‘Buying IT’S a franchise changed my life’ December 6 2009

Page 4


A closer look at construction, retail and manufacturing


Pages 9, 10 & 11



Do it yourself, but
When money is tight, homeowners tend to repair their properties rather than move house. Hendri Pelser went to find out if hardware stores can make you money in this economic climate
HE do-it-yourself and hardware retail sector was not spared by the recession. But, because of the nature of this industry, some of its subsectors are still performing relatively well, with homeowners tending to repair and upgrade their houses instead of buying during slower economic times. The question for existing and prospective entrepreneurs is whether there is an opportunity to make money in the sector. The answer is not clear cut: the short-term expectations are not great and everyone is waiting for the upswing to gain momentum. But entrepreneurs with access to capital can invest now and cream it later. The DIY and hardware retail sector can be split into three broad categories — 1) general DIY and hardware, 2) building supplies and 3) industrial supplies. While the first sub-sector has been relatively insulated, the other two have taken a pounding. The industry can also be divided further. Some stores get their goods independently through wholesalers; others join buying groups to pool their buying power and secure discounts and franchises. Glass, hardware and paint make up 7% to 8% of all retail trade in the country. According to Statistics SA, the sector experienced a 23.1% year-on-year decline in sales (at constant prices) in June. The biggest reason was the decline in building and manufacturing activity. But there is definitely still money to be made if one looks at the growth experienced by some industry players such as Build it. This buying group generated more than R4-billion in sales during their last financial year. Evan Walker, a retail analyst at RMB Asset Management, says the market will consolidate over the next three years and he warns independents against making hasty decisions. “I just see the bigger players becoming bigger at the expense of independent retailers. If you are

don’t be in a rush


HAMMERING AWAY: DIY shop owners Freddie and Linda Smith

HEAT OF THE MOMENT: DIY entrepreneurs are advised to stay cool, even when the sparks start to fly
looking to open, I think you should look at a franchise model. I would be very nervous as an entrepreneur to venture out on my own over the next five years.” Economist Tony Twine of Econometrix says the economy will only really pick up once the rest of the world has normalised. “We are probably likely to have one more false start (in early 2010) before sustainable growth returns,” he says. Although both Tony and Evan paint a negative picture of the operating environment, they are definitely not saying that one should not invest in a business. “You want to invest when times are tough and not when you are in the middle of a boom,” Tony says. “The smart guys with capital will be able to get in now and clean up in three years’ time. You will still be able to get in later but your margins will probably be lower.” Seasonality and product range should also be considered and due to the nature of the sector, cash flow is vitally important as capital becomes tied up in stock. Linda Smith, the owner of LFS Hardware in Eldorado Park, has been in the game since 1996. Although she started off as an independent, Linda joined a buying group three years ago. “The buying group serves me better because I still have individuality and I can interact with my suppliers directly. At the same time, I have the muscle of bulk buying power. As an independent it is very difficult. We used to buy from the same suppliers but did not get the same bulk prices the buying group can negotiate. They put you on a cash basis and often the approach is ‘if you don’t like it then tough’.” Linda says it took her about two years to get her stock mix right and adds that people should never neglect cash flow in this retail space. She believes diversification is important and while the store stocks DIY and hardware goods, the business also acts as a cement and building supplies wholesaler to competitors in the area. “Even if you only make a 5% profit, this is fine because if you sell enough volume, you will get a rebate,” she says. Build it’s retail operations manager, Hans Koekemoer, expects the market to remain tough for the next six months but adds that growth will continue thereafter. DIY Depot shares this sentiment; director Dani Machet says sales will improve once banks start to relax lending criteria and the housing sector picks up. Fellow director Mark Reeves adds to this, saying that in rural and peri-urban areas, the market is still quite healthy and even growing at the moment. Mica CEO Clifford Buchler says good entrepreneurs in urban areas can also make money in the DIY space right now, as consumers will rely on a store owner for advice when maintaining or renovating their homes without the help of contractors. Chris Argyrou, Warrior Paints & Hardware’s marketing and sales director, says that despite the economic climate, it is up to each entrepreneur to go out and secure market share: “We all have


to up our game”. Jack’s Paint & Hardware operations director, Chris Russell, echoes this, saying the current climate will force operators to become more streamlined and that this will translate into better profits during the good times. Plus Ten Hardware Distribution director Norman Jackson adds: “There is so much opportunity in South Africa. The process of buying groups and even franchises has only just begun —

Flying to new horizons
USINESSMAN Alan Knott-Craig once flew to London to meet his then boss for just half an hour. The 16-odd hours on the airplane were well spent, he says, for at the meeting the budget was signed and sealed and they could get to work — immediately. “It would have taken months if we had done it any other way. There is no more productive way of doing business than meeting people face to face. “I spent at least 90% of my working day meeting and talking to people,” says the retired Vodacom CEO. Alan is by no means the only executive to understand the importance of face-to-face meetings. “There is an understanding in the current climate that we have all had to pull back on travel,” a Saudi Arabian executive was recently quoted as saying. “But as the economy improves, we will start to see damage to the business if we are not out there. Bottom line: when I am with the client less, I’m bringing in less revenue.” It is with this in mind that British Airways has launched its business opportunity grants, a R29-million initiative aimed at encouraging local small-to-mediumsized South African businesses to travel in an effort to see their

