Simple,
smart,
scalable
business growth.

 I’d like to talk about how to build a 100m company.

There are 5 parts to this process, which we share as a 5 part series

Each piece will look at the 5 layers of value a business owner needs to build across and through their company. We will also look at these layers across 4 stages over time. Each stage takes around 3-5 years, depending on your skills, history and experience, relationships, and access to funding.

The layers include:

Positioning – to compete and win

Building a System of Delivery

Securing a Purposeful Team

Securing next-level-growth

Value – ensuring you have a transferable, premium asset

Across each layer, the 4 lifecycle stages include:

Starting up, Scaling up, Ramping up, Value up.

It is all about starting with the end in mind—why do you do what you do and the difference between a Job and Asset. We will cover that.

This article unpacks layer 1 – Positioning. How do you start, scale up, ramp up and secure your value through positioning and how does it affect valuation and saleability?

You can listen to the discussion from The Money Show or read on.

Positioning

This is all about how you set yourself apart in the crowded, noisy, competitive market. It is all about how you define your business and purpose. It is all about how you find, win, and hold customers, and it is all about why you exist!

Getting it right takes time and getting it wrong leaves you stuck in a world of operational noise and slog.

So, let’s get it right by looking at why we get it wrong first.

In 1774, we learned from Emerson that success comes from “building a better mousetrap.” He was right because very few products worked and functioned like they ought to, and it was all about winning on the back of a good product.

Then, in the late 19^th century, Taylorism came about. It culminated in Ford claiming that you could have any Model T you wanted for so long as it was black. This was all about winning on price, and the production line came about to make that happen.

Then, in the late fifties, Herman Kotler, arguably the doyen of advertising and marketing, said it was all about segments. The theory was that birds of a feather stick together and understanding which birds you serve best would allow you to find and reach them more effectively. You would have seen the early stages of this industry emerge in the series ‘MadMen’.

Today, everyone in business has all three criteria in play – a good product or service, a competitive price, and an effort to market them to a segment of people they believe will buy them.

MBA completed. So why does it not work?

Ask yourself, “Why does my business exist?”

The purpose of any business is to solve a problem for a customer. If you cannot name the problem you solve, you will fail in your business.

Naming the problem is not enough. Understanding how the problem comes about, the cost of the problem, and ensuring that you, through your products and services, can solve the problem at a lower cost than the problem itself is a start.

To get this right, you need to know whom you are solving the problem for. This is more than a segment as defined by Kotler; it is a group within a segment. For example, blue-chip corporates are a segment. Within that segment are the mining businesses. Within that segment, there are deep miners. Within that, platinum. Within that, multinationals and nationals. Within the nationals, junior miners, It is like unpacking Matryoshka Dolls. You want to get to the niche within the segment that will act, behave, engage, and think alike. That is the elixir of your business, since understanding your customers on that basis unlocks how they experience the problem you solve and how they buy and behave around getting the solution to that problem.

Leading this element of your business changes over time too.

Starting up—sell to anyone and everyone, discarding your business plan but starting with one until you understand the segment and niches within it.

Scaling up – say no to everyone and anyone outside of the niche segment that you want to become an expert at serving.

Ramping up – you are marketing and selling into that original segment and also looking for a new niche within that segment that has an almost identical experience around the problem and solution.  

Value up – lock in the niche segments you serve through increasing value for them, be it in how you reach them, serve them, and keep them This is the DNA of your business. It is why you exist. It sets you apart and distinguishes your business from your thousands of competitors. It is hard to see and copy once you get it right, adding a whole multiple to the valuation you would otherwise get.

Pavlo Phitidis introduces a 5-part series that is going to look at the five layers of valuation that need to be built in to a company for it to grow to be worth R100 million.  

