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How Karl Westvig Built Retail Capital Into a R150-Million Business Starting a business is easy. You need a white board, a cool idea, and a small amount of cash to get you started. The real challenge comes down the line, when you're trying to scale your business, stay true to your vision, and answer to investors.

By Nadine von Moltke-Todd

You're reading Entrepreneur South Africa, an international franchise of Entrepreneur Media.

Mike Turner

PLAYER: Karl Westvig
COMPANY: Retail Capital
TURNOVER: R150 million (2017)

Anyone who has successfully navigated a business from a R5 million turnover to R30 million, then to R100 million, and heading towards the billion rand mark knows that growth might be the goal, but it's also where businesses stumble and fall. When you're on a growth trajectory, there will always be some areas of your business outpacing others.

The trick is to hang on, and bring your customers, employees, investors and directors on your journey with you, improving the business each step of the way. Here's what Karl Westvig, co-founder of Retail Capital, has learnt along his journey, and why he's continuing to enjoy year-on-year double-digit growth.


Retail Capital's core product is a merchant cash advance. When the company launched in 2011, there was limited competition in South Africa, but Karl knew that would change.

"South Africa is a high card-usage market, which is what you need for merchant cash advance products to work. You need to be able to track the monthly income of an SME to determine the size of cash advance they qualify for, and collect the loan repayments through POS (or point of sale) card machines.

"My founding partner, Dave Lewis saw the product in the UK, and believed it would work here, thanks to our high card penetration. That meant other competitors would soon join the field. The product itself wasn't our differentiator, but that didn't mean it wasn't a business worth pursuing."

In any industry, you need to evaluate competitors and whether the market is big enough for you. Karl and Dave believed it was, and that SME finance was under-served, but they also knew they needed a differentiator. "We brought the concept to South Africa and built our own back-end. The way to differentiate is through channels and distribution, as terms and pricing structures are the same.

"Our differentiator is our people. It's about who we are and how we train. We have 40 sales consultants nationwide who conduct face-to-face visits with our customers. We don't push product, we provide a solution.

"We work hard to understand each owner's business, and whether they will get a return on investment from a cash advance. We evaluate what the money's for, what the margin on it is, and whether it makes commercial sense.

"There's no point taking money unless you can make more from it. For example, if it's used to procure much-needed stock, or gain a large settlement discount from a supplier, that's an opportunity.

"But, plugging a cash flow hole to pay salaries doesn't make sense. You should always ask what the benefit of cash in hand is, and then determine if a cash advance makes sense.

"We've developed the tools we use to evaluate this in-house. We've gone from zero to 40 sales consultants and we've been testing our processes and learning from them throughout that journey.

"We manually underwrote our early deals, and tracked what the advance was used for, how long the terms were and whether there was a return. "This process has been automated in recent years, and we now have a wealth of data available to us, but we also have consistency.

"This means our clients can walk their journey with us. They understand the cost of the money, why they are getting it and their ROI. By the time they deploy the cash, they understand exactly how they're using it."


Retail Capital's first product was a premium offering targeted at restaurant owners, franchisees and independent retail stores. "There are 200 000 POS systems in independent chains and single stores across the retail and restaurant sectors in South Africa, and 50 000 franchise stores," explains Karl. "This was our target market."

The offering suited the first segment of their market, but they struggled with franchise owners. "The independent space works for us. We're almost like private bankers for SMEs. Our consultants understand the SME space — many of them have first-hand experience running a small business — and we work closely with our clients. We have business owners who have used us for seven years and have significantly grown their businesses over that time."

Franchising was a much tougher nut to crack. "We faced a lot of resistance from franchisors who didn't understand why their franchisees would need to borrow money — particularly a premium, and therefore more expensive product.

"We realised there was a disconnect between franchisors and their franchisees. Franchisors saw the product as too expensive. Franchisees had experience in trying to secure loans when they didn't have assets to borrow against, and banks lend against balance sheets, not cash flow. We realised we needed to stop fighting the franchisors and partner with them instead."

