You can’t buy success: The founder of YDE and Über Flavour on how lean business models force real innovation and problem solving and build R100 million+ businesses
- Player: Paul Simon
- Companies: YDE (1995 – 2007), Über Flavour (2014 – present)
- Turnover: YDE had a turnover of R160 million at the time of its sale to the Truworths Group. Über Flavour is still in start-up phase.
- Visit: www.uberflavour.com
Some of the biggest names in today’s business landscape were launched out of desperation, or simply because the founder wanted the service for themselves.
Über is the product of its founders wanting to be able to get from here to there simply and cheaply, at the push of a button.
Closer to home, the founders of South Africa’s largest agency group, The Creative Counsel, were looking for anything to do that meant running their own business and not working for a boss.
And then there are those who are dragged, kicking and screaming, into business ownership. That’s the story of Paul Simon, who at the age of 21 launched Young Designers Emporium because he was scared his father was finally about to kick him out of the house once and for all.
The leanest of lean start-ups, Simon sold YDE to the Truworths Group, ten years later in 2005. The purchasing price is undisclosed, but at the time turnover was a tidy R160 million, and the business was on a nice growth curve. Not bad for a kid voted ‘least likely to succeed’ in high school.
The Right Idea
Entrepreneurship is like that. In many ways it’s the great equaliser. You don’t have to have the best education, connections or even money to become a knock-out success.
Sometimes it really is about the right idea, at the right time, with a healthy dose of hard work and determination. It took Simon a while to find these things, but once he did, he hit them right out of the park.
It all started at a typical Jewish Friday night family gathering. Simon had been given a deadline five days earlier: Figure out what you’re doing with your life, or pack your bags.
He’d promised his dad he was working on a business plan to buy time, but he knew if the topic came up at dinner that night it would be clear that he had no plan, and that he hadn’t made any attempt in the last week to find one.
“I met everyone at the door and asked them to please not ask me what I was currently doing. I didn’t want anything triggering my dad’s memory,” recalls Simon.
“Unfortunately, I missed my uncle, and so of course, half way through the evening, he asked me what I was up to. My dad immediately joined in, ‘Yes, what are you doing, and how is your business plan coming along?’
“I was frozen with terror. My mind had never worked so fast in its life. If I admitted I wasn’t working on anything, I was out on my ear. My dad’s question was simple: ‘You’ve done two fashion courses, and you’ve created a range that no one wants. What’s your plan?’ I had no idea.”
Turns out, it was the first thing that came to mind, which ended up being the foundation for YDE: “I’m going to open my own store to sell my merchandise,” blurted Simon to a room full of guests.
An Unexpected Business
Where had that come from? Questions were fired Simon’s way in quick succession: Where was he going to get the money to do that? How was he going to manufacture his range? How could he possibly afford the retail space?
By now, his mouth was functioning completely independently of his brain. “I’ve been chatting to the guys I studied with, and we’re all in the same boat,” he wildly invented.
“We’re going to create a kibbutz type environment where we all share the costs. Alone, none of us can afford to do it, but together we can.”
Simon’s spur-of-the-moment idea wasn’t so far-fetched after all. “I found nine other young designers who were interested in operating in a retail environment with fitting rooms, credit card facilities and a proper retail store atmosphere, but couldn’t afford it.”
A Search for Premises
“For a long time, I thought coming up with a good idea was the hard part. Turns out, it’s the actually building a business part that’s tough, and for me it started with finding premises.
“I had no contacts, no business acumen, and no track record. I didn’t even have a PowerPoint presentation, let alone 3D imaging of what the store would look like, which was just as well anyway, since I had no idea what the store would look like. I felt like Oliver, begging with open hands: ‘Excuse me sir, may I please have some premises.’
“Everyone said no until someone said yes. Here’s the thing – you only need one person to say yes. And sometimes, it’s just a numbers game. Ask enough people, look long enough, and eventually you’ll find what you’re looking for. We certainly did.
“Cavendish Square wouldn’t even give me an application form. Green Market Square said no. And then I found an empty store off a dingy thoroughfare leading away from Green Market Square. It was a white elephant that had stood vacant for too long, and wasn’t in a prime spot.
“By this stage, I’d come up with an idea of how the store would look – I’d seen something similar in London, with metal sheets for décor mimicking a warehouse look. I described it, but no landlords understood the vision.
“The landlords who eventually gave me the lease still didn’t understand my vision – but they didn’t care either. Any tenant was better than no tenant.”