The series will be based on five layers in the business, across four lifecycles of a business, and the five layers need to be reviewed and rebuilt in each stage. The four phases are:

!. A start-up business

2. You’ve found some traction in the market and want to scale up.

3. When you’ve scaled you want to ramp up revenues and deepen

4. The final act – to make sure you lock in your value, and that you, yourself are not the business.

In this podcast of The Money Show, Pavlo Phitidis precedes the five layers of valuation with a discussion of starting with the end in mind…

The first thing to do if you want to start or grow your business is to have a clear destination. Consider the reason for what you are doing and why you are doing it. It is often out of necessity, it gives you economy. It hopefully gives you purpose and  meaning. But ultimately, the purpose must be that you are building a saleable asset.

And that means that you need to understand how valuation works in any business.

When you start the business,  it is worth nothing at all. However, you still need to grasp the mechanics of value .

You then must make a commitment to decide what you are doing on a day-to-day basis. Are you  going to build a job for yourself? At a job, you are right in the middle of the business and its survival. Your team cannot function without your everyday guidance and leadership. Your customers draw heavily on you. Your suppliers draw heavily on you, and it can give you tremendous meaning, and a sense of importance and value.

But an Asset needs to have three things:

1. Income growth
2. Capital growth
3. Tradability

And the 3^rd point relies on you NOT being central to the business.

Keep an eye on our blog and newsletter where we will share this series to give insights into: Beginning, scaling up, ramping up, and finally valuing up.

Our economy is structured like a sandwich: When you look at the sandwich, it consists of two pieces of bread with a thin slice of meat in the middle. The bread is the visible bit, and you hardly see the meat. However, the protein and nutrition is found in the meat, not the bread itself, it’s what gives that meal its true energy and true value.

In this podcast from The Money Show with Pavlo Phitidis, Pavlo breaks down what it means to be the meat in Sandwich, in the economy…

How it looks from an economic point of view is that policies are made with a key focus on corporates and micro-businesses, disregarding SME sector. Let’s unpack this:

In 2017, South Africa had ,1400 businesses that had a taxable income of greater than R50 million. A tiny number. We had approximately 161,000 businesses with a taxable income (profit before tax) of between one R0 and R1 million.

We had 35,000 businesses, that did, from a taxable income point of view, R1 million to R50 million of taxable income.

The bread in the sandwich is in the corporate sphere because it is exciting for investors because in many instances these are public companies.

The smallest 161,000 businesses in the formal economy are very interesting to government because they carry a lot of voting power.

Government incentives are often structured to be easily accessible to the large corporates, particularly multinationals which are some of the biggest beneficiaries of grants in our country. An example is the automotive industry where we pay to play in order to have Mercedes and BMW and Ford and all these large brands established in South Africa on the basis that they are job generators and on the basis that they spur on an extensive supply chain.

Corporate sector executives are invited to meetings where discussions are had, settlements and deals are done, and the structure of the economy is created around what is best for corporates. In essence corporates have a louder voice when it comes to government.

And then government focusses extensively on micro enterprises because it suits government to do so in order to secure favour when elections come around.   

The same is true in most countries.

But here’s the thing: Competition is predominantly found in that mid-tier market of R1M – R50 million.

The mindset of these business is to invest relentlessly to grow your business. There are enough resources in terms of people, purpose, plant and equipment and leadership for them to compete viciously – if they don’t get the deal, there are a dozen competitors who will.

That means you have to constantly improve the value you are offering – and that happens through innovation. Innovation in itself attracts funding. Funding and innovation attract talent, which creates further innovation – and this all creates vibrancy is this segment.

We can’t escape the fact that big business has to exist, as the consumer of mid-tier services, but the more inclusive this mid-tier becomes, the better for the economy, for big business, and for government. 

This segment is the meat – this is where the economy is innovating, energised and growing – because it has to!

Business owners risk everything to sustain a business. Given what it takes to achieve this, they and their family tolerate significant sacrifices—stress, absence, missed holidays—it is an emotional roller coaster for all.

In the early days of starting your business, it is a complete hustle! The happens  because  if you want the business to survive, you have to generate revenue and capital.