Retail Capital approached a number of franchisors and explained the pricing structure of merchant cash advances, particularly that higher risks for them meant higher interest charges for their (Retail Capital) clients.

"We said we could bring the price down if the franchisors could help us derisk their franchisees with pre-vetting, and letting us know who the good operators who used their cash reserves well were. We brought franchisors into the fold and could pass on better pricing because we were taking on less risk."

Karl has taken a similar approach to the micro segment of the market. "There are 50 000 micro retailers in South Africa, but this segment is growing rapidly," he explains. "Within the next five years that 50 000 will be 250 000."

It's a segment that also benefits from cash advances, but not at the price point of Retail Capital's premium product. "We watched the development of mPOS (mobile points of sale) devices overseas and found local producers like iKhoka and Yoco.

"Our approach is simple; they have the devices, we have the capital and the system to disperse funds. It's too expensive for us to service this sector face to face. It needs to be a fintech play, which was why we partnered with companies that had the devices.

"There are three sides to a deal. The originator (the device), the capital and the operator. The data that runs through the devices allows us to pre-approve micro vendors for a specific amount over relatively short payment terms. The risks are higher, but we mitigate them with cost-free delivery of the loans.

"The systems and processes to get the funding to a micro operator and collect payments is our area of expertise, but we recognise that the originators will also want to hold the book. Yoco for example is building scale. To truly grow they need to become lenders themselves.

"This is going to happen whether we like it or not. Our current joint venture model allows them to partner with us, and eventually we will just be the operator. Within this particular market, we'd rather have that than nothing, which is why we're flexible.

"There are other business benefits for us. Our technology is our platform, and this can be used in many other ways. We're operating in a minefield of opportunity, collecting risk data on industries across the SME sector that we will be able to apply to other products.

"You don't need to own every channel of a value chain. Working with the right partners can be much more valuable, and opens doors to new opportunities."


"The most exciting part of Retail Capital for me is re-imagining the business. Dave built a great business before he exited to sail around the world. It was profitable and well-managed, but with a single product.

"When I walked in I took a different approach. I started by asking what our customers were looking for, and listening to what they were telling us, instead of pushing them into nine-month products. Whenever you launch a new product, you need to start with a profitability framework.

"For us, this meant asking what our return on capital requirements needed to be across three to 18 months. Once we knew that, we could build it and offer adapted products to the market.

"Adapted products require adapted training. Too often companies add products, but don't walk their teams through the new offerings, and so everyone sticks to what they know. "We also looked at what other markets we could enter, which led us to franchises and the micro segment.

"What you really need to understand is your core. Financial services are all about distribution. Can you give it out, and can you get it back? Everything else is the framework that supports this core."

According to Karl, the question "can you give it out?' is about creating a product that you deliver where customers want it, whether that's on the phone, online, or through face-to- face engagements.

"You need to give your customers touchpoints at places convenient to them. Great businesses build capacity around their customers. Understanding their routines and what's convenient to them allows you to invest where it makes sense.

"By listening to our customers, we could give them what they were looking for. We built new products and extended existing products based on this data."

The second question, "can you get it back?', involves underwriting and collections, and this is where Retail Capital's IP resides. "You need to be able to set different limits and risk levels for different industries. There's no such thing as one solution fits all in the SME space," explains Karl. "Fashion stores and restaurants can afford to repay 10% to 12% of their credit card turnover, but FMCG stores wouldn't have cash flow if their repayments were that high.

"Industries have differing risk profiles and require different terms. This develops over time. The longer you spend in the market, the more you can increase your efficiencies and reduce risk."


Two of the institutions that fund Retail Capital's book are Ashburton and FutureGrowth, both large and established investment funds. "Today we are a rated business. Our returns are healthy. We're a high-yield alternative investment," explains Karl. "As our rating goes up, our interest rate falls, and we are able to pass that saving onto our customers. But that takes time."

