Author: pippa@aurik.com

Creating opportunity that didn’t exist before

Written by pippa@aurik.com on July 29, 2020. Posted in Innovation, Lead generation and conversion, Trends.

Creating economy is a key entrepreneurial skill. Its something that is entirely possible irrespective of the environment you trade in. It needs an adept, curious mind and courage. It also needs a well developed and relevant asset stack.

Asset Stack

This is about you. Your track record, relationships, skill, reputation and resources. It’s something some people are born with through the families they are born to. Most of us however need to develop it overtime. An asset stack’s relevance is only useful if it’s aligned to the venture you are going to create. For example, a great understanding, relationships and skills in the food sector, which make a big asset stack, are not valued in the mining sector.

Frameworks to craft new economy

All businesses work in a value chain made up of the many activities that add value to the final service or product for customers. Understanding the value chain forms a good theoretical framework to analyse opportunities in that sector. But that alone is not enough, understanding people and social dynamics is vital too. Combining the insights from both are the building blocks to spotting how to create new economy in the sector.

An Example of how it’s working

I’m going to talk about a client that we work with in the USA. They have recently gone to market with their offering that has been 3 years in the making. They are limiting their offering to a few locations in the US in order to further prove it and develop it before going to full scale. They are in the shampoo industry.

The Shampoo Industry

In the traditional, established and accepted value chain dominated by the big shampoo brands, the steps include, for example, the following:

Lab and Research -> Market analysis & Segments -> Design & Coms -> Costs & Pricing -> Distribution & Merchandising -> Sourcing & Procurement -> Demand Forecasting -> Marketing & Sales -> Manufacture -> Promotion & Endorsements

Success here requires that each of these activities are optimised in their performance. Several key measures are used, for example; costs are impacted by volumes of raw materials. New products must then match big market segments. Afterall, everyone needs shampoo. Brand is driven by packaging and endorsements and needs to be matched by distribution and so it goes. All the way through, value is added and so are costs. In distribution, getting the 100,000 bottles of shampoo out of the first run into the market goes through two or four links from distribution centres to wholesalers to merchandisers to retailers to you the customer. More cost is added. And more cost is added too to the endorsements and marketing efforts to get the shampoo into the view of you, the customer. To get the many parts that make up the service and product, these companies organise themselves into silos. Marketing, research, procurement, manufacture etc. they all have chiefs and they all hold tightly onto their domains. Their power lies in data and budgets.

Structure determines behaviour

These businesses rely on predictable demand, long lead times, standard products for mass markets, stable suppliers and dedicated production lines. Chopping and changing production is costly and a big deal. They are all measured on monthly reporting.

Entering and competing in this space is hard. You can see, feel and hear the weight behind the momentum required to compete with the big, established players. Retailers lock you out through unaffordable deals and consumers are hard to reach without them. It’s exhausting but that’s the way it is.

Consumer experience

Our hair changes over time and so should our shampoo. Unless its all the same. But marketing tells us it’s not and science does too. So, we constantly face a knowledge gap and its hard to resolve. You need to go and visit a salon and get an expert opinion which mostly rests on the brands the salon carries. You need to get shampoo too. This means time, cars, parking, queues and aggravation. Errands sounds laborious and inconvenient as a word because they are.

And that’s the material you must work with if you want to challenge this industry. It is well serviced; hard to compete with on prices and access; and with fragmented consumers impossible to reach at scale.

This team wanted to do just that: made up of a hairdresser with 30 years of experience, a value chain expert and a production expert. They tried to get in with a new brand and failed twice. When we met, we decided that doing it the way it has always been done is not going to work for them despite their asset stacks. So, we did it differently and raised some money to make it happen.

Creating new economy

Instead of their value chain being linear and in sequence, its circular and simultaneous. Imagine a central core or brain. It’s a cloud ERP system and linking into it we have:

A hair analysis app
A robotic, automated production line
Sourcing and procurement
Digital design and packaging
Marketing and inside-sales demand creation
To your door distribution and delivery
Customer driven engagement and endorsements

All these individual capabilities link into the ERP cloud of which you, the customer is the centre of attention.

A new agile structure

They have designed this business to rely on variable demand, short lead times and product cycles, real-time live suppliers and all share access to and generate data to present a real-time live experience of the customer. This all procures the following experience:

New consumer experiences

You analyse your hair from your phone, anywhere, anytime. It recommends the most appropriate treatment based on that analysis at that time. It’s private and discrete. From there, the shampoo treatment, now customised to your hair alone is formulated and prior to making it, it offers you the chance to personalise your packaging: “Bruce’s Shampoo”. It offers the shampoo to you after that for $18 with a promise of 24 hour delivery to your door. Once bought, the app confirms your receipt of the product and asks what it feels like, smells like and how your hair looks. It’s You Shampoo. You look and feel great and in your response is a real-time endorsement. This amplifying consumption is tuned into a monthly buy pattern of the brand because you are encouraged to promote and share it by way of a discount on your next purchase. This happens easily because the shampoo will eventually offer this through a membership translating the multiple once-off purchases into a lifetime annuity revenue relationship.