Welcome to YDE
“I hung the sign first. I was incredibly proud of it, all edgy and metallic to suit the metalwork inside. I was so excited about the décor, I spent all the money I had and forgot about essentials, like a till. For months we had to use a fishing tackle box and an old PC at home to do the accounting.”
Simon had made sure that he had a sound system though. This seemed like a crucial element to the ambience he wanted to create: An edgy, vibey, party atmosphere.
“We weren’t trying to be a traditional store; we were a collaboration of young artists, and I felt that the space needed to reflect that attitude.”
Like everything else in that first year, opening night was as lean as it could be.
“We had one box of wine, and sandwiches that my gran made and my sister handed out. But it didn’t matter that it was low budget – it was fun and the press loved it. We were a group of young fashionistas, all 20-somethings who were doing it for ourselves. The story was golden. We generated millions of rands worth of buzz, all for the cost of a few sandwiches. What we had was a story and atmosphere. It was an early lesson to give people a story that they care about, and they’ll tell it for you.”
Open for Business
In his first month, Simon paid his dad back a loan of R10 000 and made the decision to never borrow money again. All growth would be organic, with each store generating sufficient cash to pay for the next one. He also never ended up creating his own range, but became the brand’s business mind.
“We divided the retail equally between designers. By splitting the costs, the rent was affordable. I stocked on a consignment basis, which meant my margins were low, but I carried no risk. Instead, I made a small commission on each garment sold. We also never put the YDE brand on the merchandise. YDE was the store only.”
Simon needed to share costs because he had no money, and today reflects on how innovative you can be when you have no cash.
“The solutions you find because you can’t simply throw money at a problem are the most enduring.” Unfortunately, it would take him years to learn this lesson, as subsequent start-up failures post YDE would prove.
The problem with a growing, mature organisation is that at some point it stops being a fast-paced start-up, and starts becoming a vehicle for managing people.
Investors and equity partners will put boards in place as an addendum to growth funding, and in many cases appoint an MD and advise the founder to step down.
The reason is simple: Entrepreneurs love building new things and finding innovative solutions to tough challenges. Few of them want to actually be managers.
“Ten years later, we had 12 stores nationwide and a turnover of R160 million,” says Simon, “and I was a glorified HR manager. I’d loved giving designers an introduction into the market, managing them, helping them grow their businesses because that grew our business too. We provided a full turnkey operation for our designers. All they had to do was do what they were good at – design and manufacture clothes. We did the accounts, marketing, shop fitting and so on. But as we progressed, put systems in place and perfected our back-end and supply chain, we also hired employees, and that takes a whole new set of management skills. I was in my early 30s and I realised that I was managing people and it wasn’t fun anymore. The brand had grown into a chain store, and also needed a new set of skills that I didn’t have.”
There were quite a few suitors. Truworths ended up buying 75% in a two year management buy-out, at which point they bought the remaining 25% in 2007. Simon was 30 and retired. He took a year off. It was the most miserable year of his life.
Simon’s next foray into business was a chance to prove that YDE wasn’t a fluke, and ended up being a complete failure.
“There had always been the nagging question, was YDE’s success a fluke? I didn’t think it was. The launch and first two years could have been. We had something fresh and new, and that got a lot of attention. But that’s no guarantee of long-term success. Ten years of consecutive year-on-year growth isn’t chance.”
Simon isn’t alone in following a great success with a failure. Many entrepreneurs struggle to replicate their success.
“Much of the problem is money,” he says.
“There’s a necessity of invention that comes with having no capital. When we launched YDE the concept of the Lean Start-Up didn’t exist yet, but that’s exactly what we were doing. It gave us a chance to test the market as we grew, and adjust our offering. We couldn’t overspend, and so we were careful about what was best for the business. When you have money, these things fall away. You can do anything, and you forget to pay close attention to your market.”
Searching for Customers
“Businesses need customers all of the time. It seems so crazy that I forgot this simple fact,” says Simon.
“I was a father now, so I was looking at the world very differently to a 21-year-old who wanted to create a party atmosphere while people bought fashion. Now it was all about the kids, and I spotted a gap in the market: A safe, beautiful place for kids to play while their parents enjoyed coffee and lunch. I thought I had a real winner.”
The most interesting factor of Simon’s subsequent failure is that it should have worked. Any parent will attest to the fact that in recent years restaurants and coffee shops have become more geared towards children. It’s a big market. If anything, Simon was ahead of the curve. So what went wrong?
