GALLO IMAGES/GETTY IMAGES/ISTOCKPHOTO
THE
DESTINY MAN
ENTREPRENEUR
& FRANCHISE
REPORT
2015
YOUR ESSENTIAL
GUIDE TO THE
LATEST SUCCESS
STRATEGIES, MARKET
OPPORTUNITIES AND
ENTREPRENEURIAL
KNOW-HOW
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 61
ED’S NOTE
Talking shop
this state of affairs, including lack of finance,
government bureaucracy, poor education
and fear of failure.
Putting the figures aside, we hope that
the following 24 pages of our Entrepreneur
& Franchise Report will, in its own way,
contribute to SA’s entrepreneurial growth.
From boutique businesses and large-scale
franchises to the imminent explosion of
e-commerce and the rise of crowd-funding,
we explore how smart entrepreneurs are
exploiting the abundant opportunities SA’s
economy presents to those who are willing to
work harder than they ever imagined and risk
soul-destroying failure to make their business
ideas a thriving reality.
May this report give you the right mix of
inspiration and know-how to start or continue
your entrepreneurial journey.
ESTABLISHED
BUSINESS
OWNERSHIP:
Percentage of
population who
are currently
owner-managers
of an established
business, ie owning
and managing a
running venture
that has paid
salaries, wages or
any other payments
to the owners for
longer than
42 months.
37%
68
WHEN FRANCHISES FAIL
70
MARKETING OPPORTUNITIES:
AIMING LOW
72
CROWD-FUNDING: MONEY
FROM THE MASSES
74
SMALL BUSINESS: MICRO-MIRACLES
76
SOCIAL ENTREPRENEURSHIP:
PROFIT & PURPOSE
78
E-COMMERCE: RISING TIDES
RICHARD GOLLER
Project Editor
A SNAPSHOT OF SA’S
ENTREPRENEURIAL ACTIVITY
2,7%
64
FRANCHISING MILESTONES
SOURCE: GEM REPORT 2014
OMETIMES IT’S
BEST to let the
numbers do the talking, as the figures from
the latest Global Entrepreneurship Monitor
report on SA do in startling detail. Despite
the country’s massive unemployment
problem, the report found that our
entrepreneurial activity is very low for a
developing country and, in 2014, had even
decreased by 34% (from 10,6% to 7%). There
are a multitude of factors contributing to
Contents
PERCEIVED OPPORTUNITIES:
Percentage of population (excluding
individuals involved in entrepreneurial
activity) who see good opportunities to
start a firm in the area where they live.
38%
PERCEIVED CAPABILITIES: Percentage of
population (excluding individuals involved
in entrepreneurial activity) who believe they
have the required skills and knowledge to start a business.
SEVEN PERCENT
Total early-stage
entrepreneurial
activity: Percentage of population (aged 18-64)
who are either nascent entrepreneurs or ownermanagers of a new business.
25%
FEAR OF FAILURE:
Percentage of population (excluding individuals
involved in entrepreneurial activity) who
indicate that fear of failure would prevent them
from setting up a business.
PHOTOGRAPHER:
62 • DESTINYMAN • SEPTEMBER 2015
FRANCHISING MILESTONES
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B THAT B
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GALLO IMAGES/GETTY IMAGES/ISTOCKPHOTO
Does franchising
hold the key to
unlocking more
entrepreneurship in
SA? News Café and
McDonald’s SA are
just two big names
celebrating 20 years
in business this year,
showing the depth
and longevity of the
local market
HE LEVEL OF
MENTORSHIP and support offered by
reputable franchisors aid skills transfer and in
the process, build solid brands and business.
For this reason, Minister of Small Business
Development, Lindiwe Zulu, recently touched
on the potential of franchising to help drive
business ownership and job creation in SA.
certain stores that perform in these areas
(townships and previously disadvantaged
areas) and are always on the look-out for new
franchisees and opportunities.”
He does, however, believe that one must be
realistic about franchising. “To start a franchise
business in today’s economic environment
is a difficult task. Having said that, there are
some great entrepreneurs out there who
come up with unique concepts and ideas.
There will always be room in the marketplace
for people who are committed and have great
entrepreneurial flair.”
The recent Fasa Awards, held in Jo’burg
in April, certainly highlighted the vibrancy
and diversity in the sector. The big award
on the night – for Franchisor of the Year –
went to butcher, deli and food retailer OBC
Chicken & Meat. Other accolades went to
Cash Converters, the Mike’s Kitchen Springs
franchise, Midek Paint Direct, Bodytec, King
Pie and Hot Dog Café.
After 28 years in the local market,
OBC Chicken & Meat has a network of
on that community’s tradition of trading in
predominantly black areas. Where others
have tried to penetrate this market with
inferior products and run-down stores, the
clean and bright OBC outlets, with the latest
in lighting, refrigeration and packaging and
impeccable standards of hygiene, have raised
the area’s standards and the shopper’s
quality of life.”
McDonald’s SA CEO Greg Solomon
also believes that respecting and listening
to customers is vital. However, you also need
to talk to your franchisees, or – as McDonald’s
calls them – “owner-operators”.
“I always say that there isn’t one MD in
this business – there are 39 Directors of this
organisation,” says Solomon. “For example,
Reggie Skhosana and his wife, Busi, joined
us in 2005. We turn 20 this year and they are
still owner-operators. They have multiple
restaurant owner-operators. Leaders like
Reggie have instilled the values in our
business. Peter Moyanga is another example.
He started with McDonald’s 18 years ago with
After 28 years in the local market, OBC Chicken & Meat has a
network of more than 60 stores, all strategically located close to
mass-market communities and transport nodes.
Zulu told Parliament: “The department
is determined to transform the franchising
sector through various measures and one
of them is to develop more franchisors
from townships and rural communities.
Micro-franchising is still in its infancy in
SA. The mainstream franchise market remains
expensive and inaccessible to the majority
of entrepreneurs.”
While the cost of buying into a franchise
varies considerably, the outlay is often in
the millions. John Baladakis, Chairman of
the Franchise Association of SA (Fasa), notes,
however, that franchising is one of the most
successful mechanisms for developing small
businesses. With a failure rate of less than
10% (compared with more than 90% for
independent businesses) and contributing
about 10% to GDP, it remains a solid entry
point for entrepreneurs.
