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The heart of the matter

Feb 07 2011 16:51 Marc Ashton

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Helping hand

 
Johannesburg - The global financial crisis has forced many entrepreneurs to re-evaluate their businesses and zero in on core areas, to ensure not only profitability but also survival.
 
Many entrepreneurs find themselves trying to diversify as much as possible to bring in revenue from multiple sources.

However, this often sees business owners too thinly spread and not focusing enough time on generating maximum revenue from their ventures.

Those who rush to argue that small businesses can't make money from focusing on a handful of product lines need look no further than Union-Swiss managed by the Letschert brothers.
 
When they purchased the business in 2000, they originally had a host of products. By 2008, they had pared this down to a single product and were churning out more than R1bn worth of sales a year.
 
Speaking to Fin24 on Monday, Virgin Group CEO Stephen Murphy said that even a large, diversified corporate with a strong balance sheet had been forced to re-evaluate its positioning over the last few years.
 
"In 2008 and 2009 things looked very bleak and our focus was on surviving in the best possible shape," he said.
 
Asked what steps the group had taken to protect its position, he said the focus had been on conserving cash and shutting down businesses which were not cash flow positive.

It also shut down businesses which it believed would not reach critical mass, focusing on six core units.

Focus on the main issue

 
Other areas where he believed Virgin had been successful was an ability to tie in staff with long-term incentives rather than short-term bonuses, and building a company which attracted skilled people. "Our brand is a magnet for talent," he said.
 
Another business which had benefited from focusing its operations is JSE-listed Purple Capital.
 
Originally an investment holding company with a mixture of underlying businesses, Purple Capital was reorganised to focus primarily on two major operating units: Global Trader and sports betting business Voltbet.

It had identified synergies for the businesses to operate side by side.

Barnes said this focus allowed management to concentrate on critical aspects of the business and work out opportunities to grow revenue.
 
Allon Raiz from small business incubator Raizcorp recently told a group of graduates at the Gordon Institute of Business Science that he had personally benefited from refocusing his business.

He related the story of how in the early stages of his business he was running around doing everything possible to generate cash, including mentoring large numbers of businesses and public speaking.
 
After a while he found he was expending a lot of time and effort keeping so many balls in the air and felt he would be better served by focusing on specific products and services.

By freeing up time to focus on his most profitable lines, he was able to develop a product which was repeatable without investing in more time and could be sold profitably into the banking sector.
 
The advice from Raiz: "When a struggling entrepreneur seeks my advice, I try to understand, first of all what he and his employees actually do themselves in-house and therefore what skills are available within the business.

"Anything that is outsourced does not form part of the core competency of the business."
 
 - Fin24
 
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