Day 3: Palestine. How The Other Side Lives

Day 3 of our trip coincided with a very important event in Israel – national elections. As a result we took the opportunity to visit the West Bank, but first we had some business to take care of in Tel Aviv.

We kicked off with a visit to The Save a Child’s Heart centre, a Tel Aviv based non-profit medical facility that carries out heart surgery for children from all over the world, including Kenya, Ethiopia, Zanzibar and even Iran, Palestine and Syria at a fraction of the cost of similar procedures in private hospitals.

It was quite difficult watching infants only a few weeks old connected to tubes and machines undergoing major heart surgery. Entrepreneurs shed lots of tears when the doctors were briefed us on each child’s case and circumstances. We were able to visit the children who had either undergone surgery or were waiting surgery and it was amazing to speak to the African children and how they came to be part of this initiative. A young girl from Kenya, named Mary, made a particular impression on me.

The centre is funded and supported by Morris Kahn, the ex-South African dollar billionaire who also supported the young entrepreneurs on our trip – proof once again that capitalism can do good – its really is up to the capitalists.

After dancing to loud Rihanna music with the children at the centre, we started our long journey to the West Bank. The day was to become an emotionally heavy one.

We drove past 3 security check points on our way to Rawabi, the first planned Palestinian City and brain child of multi-millionaire entrepreneur, Bashar Masri. What a sight!

We had a guided tour from Shadia Jaradat, one of the chief engineers of the project in her high heels, no gaal. The development is funded by the Qatari government and promises to be a modern way of living for middle-class Palestinian families – Think of Melrose Arch on steroids!

Our group chat with Bashar was my highlight of the day. He opened by unapologetically telling us that the city is primarily a commercial project and its key objective is to make money. There is only one partner, the Qatari government, who have extended a $1,6 billion funding line for the project and expect a fair return from their investment.

Given that, according to Bashar, the projected IRR is estimated at 2,9%, in a market where dollar cash deposits earn a return of 3% interest per annum, it was clear to see that whilst all business is for commercial return, this development represented much more to him and his colleagues and partners than just commerce.

The project itself carries with it huge political risk, because it is built on land that is under occupation by Israel. Until this political impasse is resolved, his remains clear and present risk. I sensed a subtle hope in Bashar’s voice, that today’s Israeli elections would yield an outcome that takes one step towards such a resolution – That hoped was to be dashed by comments from the re-elected Prime Minister of Israel the very next day.

Bashar highlighted the international coverage that Rawabi had received and why it was important. The man speaks passionately about using the development as a catalyst for economic growth of the West Bank which is home to 3,7 million people, of which a third are under 40 years-old and 74% depend on the state for their livelihood. I guess these are the real consequences of donor-funded economies that are essentially restricted in free trade with the rest of the world.

I asked him about his media interests and why the international community hasn’t covered it in detail, the perspective of the Palestinians in the conflict. He felt that there were many factors at play in the coverage but he chose to focus on the positive coverage that has happened from Germany, the USA, England, and even South Africa. He believes that the more the international community is exposed to the injustices of Israeli occupation, the more likely a sensible solution will be found.
I quickly got the sense that in this region every conversation eventually turns political – How can it not?

Bashar spoke passionately about his love for Palestine, even though he studied and lived in North Africa and the US. Virtually all of his business interests are in Palestine and he constantly turns down lucrative business opportunities, preferring to put his money where his mouth is. Notwithstanding that he continues to hold small interests in Morocco, Egypt and Jordan. He admitted that this approach cost him dearly, between 2000 – 2004, when the political situation was dire and all of his businesses lost money, with most having zero revenues.

I asked him what could the international community do to help make the development of Rawabi a success and by extension Palestine. He spoke of media coverage and also bringing services into the city, such as call centres and other Business Process Outsourcing (BPO) services to create jobs for Rawabi residence and complete the offering of it being a place where people can ‘Live. Work. Grow’.
We left Rawabi in awe. In awe of the charming entrepreneur that is Bashar, notwithstanding the political challenges he and other Palestinian entrepreneurs have to contend with, and in awe of the $1,6 billion development with a 500-seater amphitheatre.

Lunch was at a restaurant in Ramallah, owned by Palestinian entrepreneur, Katya and her brother. What I thought would be relaxed chat over lunch about entrepreneurship in Palestine turned out to be a political debate about the structural challenges experienced by young people.

