Economies in Africa are growing at rates that outstrip those of Europe and the Americas. As brands take advantage of these growth markets, South Africa is experiencing a consolidation in the marketing services sector. With global agencies snapping up talented local shops, the big questions entrepreneurs should ask themselves is whether they’d sell to
a multinational. Oresti Patricios answers the question.
Good economic growth rates on the continent and flatter growth rates in the Americas, US and Europe means the new race for Africa is on. South African brands are pushing northwards, while global brands are entering or growing in markets like South Africa, Angola, Ghana, Kenya and Nigeria.
The drive for growth in favourable African markets is a great stimulus for the marketing services sector, but it is also realising the consolidation of local markets. Over the past few years advertising multinationals have taken a majority share in a number of top local agencies including NATIVE, Quirk, Cerebra Communications and Strike Media, as well as in traditional creative agencies like The Hardy Boys and Volcano.
With global advertising giants looking to expand locally, the big question local companies –like Ornico – that has solid intellectual property and proprietary technology that underpins its operations – must ask themselves is: “Will I sell?”
For me the answer is a resounding: “No.”
Some basic lessons
One reason for this answer is that I inherited what I call ‘entrepreneurial DNA’. My father started a small business with his father, and I was born into, and cut my teeth, in start-ups. My dad had a number of ventures that I as a kid, and later as a young man, was exposed to. I witnessed first-hand the struggles and sacrifices my father made trying to secure a better life for his family. Later I’d help out in my father’s businesses learning critical lessons about cash flow, location, pricing, marketing, hiring and managing – the basic disciplines that make or break a firm.
While studying at Wits University I started my own business and would experience success and failure first hand. The thrill of landing new business was exhilarating, while the heartache of making a bad decision that hurt my business affected me deeply.
Owning your own business means there’s no buffer, no safety net and there is no one else who’s as committed to your business as you are. Selling the shares in your business can dilute this direct barometer of business acumen because instead of meeting the market and feeling its lessons directly, you’re judged by carefully calculated performance clauses formulated by accountants and lawyers.
There’s a massive difference between owning your own business and selling out, regardless of whether you retain shares. A couple of decades ago, when I was younger and less experienced, I sold my shares in Ornico to a dot-com company. The sale brought personal financial reward and stroked my ego, but diminished my control in the business. In terms of the deal I needed to stay and contribute to the business, but no longer in a controlling capacity and was forced to watch from the side-lines how the business I founded started to suffer and falter under the management of new ownership, who didn’t understand the operation. Fortunately I was able to buy the company back, and in true Greek fashion secured the sale at significantly less than the original purchase price. I had made a profit on the selling and buy-back of my own business.
The biggest lesson I took from this experience was an understanding of the value accrued to a business by its people. In the years that followed I committed to growing my business by growing the people who work in it. By doing this I transformed the concern from being a commodity-like business that focused on monitoring media, to a company that realises business value through intellectual property and proprietary technology.
Another important learning is that companies with shareholders too often focus on a return on investment and often sacrifice long term progress for short term gain. The drive to make money and increase profits can overshadow the very real need for businesses to be human, to foster a developmental culture to embrace value.
Let’s face it, shareholders and investors are mostly about the money and naturally put the brakes on risk, while entrepreneurs embrace risk more readily. In recent years I’ve appreciated being able to hire the best people, to train up my staff, and to invest in technology so as to gear the company for longer term growth. I’ve also invested in trying out new technology to differentiate and enhance our value proposition. When you do this the returns are not always immediate – but if you know what you’re doing and seek good counsel, the long term sustainability and viability of a business can be better ensured.
What the sale will mean to the company
In weighing up whether or not to sell to a multinational, let’s put my personal feelings aside and ask whether a transaction like this would enable a company to better serve its customers. AsAvi Dan writes on Forbes: “In 1985 no agency on Madison Avenue accounted for more than 2% of global ad spending. Embarking on aggressive strategy, huge ad conglomerates acquired hundreds of firms. Today, just three of these conglomerates control two-thirds of global advertising investment.”
The massive consolidation the global ad sector saw in the eighties was motivated by clients who demanded that agencies enhance efficiencies and reduce costs. In contrast, the driving force of today’s acquisitions is investor based – to deliver to shareholders’ increasing requirement for improved financial performance and growth.
But in recessionary environments will this investor led consolidation see agencies deliver the greater efficiencies currently being demanded by clients? What’s required is a nimble, innovative and reflexive approach – which is not something that’s kindled in multinational organisations. As Paul Polak and Mal Warwick say in an article called Why Entrepreneurs Will Beat Multinationals to the Bottom of the Pyramid in Harvard Business Review, “Most multinational corporations are, inevitably, bureaucratic enterprises riddled with barriers to doing things differently.”
The next question that informs my decision about whether or not to sell my business, which is a home grown brand, is this: “Would selling my business make South Africa a better place?”
Policy advisor and author/researcher on nation brands, Simon Anholt, points out that part of what makes nations great is the products and services that emanate from that country. “Places can’t construct or manipulate their images with advertising or PR, slogans or logos – and although some governments spend large amounts of money trying to do just that, there is absolutely no proof that it works,” Anholt writes on his website.
What is it then that makes places loved and famous? “The only sure way places can change their images is by changing the way they behave: they need to focus on the things they make and do, not the things they say,” Anholt explains. So just as Google and Apple helped capture global attention on for America, local brands like Nando’s and Mrs Balls fly the South African flag wherever they go. They help buoy brand South Africa. By building my own business and keeping it South African I help contribute toward the image of this country as I grow sustainably and responsibly through Africa.
Finally, as a South African and a patriot I need to ask myself: ‘What’s the best contribution a patriot can make to their economy?’ With twin challenges of poverty and unemployment, the biggest contribution people like me can make to South Africa is to grow successful businesses – and to spawn others just like it. Rather than selling out to multinationals we should be seeding new businesses, technologies and services that go out with the bold dream of trying to conquer the world.
Each time a local brand achieve greatness, we’re not only creating jobs or impacting the economy, we’re making South Africa a better place too.
- Oresti Patricios: CEO of Ornico
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