How Prately Was Bootstrapped Into a Local Giant - Without a Cent of Funding The aim of most family-run businesses is to stand the test of time, a goal that influences strategy and tends to take the long-term view over short-term gains. Entrepreneur spoke to Kim Pratley and his sons, Andrew and Charles, about growing a business without compromising on quality or price.

Vital Stats

• Players: Andrew Pratley, Kim Pratley, Charles Pratley
• Company: Pratley
• Founder: George "Monty' Pratley
• Established: 1948
• Divisions: Electrical division, adhesives division, mining and minerals division; Select Hairdressing Supplies
• Visit: pratley.co.za

In both B2B and B2C circles, Pratley is a household name. Pratley Putty and Pratley Steel can be found in most home workshops and garages, while cable junction boxes tend to be called "Pratley Boxes' in the electrical world — even if they aren't Pratley-made.

Building a brand that has cornered the market in many respects is a good foundation for future success, but it does not guarantee it. Sustainable growth takes an ingrained value system that the entire organisation believes and follows, strong cash flow, continuous innovation, an unwavering focus on quality and sacrificing short-term gains for long-term aims.

Pratley has been on a steady growth trajectory over the past 70 years. Many companies reach maturity and stagnate. Pratley has done the opposite. All growth periods are followed by consolidation, but despite numerous challenges and tough market conditions, the line continues to move up.

Here are five key areas that Kim, Andrew and Charles are focusing on to maintain that growth, now and for the future:

1. R&D as the core, not a small side division

"Research and development has always been our core, and as a result of that, diversification," explains Kim Pratley, CEO of the business. "We launched with our electrical division in 1948, followed by the adhesives division."

Before their first product of that division, Pratley Putty, was used by NASA on the moon, it was originally developed to stick electrical terminals into an electrical junction box and insulate them. "Once it was developed though, we realised that we could productise it outside the electrical sector for the consumer market, and our adhesives division was born."

Developing new products is in Pratley's DNA. The company aims to release at least three or four new products into the market each year and is continually looking for new and better ways to do things.

"We have to grow somewhere," says Andrew Pratley, Pratley Group IT Manager and General Manager of Select Hairdressing Supplies. "We need to be simultaneously growing our markets and our product ranges, and that means we need to find better and more cost-effective ways of doing things."

There is a school of thought that says a smaller, tighter product range keeps costs down and the business focused. In many ways Pratley has done the opposite, with its electrical division offering more than 3 000 products, many of which are patented and based on proprietary technology.

"Like most things in business, our product range follows the 80/20 principle," agrees Kim. "20% of our product range is responsible for 80% of our revenue.

Logic would say why have the rest then? Unfortunately, because of the way the market operates, customers expect us to also provide the niche products that don't sell well but are occasionally needed. If we chopped off the 80%, we would lose a lot of the customers who make up the 20%, but are responsible for 80% of our revenue.

"It's a perception — a customer who buys all their products from Pratley expects to be able to get everything from us. If they need to go to a competitor to get a special fitting, they might move all their business."

That said, there are cost and complexity implications when carrying such a large product range, which means the management team needs to be hyper-focused on the details.

"We're currently looking at rationalising our product range. Products become obsolete and if you're too focused on new products without paying attention to the entire range you can end up carrying old stock or manufacturing unnecessary items," says Charles, Engineering Manager: Group Technical Services.

"Our customer base appreciates that we've become a problem solver in the market — they come to us with a need, for example, a stainless-steel cable gland for the food industry, and we will design and manufacture it.

It must be viable for us as well, but on the whole, because we do everything in-house, we can add value as real problem solvers and as a one-stop shop," adds Andrew.

Customers want quality, their lives simplified, and good service — exactly what Pratley aims to offer.

R&D's role in creating diversification for the business has also mitigated Pratley's risks

"Rubber brushes inside a flame-proof cable gland is what keeps people alive — if they fail, people die. If there's an explosion inside the apparatus and it gets out and ignites the atmosphere, people die. The technology that goes behind that rubber is polymer technology; adhesives are also based on polymer science. We can bring the same expertise from the one side of our business into the others," explains Kim.

A sister company of Pratley, Select Hairdressing Supplies, was first bought from Kim's father-in-law when he retired, but the business has since been expanded to bring manufacturing in-house and to develop proprietary products.

"We asked our R&D team what they knew about hair products," says Kim. "They went away, did some research and came back and said we could definitely do this. We also import some products. It's a profitable business in its own right that diversifies our risk."

