Understanding the competition

No business operates on an island and no business is original or unique.

If you think you are, you are in trouble or protected by a massive bank balance or government license.

For the rest of us, we swim in a sea of competitors and every time they eat, we don’t.

Also, if you are not growing, they are eating your lunch, be sure of it. They might be doing it through product, service, business model or smarts.

Listen to Pavlo Phitidis unpack why knowing who they are and how they are doing matters in this podcast from The Money Show.

Competitive analysis and competition for the big 4 or 5 anything is easy. There is a tonne of data, they are incestuous and have no ability to protect IP and mostly they are listed with public information freely available. Think of any big bank, mobile network or insurer for example!

In the small and mid-tier business segment, besides the tens of thousands of competitors that we face up to daily, there is scant data to do a proper analysis and there are simply too many. So where do most of us begin?

Most of us start our businesses based on an interest, skill and insight. For example, if you are a petrol-head, love cars and develop insight and knowledge on cars, you are likely to find yourself in the auto industry. Perhaps the tyre industry. As you begin your business, you attend trade shows, exhibitions, and events. You subscribe to the TyreWeekly trade magazine. You even take a few courses on rubber and rims.

This creates for each of us a frame of reference against which we see your businesses, the industry and, how we grow and compete. In many ways, we become trapped, much like a person walking the same path daily for years eventually creates a ditch preventing you from seeing left or right. We lose the wood for the trees.

So, out of necessity we do a competitive analysis. We may go to a trade show and see our competitors with their products. In many cases, that competition is evaluated on a feature-for-feature basis. This leads to a feature-for-feature investment to one-up your products or services against those of your competitors. A better tyre, a coloured tyre or a different tread and for a while, you have an advantage, until your competitor has to respond and the battle begins again. It’s expensive and futile and everyone loses. The same goes for price. Competing on price is a never-ending battle until someone runs out of money. When they do, the price has been dropped to such a degree that there is little profit in the industry, making your daily grind, a grind.

If instead of seeing your business as a product, with a price, you saw it differently in relation to a customer, your competitive evaluation works differently and will give you a very different outcome.

It’s hard to get right because everything that moves, needs a tyre, right? If you only have a hammer in hand, everything looks like a nail. But, using this example, the tyre industry is full of differentiation. You have cars, used and driven by many different people for different reasons. The same with vans, trucks and lorries. You have industrial yellow metal, airplanes of different sizes and hundreds of different trailers. The list goes on.

Stepping away from a tyre and looking at your business as a customer begins a very fruitful journey. Since nobody spends anything unless it solves a problem (consciously or unconsciously), picking out 2 or 3 different types of customers in the tyre industry and then deepening your understanding of them takes you out of the product-price cycle and brings you into the problem-experience cycle. For example, in the grain farming industry, you have a few weeks that determine whether you will live or die based on your irrigation capabilities. Understanding that means that the big circular, mobile irrigation equipment has to work. If your tyres have been sitting out in the sun for months, cracking and weakening, and you need to irrigate, is there a cost that you would not pay? Understanding your business like that means you can better identify your competitors, evaluate them more closely and then add the features of service that will get you ahead of them specifically and directly.

Why your team is everything

At an event this week, I was told: “If you want something done properly, do it yourself”. It’s the biggest lie if you want to build a business that can grow and one day be sold. You need people – it’s an absolute fact.

Listen to Pavlo discuss this on this podcast from The Money Show:

Some truths to start:

  • You cannot grow a business without people.
  • You cannot grow a business with people who are not part of a team
  • You cannot grow a business with a team that has no responsibility.

If you are, beware, since you don’t have a business but rather, you have created a job in the shape of a business. It will never be able to grow beyond a certain level and will never be able to be sold for a significant capital gain.

Your team’s impact on growth

We ran a survey across 308 mid-tier businesses (none were Aurik clients) doing between $1m and $10million per year. On average about 88% of these businesses want to grow. Of those, 95.2% had staff that were completely unaware of the growth strategy.

If your people don’t understand your strategy, how can they be aligned to it, to you! A huge part of leadership is communication and getting your team on board and excited about the growth journey.

Your team’s impact on value

There are 5 levers of valuation in a business. The 3rd is all about team – if you can’t delegate and train your team on the system they need to operate, you get caught in the engine room of the business and it gets very hard to see the wood from the trees and to see where your growth opportunities are.

Just hiring more people doesn’t solve your team issues:

It’s not enough to just employ staff, you need to capacitate them, and you need to make them accountable by delegating clearly. If you don’t have their buy in and haven’t given them the training for them to succeed, you’ll still be stuck believing that if you want something done properly, you have to do it yourself!

