and keeping momentum behind the brand, but we weren’t chasing profits. We’d never envisioned such a disaster was possible.”
Failure is not an option, even in the face of bankruptcy
By March, the business was on the brink of bankruptcy. To add to Joe Public’s precarious position, a client who had been spending R380 000 per month put a halt on all marketing spend — also overnight.
“I remember thinking to myself, if this all went pear-shaped, my family and I wouldn’t even have a roof over our heads,” says Gareth. Although more careful than Pepe by nature, the business partners realised they needed to find a solution. Failure was not an option. “We went out and got business,” says Pepe.
“We brought in six new accounts that year. One of those accounts was Anglo American. It was a small job that no one wanted because of its size. We went all out to get it. We understood the value that having a blue-chip client on our books would bring to the business. We also continued doing work for free for the client who had halted all spending. They were in the process of listing, and we believed they’d come back to us once they had, and we were right. We just needed to show them value and loyalty.”
Step by step, Pepe and Gareth brought their business back from the brink. From 2009 to 2010 the company’s revenue grew from R13 million to R20 million, and the partners started building a solid cash reserve. Today, their reserves can carry the business for six months.
Finding a purpose
In 2007, Pepe began a journey of self-discovery. His focus was not only on the business and its needs, but on himself as an entrepreneur and leader. Gareth began his own personal journey two years later.
“We haven’t only worked on the business but ourselves,” says Gareth. “All business owners need coaching, mentorship and counselling,” agrees Pepe. “We’ve both done a lot of personal work and we still do. We hit blocks and work through them. Personal development and self-reflection are incredibly important to the business’s overall success.”
Through this journey of self-reflection and development, Pepe and Gareth found their purpose, both for themselves and the business. By the time they were able to buy the company back in 2009, they had a clear vision of where they wanted the company to go, and how they wanted to change course, and it all started with not putting the bottom line first.
Creating a good formula
“When we started, our whole focus was on the quality of the product,” says Gareth. “We had a good business model and we were creative and driven. A good product led to a good brand, which resulted in revenue. It was a good formula.”
“The year we made our first million, we weren’t focused on the bottom line,” adds Pepe. “We were focused on delivering the best product and service possible, and the natural result was a big, fat bottom line.”
After they sold, the partners soon found themselves in a very different situation. “When you become too focused on the bottom line, you reach a point where you start compromising your product in order to save on costs,” explains Pepe.
“The problem is that you can’t put bottom line at the top. Revenue is a lag factor. If you become too focused on it, you lose sight of the rest of the business. You can’t measure the health of a business on the bottom line.”
Pepe and Gareth are the first to admit that they’d completely lost their way. Losing their biggest client, gaining the opportunity to buy their business back — only to almost lose it again — and finding a way to power through the setbacks gave them a chance to do things differently. They grabbed that chance with both hands.
Making mistakes to create a better business
“You need to make mistakes to get the lesson,” says Pepe. “We needed to re-forge the business based on the right culture.
“We needed to bring the power of purpose into the business. We feel it on a deep level, and it’s now the framework of everything we do. We exist to exponentially grow our clients, our people, and our country — in that order. If we focus on clients, we will grow our people, and we will have a good organisation that can positively impact and help the people of South Africa. We call it growth to the power of ‘n.’”
Revenue growth has naturally followed, but the deeper sense of purpose is helping Pepe and Gareth make a much more meaningful impact. Joe Public registered One School at a Time, a non-profit organisation in 2008. Through the organisation, they have taken their chosen school in Soweto from one of the poorest performing township schools in Gauteng to in the top three. They raise R1,2 million a year for the project, of which R250 000 comes directly from Joe Public.
This same drive and dedication is given to clients. “Purpose is just strategy. We do strategy for businesses,” says Pepe. In 2005, Laurent Marty and Xolisa Dyeshana joined the business as shareholders. Today, Xolisa is Joe Public’s chief creative officer and Laurent its chief strategist.
Pepe, who is technically a creative, now also does purpose workshops with the executive teams of their clients. “We bring a creative edge to board-level strategies. Our purpose is to help our clients grow, and that starts at the top. McKinsey has released a report stating that high calibre work in the marketing space will give you a seven times higher return than other work. In other words, high calibre creative counts, and should be part of your strategy. And nothing inspires better work than purpose. It’s our role to help our clients achieve just that.”
Over time, Joe Public has found its mission, which aligns with the business’s purpose. “We now need to develop the metrics that prove the purpose. Every business should be able to quantify the ROI it gives to its clients.”