“Franchising can offer a myriad solutions
to growing the economy, providing the
entrepreneurial spark that is needed to kickstart new business initiatives,” he says.
Pierre van Tonder, CEO of multiple
franchisor Spur Corporation, also backs the
minister’s opinion. “We support this view, as it
is an opportunity for young South Africans
to get into business,” he says. “We have
more than 60 stores, all strategically located
close to mass-market communities and
transport nodes. With its roots in Carletonville,
Gauteng, the company opened its first
franchise in 1999.
MD Tony da Fonseca told Fasa that its
success hinges on knowing the community
and customers it serves: “OBC was started
as a Portuguese family enterprise based
66 • DESTINYMAN • SEPTEMBER 2015
me as a real estate person and we grew up
together in the business. Eventually, my career
path took me to senior management, but
he saved up enough money to buy his first
restaurant in Springs. Now Peter is one of our
largest franchisees, with eight restaurants.”
Names continue to trip off Solomon’s
tongue: Portia Nondo, Susan Rawoteea
and Sanjay and Prakash Nathoo. “These are
FRANCHISING MILESTONES
deep relationships,” says Solomon, adding
that the longevity of strategic relationships is
vital in franchising.
“You have to be brave to be a great
franchisor. It comes down to relationships.
There are good and bad times and you have
to be able to work that out. So we centre
our relationships on robust conversation,
because if you want to move an organisation
forward, there needs to be trust and respect.
Over time, we’ve had our fair share of
disagreements with individuals and groups
of franchisees. But if you stick it out with your
partners, then it ultimately works out better,”
says Solomon.
Van Tonder agrees. “One of Spur’s main
strengths is our relationship with our
franchisees. We assist them with training,
marketing, financial management, product
development, product management and
procurement, to name a few benefits we
provide as franchisor. This is an ongoing
process and one that is reinforced in order
to ensure the customer has the benefit of
excellent food, quality and service delivery
by the franchisee.”
Ultimately, longevity is the reward
for getting this combination right and
having faith in your brand. And, as a
News Café spokesman says, it’s also
essential to keep tweaking your business
model: “Our model has evolved with the
market and our constantly changing
environment, but we have kept the key
factors of being a high-street café, cocktail
bar, restaurant and entertainment venue,
offering a unique, relaxed and entertaining
dining experience.”
SNAPPING AT THE HEELS OF THE MORE ESTABLISHED BRANDS ARE SOME
EXCITING NEW ENTRANTS, WHICH SHOW THAT FRANCHISING IS ALIVE AND
WELL IN SA
Up-and-comers
RocoMamas restaurants. Van Tonder says: “We
are concentrating on our local market first in
order to enhance the strength of the brand. We
have already received enquiries from African
countries and are in the fortunate position of
having a substantial roll-out plan in SA over the
next 12-18 months.”
HAPPY.ME
ROCOMAMAS
In January 2015, it was reported that Spur
Corporation was acquiring trendy burger
brand RocoMamas. Its smart-casual dining
concept centres on affordable, fresh, handcrafted food. Founded in 2013 by a longstanding Spur franchisee, Brian Altriche, Spur’s
51% stake came into effect in March 2015,
with Altriche staying on as CEO.
Pierre van Tonder says RocoMamas is a
stand-out amid the likes of Steers, Wimpy
and McDonald’s. “RocoMamas has its own
identity, serving ribs, burgers and wings, as well
as craft beers and is very much a cosmopolitan
brand,” he says. “I’m not criticising the other
brands, as I have an enormous amount of
respect for them. They are predominantly in the
take-away and drive-through business, while
RocoMamas is predominantly a casual dining
and take-away option.”
With deep pockets and industry firepower,
Spur Corporation has big plans to roll out more
In an interview with eNCA shortly after Happy.
Me’s launch in 2013, the man who brought
bubble tea to SA, Jan Roode, explained that
it was worth the wait to get the Taiwanese
blend of fruit, milk and tapioca pearls to
Africa. “This is not normal tea – this is funky,”
he said. “This is vibey tea for the new age. This
is the evolution of the beverage.”
Becoming a Happy.Me franchisee is
as simple as dropping Roode a line after
checking out the franchisee information
on: www.happyme.co.za The brand offers
three broad store categories to
potential franchisees:
Short (30m2) – about R950 000
Tall (70m2) – about R1,4 million
Grande (100m2) – about
R1,6 million
Happy.Me offers two types of
franchise models: an owner-operator
model and an investor model, in which a
store is run on behalf of an investor for a
flat monthly fee.
WANT TO BUY A FRANCHISE?
EXPECT TO FORK OUT SOME BIG BUCKS IF YOU WANT TO BE PART OF THE SUCCESS STORY
OF SA’S BEST-KNOWN BRANDS
restaurant would fall in the region
Corporation, which offers
to Greg
of R3,48 million and a John Dory’s
franchise opportunities from
Solomon,
would set you back R4,3 million.
brands such as Spur, Panarottis,
anyone can become a McDonald’s
An OBC Chicken store will cost
RocoMamas and John Dory’s,
franchisee. The group insists on
approximately R4,5-R5,5 million
explains that once a potential
six to nine months’training for all
to establish, while the average
franchisee has made contact, he
potential owner-operators and a
set-up cost of a News Café,
will be required to complete the
long-term commitment.
is R4-R4,5 million.
necessary documentation so we
A new McDonald’s franchise
According to Fournews
can facilitate a business plan for
would set you back about
Developments, the brand
him, for a particular location. “We’d
R5-R5,5 million. And, says
custodian for News Café: “Our
conduct an interview to ensure
Solomon, “there aren’t too many
brand is about the experience,
he has the appropriate personality
people who have that sort of
service and high standards.
and commitment to the industry.
disposable income to put down.
Our need is for people with
In addition, he will need to have
So that implies screening of
passion, personality, drive and
the finance to fund the business.”
individuals. But you can fund that
commitment. We would need to
A Spur franchise, for example,
from a bank and McDonald’s will
be assured that the franchisee, or
would come with a cost of
assist from that perspective.”
at least one of the shareholders in
R4,3-R5,9 million. A Panarottis
Pierre van Tonder of Spur
Greg Solomon, CEO
of McDonald’s SA
ACCORDING
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 67
the franchisee company, would
be a full-time owner-operator.
