In last week’s article, Lionel walked the readers through the dramatic circumstances in which he found himself thrust into the throes of the most impactful assignment of his career, which ultimately got him to oversee the transformation of a previously failing African business opportunity into a billion-dollar business.
In this week’s article – the second in a three-part series – Lionel unpacks the initial phases of the plan, including the array of market complexities that awaited him, unexpected failure and the crucial mindset lesson he learnt from the early setback.
Last week, I left you at the point where the sails were being hoisted to set out and claim the company President’s bold plans for the African market. I was now deployed to East Africa to lead the complex business unit into uncharted waters.
In terms of GDP per capita, this combined market of 27 African countries and 374 million people contained a diverse mix of the good, the bad, and the ugly.
Markets such as Botswana and the Seychelles had much higher scores, whereas places like Somalia and Mozambique reported much lower incomes across the board, and therefore the populous were much less likely to have disposable income to spend on refreshing commercial beverages. The abundance of coolers and sales outlets was also hugely contrasting from country to country and represented the other main factors in getting our products into customers’ hands.
The Opportunity
Some countries would average drinking just 6 units per person per year, while others would be closer to consuming one unit per person per day. That was the most daunting variable to contend with, which was based on the huge economic and infrastructural disparities of the different markets within the larger African market as a whole. A one size fits all approach was not going to work. Instead, it was a complicated jigsaw puzzle of social and economic factors which we had to put together, one piece at a time.
The variables in disposable income and general prosperity aside, there were also the small matters of there being 26 currencies and an equally large number of international and local languages to contend with.
The challenge ahead, and the company’s expectations were huge, and this heady cocktail of complex factors made the road to success almost impossible to navigate. However, by taking lots of small steps in the same direction, and a few leaps of faith along the way, we made serious headway over the coming months.
Over and above the landscape we were tasked with overcoming, was the fact that this 5% new-venture business, had actually been a loser to date. The volume of products being sold was growing, but profits were declining. We had such huge impairments to the business’s processes that we were essentially writing off product by the truckload. The logistics of the manufacturing and distribution processes were adding big holes to a seriously leaky bucket, making any profit hard to retain. The long and short of it is that we had a business that might as well have been selling empty cases – it was just not profitable!
Building Internal Belief
Because of the non-carbonated’s historic losses, the perception of the products within the company’s infrastructure was not good, and as far as the whole value chain was concerned, the juice simply wasn’t worth the squeeze. As the general manager of this turnaround effort, the biggest problem I faced was that there was no internal or third-party belief that we could grow this as-yet failing crop. My team and I had to build the belief from the ground up. Everybody involved from start to finish needed convincing. The higher-ups in each part of the value/supply chain needed to be won over, as did the employees.
Then there were the bottling partners. These would be putting the most skin in the game when it came to investing in the manufacturing infrastructure and distribution systems. Further down the line, how do you convince the retailers that we were offering equally good options when it came to this niche of our non-carbonate beverage product offering?
We were the global market leaders in carbonated drinks, but although we were still operating in the realm of beverages, these were chalk-and-cheese markets. We had to leverage the brand equity into a different sector of drinks, which wasn’t plain and simple. Then there were the consumers themselves, and the other people-based limiting factors such as government and stakeholder interests. We had to convince them all that this opportunity was worth pursuing, rather than abandoning it, as the short-term metrics of glaring failure were suggesting. We could have as much faith in our strategy as we could muster, but without internal and external belief, there would never be the momentum needed to get it off the ground.
Sizing the Market
We started out by sizing the market, segmenting the opportunity, and analysing the many internal factors.
The first part of the puzzle was assessing the consumer base and drilling down into the demographics. Populations across the continent were increasing, as was the average income, and the average age was decreasing to a more youthful majority, so these were all positive trends to capitalize on. With these trends came an increase in beverage sales across the board, and in particular, the customer was now demanding more choice and there was also a notable shift towards more health-conscious products. We could see this shift in the market happening in real-time and it suited the non-carbonated products perfectly.
Having understood that, we assessed where the most headroom for growth was and we picked seven categories in the NARTD (non-alcoholic ready-to-drink) market to focus on. These were water, cold tea & coffee drinks, juices, cordials, energy drinks, lactics, and sports drinks. Next was identifying the inhibiting factors. We came up with four main pillars; affordability, investment, capability, and competition.
Most crucially, the supply chain needed streamlining to become conducive to making each product profitable. We could get everything else perfect but it wouldn’t make a difference if the logistics were so costly. For example, we were importing juices to use as ingredients, which seemed crazy on a continent with such a high fruit output. Despite the abundance of local produce, the processing infrastructure was seriously lacking. So, we were shipping pineapples from Kenya to Europe to have them processed into juice and puree, and then ship them back. That doesn’t come cheap. And so the main area to focus on to increase profit was easing the input-cost pressures associated with the crippling supply chain.
We had to consider investing heavily in our African infrastructure because the existing setup was streamlined for carbonated drinks, which have a much simpler manufacturing process. Dealing with real foods, such as fruits and milk – it’s a totally different affair and it needed a specialised set up that did not yet exist on the continent.
