How 7 Entrepreneurs Went From Massive Debt To Incredible Success
Almost 90% of all startups fail within the first year. But failure isn't final, as these seven entrepreneurial successes demonstrate. Their businesses have gone from being in the red to massive profitability, thanks to grit and determination.
Brian Little and Craig Bright: Seed Experiences (Rocking the Daisies)
The first Rocking the Daisies festival left its founders more than R400 000 in debt. Craig Bright and Brian Little decided to keep going anyway. It took four years to settle that debt, but they knew they were breaking into an industry notorious for low margins and even losses.
When Brian and Craig first decided to host a music festival, they knew they'd have a few challenges. They had no money, no venue and no acts. And while a few isolated events existed, there was no music festival culture in South Africa.
The solution? Craig sold his house, Brian sold his car and they both borrowed cash from their parents. "We were so inexperienced we ended up spending money on all the wrong things," says Brian.
"We put a full 2kms of fencing up," recalls Craig. "We were very, very ambitious about how many people would attend, and we didn't want anyone sneaking in. That fence cost us R20 000 and a lot of time and hard work because we put it up ourselves. And then 700 people arrived," he laughs.
Through contacts they secured new local acts the Parlotones and Goldfish, printed fliers and hoped for the best. All in all, the event cost R1,1 million to put on. They made R350 000 in cash.
But they didn't give up. Instead, they found a way to bring brands on board as sponsors and to create experiences for their festivals goers. As their events grew, so too did the experiential marketing offerings they could give their clients. It just took patience, hard work and some smart pivots.
"What are we good at? Where are our skills? What aligns? And what's good versus sexy? It's easy to get seduced by the sexy, but is it right for the business? Does it align with our strategy? A key learning for us has been when to say no. It's often tempting to take on a project to prevent another promoter from doing it or to please a sponsor, but that doesn't mean it's right for the business."
Kevin Vermaak: Cape Epic
Kevin Vermaak has managed to turn an 8-day mountain bike stage race into a renowned international brand. But it wasn't easy. Although the Absa Cape Epic is now a successful race with a strong title sponsor and R63 million in annual turnover, getting it there wasn't easy.
"When I first came up with the idea of the Cape Epic, I was 30 and it was a way to spend a really cool year and create something special while I figured out what I wanted to do next. That lasted for about three months, and then I started looking at the event like a real business — the potential to do something great and leave a legacy," recalls Kevin.
Kevin pushed hard to get the Cape Epic off the ground, and from the outside it looked like an incredible success. In the first year it had sold out in three days. By the second year that was down to under five hours, and by the third year they had to implement a lottery system to handle the amount of entries received. Riders loved the race. In a short space of time it had become incredibly popular, both locally and internationally.
"The problem was that the numbers weren't working. I was hiding the truth from everyone: The riders, my staff, my suppliers. No one knew how bad things were. The riders paid their entry fees upfront, nine months before the race. They'd never trust me with their money if they knew I was using it to pay for the previous year's race. I understood that their perception might be that the race might not take place, even though I would never, ever have let that happen," says Kevin.
"Getting Absa on board was a major win, but it didn't immediately solve all of my money problems. Our third year ended up being our biggest loss. A title sponsor meant glitzy press events, PR agencies, and sponsorship agencies, all of which come with a price tag. In fact, five events in a row made a loss. By 2008, our turnover was R22 million, but our accumulated losses amounted to R8,5 million. We even extended our bridging loan from the IDC to R5 million to ensure we had sufficient cash flow to stage the event.
"The fact that we were oversubscribed and there was so much hype around securing an entry to the Absa Cape Epic was a massive pull for sponsors, which had always been my focus. To monetise this event I needed sponsors, not more riders. This is where a mentor is so crucial and adds such huge value. Neville Crosse, the youngest CEO of a JSE listed company in the 1980s and the chairman of Omnia Holdings in 2008, forced me to evaluate my own preconceived ideas around entry fees. The following two years we increased the price, year-on-year. In 2010 we made a profit. By 2012, we were in the black. We'd paid off our debt and were now finally a sustainable, profitable business."
"Growth was never going to be about more riders, which is the model for most amateur events around the world. More riders mean more costs. We needed a way to leverage what we had without incurring more costs. The Tour de France only has 198 riders. You don't need to be a huge event by participation numbers to be successful. You need to monetise what you have."
John Nicolakakis: Romans Pizza
The first Roman's Pizza franchise John Nicolakakis ever sold was to a complete fraud. He was 23 years old, and it was his first deal since joining his father in the family business.