Travel may broaden the mind, but it also clinches the deal. British Airways is encouraging small and medium enterprises to fly high. Liesl Venter reports
businesses grow. “The economic downturn has seen business travel budgets internationally slashed by more than 56% over the past year and South Africa has been no exception, with airlines seeing considerable contraction in corporate bookings,” says Sue Botes, British Airways commercial manager. “This is a really tough environment in which to do business and we’re hoping that, through this initiative, SMEs will have an opportunity they would not have had otherwise. By invigorating their business travel, new opportunities can open up and they can truly experience the benefit of doing face-to-face business.” British Airways will award 50 small-to-medium enterprises a year’s worth of travel to any British Airways international destination through the programme, which has been successfully launched in the US and Europe. In a survey by Harvard Business Review Analytical Services, 95% of respondents say face-toface meetings are key to success in building long-term relationships, while about 87% said they are essential when sealing a deal. But for most SMEs, travelling to meet business partners (especially internationally) is just a dream. “It is very difficult to be top of other people’s agenda if you are not present,” says one of the 2 300 respondents in the Harvard study. “Face-to-face meetings speed up alignment and decision-making.” Nkhensani Nkosi, founder of Stoned Cherrie, is an advocate of the BA opportunity grants initiative. “This initiative gives SMEs the opportunity to develop into new markets in this challenging economic environment,” she says. Alan says the BA initiative is an ideal opportunity for a small business to make its mark. “To lose opportunities just because times are tough and you don’t want to spend money on travel does not make business sense. Through this initiative there is no reason not to travel and meet existing and potential clients. This is the ideal opportunity to grow a business.” According to the Harvard study there is no doubt that “meeting technology” is on the rise, but business executives still believe that face-to-face meetings are essential for success, offering benefits that cannot be replaced by technology. “The value of face-to-face meetings is incomparable and it is encouraging to see initiatives that support SMEs through these difficult times, giving them a chance to expand into new markets,” says Alan. SMEs from any industry employing 250 people or less are eligible to enter, says Sue. “Entries can be made online at www.ba.com/safrica-grants. The closing date for entries is February 19 2010. After that a panel of judges will look at each application. The 50 winning SMEs will then be chosen and the winners announced on March 19. The tick-

Investment and return
EACH franchise or buying group has its own formula on how much money is needed to open a DIY, hardware or building supply store. There are some rules of thumb. A general store can range in size between 100m² and 450m². Extra space is needed if you want to sell building supplies. A turnkey operation of about 400m² in the DIY or paint area will cost R2-million to R4-million. The stock component generally makes up about 50% to 70% of this amount. Paint is usually more expensive than DIY goods. Franchises and buying groups secure products for between 10% and 20% less than independent buyers, depending on the type of stock. Your return on investment also depends on what is sold. Plus Ten Hardware Distribution director Norman Jackson says that building materials generally generate an 18% to 24% gross profit (GP) margin, whereas DIY and hardware can bring in a GP of between 33% and 38%. Industrial supplies have a GP of 26% to 30%. Some franchises though, report slightly lower profit margins.

Consumers will rely on a store owner for advice when maintaining or renovating their homes
there are hundreds and hundreds of opportunities left. “It is important to understand what you are investing in. In the old days, if you enjoyed fixing things, you could use your pension money to open a hardware store. These days it is much more complicated and you need a decent back-office system. You also need to understand that product knowledge and service are the differentiating factors. “If you are willing to play the game, there are opportunities available.”

ets awarded to each of the winners will be valid for a year.” In the applications, a case for the unmet business travel needs of the SME will have to be made and applicants will have to outline their objectives for 2010 and how being awarded a grant would benefit their business. Whether it is a sit-down appointment with a potential client, buyer, investor or a check-in on an office that has not been visited because of budget cuts; the initiative allows the SME freedom to use the tickets to suit their needs. “The programme is designed to help budget-conscious businesses get where they need to go, physically and financially,” says Sue. “The 10 return business tickets can be used entirely at the SME’s discretion.” British Airways will cover the cost of the fares, but winning companies will be responsible for paying taxes, fees and charges. According to Sue, “it does not matter what industry they are in, be it a laundromat owner or an IT business”. She says Alan, along with a panel of British Airways executives and people not connected to the airline, will judge the entries. “It will come down to the business plan submitted and how business travel can benefit the SME.”




Taking control of your life, and making money
Changing careers can be daunting, but nothing is as liberating as taking charge of your destiny. Liesl Venter found out how buying a franchise changed a life


R ELMARIE King, 42, has never regretted buying a franchise. She says it is probably the best career decision she has made. “It may sound corny, but I really took my destiny into my own hands. It changed my life.” Elmarie was looking for a change when the chance to buy a Kumon centre came up. Kumon is an educational method which uses maths and English skills to develop children’s potential. The aim is to encourage them to love learning by improving self-esteem, while encouraging self-discipline and a good daily study habit. “I was trained as a social worker and had spent years working for the Wits Deaf Association where I had gone through the ranks until I became a director. My husband and I had also travelled a bit and had worked in the UK for several years, and on my return I had found work in Pretoria. It was, however, time for a change.” Going back to school seemed like the perfect solution so she did an IT course at the University of Johannesburg, convinced the world of programming was beckoning. “I realised very quickly that it was not for me. I had worked with people my entire career and needed that interaction.” A newspaper advertisement brought the much-needed change. “It was just a small advertisement about a franchise opportunity. I started exploring a variety of options, and finally came across Kumon. I applied, was accepted and the rest, as they say, is history.” Today she owns two Kumon centres in the Johannesburg area — one in Robertsham and the other in Horison. “Initially I thought I was making a huge mistake — I did not know anything about owning a franchise, or about maths. What I did know, however, was that I needed time as I had enrolled for my PhD at Joburg University. Buying a maths centre seemed ideal as it would allow me to have my mornings free to do my research for my degree, and to work in the afternoons.” She took the leap of faith and bought the centre, not realising how much this career change would come to benefit her. “Owning a franchise meant I could spend time with my daughter Courteney (who is now three). If there was a crisis she could come to work with me without any issues. It is the ideal solution for a working mother.” Asked about walking out of a full-time job into buying a franchise, she admits it was daunting. “I think there are various reasons why people make career changes — be it boredom, or dislike of the people you work