Digital marketing

Is digital marketing dead?

Digital marketing is about promoting your brand to connect with potential customers using the internet and other forms of digital communication. This includes not only email, social media, and web-based advertising, but also text and multimedia messages as a marketing channel.

A bold statement, specifically for and from the context of Business to Business (B2B) growth businesses with annual revenues R1m-R150m

*Big brands, who can throw the most money at the platforms, tend to win in this space, and business to consumer (B2C) also has a different experience on digital.

Listen to Pavlo discuss his reasons on this podcast from The Money Show:

It’s a broken covenant or we’ve been duped by the giant conglomerates who run these platforms – Google, Facebook and Twitter

In the beginning we were told good content is king, so create good content and the platforms would support your growth by ranking you better and growing your audience and community. Your ads, if created well, would pop and generate response.

Then it all changed, after we’d invested deeply in creating content for our community These platforms listed, and turned from looking at us, the users, to looking at their shareholders, and delivering returns. And the algorithms changed to serve that audience. And for users, they keep changing. You can’t keep up.

Today, we create good content, we build our community, but discover that we’re only reaching a small percentage of our community – and to reach the rest we need to ‘boost’ our ad.

The context: A changing environment

In the old days TV really worked. In South Africa especially, there were only a few options – SABC, eTV and multichoice so you knew if you flighted an ad it would reach millions. But that ad costs millions of Rands so that was only an option for corporates.

Radio used to be an affordable and impactful option for SMEs but it has been hard hit by Covid as fewer people are in their cars, in traffic. Even before Covid,  it had taken a huge knock from audio on demand which has become accessible to almost everyone from Spotify to podcasts to youtube.

Print has been decimated by online, which allows us access to news from millions of sources.

So, who can help us?

It’s become so complex to understand the digital marketing reports and results and so we turn to agencies to interpret the stats, and act on them.

Digital marketing is a long and expensive game, and SMEs are impatient – they want to see results! So the agencies move up the ranks to serve corporates.

In addition, many of the agencies are affiliated to one or more of the digital marketing platforms, and are motivated to use those platforms for your spend.

Where to now?

There are 2 trends that Pavlo sees emerging to get results from digital:

  1. Performance pricing

If you are an agency that is confident digital works – then consider getting paid on the basis of delivering leads.

2. Relationship marketing

Migrating good old fashioned relationship marketing into a digital delivery.

Liquidity moments over an entrepreneur’s business career to get to a net worth of $10million

There should be two reasons motivating your everyday actions as an entrepreneur.

  1. Passion – driven either by a belief in what you do or necessity, this fuels your drive, commitment, and work ethic to make your business happen.
  2. Purpose – the development of a business to generate economic benefit.

Both are important and one without the other is likely to fail or limit your potential. I’d like to talk about the latter – your economic potential.

Listen to Pavlo Phitidis discuss both paths in this podcast from The Money Show:

There are two paths to wealth creation in an entrepreneurial career. Choosing the path most suited to your strengths and personality will let you get the greatest return on your economic prime time.

Smart at the start

This is a Start-Build-Flip wealth creation path.

Here is how it would work.

  • Cycle 1 – expensive equity
  • Cycle 2 – moderate equity
  • Cycle 3 – cheap equity

If your skills and strengths are trail blazing and you have the energy and drive to make things happen, but not the interest in managing and leading a big business, you could be suited to a start, build, flip wealth creation path.

Here is how it would work.

Most of us start with very little capital. I started with a dollar but took on debt from sellers. If you have no money at all, earn into your first business with a partner or consult or work in the sector that you want to build a business and generate goodwill and trust from a friend, family member or fool.

To then start your first business, which requires say $100,000 and your investor puts money in and takes 75% of the equity. You hit targets and secure 25%. You build its value to say $500,000 over 10 years and sell it earning a capital gain of $125,000. That is your first liquidity event in your wealth creation journey.

You start your second business and because you have nous, you go bigger. It needs, say R10million. You have reputation and evidence of capability and this time raise the investment of R6 million at a cost of 40% equity. You invest your $125,000 and commit to deliver targets for the remaining 60%. The funding is cheaper than the first business because you have a track record to increase investor confidence. It builds, bigger than the first over 10 years and sells bigger than the first, say for $2million. You secure your share of $1,2m as your next liquidity event.

You repeat the process a third time round. If the business requires investment of $2million, you raise $1,2m for 30% equity and invest $800,000 as well as commit to targets for the remaining 70% stake. At the end of 10 years, this business sells for$10million. You claim your 3rd liquidity moment of $7million.

You may want to do it again or not.