A new economy was created. It wasn’t shampoo. It wasn’t clean fresh hair. It didn’t exist before. Shampoo is the commodity, cost was the problem, time and convenience are the experience. A new economy was created, and we call it the experience economy.

Your opportunity

Any sector or industry is open to being reinvented and redefined. It simply needs love, passion, determination, courage and the right combination of asset stacks.

We obsess about this at Aurik. Working with businesses that generate average annual revenues between R12m and R300m, the competition in this segment of the economy is fierce. Competition that requires innovation as a survival response, not a luxury. To make this happen, work with us. Together, our assets stacks will be formidable.

Friction – it can drive and stall your business

Written by pippa@aurik.com on July 29, 2020. Posted in Innovation, Lead generation and conversion, Positioning.

Within friction, lies opportunity or demise. If products are products, which they mostly are, and service is service, which it mostly is, where is the next edge of competition? Friction holds the key to unlock your advantage. As it does for your competitors too.

Listen to the podcast from Pavlo Phitidis’ discussion about Friction onThe Money Show on 702 & CapeTalk or read on:

What is friction?

It’s resistance. It interrupts free flow and creates discomfort. It’s necessary in some cases, like tyres on the road to give grip. But too much resistance slows the car, not enough will see you spinning wheels and standing still.

A simple example

I workout at a gym that is 700m down the road from a competing gym. They are premium gyms, big, spacious and have top-end equipment. They have pools and tracks, trainers and studios. They offer towels and fruit and they have coffee-cafes too. They cost the same. They have parking and they have views with lots of natural light.

A new gym brand has come into town and is locating exactly equidistant from these two gyms. It is big, spacious and holds the promise of offering great service and equipment. The product is the product and the service is the service. But say the new gym offers boxing classes and they become popular. I’ll bet within a week; the two other gyms will do same. So where is the edge of competitive advantage?

Friction mostly lies in experiences – conscious and unconscious

To enter my current gym, I arrive at the parking, collect a ticket, walk up some stairs which land in the foyer. There, I must present a plastic card that is then swiped at the turnstile which unlocks and lets me through. After my workout, I have to validate my parking ticket, exit the turnstile, validate the ticket again and then exit the parking. It’s the standard operating procedure at my gym and the competing gym.

I do this mostly unconsciously until I don’t have my card, cannot find it, keep forgetting it or it malfunctions. It’s annoying and its offensive. After years of loyal membership, being scolded at the reception for not having a card again is unpleasant. Yet I tolerate it because it’s the standard operating procedure at my gym and the competing gym too.

Say the new gym adopts a different approach. For example, upon becoming a member, when you arrive at the parking, the camera recognises and identifies you. You park, enter the building and the path from there into the gym is unimpeded. Through facial recognition, correlating me to my membership, I have no need for a card, no need for a parking ticket and no need for any of the off awkwardness that I experience when I have neither of the cards for any number of reasons. Now, suddenly, through that experience, the former experience is not only annoying, but an issue. Why should I now tolerate it when a new operating procedure that makes me feel welcomed, easy and relaxed be possible. I only notice it when I have it but when I have it, I notice it angrily.

Friction is competition at the edge, and it stacks up to put you ahead

This is one example that this new gym could deploy to set a different standard. This mindset also translates into other areas where friction in the entire gym experience exists. By solving and removing friction from an additional 8 or 9 interactions, they stack up and through that amplify a fundamentally different experience. Subtle, small, silent in many ways, friction unseen in your business will harm it. Seen and addressed, it will stack up to set you apart.

We work with established business to build competitive advantages through understanding who your clients are, what problems they have and then curating experiences for them that sets you apart. It’s critical to survive and valuable in valuations and exits. It is the essence of a brand and that means a business that is beyond you, a saleable business that is!

Fund your business growth through Aurik Capital

Written by pippa@aurik.com on July 28, 2020. Posted in Aurik Capital, Funding.

Historically, 60% of the market recovers within 6 months of a crisis. What this means is you don’t have a lot of time to capitalise on the opportunities presented by the change brought about by Covid-19.

Now is the ideal time to focus on business growth, and through our specialised equity fund, Aurik Capital, we can offer you funding to support your business growth.

Aurik Capital is designed to invest exclusively in the growth of established businesses generating annual turnovers between R15 million and R150 million.