"I was so excited when he handed over the cheque for his joining fee. I didn't realise it was the last cash we'd see from him. He couldn't even cover his set-up costs. We had to step up and help him get the business up and running. We basically loaned him the money to buy a franchise from us. And we had to do it. The brand was more important than my mistake."
John's father hadn't liked the prospective franchisee, but he'd gone through with the deal anyway, against his father's wishes. It was a lesson the young businessmen took to heart. "From that moment on I became far more discerning, and a lot less eager. The agreement that my father and I had when I joined the business was that we would embark on an aggressive expansion plan," says John.
As so much of the brand's success rests with its franchisees, the company has also fine-tuned its franchisee selection process since John's early (and over-eager) mistakes.
"Our first step is to verify financial records and vet all financial criteria," says John. "We learnt the hard way that you can't just take someone's word at face value. We conduct personal interviews and do psychometric testing as well." As a rule, Roman's Pizza franchisees should be owner-operators, and before any documents are signed or money exchanges hands, each prospective franchisee spends one full week in a store, from open to close.
According to John, many prospective franchisees drop out of the process at this point. "This business is a lifestyle choice. You either love it, or it's not for you. But it's important to know which before we embark on a relationship together. Protecting the brand is far more important than selling another franchise. We want our franchisees to love what they do and what Roman's Pizza stands for."
"I wanted to grow a brand that would be a household name. But I realised that there's a right way to grow, and a wrong way. Every decision I made from then on had to take the sustainability of the brand into consideration."
Rodney Norman: Chrome Supplements and Accessories
When Rodney Norman was 21, his first business ended up R1 million in debt. With so much owing to suppliers, he couldn't continue trading.
It took him two years to pay off the debt, but as soon as it was settled, he quit his job – as an employee of his own business – to build R100 million-rand business Chrome Supplements and Accessories.
Rodney's a born trader. If he's not making deals, growing a customer base and finding solutions to all the daily challenges that running a business brings, he's not truly living. Chrome SA is the result of taking life's knocks on the chin, and then manning up, facing the music, and growing stronger through adversity. A lesson he began to learn at the tender age of 15, when he was kicked out of school in Grade 10. His parents were not impressed. Determined to teach their son to face the consequences of his actions, they told him to find a job, pay rent, or move out. It was the greatest gift they could have given him.
"I got a job at the local gym as a weight packer. But my studies through Intec College cost R650 a month, my rent was R650, and I only earned R1 050. I needed to find a way to supplement my income." Rodney was athletic; he worked out and was interested in supplements. Soon people at the gym started asking his advice on supplements, and he saw an opportunity. He offered to organise products for them, adding a small mark-up for himself.
"The gym had a strict no-supplements policy, so I'd deliver the products before and after my shifts. I once cycled from Edenvale to Isando to make a delivery that was worth R50. I was that serious about building up my client base." It worked. That customer is still a Chrome client today.
"At 21 I had this enormous debt. Where the hell do you get R1 million? It was a defining moment for me. I could call it quits or get stuck in and make it happen. I managed to pay it back in two years. That's all it took. I just had to start. I remember my dad telling me he would never see R1 million in his lifetime. It was this huge sum. So how could I do it? The answer? Slowly. I was young, but that was also to my benefit. My life wasn't over. I knew it would be a rough few years, but I also knew that if I didn't man up and make this right, I would never build the business I now knew I was capable of building."
Peter Mountford: Super Group Holdings
When Peter Mountford was asked to return to Super Group as CEO in 2009, it was to help the holding company regroup and find its way back to profitability. The business had lost its way. Super Group itself had annualised pre-tax losses of approximately R1,5 billion. Its borrowings had escalated to R4,3 billion and there was virtually no shareholder equity left in the business as a result of aggregated losses.
Something had to be done if the group was to survive. Sharks were circling the waters, looking for opportunities for a hostile takeover. Attrition and even death were imminent. The whole situation was a lesson that even large, profitable businesses can lose their way. It was time to make some changes.
"In a sense, the group had lost direction from 2006 to 2009. Our core businesses are supply chain, fleet lease and dealership businesses," explains Peter. "We had lost sight of that and expanded into a series of industrial products businesses, which were importing and assembling a range of Chinese trucks, material handling equipment and so on. These businesses had underperformed and were losing R1 billion per annum."
Peter spent three years focused on regenerating Super Group's three core business pillars, highlighting the importance of cash generation. "We managed to turn the group around to modest profitability — R150 million pre-tax profit by 2010," he explains. By 2012 the core group businesses were starting to perform well, and had paid back all its borrowings, were in a net cash position, and had managed to re-establish ownership of the underlying net assets of the business.
