EMIGRATION: Its cost and opportunity to a business owner
Over the last month, I have had two same, but different meetings with two different business owners. They were the same because the issue that came up was emigration. Different because one was emigrating and the other was suffering from staff emigrating.
Andre wants to emigrate
We have been working with Andre for almost a year. he has a precision engineering business serving the industrial economy in Southern Africa. The business employs close on 80 people and has grown over the last year by almost 26% in revenues. Impressive given the state of the economy. He made time with me to discuss the valuation of his business and to see if we could help find a buyer. I didn’t like it. I didn’t like it because together we had built the foundation of the business over a year and we were due to move onto the second phase of work with Andre; accelerating growth. It’s the fun part of our work after the grind of building the muscle and bones to support scale.
Andre was motivated by 3 broad issues:
- He had kids, two boys, one finishing school this year and the other with 2 years to go. He wanted them to have a better future.
- He knew that his skills would be valued in Australia. He was already serving some Australian mines in Southern Africa and he liked the way they operated.
- He did not believe in the government nor did he have hope that they would reform and do the right thing to get the economy working again.
He asked for my views which I shared with him as a business owner in South Africa, doing what we do at Aurik, working with business owners who want to build their business into an Asset of Value. I also responded on the back of my experiences across four other continents that we work on doing the same thing.
- His kids would lose their friendship base here in SA. They would have to make new friends. Kids are resilient and they would be fine. They could go to school and study further if accepted into university and over time integrate into a new society. But a different one: Different rules, mindsets and attitudes. Very different to South Africans. For his kids to thrive, they should develop one of two skill sets. Either they must attain a double doctorate in some area of specialisation so that they can be global commodities. Their expertise should be at such a level that his and their lack of heritage in Australia, friendship base and relationships would supersede that of any indigenous Australian. Otherwise, they will find work but at different employment and salary conditions to an Australian colleague working 70% of their hours. Alternatively, they must develop entrepreneurial skills. This will make them independent of others and they can chart their own course on a business that they start up and build. This will take a few failures because youth entrepreneurship is more myth than reality. My last point is that sailors are built in storms and the best thing that he could give his kids was resilience. SA certainly builds that in its people. You have it and I have it. it’s a precious gift.
- Serving mines here happens because you are here. Foreign owned entities operating in Africa are fundamentally different to their principles located in their home bases. There, you will face a raft of competition never before experienced here in SA. Your competition will also have links and ties, mostly invisible ones like alma maters, that make entering their circle tough, costly and maybe even impossible. His asset stack there is 5% of his asset stack here and that plays a massive role in the success and acceleration of a business.
- I have little to say on the government. It’s so complicated. I believe that the #SONA2019 strategy is the best yet for SA. Can it and will it be implemented? Who knows. Do I think parts of it will? Yes! What I do know is that the cabinet announcements on 29 May 2019 has delivered ministry tenfold better than any of Zuma’s efforts. I also know that the Chapter 9 institutions are being rebuilt and some impressive leaders have been installed. The economic cluster is better organised and led than it has been over the last ten years.
Nobody knows for sure. Like nobody knows for sure about Brexit, Trump, or any other issues about the future. I do know this: the problems created in by the Zuma administration in SA have opened doors for solution-thinking business owners. The portfolio of businesses we work with grew their annual turnover in 2018 by 29,8% on average. It kept up with the Rand and inflation at the end of the day and outperformed the JSE and other global economies. Problems build the businesses that become great if designed well. A stable environment serves incumbents only.
- Securing a successful exit is critical if you are emigrating. You need a clean sale on your business and at a premium price. The weak Rand demands it and emigration costs around R2m in your first year alone if you are setting yourself up for success elsewhere. We spoke about an Asset of Value and how building a business into one will increase the probability of a successful sale. If not immediately, built right, it’s a business that can be managed from a distance for some time. Andre’s excitement grew at this idea.
Andre remains undecided.
Philip doesn’t want anyone to emigrate
Philip owns a software development house. He employs almost 600 staff. They are mostly youngish programmers articulate in Ruby On Rails, Python, Linux, Java and C+. He has big corporate clients and wins big, long projects. To keep on budget and make a profit, Peter needs stable teams to work from the beginning to the end of the development cycle ideally. At a recent staff gathering, he asked how many people were thinking of emigrating. Almost 70% of his team raised their hand. This exacerbates is already terrible skills shortage.
We got together to develop a response to this problem. it included the following:
- Let your staff know that they are big fish in a small pond here in SA. The developed economies have local and foreign workers flocking to them from India, China, Latin America and Africa. Competition is fierce and working hours long. Longer than they have here. Salaries are far more competitive because of the flock of talent arriving daily to fill the gaps. They will get work but its not a shoo in.
- IN SA, because of the skills shortage, they will punch far above their weight. Their learning and experience curves will accelerate faster than in other environments. The same skills shortage is driving aggressive tech adoption which means the work will continue well into the future.
- We them looked at where and how Philip could begin automating certain processes, reshaping certain services and designing the business differently. The criteria were to maintain brand and focus on corporate clients meaning that their experience of working with him had to stay in play. We put a strategy in place that will evolve over the next 6 months. Depend on systems and processes before people and emotions.
- Finally, I convinced Philip to start looking at an ‘export office’ but located in the markets where staff want to emigrate to – Australia, US & UK. On a well-built business that operates with good talent in Rands, he must find hard currency revenues. It would also provide a steppingstone for staff wanting to leave SA on a contracted basis over time. Besides new revenues, it buys him more time with his talent and ties them in. People working for businesses in SA, that have talent, can become the beach-heads of these businesses entering into international markets.
Philip is now working with us.
Emigration is a horrible reality in SA. It’s costing the fiscus heavily. It’s fear driven and it’s personal. Not dealing with it as a business owner comes at your peril. Designing a solution for it is absolutely possible and vital to preserve your business and attain a consistent 30% annual revenue growth. How you build your business, treat your staff and guide your strategy have a compounding affect on how to turn a problem into a solvable puzzle which, once solved can deliver fruits to you and your team. Work with us and let’s get it right for you too.
Tags: Business Growth