Katya spoke of how access to finance has become a dependency on the banking industry for young entrepreneurs. According to her, loans are handed out to young people who often can’t afford to pay them back creating a dependency.

However, her biggest challenge by far is the non-existent market. Because of the occupation, and the security situation that created security check points all over the West Bank. She speaks of how a few minutes trip between Ramallah and Jerusalem has become a 2 hour trip because of these checks.
She feels that sabotage is very rife against Palestinian business. To prove this point she related a story of a top Moroccan DJ whom her restaurant had invited to play at her restaurant. She paid the deposit, booked the flights, the DJ applied and received a visa to enter Israel en route to Palestine, but on the day of travel he was refused clearance at the airport, after landing. This led to her having to refund all her customers and making a loss on the event. She is convinced that this was done on purpose to sabotage her business.

Supply of certain basics is also a problem. For her as a restaurateur, she can’t even get furniture because in the whole of the West Bank nobody manufactures high end furniture so she is forced to order this from Israel. This also applies to her alcohol orders – they all have to go through Israel, which means double taxation as there are not double-tax treaties, simply because Palestine is not a recognized state. Add to this the risk of certain foods being spoilt by the time they are delivered at Katya’s restaurant.

Surprisingly, Katya sees a silver lining in all this.

She believes that doing business in the current political climate, has built her character and her resilience. She talks about fighting to build her business and her country. She also makes an interesting point about how this has forced young people to mature much quicker as they inherit lots of responsibility at a young age. She is 29.

The entrepreneurs were very quite in the bus trip back to Tel Aviv. Given South Africa’s history, I suspect the day was emotionally hard on us, and it left most us with more questions than answers.
That night, the results of national elections started streaming in. We had dinner with Jonathan Beare that night and an opportunity to have great conversation on what we had seen and heard in Palestine over well prepared steak and a special 14 year-old Glen Fiddich whisky.

As we wrapped up the night, I realized that the political situation in this region is a complex one and unless you live here and contend with it day in and day out – you have no right opining. So, I wont.

Day 2: The R200,000 Tortoise

We started the day with another scrambled eggs, peppers and orange tomato breakfast in the Kibbutz before we set off on an early visit to BrightSource, the global designer and developer of solar thermal technology.

We were greeted by a tight security check as the solar company is headquartered right next to an Israeli army security base, which ‘according to foreign press’ may or may not be the home of all sorts of ‘frowned upon’ military equipment.

BrightSource’s technology uses solar thermal technology to reflect heat from the sun using software controlled heliostats (two-sided mirror panels), onto a central tower which boils water up to 300 degrees Celsius, produce steam, powering turbines to generate electricity. I was surprised that even I understood that.

It turns out that the company, though formed only in 1996, has its roots, through another company called Luz Industries, which in the 80’s became famous for thermal plants built on the Mohave desert, in California, USA.

As solar technology improved, BrightSource started perfecting some of this technology and is now rolling out in their newest development also in the California desert, called Ivanoah. This $1,6 billion development kicked off in 2008 with a pilot or ‘proof of concept’, which was a resounding success, notwithstanding some unexpected cost escalations including a $50 million spend on relocating an endangered species of tortoise that was found on its site. We were told that there were approximately 3,000 tortoises that were relocated – this translates to R200,000 per tortoise!

I also learned an interesting lesson about focus when I learned that BrightSource had struggled to excel at being both a project developer and a technology company. The company reached a point where it had to choose. They are now a focused technology company and they outsource and partner for project developments.

I suspect the project finance models, which initially attracts private equity funds and not debt, as well as the inherent high risk profile of such projects (including the risk of finding R200,000 tortoises) may have had something to do with that decision.

Whilst these projects typically have a guaranteed customer (the electricity utility, e.g. Eskom); a guaranteed concession period which gives you security of tenure (typically 20 – 25 years); and a guaranteed price (the utility normally publishes these prices), one still needs to build the plant and get to a stage where they generate the electricity – there may be a few tortoises out there with other ideas.

The Bright Source visit also taught me something else. Apparently South Africa’s IPP programme insists that bidders must have all the funding before they kick off any alternative energy project (e.g. build a solar park that will feed electricity into the grid) and our National Treasury insists that the debt raised for such projects must be Rand (ZAR) denominated. Is this true? It sounds like we are creating a few barriers here. I would be interested to hear the logic behind this.

