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- Company: Masedi Electric-Serve
- Player: Seitebatso Rakgokong
- Established: Officially 2004
- Contact: email@example.com
What’s wrong with this picture: In 2010 a Rustenburg-based electrical installation and maintenance business turns over R3 million, in 2011 R4 million, and in 2012 R14 million. In the space of a year revenue has quadrupled. But then in 2013, revenue drops to R9 million. It must be a disaster, right? Well, no actually.
Here’s the twist in the story you’re probably not expecting. Dig below the surface and what you discover is that the business was actually three times more profitable at R9 million turnover than it was at R14 million.
Seitebatso Rakgokong is the entrepreneur behind the recalibration of Masedi Electric-Serve, and he tells us the lessons he’s learnt about hyper-growth.
Learning curve #1: Reining in the pitches
“In 2004 the bulk of our clients were government departments but we needed private clients to balance out the often late payments from public sector that impacted cash flow.
By focusing on high quality work, we started getting contracts from mines in Rustenburg, landed Royal Bafokeng Administration as an anchor tenant, and grew from there.
Foreseeing the impact of the 2008 recession and concerned for future business, Rakgokong started pitching to anyone and everyone.
“We aggressively submitted tenders. Typically a 30% or 40% conversion is doing well, so we used that conversion ratio for further bids.” It backfired.
“By the time 2012 started, we had 34 projects running at the same time with some being over 300km away. As a small business we were thrilled, but by the second quarter we felt the effects of such growth – cash flow and profitability were the biggest casualties. Ironically, the government’s continued spending during the recession helped the business a lot, but a late payment would put us into crisis mode.”
The lesson: “We had to make a tactical decision about how many contracts we could handle at a time and the size of those contracts. We had to put a cap on distance and refine who we pitched to – it wasn’t revenue at all costs anymore, but aligning clients to our strengths, whether they were good payers, and the potential to get long-term maintenance contracts with them. This means we turn away some business, but it’s for the good of the company.”
Learning curve #2: Bringing in systems to improve profits
“In the busyness of so many projects, we were losing track of profitability as we didn’t have specific financial monitoring to track individual project profitability, just gross and operating profit. Before hyper-growth, we enjoyed a healthy profit margin, but come 2012 that had dropped to 4% and some projects even incurred a loss.”
The lesson: “Keeping track of cost of sales is essential. We went from using spreadsheets to needing a more sophisticated financial management package to provide detail on project-specific costing. In construction, one project tends to subsidise another, but it seriously ate into our profitability. Individual monitoring helped stop that, but it also saw us implementing a project pricing review before starting each project. This was important because in the 90 day interim between a bid being accepted and a project starting, prices might have increased.”
There was another important find in project-specific financial monitoring: “We found supplier pricing wasn’t consistent simply through dealing with different people at the same supplier, so we implemented systems to streamline procurement. On the fleet management side, through fuel and maintenance expenses tracking, we started identifying instances of abuse. By the end of 2012 and into 2013 we really started seeing the results of optimising expenditure.”
The value of mentorship
Seitebatso Rakgokong entered into the 2012 class of Property Point, a Growthpoint enterprise development initiative. Through mentorship, workshops and being supplied with tools for success, he was able to guide his business back to profitability.
He even took his book-keeper along to some of the workshops for immediate system implementation.
“Entrepreneurship is a lonely road. The team at Property Point were very supportive and the overall experience was highly beneficial.” In fact, Masedi-Electric-Serve won first prize for the class of 2012.
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- Don’t take on clients simply because it’s work. Manage your capacity to avoid compromising your other projects.
- Refine your bidding process. Look at the quality of the client in terms of longevity, project size, and project requirements aligning with your strengths.
- Monitor project-specific costing. This will prevent too much subsidising that eats into profitability.
- Review your pricing when there’s a long interim period. Have prices between being awarded and commencing a project increased?
- Chase profit, not revenue. Rather go for a R10m project with R2m profit, than a R20m project for R1m profit.
#Wealthiest List: 8 Self-Made Millionaires On How They Built Their Wealth
These inspirational self-made millionaires built businesses with nothing less than hard work and sheer determination.
1. Nick D’Aloisio Wrote a Million Dollar App At Age 15
At the age of 15, Nick D’Aloisio wrote an app while sitting in his parent’s bedroom in the UK. At the age of 17, D’Aloisio sold his app Summly – a mobile news summarisation app to Yahoo for a staggering USD 30 million.
As one of the youngest millionaires, D’Aloisio is also the world’s youngest entrepreneur to be backed by venture capitalists – having secured seed funding from Sir Li Ka-Shing, Hong Kong’s billionaire, as well as raising USD 1.23 million from celebrity investors, including Yoko Ono and Ashton Kutcher.
