With funding being considered one of the biggest challenges by entrepreneurs we asked 6 startup founders across South Africa what they would do with a R1 million cash injection into their business.
They speak to SME South Africa and let us in on which areas of their business they would spend the most and the least money on, and where they are likely to go to look for funding.
The answers they give are varied. From marketing and staff development to entrepreneur and life coaching – here is what they had to say.
Jeandre Leslie co-owner of MIR
Public Relations and Events.
Jeandre Leslie – ‘Where to invest money should be dictated by your overall business strategy and objectives’
Co-founder and owner of MIR Public Relations and Events, a public relations and events agency.
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
1. Infrastructure, systems and support – Overheads are necessary expenses for any business and a continuous challenge exists in gearing for growth while containing overheads effectively.
The emergence of shared workspaces eases the burden of maintaining and managing an office environment, however, there remains necessary expenses to maintain good governance and the efficient running of the business.
2. Marketing and PR – Networking sessions, conferences and paid advertising are good methods of achieving brand awareness but they are not necessarily cheap and the cost of regular attendance adds up. Contracting graphic designers to put together a professional corporate image goes a long way in creating first impressions of credibility and initial trust.
3. Training and development – I would invest heavily in training and development for staff to share more of the workload. I would also spend a significant amount in a perk structure designed to create an empowering work environment, rewarding employees for personal growth and performance as well as teamwork.
4. Reserves for investment, working capital and expansion – Any business should always have cash on hand to be in a position to take advantage of opportunities which may arise.
5. Entrepreneur/Life Coach – This is a luxury few entrepreneurs can afford and most have not even considered. Though generally overlooked, the challenges and daily pressure of running your own business do have a real psychological impact.
Q: What was your thought process in deciding how money should be allocated?
Where to invest money should be dictated by your overall business strategy and objectives. At a minimum, the strategy should start with a desired position five years from now, substantiated by detailed medium and short term plans on how to get there.
Q: Where are you likely to go if were to apply for funding?
There are a plethora of options depending on industry and what your requirements are. The obvious is of course banks, but there are also venture capitalists, angel investors, crowdfunding and private investors, amongst others. This is another reason networking is so important – it connects opportunities with need. I would do significant research and shop around for the best value deal.
Jens Herf, founder of Shopstar.
Jens Herf – ‘By investing into our tech we will make their lives easier and create word-of-mouth’
Founder of Shopstar, an e-commerce platform that allows users to create and manage their own online shop.
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
Product development, marketing, events, customer support and brand development
Q: Where would you spend the biggest portion of the fund and how would you go about doing so?
In our case right now, we would invest heavily into our product development. Over the last 2 years we have built an MVP (minimum viable product), have worked closely with our clients and now know where their pain points lie.
By investing into our tech we will make their lives easier and create word-of-mouth, which in turn will bring more clients. A smaller portion of the funds would be used to invest into marketing and events.
Q: Where would you spend the least amount and why?
Costly office space – not necessary in our industry. There are a lot of hot desks which are great and very affordable. Our staff can also work from anywhere, we are not location bound. Also working from different environments stimulates creativity.
Q: What was your thought process in deciding how money should be allocated?
As you build a business you will start to understand where priorities lie. Every business is at a different stage, so I do not believe there is a clear answer to this question. We are heavily focused on ensuring our staff and suppliers are happy. This will ensure they develop a good product, which equals happy clients. Happy clients equals more clients 🙂
Q: Where are you likely to go if were to apply for funding?
In the early stages friends, family and fools are the best to help you. Try and build a basic model to prove your concept. Then get out there and build a strong network. There are a massive amount of startup events. If your business is good and it has potential you will find the right funding partners via these channels. Always make sure it is a good strategic fit. And remember funding does not build a business.
MadMead Brewing co-founders (L-R)
Ndumiso Madlala and Josef Schmidt.