We invest differently to traditional venture capital funds. Our offer includes:

Working with you through Aurik Business Accelerator to develop and structure a growth plan to meet your ambitions
Actively supporting the implementation of your growth plan and build a body of evidence to demonstrate its achievement
Providing funding through multiple tranches for the duration of the growth plan to meet your growth targets and ambitions

We specialise in providing growth funding only, between R1 million and R7 million for the duration of our engagement.

Our Investment Criteria include:

Established businesses with annual revenues between R15 million and R150 million
All sectors permitted by the regulations for Section12J funding
Only businesses that are engaged with Aurik qualify for funding

Please join Pavlo Phitidis for a discussion on the fund, and how it is more relevant than ever to invest in your growth.

Date: 12 August 2020
Time: 08h00 to 09h00
RSVP: Here

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Collaboration for revenue generation

Written by pippa@aurik.com on July 24, 2020. Posted in Lead generation and conversion, Leadership.

Generating revenue in this unhappy economy is a major issue for most business owners. Until the velocity of the economy picks up again, finding the right partners might enable you to do something, and sell something, to get through this tough time.

If you can collaborate with someone who has earned your trust, you can get access to some good revenues until the economy sorts itself out again.

Listen to the podcast of Pavlo Phitidis discussion about collaborations on 702 & CapeTalk:

Crisis does push people to change their behaviour, and that ability to change brings a willingness to see, listen, hear and engage with new offerings.

How do you find a collaborator?

These collaborations are relationships you’d be looking to establish outside of your everyday operating business. So it starts with understanding your own business. You have to know what you do, and what you do not do.

When Pavlo is approached to collaborate, and he sees a lot of crossover between what they do, and what he does – that’s not a collaboration. That is sharing your clients with your competitors! When you understand what you do an don’t do, then look at what your collaborator does and does not do. They need to have complementary skills and offerings, not competitive offerings.

A good collaborator serves the same customer in different fields or areas. In this environment, where people are very apprehensive about spending money, the client gets increased value, at a lower cost than if they were seeking both of your services independently.

How do you take the new offering to market?

Pavlo advises each party approaches a customer of theirs so that there is equal exposure to risk, and ask them whether they would see value in the collaborative solution. At the end of the day, the customer is the 3^rd party in the collaboration. That’s the starting point.

Is it a match?

You need to believe in the value of your collaborator, if you are going to trust your customer with them. And there needs to be an alignment of values, to ensure the relationship remains regardless of how the collaboration may change in response to customers’ needs. You don’t know what you don’t know when you go into the collaboration.

Once you have success in a collaboration, then additional pressures may strain the relationship – who’s going to market it, who’s going to run the administration etc. You need to think of the whole package.

Pavlo’s recommendation is to visit customers together, and then build the solution together to fit the customer. Then proceed slowly. Let things settle before putting your foot on the accelerator, because truth is only found in action.

The Economic Clock

Written by pippa@aurik.com on July 21, 2020. Posted in Leadership, Mindset, Trends.

150 years ago a group of people profoundly interested in economic cycles started watching trends, over years and then decades. Thus developed the Economic Clock, based on an analog clock face, it breaks the clock into four cycles that the economy goes through locally and globally. They don’t always overlap simultaneously but these four cycles play out again and again, in the same sequence.

From a business building point of view, in an unnerving environment, where your resilience might be wearing thin, you can gain some comfort from this, because the economic clock shows that it will pass. What we don’t know is how long it will take us to move through the clockface into a more promising economic environment.

Listen to Pavlo Phitidis discuss the Economic Clock on The Money Show on 702 & CapeTalk here:

THE CLOCK HAS 12 POINTS.

12 O-clock is the end of a boom period, when there’s lots of easy money, the boom builds until the bubble pops.

When the bubble pops, interest rates go up, share prices fall, commodity prices respond so that by 3 and 4 O-clock, money supply tightens up, as no-one wants to lend to anyone until the economy shrinks to its lowest at 6 O-clock. This is the lowest point of the cycle, it’s where we are now, we are in the middle of the bust cycle.

Governments then panic, they start to put money back into the economy, drop interest rates, businesses start to form, and while it is still marked by uncertainty, share prices rise, commodities follow and at around 9 O-clock we go into a boom cycle until 12 again.

It doesn’t work in a linear fashion, it is governed by politics and people in power.

It may not impact you as a business owner directly, but understanding that cycle helps you to make investment decisions at times of uncertainty, like now. If you make the right investment decisions and your business is still standing when that clock turns, you’ll be very well positioned to make up the lost revenues of the past 12 months.

WHAT TIME IS IT NOW?

We’re at 6 o-clock, and the urgency to act is that by 8 O-clock it may be too late to get ahead of the upturn.

WHAT CAN WE DO ABOUT IT?

