The ‘big lie’ of small business with gerber notes

T H E ‘ B I G L I E ’ O F S M A L L B U S I N E S SV U S I T H E M B E K W AY O

P R E PA R E D B Y F R A N C I S M A D O J E M U W I T H N O T E S F R O M M I C H A E L G E R B E R

A F R I C A N S N E E D T O C H A N G E T H E N A R R AT I V E O F E N T R E P R E N E U R S H I P

• For how much longer will we as Africans continue to be happy with the status quo of the past hundred years which puts us as the recipients of all forces shaping the global world.

A F R I C A N S N E E D T O C H A N G E T H E N A R R AT I V E O F E N T R E P R E N E U R S H I P

• What’s happened in the world over the past few years that we’ve done that shaped the rest of it?

• The truth is that because of the narrative that we’ve had, we’ve settled for a conversation that makes it okay for Africans to just be okay

– V U S I T H E M B E K W AY O

“This is perhaps one of our greatest exports, except we are not exporting it.”

K O TA B U S I N E S S

• Take Tibo for example who operates his kota business in Alexander township which he established in 2005.

• He turned over R 53,000 for the year in 2015.

K O TA B U S I N E S S

• Yet interestingly, there is a listed South African company which started a franchise, called KOTA Joe in 2013, pumped in some capital and last year turned over R20 million.

• My point – we are big business.

– S T O K V E L - W I K I P E D I A ”

“Stokvels are invitation only clubs of twelve or more people serving as rotating credit unions or saving scheme in South Africa where members contribute fixed sums of money to a

central fund on a weekly, fortnightly or monthly basis.

S O M AY B E T H I S A N A N O M A LY, R I G H T ? L E T ’ S U S E A N O T H E R E X A M P L E .

• What is a bank?

• A bank is nothing more than a collective investment scheme.

• People come together and put their money in the central pot.

• We put it there usually as savings with the idea that when you unlock that money and you need it in the future you can get.

• What the bank is doing is taking that money and saying to people – “if you are credit worthy we will lend you the money” and we will price it at a premium.

• Hence our ability to buy a car or a house.

H O W D I F F E R E N T I S T H AT T O T H E S T O K V E L S W E H AV E I N S O U T H A F R I C A ?

• This is usually a group of black women who come together and put money in a pot and at the end of the year they have money and they go to the ShopRite and they buy stuff.

• And in the next year the cycle starts again right.

S T O K V E L S C O M E I N D I F F E R E N T F O R M S .

• One investment stokvel operating in the Eastern Cape started a year after we achieved democracy in 1995. Last year, their collective investment was R 300,000.

• Now imagine bundling together R 300,000 annually over the past 20 years, you can do the maths about the kind of numbers we are talking about.

S T O K V E L S C O M E I N D I F F E R E N T F O R M S .

• In 1991, four years before this, a bank was formed in South Africa known as ABSA, which does in essence the same thing.

• The stokvel last year R 300,000, ABSA is a R4.6 billion a year turnover business.

• My point – our models of doing business are big business.

U N L O C K O U R T H I N K I N G & C H A N G E

• We need to unlock our thinking and change the conversation – it’s not okay for us to start small businesses.

• It is not okay for us to be happy to be vendors on the side of the road anymore selling fruit and vegetables.

U N L O C K O U R T H I N K I N G & C H A N G E

• What we need to do is own the farms that produce the fruit, own the road infrastructure that moves the fruit, own the retail infrastructure to sell the fruit and own the banking system the transacts the whole platform.

• And by the way why don’t we just take the taxes as well.

“So the idea here is we need a radically new form of thinking. Now that we are clear on this,

let me explain why we are not doing this..”

W H Y W E A R E N O T D O I N G T H I S

• Because we can blame colonialism in my country apartheid as long as we want, but there is a deeper problem, and the deeper problem is our inability to understand the ecosystem and life-cycle of entrepreneurship

A L L E N T R E P R E N E U R S S TA R T O U T A S S TA R T- U P S .