HAPPY IN HER WORK: Kumon franchise owner Elmarie King at Horison Primary with pupils Amogelang Nathane, Remoneilwe Mngomezulu, Charese Jordaan, Bernice Jordaan and Lesedi Nathane Picture: KATHERINE MUICK-MERE

with, or even finances. Like many other people it was not easy for me to make the decision, but once I had made it, it changed my life for the better.” She had to go through a selection process before being able to buy a Kumon franchise. “But the difficult part was only beginning as I had to find an area where there was no centre or buy out an existing centre. “Like any other franchise you can’t have two of the same on one corner — it will not work. I then had to wait for a centre to become available as I had taken the decision to buy an existing centre to start off with.” One finally became available in Robertsham and Elmarie grabbed the opportunity with both hands. “I had done the training course and had all the material. I did not consider myself a maths expert, but I fell in love with this job immediately. The children, and the accomplishments, make all the difference. I feel as if I am contributing to their lives.” A year after buying her first

franchise she bought a second, this time in Horison. “Both the centres I took over were very small and all my efforts initially went into growing them.” Finding a centre is not always easy. “It becomes very competitive when you move into areas where there are already existing centres, so much research has to take place. Like with any busi-

‘I feel as if I am making a difference to the children’s lives’
ness you must plan and be ready for what you are taking on. It is also about establishing whether there is a need for the programme and if there is interest not just from parents but also from schools.” Elmarie advises would-be franchise owners to carefully re-

search what they want to buy before they take the plunge. “I could never own a fast-food restaurant. I chose a franchise that suited my lifestyle, my personality and my pocket. It works because I am passionate about it, but also because it allows me the freedom to be with my child. I wanted that freedom — someone else might have other needs.” Knowing what you want out of your franchise is important. “I now have more control over my life. If I want to grow my business I can, if I want to downscale I can do that too. It is not about what the boss wants, but about what you want. “I work just as hard as when I was employed full-time. The only difference is this is mine and I have the freedom to manage it the way I want to and need to. If a franchise does not do that for you, I think it can be just as frustrating as having a full-time job.” Elmarie’s top tips to potential franchise owners: ý Do your homework! Know what you are buying and where

you are buying it. It must be something you love and something you can manage. Buying a franchise for the sake of buying a franchise is a recipe for disaster. Find out what is available and what suits your needs. Research every aspect of the business before you put your money down. ý Work your way up through the ranks. Education, in the classroom or in the everyday working world, can never be underestimated. The fact that I had worked for years as a social worker made me a better franchise owner as I had life experience. ý Don’t cut corners. Being a successful franchise owner is about knowing that nothing happens without hard work. There is no easy-win situation — it takes time and effort to get to the top. ý Don’t let finances get you down. Not all franchises cost the same so find one that suits your pocket. There are affordable options available. ý Think and dream big. Anything is possibly if you put your mind to it. I never thought of myself as a mathematician.

Eve’s garden of Eden
A true entrepreneur is resourceful, can solve problems and identify opportunities, as Hendri Pelser found out

For 12 entrepreneurs, a lifeline is closer than they realise, writes Liesl Venter
UVU Bengane did not know where to go when her small printing business burnt down. Her jar, as she says, was empty. She was at the point of giving up when she was introduced to business incubator Raizcorp. “That changed not just my outlook on my business, but who I was,” she says. “They took me under their wing and through their learnership I came to be not just a better entrepreneur but possibly a better person. I know what my values are, my needs and where I am going. I am the driver of my own destiny.” Today Siya Phambili Copy & Print is a thriving small business in the northern Johannesburg suburb of Bryanston, with large clients including Dimension Data and Eskom. Vuvu’s story is not out of the ordinary, says Gavin Friedman, head of enterprise development sales at Raizcorp. “About 96% of businesses fail within the first 10 years, even more so in South Africa where we have fewer entrepreneurs per capita than, for example, Uganda. “Wavering funds, blacklisting and low self-esteem become a reality for these entrepreneurs who try but don’t succeed.” To truly advance the growth of entrepreneurship in the country, it was clear that a solution was needed, especially for the corporate sector, which is obliged to be involved in enterprise development, a component of the broad-based black economic empowerment codes of good practice. “But throwing money at a problem is not a solution,” says Raizcorp CEO Allon Raiz. “Enterprise development as a national strategy will become misguided and ineffective if it is driven by volumes and not the quality of entrepreneurs.” It is for this reason that Raizcorp, a for-profit, unfunded business incubator, prefers to refer to itself as a “prosperator”. “For us it is about offering an innovative and holistic solution to South Africa’s challenges for growing the small business sector,” says Allon. “We are about creating prosperous entrepreneurs and growing profitable businesses.”