"It's a high-end product," adds Andrew. "Our market is professional hairdressing salons, and they cater to clients who demand quality, high-end hair products. We don't compete with cheap imports at the lower end of the market. The focus is on quality at a reasonable price."

On the whole, Pratley's R&D follows a two-pronged approach

Charles, Andrew and Kim all love R&D. If they find something cool, they want to mess with it until they find a real-life application for it. A strong R&D mindset means the team is always open to finding solutions to problems.

Pratliperl, a lightweight, thermally insulating cement aggregate that was originally developed for low-cost housing, is now used as a fire-proof plaster that doubles the thermal insulation of a building. It's very lightweight and is ideal as a screed where additional floors to buildings are required. Pratliperl has been used at Loftus Versfeld Stadium and the Sandton City parking lot.

2. Finding market fit

A strong R&D component works hand in hand with the ability to shelve products that aren't working in the market, and Pratley has had a few of those. Sometimes even the best products don't find product-market fit — in one memorable case it was because the product worked too well.

"We launched a product called Wham a few years ago because customers kept requesting an ultra-quick super-glue," says Andrew. "We wanted to design the fastest adhesive in the world — and we did — but it ended up being practically unusable. It was just too quick for the end user."

It was an interesting lesson for the team on giving customers what they need, and not necessarily what they ask for

"We also brought out a palm cleaner that I love, but which the market hated," says Kim. "We wanted a solution for dirty palms after you've changed a tyre, for example. Palm Cleaner was essentially a glue that stuck to the dirt and then rolled off the hands in little balls. It was extremely effective."

Consumers didn't read the instructions and thought it was a hand cleaner. The result was Palm Cleaner getting stuck in the hairs on the back of people's hands.

"We try to stay away from "me too' type products. We look for problems that haven't been solved or where we can do it better. That involves a lot of trial and error, and we won't always get it right," says Charles. "That's the cost of R&D. You can't let your ego or personal feelings get in the way of what your market research is telling you.

"We have a department that tests everything in every way the market could use it. Interestingly, we often find that we test a product for one thing, and end up finding a whole host of other applications for it. Sometimes the larger market is the one we didn't originally develop the product for."

It's an interesting process. You can't make assumptions about any market, even one you know well, and if you aren't looking at solutions from every angle, you could miss a huge opportunity. This thinking has become ingrained at Pratley.

3. Quality First

In a world where one industry after the next is becoming commoditised and businesses are competing on price (particularly against low-cost imports), Pratley's strategy has remained the same, with a strong focus on quality, in-house manufacturing and R&D.

How do they maintain this from a cost perspective, particularly when so many companies are turning to outsourcing to keep costs as low as possible? "We have two main drivers," says Kim. "Every pack of Pratley carries a statement signed by me that our products must outperform any other on the world market. It's a big statement, and we mean it. It's so big that we've found in some cases people actually don't take it seriously because of its magnitude."

Over the years Kim has performed a number of stunts proving his confidence in Pratley's products, including filming a TV commercial standing below a 13 tonne bulldozer suspended by a joint bonded together with Pratley Wondafix.

"We don't believe the statement itself necessarily leads to sales, but it does have a big impact internally," he says. "Inherent in our core values is the ideal that we need to be producing the best — it's expected from every person in the organisation, at all times.

"From an external customer point of view, the fact that the product works is important. How we ensure that quality is a result of what we do internally." A product that consistently works fosters trust and brand loyalty, which results in repeat customers.

Because the company's focus is on quality, this is a non-negotiable, but there is a cost to quality as well

From a sales perspective, this means Pratley's sales force needs to concentrate on educating the market about purchasing a slightly higher priced product for the long-term gains that are achieved from peace of mind and the risk mitigation of operating in a safer environment.

"We manufacture cable junction boxes, cable glands and the rubber shrouds that protect those glands for hazardous locations. If something goes wrong and there's a fire or an explosion because a cheap inferior product was chosen and used, people can lose their lives," says Charles.

"In some cases, it's relatively easy to convince the customer as they have either had a costly experience with a cheaper product or have seen UV-damaged rubber shrouds from a cheaper brand. It's up to our team to educate our customers.

There is also always a segment of the market that will buy cheap, no matter what, and we accept that and don't waste resources trying to convert them. There is also a segment that recognises and always chooses quality, and that's our ideal market."

To mitigate higher costs associated with quality, R&D and local manufacturing, Kim and his directors work tirelessly to control costs. Every line item is scrutinised, but never at the expense of quality.

