Durban entrepreneur Ahmed Vahed with his cloud storage system that he designed
Picture: Shelley Kjonstad/ African News Agency (ANA)
Durban entrepreneur Ahmed Vahed with his cloud storage system that he designed Picture: Shelley Kjonstad/ African News Agency (ANA)

Essentials for entrepreneurs

By Louw Barnardt Time of article published May 30, 2018

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This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.

Entrepreneurship is not for the faint of heart. Building a successful company is incredibly tough. The odds are ever against you. It’s likely that not everyone in your life supports your venture. The long hours, the glaring risks, the massive sacrifice…

But you have a purpose and a vision that’s bigger than the obstacles. Your passion and perseverance drive you to overcome everything that life and business can throw at you. And in the context of this moment in our country’s history, it’s of utmost importance that you succeed. When entrepreneurs are successful, their companies contribute to the economic growth our country so desperately needs. They create jobs for our people and have an impact in our communities.

It’s wonderful to see entrepreneurs succeed, particularly in this climate, because you know that companies that can grow in spite of difficult external circumstances will undoubtedly flourish when simpler times come around. We’re blessed to be seeing world-class innovation and perseverance among our entrepreneurs:
•   With unemployment figures at all-time highs, our client base posted an increase in fixed employment figures of about 60 percent last year.
•  With economic growth hovering around the zero-percent mark, our client base posted annual revenue growth in excess of 100 percent. 
•  It’s incredibly tough to raise capital in a young entrepreneurial eco-system. Our client base has raised more than R350 million in seed and growth finance over the past three years.  

You don’t have to be an accountant to get excited about these figures. After many hours of studying these companies, certain golden threads are noticeable across the majority of the most successful ones. Here are seven of the lessons that resonate:

1. Hedging country and currency risk safeguards earnings in tough times
South Africa has the most liquid emerging market currency in the world. This makes doing business quite tricky if you have both clients and major suppliers outside of the country. A 10-percent move in the rand against major currencies can happen in a very short space of time. On top of that, the long-term trend is firmly negative, with the rand weakening over time against major currencies. This can be quite distressing if you import products or use international software, because your costs keep going up. It can, however, also be an exciting driver of profitability if you can engineer your business model to predominantly pay expenses locally and to predominantly earn income from abroad. If the rand goes down, your margins tend to go up. Many of our most successful entrepreneurs capitalise on this mechanism.

2. What is measured improves
Setting goals and working towards them is naturally very important when building a company. Goals such as revenue growth or employment figures are easy to set and track. But it’s not easy to set and monitor goals if you do not have the right information and do not know how to track it when starting out. I’m talking about things like utilising the cost per employee per hour as well as their charge-outs to track and improve profitability per staff member and per department. I’m talking about shortening your working capital cycle by tracking and improving each detailed flow of cash. I’m talking about engineering profitability upwards through many small tweaks to pricing strategy and delivery. Having the right information helps you to make calls on the spot that move the company forward. Cloud accounting tools such as Xero and many of its plug-ins help put live information into the hands of entrepreneurs to serve them when decisions need to be made.  

3. Cash flow is key
Cash in the bank is the lifeblood of any company. Our most successful entrepreneurs understand their working capital cycle and cash-flow requirements. Realising that you have a funding gap five days from now is a bigger problem than realising that you have one in five months. Proactive management of daily and monthly cash flow puts entrepreneurs in control of their companies and allows them to make better decisions faster. Keep tight controls on cash in and cash out to make sure that you optimise and plan for your cash requirements.

4. Culture is at the heart of the business
Every company consists of people. Having a cohesive and impact-driven culture in your company creates the platform for employees to live themselves out in their roles. Having fulfilled staff who are taken care of translates into better client relations and a better impression of the business from everyone who comes into contact with your people. Companies that manage to keep growing at a high rate almost always understand the critical role of company culture in the realisation of success.

5. Networks are powerful 
The role of a strong and growing network should not be underestimated in a young company. People do business with people. Having the right market access and connections can mean the difference between failure and success. We’ve seen how local and global networks enable companies to land unbelievable new deals. Entrepreneurs who cultivate strong networks of professional connections locally and abroad have a lot more options in the expansion of their companies compared with those who are on their own.

6. Raising capital can drastically unlock growth
Raising capital takes time and effort from founders. It also poses the risk of selling a part of the company that you have built to an external party, which comes with less autonomy and control. In some instances, it can be avoided by growing organically through sales to clients – a great way to grow. But in most cases, accessing growth capital at the right time can significantly speed up the process of growing a company. We have seen entrepreneurs post growth figures well upwards of 300 percent in the year after they raised capital. Owning 100 percent of your current company needs to be weighed up against owning, say, 80 percent of a different, much stronger business. Taking on investment has many different considerations, but the right investor at the right time could make for a giant leap forward.

7. There is no substitute for grit  
Grit refers to the passion and perseverance that is required to keep on pushing ahead until you succeed. The entrepreneurial journey is scattered with unforeseen obstacles, devastating let-downs and hard knocks. Across the board, our top-performing entrepreneurs are the ones who can keep on following a definite course until they succeed; never do they give up on their core vision. It’s important not to mistake temporary defeat for failure and to keep on keeping on until you reach the next milestone on your journey. 

Commentators paint a bleak picture for the next five years in South Africa. Increasing deficits and increasing debt with very low predicted growth in GDP means that our entrepreneurs will need to be even more resilient than before. But there is a definite map that leads to success, and there are many inspiring visionaries who are building incredible companies in spite of the circumstances. Changemakers: stay focused and stay on track. South Africa needs you now more than ever. 

Louw Barnardt CA(SA) is the founder of financial management company Outsourced CFO. Based in Cape Town, OCFO specialises in helping technology and innovation companies rethink, automate and scale their businesses.

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