Monday, September 15, 2014

MyStartUp in KZN This Week

Dear fellow entrepreneurs,

I hope all the KZN based go-getters are ready for a great week of inspiration, insight and brutal advice from the country's leading entrepreneurs and experts. 

If you haven't heard, the MyStartUp and IgniteSA team is hosting the Durban Business Fair Business Seminar taking place tomorrow, Tuesday, 16 September 2014 at the ICC from 07h30 to 16h30. Entrance is FREE, and you can email nonkululeko.mthembu@durban.gov.za to RSVP.




Then on Saturday, 20 September 2014 is the big one. #IAMANENTREPRENEUR comes back to Durban. We bring you construction entrepreneur, Dr Thandi Ndlovu, Founder and Chairman of Motheo Construction Group. 




Tickets are available at Computicket at R100 each. As usual a light breakfast with tea and coffee is included. Remember there are only 100 seats available so to avid disappointment, BOOK NOW if you want to hear from this trailblazer woman who has conquered the male dominated South African construction industry.

I hope to see all you Kwazulu-Natalians there!

Kind regards,
AK

Monday, May 19, 2014

Prepare For Losses

A good friend of mine, Malose Kekana sent me this today. It was a timely reminder to always focus your efforts to things you can make work, and learn to walk away from those you can no longer make work.

"A good portfolio manager knows which companies to keep and which ones to let go. Many a General Partner (GP)/ Fund Manager has struggled with portfolio companies that cannot meet their value-creation milestones, or raise additional follow-on rounds of capital, or generate target returns in a time span of, say, five to seven years. The faster you recognize those losses, the better it is.

In constructing the portfolio, GPs often fall in love with their own cooking and ignore obvious signs of a downward trajectory. A number of factors—ego, saving face, good capital following bad—can stall this process and become a sinkhole. As David Cowan says, “Just focus on your top five—the rest is distraction.” The harder part of the investor's discipline is to know when to quit.

A seasoned practitioner, Seth Rudnick of Canaan Partners, points out that risk is inherent in this business and calls for disciplined balance that any Limited Partner / Investor would expect. “Despite all the foresight and hindsight that you can muster, you can still go wrong. And that is the difficulty of being in this business. The environment can get you, markets can get you, technology can get you, regulatory agencies can get you. You have to constantly scan all of those things and be willing to adjust your own sense of what's a reasonable outcome and move the company into a position where it has the maximum chance to succeed. And that is a lot of work.

If you see a portfolio company consistently struggle and stumble, as a board member you may feel compelled to continue to work on that company. But as a venture investor you may ponder ‘I can't make this work anymore and should let it die. I should rather turn my efforts to something I can make work.’ And that's hard for practitioners. The intrinsic belief to throw a little more energy and a little more time into it may not necessarily save the company.”

Source: Insights from Leading Practitioners on the Art of Value Creation and Exit Strategies

Monday, January 6, 2014

Don’t Diversify, Intensify

This article first appeared in Finweek, 12 December 2013
 
Very often I meet entrepreneurs who, after achieving some success in their businesses, start to pursue opportunities outside of their core area of expertise. They proudly tell me they are “diversifying”. Unless you are in the business of managing stock portfolios, entrepreneurs ought to be very careful about ‘diversification’, particularly those in the early stages of their business journeys.
 
When you start managing multiple business interests in multiple industries you lose a key ingredient critical to success: FOCUS. You are suddenly expected to become knowledgeable about various industries with their own unique revenue and cost drivers, competitors, dependencies and peculiar risks. You are the most valuable asset in your business; you need to protect your utilisation.
 
Diversification can easily lead to taking your eye off the ball as you try to be a Jack of all trades and master of none, as they say. Others often get so excited by their new ventures and bored of their core business that they start falling in love with being called ‘serial entrepreneurs’.
 
Be careful that this excitement isn’t infatuation – otherwise known as umlilo wamaphepha in my home language. There was a time when conglomerates were fashionable, but even the largest conglomerates soon realised there was more value in perfecting one’s core business than holding equity interests in different sectors.
 