Thereafter, we would assess the
proposal site against our criteria.
Finally, the franchisee would need
to have the necessary funding.”
Franchisees need to ask about
once-off sign-up and monthly
royalty and marketing fees. DM
FRANCHISING
WHEN FRANCHISES
FAIL
WRITTEN BY SISEKO NJOBENI
Although franchising has
experienced huge growth, success
is not guaranteed. Business
model, location and management
are still crucial
I
t is generally accepted that franchises
are a safer bet for prospective businessowners than start-ups, with some studies
putting the success rate at over 80%.
The proven methods, recognised brands and
ongoing training and support are appealing
to budding entrepreneurs.
Not surprisingly, there has been a massive
growth in the number of franchises in SA.
According to the Franchise Association of
SA (Fasa), there were 156 franchise systems
in 1994. By 2010, there were 551, with 112 of
those established two years earlier. In 2013,
Business Times reported that The Fish & Chip Co,
a subsidiary of JSE-listed Taste Holdings, was
opening three franchises a week.
The impressive growth in franchising
creates the impression that it guarantees
success. But examples of franchises that have
experienced problems are a reminder that
they are regular businesses, with risks and
opportunities. A few years ago, a number of
investors in Old Fashioned Fish and Chips
publicly expressed their frustration with the
company and demanded that their deposits
be refunded after what they claimed was the
68 • DESTINYMAN • SEPTEMBER 2015
company’s failure to keep its promises,
which included the allocation of sites.
T
***
he ugly spat culminated in the
provisional liquidation of the company
in the Pretoria High Court earlier
this year, laying bare the dark side
of franchising. The troubles at Old Fashioned
Fish and Chips confirm that glowing statistics
notwithstanding, franchising is not a blueprint
for success.
Eric Parker, a Senior Partner at business
consultancy Franchising Plus, says: “The
business mechanism of franchising is very
sound, if implemented properly. However,
poor implementation can result in many
franchisees failing. It must be stressed that just
because it is a franchise does not mean it will
be successful – potential franchises should
really do their homework.”
Parker has extensive experience in
franchising and is a former Chairman of Fasa,
serving on the board for many years. He is also
a co-founder of Nando’s.
He says there are several basics to consider.
For instance, the franchise model should have
been successfully developed and at least one
pilot operation proved successful over a period
of at least a year. Is the concept franchisable?
Parker urges potential franchisees to
ascertain whether they will recover their full
investment in three to four years. “Is the concept
in a growing market segment? Does it have the
ability to last for a lengthy period?”he asks.
He adds that the franchisor should have
developed a comprehensive package,
consisting of an operations manual, a disclosure
document and a franchise agreement. It is
important to establish whether the Directors
of the franchise have been ethical in previous
business dealings and have experience in the
market category.
F
***
ranchisees can also save themselves
the trouble of unfulfilled promises and
unmatched expectations by asking
the following questions:
crucial when it comes to determining the
potential of your business,” he says.
Look out for current anchor tenants,
previous tenant history, volume of foot
traffic and the proximity of competitive or
substitute products. “This will determine the
eventual success or failure of your business,”
says Balfour.
Insufficient working capital funding is
a recipe for disaster in any business. “With
a franchise, the initial fee is clearly stated,
but newcomers often underestimate
the operating costs. They are also usually
unrealistic about the initial performance of
their store. A slow start or unanticipated
event can quickly kill an under-capitalised
franchise,” says Balfour.
To avoid such events, would-be
franchisees should assume that they will
lose money for the first couple of years and
put some aside to float the business in
cases of emergency, he says.
In a blog post, American franchise
funder Benetrends Financial writes: “One of
the most important things you can do as a
new or soon-to-be new franchise-owner is
minimise your risk of under-capitalisation, or
insufficient funding. As one of the leading
causes of franchise failure, it is something
that needs to be avoided at all costs.”
Benetrends urges new business-owners not
to underestimate the amount of money
needed to start and run an enterprise,
because it requires more working capital than
many anticipate.
High rental costs are another potential
G
***
ood management is still the
backbone of any business. An
established franchise with a strong
brand will not make up for poor
management skills, warns Balfour. The
franchisee still needs to run the business as
efficiently as possible to make it successful.
“Poor decision-making and lack of financial
management controls can destroy even the
most successful of businesses. Take time to
learn how to manage the franchise correctly
before you commit to it. This is especially
true for franchisees who have no previous
experience in running their own businesses,”
he says. DM
Mbulelo Balfour, Post Investment
Associate at Masisizane Fund
The ugly spat between Old Fashioned Fish and Chips and its
frustrated franchisees lays bare the dark side of franchising.
• Has the franchisor developed a
training programme?
• How will your outlet be marketed?
Parker advises franchisees to carefully
analyse the potential competition in the area.
Like any business, franchises are susceptible
to external threats. He says franchisees must
also verify that the franchisor is getting the
best possible deal, at the right price, without
receiving kickbacks from suppliers.
Site selection is often another bone
of contention between franchisors and
franchisees, as it is extremely important to the
success of a business venture. Mbulelo Balfour,
Post Investment Associate at Masisizane Fund,
an Old Mutual initiative set up to provide loan
financing, says he has seen good franchises
go under because of poor location choices.
“Franchisees need to be actively involved
in selecting a location. The choice of site is
banana peel for new franchisees. “Rent is
usually the largest fixed cost in any small
venture and can suffocate your business,
especially at the beginning. This is one of the
biggest complaints I hear from franchisees,
especially those operating out of newly-built
malls. An excessively high rent can put you
out of business very quickly, as it also drains
working capital. It is a long-term agreement
that is seldom re-negotiated,” Balfour says.
Negotiate as much as possible and try to
work out a deal in which the rent is linked to
your sales – though this is rare.
“An industry guideline would be to have
rent that is not more than 9% of your sales.
Anything more than this means that the
franchise will struggle to be profitable and
is likely to fail. Ideally, you want your rent to
be no more than 7% of your sales revenue,”
he says.