The ability to course-correct
From 2009, Joe Public refocused on product over the bottom line. Meteoric growth followed. The problem with growth is that you need people to manage teams and business units — and those people were coming from traditional corporate environments, and they were bringing pre-conditioned ‘bottom line’ focus with them.
“Within three years we were back where we’d been, struggling with the wrong culture,” says Pepe. The trouble is that you don’t always spot a problem until it’s too late — particularly when your numbers are good. “The business results were excellent,” says Gareth. “We had found a way to win pitches, the company was growing, revenues and profits were great — but the culture was getting lost. We learnt that you can lose your way culturally and not financially.”
Except that culture feeds the bottom line. Lose it, and the business will eventually start to plummet. “We needed to radically adjust what we were doing,” says Pepe. “We hadn’t hit a problem yet, and our numbers were great, but we realised we were heading towards the top of our bell curve.
Changes for success, starting with culture
“We had already determined that the business must succeed if we want to do more — for our clients, our staff, and in education. Success is fundamental to achieving our purpose. If we didn’t want to go the way of so many companies that reach great heights, only to miss all the warning signs and plummet, we needed to make some serious changes, starting with culture.”
For Pepe and Gareth, a beautiful creative space filled with happy people is the foundation of a company that can do great things. “It’s all about triple profits,” explains Pepe. “Serve your clients and keep them happy, keep your staff happy, and your profits will be happy. A healthy business lets you do all these things. It’s the oxygen to deliver on all the rest. With strong revenue streams you can achieve so much more.”
There are industry jokes that Joe Public is like a cult. Pepe and Gareth are happy to agree. “We’ve built the ‘cult’ into culture,” says Pepe. To achieve a strong, client-focused culture, the partners needed to make some tough choices, and even exit some people who were not aligned to their purpose of serving clients through great work.
Remove toxic employees as fast as you can
“It’s never a nice part of business,” says Gareth. “We’re nice people, and in some cases we took far too long to act. We moved in on people in the organisation who weren’t a good cultural fit. It was damaging to our team and to them to remain here. A happy, healthy workplace is a team effort. You’re not doing anyone favours by keeping toxic individuals in your workspace. It’s been a tough lesson to learn, but we’re much faster to act when we realise we have the wrong people in the business now than we were before.”
Today, Pepe and Gareth follow a simple formula. “One of our clients once told us that all they wanted to do was serve the best possible product to customers, with the best service, at the right price to give value,” says Gareth. “It really resonated with us, reaffirming everything we believe as well. We all have a tendency to complicate business, when what we should be doing is serving our clients — and the best way to do that, is to do great work.”
Entrepreneur Erik Kruger On The Importance Of Clarity And Embracing Failure
Erik Kruger has walked his own personal development journey, and now he’s helping other entrepreneurs find their ‘best’.
- Player: Erik Kruger
- Company: Mental Performance Lab
- Visit: mentalperformancelab.com
- Join the daily email: erikkruger.com/daily
How does a physiotherapist who dreamed of touring the world with sports teams become a mental performance coach for high-impact entrepreneurs? Ask Erik Kruger and the term he’ll use is ‘accretion’, the process of growing and adding layers through experiences.
The point is key: No journey is ever a straight line from point A to point B. Most of us spend years figuring out what we want to do through a process of elimination. It’s by doing that we figure out what we like and don’t like; what ignites passion in us, and what we’re good at.
Erik’s journey began in physiotherapy. He graduated in 2007 and started his own private practice with a friend in 2009. He was quickly realising that his dream wasn’t aligning with reality though. “My goal was to be the physio who toured with the springboks. Instead, I was locuming at hospitals and travelling two hours a day to reach my private practice offices,” says Erik. “I couldn’t see my future in it.”
It’s an interesting lesson: Until you do something, you won’t always know if it aligns with your expectations and goals. But no experience is ever a waste. “Physiotherapy ended up allowing me to have a side hustle. I could pay the bills while I figured out my entrepreneurial journey, because I had no idea what I wanted to do when I started. I registered 45 domain names before I settled on Better Man, and Better Man led me to the Mental Performance Lab and my coaching business.”
Launches and lessons
While he was still in private practice, Erik met fellow entrepreneur and Shark Tank investor, Marnus Broodryk. “Marnus was still in his own start-up phase. We were at FTV and he was handing out business cards for his accounting business, The Beancounter, to everyone he met. I took one, but only ended up contacting him months later because I needed to set up a website, and I thought he’d be able to give me some guidance.”