In each cycle, the access to capital, the rate of build-grow, access to talent, suppliers, customers, and partners gets easier and cheaper. Your understanding of valuation and how to build a saleable asset dramatically improves too. It is true, on this basis, the rich get richer, right?

Strong in the hold

This is a Start/buy-Build-Grow-Accelerate-Reinvigorate-Repeat-&-Sell wealth creation path.

Here is how it would work.

  • Cycle 1 – position
  • Cycle 2 – accelerate and dominate
  • Cycle 3 – new revenue and innovation
  • Cycle 4 – profit and exit

If your skills and strengths are in building and investing, and if you are the type of person who tends to deepen knowledge, knowhow, and relationships, you could be suited to a Start/buy-Build-Grow-Accelerate-Reinvigorate-Repeat-&-Sell wealth creation path.

Here is how it would work.

Find a business in a sector and across an industry that you have an affinity for. Passion matters even more here since the fuel you need to build a business to a valuation of $10m needs to last longer. You find that passion in the sector and industry. Doing so in the hospitality industry if you have no interest in the sector is unlikely to work. Your purpose needs to be energised too by the idea of having deep impact and leaving a legacy. These features hold the makings of a long-term, one business, builder.

Once you find your business, you adopt a strategy that sees you build it, in steps, through 4 cycles of growth and value.

In the first 7 years, you invest deeply in understanding how to position your business within that sector. The next 7 are all centred on dominating and deepening your investment into owning that sector. The next 7 are about accelerating revenues and value through acquisitions or new market entry, leveraging the weight and momentum acquired over the previous 14 years. The final 7 are about innovation, deepening profits and lining up your exit.

Your exits here are either through IPO’s or acquisitions by bigger players with higher multiples and balance sheets to support the acquisitions.

Both paths work and both can get you to a $10m net worth made up of capital and income over the 25 odd years of investment. The timelines will differ based on skills, relationships, environmental issues and the like. Key to both is about knowing yourself. The quicker you get that right and the faster you play to your natural strengths, the higher and faster the return on time you will enjoy. Time is the key here since your economic prime time is limited and seeing that as your 30-year cycle of wealth creation places you miles ahead of many others who want to attain wealth, and rely on hope or prayers to achieve it


How you think about your business is how it develops

Reflecting on many business discussions, there is a consistent pattern that correlates the present to the future. 

How you look at the world, shapes the world to that outlook. To use a current example, a combination of cognate dissonance and confirmation bias at work across social media on the issue of vaccines. 

How you understand your business is driven by how you choose to see it. It is a choice. Listen to this podcast from The Money Show as Pavlo Phitidis illustrates this using the example of 2 clients.

Both are in the same industry and have similar business metrics. The deal in home furniture design, manufacture, and distribution. Both employ around 80 people, both exist in very competitive markets, and each is having a very different outcome.

Company 1 – Jack

The business owner came out of the supply chain and procurement department of a corporate furniture manufacturer. He found himself there after several years on the manufacturing floor. At 38 he started his own business with a good understanding of the supply chain, relationships.

Company 2 – Jill

She had started this business at 27 out of her parents’ garage. She did so to pay for college and contribute to his family home. She designed the furniture, made it and distributed it mostly through smaller, independent furniture stores. Over the last 3 years, she found access into bigger stores and chain stores too.

When I asked both business owners what made them special, they gave me very different answers.

One said, the materials, fabrics and chassis upon which the furniture is built, the manufacturing process and the factory floor layout with its plant and equipment.

The other said, the sales representatives who had relationships with the customers who bought the furniture. They influenced the design and manufacturer of the furniture.

The one business enjoys steady, consistent sales and the other struggles, finding traction hard to sustain.

When I first met Jack, he took me around his factory and spoke to me about the various fabrics and imitation leather materials. He showed me a cnc lathe that could cut out the fabrics based on his CAD furniture design software.

Jill spent a short amount of time with me at her factory and then took me out visit 4 of her retailers. She had asked that we meet on a Saturday and then spent all the time talking about how the shoppers in the retailers behaved and how that informed all her decisions.

Can you guess who is growing and who is struggling?

Both are smart, experienced, and hard working. Both are determined and well connected.

When I ask Jack what challenges has he faced and how he overcame them, his answers all centred on product. Jill’s all centred on her customers, customer behaviour.

A business exists for only one purpose: To solve a problem for a customer by providing a great experience. When you see and value your product, before you see, understand and value your customer, their problem, and the experience they wish for, all your responses to business challenges will be wrongly orientated.

You can build a better mousetrap, but the world won’t beat a path to your door, if your customers own cats.

Succession Success

In business, handing over your role is a key imperative to growth and wealth creation.

It means the transfer of responsibility of parts or all the business from yourself to another person or team.

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