How Pepe Marais and Gareth Leck Built, Sold and Bought Back South Africa's Largest Independent Agency, Joe Public Pepe Marais and Gareth Leck sold Joe Public because they were young and excited. It would take them eight years to buy their business back. Today they're South Africa's largest independent agency, with a turnover of R700 million, and gross profits in excess of R200 million.
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- Players: Gareth Leck and Pepe Marais
- Main shareholders: Pepe Marais, Gareth Leck, Laurent Marty and Xolisa Dyeshana
- Company: Joe Public United, an integrated brand and communications agency
- Launched: 1998
- Turnover: R700 million
- Gross Profit: R218 million
- Visit: joepublic.co.za
It was a July morning like any other. Little did Pepe Marais and Gareth Leck know they were about to get a call that would shake the company to its foundations, and result in 35 people being retrenched overnight.
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.
Three years later, the business almost went bankrupt — but it was theirs again. How were these two drastic events related, and why did losing their biggest client allow Gareth and Pepe to not only buy back their business, but find their purpose and change the course of the company as well?
The art of zigging when others zag
To understand how losing their biggest client could actually be the best thing that happened to Joe Public, we need to rewind to 2001, when three business partners at the cusp of their thirties decided to sell their start-up to a multinational.
Joe Public was launched in 1998 as a rebellious, young agency that wanted to do things differently from the rest of the advertising world. Pepe and Noel Cottrell were creatives, and Gareth was a young hotshot account manager. Together, they believed they covered all the angles to run a new, disruptive business.
"I'd had this idea for a business, which I wanted to call Fresh Advertising, after a night of red wine and brainstorming," recalls Pepe. "My dad had a café, and I liked the idea of doing "fresh' ideas and an office with a fridge door as the front door.
"Our third partner at the time, Noel, took the idea further, and we developed the concept into a café-style menu. We were the creatives, and we needed a business guy to make it work. Noel knew Gareth, and so we approached him to join us."
Gareth loved the idea — he was in his mid-20s, and didn't have anything to lose. There was another power at play as well. During their initial meeting, Gareth learnt Pepe was a boat man, and recounted a story of how he'd rescued a drowning paddleskier and placed him on a raft of piping until the NSRI could pick him up.
A chill came over Pepe as he realised Gareth was talking about him. He'd been knocked unconscious paddleskiing during the first storm of the season in April 1995, and to that day hadn't known how he'd come to be lying on the piping. They saw the business and the partnership as fate and dived in, head first.
It was nothing like they'd imagined — particularly for Gareth. "It's a massive jump from account management to running a business," he says.
"VAT, PAYE, salaries, traffic control, production. Suddenly these were all my problem. I was getting up at 3am so that I could get to the office and do cost estimates before going to see clients. I didn't sleep for a year. When I did manage to get into bed, I woke up in the middle of the night wanting to throw up because we didn't have cash in the bank and I had no idea how we were going to pay salaries."
The partners had hit on something special though: They were selling Rare, Medium and Well-Done ideas, not time, and because they were delivering quality work "done well', they were turning a decent profit. The first few months were extremely tight while they built up a client base, but by their second year they'd netted R1,5 million in profit.
"We were a small, dynamic team. We could take a concept to market within two weeks, so we were fast, and we were also very good. In 2000 we won five Loeries with a staff of five people," says Pepe.
"We offered quality," agrees Gareth. "We were quick and slick, and well-priced by the time you reached the end product. The menu concept also offered clients real transparency in an industry known for smoke and mirrors."
The idea had developed based on the fact that as youngsters who hadn't yet made a name for themselves, they needed to be disruptive and innovative out the gate, with a solid business model that would make great returns. "We wanted to zig while others zagged," says Pepe.
All that zigging and zagging had the desired effect, and business soon picked up, but it also had another, unintended consequence — a potential buyer came knocking. "We'd already realised there was a scalability issue with our business model," says Gareth.
"How could we replicate it without people as creative and driven as ourselves? You hit a ceiling when growth requires people of the same calibre as yourself. Anyone in our business will tell you that you can't have a company full of creative directors. It doesn't work."
But there was a second option. A multi-national was offering to buy the business, and part of the deal was that they would roll out the menu option to their subsidiaries and offices around the world.