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 69
Eric Parker, a Senior Partner at business
consultancy Franchising Plus
MARKET OPPORTUNITIES
While SA’s growing black middle class has become an
economic force to be reckoned with, savvy entrepreneurs are
shifting their focus to the more than 17 million consumers in
the lower living standards measure (LSM) segment
Aiming low
W R I T T E N B Y S ’ T H E M B I S O H LO N G W A N E
Themba Sithole
has made
a seamless
transition from owning a top-end restaurant
in the Pretoria CBD to serving the lower
LSM market. “I had the best dining joint in
the city,” he recalls.
One of his favourite sayings, “Hard work never
did anyone any harm”, rings true when he talks
about the endless business opportunities in
that segment of the economy. “I see value in
it,” says the entrepreneur, who now owns the
Shoprite USave supermarket in Siyathuthuka,
Belfast, Mpumalanga.
Sithole invested R6,4 million of his own
money into the project and later received
R1,7 million from the National Youth
Development Agency in 2013 to help him
acquire and develop land, as part of the
business strategy that helped him secure
the franchise.
He says the lower LSM market is booming.
“I enjoy operating in this space. The consumers
in this segment spend a higher percentage of
their disposable income on food and necessary
supplies.” Despite this, Sithole adds, few
advertising campaigns target the lower LSM.
Poor consumers were marginalised until
the late business philosopher, Coimbatore
Krishnarao Prahalad, challenged the status
quo in 2000. A professor at the University
of Michigan’s Ross School of Business
Administration in the USA for 43 years, he’s
credited with using his influence and creativity
to alert the world to the vast, yet untapped
buying power of the poor.
In 2004, Prahalad and Stuart Hart – an
authority on business strategy – co-authored a
paper, The Fortune at the Bottom of the Pyramid,
which was published by the Harvard Business
Review. In it, they argued that the fastestgrowing new markets were locked at the
bottom of the financial hierarchy.
“Customers are now active participants
who actually co-create the value they receive.
If we stop thinking of the poor as victims or
as a burden and start recognising them as
resilient and creative entrepreneurs and valueconscious consumers, a whole new world of
opportunity will open up,” they wrote.
This segment forms the largest buying
group in the world, even though they live
on less than $2,50 (about R26) a day.
According to Statistician-General Pali
Lehohla, five years ago it cost an
average South African R321 a month to buy
food with the recommended nutritional
requirements. This amount had increased to
R355 by 2014. In his Poverty Trends in SA report,
Lehohla said the number of people living
below the food line increased to 15,8 million
in 2009 from 12,6 million in 2006, before
dropping to 10,2 million people in 2011.
“Despite this adverse impact of the
financial crisis, poverty levels did noticeably
improve according to 2011 estimates. This
was driven by a combination of factors,
ranging from a growing social safety net
to income growth, above-inflation wage
increases, decelerating inflationary pressure
and an expansion of credit,” he wrote.
He added: “Unfortunately, while the
poverty situation is improving,
inequality in our society remains
a serious problem.”
“If we stop
thinking of the
poor as victims or
as a burden and
start recognising
them as resilient
and creative
entrepreneurs and
value-conscious
consumers, a
whole new world
of opportunity will
open up.”
With more than 17 million South African
consumers active within the lower LSM
group, researchers Dr Tashmia Ismail and
Dr Nicola Kleyn offer a fresh perspective
for entrepreneurs who are keen to take
advantage of the opportunities in this
economic segment.
In New Markets, New Mindsets (Jacana
Media), Ismail and Kleyn, who are both from
the University of Pretoria’s Gordon Institute of
Business Science, echo the World Economic
Forum when they urge companies to take the
initiative and move into these potential new
markets early to develop genuinely innovative
products and business processes. “They will
be in a position to gather valuable insights,
gain greater market share, reach deeper
into the bottom of the pyramid and attract
the loyalty of consumers and producers as
incomes grow and needs expand,” they write.
By way of example, Ismail and Kleyn share
a case study that investigated Massmart’s
investment in the lower LSM. Through its
subsidiary Masscash, Massmart is aggressively
targeting consumers in LSM groups 2-7 and
services both retail and wholesale customers.
Masscash, whose total sales rose 8% in the
year ending in February 2015, lists Cambridge
Food, Jumbo Cash & Carry, Trident, CBW and
Shield among its brands.
Cambridge Food Marketing Director
Andrew Stein says the brand is focusing on
the core of its customer base. “This market
was identified as an exciting opportunity for
towards ending hunger in the USA. In 2011,
the retailer gave R7,7 billion to community
initiatives around the world. In SA, Walmart
subsidiary Game’s Amalunchbox initiative has
provided container kitchen facilities to 100
schools in some of SA’s most disadvantaged
communities since 2008.
Sithole, who is currently busy with the
development of two shopping centres in
Bronkhorstspruit and Atteridgeville, north
of Pretoria, says he finds a deep connection
with the poor. “Later this year, I’ll be hosting
a Christmas party for the underprivileged
children of Belfast. I will also host a music
that will meet real, sometimes unique needs
at an affordable price. In fact, I also buy noname brands for my family. They are value for
money. Having said that, if you only had R20
in your pocket, you would buy a product that
would add value to your life. You wouldn’t buy
one if you thought it was inferior and being
dumped on you. We shouldn’t compromise
on quality.” DM
Market leaders
TWO COMPANIES WHICH HAVE
MADE A SUCCESS OF SERVING
THE LOWER LSM MARKET:
• Danone developed special yoghurts at
a lower price point and an ecosystem to
deliver them in townships.
• Blue Label Telecoms created convenient,
technology-based systems for the
pre-payment of airtime and electricity
and paved the way for a more inclusive
financial sector through mobile
banking services.
SA BoP
2009
Massmart, based on its vibrant and expanding
nature. We aim to bring dignified, modern
and world-class stores to under-serviced
communities and shape a retail format and
offering designed from the start to service the
specific needs of this market.”
Social investment is key to building
goodwill in this consumer group. In 2010,
Walmart launched the Fighting Hunger
Together campaign, donating R16 billion
festival and donate 10% of the takings at
the gate towards school fees for bright,
disadvantaged children.”