"We did not repeat Super Group's mistake of the past, which was to enter into completely new territories. Instead, we focused on opportunities that played into our core strengths. Experience has taught us that you can end up over-investing in a business that doesn't perform."
"To be successful, I believe you need to retain a small business mindset. You need to be quick, decisive and entrepreneurial in your decision-making processes. We've resisted bogging the organisation down with administrative processes and documents, such as daily sales forecasts, daily order covers and daily cash flow forecasts. We run a small executive team at group level and keep our decision-making process highly efficient. Bureaucratic matrix structures tend to be removed from the coal face; when that happens, the wrong decisions are made, which ultimately hurts the business."
Pepe Marais and Gareth Leck: Joe Public
Pepe Marais and Gareth Leck's paths first crossed when Gareth saved Pepe's life. A few years later they were introduced by a friend who thought they'd make excellent business partners. Today they're South Africa's largest independent agency, with a turnover of R700 million, and gross profits in excess of R200 million.
In 2006, eight years after launching their business, and five years after selling it, Pepe and Gareth's biggest client fired them. The account brought in 40% of their revenue, and the company needed to retrench 50% of its employees as a result.
It was the single worst day of Pepe and Gareth's careers. They no longer owned Joe Public, but it was theirs in name and brand, and it was they who had to retrench staff.
However, losing their biggest client also allowed Gareth and Pepe to not only buy back their business, but find their purpose and change the course of the company as well.
"We wanted to zig while others zagged," says Pepe. "When we got the chance to buy back our business because of the huge losses we had suffered, we changed our focus. We'd been part of a big corporate that only looked at the bottom line. From 2009, we stopped doing that. We put product first."
"One of our clients once told us that all they wanted to do was serve the best possible product to customers, with the best service, at the right price to give value," says Gareth. "It really resonated with us, reaffirming everything we believe as well. We all tend to complicate business, when what we should be doing is serving our clients — and the best way to do that, is to do great work."
"The problem is that you can't put bottom line at the top. Revenue is a lag factor. If you become too focused on it, you lose sight of the rest of the business. You can't measure the health of a business on the bottom line. The year we made our first million, we weren't focused on the bottom line. We were focused on delivering the best product and service possible, and the natural result was a big, fat bottom line."
Max Lichaba: Lichaba Creations, Kwa Lichaba and Lichaba Custom Rides
Max Lichaba finished school with a Grade 10 and no prospects, except for a burning desire to do more with his life than become a miner like all the other men in his community. He started a jewellery business, lost everything, and painstakingly built it up from scratch again.
"Starting over is one of the hardest things in life. I had nothing, and worse, I'd failed the people I had wanted to protect. They were all jobless, my old ladies and my new staff. The younger staff who hadn't been with me at the beginning were particularly angry and wanted their salaries. I was devastated," recalls Max.
How had it happened? He'd taken his eye off his jewellery business, Lichaba Creations, which was booming and practically ran itself, to concentrate on the school he'd started to teach the next generation of jewellery designers. "We'd moved into new, bigger premises to handle our increased international orders. The first payments came through 12 months later than expected."
Lichaba Creations was effectively carrying the school, and the result was that Max couldn't pay rent for the jewellery business.
"After two months our landlord told us he was locking our doors. I needed to get back on my feet, and I no longer had a business, or the school. I started by reaching out to my old school — could I teach there?
"For six months, that's what I did. I taught and saved every cent I could. I sold most of my furniture and slept on a mattress on the floor. When I had enough cash in the bank, I started visiting all the pawn shops in Welkom. I knew my equipment was specialised, and I had a feeling that the people who had bought it wouldn't be able to use it. I was right — I started to find my machines at different pawn shops. Piece by piece, I bought them back.
"It took eight months, but I was able to get back up and running — at a very small scale. I worked from my flat, exporting to India and the UK. I was totally focused. I vowed I would never lose sight of my core business again, even if I pursued other ventures."
Today, Max runs Lichaba Creations alongside restaurant and carwash business Kwa Lichaba and Lichaba Custom Rides, a car customisation and sound business.
"Start small, but start — that's the key. I could have gone out and tried to figure out how to raise R100 000 for fancy machines. I didn't do that. Instead, I focused on trading — bringing in cash to feed and support us. The equipment took us to the next level, and I was able to look for our next opportunity."Related: How Max Lichaba Built a R120-Million Business With Only a Grade 10 Education