• Whether you are Bill Gates or Steve jobs you start out as a one-man show with an idea.

• What makes the Americans and now more recently the Asians really good is that they have created a huge pool of venture capital money.

• Easy to access, cheap and you can have it as patient money.

• You can have it forever and never have to pay it back.

• That’s why they are building large institutions so it is not a mistake that Jung Lee, a Chinese mobile company started five years ago and is now the third largest smartphone company in the world.

• Where do they sell their phones? Eighty-seven percent of their sales come from China.

• The remainder from this continent.

• We are big business

W E A L L S TA R T O U T A S S TA R T- U P S .

• How do you know you are a start-up?

• It is easy. You are one guy. You go to the customer, you deal with him.

• You go back to make the cookies, you come back and you give him the cookies.

W E A L L S TA R T O U T A S S TA R T- U P S .

• And the month end you phone him and you say “can I please have my money” and then he pays you and if he doesn’t, you go to him and say please I am going to klap you until I get my money.

• And usually you give him what I like to call an AAK, an Attitude Adjustment Klap.

B U T H O W D O Y O U K N O W Y O U A R E A S TA R T U P ?

• It is easy. If you are the value of the business, you are a start-up. If the customer wouldn’t trade with your business unless you are in it, you are a start-up.

• Move a level above that you become what I see a lot of happening now and on the rest of the continent.

F O R A B I T O F C O N T E X T, I R U N A V E N T U R E C A P I TA L F U N D .

• In our VC fund we own an advisory business where we advise entrepreneurs on how to start a business and enterprise development business where we help them to get into the supply chains of large organisations.

F O R A B I T O F C O N T E X T, I R U N A V E N T U R E C A P I TA L F U N D .

• And then a fund where we actually finance them, so the entire ecosystem they need to succeed.

• So we see a lot of start-up as start-ups and then they become these survivalist entrepreneurs.

W H AT A R E S U R V I VA L I S T S ?

• How do you know you are one?

• I really need money month end to pay my bills.

• It is usually one person with three, maybe four people in his team.

• Every month you must make money to pay for that month’s bills.

A L E V E L A B O V E T H AT I S T H AT Y O U T H E N B E C O M E A S U C C E S S .

• As a success, you are one guy and you have a core group of people who manage people in the core group of people who deliver the work.

• And then where we should be at growth level.

T H E R E A L Q U E S T I O N

• Here is the question: how do we move from start-up to growth in as fast a time as possible, minimise the risk and develop our own industries.

• The mindset has to change.

E N T R E P R E N E U R S N E E D S I X T H I N G S T O S U C C E E D J U S T S I X .

• You need an infrastructure.

• And what is the challenge we have on our continent?

• If I manufacture something in Joburg, South Africa, how do I get it to Nigeria? How do I get it to Luanda in Angola?

• It still persists in our own continent that I can’t put it on a single rail track and move it to their part of the world.

• So we need an infrastructure that opens up our markets

• We need capital, money, funding.

• And dear governments, here is the point. The money doesn’t have to be cheap, but it does have to be patient.

• It’s not okay anymore if our entrepreneurs fail on our continent.

• We bank them and after that we then put them on these things called blacklists and the can’t access credit anymore.

• Because what you’ve done is – you have taken somebody who has failed and learned from failing and you have now made him that he can’t operate economically for the next five years.

• So they need assets, they need access to markets, strong administration and then people.

A N D H E R E I S T H E T H I N G A B O U T T H E P E O P L E C H A L L E N G E .

• What is the first thing top talent does in Africa? It leaves!

• Think about it.

• If you think about the top Africans shaping the rest of the world today, they are not likely doing it in our own continent.

• They are somewhere else doing it. And a part of the narrative we need to reshape is how do we bring them back here to build what is jointly ours?

• There is a huge mass of knowledge in the African Diaspora

• We need to bring them back in here and this is how we reshape it.