However, entrepreneurs looking to capitalise
on opportunities at the bottom of the pyramid
need to be aware of the pitfalls. Sithole says
one of the biggest misperceptions about lowincome markets is that consumers are prepared
to buy shoddy products.
“Low-income consumers demand products
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 71
Apex
19% are in LSMs 7-8
Buttress
37% are in LSMs 5-6
Core
29% are in
LSMs 1-4
Foundation
How researchers Clive Corder and Kerry Chipp
segment the local income pyramid (figure based
on Chipp & Corder 2009)
SOURCE: NEW MARKET S, NEW MINDSET S
15% of people are in LSM 9+
ALTERNATIVE FUNDING
R
R
Money from
the masses
Crowd-funding is a growing way of investing in and
getting investment for smart ideas. Every little bit
counts. Here’s how to make it work for you
WRITTEN BY BRETT HAGGARD
72 • DESTINYMAN • SEPTEMBER 2015
If you need motivation, ask the guys from Oculus Rift,
who raised $2,4 million (around R28,8 million) during
their Kickstarter round. A year later, Facebook bought
the company for $2 billion (around R24 billion).
GALLO IMAGES/GETTY IMAGES/ISTOCKPHOTO
A
s anyone in the fast-talking,
cut-throat world of startups will tell you, good ideas
are a dime a dozen. They’ll
also tell you that execution
is what matters and it’s
something that’s infinitely
more difficult to pull off if
you’re boot-strapping a company or project
with little or no funding.
So the jury’s decision seems final:
you need investment. But in the modern
(read: ailing) South African business
landscape, angels are difficult to come by.
And when you can find an investor, chances
are that their money is tied up in one or another
venture, or they might feel your idea is too
radical, altruistic or unable to yield a big enough
return to make it worth their while.
Enter crowd-funding, an alternative to raising
the capital you require to get started and keep
going from a wide variety of smaller investors
who think you’re onto something.
Investments made on global crowdfunding platforms like Kickstarter and
Indiegogo, or local ones like Thundafund,
Jumpstarter and StartMe, aren’t made in
exchange for equity in the company or on the
basis of a loan repayment plan.
The rewards backers get in return for their
investments vary in accordance with the size
of their donation and can be anything from a
“thank you”letter to dinner with the founders
and a plaque in the company’s reception area.
Generally speaking, though, when it comes
to product-based start-ups, the investment
made by an individual often secures the
backer early access to a first-generation
product. These might have unique serial
numbers, making them potentially very
valuable, should the start-up begin to soar.
But the rewards can get pretty crazy.
A prominent Kickstarter campaign for a
computer game made a few years ago offered
its top backer – who pledged R1,2 million – a
limited-edition copy, a suite in a top Las Vegas
hotel for a year, a Ferrari, a tactical firearm
course and a variety of other incentives.
Closer to home, BRCK – a Kenyan start-up
which manufactures a connectivity device that
supports every wireless standard imaginable –
offered a safari trip with the founders as part of
the rewards package for investors ploughing
R120 000 or more into the cause.
Finding the right rewards and a structure that
is effective in eliciting a response is an art form.
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 73
Putting together all the documentation for your
campaign is equally challenging.
Research compiled from the leading crowdfunding platforms over the past few years
show that the quality of the words and whether
you have a professional video to accompany
your pitch have a significant effect on the
outcome of the campaign. In fact, they might
have even greater sway than the product
or service.
It’s no surprise, then, that an entire industry
has sprung up around the creation of this
collateral for crowd-funding platforms. For
larger sums – anything in the realm of about
$1 million (around R12 million) – firms will
seek the help of professionals to assist with the
writing of their pitch, the creation of bespoke
graphics and an animated video explaining the
project, its goals and why they’re important.
These services don’t come cheap. Some
content creators will charge a flat fee, while
others want a percentage of the funds raised.
If you happen to employ one of these service
providers and choose the flat-fee option, you
could well find yourself seeking funding for
your collateral before trying your hand at
crowd-funding.
A video can cost you in the region of
R36 000, while a complete package, including
words and bespoke graphics, can run up
to R60 000.
If you’re looking at using a crowd-funding
platform, it’s also worth your while learning
the nuances of those available. Kickstarter, for
example, can only be used by people with
an American credit card, although it will take
donations or investments from anywhere.
Do your research before you start, possibly
by funding a couple of projects yourself.
Crowd-funding is the future. If you need
motivation, ask the guys from Oculus Rift,
who raised $2,4 million (around R28,8 million)
during their Kickstarter round. A year later,
Facebook bought the company for $2 billion
(around R24 billion).
To put that in perspective, if the Oculus
Kickstarter backers were able to choose stock,
instead of a poster, T-shirt or first-edition virtual
reality headset, they would have made a tidy
sum – roughly $145 for every dollar invested.
But that’s the way the credit card crumbles.
The thing about crowd-funded projects is that
they tend to be more risky. Otherwise they’d
easily drum up support from deep-pocketed
venture capitalists and seed-funders.
The main reason you should be interested
in crowd-funding is that South African
investors are too.
Although Kickstarter doesn’t accept
proposals from SA, it does allow locals to put
money behind projects. Last year, more than
3 000 South Africans donated $517 600
(around R6,2 million) to various initiatives.
That’s not insignificant. DM
Micro-miracles
While many entrepreneurs aspire to build an empire, there
are numerous business people who are content running
thriving small-scale businesses. We meet some of these
individuals, who are a vital part of the economy and whose
example could be the solution to SA’s unemployment crisis
WRITTEN BY SBU MKWANA ZI
SA’s economy does not
need any more entrepreneurs who think
outside the box. It needs people who do not
even know that there is one. They are the key
to taking the economy forward in small, but
significant moves.
The Hook-Up Dinner (Thud) is a fastgrowing networking initiative that assists likeminded entrepreneurs to ensure their ideas
end up as thriving businesses. Start-ups are
provided with a platform to tell their stories
to a roomful of potential collaborators – and,
more importantly, funders.
With a staff complement of five – who
double as its co-founders – Thud’s very
existence is based on not expanding. Its model
is to remain a boutique business
that yields larger start-ups
which eventually morph
into multi-national
corporations. It is the
Jomo Cosmos of
entrepreneurship, as
it remains small, but
produces some of
the country’s
most respected and dynamic companies. This
approach allows the team to be selective about
which businesses enter the first phase.