Once the capital starts coming in regularly, you can re-invest that capital back into that business with strong teams and skills that will enable you to build your business into your greatest wealth generating asset. or what we call, an Asset of Value. This is a business that you will one day be sold or passed on by means of a succession to the next generation.

In this podcast with Pavlo Phitidis, Pavlo discusses outcomes and scenarios that business owners face when starting out and then building their businesses.

People are at the heart of any business, from suppliers to customers and staff. Your ability to read and work with people – and to get what you need out of them to move the business forward is critical to your business growth.

In this Podcast of The Money Show Pavlo Phitidis outlines his approach to getting the most out of people to achieve your vision of the business.

There are three people or kinds of people you have to understand to harness their ability to build your business.

The starting point is understanding yourself

• Self-awareness is an important part of career development, and even more so for your business to know where you are going, as a business forces you to look objectively and adjust. Examining strengths, weaknesses, accomplishments, and failures from the past can help you to move forward with re-energized objectives, which helps with vision alignment for your business, whether it is in the hiring process or having composed company goals with the people you share the vision with. There are always trials and tribulations, but when the whole business is aligned to the goal you have, it becomes easier to achieve beyond measure.

Next, understand your customer

• In a world where everything in business is customer-centric, knowing your customer is critical, whether you work in a B2B or B2C organisation.

To get this right you have to listen to your customer – you cannot sell to them on the assumption or hope that they are interested in what you are telling them.
Understanding your customer will help you to be more clear and focused in what you do for them. It is always important to know precisely who you serve, what you serve them and how you serve them. You cannot be everything to everyone.

Then understand your employees

• In hiring new people, you need to be at a point where you have understood your business and you have a good sense of what kind of personality fits within your business. Having a good sense of your own values and the values of the company you are building is important. You need to hire on the back of that discussion. And that is not an interview that needs to be a social engagement.

“When it comes to employing additional staff, you must have a strong understanding of your business and a real vision of what sort of personality suits it. It is critical to understand your own values as well as the values of the company you’re building. To the extent that you can get birds of a feather to flock together, you can coordinate, simplify, and scale”. 

Inflation is creeping in and the cost of living is rising through fuel and food prices. Consistent political volatility is not making the situation any easier. All this noise creates uncertainty from an individual and a business perspective and can erode your confidence as an entrepreneur and your future endeavors.

As a business owner, you need to steer your ship in the right direction, which means being the captain who stays on the bridge with a clear view ahead.
Business owners need to adopt one strategy! And there can only be one strategy behind your business, and that is to build it into what we refer to as an Asset of Value™

In this podcast of The Money Show, Pavlo Phitidis shares insight on a strategy that all business owners should be working on.

An Asset of Value™ has 3 elements to it:

• It offers you growth in your revenue, which means income growth.
• It offers you deepening of profitability, which gives you capital growth
• It released your time to focus on Next-level growth

A business built as an Asset of Value™ will enable you to sell it and reap the capital gain as a reward for all the risk you have taken over the five, ten, fifteen, or twenty years of getting it there.

To build your business into an Asset of Value™, you need to be able to move through the storms because even as a captain of a ship, there are storms that come to pass and how you steer through them will determine the end goal of your business.

Despite the difficulties in the market, your team must be able to find confidence in you to lead them through it all.

With that note, an exercise that will lead you in the right direction would be to take a note pad and, from Monday to Friday, in different colours, write down all your tasks and separate them to see where you are spending most of your time in the business. Is it working with the team? Or micro-managing them to make sure that the business is on track?

This exercise will help you determine whether you are working on the business or for the business.

Having a vision is essential. And sticking to your strategy is essential, because if you don’t have a vision or strategy, then what are you doing? Your business should be built into a business that can one day be sold and not be part of the 94.6% of businesses that are started that never, ever get sold.

To build your business, there are many things to consider. One being that no investor wants to invest in any company where it is just you. You need to have a team. Because if you were to have the misfortune of a sudden death, many investors would be interested in that company if they knew who would carry on the value. Business owners see this as an exciting opportunity and yet the toughest one to get right.