S O A S R E A L LY F O U R R E A S O N S P E O P L E S TA R T B U S I N E S S E S ;

• to live well, • to leave something for

your kids, • to sell it, • or to change the world.

P H I L O S O P H Y

• So what does Google say? Google says we exist to do no harm.

• Apple says because the people who are brave enough to think they can change the world – are the ones who do.

P H I L O S O P H Y

• So they live on a philosophy space where it really is about changing the world and the reward is much much higher.

H E R E W E L I V E L I F E S T Y L E S .

• We get access to public sector opportunities we call them tenders.

• And here is the thing about tenders – people must know.

• So the first paycheck goes to getting you that Ferrari and because we don’t have Ferrari dealerships, what we do, we import them in.

• And not only that we must be seen to live in a certain suburb, so what we do is we encumber our ability and opportunity purely by wanting to a fancy lifestyle.

L E G A C Y B U S I N E S S E S

• The Asian people are different, specifically Indians. We see a lot of this in my country.

• They build legacy businesses.

• The great-grandfather gets a corner shop and he opens up a dry cleaning business.

• The father opens up a fast food joint. His son opens up a hardware store.

• And your son will then open up something else.

• But here’s the thing – generation on generational on generation, they don’t close these shops down.

• They keep them running in the family as legacy businesses.

S E L L• The environment I work in is where we sell

business.

• We build them purely for the purpose of selling them.

• Why? Because if you build to sell, you build for value.

• It means you are going to live scrappy.

S E L L• You are going to keep costs low.

• You are going to take a long-term view because you’re building this thing generally to create enough push pressure in the market that you can sell it.

U B E R F O R F L O W E R S .

• I was on Dragons Den in South Africa, so invested in myself and the other dragons actually, invested in a business that is fundamentally shaping the entire floral market in the world, not just here but in the world.

U B E R F O R F L O W E R S . • They created an Uber but for

flowers.

• So imagine a situation where you would go on your phone and you want to give flowers for your loved one.

U B E R F O R F L O W E R S .

• When you pull up the application on your screen it will show you the local florist and what that local florist has available right now and the price.

• You would then buy from the local florist.

U B E R F O R F L O W E R S . • He would receive the order

and deliver the goods in a split second of a time – why?

• Because he is closer to you.

• Does it work?

U B E R F O R F L O W E R S . • Of course it does.

• The local forest wants access to the market.

• You want to get the goods to the customer and here is a business that’s reshaping it.

W H Y W E D O I T ?

• Because we know it will disrupt not only here by globally and a huge opportunity to sell.

• So the question really for us is why are we building our businesses?

W H Y W E D O I T ?

• I would argue that we don’t build them for the right reasons.

• If this is true and I would argue that it is, how do we fix it?

“We need to do four things.”

W E N E E D T O C H A N G E T H E C O N V E R S AT I O N

• The conversation needs to be how do we build a business with a philosophy in mind? It has got to be greater than you.

• It has got be about changing the very way our very own continent works.

W E N E E D T O C H A N G E T H E C O N V E R S AT I O N

• It has got to be about bettering other people’s lives and making sure that in the innovations that we bring to market we have something that nobody else has and the rest of the world and they can only get it here.

• It must be based on a philosophy. Anything else is too weak.

W E N E E D A S T R O N G S Y S T E M O F M E N T O R S H I P

• Let me take a moment to pause here. So here is the thing about the mentorship.

• In my family and in South Africa specifically, we come from a deep past of subjugation of the majority of the population, black people, my people.

• Because of that black people are never allowed to own businesses.

• So in my family and I imagine is the case of most of us in the room, when I started my business everybody thought I was crazy because you are raising a system when you grow up went to school, got good grades, went to varsity, got the grades, got a job and got married.

• And when you want to disrupt the system, society doesn’t understand it.

• What it then meant was when I did start my business, I had nobody to whom I could go and seek mentorship.

• Why? Because they themselves didn’t know what they didn’t know.