The latest address by our President has put a lot of people into a negative mindset. But Pavlo’s take is ‘so what?’ The impact of policies might not be fair, just as Corona is not worried about fairness. Your business can’t rely on a fair environment. The only thing your business responds to is action.

Pavlo’s recommendation is to keep beneath the noise of the news, and the sentiment that follows. None of it is relevant because you can’t do anything about it.

You have to approach it assuming the worst – that things aren’t going to get better for 18 months, which leaves you with one choice – to prepare your business for the times we are in.

And that preparation is about finding the opportunities in the change. If you miss those opportunities now, you will fall behind, and not be positioned to take advantage now, or when the clock strikes 9 and we hit the next boom.

Crises occur one after the next, whether it’s Covid or a burst water pipe. You can’t avoid them, so all you can do is adjust your mindset.

If you’re needing a fresh perspective to shift yourself and your business out of a negative mindset, contact us.

Getting your marketing right in a shrinking media landscape

Written by pippa@aurik.com on July 13, 2020. Posted in Lead generation and conversion, Positioning, Trends.

One after another, media houses are announcing the closure of established magazines and print titles. There’s a saying that when you sail your ship in a storm, the faults in your hull and your crew become very apparent. Covid has been the storm that has accelerated the decline of these magazines.

A shrinking media landscape has a number of impacts, one of which is that smaller businesses have fewer and fewer channels to reach their customers. Small businesses that could affort to take out a couple of adverts a few times a year, to be seen and heard above the noise, no longer have that option.

What’s left? Digital but there’s a massive concentration of digital platforms globally – Facebook and Instagram, Google and Youtube, Twitter, Linked in and increasingly Amazon is where everyone is spending. It’s become a ‘CAC’ position for small and medium businesses as the Customer Acquisiton Cost is unaffordable to compete with corporate budgets.

We used to believe that good content would win on these platforms as it would serve the audiences on the platform. So businesses invested heavily in content to attract big followings on these platforms. But now when you post something, you get access to 10% of your earned following – to reach the rest, it is pay to play.

It is getting rougher and tougher in the marketing space.

A ‘spray and pray’ approach is no longer an option.

The number of competitors you faced 10 years ago are far fewer than the number today. To get seen and heard, you can’t focus on your product or service, you need to focus on the customer group you want to reach. You need to dig into the measurable aspects of your desired market. Location, socio-economic level, possibly job title etc. These demographics are a start, but not enough.

You also need to understand the psychographics of your audience. These talk to the psychology of the people or businesses you are trying to reach. How do they behave, how do they think, and how do they buy your product and service?

That’s still not enough – you also have to understand the dynamics. What are their problems, how do they come about, how do they experience these, what does it cost them to solve them and how do they want them solved?

Once you have these three elements: demographics, psychographics and dynamics, you’ve then got a persona – a characterisation of the business you want to reach.

When you can clarify your client persona(s), you start cutting through the noise in your marketing.

Pounding the pavement in a digital world.
In the old days you would meet people, knock on doors… how do you pound the pavement in a digital world?

First,decide which platforms you need to be on and then structure appropriate approaches for each. The way you would work with Instagram should be different to Google, LinkedIn etc. Each of these platforms have a particularstyle of communication.

When you have picked your platforms, then you have to start relationship building. People’s aliases are very guarded, you can’t assume someone’s profile reflects an accurate version of who that person is. You need to share content that attracts people who are within your target audience. The messaging to connect needs to resonate with the right people. Then as in physical discussions, you need to build rapport with small talk – a few messages to establish fit before you present the business opportunity. Get the engagement right first to get the transaction right.

It’s not easy but you need to constantly test and evolve your messaging to see what works, and keep measuring to ensure it still works.

At Aurik we focus on getting your positioning right first, to ensure your marketing strategy works. Contact us if this is something you need to get right.

Managing business partnerships to avoid stalling growth

Written by pippa@aurik.com on July 10, 2020. Posted in Leadership, Mindset, Team.

It is vital to manage changing intentions and goals of #BusinessPartners without stalling the growth of the business.

Recently, we have experienced many conflicts between partners that were formerly solid. These may be due to the additional pressures that Covid-19 and the lockdown have put business owners under. People are frayed. Resolving the impasse is vital for the business’s survival.

You may wait, time does not!

LISTEN: podcast

WHAT CREATES THIS CONFLICT?