VE Ntseoane is tinkering in the farm workshop. It has taken two days to dismantle the tractor and as she fiddles with the engine block it is difficult to see even a spot of grease on her shirt. “The crankshaft went,” she says, then smiles. “Three years ago I did not even know what a crankshaft was!” Dressed in her working boots and jeans, the owner of Eve’s Eden Farming Enterprise near Fochville in North West walks briskly towards her new chicken coops — there is much to be done and little time in which to do it. Eve has been tending her 539ha “garden” for three years. Getting her hands dirty every day is a dream come true. She gave up corporate life almost a decade ago when she left Eskom as a communications professional to start a catering company. Catering seemed like a good idea as she has always been in love with producing food. After eight years of preparing food for others, however, Eve had to face the truth that catering was not her calling. At the same time, competition had increased and her margins were under pressure. “My uncle was a farmer and I used to work for him during school holidays. I always had this passion for producing from the soil,” she says. She decided to follow in his footsteps and become a farmer. Eve might have all the passion farming requires, but land does not come cheap. Eve started researching government support initiatives. She approached the former Department of Land Affairs for a grant and persuaded it to fork over some cash for a farm. “I had to identify the land and the department had to decide if it

was viable,” she says. She had made up her mind to focus on maize and sunflowers. She eventually found a working farm, received a grant and gave up city life. But she knew her abilities and knowledge were lacking. She had started attending courses offered by Grain South Africa even before applying for the grant. Eve also approached the Department of Trade and Industry for export training, as well as the Italian Trade Commission in South Africa. “I went looking for every possible person who could help me,” she says. She also spent some time with the farm’s previous owner to ensure that she understood her new land intimately. “I spoke to the farmer and he showed me his books. I liked the soil type and knew that this farm would allow me to diversify. “I had to learn what a crankshaft looked like, and where you poured oil into the tractor. “I was a person with soft skills and I was entering a different world.” Eve might be a farmer, but an entrepreneur hides beneath her straw hat. Maize and sunflowers were only the beginning and she recently secured another grant to built chicken coops. She is now securing contracts to supply an abattoir. A flock of goats will be joining the farmyard soon, and Eve has earmarked their milk for cheese. Her diversification strategies are testament to her entrepreneurial abilities and she explains that adaptation and flexibility are the keys to success in business. In the farming world this might mean having to get up early on a

Help has arrived
them, how to encourage them. We do,” says Gavin. It is for this reason that Nedbank found itself knocking on Raizcorp’s door. Mark Rose, head of business development for Nedbank Business Banking, says the bank started the process of enterprise development long before the Department of Trade and Industry’s BEE codes became a reality. “It is not something we must do, but something we want to do. There is no doubt that the SME market plays a pivotal role in growing the South African economy. We want to be part of that.” By donating about R3-million, Nedbank will help 12 emerging entrepreneurs build their businesses. “There was immediate synergy between us and Raizcorp,” says Mark. “We did not just want to give money and walk away. We want to see the development of these entrepreneurs and be involved in their progress. The Raizcorp model allows us that.” The 12 entrepreneurs have still to be identified by Raizcorp. Applicants will have to undergo a strict selection process. “We screen our applicants carefully,” says Gavin. “It is not a quick application, interview and then you are in. “We make sure that the right people join the programme. It is an intensive find-and-filter selection process. It starts with an online expression of interest, which leads to the first interview after which all applicants have to participate in an entrepreneurial assessment, complete an audit and due diligence documents, attend another interview and then present their business to the final review panel.” Those accepted undergo a year-long learning programme during which the entrepreneurs are given access to infrastructure such as boardrooms, reception area, telephones and ready-to-use offices. “Professional staff is also part of the deal as they will have access to book-keepers, lawyers, receptionists, accountants and trainers. “The learning component of this programme develops and hones life skills as well as business skills. “Being an entrepreneur means far more than building a profitable business.” As each entrepreneur is allocated a full-time team of guides who focus on strategy, finance, marketing, personal development and sales, entrepreneurs are also given much-needed sales training. “Sales is the lifeblood of any business,” says Gavin. “Improving these skills is core to being successful. The entrepreneurial journey is a lonely one — we provide a community where entrepreneurs can interact and draw strength and inspiration from each other.” Mark believes this is part of the success of Raizcorp, which supports more than 200 businesses around the country. “We are very excited about this partnership as we know this model will afford Nedbank the opportunity to offer end-to-end nurturing and development of various companies and provide a host of services, including training, infrastructure, service providers and capacity-building for each of the beneficiary enterprises — all under one roof,” says Mark.

ENGINE: Three years ago Eve Ntseoane did not know what a crankshaft was. As a learner farmer she has had to get to grips with the innards of tractors, among other things


Saturday morning to plough a field if it happened to have rained the previous night. In the business world it means looking for opportunities and positioning yourself to make the most of every prospect.

As a result, she has appointed a marketer and a food scientist to investigate the possibility of turning her crops into starch. “Starch is used as a thickener in almost every type of food production, and I intend to export DOWN ON THE FARM: Beneath the straw hat, the brain of an entrepreneur is ticking away

what I produce — I want to set up a factory on the farm. “My initial focus was on primary production but as a business person you need to be innovative and think out of the box. “You need to grow your business to create and sustain wealth.” Eve says she believes that her humble farm will one day be the headquarters of a large and successful business, and she is prepared to do everything in her power to make this vision a reality. “Business does not need an apologetic leader — you have to be on your toes the whole time and push, otherwise you will not survive,” she says. “I came into this business knowing I would not make money in the first year. It is like climbing a ladder — you have to start at the bottom step and work your way up. “You need to surround yourself with people who are in a similar position and who can help you. “Then, you should not be ashamed of admitting your fail-