In January 1999, South African Breweries announced: “As part of SAB’s strategy to refocus on its core beverage businesses and hotel and gaming interests, the company has already disposed of a number of its diversified investments, namely Amalgamated Retail Limited, Associated Furniture Companies Limited, Conshu Holdings Limited, Da Gama Textile Company Limited, The Lion Match Company Limited, OK Bazaars (1929) Limited, and SAB’s clothing and footwear division. In order for SAB to further its strategy of focusing on its core operations, and for SAB shareholders to benefit directly from Edgars completing its own repositioning programme, the board of directors of SAB believe it to be in the best interest of SAB shareholders to undertake the unbundling.”
 
This was an announcement to dispose of SAB’s share in Edgars, after a series of other exits from ‘non-core’ businesses. The SABMiller that we know today is the world’s second-largest brewer, with operations spanning six continents including brewers in the US and China. This is after a number of hefty acquisitions in the past 15 years or so – all of which were in its core business of brewing and distributing beer. Other than a 40% share in Tsogo Sun, SABMiller has very little outside its core.
 
That’s partly why it is the best in the business. Bill Gates, Steve Jobs, Oprah Winfrey, Larry Page, Mark Zuckerberg, Aliko Dangote and Elon Musk are all internationally renowned for very specific products and services, in very specific markets and industries.
 
Even when they expand their operations, it is often within a very similar market segment, consumer market or product range. They don’t diversify, they intensify. Take Elon Musk, CEO of Tesla Motors, for instance. He has started PayPal (later sold to eBay), Tesla, SpaceX, and Hyperloop. His current businesses have a common thread: revolutionary transport solutions. Tesla Motors makes the coolest electric cars in the world, SpaceX flies cargo to NASA’s International Space Station some 400km above earth and wants to eventually transport humans from Earth to other planets, while the Hyperloop, though still an idea, is a mode of high-speed transportation that Musk believes could revolutionise travel as we know it.
 
Like many other successful entrepreneurs before him, what Musk has done is intensify, not diversify. He has taken his passion, added his very special skill, and applied it to a very specific industry and opened a new world of transport and travel. Take a leaf from the best. Explore strategies that extend your core business into new innovations, new markets, new products, brand extensions and all that helps intensify your business; and be sure to take this advice from arguably the most successful investor of our time, Warren Buffett: “Stay in your circle of competence.”

Make Entrepreneurship Central to National Policy

This article first appeared in Finweek, 14 November 2013.
 
South Africans often criticise their Government for formulating great policies but failing to adequately implement them. While there have been pockets of brilliance in policy formulation that have served the country well, allowing us to navigate the stormy seas of the global economy, there are also a fair number of policies that have had the unintended consequence of restricting progress. Twenty years into democracy, it is time we wake up from denial and shrug off our protectionist outlook and change what doesn’t work while improve what works.

For starters, we must make entrepreneurship central to national economic policy formulation. I am talking about entrepreneurship, and not SMME development. I am talking about a deliberate national economic policy that seeks to back entrepreneurs and innovators on a serious scale, to create new products and services, access new markets, spawn new industries and, over time, create meaningful employment and grow the tax base.

I am not referring to a drive to support small businesses that remain small and only employ the founder and a handful of unskilled labour. I am talking about the state having a mechanism to identify, develop and fund entrepreneurs and innovators who show great potential for the ultimate benefit of South Africa. I am talking about a mechanism that could have identified an Elon Musk. I am talking about a mechanism that should be developing, supporting and funding a Siyabulela Xuza – the former praise singer turned science and technology entrepreneur.

The good news is that we’ve done this before. It wasn’t as structured as I propose, but it yielded unprecedented results – the benefits of which we still enjoy today. I have told the story of this gentleman before. It is very relevant in the context of how a different outlook can lead to great benefits for the state.

Meet Hendrik van der Bijl. Born in 1887, he graduated from what is today known as Stellenbosch University with distinctions in mathematics and chemistry. After university young Van der Bijl decided to further his studies in Germany. After completing his studies, he met Robert Millikan, the eminent American physicist. Millikan was impressed with the young man and recommended the young scientist to executives from the Western Electric Company. Van der Bijl accepted their job offer and moved to New York.

The first successful transmission of speech by radio was made in 1915. Later that year speech was transmitted by radio over a distance of more than 8 000km. Van der Bijl was the young scientist who managed to get the amplifiers to work to the precise tolerances required over this very long distance. By 1917, Van der Bijl had made significant contributions to the development of the photoelectric cell and by these means, also made a significant contribution to the development of the television.