In this podcast with Pavlo Phitidis from The Money Show, he looks at the key elements in building the team you need for a business that can scale and grow.

Some key takeaways from this:

• The market tells you what you’re doing right and, more importantly, what you’re doing wrong. And if you don’t shape up and fit in with what the market wants, you’re not going to be in business much longer. It takes time to understand the business.

• It takes time to understand yourself, more so when your business is still in the early stages. To have an effective skill set requires you to make 2 to 300 decisions a day, which can often be difficult if you don’t know yourself or your ability to understand what you need for yourself, your team, and to build your business.

• The saying, “Time is Money,” can be interpreted in many ways. Should you have gotten a person on board only to discover 6 to 12 months later that they were the wrong person? Getting rid of them to re-fill the position will cost you 50 to 80% of that person’s annual salary each time.

• Employers hire against a profile, and a profile has a number of elements to it. You need to have a psychological profile, and you need to have a cultural values profile, and you need to have a job profile. What is the job? What are you expecting that person to do before you bring them on board, outside of their position? What is the actual job?

• There is often a high need for the employee, and when the correct steps are not followed onboarding that person, because of sheer need and urgency, your judgement could be shrouded by what you’re looking for, and that cognitive bias makes you a little bit crazy and sometimes the person you’re employing is not the person who’s really there. You need to look beyond the Resumé.

• The most important consideration when hiring to complete the team you  desire is to always hire someone who is smarter than you, more energetic than you, more determined than you, and more driven than you. The team member must want to be involved in the company and, more importantly, in the company’s future. You can usually see this in the interview when they know about the business and are intrigued by it. So as an employer, to stick to the mission, selling a job is essential to get someone who’s going to be a real asset in your business, because when the business is growing beyond a certain point, that individual needs to adapt or get the boot!

When building a business, the goal is to scale and grow and ultimately sell your business. Thus an accurate business valuation is essential.

In some cases, businesses are sold outright with everything they are built on, but in other cases, businesses are stripped and torn down simply because the buyer is only interested in one part of the business that he sees as valuable, which is not a desirable outcome for the owner because he does not receive the actual value of his business.

Listen to this podcast from The Money Show where Pavlo Phitidis discusses valuation and successfully selling your business.

A business that Aurik is currently working with was about to be acquired. However, in the acquisition, the offer they received for the company was way under what their assets were worth and their understanding of the value of the business.

There are 2 key takeaway points which could be seen as red flags in this business:

1. Even though their revenues were growing, and they were thriving through the COVID period, their profits as a percentage of revenues started to diminish. The more they grew, the more they started to erode the valuation of the business itself.
2. So as the revenues grew, what happened? The costs grew in tandem with the revenues. And when costs and revenues marry each other tightly, very little drops down to the bottom line. And the bottom line, ultimately, is what people are looking for in order to understand whether the growth that they are buying is going to be profitable or whether the growth that they are buying is going to be trouble.

For a successful business sale or exit, start at the end and imagine yourself as the buyer; this may help you with business valuation. Grasp the mechanics of business valuation and simply construct a business to demonstrate those mechanics. A few key elements to consider are:

• Determine the journey and how many years it will take you to get out of the business.
• Define the product.
• Determine brand positioning for the company in order to understand the end consumer.
• Look at your business in terms of customer groups and understand that businesses are 99% psychology and 1% product, not 99% product and 1% psychology.
• With the changing times in business and valuation, brand building is key to a good valuation for your business. A brand is your perception of a product or a company. And an experience is created, yes, in part by the product, but mostly by how that company behaves towards you. That is the key.

Build a coherent business where the sum of its parts far greater than the whole.

Succession in business ownership means the transfer of a business from one generation to the next.

We tend to think of succession in terms of family businesses, where it can become very tricky and may fail unless it is done right. However, the same applies to the services industry, where businesses like architectural firms, engineering firms, accountants, lawyers and advertising agencies almost always grow through succeeding generations of leaders in their company. These businesses also face the hardships of succession if it is not done right.