Josef Schmid – ‘Our business has grown organically and our needs change as the company changes’
Co-founder and managing director of MadMead Brewing, owns and operates the Ubuntu Kraal Brewery which produces Soweto Gold beer
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
Grow tap installations around the country to ensure Soweto Gold is available in more locations – more often, grow our distribution network, clever below the line marketing to penetrate the aspiring middle class – convert beer drinkers to craft beer drinkers. Improve our packaging and point-of-sale (POS) material.
Q: Where would you spend the biggest portion of the fund and how would you go about doing so?
Grow tap installations around the country to ensure Soweto Gold is available in more locations – more often. Grow our distribution network – through synergetic partnerships with similar vision.
Q: What was your thought process in deciding how money should be allocated?
Our business has grown organically and our needs change as the company changes. Initially, it was production capacity – later it’s distribution, now it’s marketing and product awareness.
Q: Where are you likely to go if were to apply for funding?
The Industrial Development Corporation (IDC) are already our business partners and they see great potential in our business vision and ambition. Gauteng Growth and Development Agency (GGDA) is very resourceful and has assisted us greatly with access to various avenues of funding.
Doug Hoernle, Rethink Education
founder.
Doug Hoernle – ‘Our mission is to provide free education to students across Africa using mobile phones. Therefore all our efforts and funding goes into making that possible’
Founder of Rethink Education, a digital education platform that provides Maths and Science content to high school students.
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
R1 million won’t get us that far, but here are some “nice-to-haves” that I would spend it on:
1. Subscriptions – A few more free subscriptions to the Rethink Maths and Science platform for South African students
2. Trip for the team to Tel Aviv – Trip for the team to Tel Aviv to see the tech landscape in Israel and form some partnerships.
3. Advertising – A clever radio add to get more students learning Maths on their mobile phone
4. Tech consulting – Some tech consulting to improve our applications
5. Reward for staff – A five-star dinner for the Rethink team to reward them for some amazing work building such an incredible platform.
Q: Where would you spend the biggest portion of the fund and how would you go about doing so?
Access to our Maths and Science learning platform costs R360 per year. R1 million would therefore give about 3 000 more students free access to the app.
Q: Where would you spend the least amount and why?
Probably our dinner. Not as important as giving students free education!
Q: What was your thought process in deciding how money should be allocated?
Our mission is to provide free education to students across Africa using mobile phones. Therefore all our efforts and funding goes into making that possible!
Q: Where are you likely to go if were to apply for funding?
Domestly co-founders (L-R) Berno Potgieter
and Thatoyaona Marumo.
Thatoyaona Marumo – ‘We are at a stage where it’s all about the bottom-line, about getting new customers, and that’s a key focus’
Co-founder and COO of Domestly, a find-a-cleaner app allowing users to connect with cleaning professionals via a web and mobile platform.
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
1. Marketing – Marketing would be the number one area we would invest in.
2. Sales – This would be around investing in individuals in terms of sales and business development, as well as from a resources point of view, in terms of the technology, that we use to manage and analyse customer interaction, data, customer lifecycle, like a CRM type of program – so that the individuals who are doing these sales are able to get the job done.
3. SEM – Third on the list would have to be Search Engine Marketing (SEM) in terms of how people are trying to find us.
4. Paying the current team better – Everybody who joins a startup, particularly at the early stage, they all make sacrifices and take knocks in their packages. So, to better remunerate them in terms of their salaries and packages.
5. Office space – The last consideration would be to invest in the office – the look and feel. It is really important to have a good feel in terms of the space where you spend the most of your time. It says a lot about the brand but more than that it creates a great space to come to to work everyday.
Q: Where would you spend the biggest portion of the fund and how would you go about doing so?
Definitely would be investing in marketing, getting out there and aggressively communicating our particular message. Particularly from a marketing point of view, focus on customer acquisitions, campaign activations and promotions with a very strong B2C focus. Investing in marketing would be top of the list and would take the biggest portion.
Q: Where would you spend the least amount and why?
I guess it would be the office. While the office has got to be quite conducive and to feel like this is the place where I can spend the bulk of my day at, if one really had to be particular and have to draw the line somewhere it would have to be the office. So maybe you don’t need that extra pot plant. But also not cutting it too much because it is important to have a really good look in the office.