‘I went looking for every possible person who could help me’

ures because somebody else might just have the advice you need. You learn from hardship.” Being a black female farmer in a white male-dominated world was not easy, but Eve says her time as a corporate communications professional came in handy. Initially, she faced opposition and resistance not only from other farmers, but from her own staff as well. Some of the male farm workers were not pleased about taking orders from a woman; Eve says some of the farmers in the area did not exactly know how to treat her. Some service providers tried to pull the wool over her inexperienced eyes. Nevertheless, her people skills came in handy and she took care of every situation as it arose. Some of the farm hands left and Eve approached her mentors from Grain South Africa for advice on seeds, chemicals and farm management. “I have a group of good workers now who share the vision. We work as a team and they understand that, if something goes

wrong on the farm, it affects all of us. “At first, the other farmers in the area closed up. I did not know Afrikaans when I came here and took it upon myself to learn the language. I now have good relationships with my counterparts and they help me when I’m in need.” Eve recently visited Italy during a trip sponsored by the country’s trade commission to investigate clustering and the local SME sector. This experience and the encounters lived through when she moved to the farm have led her to the conclusion that the SME sector in South Africa needs to change. In South Africa, people work in silos. But we are all dependent on each other. “We need to understand that if one (small) business fails, others will fail. For example, if I don’t receive the right types of seeds from a supplier then I won’t produce enough crops to sustain the farm. If I fail, they lose a customer. We need to become a business community.”

‘We are looking for people with heart, who truly want to be successful’
The Raizcorp model, says Gavin, “is an eight-step process which requires commitment, dedication and hard work”. “We are happy to partner with Nedbank because, unlike many other organisations, they truly understand the importance of enterprise development — that it is the one element that can turn the face of the South African economy around.” For Nedbank and Raizcorp, enterprise development is much more than a mandate from the government. “It is easy to call yourself an incubator, get money from a bank and liberally throw money at people who call themselves entrepreneurs,” says Gavin. “This partnership is not like that. Nedbank and we are looking for people with heart, who truly want to be successful business owners, and are willing to put in the work. “This is about developing South Africa’s future.”

‘This programme develops and hones life skills as well as business skills’
Enterprise development is defined by the government as the assistance given to entrepreneurs or would-be entrepreneurs by a company to help the entrepreneur’s business become sustainable. It is no longer just a nice-to-have. “It is a reality if we want to grow South Africa’s entrepreneurs. The problem is that as a strategy it is misunderstood. Corporates know how to do their business, they don’t know how to inspire entrepreneurs, how to develop




Crafting into the future
The stitchings, weavings and carvings passed down and developed by generations are finding new inspiration in the hands of two Joburg-based women. Liesl Venter finds out more


EDICA Davids and Chantal Collet are, by their own definition, innovators, strategists and catalysts, but they are also creators. “We both needed to express our creative energy through a business,” says Sedica. “We had been toying with the idea of setting up a business that specifically harnessed the creative energy of professionals through mentoring and advising, and also by sharing our strong start-up tendencies with others. “The result was Create Africa Trading (CAT CC), which I think is best described as a catalyst company.” One of the few women-owned research, project-management and merchandising businesses in the creative industries sector, the company has gone from strength to strength since its launch in 2006. Chantal, an experienced cultural industries practitioner, brought a host of skills to the table, as she had been involved in cultural research projects, arts management and skills development and training. Sedica, with a long history in organisational development and education, is an expert in humanresource management, research and policy development. “South Africa’s growing economic environment presents major opportunities for entrepreneurs and innovative thinkers,” says Sedica. “But we need indigenous and innovative solutions to the challenges we face. Researching craft, we realised it had the potential to create jobs where the need is the greatest. CAT CC is about elevating, motivating and supporting this sector, which is potentially massive.” The Gauteng Creative Mapping Project, a 2008 study commissioned by the Gauteng department of sport, arts, culture and recreation, revealed that creative industries contribute over R33-billion to the province’s economy every year, and create direct employment for more than 60 000 people. CAT CC, which undertook research for the Craft Audit of Gauteng and were involved in the drafting of the Gauteng craft strategy, have been in partnership with the department since 2008, implementing the two-year Product Development Programme. The project, created and driven by the department, comprises Programme 1, Urban Spirit and Programme 2, Heroes’ Corner. It is a pilot project aimed at craft entrepreneurs who are economically disadvantaged but culturally and conceptually very advantaged. Crafting just for the sake of crafting has no point. “For many crafters, it is their survival,” says Sedica. “Our programme is aimed at emerging craft entrepreneurs who are already part of an existing enterprise (Urban Spirit) within one of the five municipal regions in Gauteng. We look at their product and, through the programme,