In the afternoon of Day 2 we visited Google’s Tel Aviv office to receive a presentation from an exciting start-up called Mobile ODT, which has built a way of administering cervical cancer screenings using a mobile phone.

The founder CEO, Ariel Beery outlined the ethos of the company as using the power of a community of surgeons and specialists with the power of optical technology. Merging these two key ingredients means that its now possible that when you consult with your doctor, you could be consulting with hundreds of thousands of other doctors all over the world in real time and your doctor’s diagnosis will be based on accurate data every time for a fraction of the cost of today’s cervical cancer equipment.

I was blown away.

Even their go-to-market strategy is fascinating. They don’t sell to governments or private hospital. They partner with global health organisations. Apparently, 1.2 billion women around the world require regular cervical cancer screenings and 720 million of such screenings are carried out every year.

The benefit of the innovation is that it is ‘non-invasive’ as it takes pictures and make no physical contact with the patient. This has helped with quick adoption by surgeons. They have also managed to extend the technology’s application. Apparently the US government has started using the technology to better analyse sexual assault victims because of its accuracy in diagnosis.

The company believes that they are in the forefront of a new era of caring for people. They just happened to start with cervical cancer.

We rounded the day off with a special dinner hosted by two South African-born dollar billionaires and co-sponsors of the Young Entrepreneurs Trip 2015, Jonathan Beare and Morris Kahn. The venue was Liliyot, a Tel Aviv restaurant that provides high-school dropouts with culinary training giving young people hope, inspiration and a career prospect in the food business.

It turned out to be a very inspirational night.

Two of our fellow entrepreneurs, Eddie Majozi and Paul Galatis took us through their entrepreneurial journeys.

Eddie’s rendition of how circumstances forced him to drop out of university and initially taking a job selling newspapers to now running a multi-million group of businesses was the stuff of brilliance.

Paul’s warm and sometimes funny delivery of his journey from his ‘1,400 Year Anniversary’ logo for his high school (which he admits was not his best work) to co-building one of Africa’s largest e-commerce businesses in yuppiechef.com. We also heard from our billionaire hosts, both of whom were very blunt in their advice on what we can do to help take our own country forward.

It will be a while before I forget Jonathan’s ‘fire in the belly’ metaphor as the true source of entrepreneurship and why we should never worry about taking on big business because every big business was once a small business, when other big businesses were around – So just focus on building your business.

Day 3: We go to Palestine!

Day 1: The Kibbutz

Today was the first day of our Young Entrepreneurs Trip (#YoungTreps2015) with 25 young South African entrepreneurs to Israel and Palestine.

Having boarded our flight at OR Tambo at 14:20, enduring a 2,5 hour stop over in Addis Ababa, we landed in Tel Aviv just before 03:00 this morning.

After a 4 hour road trip to the southern desert part of the country, we arrived at Kibbutz Lohan to the sad news of the tragic passing of Minister in the Presidency, Hon. Collins Chabane. I was very saddened by the news as he was a dear friend to Given and we had developed a great friendship and played some good golf games together. I am still under shock and my sincerest condolences go out to his family, friends and colleagues.

Back to our trip. We visited two Kibbutzim, one an agriculture research centre that focuses on bespoke solutions and research for the farming community of the Kibbutzim. Amongst other things, they run equipment that is able to control the temperature of crops notwithstanding natural climate. We then visited a cow milking farm which milks 650 cows every 2,5 hours with the employ of only 2 people (we decided to call them ‘Titmen’) with everything else automated (see picture above).

We concluded the evening by having two sessions. The first was a detailed introduction to each other and we heard presentations (which I learned are called Pecha Kucha) from Dan Brotman, Executive Director of The South Africa Israel Forum, Ntuthuko Shezi, Founder of that cool ‘You fly. We fix’ business, Scratch Mobile and now an aspirant farmer and preserver of the Zulu language.

The second was the honour of meeting a young 26 year old lady, Emily, who became a source of huge inspiration after we heard her story of courage and perseverance. She then gave us a lesson on the history of Israel. You can imagine the questions and comments from bright South Africans about Israeli politics. Interesting stuff I tell you.