The investment needed was hugely inhibiting, particularly with the fruit and dairy products, as we needed to plow in huge amounts to get things underway, throughout the infrastructure and the supply chain. A caveat was the need to have refrigerated transport from start to finish – another all-new dimension to the business operations. Soft drinks simply don’t require such requirements for shipping.
Capability and Competition
Capability and competition were similar factors in the sense that there was already a competitive marketplace for each category. The talent pool of staff we would need to rope in that could deliver such a bold strategy was also spread thinly across the industry, and indeed the continent as a whole. These four inhibiting factors each confronted us with a huge minefield of obstacles to overcome, but we got to work.
Going back to the first big meeting with the company president, we were tasked with growing the 5% sector of the business, and also to double down on the carbonated backbone of the company.
We had a very clear strategy. For us to win in these new ventures, we had to keep our core business booming. We could reinvest some of the profit into the new venture’s investment strategy but also continue to leverage the brand equity in promoting the new products. It was a balancing act of fortressing our core stronghold and growing our pioneer territory simultaneously.
With the finite resources to push the new products, we then narrowed down the seven product categories to three we would focus on; juices, energy drinks, and water.
Water was easy because it could be put through our existing infrastructure without compromise. Juice represented an attractive, high-value, and high-output niche where we had all the ingredients available locally, but we did need to invest heavily in processing and manufacturing. The energy drink prospect was also simple and fast to execute as we would use an import-from-Europe model where it could be made at our existing overseas plants and shipped out efficiently. We decided to go with the energy drinks first as a fast and simple ‘Trojan horse’ method into the market.
‘Bells and Whistles’ launch
We launched our first energy drink brand with all the bells and whistles accrued from over years of industry experience and the whole company was behind us.
Six months down the road, unfortunately, it wasn’t gaining traction and we started seeing an increase in negative returns and the impending storm clouds of another major loss on the cards. Just months later we had to pull the plug and terminate that category from our roster. Our execution had been all wrong, but we learned how it should have been done by watching a much smaller venture that had entered the market at the same time. They did things very differently. They did not invest massively in conventional branding and marketing, at least not initially. Instead, they focused specifically on the local nightlife scene and started out by simply picking 20 nightclubs as the points of sale. It was all about the customer experience, and they also worked directly with the bar staff, offering some incentive for them to push the products to the clubs’ customers. They picked a team of fashionable millennial salespeople who would directly interact with the consumers to promote an energy-boosting drink in a vibrant social setting. They were selling the benefits of the drink, above the enjoyment of actually consuming it. It was an accompaniment, or ‘mixer’, to alcoholic drinks, and not necessarily a stand-alone product. While we had attempted to copy and paste the enormously successful methods from our carbonated brands, they had specialised their approach to the specific customer needs and unique benefits of what was a relatively new type of drink at the time. They reaped the rewards of their initiative and gained traction quickly, whereas we failed by applying the same old tricks to a new trade and not focusing on the specifics of consumer behaviour.
Failing Forward
So there we were, 12 months later, and in what was supposed to be the first innings in the big game, we had failed exceptionally.
It was now time to consolidate, learn, plan, and fail forwards by adopting a totally transformed approach.
As Mike Tyson famously said: “Everybody has a plan until they get punched in the mouth.”
This was our knockout blow, or so it might have seemed. On the contrary, our response was to do a Tyson Fury and get straight back up and effectively ‘fail forwards’. It would have been easy to admit defeat and stay out for the count, but in actual fact, that knockdown was a catalyst to our meteoric rise soon after.
To coin another particular mindset phrase, that really struck a chord in me: “Failure is a mindset I refuse to adopt. There is no failure – I either win or I learn.”
I can tell you that this should be the foundation stone for any businessperson’s mindset. You can have all the knowledge and acumen in the world, but your mindset is both your launchpad and your safety net. Sure, there are times you will fail, but you have to see each failure as a necessary stumbling block to learn from. There are rarely brick walls too tall to climb over, but there will be stumbling blocks that will provide an immediate opportunity afterward to accelerate onwards and upwards once again with newfound insights.
Failures and mistakes are crucial cameos to the storyline of any journey in business, and the cultural cornerstone you must adopt to make the most of them, is to embrace them. As a leader, if you create an atmosphere where mistakes are unacceptable all you will do is stifle creativity and cripple the company’s ability to learn and evolve. If you create and embrace a culture where making mistakes is accepted as a means to ‘fail forwards’, and there is support to get back up during the ten-count, the lessons of such mistakes can be learned by all and implemented diligently so the company as a whole can tackle the next obstacles with a greater knowledge and wealth of experience. Much like a rollercoaster, the downward descents can actually provide a tremendous kinetic momentum for the climbs ahead.
In the upcoming final installment, Lionel recounts the rise after the fall, and details how the shifts in mindset and strategy at each stage of the upward growth were what took the venture from zero to hero – fast.
Lionel Marumahoko is an Executive Coach, Leadership Speaker, and Business Advisor who specialises in complex transformation growth and new market entry in Africa.
Marumahoko writes in his personal capacity, and can be reached at: info@lionelmaru- mahokosnr.com
Or via his LinkedIn page: https://www.linkedin.com/ in/lionel-marumahoko
Or on his blog: https:// www.lionelmarumahokos- nr.com/