CRAFTING SUCCESS: Nina Sedumedi, owner of Innocent Spirits, with Sedica Davids of Create Africa Trading participants are mentored in a number of areas, from how to price and cost their product to ensuring that their product is authentic and unique.” Research into the crafting industry has shown that, while creativity is alive and well, business skills and access to markets are often lacking. “Crafters get into the programme through their local municipality, which has a database of existing craft enterprises in their areas. The programme administrator ensures that applications are forwarded to a product developer, who goes through the applications, looking at the different products, and makes a selection of the candidates.” Sedica says the candidates are then provided with a five-day contact period at the Craft Design Centre Gauteng in Sandton. “It is part about mentorship and quality product development using identity, heritage and authenticity in line with market trends, and about growing your business, taking aspects such as market demand, trends, costing, pricing and other business elements into account. “In the Heroes’ Corner programme we are looking at young graduate craft entrepreneurs or those with relevant experience and put them in touch with buyers at the start of the contact sessions.” Sedica and Chantal agree that just being able to craft is not good enough. “This programme is about finding the secret to success for the individual craft entrepreneur — what makes the product authentic and unique, interweaving the personal story into the product and finding ways of selling it successfully.” Ensuring that crafters leave the programmes with enough skills to start a business is part and parcel of the Heroes’ Corner programme, in which buyers are introduced into the programme. “Both programmes are aimed at creating an entrepreneurial environment for the crafters, in which they work towards definite goals. Every individual is also matched to a mentor and, through that process, we not only develop their skill as entrepreneurs, but also build confidence and provide them with the necessary information to become successful small business enterprises.” Nina Sedumedi, 31, a designer from Soweto, is among the success stories of the Heroes’ Corner programme. Having just signed a contract with a major buyer that will see her African fairies sold at retailers and airports across the country, she says it was the programme that made all the difference. “I studied fashion design at the


How to get ahead
Tips for emerging entrepreneurs: ý Find out where you can get support — the government has pledged support to the craft industry through a variety of programmes such as the Product Development/Enhancement programme — knock on as many doors as you must but get involved with support programmes; ý Gain experience — work for an established crafter before tackling the industry as an individual entrepreneur ý Understand your area of craft – know where and who your market is, your expenses, your pricing — develop it accordingly; ý Research your craft — authenticity is what is going to define you; ý Be unique, be you.

University of Johannesburg and was convinced I would be a huge success. After all, I was one of the few who managed to finish the course. I found myself sewing curtains and doing clothing alterations just to pay the bills.” Designing and making children’s clothes in her spare time, she was still dreaming of a big break when a car crash catapulted her into action. Calling her company Innocent Spirits, she started making fairy outfits for girls and animal suits for boys. “When I joined the Heroes’ Corner programme, my world changed. I have learnt skills that I desperately needed to make a success of my business. More than that, I found a mentor who gave me precious advice and much-needed criticism.” She was also put in touch with buyers leading to her signing the deal to sell clothing and her speciality, African fairies. “Just being able to do something is not enough — you have to get out of your cocoon and go out and enrich yourself by doing the programmes, learning the skills and developing your craft. The best advice given to her was to find her originality and uniqueness. “There is no point giving the world what it already has. My fairies were born during my mentorship programme, as I realised I needed something that was different and unique.”





FOOD IS YOUR FRIEND: Retailers are advised to make sure they attract customers by selling at good prices, and making sure the customers know this

Tough 2010 looming
Working smarter will be the key to survival, reports Hendri Pelser


ALUE for money is going to be the name of the game in 2010 for small and medium enterprises in the retail environment. The days of credit-card shopping sprees are over for most South Africans. Expectations are that consumers will remain under pressure next year as the threat of electricity price increases and possible new taxes loom. Half of all SMEs will be affected as the SME Survey shows that 34% of small businesses focus on consumers and a further 17% target either retailers or wholesalers. The Bureau for Economic Research says retail confidence hit an eight-year low towards the end of 2009 as profitability came under pressure. While elements of this picture will remain somewhat static in the new year, improvements are expected and it seems the worst may be over. Evan Walker, a retail analyst at RMB Asset Management, says it is difficult to paint a clear picture of 2010 because of the

Eskom and taxation unknowns. While minister of finance Pravin Gordhan has hinted at a possible increase in income tax, Evan says the new National Health Insurance Bill might include a contribution from the working population. “This will affect consumers again because it is effectively another form of tax. If this happens, retail will be hurt badly… and it will constrain long-term growth in the sector.” Possible Eskom tariff increases will also affect consumers directly: “There is a lot of uncertainty on the horizon and retailers should be conservative for the next year at least. It is difficult to see negative growth next year. The average consumer can still hold out, but there will not be any massive growth.” This is echoed by Mike Schüssler of Economists.co.za — he says the good news is that possible cellphone tariff reductions and a decrease in household debt may lead to retail growth. His provincial barometers also show

that trade growth is slowly starting to take place in some provinces. Initially, at least, Mike expects discretionary spending on small items to increase. He advises SMEs to stock items that offer consumers value for money. It will take a while before retailers selling big-ticket items will see any significant growth.

Expectations are that consumers will remain under pressure
“If all these (unknown) things come to fruition, buying patterns will change and you will have to adapt your product range to be in line with the available disposable income out there,” Evan says. “Most SME retailers will need to look to offer more value products — people will be spending.” He adds that stock manage-

ment is going to be critical next year and says inventory levels need to be watched carefully. “They should cut costs wherever they can and they should avoid getting too indebted … I think SMEs will continue to take more and more pressure simply because they don’t have the bargaining power.” Mike advises SMEs selling bigticket items to have smaller items on display to promote any form of cash flow. Price increases will remain under pressure and Mike believes the only way to get the feet through the door is by offering good prices and by making sure that consumers are aware of this. Food and beverage sales tend to remain fairly stable and Evan says food inflation has been decreasing steadily. This means retailers will have a better time of it initially as profitability is not under as much pressure. Abel Coelho of the Glenharvie Supermarket near Westonaria is an independent retailer and he is optimistic about 2010. “The re-

cession did not really affect us as we sell basic foodstuffs. Everybody needs food.” On the other side of the spectrum is Amith Kara from Original Penguin in Nelson Mandela Square and his high-end clothing brands are now subject to a 5% increase in import tariffs. The effects of these increases will come to the fore when winter clothing hits the shelves, but Amith says the strong rand will largely offset this. “The rand is much stronger, so it is almost 30% cheaper to buy clothing. This gives us better selling prices and, thus, better turnover… at one stage, we were buying at R11 to the dollar.” Amith has ensured that his margins allow room to manoeuvre: “If things go south, we adjust our pricing — we will simply drop our margins and increase volumes because you can see an immediate effect in the feet coming through the door. I think that the World Cup should give us a better first part of the year. Thereafter, it is up to traders to offer the right products.”