You don't go from being a start-up to funded by Ashburton overnight. You need a good track record, a professional and experienced team and stable loss rates. In short, you have to prove yourself in the market. Building something of value takes time and patience.

There have been challenges along the way, matching the balance sheet. "If you're doubling the size of your business year on year, you need to be able to fund the growth of your book. The problem is that customers and money are seldom in balance.

"One is always stronger than the other. If you get funding, you need to find customers. If you suddenly have an influx of customers, you need funding.

"Then it's down to distribution. You're doing great, signed deals go up, your volume takes off, and now you need to run to your funders for more cash."

Retail Capital doesn't only have investment funds backing its book, but also equity investors. The management team owns 51% of the business, but various funders have been involved since the business's inception.

"From a corporate perspective, growth triggers changes in a business, and those require investment. However, while we were experiencing rapid growth, our profits went backwards.

"People, systems and marketing are all significant costs, and they were all happening together. At the same time, I had to keep the confidence of my board and investors.

"As an entrepreneur, you sell your vision. Mine was that we would grow between 70% and 100%, and we weren't hitting the numbers. It's tough to keep the faith in a high-growth environment, and you really only get three strikes.

"How do you explain your vision, inner workings and full pipeline to a board that's removed from your business, is risk-averse and doesn't understand your sector? There was a six-month lag between where we were and where we said we'd be, but I knew we'd get there."

However, confidence was waning because of the mismatch between the business and its investors.

"I realised I needed to find shareholders who understood where we were going. FutureGrowth was already funding our book. They understood our business, and we'd worked well together. They wanted a stake in the business, and they supported a management buy-out that would exit an investor who wasn't comfortable in the business, and enable management to increase their stake. Ultimately, it all comes down to patience.

"Build the business that you envision, step-by-step. It takes time, but if you do it right, and lay strong foundations, the right people who share your vision will come on board."


"I'm a builder. I view business as a puzzle. I picture it, work out what needs to go where in terms of skills, capabilities and solutions, and then I put it together," explains Karl.

In 1999, Karl was instrumental in launching and growing RCS, the Foschini Group's consumer finance business. "We monetised Foschini's store-card base by creating personal loan products. Once we'd proven the model, we offered third-party credit to the customer bases of others."

Then, in 2005, Standard Bank acquired a 45% equity stake in RCS, buying out the management share, and giving Karl and his management team an exit. Karl had a three-year contract to work out, but by 2008 he had a decent bank balance, and a blank piece of paper to fill.

"I could have had a small retirement, but I really wasn't ready for that. I was in my 30s, and I'd had too much fun building RCS. I wanted to build something new. I took a sabbatical to Lake Como in Italy, and set up an Angel investment fund, Como Capital. I wanted to look for interesting opportunities and build them out, but I didn't want to be involved in the day-to-day operations."

He invested in five different businesses over two years — and learnt a host of expensive lessons. "Lesson one, if you don't have a deep understanding of an industry, you're unlikely to be successful," says Karl. "The credit-related businesses I'm involved in are a success; others have been less successful. You can read extensively, but if it's not your core industry, you don't know what you don't know."

For example, one of the businesses Karl invested in is a self-service recruitment portal. "Our idea was to cut out the middle man — agencies — which made sense to us. We thought we'd revolutionise the industry with our app.

"But, good tech and great people aren't enough if you don't understand your industry. Recruitment is entrenched in corporates. We needed buy-in from people who didn't engage with technology, and felt the value proposition of our offering threatened their positions.

"We couldn't get traction. Plus, the most successful recruitment platform, LinkedIn, was already happening, mobilising people and data."

Karl's second big lesson was that it's easy to start one, even five businesses — but when they all need you at the same time, you have five failing companies. "Start-ups are fun," he says. "You need a white board, you brainstorm cool stuff, you partner with great people and put some cash in. What's hard is when things aren't going well and the business needs you full-time.