Back in SA, General Jan Smuts had assumed the reins of power in Government. Smuts believed that a scientific adviser would be an asset to his Cabinet. Van der Bijl was persuaded to return to SA and in 1920 he left the US. He soon started making plans for a public utility to provide the South African industry with cheap electricity. The capital would be provided by the State and the company would be run on commercial lines.

In 1923, the Electricity Supply Commission (Escom, now Eskom) was founded. Van der Bijl borrowed R16m from the State and began putting his plans into action. From the outset the undertaking was a success and within 10 years van der Bijl was able to pay the State loan back.

What we know as Vanderbijlpark today is named after this great South African.

We have an opportunity to learn from our history. We have an opportunity to redefine the ideology and bigger purpose of entrepreneurship in re-positioning our nation as the game-changing economic leader of our continent. Let’s make entrepreneurship central to our economic policy.

Thursday, October 3, 2013

The Omidyar African Entrepreneurship Summit: What a Day!

A few weeks ago, I was honoured to be invited by the MD of the Omidyar Network (Africa), Malik Fal, to participate in their 2nd Summit on Entrepreneurship in Africa. This summit, which took place yesterday, 02 October 2013 in Mauritius, follows on the heels of research on the state of entrepreneurship in 6 Sub-Sahara African countries done by Omidyar and The Monitor Group in 2012.

We have just completed the Summit, and WHAT A SUMMIT IT WAS!

It opened with some remarks from Malik and Tebogo Skwambane (who led the project during her time at The Monitor Group) about the key findings of the research, which argued for an ecosystem made up of four quadrants i.e. Entrepreneurial Assets (Financing, Skills & Talent, and Infrastructure); Business Support (Business Advisory Services, Government Programmes and Incubators); Policy Accelerators (Legislation, Administrative Burdens); and Motivations & Mindset.

Malik shared whilst Ghana, Zambia and Uganda rate highly in the measure of entrepreneurial activity in a country (TEA), the per capita income of these entrepreneurs is very, very low. This is largely attributed to African entrepreneurial activity being largely survivalist and not driven by opportunity and scale. The challenge posed is: "How do we change this?"

Tebogo shared a rarely know truth about how even late-stage entrepreneurs struggle to raise capital as many capital markets in Africa are under-developed. She got me really excited when she specifically highlighted that we have an opportunity and need to create an African angel investor network to fund early stage entrepreneurial activity as traditional banks are not geared to support this market leaving a huge chunk of entrepreneurial potential dormant.

That summarized the core of my own perspective of the greatest challenge facing entrepreneurs in Africa today.

My panel, expertly hosted by African Leadership Network (ALN) co-founder Acha Leke, tackled the issue of Entrepreneurial Assets, with specific reference to Financing and Skills, but also inadvertently roped in the role of governments.

I was joined by three awesome gentlemen: Hitesh Patel, an angel investor born in Kenya, built his business and wealth in Europe and now resident in Mauritius, Harkesh Mittal from the Government of India's Department of Science & Technology where he heads up the National Science & Technology Entrepreneurship Development Board and Thomas Andersson, a Professor of Economics and Senior Advisor: Science, Technology and Innovation to the Sultanate of Oman.

Hitesh shared some interesting experiences of models in the UK that have succeeded in encouraging angel investing. These are largely driven by tax regimens that offer up to 40% tax breaks for all investments made in startups. It was very satisfying to hear someone, as experienced and successful as Hitesh talk about something that our own South African government has also introduced. Check out this story that ran on www.mystartupsa.com a few months ago.

Hitesh also talked about how angel networks in the UK had become very formalized and how many people created clubs for funding and mentoring of startups. Government has also started matching angel funding in order to support these entrepreneurs at scale. He warned though that government support has to be end to end, and not sporadic and interventionist.

Thomas shared his experiences of how Finland initiated some innovative methods to support entrepreneurs in that market. He also spent time talking through the need for coordinated ecosystems and a focus on education.