10 DECEMBER 6 2009: IT’S MY BUSINESS / Sunday Times

BOTTLE IT: Volumes of consumer-related goods are expected to surge in the first half of next year


Upturn predicted
Sector’s prospects are looking better in 2010, reports Hendri Pelser


OT long ago South Africa had virtually reached its manufacturing capacity. The global downturn quickly took the wind out of many SME manufacturers’ sails but, according to economist Mike Schüssler, 2010 has the potential to nurture a recovery in the sector. Still, it is going to be a long road and SMEs will have to be on their toes. “Manufacturing growth, to a large extent, is going to depend on the world’s economic recovery. It won’t be heaven but it won’t be the hell 2009 was,” says Mike. “Overall, I am not too concerned about manufacturing next year.” Manufacturing is dependent on a number of other sectors and Mike says SMEs that are focused on producing consumer-related goods can expect a pick-up in volumes initially, with a downturn in the second half. He says inflationary forces and the effects of a possible electricity price increase will take time to hit consumers, hence the expected decrease in manufac-

turing activity towards the end of the year. Food and beveragerelated manufacturing will remain stable. The mining sector is already seeing a recovery based on high commodity prices. SMEs supplying the industry should have a good year. Overall, Mike expects manufacturing to perform better, but says significant growth will really return only in 2011. Export-orientated manufacturers should do better if the rand devalues, but Mike says SMEs focusing on Africa still have many opportunities to pursue. He adds that Gauteng, as SA’s manufacturing powerhouse, will see the first effects of an upturn and decision-makers should look at their industrial areas for signs of increasing activity. Sanisha Packirisamy, an economic analyst at RMB Asset Management, says because manufacturing was one of the hardest-hit sectors this year, it should see signs of recovery early because it is coming off an extremely low base.

She adds that demand will increase in general next year, based on expected overall economic growth, which will drive higher production levels. “If you believe the world will recover next year, we should start seeing export volumes recovering. This year, export volumes declined by about 13% and we see this becoming a 4% year-on-year growth (in 2010).”

‘We expect building activity to start picking up again’
Sechaba Kitleli is chairman of Reunko Steel Suppliers in Alberton, which manufactures balls and brackets for the mining industry. Instead of sitting back and waiting for large mining houses to find their products among a myriad of suppliers, Reunko’s management were proactive and recently conclud-

ed an equity deal with Anglo American’s development fund, Anglo Zimele. “We convinced them of the value we offer because of our products, technical ability and ownership equity. I think we are going to take off in 2010,” Sechaba says. Nevertheless, there will be pressure on input costs, including steel. “Our clients understand that there will always be a price increase for our product. Constant communication lets them know what is happening. “I have faith that we are going to ride the tide if we have the understanding of our clients.” Neil de Wet of Doors Unlimited in Pretoria is also optimistic about 2010. The wooden door and window manufacturer experienced a 40% drop in volumes in 2009 as housing construction came to a virtual standstill. “Now that banks are relaxing their lending criteria and because the interest rate is lower, we expect building activity to start picking up again,” says Neil.

“As a result, I expect volumes to increase. We also focus on the renovation market, which is relatively stable for us.” Neil expects the upturn to have taken root by the second quarter of 2010. But he is worried about input costs, especially the electricity their three-phase machinery uses: “A price increase will hurt a lot. It might just be cheaper to run a generator than to use electricity from the main line. “Obviously, we will have to pass on any increased input costs to the customer. They might not like this, but they will not have much of a choice because all manufacturers use electricity.” Neil is in a significantly better position than many competitors because he imports the wood the business uses. This means his pricing remains more competitive and there is room to absorb increased input costs. “Some you win, some you lose. You need to manage the possible negative implications on your business as they arise.”





Building industry still under pressure
Finding a niche in the market is the secret for SMEs, writes Hendri Pelser


ME owners in the construction and housing industry don’t have to go to a theme park as they have their own roller-coaster rides to contend with. Unfortunately, the ride is not over yet and 2010 is going to be another demanding year for the sector. Property economist Erwin Rode says SMEs should assume that 2010 will be similar to this year. Next year will be a year of consolidation. “We must remember that building construction is a lagging indicator. So as rental rates have been under pressure this year, one cannot expect much improvement in building construction next year,” he says, adding that the residential property sector will also remain under pressure. There is oversupply in the residential and commercial markets so new buildings are not really “necessary”. Economist Mike Schüssler echoes some of Erwin’s sentiments and believes commercial property will be the first subsector to perform better as manufacturing recovers. Things do not look rosy in the civil and infrastructure construction sectors, either, as the spending cycle initiated on the back of the Fifa World Cup is drawing to an end. “Government finances are under pressure,” Erwin explains. “When this happens they save on capital projects. The potential demand for capital projects is huge, but money is going to be a constraint.” Mike says many projects still need to come to fruition, among them expansion plans at Eskom and Transnet. “Civil construction, in general, should continue,” he says, adding: “One must remember that South Africa is so far behind that there is simply no alternative.” There is some good news for small businesses not directly linked to the construction sector. Erwin says businesses specialising in home repair and DIY should do better as fewer people will move to better housing due to financial constraints. Mike adds that other housingrelated service providers such as garden services will still have work, but warns that consumers will cut their spending. At the same time, there is a tremendous opportunity in supplying and installing energysaving products such as solar geysers or geyser insulation blankets because of possible electricity price increases. Erwin says rental prices will not increase significantly next year. “Landlords cannot increase rentals if the retailers cannot afford it, and retailers cannot