Tomorrow we are off to Tel Aviv with alternative energy as the day’s focus. Can’t wait! AK

Ian Fuhr: Legend

What a Saturday morning it as hearing from someone who has been in business for 40 years, through all the phases of South Africa’s recent past. He gave a good review of his journey, and also shared some important lessons on entrepreneurship. I thoroughly enjoyed how personable he was, and how willing he was to share his wisdom in a very frank way. I still can’t believe he started Sorbet only 9 years ago and now he has over 120 outlets countrywide and is about to open his first in London, UK. I think that’s legendary stuff! I highly recommend you read his book “Get That Feeling”

Economic Realities Must Drive SMME Support

When I received an invite to attend the State of the Nation Address (SONA), I quickly accepted because like all South Africans, I expected some fireworks from this year’s instalment. I was also interested in how the president would deal with the issue of electricity and whether he would give tangible initiatives to ignite this lethargic economy. I was particularly interested to hear more about initiatives to help support entrepreneurs and small businesses. I obviously got a lot more than I bargained for, both on and off the field, so to speak.

So what did the president have in his bag of goodies for entrepreneurs and small business? Not much, I’m afraid.

Notwithstanding that ‘support for small businesses’ featured as one of the key issues raised by South Africans who participated in the president’s campaign calling for submissions into SONA 2015, the address in itself was rather thin on this crucial subject and somewhat out of touch with current realities.

SONA 2015 was largely dedicated to what many may say are more pressing matters like the energy challenge (not a ‘crisis’, of course), labour stability, challenges related to the mining industry, and the president’s nine-point plan “to ignite growth and create jobs”.

Coming in at number 7 of the plan was “unlocking the potential of SMMEs, cooperatives, townships and rural enterprises”. This got me really excited. As the president made his way through the first six points of his plan, I waited with bated breath and great anticipation for more details on how the government was planning to unlock this potential.

The details never came.

The only reference made to small business related to the funds that have been established by state-owned development finance institutions to support entrepreneurs and SMMEs. It was reported that the National Youth Development Agency (NYDA) had disbursed a meagre R25m to 765 youth-owned micro enterprises in the last financial year.

The president then made reference to the NYDA, Industrial Development Corporation (IDC) and Small Enterprise Finance Agency (SEFA) R2.7bn Youth Fund partnership, with SEFA putting up R1.7bn of the funding and the IDC contributing R1bn. This partnership was initially announced in August 2014.

The fact that the NYDA has disbursed an average of R33 000 per SMME is nowhere close to adequate support and is no reason for celebration. Setting up a R2.7bn fund is one thing. Disbursing these funds to deserving and qualifying businesses is another. It’s been six months since the launch of the partnership between the NYDA, SEFA and IDC. I expected a more detailed update on progress made by this fund, not just a regurgitation regarding its establishment.

Anyone who has met SEFA CEO Thakhani Makhuvha will tell you about a man who is passionate about his job. He is clear about the role of SEFA in a developmental economy and doesn’t try to compete with banks and other lenders. He stresses the “greater than normal risk” that SEFA takes on in providing entrepreneurs with loans ranging from R500 to R5m in value. Most of his applicants have no security and his organisation does not mind that. There is, however one requirement: the business must be “sustainable”.

The availability of capital for small businesses is not, in itself, enough to support entrepreneurs and SMMEs – especially in the current tough economic times that the president so accurately captured in the opening remarks of his address.

It is no secret how much pressure the South African consumer has been under in recent times. A tough 2014 saw our GDP grow by a depressing 1.4% and the spectacular failure of African Bank, the largest unsecured lender in the country, as consumers struggled to service debts raised to fund consumption. Until recently inflation has hovered just under the 6% mark, the rand has remained weak against major currencies, and the mining industry has had a torrid three years with the latest threat coming from extended labour strife. Commodity prices have also plummeted to record lows.
The reality is that most SMMEs have not been able to create ‘sustainable businesses’ in recent times, and require some risk capital to help re-ignite or sustain their struggling businesses.

Even with the president’s pledge for government to set aside 30% of certain categories of state procurement for purchasing from SMMEs, cooperatives, township and rural enterprises, economic times will remain tough. There won’t be too many ‘sustainable small businesses’ out there in this economic climate. There will be many who are struggling to pay salaries, fulfil orders and who may be forced to retrench workers – these are the SMMEs that require support now.

Policymakers must create interventions that are driven by the economic realities small businesses operate in, not idealistic notions. What we need is holistic support for small businesses experiencing a tough trading environment in a slow economy, and initiatives to ensure they trade through this climate – perhaps that way, we will get out of this slump with ‘sustainable’ businesses to be proud of.

This article originally appeared in the 26 February 2015 edition of Finweek. Buy and download the magazine here.

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

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