Harkesh was easily the coolest government representative here! He opened by saying "If you super impose on the world map which countries have the richest allocation of resources, and then super impose which countries have the highest rates of poverty, you will find that most are in Africa and Asia" - this further highlighting the lack and need for in supporting entrepreneurship.

He shared some great examples of Indian entrepreneurs, one Sanjay Vijaykumar, now CEO of MobME, who led the establishment of a startup incubator in Kochi, when he raised 50% of the initial funding after Harkesh promised that he would match whatever he could raise. His company is now a multi-million dollar company headquartered in India.

Harkesh was full of stories and told of a story of the World's Youngest CEO, Suhas Gopinath who started his business at 13, and made a tempting offer by an established US corporate to sell his business in exchange for a life time job, paid up eduction at a leading school in the US, paid up accommodation etc etc. He was 14 years old. He turned it down, built his company. Globals Inc is now worth hundreds of millions of dollars. He's 27.

Harkesh could've spoken for hours more about India's "technology-led economic growth strategy". I got to spend more time with him later and we agreed we need to get African entrepreneurs exposed to the India start-up scene more. Watch this space!

In my submission I advocated for two main items.

Firstly, we need to realize that not all Africans are going to be entrepreneurs. Many will be in business, mostly at an informal level as a means of earning a living, and driven by a survivalist outlook. I think this is what they mean by SME's. Then there are entrepreneurs. They may start out as SME's but they aspire for more, they want more, they want to scale their businesses and ideas to global proportions. They are not large in number. They are a special few. Yes, I do think we need to always work on uplift ALL of our people, but we must also embrace the fact that to do this also requires us to support, at scale, the few exceptional individuals who can change the world, and back them unapologetically. In my experience, it's a few exceptional individuals who have the ability to change the world. We lose them when we insist on a communal approach.

Secondly, of all the challenges that face entrepreneurs, I think access to early stage finance is number one. Until we find a solution to this, we will forever struggle to see entrepreneurship flourish in our continent. Banks are not geared for such funding. It's equity, it's risky, it's early stage, it's unsecured - all this doesn't work for a bank. We have a unique opportunity to put together an angel investor scheme of sorts that will, in return for equity, support high-impact entrepreneurs with seed capital and mentorship.

During the coffee break, I was very humbled to meet so many entrepreneurs who felt duly represented in this outlook.

Our panel was followed by another which covered Policy Accelerators and Business Support, and after lunch we were treated to an interview of our guest speaker, Kenyan dollar billionnaire Manu Chandaria.


He simply blew me away! He spoke so clearly and effortlessly about the principles that drove he and his family in building the empire that is today COMCRAFT. He talked about the importance of an attitude to 'keep learning' and how being open-minded shaped him as a young man, who lived a very different lifestyle to that of the US, where he studied his engineering degree. He says "What we know is not good enough, there is so much more to know"

He talked about how being adaptive to changes that life throws at you contributed to his ability to be resilient. He says "Hardwork never stops paying back" and how he "never kept my mouth shut, and always asked questions" - reminded me of someone I know :-)

He also talked about the amount of times he and his cousins would think about quitting. He was an engineering graduate from the US and often fantasized about taking a cushy job, get a car, a driver and a nice home and get out of this hard family business. The only thing that would not let him do this, was the "fire in his belly".

His wisdom came through when he warned the Western schooled audience that the West teaches "I am me". In Africa, this does not work, he says because it's a divisive approach to life and business. We must always seek to do much more than what satisfies us alone.
He concluded with words that are not likely to leave me soon "Always meet your commitments, in time and preferably ahead of time. It will show all who come in contact with you that you are credible"

During the Q&A, the idea of the angel investor network then took another turn. An old acquintance, and now very successful entrepreneur based in London and Nairobi, Julian Kyula challenged the house to start this network right there and then! He proposed a commitment of $10,000 per person per year. He figured if we can get 100 people to commit to this we will have $1,000,000 to kick off.  Mr Chandaria committed his $10,000. Julian committed his $10,000 and invited others to follow suit. I'm soon to be a proud co-investor with an African billionnaire!!!

As I prepare to leave this beautiful island, I am encouoraged by the quality of entrepreneurs I've met and interacted with over the past two days. Great friendships were rekindled and new ones were made. I foresee a watershed 2014!

It's time for Africa!