We are seeing several factors drive the impasse between business partners:

Age differences

Many partnerships emerged when the founder, had to ‘bake-in’ skill and talent so he offered equity by way of performance or for sale to a productive and vital employee. The founder has then had to adjust to this new dynamic as does the employee, now shareholder and investor. The transition alone is hard enough and often carries loads of baggage that interfere in the partnership. However, if properly done and managed, these partnerships settle. Desirous of a change of pace and lifestyle, the founding, older partner wants to exit. How to exit, on what basis, at what price and what risk creates the impasses that we are seeing today. Driven by uncertainty of the skills loss from the exiting partner. Affordability to exit driving unrealistic valuations on the business. Ability to raise the capital to buy the exiting partner out. As well as a loss of identity and meaning from the older partner all cause ructions and rumbles in what was a formerly solid partnership.

Family changes

Either health issues or parent/kid issues change the dynamic in a partnership between the partners. Family changes can introduce disruptive spouses, or create a need to extract more money that would typically go to investments in the business’s growth, or shift working hours to an unfair balance, for example. The need to rebalance continuously is hard to negotiate and navigate and cracks appear in the partnerships.

Loss of faith in South Africa

Many current issues we deal with result from differing attitudes between partners on the future of SA. One partner may mix in a social circle where emigration is a frequent occurrence. Doubt around the country’s future seeds a short term, investment-resistant mindset and behaviour. Should the other partner see opportunities because of the same factors, their desire to invest and grow conflicts with the formerly tight partnership between the two business owners.

Low growth, slow economy

The shocking performance of the SA economy takes its toll on all business owners. In circumstances where partners are unable to agree on a new direction, the stress of low growth can harden perspectives and seed resentment between partners.

COST OF THE CONFLICT

It’s vital that the conflicts and ruptures get solved fast. You may wait to have it blow over, time does not. We see an increasing number of business owners invest today for tomorrow. They are growing and eating the lunch of their similar competitors. The cost of not quickly resolving the ruckus’s in a partnership will be seen in the business’s performance, and include:

Stalled growth

A business that maintains its turnover growth is dying. At a minimum, to stay ahead of the depreciating Rand and inflation, a business should be growing around 18-22% on a compounded annual basis. If it’s not, its regressing and in that, losing market share.

Loss of talent

Already, SA is talent scarce. Losing good people is the fault of the business owner. Employing good people and holding onto them means progress, positivity and opportunity for them. you hold good people by offering careers and opportunities for them to improve their lot. This includes skills, talent, professionalism, opportunity and more. These are all features of a growing business that has a vision, is executing on it and solid business partners leading from the front.

Leadership loss

If you aren’t driven to succeed and get to the front to compete for the customer, the likelihood it’s unlikely that you will be the first in line to spot new opportunities, changing customer behaviours and the like. This places you in a follower position and your arrival at new pricing models, business models, products, services and more that the market demands will be late.

ACTIONS THAT CAN BE TAKEN
Several remedies are on offer to solve these challenges. A few examples include:

Buy-outs and sales

Having a partner sell out in full or in part can provide relief for the business. Careful consideration on what this means for the business is needed. Should the partnership be well-balanced, it means that there will be a skills gap in the business with one exiting and the other remaining. Resolving that through either bringing in a new partner or employing talent must be included in this remedy. In the interests of the business, this might well take place over time. knowing that there is a resolution is often sufficient for the partnership to remain positive and productive.

Re-envisage the business

An exercise of re-visioning the business, in effect, resetting the business is very helpful. It enables partners to see what they have and how they can use this to reshape the business for success. It effectively resets the business based on the partners’ current goals rather than build the business based on their founding goals. Goals, vision and strategic intent in all business should be an annual event, something often omitted because of the busyness of business and everyday life. Partners forget to communicate and speak to each other in a business. This process, properly facilitated, will remind partners why they are partners, what brought them together and what they can do to find resolution. Most valuably, they will see and hear each other for the first time in a long time and in that, de-personalise their changed focus in relation to each other and the business.

Wear the right hats

Changing workloads and responsibility can be easily accommodated through business performance incentives. A partnership based on a 50:50 basis for example, does not mean salaries are equal. Splitting out shareholding/investing thinking from director/day-to-day thinking is crucial. Shareholding drives dividends and the dividend policy of the business. Director responsibilities and performance drive salary and incentives.

Partnerships are often loaded with emotion and history. Resolving conflict, fast and fairly is extremely hard for this reason. The risks are that the business suffers irrevocably.

We frequently work with established business owners to resolve partner conflicts. Our approach seeks to serve the needs of both parties but with a firm intent on saving, stabilising and growing the business born from the fruit of the partnership. In this way, all parties win.

Create more time to focus on growth

Written by pippa@aurik.com on July 8, 2020. Posted in Creating time, Leadership, Mindset, Operational systems, Positioning.

Time is our most precious resource, but it seems like we never have enough of it. The second entrepreneur Aurik ever gave guidance to, was a bakery business owned by a 54-year old man, who had initiated the company at 27. It was highly successful, but he’d not been able to focus on its strategic growth because all his time was tied up in operations. Fourteen years after we rebuilt the business with him, it now creates more than a Billion Rands’ worth of business.

