Create genuine value
PERHAPS ONE OF the biggest challenges when building up a small business is to create genuine value that will generate long-term sustainable wealth for you, the entrepreneur. However, the concept of “value” varies from business to business. It may take the form of annuity contracts and long-term clients or intellectual property, such as patents, software, customers or market niches.
On a recent Fin24 entrepreneur podcast, Tashmia Ismail, of the Gordon Institute of Business Science (Gibs), pointed to Blue Label Telecoms [JSE:BLU] as a South African business that had succeeded in building annuity revenue and one that could successfully compete in international markets. The company – 12% owned by technology giant Microsoft in the United States – is a leading distributor of prepaid secure electronic tokens. It earns revenue from the activation of starter packs but also from subscription services and loyalty packs.
The group is activating more than 200 000 starter packs/month and, apart from earning a rebate on each successful activation, it’s also able to generate ongoing revenue from them. The system works with Blue Label turning a profit of R573m in its previous financial year and revenue topping R9bn.
Technology entrepreneur Rory Mackay told Fin24 that in his opinion entrepreneurs don’t do enough to focus on developing annuity income when they put together their business models. “I think it’s essential because, first, it’s hard to get to revenue and then to get sales repeatedly is tough. If you can cut out that bottleneck you’re doing very, very well.”
Mackay identifies two ways of looking at annuity revenue. The first is where a client has a subscription amount debited from his account each month; the second by creating a client interface that becomes so trusted clients are loath to change to something new and unfamiliar.
In a recent interview with Finweek, Blue Label founder Mark Levy said: “It’s not just about the technology – it’s about the methodology of how you bank, get customers and retain them. Technology is certainly important, but there are so many other facets to the business that are very difficult to replicate.”
“The level of success achieved by salespeople will always be determined by the number of customers self-generated: that is, other than floor traffic or telephone enquiries generated by your advertising,” says entrepreneur coach Brad Sugars. He advises entrepreneurs to put in place a system that will help generate clients from referrals and past customers. The trick then is to track those customers and identify where they’re coming from so you can make sure they’re going to come back and spend money with you again.
MARK AND BRETT LEVY