"Noel was spearheading the deal — he really wanted to move to the US, and the deal gave him the opportunity to join the international network's New York office," says Gareth. "From our side, the idea of spreading our model, having an international office, and of course making money from the business all sounded great."
In a nutshell, they were young, the offer was appealing — and it was the worst decision they ever made.
"We sold completely prematurely and got shafted," says Pepe. "But more than that, we ended up in a corporate environment that was the exact opposite of everything we'd built our business on."
The local multinational sold to a larger US-based holding company, and before they knew it, they were just another subsidiary of an international giant. Everything became about the bottom line, and Pepe and Gareth soon found they were compromising great work in the pursuit of greater margins.
And then the worst — and as it turned out, best — thing happened. Their single biggest client fired them.
A blessing in disguise
Pepe had made the decision to fire a senior executive. "We couldn't work with him. He was toxic to our business. We fired him on good intention, with a full view of how his attitude was harming our business and staff morale," he explains.
The problem was that the executive in question was very close to the company's biggest client. So close in fact that once he was fired he was offered the position of marketing director at their company. His first order of business? To fire Joe Public.
"We were devastated. We hadn't fully comprehended the danger that such a big client posed — and how drastically our business would be affected if we lost them," says Gareth.
But there was another unexpected consequence of the loss — the value of the business depreciated. "We realised that for the first time in five years, we had an opportunity to buy our business back. We immediately started negotiating with the holding company.
"The problem was that they wanted an astronominical amount for the business, which was nowhere near what we'd been paid for it. We didn't have that kind of money. We fought for three years, and eventually resigned. We just said to them, "Take it all. We don't want this.' That's when they came back with a reasonable number that we could manage."
On the 26th of January 2009, the business partners bought their company back. The day is memorialised in their offices by a plaque that reads "Never, ever sell your soul, Joe Public Independence'.
On their way back to the office, they received a call: A media mistake had been made that would cost the company R800 000. Gareth and Pepe had put all of their eggs in one basket. They'd leveraged themselves to the hilt to be able to buy back their business. They'd also kept profits and cash flow low since 2006.
"We didn't have R1 million in our bank account. We'd basically been breaking even for the last three years," says Gareth. "Our revenue was R13 million, but that left very little positive cash flow after salaries and expenses were paid each month, and we had no cash reserves. It had been part of our strategy to keep our PE ratio low so that we would be able to buy back the business.
"We were doing well, winning Loeries and keeping momentum behind the brand, but we weren't chasing profits. We'd never envisioned such a disaster was possible."
By March, the business was on the brink of bankruptcy. To add to Joe Public's precarious position, a client who had been spending R380 000 per month put a halt on all marketing spend — also overnight.
"I remember thinking to myself, if this all went pear-shaped, my family and I wouldn't even have a roof over our heads," says Gareth. Although more careful than Pepe by nature, the business partners realised they needed to find a solution. Failure was not an option. "We went out and got business," says Pepe.
"We brought in six new accounts that year. One of those accounts was Anglo American. It was a small job that no one wanted because of its size. We went all out to get it. We understood the value that having a blue-chip client on our books would bring to the business.
"We also continued doing work for free for the client who had halted all spending. They were in the process of listing, and we believed they'd come back to us once they had, and we were right. We just needed to show them value and loyalty."
Step by step, Pepe and Gareth brought their business back from the brink. From 2009 to 2010 the company's revenue grew from R13 million to R20 million, and the partners started building a solid cash reserve. Today, their reserves can carry the business for six months.
Finding a purpose
In 2007, Pepe began a journey of self-discovery. His focus was not only on the business and its needs, but on himself as an entrepreneur and leader. Gareth began his own personal journey two years later.
"We haven't only worked on the business but ourselves," says Gareth. "All business owners need coaching, mentorship and counselling," agrees Pepe. "We've both done a lot of personal work and we still do. We hit blocks and work through them. Personal development and self-reflection are incredibly important to the business's overall success."
Through this journey of self-reflection and development, Pepe and Gareth found their purpose, both for themselves and the business. By the time they were able to buy the company back in 2009, they had a clear vision of where they wanted the company to go, and how they wanted to change course, and it all started with not putting the bottom line first.
"When we started, our whole focus was on the quality of the product," says Gareth. "We had a good business model and we were creative and driven. A good product led to a good brand, which resulted in revenue. It was a good formula."
"The year we made our first million, we weren't focused on the bottom line," adds Pepe. "We were focused on delivering the best product and service possible, and the natural result was a big, fat bottom line."