LOOKING UP: A construction worker makes his way in to a site in Rosebank, Johannesburg, where business is booming Picture: SIMPHIWE NKWALI afford higher rental if their turnovers do not increase. “It’s a tenant’s market and it has been a long time since businesses have been in such a strong bargaining position.” But tenants must not overplay their hands and should ask themselves if the landlord really wants them in the shopping centre.” Large, showpiece projects such as stadiums or the Gautrain are either complete or approaching completion, but infrastructure spending is not over. Marcell Mellet, the managing director of Mellet Construction, says his business focuses on niche construction such as telecoms infrastructure and government-orientated work such as building schools and clinics, or upgrading existing buildings. Because they operate in the Free State, Northern Cape and Eastern Cape, where much still needs to be done, his business is ticking along nicely. “We really can’t complain — happen next year. Traditionally, it is quiet in the beginning of the year and we use this time to complete our own developments, such as building office space. “This way, we are able to keep our people busy and keep their skills. “We are a bit nervous about next year, but we are also optimistic — I’m just very happy that we do not focus on the private market.” Chris Ringas of Pipeline Performance Technologies is also optimistic about 2010 as his company focuses on analysing, protecting and repairing pipelines. Chris explains that the infrastructure that been created over the past couple of years will need constant monitoring and maintenance, and this is an area where many SMEs can pursue opportunities in the year to come. The challenge in securing this type of work is convincing potential clients about the benefits of outsourcing. “The challenge is then to ensure that you are geared up internally and that you have the staff complement with the right skills and experience to deliver.” He adds that in the pipeline industry there are also significant opportunities in the water supply sector as much of the available infrastructure needs to be replaced. “As an SME it is not always easy to bypass the bigger players to secure such a contract. But you can market yourself as a specialist to these players and become a supplier,” Chris says.

‘The number of tenders being put out has decreased’
we have a lot of work. The state and parastatals are not worried about interest rates,” says Marcell. “But, we have found that the number of tenders being put out has decreased, which makes us a little nervous. “It is difficult to say what will




A long way from home
Vinny Lingham left SA to make his business work, writes Alex Matthews


INNY Lingham packed his bags for San Francisco in 2007 after founding Yola, his start-up that makes it easy for people to create and run their own websites. “As an Internet company we need to have access to some unique skill sets, which are not always found in South Africa,” says Vinny. “Also, we want to be closer to some of our partners — and most hi-tech companies are in Silicon Valley (in California).” He studied information systems at the University of Cape Town and did honours in e-commerce through Unisa. After spending time at Dimension Data, Commerce One and Slickstreet Marketing, he launched Clicks2Customers in 2003, scooping the Top ICT Young Entrepreneur in Africa award three years later. “I think I’m a successful entrepreneur because I get involved with businesses and industries that I have experience, passion and insight into,” says Vinny, who has been online since the mid-’90s, when many people still thought the “web” was something a spider spun. “The Internet is my passion,” he says. Clicks2Customers, which does search engine marketing, says it

drives over $100-million in sales for its clients. Vinny was CEO for just over four years before the start-up bug bit again. He resigned in 2007 to concentrate on Yola (then named Synthasite). “We wanted to make building a website easy — now we even have an 88-year-old granny using Yola!” The user-friendly service enables you to design, create and host your own website for nothing. It has over three million users already; people love it. While anyone can use it, Vinny says it was developed with small businesses in mind. These are the guys who often cannot afford the costs involved in creating and hosting a website, or have the expertise. “Yola is about helping entrepreneurs to be successful on the web, so in some way our brand reflects much of my personal passions too,” says Vinny, who was recently home for Global Entrepreneur Week. “There are so many people who are passionate about job creation in South Africa and promoting entrepreneurship that I believe, as a country, we will succeed at building a strong entrepreneurship ecosystem,” he says. Vinny says slow, expensive bandwidth has made starting

MAKING CONNECTIONS: Vinny Lingham has created a site to help others make websites — free of charge tech companies difficult in South Africa. However, with the landing of the Seacom cable in July and with further cables on their way, bandwidth will become much more accessible. Vinny hopes to return to Cape Town. He believes that, if South Africa is going to compete with tech titans like the US, a cluster approach needs to be adopted. He mentions the recent launch of Silicon Cape, which will create a community of investors and start-ups in the Western Cape to attract the best tech talent. As an entrepreneur, Vinny’s greatest challenge has been to get the money for his start-up dreams. He persisted, and this year Yola received $25-million from the Reinet Fund, controlled by the Rupert family. “Entrepreneurs need to be able to concisely explain their business and value proposition to investors. Investors want to back people, not just ideas,” says Vinny. “Ideas are nothing without execution of them, so you’re more likely to get funding if you’re already executing your idea.” Vinny says he believes that while no particular skills are essential for entrepreneurs, what is important is “to have passion for being able to control your own destiny”.

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