As the owner of a developing business, you can, and should create time to grow the business, and work on it, instead of in it. We’ll examine seven strategies that help you create more time, and spend it wisely.

Listen to the podcast from The Money Show:

Positioning Your Business

It can feel all too tempting to try and be everything to everyone. For a growing business, there is extreme value in specialisation, where you provide a specific kind of service to a defined type of customer. By specialising and positioning your business, you’re able to focus, learn your industry, and exploit your business’ unique aptitudes.

Build the Right Systems

The systems you build become the delivery vehicle for your customer service. By building simple, effective systems that positively serve your customers, you will create time to focus on your company’s growth.

Take the Right Action

A growing business must go through its developmental stages to be successful – there is no such thing as a true overnight success. Identify which stage your business is in, and take the right action for your company. The stages of your business’ lifecycle are:

• Start – where you’re focused on selling your product/service & attracting customers

• Build – where you’ve had enough success to start building effective systems, to ensure you can keep up your level of delivery

• Grow – where you’re able to hire the right people to cater for increased customer demand

• Accelerate – where your business functions so well operationally, that you’re able to innovate and move towards becoming an industry leader

Outsourcing

Outsourcing is a great way to carve out the right kind of focused time. Here’s how to choose which tasks you can outsource:

• Which tasks are part of your core business and strategically important? Do not outsource these. This is your work.

• Which tasks are part of your core business but not strategically important? For this, you can collaborate with a service provider.

• Which tasks are not part of your core business, and not strategically important? These tasks can be outsourced.

Use Technology Smartly

Using integrated technological systems will help you create more time for your team, and thereby create more value for your company. For example, your accounting software should directly integrate with your banking facilities, otherwise you’re adding unnecessary steps to administrative processes.

Touch Things Once Only

Research has shown that, when we multitask, we experience a 38% drop in intellectual capacity. That’s why focusing on a single task at one time leads to better results. Set your priorities and work on one task at a time, without distraction.

Choose the right collaborators

In uncertain times, you may find yourself desperately seeking a collaborator, but choosing the right one is key for your company’s success. Select collaborators who are close to your business’ function, and who will help you to build it, not take time away from it.

When your time runs low, so do your inspiration levels. At Aurik, we help you build systems that curate, construct and craft your time, so that you can build your business into an asset of value. Get in touch with us and let’s start building, together.

Attaining excellence in business starts with you

Written by pippa@aurik.com on July 8, 2020. Posted in Innovation, Leadership, Mindset.

In a crisis, being one of the last businesses standing is the best outcome for many. And to be the last one standing requires us to strive to ever-greater excellence.As the owner, being in business, doing business and building a business tests your sense of self.

Listen to Pavlo Phitidis discuss excellence in business in this podcast from 702 and CapeTalk:

Business is conflictual. Starting one requires you to take away business from someone else. Looked at differently, it means you have to fight for your piece of the pie and the established incumbents won’t want to share any of it with you. Your success comes at a loss for your competitors.

Making the pie bigger because of a disruptive business that you are building is mostly a nice way of saying that you will take the pie away from indirect competitors and they won’t want to give any of it up.

Then there is selling and selling has a firmly conflictual element to it. You are trying to separate a customer and their hard-earned cash and mostly, they are trying to hold onto it. Should they really want what you have, then it’s a discussion around price; conflict again.

These many daily battles that you fight to build a business have two sides. The one is crushing you. The other building you. Every fight that you have that you persist with, depersonalise, and complete either leads to success or, if the deal is not done, new insights and lessons learned, that builds you. It makes you better but only if you can learn AND change your behaviour. If you win a deal and don’t question why and how or if you lose it and in that find yourself wanting to give up, then business and its many fights will crush you. You will emerge full of self-doubt with eroded confidence and a waning sense of value.

So, say things are going well for you and your business, how do you rate yourself. We always act within the purview of our own psychologies. How we see ourselves impacts greatly on how we behave in business. Many CEO’s of businesses adopt a view of themselves that is linked to the turnover of their business or the business that they are CEO’s of. Does a big, hefty, multi-billion Rand turnover mean that you are a genius, supremely gifted and superior as a human being? Many Presidents think so and many, many CEO’s and senior corporate executives do too. Some business owners certainly do. If that is so, I think you’re in for a nasty surprise. Here is why:

How did your big turnover come about – many businesses in South Africa operate with very little competition. In almost every sector, there is a big 3 or 4 or 5. Be it financial services, automotive, hospitality, food services, pharma and so the list goes on. This highly concentrated environment often means that competition between these big businesses is limited. They may be protected by government issued licenses limiting the number of players in a market; or require extraordinary amounts of investment to simply start because of such licensing and compliance requirements, which limits your competitors. It also limits what you as a corporate giant can do. Perhaps, given that, the hefty turnover is a consequence of that, rather than remarkable genius.
Who is the dream team – That the emperor has no clothes is a well-worn and very useful condition to consider. I’m always sceptical of a team member’s agreement with me. Not that a business is or should be a democracy. The owner carries all the risk and must make the calls to action for the business and the team. Recently, in an interview with George Stephanopoulos from ABC News and President Trump, someone coughed. He was impatiently admonished by the President and humiliated in front of White House staff. Do you think he will ever share an honest thought about an issue he is questioned about from Trump? Or will he simply agree with Trump for fear of reprisal? A further consideration is the risk of group think. It happens to us all where, as a team you might find over time that you all begin to think alike. Remedies to this include actively embracing diversity in the team and the adopting third-party collaborators and partners. These could be board members or business growth service providers. Perspective and ground-truthing are hard to maintain, but critical to not finding yourself blind-sided. Ask Kodak!
How does funding work – If your funding stream comes from established financial institutions that, because of very long relationships and their own hunger to do business, make access to that funding a formality. The fight for funding is sobering and beyond valuable. Understand that a funder does not want to lose money and in so doing, questions and double guesses your every activity. Then use this free ‘battle testing’ aggravation as a fantastic tool to ensure your own thinking and approach is valid and the best it can be. Most funders are not ‘stupid’ actually!
How is excellence measured – is it favourable comments from friends and family? Or is it fawning, for fear of reprisal from your team members or staff at work? If something cannot be measured it cannot be managed. Far too often we rely on anecdote to evaluate and assess ourselves and our business performance. Measuring something like excellence is hard. It requires a standard to be set first and the question is what you set it against. Competitors or your own standards? If your own, how do they come about? This is when it’s useful to have an obsessive-compulsive perfection disordered person on your team. As annoying as they are, they hold value in this regard. Once the standard is set, how do you measure it, consistently and reliably? Unless you have understood how to do this and thereafter, how to digitise it, it’s hard to maintain and impossible to maintain as you grow.
Who are your customers – do they want you or need you. Certain services like electricity and banking services are a necessity in life. Without them you’d suffer greatly. Does that make consumers of these services customers, suggesting that they willingly engage with you to buy your version of the service or product? To the extent that your customers cannot do without you, you run the risk of assuming the credit for the business you run or have built. It creates a fundamentally false impression of your own capability and sense of self confidence. The remedy for this is to expand into a new market where a greater number of competitors reside and learn to fight for your piece of the pie in that environment. It is the litmus test of your grit and capability.
Who are your competitors – are they matched in size and are they many? In South Africa, for example, banks enjoy a ROE around 22-25%. Failure to deliver this is upsetting for the executive teams whose incentives are measured against such metrics. As a comparison, in the UK, with over 300 financial services licenses, banks that return single digit ROE’s above 7 or 8% are lauded as brilliantly built and run businesses. Competitors bring out the best and worst in you. To rate yourself in a ground truthed reality to avoid the hubris of your future fall, surround yourself in a competitive marketplace since iron sharpens iron.
What drives you – are you driven by an internal or external locus of control. And nternal locus of control is a true gift. It means you are mostly always in a competition with your former self; the person you are from last year or an hour ago. That self-drive in a positive psychology remains the single biggest gift in helping you strive towards excellence. It’s unlikely that you’ll ever rate yourself too highly since the best you delivered yesterday sets the standard to beat tomorrow.

Excellence is a word too seldom used in South Africa today. We tolerate and excuse everything from shocking behaviour of politicians, business leaders and governance, compliance, big brand service providers (who ironically are in service of excellence), educators and consumers. 30% for maths literacy is a commitment to failure in the future. A word without action, is a commitment to defeat.

We talk of the 4^th industrial revolution with concern and intent to play in it, yet choose not to make the hard sacrifices today needed to achieve it. Words than never turn into action about creating a better future for yourself and your business seed the cancer of cynicism and self-doubt in your future self. Aristotle said: “If behaviour leads to excellence, then excellence is but a habit.”

Our habits are formed by our behaviour which in turn is driven by our attitude. Adopt excellence as a new standard in your business and the results will see you grow in a no-growth economy where the average standards of service are dismal.

Working with you at Aurik, we will strive for that excellence both in our business and most importantly, yours. It’s simple, your success is ours.

What is your business worth?

Written by pippa@aurik.com on July 6, 2020. Posted in Exits, Leadership.

Firstly, this only matters for 5.4% of all #businessowners since 94.6% of all business started fail to sell. They close at great cost to the business owner, their family, employees, the sector and industry they are in, customers and suppliers and the economy of the country they operate from.