After they sold, the partners soon found themselves in a very different situation. "When you become too focused on the bottom line, you reach a point where you start compromising your product in order to save on costs," explains Pepe.
"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."
Pepe and Gareth are the first to admit that they'd completely lost their way. Losing their biggest client, gaining the opportunity to buy their business back — only to almost lose it again — and finding a way to power through the setbacks gave them a chance to do things differently. They grabbed that chance with both hands.
"You need to make mistakes to get the lesson," says Pepe. "We needed to re-forge the business based on the right culture.
"We needed to bring the power of purpose into the business. We feel it on a deep level, and it's now the framework of everything we do. We exist to exponentially grow our clients, our people, and our country — in that order. If we focus on clients, we will grow our people, and we will have a good organisation that can positively impact and help the people of South Africa. We call it growth to the power of "n.'"
Revenue growth has naturally followed, but the deeper sense of purpose is helping Pepe and Gareth make a much more meaningful impact. Joe Public registered One School at a Time, a non-profit organisation in 2008.
Through the organisation, they have taken their chosen school in Soweto from one of the poorest performing township schools in Gauteng to in the top three. They raise R1,2 million a year for the project, of which R250 000 comes directly from Joe Public.
This same drive and dedication is given to clients. "Purpose is just strategy. We do strategy for businesses," says Pepe. In 2005, Laurent Marty and Xolisa Dyeshana joined the business as shareholders. Today, Xolisa is Joe Public's chief creative officer and Laurent its chief strategist.
Pepe, who is technically a creative, now also does purpose workshops with the executive teams of their clients. "We bring a creative edge to board-level strategies. Our purpose is to help our clients grow, and that starts at the top.
"McKinsey has released a report stating that high calibre work in the marketing space will give you a seven times higher return than other work. In other words, high calibre creative counts, and should be part of your strategy. And nothing inspires better work than purpose. It's our role to help our clients achieve just that."
Over time, Joe Public has found its mission, which aligns with the business's purpose. "We now need to develop the metrics that prove the purpose. Every business should be able to quantify the ROI it gives to its clients."
The ability to course-correct
From 2009, Joe Public refocused on product over the bottom line. Meteoric growth followed. The problem with growth is that you need people to manage teams and business units — and those people were coming from traditional corporate environments, and they were bringing pre-conditioned "bottom line' focus with them.
"Within three years we were back where we'd been, struggling with the wrong culture," says Pepe. The trouble is that you don't always spot a problem until it's too late — particularly when your numbers are good. "The business results were excellent," says Gareth.
"We had found a way to win pitches, the company was growing, revenues and profits were great — but the culture was getting lost. We learnt that you can lose your way culturally and not financially."
Except that culture feeds the bottom line. Lose it, and the business will eventually start to plummet. "We needed to radically adjust what we were doing," says Pepe. "We hadn't hit a problem yet, and our numbers were great, but we realised we were heading towards the top of our bell curve.
"We had already determined that the business must succeed if we want to do more — for our clients, our staff, and in education. Success is fundamental to achieving our purpose. If we didn't want to go the way of so many companies that reach great heights, only to miss all the warning signs and plummet, we needed to make some serious changes, starting with culture."
For Pepe and Gareth, a beautiful creative space filled with happy people is the foundation of a company that can do great things. "It's all about triple profits," explains Pepe.
"Serve your clients and keep them happy, keep your staff happy, and your profits will be happy. A healthy business lets you do all these things. It's the oxygen to deliver on all the rest. With strong revenue streams you can achieve so much more."
There are industry jokes that Joe Public is like a cult. Pepe and Gareth are happy to agree. "We've built the "cult' into culture," says Pepe. To achieve a strong, client-focused culture, the partners needed to make some tough choices, and even exit some people who were not aligned to their purpose of serving clients through great work.
"It's never a nice part of business," says Gareth. "We're nice people, and in some cases we took far too long to act. We moved in on people in the organisation who weren't a good cultural fit. It was damaging to our team and to them to remain here. A happy, healthy workplace is a team effort.
"You're not doing anyone favours by keeping toxic individuals in your workspace. It's been a tough lesson to learn, but we're much faster to act when we realise we have the wrong people in the business now than we were before."
Today, Pepe and Gareth follow a simple formula. "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 have a tendency 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."