• And so incumbent upon us is to create a system in our social spaces where we can access mentorship to think differently.

• This I would imagine is our deepest challenge socially.

W E N E E D T O S TA R T C R E AT I N G A C U LT U R E O F D E L AY E D G R AT I F I C AT I O N .

• Fast money was fast in, but it is also really fast out.

• And here’s the other problem with fast money and this culture of delayed gratification.

• Let’s be honest here this and this is not political.

• We also live in a continent where in truth we have two economies.

• The connected economy and everything else.

• Everything else is where most of us who live.

• The connected economies where the Uber elite in the politically connected live.

• So it is not by mistake for instance that the wealthiest woman on the continent also happens to be the daughter of the president of Angola.

• I am not by means trying to put any sparages on her qualifications and abilities but I would argue differently – would she have the same opportunities if you were not the daughter of the president.

W E N E E D T O S TA R T C R E AT I N G A C U LT U R E O F D E L AY E D G R AT I F I C AT I O N

• In my country South Africa we have seen a huge accumulation of wealth – of family members linked to our own president.

• Why? – because we created that narrative and we’ve made it okay – the connected economy where if you are ion you are in and if you’re not, well that’s just tough.

• So it is about creating a culture of delayed gratification.

• That says build it.

• Build it for the next 10 years, next 15 years.

• Send young people through to varsity.

• Create innovation, structures and platforms and processes that we allow ourselves to build a different continent.

“Whatever you do, delay your own gratification”

S TA R T. . . . . . . .

• And finally, this is the trick right, how you know somebody is a good entrepreneur?

• It is very simple – they are very bad at writing business plans. It is true.

• We see a lot of it in our environment.

S TA R T. . . . . . . .

• If somebody has an NBA, odds are they are going to suck at entrepreneurship.

• If they can write a really well-written business plan, odds are they are going to be really poor at this entrepreneur thing.

S TA R T. . . . . . . .

• And in the context of this conversation about the lie of small business, is a part of the conversation we need to have, which is how we take people who are naturally not inclined to writing 60 page business plans

S TA R T. . . . . . . .

• And attach an addendum of a 20 page Excel spreadsheet of projections, and by the way, eight years in finance as a venture capitalist, I have never seen an Excel spreadsheet that says the business won’t make money.

S TA R T. . . . . . . .

• The business always makes money.

• The revenue line is always up, cost is always down and profit is a perpetual quest of cream and water.

S TA R T. . . . . . . .

• People who are really good at writing the document are usually very bad in the real world at making the adaptations they need to make.

S TA R T. . . . . . . .

• So we need to create a culture that says start, start badly, start scrappy, make mistakes, fail, and start again, but whatever you do just start.

B E F O R E I C L O S E , L E T M E T E L L Y O U A P E R S O N A L S T O R Y.

• So the year is 2014.

• I have just been kicked out of Wits University for something called financial exclusion. It is like Apartheid but for money. It basically means you don’t have enough money to pay your fees.

• So I thought what am I going to do and I thought well I have got this thing called public speaking. It is a gift. I have won the world championship, maybe I could do that.

• So I started a public speaking business. I get a small office.

• It is a nice little office.

• I get a secretary and here’s the thing my business plan said that I was going to make money from month one.

• The financial model says month three I was cash flow positive.

• Six months in I have not received a single booking.

• Not a cent in my bank account.

• I have used up all the little savings I had up to that point.

• My secretary then says “listen I am willing to come to work for another month, but after that if you can’t pay me I really can’t come to work anymore”.

• The bank is chasing because I have not paid off my car and, if you don’t pay off your car, the bank does the thing – I love the term – it is called repossession.

• Which means when you signed the contract you thought you owned it you didn’t really.

• We always owned, we just didn’t tell you. We are re-taking it back.

• As for the bank they called to say that if you do not pay we are taking it back so I absconded and went to live in my office.

• Because the other thing about signing a bank contract is that it has that thing called a Domicilium citadel ET executant which is Latin for where do we find you when we need?