The website was for the practice, and Marnus helped Erik via skype to set up his first WordPress site. In Erik’s own words, it was a terrible website, but the bug bit. From that moment onwards, Erik’s newfound love affair with the digital space began.
“I liked the idea that you could just create something and people would come,” he says. “I found out very quickly that’s not how it works at all, but by then I was playing around with as many website ideas as I could think of.”
Marnus and Erik played around with some ideas, and settled on directory sites. “The idea was that people would pay a monthly retainer to be on the website and that’s all you’d need to create annuity income. You also wouldn’t need advertising revenue, which requires ongoing sales.”
Because of his own area of expertise, Erik thought a directory for physiotherapists would work well — one of the regulating bodies disagreed. They viewed the monthly retainer as a kickback, which is illegal in the medical profession.
So, Erik moved on to his next idea. “I was doing everything over eLance and Odesk, from web development to graphic design. I started thinking that we needed a local freelance community that entrepreneurs could tap into. My brother agreed to invest in the idea and we hired developers from India to build the site. I directed them to a few sites I liked and briefed them on what we wanted.”
Six months and R70 000 later, Erik received a cease and desist call from one of the big players in the freelance space. “He was furious. It turned out that the developers we had hired had copied his website, section for section, header for header. I had been focused on client acquisition, not the development of the site — I hadn’t even checked what they were doing. I’d only focused on the feedback from beta testing. Faced with being sued for infringement, we took the site down immediately. I was trying different things and failing miserably, but I was also okay with that.”
Finding a niche
Erik didn’t let his failures deter him. “I was trying to figure out how to make money from digital assets. I registered 45 domain names, and for every one of them I built a WordPress site and developed a marketing strategy. I’d go to work, get home and just do digital for the rest of the day.”
To upskill himself, Erik also took courses on digital marketing, Facebook, Google marketing, WordPress and DNS set-ups. “I created a fitness website for brides-to-be, a mentor site for models and websites for girlfriends to help them run their businesses. Each website would be up and running for a few weeks, and then I’d lose interest, close it and move on.”
And this is where the foundation of Erik’s journey really begins. The fact that he hadn’t yet found what he was looking for was a lesson in itself. “Clarity is a process; I can see it with my clients all the time,” he says. “I didn’t know it then, but I can see it now. Clarity only really comes from wanting to find clarity, trying to find clarity. We often talk about evolution in entrepreneurial circles, but the reality is that evolution can only happen when something already exists, which means you have to be out there trying new things to find your purpose, or big idea.
“When I started coaching, what I was doing with my clients back then versus now is vastly different. No matter how much I read about coaching, thought about what coaching should be like, or listened to different coaches and how they do it, I would never have reached the point I’m at now, if I hadn’t been doing it myself. That’s how we learn and evolve.”
For Erik, the 45 websites he created led him to Better Man, and that’s where his journey started to pivot. “Better Man was the idea I stuck with. Up until that point, I’d been looking for things to do and ways to monetise them, but they were all external and not what really came naturally to me. There’s no such thing as a lightning bolt idea that hits you and that’s it. Amazing, masterful ideas are the result of trial and error.
“People think clarity is a switch, illuminating everything. But it’s actually like striking a match, and that match keeps burning, and you strike another and another and another, and slowly the room fills with light. Even then, you have clarity for a moment, and then the matches burn out, and you have to start again.”
In the case of Better Man, Erik was tired of trying to find something that would work, and instead decided to create something for himself. “I’ve always been into self-development and the idea evolved from there. I decided to create a website based on interviews I’d do with successful South Africans — I’d learn from them, and share the interviews online.”
Erik’s first interview was with Maps Maponyane, followed by Tim Noakes. The site wasn’t getting a lot of traction, but Erik was having fun. “It was the first thing I’d done where I didn’t have any real plans to monetise the site. I was just doing something I enjoyed and figuring it out.”
Erik did want to grow a community though, and so he concentrated on Facebook and email marketing to build up a Better Man database.
“I wanted to experiment with different mediums of communication,” he explains. “The two things that really moved the needle were the group, which was 18 000-strong, and the daily emails I started, which quickly reached 16 500 people.”
Through the community he had built up, Erik then found a way to monetise the business through events. “I was sharing content and ideas that struck a chord with me, which meant they were valuable to other people. That’s how I built up a community, and from there I could offer access to that community to brands.”
For 18 months, there were regular Better Man events, all sponsored by top lifestyle brands. The business was doing well, but through the platform and the community, Erik discovered a new direction: Coaching.