For Simon, there were two red flags. “First, I overspent. Shooting from the hip with no plan had worked for me before, and so that’s what I did. The difference is that this time I had money, so I bought the most expensive of everything: Imported jungle gyms from the US and furniture from Italy, a huge 2000m2 space, an alarmed, fenced off space and every child was tagged. What this meant was that I didn’t test my idea before ploughing money into it, and the margins were literally impossible to meet.”
The next problem was market research. “We pumped on weekends but had no customers during the week.”
After incurring massive financial losses, Simon closed the business within the year. “My ego took a real beating and my confidence plummeted.”
To boost his confidence again, Simon needed a personal win, and he found it in 2010 during the FIFA World Cup.
“I decided to focus on a six-month project, and it turned out to be my greatest success so far in terms of turnover and profit. The Makaraba mining helmets are very South African, and real artworks, which of course means they weren’t geared for the kind of mass production that an event like the World Cup needs. We created a mass production version. We manufactured a plastic projection moulding kit and customised them according to countries and teams. Fans bought the kit in pieces with stickers, and could ‘create’ their own Makaraba helmet.
“Chain stores and corporates loved them – we had contracts with PRASA, Coca-Cola, BP – they ordered thousands for their hospitality boxes.”
“I knew I was looking for a product that I could develop locally, create employment, and use the weaker rand to my advantage.”
The return of the lean start-up: Getting über Flavour off the ground
“I bought a South African product made in Stuttgart and it drove me nuts.” This time, Simon wasn’t in a rush to start his next venture. It needed to be the right idea, at the right time, and although he was always paying attention, looking for a gap, he wasn’t forcing the issue. And then inspiration struck.
“I knew I was looking for a product that I could develop locally, create employment, and use the weaker rand to my advantage by manufacturing here but exporting to an overseas market. I’d learnt that you can’t force these things though, and so for the time being I was just on the lookout for the right product.
“I found it in the EU of all places. My little girl is sensitive to sugar. We were at an airport, and she needed a juice, and I was looking for something with the least amount of sugar. I found a rooibos ice tea that was made in Stuttgart. What? This is a South African product! I was filled with righteous indignation. What the hell are we doing that Stuttgart is producing a rooibos ice tea?”
Simon had found his product, but he realised he wanted to create a craft version. “There’s a growing market for natural, craft products that don’t have any added sugars, flavourants and preservatives. It makes the product more expensive, but I wanted to target the international market, so that was okay.”
Simon got started. This time he would mimic his success with YDE. No intensive capital outlays, lean by design, and starting small, proving the product every step of the way.
Using real brewed rooibos tea as a base, Simon developed three flavours from a kitchen, using trial and error until he found the perfect blends, as well as a solution to the shelf-life dilemma.
Testing the market
“This time I tested the waters. And then he hit the streets, testing the market. I made the decision to launch locally so that we could pay our school fees, test the market and get a reaction to the product and flavours. In November 2014 we produced 10 000 bottles. I was really nervous. I thought the price point was too high for the local market, and I was worried I wouldn’t sell all the stock within the year before the shelf-life expired.”
Simon packed cases into his boot and started canvassing restaurants. “I needed people to try the product to know what consumers thought of the flavours and packaging. That was my goal, but it was a humbling experience. I was cold calling eating establishments, something I’d never done.”
Within six weeks he was out of stock. Turns out, it’s not just the international market that like craft goods, and are willing to pay more for a healthier alternative.
“Initially I was incredibly surprised by the sales. I wasn’t expecting local uptake of this rate at our price point. But it goes to show that people are paying attention to labels. They want to know what’s in the food and beverages they’re consuming, and they’ve learnt that if there are more than three ingredients and many of them you can’t pronounce, then it’s not good for you.”
Within eight months Über Flavour was in 150 locations in Cape Town and Joburg, from restaurants to grocery chains. “To catch up on production I needed to hire a planner, distributor and find a larger production plant so that we didn’t keep running out of stock.”
Simon’s secured six distributors in six countries, including Germany and Switzerland, he’s exported his first orders to Dubai and Australia, and is currently negotiating with Marks & Spencer.
Passion is Crucial
“This is the first time I’ve felt the same passion and buzz I did with YDE,” he says.
“I’ve realised that passion is a vital component of success. Your blood needs to tingle with excitement. But I’m also coming from a much wiser place. We’re staying lean, we’re not throwing money at problems, and I’ll only consider partners who add strategic value to the business.”
Simon has already received a few offers to purchase. His answer is a straight-forward no. This is his baby, and he’s planning to take it all the way.