In this podcast from The Money Show, Pavlo Phitidis discusses businesses that are affected by succession in the services industry. 

In private companies, succession not done right erodes or stalls the retirement wellbeing of the exiting generation and robs the next generation of their future wealth creation path.

With around 75% of these efforts failing, understanding what goes wrong and how to prevent it is critical. Here are four key points to look at for a successful hand over:

1.            Aligned future visions.                  

The misalignment in terms of what that business needs to look like, and be shaped into going forward tends to delay succession or creates a lot of bad blood. This is often because, for example, the exiting founder plans and promises to let go and hand the business over in a year or two. This turns into 15 years during which nothing changes because either he or she has not got the courage to align with the new vision, or their vision is misaligned with the new business owners.

So, getting that alignment right is the first thing that starts the process of succession.

2.            Communication across the team        

Many business owners only realise they want to sell when it is already too late to sell. If you are looking to sell through succession, the communication with your team has to begin first and foremost with you looking in the mirror and saying, “There are only two outcomes for every business in the world: a sale or closure. Because the way that you build a business to generate income is very different from the way that you organize a business and lead a business towards a successful handover.

Communication with your team will help to shape and develop your team and the business differently for a sale and exit.

3.            Relationship transfer                            

Most professional services businesses begin with deep relationships. A good example of this is two professional engineers working for a large engineering group who develop strong relationships with clients. They then decide to step away from the firm to start their own business by servicing that clients. Ten to twenty years down the line, they still hold onto those client relationships. And even  when the leadership of the company finds a young talent in the ranks who they think can continue the legacy of the business, it is difficult to have this transfer because the business has been forged on relationships that were retained by the owners for all these years. The relationship that contributes to 40% of the revenue is tricky to hand over.

So how do you hand over those relationships? It takes time. There is a structure to it. There is a methodology to it, there is a practice to it.

4.            Valuation and exit criteria                          

Once the business owner makes the decision to sell and has found his successor, this can still go wrong for the successor, especially if it’s a senior employee who the business is being handed over to. As an example, the owner will price the business at R20 million, which is an amount the employee will not have nor have had the time to accumulate in the time of employment. So where would you acquire that kind of money?

If you do not get the metrics of this right with the view to educating your successor on how valuation will occur and with the view to aligning yourself with that successor so that this successor can acquire the shares over a period, you’re shooting yourself in the foot.

Succession is not something that just happens. It typically has a five-year runway. So, if you want to exit your business in five years and your plan is to do so through succession, you should get on the horse right now and start planning a showcase.

Pavlo recently had a discussion with a young entrepreneur who wants to start a business. However, this individual has no capital to fund his idea, and sadly, in this country, there is no bank that funds start-ups no matter how good the business idea.

In the discussion with the entrepreneur, these were some of the takeaway points:

In this podcast of the Money Show, listen to Pavlo Phitidis share how you can build a business with zero funds.

• Having a passion for what you are doing goes a long way. Knowing why you are doing it and the joy that comes with it goes a long way too. Identify an industry or segment of an industry that you have enough passion for, to learn inside out.
• Build an Asset Stack! Go get a jobin the same industry you want to service or create products for.
• When there is no business yet, funders will invest in you, so consider what you would need to become an asset that they will invest in. And what you would need to do to demonstrate your value and the value of your idea to a potential funder.
• Build an impeccable reputation for yourself in the industry you are working in. This is key to access funding in an environment where no one else can access it.

• Enlist the help of some good mentors or guides from the company you’re leaving to start a business.  
• if you’ve worked somewhere for, say, ten years, you’ll have learned all the traits of that industry, and seen all the loopholes and problems that need to be solved. If you can solve it, your current company becomes your first customer.
• How does the business itself rate from a risk point of view in the industry it is in and then narrow down to the business itself? The narrower the industry is, the more the funder is able to see you’re making more headway in that industry. In other words, it is dominating a small slice of that industry.