Q: What was your thought process in deciding how money should be allocated?
We are at a stage where it’s all about bottom-line, about getting new customers, and that’s a key focus. The key thought process in terms of every decision that we make right now is about having an appreciation of what we need to invest in that will give us a key output. So looking at marketing, we understand that marketing will give us a ripple effect on a number of things which will then allow us, eventually, to have a better office. It’s understanding that X will a bring a lot more in Y.
There are a lot of stuff that are urgent and important and there are stuff that are not so important. And being able to critically look at what is a nice-to-have and what is a must. What can we invest in today that will allow us to look at other stuff later.
Q: Where are you likely to go if were to apply for funding?
I can put it in a number of tiers. Number one tier would be angel investment. I think it is excellent to have because of the level of intimacy one gets when you bring somebody in they bring in a certain level of expertise, mentorship, coaching, along with the money that you generally would not get from other place.
Second to that I would go to state-owned agencies. The South African government has a really nice mix, depending on what your solution is, what your product is, what sector you’re in.
The final one would then be venture capital in terms of institutional funding. But that has more to do with the volume and the size of the business.
Nisha Maharaj, MD of Niche Integrated
Solutions.
Nisha Maharaj – ‘You need to measure the return on your spend to determine where to continue to invest’
Managing Director of Niche Integrated Solutions (NIS), which provides specialised software solutions to the banking and financial services industry.
Q: If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?
If you got your first million in funding, don’t got out and buy yourself a new car! You will need to focus your investments into your company’s future.
1. Invest in marketing – You need to attract your customers and understand them and their needs.
2. New staff – that are even stronger than you, to provide quality service to your customers
3. Find products to sell – and revamp your website to offer your full product line on the web
4. Invest in technology products – that will improve your business efficiency and help you serve your customers better; this may sound like you wasting money but in the long term but the dividends will pay off.
5. Look for tools like business intelligence and customer relationship management – so that you can gain a competitive advantage over your competition
Q: Where would you spend the biggest portion of the fund and how would you go about doing so?
It would unquestionably be on marketing and clients but not by throwing big parties and spending lavishly. You need to get your brand out there online but you need to ensure that your investment will result in new customer acquisition and in additional revenues. You also need to spend on staffing, if you undercut your staffing salaries, you are compromising your business through unhappy staff who will ultimately perform badly. Ever heard the saying that if you pay peanuts, you will hire monkeys?
Q: Where would you spend the least amount and why?
It’s ironical that I would say this as a technology business owner, but do not spend your money on unnecessary technology, people start business thinking that they have to buy expensive systems for the mere sake of having it. It is not necessary. You need typically Microsoft Office (Word, Excel, PowerPoint ), Microsoft Outlook (email, contact manager, calendar), any accounting software that’s not expensive and a customer relationship management (CRM) system to keep track of your customers, prospects and sales pipeline. There are alternatives to buying conventional software and some of them are even completely free.
Q: What was your thought process in deciding how the money should be allocated?
You simply need to measure the return on your spend to determine where to continue to invest. Apply the principle of ROI, i.e. return on investment, throughout your business lifecycle and you are bound to succeed if you can get this balance right. For example, if you ran a sales campaign and the stats showed that the results you achieved far outweighed the spend, then it’s obvious – do it again and spend more!
Q: Where are you likely to go if were to apply for funding?
Spend some time looking through government initiatives around startup businesses e.g. Small Enterprise Development Agency (Seda), Small Enterprise Finance Agency and Gauteng Enterprise Propeller (GEP) incentives and grant funding.
Banks are also looking at funding for entrepreneurs in a different light so look at the banks’ options for enterprise and supplier development programmes. Companies like Business Partners, Sanlam etc are also great options because they look at the unique attributes of your business to determine how best they can help you.
Venture funding could be a bit more expensive but it’s also an option and last but not least, there is angel funding which is basically matching a person looking for funding to a person who has money to invest into good startup business.