AK

Wednesday, September 11, 2013

I’M NOT CRAZY: "AFRIKAANS CAPITAL, AFRICAN CONSUMPTION" PART 2

On the plane three months ago, I enjoyed an article entitled "BEE firms need to take a leaf out of PSG’s book" by the talented Phakamisa Ndzamela (@phakie101) at the Business Day. Perhaps in mixed emotion of frustration and awe of the details behind the listing of another Afrikaner-led listed company, it reminded me so much of my "Afrikaans Capital, African Consumption" blog I wrote a while back,.

Phakamisa talks about his experience of the PSG Shareholders Meeting he attended at Stellenbosch, and concludes that Black business people can learn a thing or two from their Afrikaner counterparts. A view I have held for a long time. Here is an extract of his piece:

“CALL me a "native assistant", the favourite words of erstwhile commentator Ronald Suresh Roberts. Do you remember him? What an intellectual joker.

Anyway, I admire some of the ways that the Afrikaners do their business. Their successes easily shine out on the Johannesburg stock market.

I think the Afrikaner business model is one that black economic empowerment companies in South Africa need to look into.

It looks simple and is based on bread and butter issues with no obsession with mining, a laborious and capital-intensive exercise that does not guarantee healthy margins. How do I know this?

Last week, I took time to travel to the land of the "Stellenbosch mafia", if there is such a thing.

The idea was to get a glimpse of how business was done in that part of the world. On arrival at the PSG Group annual general meeting held at the Spier Wine Estate, I walked in with an indoctrinated mind thinking that the Afrikaans elite did not admire luxury goods.

Boy, was I wrong!

I expected to see a parkade full of 4X4 Toyota bakkies and maybe an odd tractor or two on the side.

Clearly, I had delusions of grandeur! The parking was an assembly of high-end German cars reminiscent of the African National Congress’s Mangaung conference.

We walked into the hall and the house was packed with Afrikaans-speaking investors who were anxious to know about the future of their investments at PSG.

The meeting resembled a Stellenbosch version of the annual meeting of Warren Buffett’s Berkshire Hathaway in Omaha in the US. No surprise that PSG founder Jannie Mouton is often described as the "Boere Buffett".

The difference here was that proceedings were mostly done in Afrikaans. This did not irk me much, remember that I am a "native assistant".

Besides hearing the bad news that Mouton’s daughter had been locked up by criminals in a basement while her house was ransacked, what also touched me was the poor representation of black investors in a company whose goods are highly consumed by black South Africans. PSG is the largest single shareholder of Capitec, which made a great deal of money from low-to middle-income earners, most of whom are black.

The group also owns agribusiness Zeder, which is behind consumer brands such as Weetbix, White Star maize meal and Liqui Fruit, to count a few.

But if you look at the shareholding structure, PSG’s major shareholders are its directors who own a 36.6% stake.

Steinhoff, the furniture manufacture led by Markus Jooste, owns 19.6% of PSG, other friends and family own 10.1% and Thembeka Capital owns 5.2%.

Thembeka is led by Zitulele KK Combi, the only "Black Stellenbosch mafioso" that I know of.

Excluding Mr Combi and his Thembeka Capital, there were less than a handful of black investors.

By the way, Thembeka Capital is 51% black-owned and the remainder is owned by PSG.

When one looks at PSG’s market performance over the past 17 years, its share price has been climbing like the Spider-Man.

If one had invested R100,000 in November 1995, today this would be worth about R130m if you had also invested your dividend.

PSG believes that "performance should be measured on the return that an investor receives over time; not on the size of the company," says PSG CEO Piet Mouton, and one of Jannie Mouton’s sons.

Although Piet Mouton understands that the next 17 years will be hard to match he is confident of the company’s prospects.

PSG has a limited war-chest for now to make acquisitions.

But it has many companies in the development phase which present growth opportunities.

Curro, the private education provider, is one of the investments that should boost PSG’s investment portfolio in the next few years.

One of the lessons here is for a black-led consortium to create their own PSG Group; a black-led consumer goods company whose proceedings are partly run in Nguni, Tswana, Venda or any other local South African language. South Africa’s population keeps on rising. The sub-Saharan African population is estimated at 900-million.