“Thud uses three formats to select a winner,
which is chosen by other companies involved
in the initiative. There is a pitching platform,
a networking mixer and we finish off with
our rainmaker sessions, in which we have key
figures in different spaces sharing their valuable
experiences and insights,” explains Bernard
Moshabane, Thud’s PR agent.
“What makes us interesting is our business
model: Thud is run by start-ups that operate
in different spheres. We use a co-operative
approach, with companies offering branding
and design, social media and technical
services,” he says.
In many multi-national conglomerates,
phrases such as “exit strategy” and “take-over”
are frowned upon, but when operating a
niche initiative like Thud that positively
reinforces other businesses, these words
mean they are succeeding.
“We don’t want the start-ups to stay with
us forever. They need to be contracted by
larger clients and corporates. This is why we’ve
branched from Jo’burg to other cities in SA.
We recently launched in Botswana and
Zimbabwe, where the interest has been
phenomenal,” says Moshabane.
As necessary as they were, gone are the days
when most of us could rely on fashionable
abbreviations such as BEE, EE, AA and PDI. The
future of our economy is being determined
by entrepreneurs who are willing to take risks
and join hands in order to continue being
part of the solution. The men who founded
Jo’burg’s only independent cinema, The
Bioscope, are two such entrepreneurs.
“My partner Darryl Els and I both studied
film and TV and he did his thesis
on the viability of an independent
cinema in Jo’burg. After conducting
due diligence, we started off as a
temporary set-up at Arts on Main. It
was so well received that we moved
to larger premises in the Maboneng
Precinct,” says Russell Grant.
74 • DESTINYMAN • SEPTEMBER 2015
Left: Bernard Moshabane
Thud’s PR agent.
This image: Bioscope
owners Darryl Els and
Russell Grant
SMALL BUSINESS
The future of our economy is being
determined by entrepreneurs who are willing
to take risks and join hands in order to
continue being part of the solution.
“At first, it was just the two of us. We
were very much hands-on, but as we
progressed, we created job opportunities.
We now have five employees who are
involved in the day-to-day running of The
Bioscope,” he says.
All one has to do to get a sense of how
many people big corporations employ is to
visit their smoking areas or canteens. It is
obvious that they are making a huge impact
on our economy. It is not as easy to notice in
businesses such as The Bioscope, but they are
just as important.
“Film-making is a broad industry that
involves many different people. A single film
that we support hires a crew, a cast, suppliers
and an endless list of other contributors.
The best that most film-makers – especially
documentary-makers – can hope for is to sell
their films to the SABC or be part of a film
festival. The Bioscope has added an extra
outlet for them. We support them by sharing
the risks and profits and screening the film.
This allows us to sustain many of the jobs that
were created when the film was shot. The
Bioscope is also a great springboard, as after a
film is screened, it can be bought by the SABC
and other media houses,” explains Grant.
The pair also runs the adjacent Chalkboard
Café which services patrons of The Bioscope
and the rest of Maboneng. “The real appeal of
such unique businesses is that they can’t be
experienced anywhere else. That’s why markets
do well,” he says. DM
Market economics
PHOTOGRAPHER: SARAH DE PINA. GROOMING: KATHRYN MARNEWICK
FROM THE OLD BISCUIT MILL IN CAPE TOWN TO MABONENG IN JOZI,
MARKETS HAVE BECOME A BIG SHOPPING AND LIFESTYLE ATTRACTION.
THEY ARE ALSO A GREAT WAY FOR SMALL-SCALE ENTREPRENEURS
TO LAUNCH NEW PRODUCTS AND SERVICES. BUT HOW DO THESE
BUSINESSES MAKE THE TRANSITION TO MORE FORMALISED ENTITIES?
Markets have proven to
be the starting point for
a number of established
enterprises in SA. These
have proven to be a testing
station and because of the
variety of consumers who
visit markets, they have
yielded mostly positive
results for business-owners.
But eventually, most
entrepreneurs want to make
the transition from market
stall to mall outlet.
In an open letter to the
Minister of Small Business
Development Lindiwe
Zulu, entrepreneur and
author of Forget the Business
Plan: Use This Short Model
(Amazon Digital), Tiisetso
Maloma, notes that one of
the most frustrating factors
for entrepreneurs is funding
models hindering innovation.
“I accept and understand
why banks fund projects
with some sort of security
and proven concepts,
but for something to be
truly innovative, it has to
lead. It will therefore be an
unproven concept, which
doesn’t fall within the
conventional funding ambit,”
he writes.
This applies to the typical
entrepreneur selling a
unique product at any of
SA’s markets, such as Cape
Town’s Neighbourgoods
Market, Jozi’s The Sheds or
Durban’s The Stables. So
how do these businesses
make the transition to
formal entities and realise
significant profits and
create jobs?
“Venture capitalism and angel
investing are picking up quite
nicely and funding disruptive
businesses. But their reach is
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 75
limited, especially with regard
to blacks. Someone whose
parents are lawyers or doctors
has a ready-made careeradvancing network, unlike
someone whose parents are
labourers,” he says.
Maloma suggests that this is
where the government can
assist entrepreneurs, so that
they don’t end up on the
long list of failed enterprises.
“Government can fast-track
the situation. The good
news is that most start-ups
don’t need a lot of money
– some need in the region
of R7 000-R70 000. I suggest
that a panel of experienced
entrepreneurs review
applications for
R3 000-R100 000 by
disruptive start-ups. Many
of them would be willing
to come on board on a
voluntary basis.”
SOCIAL ENTREPRENEURSHIP
Profit & purpose
Social entrepreneurs are a special breed.
These are individuals who are driven by the
need to find solutions to social problems.
We meet two such men
WRITTEN BY SISEKO NJOBENI
S
outh African entrepreneurs are increasingly seeing value in
pursuing socially uplifting business initiatives that promote
inclusive economic growth and create opportunities for others in a
country grappling with unemployment, inequality and poverty.
What sets social entrepreneurship apart from the work of NGOs?