The alternative is to just blame, blame, blame the challenges in the country for you not doing something. This view blocks the opportunities, which are out there.

Pavlo recently spoke to a 58 year-old businessman who had started his business 20 years ago and built it up to employ more than 50 people and earn average annual revenues of 86 million. Four years ago, his business was worth around 60 – 70 million – a healthy capital exit if he had chosen to sell then.

Fast-forward Four years later, and the business is not doing well. This business owner now has 11 staff members and is headed for retirement. He will continue the business, but no longer as something he was once passionate about, and more of a hobby to keep him busy in his retirement.

His is one of many businesses who were hit by a shockwave in the face of the COVID pandemic and the after-effects of it. In the unknown, expansion and growth were afterthoughts, not even mentioned, and many business owners withdrew to their core skills, to see if they could salvage their business by fixing their product or service.

Listen to this podcast from The Money Show where Pavlo Phitidis shares how dangerous it is to weather the storm from the engine room, where this business owner was.

Persistent uncertainty eroded the confidence of the captain and drew him back into the engine room from the bridge. Navigating the direction of a business in a storm  down in the engine room gives a sense of purpose. It gives a sense of confidence that you are tackling this uncertainty, and it creates and erodes. It creates massive erosion in the business.

As uncertainty increases, resist the temptation to go into the engine room, where you can get stuck putting out fires instead of staying on the bridge and navigating your business through and around the changes that come with the storm. The storm could be the Ukraine war, the inevitable recession, or the after-effects of the COVID-19 pandemic.

Global inflation and the strong Rand create an environment that is ideal to position your business to expand into global markets. Now is the time to explore the opportunities for growing a business and make it happen!

Finding the opportunity in crisis

On the one hand, global inflation rates are beginning to rise,. On the other, the strong rand helps to supplement measures that are sometimes beyond our control. However, the two together are providing an excellent atmosphere for a company to grow into worldwide markets.

In South Africa , we’ve become accustomed to inflation and the Reserve Bank’s ability to manage it by adjusting interest rates. And for us, dealing with this in our business is almost almost a kind of muscle memory. In more developed markets, this is profoundly unfamiliar territory.

This is compounded by the ongoing COVID supply chain crisis. It’s not going to change anytime soon and businesses are realising they need to learn to live with it.. As a business owner, protect yourself, get yourself a jab, do what you need to. But business isn’t going to stop any longer because it can’t afford to.

Listen to Pavlo Phitidis in this podcast of The Money Show, share the possibilities of expanding into global markets.

Why is it that the time is right to grow your business in developed economies like the UK and US?

The US and UK markets are viciously competitive to levels that we as South African companies are not, so entering those markets is not a simple task.

So, growing a business by understanding the market environment, guiding, and managing changes to your product or service, and finding access to those markets requires you to find someone who will be able to conduct market research for you and look out for your interests. It’s not something that you can commission from a so-called research agency that might be well located in the US, somewhere in Europe, or in the UK, where it may be. And I say that because, very often, those services bill you and then leave you with a document that contains a lot of theory but no practical path to getting to revenue quickly.

What you need to do to make it happen

The fear mongering taking place across the UK, in the US and Europe about the very real inflation impact – something that those environments are not used to – is creating a lot of discussion, and a lot of consternation, right across business. And that consternation is leading to a slowdown on the take up of services, and of investments. In those environments, the rand albeit stronger than it has been in a while, acts favourably for us because outsourcing to countries like South Africa, to companies that can respond effectively to it is where we are seeing massive growth across the clients that we are working with in South Africa.

It is a prime, prime opportunity to get that toehold in, which is so hard to gain. Now is the time  because when you do, you learn fast what you need to do to upgrade your service and product and capability. You might as well have thrown a grappling line onto what will be the fastest moving ship for your revenue two or three years from now. But you need to be growing your business into an Asset of Value to ensure you’re ready to scale and grow into markets beyond South Africa.