The second part of the answer is “not nearly what I thought or hoped it would be worth” or “not enough in terms of what I need”.

Start now to prevent these fateful outcomes by taking control of two things. Understand how valuation of a business works and start building your business differently today to secure the valuation you want in the future. It can be done, and this is how.

1. Understand your business

The type of business you have, how long its been going, the historic performance and current investments you make in it, the maturity of the industry and sector you are playing in and the timing of a valuation all play a role. For example, a well-positioned business in the competitive marketplace with steady revenues earns higher valuations than a project revenue business.

2. Understand your choices

If you have lived through your business and have very different income statements, you will pay the price in valuation at the end. If you have run thin and held back on investments needed to sustain the growth in your business, it will be noticed and evaluated and hurt the final price. Build with a view to create an Asset of Value and your exit and price options will be vastly superior since smart money wants assets not promises nor potential.

3. Understand your buyer

How competitive is the market for your business? Are there many buyers who have a cool $280m.

4. Understand valuation

There a many methods of valuation. Let’s look at 3 common methods in this blog.

DISCOUNTED FREE CASHFLOW (DCF)

This requires you to build a business into an asset. An asset is something that can be sold, that a buyer wants and wants it because it will provide two types of return. A capital return i.e. its equity value will grow and a cash return i.e. it will generate dividends. There are cases where certain assets only ever offer a capital return but that is seldom the case with a business as a living breathing thing. Capital returns are mostly for inanimate assets like art or diamonds etc.

There are essentially three levers that a business owner can control to improve the valuation of a business using the DCF.

THE RISK RATE LEVER

A high-risk rate drops your valuation. The risk rate seeks to measure the risk the business carries. Essentially, it looks to understand what makes your business special. It measures this against competition mostly and how sustainable your business is. For example, if you think that what makes you special is your product or service or price, you’re in for a big surprise. 100 years ago, your product could have set you apart but today, your competitors mostly have something similar and if not, will have it in the very near future. However, if you have a patent, this might set you apart but mostly not. There are millions of patents and very few in the world of the SME have any true, sustainable product feature advantages. Today, what makes you special is mostly linked to the specialisation of your business measured in terms of the problems you solve for well-defined customer segments.

THE DURATION LEVER

How long can the business continue without you – a year, five years, more? The longer into the future your business can operate the way it does, but without you, the higher the valuation. Get this right by building your business into a System of Delivery. That means your business functions are systematised to deliver a consistent experience in solving a problem for well defined customers. It links tightly to the point above. Your System of Delivery is the precept to getting a good team on board and these factors together reduce the demands and time the business places on you.

THE FREE CASH LEVER

How much free cash does the business produce now and into the future. The thicker the seam, the higher the value, The more diverse the seam, the higher the value. Getting this right need discipline. All your innovation and growth acceleration efforts need to align to the points above. This is where all these efforts need to be sure that you do not disrupt the organisation and efficiency you have developed in your System of Delivery. You want new growth to divorce itself away from operating overheads. The more they separate, the greater the free cash. Finally, you want to generate your growth across a spread of customer segments and sizes. Avoid having all your eggs in one basket – it’ll crash your valuation.

NETT ASSET VALUE (NAV)

This is commonly known as your book value. It looks at the net asset value of your business. that is, all assets depreciated plus all other assets less all liabilities. In well-established business it’s a horrible number mostly because all assets have been written down. This valuation method often results in a net realisable value NRV valuation instead. This is the cash value of disposing of all the assets through, for example an auction and offsetting the liabilities from there. Its mostly a depressing valuation method since it looks at

MULTIPLE OF REVENUE

This method is used and most useful in cash businesses but only if there are reliable benchmarks for that business. you apply a multiple on the revenues and then hope for the best. With good benchmarks of, say for example, a restaurant, you can evaluate the true worth of the business using the benchmarks. Food costs, rent, labour etc are well understood and even though the expenses are hard to calculate (it being a cash business) you can forecast the value from there.

5. Understand your terms

I’ll leave you with one thought. A JSE listed company, EOH went on a wild SME buying spree for about 6 years until a year ago. Their share price was growing and full of heat and they did deals that split the purchase price between shares and cash. Mostly shares. Sellers sold and got paid in some cases with up to 80% shares. At that time, the shares were valued at around R150. Today, they sit at R14.50. Say you sold your business for R30m on an 80% share split. At the time you got R6m cash and 160,000 EOH shares. Today, this means you sold your business for R8.32m!

Build with passion and purpose. Your purpose should be to build your business into an #AssetofValue. This will safeguard your future, put you in the minority of businesses that sell with success and get a premium value at that. At Aurik, we’ll work with you to get this done. Its what we do and love making your success our moments of pride!