Charity work is often driven by compassion for the less fortunate and is
dependent on donor support. Often, the benefactor’s agenda sets the
tone for the NGO’s activities. On the other hand, social entrepreneurs are
business people who see themselves as agents of social change. While
they are fuelled by this desire, they must also generate their own revenue.
A social enterprise is, first and foremost, a business with a social purpose.
Andile “Ace”Ncobo and Mdu Mnyandu are among this growing group
of entrepreneurs who use innovative, as well as tried-and-tested business
models, to achieve social transformation and change lives. They are just
two of the many unsung heroes who make a lasting impact on society.
MDU MNYANDU, FOUNDER: NGINVEST
M
nyandu’s NGInvest is a
BEE Level 1 company
based in KwaZulu-Natal
(KZN), with projects in
Gauteng, the Free State and the
Western Cape.“We specialise in
community economic development.
Basically, we design programmatic
interventions, repackaging viable
business opportunities available
in both the public and private
sectors to make them accessible to
communities for socio-economic
change. We also develop and
mentor co-operative businesses. I
believe in enterprise development
as a vehicle for creating jobs and
economic inclusion,” he says.
Mnyandu says he is bothered
by the definition of“poor”, the
commercial opportunities available
to this class and the hurdles
that prevent poor people from
participating in gainful activities in
order to improve their lives.
These questions have convinced
him of the need to complement the
efforts of government and corporate
SA to eradicate poverty and ensure
inclusive economic growth. He
bemoans the over-reliance on
consultants, saying this has resulted
in“low-impact”interventions.“Most
interventions are based on nonviable economic opportunities
and result in enterprise failures.
I wanted to help facilitate the
transfer of these good intentions
through well-structured projects
and programmes, resulting in lasting
socio-economic change. In my view,
this allows the private sector to focus
on its core business,” he says.
NGInvest designed and manages
the Passenger Rail Agency of
SA Community Empowerment
Programme, which sees 51 cooperatives clean 52 train stations
daily. The project is in its third year.
“We also manage the
implementation of the Masakhane
Schools Legacy Project, which
was conceptualised by the South
African National Civic Organisation
Development Institute. Seven
primary schools have been
renovated to date, in conjunction
with local communities. We are also
rebuilding a school in Bizana, Eastern
Cape, where struggle stalwart Oliver
Tambo was educated.”
The company has just finished
demonstrating a new concept for
the Hibiscus Coast Municipality in
KZN. Some 3 600 potholes were
repaired in four months, creating
jobs for 65 women and youth
organised into seven co-operatives.
“These are some examples of
the socially uplifting projects that
we design and manage, resulting
in job creation, skills development
and lasting change to the lives of
beneficiaries and communities we
work with. We are also involved in
other sectors, such as farming and
timber production,” Mnyandu says.
He adds that SA is a mixed
economy which rests on three
pillars – the government, private
sector and social initiatives.
“The social pillar is not properly
organised, resulting in a lasting
76 • DESTINYMAN • SEPTEMBER 2015
‘limp’ in our economic and social
structure. Securing this pillar will
anchor the other two. This can be
done through better community
organisation of commercial
opportunities and has been
proven on a global level through
the Co-operatives’ Movement. This
knowledge would result in more
people realising the value of social
entrepreneurship,” he says.
Mnyandu believes social
entrepreneurship is primarily aimed
at effecting socio-economic change,
with profit coming a distant second.
“Social entrepreneurship is necessary
in a developing SA to ensure that
the socio-economic benefits filter
through to the wider population
and help fight joblessness, poverty
and inequality.”
ANDILE NCOBO, CEO:
NCOBO HOLDINGS GROUP
N
PHOTOGRAPHERS: ANDILE MTHEMBU & ANDRE W GRIFFIN. GROOMING: K ATHRYN MARNE WICK
cobo is a former soccer referee, GM of
the Premier Soccer League and school
principal. His Ncobo Holdings Group has
subsidiaries in property development
and management, multimedia production,
public relations, image consulting, plant hire,
construction, project management and retail.
Born in Willowvale, Eastern Cape, the
entrepreneur believes that each citizen should
commit time, effort and resources to assist those
in need. Ace Ncobo Charity Institute is his vehicle
for driving social upliftment programmes. He
says the institute was formally registered as an
NPO in 2008,“but it began functioning when I
formed my own football club as a 14-year-old”.
Through his company, Ncobo has built
houses for destitute families and placed many
matriculants at university by facilitating their
registration and paying their initial fees. “We
give groceries to needy families and bury
paupers every year. We sponsor social events
and assist youth development projects with
funding proposals and business plans. All
of these are financed with a percentage of
net revenue from our business operations.
One of our flagship projects is a R1,5 million
community service centre, which incorporates
a fully functional clinic and government offices.
The Department of Health provides nurses
and supplies medicine. Although not yet
fully utilised, the offices are meant to house
government service departments and agencies,
such as those operated by Home Affairs, Social
Development and the police,” he says.
“I believe entrepreneurs
should help develop others of
their ilk, instead of throwing
money at problems.”
SEPTEMBER 2015 • WWW.DESTINYMAN.COM • 00
Having spent a lot of time in the largely rural
Eastern Cape, Ncobo is familiar with many of
the country’s most pressing social ills.“Poverty,
unemployment, lack of access to basic services
and poor quality of education in rural areas and
townships are some of the major challenges
faced by the masses. I believe entrepreneurs
should help develop others of their ilk, instead of
throwing money at problems.
“It is only when we grow the number of
entrepreneurs and remove the existing barriers
of entry into the mainstream economy that
we will start making a meaningful dent in the
scourge of unemployment, especially among
the youth. For example, when I meet a young
welder who needs help finding a job, I buy
a welding machine and material for making
security gates and insist that he employs at least
two others. The transfer of skills that takes place
will see the employees eventually opening
their own welding shops and employing more
people. In no time, you have nine young people
engaging in gainful economic activity.” DM
ECOMMERCE
Simon Hartley and Roy
Borole from Wumdrop
O
ver the past decade, e-commerce
in SA has gone from being a
nascent industry with a handful
of players to a burgeoning one
that’s developed enough to support a degree
of consolidation happening at the top end
of the market and the entry of numerous
smaller players. Add to this the companies
that have sprung up to make e-commerce
simpler and it’s clear the South African
e-commerce scene is no longer a curiosity,
but rather a key part of the digital economy.