“The number one thing I did that I think was wise was to get, through some of my advisers, was a Chairman; basically someone who was a very experienced business person, an industry veteran — Bart Swanson, who had been at Amazon and then Badoo. Then, myself and Bart really started finding people and growing the team.”
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1. Brendan Kennedy
- Company: Tilray
- Website: https://www.tilray.com/
Brendan Kennedy worked on job sites as a carpenter to pay his way through university, with his eyes set firmly on becoming an architect, until the allure of Silicon Valley changed the course of his direction. While working at technology start-ups Kennedy began thinking about the possibilities that medical marijuana provided.
“I was really sceptical of medical cannabis,” he says. “It took a year of having conversations with patients and physicians and hearing the same story, repackaged but essentially the same, over and over and over again, where my scepticism eroded and I became a believer.”
In 2013, Kennedy and his partners applied for a licence from Health Canada and launched Lafitte Ventures, which was later renamed Tilray. Today, the company is a global leader in medical cannabis research, cultivation, processing and distribution.
Scaleup Learnings From Our Top Clients – What The Most Successful Entrepreneurs Do Right
So, how do our successful clients move through these constraints to scaling up? We see four key drivers of success, and they are: people, strategy, flawless execution and finance.
You’re out of your start-up boots, staff is increasing, your client base is growing, revenue is up and you’ve proven your case to the market. Now it’s time to scale up. The challenges of this vital growth phase are different and it’s a time that demands different mindsets and different actions. In a world littered with small business failures, it helps to be well-prepared for scaling up using a proven methodology. At Outsourced CFO, we get an inside look at the success factors of our clients who are mastering the transition.
On the one hand, scaling up is a really exciting phase; this is what moves you into real job creation and making an impactful contribution to economic growth. On the other hand, it is really hard to scale up successfully. We see three major constraints that limit companies’ transition from start-up to scale-up:
The business has to have the leadership that can take it to the next level. When you start scaling up, especially rapidly, the founders can no longer do everything themselves. The team must grow and include new leadership talent that can take charge and execute so that the founders are working on the business instead of in the business.
The processes, procedures, networks, systems and workflows of the business all need to be scalable. This is imperative when it comes to your infrastructure for the financial management of your business. You’re only ready for growth when your infrastructure can seamlessly keep pace.
Scaling up demands more innovative marketing and storytelling so that you can more easily connect and engage with the new employees, clients, network partners, investors and mentors that need to come along with you on your scale-up journey.
Businesses that build a market conversation and a compelling brand narrative during their start-up phase are better positioned to have this kind of market access when they need to scale up.
It is critical to have the right people on your team. Our successful entrepreneurs have what it takes to attract, inspire and retain top talent. A strong team of smart, ambitious and purpose-driven people who love the company and want to see it succeed contribute greatly to a world class company culture. They are adept at communicating a compelling vision and establishing core values that people can take on. These entrepreneurs are tuned into the aspirations of their people and focus on developing leaders in their teams who can in turn develop more leaders.
It is planning that ensures that the right things are happening at the right times. At successful scale-ups strategies and action plans are devised to ensure that the most important thing always remains the most important thing.
Strategy includes input from all team members and setting of good priorities for the short, medium and long term. Goals are clear and everyone always knows what they are working towards. The needle is continuously moved because 90-day action plans are implemented each quarter to achieve targets and goals that are over and above people doing their daily jobs.
Top entrepreneurs are not just focused on what operations need to achieve, but how the business operates. They have the right procedures, processes and tools in place so that everyone can deliver along the line on the company’s brand promise. Frequent, quick successive meetings ensure the rapid flow of effective communication. Problems are solved without drama. There is no chaos in the office environment. Everyone is empowered to execute flawlessly to an array of consistently happy clients.
Everyone knows that growth burns cash. A rapidly scaling business faces the challenge of needing a scalable financial infrastructure to keep the company healthy. Our successful entrepreneurs pay close attention to finance as the heartbeat of the business, ensuring that everything else functions. They look at the tech they are using for financial management and for the ways that their financial systems can be automated so that they can be brought rapidly to scale. The capital to grow is another vital finance issue.
The best way to finance a business is through paying clients on the shortest possible cash flow cycle. However, when you are scaling up and making heavier investments in the resources you need for growth, it is likely that you will need a workable plan for raising capital. Our scale-up clients know the value of accessing innovative financial management that provides high level services to drive their business growth.
Navigating the scale-up journey of a growing private company is one of the hardest but most rewarding of careers to pursue. Having people in your corner who have been through this journey before helps take a lot of pain out of the process. No growth journey looks the same, but there are tried and tested methods that will – if applied diligently – lead to definite success. Happy scaling!
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