Black businessmen and women need to roll up their sleeves and look at the value of agriculture, instead of obsessing about the bling of mining. One of the ways to do this is to redress the injustices of the Native Land Act, 100 years ago.

The act killed the rise of a black farming business class, a situation which has also contributed to the squalor houses in Khayelitsha, which is only a few kilometres from Stellenbosch.”

Thanks Phakamisa. It's comforting to know I'm not the only crazy one!

Sunday, July 28, 2013

Cash Is King

I have recently been fascinated by the specific factors that contribute to the high failure rate of startups. We have seen many reasons for small business failing including poor planning to poor staffing, and ineffective marketing. 

However, if I was to name one main reason for business failures, it would have to be Cash Flow. 

Nothing recently highlighted this fact more than an article I read in The Financial Times of 30 May 2013 entitled"Consumer Giants Turn Screw on Ad Agencies" written by Andrew Edgecliffe-Johnson in New York and Neil Munshi in Chicago. 

The article broke the story of how Europe's biggest advertisers had unilaterally made the call to start paying their advertising agencies up to six months late. A move started by one company and followed by major advertisers in the developed world, caused serious problems for the ad agencies there. 

The article opened: 


"Some of the world’s largest consumer products groups are delaying payments to advertising agencies and commodity producers for up to six months, squeezing cash flows and causing alarm at critical points in their supply chains.

Mondelez International, the former Kraft snack food group, is extending payment terms to 120 days from July 1 – a decision one advertising executive described as “iniquitous”.

Procter & Gamble, the world’s largest advertiser, this month told suppliers it was pushing back payments from 45 days to 75 days, following similar extensions at Johnson & Johnson, the healthcare group, and Anheuser-Busch InBev, the brewer" 

Pause and think about this for a second. 

First of all this is happening in the developed markets of Europe, who are still reeling from a very expensive global economic crisis. 

Secondly, the move to pay these agencies late is driven by the largest advertisers in the market, who are probably serviced by the largest agency groups, meaning that this is likely to affect the entire marketing and advertising industry in Europe. 

Thirdly, a typical ad agency would have 70% of its costs as people, 15% as property and the balance of the15% being administrative overhead. Salaries are due at least every month (some Europeans pay wages every forthnight). 

Paying these business as late as 6 months after rendering services, creates a huge cash flow problem that forces them to borrow in order to finance their operations until the customers pay. 

The article continues: 


“Once a big company like Procter & Gamble goes public with this, it almost gives permission for other marketers to do it,” said Nancy Hill, chief executive of the American Association of Advertising Agencies. “I fear this is just the beginning.”

“Clients are asking us to take on risk like an insurance company and take on debt like a bank,” she added. “Neither of those are what we were set up to do. Our supply chain is largely people. We have to make payroll every two weeks.”


Bob Liodice, chief executive of the Association of National Advertisers, said he was “hearing screams” from agencies, but was aware of only a few that had turned down accounts because of the new terms. “The process began in the recession when cash management was a critical issue but, like anything, once you start it it’s unlikely you’re going to stop it.”

If large agency networks with operations all over the world are "screaming" at the impact of late payments from the world's largest advertisers, what about the small guy? Can you imagine the impact delayed payments have on SME's? 

The cash flow PINCH felt by the agencies quoted in the article above can be a KNOCK-OUT PUNCH for many entrepreneurs who often cannot borrow the funds required to cover their operations until the "big" clients pay. 

I have heard many stories of entrepreneurs who had designed a unique product, and after many years of knocking on doors, finally succeeded in getting it listed with the big retailers. Though you often find their product on the bottom shelf in the 'specials' aisle these entrepreneurs are not bothered by this and often grateful at the opportunity to have their products in store. However, a few months later the realities of selling to big retailers start to hit home. Payment terms from the big retailers can be horrible, and can put an entrepreneur out of business as he needs to cover manufacturing, staff and logistics costs even before he delivers his stock to the retailer. 

Ironically these large retailers are themselves not short of cash as they do not extend credit to their customers, and collect cash immediately when they sell the entrepreneur's product. Government is no different either. 

Entrepreneurs need to keep their enterprises running in order to create jobs. I plead with you big corporates and government: Pay your suppliers, especially the SME's ON TIME!!! 

For us, it is often a matter of life and death! 

AK