"Some of the businesses lost money, one broke-even, one made money, and one's a great business — that's Retail Capital. The difference between it and the other four was that as a credit-related business, it was in my wheelhouse.

"My founding partner also came from a credit background. He spotted the opportunity and we launched together. I was very involved in the start-up — underwriting deals, policies and hiring people, but as the business grew, Dave handled the day-to-day operations. The company didn't need two bosses."

For Karl, a successful business needs two things: Passion and knowledge. "We had both. When Dave stepped down and I took over the reins, I knew that to continue feeding my passion as a builder, I had to view the platform we were building as a launchpad for other initiatives.

"Instead of being involved in other start-ups, I added other products by leveraging the Retail Capital brand, balance sheet and credibility. When you build a business, you create a credit history and a track record. If you leave, you start again from zero. That's how I continue to tick my personal boxes."

Karl continues to be a builder within the business. "There are always areas to improve and grow," he says. "High-growth organisations have different needs to start-ups, but they are still puzzles that need solutions. That's my focus. Finding ways to continuously build and improve this organisation, for the business and everyone who works for it or does business with us."


Here are the top nine lessons Karl Westvig and his team have learnt about motivating, retaining and managing employees.

1. Equity is a misnomer. People place more emotional than economic value on shares. A minority shareholding in a small or untraded business has limited liquidity. The only way you can get something out is if a big buyer comes along.

I believe it's better to create a structure where top employees participate in the economics of the business and feel like shareholders, but they have an exit opportunity through share option schemes. If you're using shares to reward or retain top employees, make sure there's an exit plan.

2. Without net promoter scores, how can you know what's going on in your business? We spend a lot of time on our culture internally, and we use net promoter scores for staff and customers to ensure we're on the right track.

At the end of each month we phone every customer we've advanced to during the previous month and ask them if they'd recommend us to another company for funding. If we don't score a 9 or 10, we ask why, and then immediately follow up. We have a full time CRM manager who visits customers to resolve issues.

We run a staff engagement survey biannually, including a net promoter score that asks whether staff would recommend us as a workplace. 9s and 10s are promoters, passives score 7s and 8s, and anyone who scores a 6 and below is a detractor.

3. We take employee experiences seriously. Net promoter scores aren't just about gauging how happy your employees are. We implemented Gallup's Q12 survey in 2015, and it's helped us tackle challenges head-on. The questions are straightforward: Do you understand what's required of you? Do you have a best friend at work? Do you have all the tools required for you to do your job? Do your peers do as good a job as you do? Have you received recognition in the last seven days from your manager and so on.

These questions hone in on your business. We present the findings back to our staff — it's completely transparent — but we're also able to pick up on underlying issues that might otherwise be missed.

For example, one of our top sales consultants became a sales manager. Because he was so good, his team kept growing — until it outgrew him. Without this survey, we wouldn't have realised he needed help until he left or we lost important members of his team. Instead, we were able to scale his team back and put him on a more controlled growth path.

This also alerted us to the consequences of outpacing our own growth. There's always a lag between growth and resources, but if we can see how this affects our employees, we can manage it.

4. Sales is a personal experience, support this. A few years ago, we implemented an "explorers' programme by partnering one call centre agent with two sales consultants. Instead of cold calling, the explorers worked with their sales consultants to set up strategic meetings in specific areas each day, attending some as training. This enabled explorers to develop into consultants.

But something unexpected happened. The number of appointments booked doubled. We realised it was because instead of following a script, hitting a call quota each day and then starting from zero again, the outbound call centre agents were booking meetings for a specific person, and then receiving feedback. The loop was being closed, and it was highly motivating.

5. Think long-term. As we started growing, we needed managers, particularly in sales, and the natural inclination was to promote someone from within. Because we didn't want to miss out on sales, we let our sales managers continue to sell, competing with their own teams. We soon realised that this was in conflict with the long term value they offered as the team's support structure.