SA’s biggest e-commerce player, Takealot,
which recently merged with another of the
sector’s big guns, Kalahari, is the closest
thing we have to Amazon. Other big players
include clothing retailers Zando and Spree
and the carefully curated sites Yuppiechef
and Superbalist.
But the most exciting developments are
from smaller players like WumDrop, which
offers an on-demand courier service in major
cities and relies on quality of service, rather
than pricing, to attract and retain clients.
are beginning to recognise this and are
becoming more willing to pay for convenience
or exemplary service. This, he says, is crucial,
because the cost of delivering physical product
remains high in SA, as it’s impossible to rely
on the post office for fulfilment. This means
companies have to rely on courier services and
either have to absorb the cost of these into
their margins or provide value additions, so that
customers are willing to pay a premium.
But are South Africans comfortable buying
things online? Borole believes so. “We’re seeing
a growing willingness on the part of consumers
to use the Internet as a shopping tool, whether
it be for research or actual purchases. Combine
that with developments in how you can pay for
things, which – outside of logistics – has been
one of the biggest hindrances and e-commerce
becomes a lot less scary,” he says.
Nevertheless, many South Africans remain
wary of buying online, but Borole says this
is changing as local banks make “aggressive
moves”towards facilitating secure payments,
more South Africans are granted Internet
access and those who are online become more
comfortable transacting digitally.
Nic Haralambous, founder of online men’s
socks and accessories retailer Nic Harry, says
the challenge for smaller e-commerce players
is “staying alive long enough for widespread
adoption”, but adds that the investments large
players like Takealot have received can only
help the sector generally, because much of that
money will be spent on attracting customers
and making them feel secure buying online.
“Africa is going to be the continent that reaps
the biggest rewards in the next 10 years, thanks
Rising tides
South African businesses are beginning to realise the massive
benefits of offering their wares or services online. At the same
time, some smaller players are hoping to tap into an increasingly
digitally savvy and trusting consumer base
WRITTEN BY CRAIG WILSON
“One of the cripplers of e-commerce is the
notion that because something is online, it
should necessarily be cheaper,” says Roy Borole,
co-founder of WumDrop. “But people are
coming to realise that if a service is superior or a
catalogue of products is better curated than it is
in regular retail, it may be worth paying more.”
Price sensitivity, he adds, is no longer the only
measure of value. South African consumers
78 • DESTINYMAN • SEPTEMBER 2015
to e-commerce,” Haralambous says. “If it wasn’t
difficult, everyone would be doing it. If I opened
a sock company in New York, I’d be facing tons
of competition, but here I have a first-mover
advantage. Nic Harry is a 10- to 15-year business
in my mind and, similarly, Takealot didn’t raise
investments only to exit the market next
year.” E-commerce, he says, is for those
willing to play the long-term game.
Nic Haralambous,
founder of online
men’s socks
and accessories
retailer Nic Harry
“Africa is
going to be
the continent
that reaps
the biggest
rewards in the
next 10 years,
thanks to
e-commerce.”
ECOMMERCE
So how does one survive in e-commerce
if success is predicated in part by patience
and resilience? “Have a good product and
website and excellent customer service,”
Haralambous says. “That’s true of all
businesses, not just e-commerce ones.”
Nic Harry generally responds to customer
service queries within an hour, because the
company has decentralised its customer
service, which means every staff member is
tasked with dealing with queries.
“I look at customer service as something
that happens before there’s a complaint,”
Haralambous explains. “There shouldn’t be
many if you have the right product, but you
have to give people the ability to communicate
with someone when they need to.”
Justin Drennan founded one of SA’s
early e-commerce businesses, Wantitall
and now heads up Parcelninja, a company
that provides logistics, warehousing and
fulfilment services for e-commerce, whether
for large bricks-and-mortar retailers wanting
to go online or newcomers looking to trade
online exclusively. He says there’s no doubt
e-commerce is on an upward trajectory in SA.
“All the numbers and broader trends
are pointing to the ongoing growth of
e-commerce,” Drennan says. “Parcelninja is
one of the enablers of this e-commerce wave.
We’re trying to ride the bigger, underlying
macro-economic story. If people want to get
their product or service online, we want to be
the guys to help them do it.”
While most attention has been focused
on the larger players, Drennan says there’s a
“groundswell” of smaller ones entering the
market. “The niche businesses are where the
real opportunity is,” he says. “Small players are
passionate about their product, understand it
and add value because of this understanding.
The bigger players won’t – or can’t – give that
level of specialisation in particular products.
People are willing to pay for it.”
Drennan says that even a year ago,
setting up an e-commerce business was
far more difficult than it is now. “There were
lots of components that weren’t as robust
and developed as they are today,” he says.
“Payments have been resolved and thanks to
off-the-shelf solutions like Magenta – which
plugs into your accounting and includes a
payment gateway – it’s possible to set up an
online store in hours.”
Other enablement partners like
WooThemes, a South African business that
started out selling customer themes for
content management system Wordpress
and now includes WooCommerce, which
makes creating online stores extremely
straightforward, have all helped make
e-commerce easier to get into. “For me, that’s
exciting,” Drennan says. “Especially because
people are getting much more comfortable
shopping online.”
Drennan says South Africans are definitely
beginning to see e-commerce as a viable
means of buying goods or services – and
success from the big players can only help this
trend continue. “Even my mum’s comfortable
buying things online now,” he says. “What’s the
saying? ‘A rising tide raises all boats.’” DM
DO’S
DON’TS
Ensure you give
customers the best
possible experience.
Think that
e-commerce
is easier than
traditional retail
or services.
Remember you’re
going to have to
be patient.
Consider that
people will pay
a premium for
curated products
or convenience.
Rely on the post
office for fulfilment.
Expect to be
able to receive
international
payments easily.
“Small players are
passionate about
their product,
understand it
and add value
because of this
understanding.
The bigger players
won’t – or can’t
– give that level
of specialisation
in particular
products.”
Justin Drennan, founder of
Wantitall and now heads
up Parcelninja
80 • DESTINYMAN • SEPTEMBER 2015