• So they had my home address right and I absconded and I went to live in my office and for seven months, I lived in the basement of my office.

• The only meal I used to have often was driving to my then girlfriend, now wife’s house.

• Her father hated me so I always went there during lunch when he was at work and I would come back and continue to run my business.

W A S I T T O U G H ? – Y E S . H AV E I B E E N B A N K R U P T ? – A B S O L U T E LY.

• But ladies and gentleman, I am privileged enough to stand here and say to you I have made more money than I never thought imaginable and I have not done it because I’m particularly more able than other people.

• I have done it purely because I’ve been afforded the opportunity to start.

• Yours and my task is the next generation of this continent – is to have a bit of faith and here is what faith is in my eyes.

• Faith is the ability to see the invisible.

• To believe in the impossible and to trust in the unknown.

• You and I today need to have a bit of faith in our own continent.

T H E E N T R E P R E N E U R I A L P E R S P E C T I V E

M I C H A E L G E R B E R

T O M W AT S O N

• I once heard a story about Tom Watson, the founder of IBM. Asked to what he attributed the phenomenal success of IBM, he is said to have answered:

• IBM is what it is today for three special reasons.

• The first reason is that, at the very beginning, I had a very clear picture of what the company would look like when it was finally done.

• You might say I had a model in my mind of what it would look like when the dream—my vision—was in place.

• The second reason was that once I had that picture, I then asked myself how a company which looked like that would have to act. I then created a picture of how IBM would act when it was finally done.

• The third reason IBM has been so successful was that once I had a picture of how IBM would look when the dream was in place and how such a company would have to act, I then realized that, unless we began to act that way from the very beginning, we would never get there.

• In other words, I realized that for IBM to become a great company it would have to act like a great company long before it ever became one.

• From the very outset, IBM was fashioned after the template of my vision.

• And each and every day we attempted to model the company after that template.

• At the end of each day, we asked ourselves how well we did, discovered the disparity between where we were and where we had committed ourselves to be, and, at the start of the following day, set out to make up for the difference.

• Every day at IBM was a day devoted to business development, not doing business.

• We didn’t do business at IBM, we built one

• In short, my storyteller may not have had Watson’s words exactly verbatim, but what the story tells us is very important.

• It reveals an understanding of what makes a great business great.

• It also tells us what makes all other businesses survivable at their best; intolerable at their worst.

• It tells us that the very best businesses are fashioned after a model of a business that works.

• It tells us that it is the Entrepreneurial Perspective that says it’s not the commodity or the work itself that is important.

• What’s important is the business: how it looks, how it acts, how it does what it is intended to do.

• The Entrepreneurial Perspective asks the question: “How must the business work?”

• The Technician’s Perspective asks: “What work has to be done?” •

M I C H A E L G E R B E R• The Entrepreneurial Perspective sees the

business as a system for producing outside results—for the customer—resulting in profits.

• The Technician’s Perspective sees the business as a place in which people work to produce inside results—for The Technician—producing income. •

M I C H A E L G E R B E R• The Entrepreneurial Perspective starts with

a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision.

• The Technician’s Perspective starts with the present, and then looks forward to an uncertain future with the hope of keeping it much like the present.

• The Entrepreneurial Perspective envisions the business in its entirety, from which is derived its parts.

• The Technician’s Perspective envisions the business in parts, from which is constructed the whole. •

• The Entrepreneurial Perspective is an integrated vision of the world.

• The Technician’s Perspective is a fragmented vision of the world. •

• To The Entrepreneur, the present-day world is modeled after his vision.

• To The Technician, the future is modeled after the present-day world.

• Thus, the Entrepreneurial Model does not start with a picture of the business to be created but of the customer for whom the business is to be created.

• It understands that without a clear picture of that customer, no business can succeed.

• The Technician, on the other hand, looks inwardly, to define his skills, and only looks outwardly afterward to ask, “How can I sell them?”

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