“Once I’d built up the community, I played around with a few different ideas, looking for ways to monetise the platform over and above events. We launched a fitness eBook, an apparel line and partnered with brands for events, but the one thing the community kept asking for was coaching. The events worked as marketing platforms — the next morning I’d sign up clients — and even though I hadn’t known that this was where Better Man would lead, I discovered it was a direction I wanted to explore.”
Up until that point, Erik had been trying a lot of different avenues to see what stuck. He also admits he had shiny object syndrome — even with Better Man. “I was too responsive to every question and query. You can’t just jump around and hope you’ll find success; you need focus and direction.”
Interestingly, even coaching didn’t offer that at first. Erik tried group coaching and Mastermind groups before realising he needed to really focus. It meant stopping the events and even pulling back from the community he’d built, although his daily emails continue, and all group members are the first to hear about workshops and seminars.
“Finding my path required me to sit down and take a long look at what was — and wasn’t — working for me personally. You can try and figure out what people want, and that’s important, but you also need to understand your personal drivers, or you’ll never stick with something long enough to make it a success.
“I was trying out mentor calls through the Better Man community, and I realised that they weren’t working for me. They felt superficial; like I wasn’t driving results. When I spoke to someone, I’d get off the call and I wouldn’t feel good. I’d feel like I’d just spent time telling someone what to do, but where were the results?”
Once Erik made the decision to be a coach though, his focus shifted to being the best coach in South Africa. It was that decision and direction that made all the difference. “I went out and bought every book I could find on coaching. Then I wrote all the models that spoke to me up on white boards and started creating my own coaching framework.”
From there, Erik, signed up for his Master’s Degree in Management, with a focus on business and executive coaching. By 2017 he was coaching full time.
“I had to build up my confidence, which is evident in my early pricing models, but my masters has been the biggest game-changer for me. It shifted a few fundamental things for me, from my coaching approach to developing better listening skills. Ultimately though, internal drive is the biggest differentiator. I want to be the best coach I can be, and that’s making all the difference.”
Because of that drive, Erik has also found his niche. “I want to have a big impact on the world, which means I need to help people who in turn impact the lives of others. CEOs and entrepreneurs are my focus area. My influence and impact are amplified when I’m coaching a CEO of 500 people.”
Since finding his niche, Erik has worked with a number of high-calibre clients, including some of South Africa’s top executives and entrepreneurs.
Action, not words
Better Man gave Erik the platform he needed to launch his coaching business. Although the journey has been organic, once he made the decision about what he wanted to focus on, each step forward has been far more intentional. “I believe in visualisation and intention. Intention is determining where you want to go and then breaking that down into goals. My intention is to become the most sought-after speaker and coach in South Africa. Everything I do works towards that goal.”
In line with this goal are Erik’s own experiences. “Everything we do and think is the culmination of our experiences. In my case, it’s personal experiences as well as what I learn from my clients. Coaching is a gift for me. I can spend time with the CEO of a multi-national and come up with solutions and insights that I can then share with the owner of a 30-man business. With an outsider’s perspective you can start seeing patterns. Coaching is practical, and it draws on the human experience, even in a business context.
“It’s easy to believe that you’re too busy for a morning routine for example. When I see someone who does have the time and still isn’t following a routine, I ask why. What is the deeper value or belief that they aren’t tapping into or living? What experiences of highly busy people who still find the time can I draw from and share? Every experience that is shared broadens our collective exposure.”
Personally, Erik follows many of these practices himself. “I learn about them and implement them. It makes me a better coach. We’re all human, but at the top of the business ladder, we need to perform optimally. There’s a metrics side to business, and a human side, and you can’t ignore either.
“Founding the Mental Performance Lab has been about developing a high-performance state of mind. It’s not just about smashing metrics, but functioning at an optimal level. You need to do the right thing at the right time, and to achieve that, mindfulness is key. You can function flat out, always racing ahead, stressed and busy, or you can function optimally. That’s my focus.” EM
Acta Non Verba: The Playbook For Creating, Achieving And Performing At Your Highest Level
Erik Kruger’s first book is a collection of 160 thoughtful reflections on what it takes to live a life of action and not words. Acta Non Verba’s purpose is to get people moving, creating, and generating an unstoppable drive in both their business and personal journeys.
This is not a book to read from cover to cover, in one sitting. Each day there is a new chapter waiting to be read. Put this book on your bedside table, and read a new chapter with your first cup of coffee every morning. Each message is short so you can read it quickly, in the moment, and then reflect and act on it for the entire day. It’s a book that demands action.
(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.”
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