6. Create a higher purpose for everyone. It's natural within a sales-driven organisation to have a big sales conference each year and ignore everyone else. We realised this was damaging the company's morale, and driving a wedge between sales and back-office staff, who needed to work together.

People are scared of changing structures because they fear losing sales people, but by doing so, we reenergised the company. We turned the sales conference into a company conference, bringing everyone together. This led to a marked increase in commitment and overall performance.

When I first arrived, there was unproductive rivalry between sales and underwriting. Sales pushed deals and underwriting said no. By bringing them together at a conference, they started chatting to each other and understanding the process and what would and wouldn't go through. It broke down barriers and helped deal flow.

As soon as you create a higher purpose, much of that kind of rivalry goes away, and everyone starts looking at the bigger picture, and how things can be achieved together.

7. Belief is half the battle won. We rebranded the business in March 2017. This was the culmination of a lot of changes, and we wanted to pull them all together and give everyone a sense of unified purpose.

Throughout the journey we kept talking about growth. At that stage we were growing at 15% per annum, and we said our aim was 50%.

Our sales team said it wasn't possible. It is, we said. Within two years, instead of doing R15 million a month, we will do R30 million. They still didn't believe us, and then the metrics started ticking up because of all the other changes we'd made.

As the metrics climbed, everyone started believing, and the metrics climbed higher. Belief is a self-fulfilling prophecy.

8. Anything is possible. Two years ago, it took five days to process a deal. I asked our executive responsible for underwriting why it couldn't be one day. He said that wasn't possible. "Of course it's possible. Your task is to find a way. How long will you need?'

His response was two months. I told him he had one week, but he didn't need to do it alone. "Gather everyone involved in the process into a room and map it out, then figure out what needs to be fixed.' By that Friday he reported back to me completely excited. "We don't need to do all the stuff we've been doing that takes so long,' he said.

The exercise had revealed how many steps in the process were unnecessary, and they were able to cut deal processing down from five days to two days. Within two months this simple change radically improved customer experience, gave more visibility to sales people who could understand the process, automated a lot of our business, but most importantly, it changed everyone's mindsets.

When you have unrealistic expectations of people, it's amazing how they surprise themselves — and then become the biggest advocates of that change. This is why an organisation's belief system is so important. You can have great people, but if they don't believe, you'll never have the business you can have. Once they believe, it's amazing what you can achieve.

9. Foster an active culture. Every business either has an active or passive culture. In passive cultures, the business operates and people carry on. Within that environment, a person might be positively impacting those around them, or doing the exact opposite.

In business terms this is known as "white anting', eating the ant's nest from the inside out. It's highly destructive. There will always be a passive majority. They don't hold strong views about the organisation and they just operate. The active minority share their views.

These can be positive or negative. If they're negative in a passive culture, they start controlling the information flow and views within your organisation — like a cancer. But if you're actively managing your culture, they get exposed.

You can quickly identify who doesn't want to be there and who is disengaged. Sitting in their office, they won't be noticed, but on an office breakaway you'll see who is engaged and who isn't. Once you've identified them you need to determine if you can convert them.

These are people with views — if you understand why they are negative and can convert them, you can create a powerful positive influencer within the organisation, but if you can't you need to exit them. Whatever you do, foster an active culture. The passive majority will push back at white-anters if you manage your culture. They won't tolerate negativity in their midst. If you don't, they take over.

Nadine von Moltke-Todd

Entrepreneur Staff

Editor-in-Chief: South Africa

Nadine von Moltke-Todd is the Editor-in-Chief of Entrepreneur Media South Africa. She has interviewed over 400 entrepreneurs, senior executives, investors and subject matter experts over the course of a decade. She was the managing editor of the award-winning Entrepreneur Magazine South Africa from June 2010 until January 2019, its final print issue. Nadine’s expertise lies in curating insightful and unique business content and distilling it into actionable insights that business readers can implement in their own organisations.
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