"Our sales arm plays a key role in the business for this reason and we emphasise training to ensure the team is equipped to engage with customers and understand their needs and the risks they face, balancing those risks with the costs of investing in quality."

In line with a strong quality proposition are high exstore service levels that ensure Pratley can offer high-quality customer service. "We measure this according to the value that comes in versus the value executed. If 100 orders come in, we must execute 99% of them exstore immediately," says Kim.

"This requires a large amount of inventory on hand, so we need to pay attention to which stock moves and how quickly, but ultimately we understand the frustrations and costs of downtime, and we aim to minimise both for our customers."

From a cost perspective, the father and sons team understand that they need to be aware of the market and competition in order for their manufacturing methods and pricing to be internationally competitive, and the way to achieve that is through the right machinery, controls and management.

"We have a very flat management structure," says Kim. "We aren't top heavy. We have directors who are in charge of specific departments, middle managers and foremen. Each department is run as clean and lean as possible. The numbers are monitored by each foreman and reviewed at board level. Nothing slips through the cracks, and each number is scrutinised."

4. The power of (the right) people

One of the biggest hinderances to growth that Pratley has faced is human resource issues. Based on the West Rand of Johannesburg, the business doesn't have access to as large a labour pool as it would if it was based on the East Rand or closer to the city centre.

That said, Kim, Andrew and Charles love the lifestyle on the West Rand, and they operate from a large property developed specifically for their needs. 185 employees work from that site, with satellite offices in Durban, Port Elizabeth, Cape Town and Bloemfontein. "We employ multi-disciplined people who have skills in their primary activities, but who can also play a secondary role," says Andrew.

"If you employ a person for their underlying work ethic, willingness and general attributes, you'll employ a good person who can do anything," agrees Kim. "Attitude and a willingness to learn means you can upskill someone and they will be eager to take on more responsibility and perform their defined roles. This is true across the organisation and not just in middle management positions."

As a result of this people-focused strategy, Kim, Andrew and Charles remain involved in the business's hiring process. "It's not something you can delegate," says Kim.

5. Cash is king

Pratley is in the enviable position of never having financed the business. As a result, the company has grown more slowly than it could have, with each new acquisition or investment into machinery or R&D funded internally through cash flow, but it has never had to service debt.

"We've been comfortable delaying growth, where necessary, to be able to make investments from our own cash reserves," says Kim. "We have very strict but fair payment policies in place. Credit control is a non-negotiable. Our rules are set in stone and there's never an exception; it doesn't matter who the client is."

The terms are straightforward: Payment is in the month after the date of invoice. If you place your order on the first of the month (and it's dispatched immediately, thanks to the company's 99% exstore service levels), you can essentially have 60 days to pay, as the payment is only due at the end of the following month. Pratley also offers good settlement discounts.

But there are never, ever any exceptions to the rules

When their biggest adhesives client took a R2 000 settlement discount that they weren't entitled to, supply was immediately stopped. "The Adhesives sales manager resigned over that decision," says Kim. "He handed over his letter of resignation and said we were mad.

It was a small amount and they were a big customer, but I knew that we're not in business despite that decision; we're in business because of that decision. "If we had buckled, it would have set a precedent. Instead, I called them up and said, "You know the rules, I know the rules, I know what you're doing, you know what I'm doing, let's carry on.'

"They're still a very good customer today — but it was important to stick to our guns. It's important to have people in the business who understand this, which is why I accepted that sales manager's resignation. More companies flounder on the rocks of cash flow than anything else.

"Our growth strategy has been to build up cash reserves. That takes rules that you stick to above all else. One of my favourite business mantras is that profit is the very small difference between two very large numbers. All you need is one small percentage change on one of those numbers and your profit disappears. If you're not taking risk with one of those numbers, well, I see that as security and survival.

"That doesn't mean we don't spend money — we've just invested in some very expensive machinery that will increase our output, productivity and efficiency down the line. It's a large upfront expense for future growth and sustainability. But it's a mitigated risk because we've built up the reserves to take that next step."

Key Insights

Cash is King

Profit is the very small difference between two very large numbers. One small percentage change on one of those numbers and your profit disappears. How are you mitigating that risk?

Skills differentiate

In a competitive business landscape where skills are in high demand, employing multi-disciplined people who have skills in their primary activities but can play strong secondary roles is crucial.

The cost of quality

When you're competing against commoditised products that differentiate in price, it's not enough to know you offer quality. You have to prove the value of that quality by educating your market.