Alec Hogg: Why SA is one of the best places right now to be an entrepreneur

I spent quality time last night in a room full of entrepreneurs. A long-time friend who has created and guided what are now big businesses, invests around half his assets into private companies run and owned by people he believes in. He gathered them together for a year-end party, with me as the late night entertainment. As he’s a good friend, and as they are people who know the subject really well, I did a lot of work preparing this speech. The text is republished below – sharing from history and my own life, to provide thoughts and guidance on why I really believe SA is one of the best places right now to be an entrepreneur. Not for reasons you might imagine. – Alec Hogg 

Speech by Alec Hogg to MDs of Reed Enterprises companies, Johannesburg, 18 November 2015

During the next 20 minutes or so, I’d like to share some of my experiences on entrepreneurship. And build the case for why I believe, really believe, there are few more favourable places on earth to be an entrepreneur than right now, right here in the Good Old RSA.

Alec HoggBut to get there we’re going to start with an ancient event. One which witnessed a triumph of good over evil, of small over big, and has motivated people for centuries. A story so important an entire chapter of the Bible is devoted to it (1 Samuel Chapter 17 to be precise).

It was an event sufficiently relevant today that it provided the title of Malcolm Gladwell’s latest bestseller.

Around 3 000 years ago, a seafaring people from the island of Crete invaded what is today known as Israel. This nation, the Philistines, pushed inland eventually reaching the foothills of the mountains where the invaders readied for battle against those who lived in the higher region, King Saul’s Israelites.

The opposing forces camped on the hills overlooking the Valley of Elah. Neither army was keen to attack the other’s stronghold. So every morning and evening for 40 days, a six foot nine giant called Goliath came out of the Philistine camp to taunt King Saul’s men – challenging them in man-to-man combat. Were he defeated, Goliath shouted, the Philistines would become slaves to the people of Israel. And, of course, vice versa.

The Bible tells us “On hearing the Philistine’s words, Saul and all the Israelites were dismayed and terrified.” The perspective they all held was that none in their nation could defeat the giant. And each day they grew more nervous. King Saul offered great wealth, tax exemption and even his daughter’s hand in marriage to anyone who was able to fight and kill Goliath.

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There were no takers.

That was, until a young shepherd called David arrived in the camp. He’d been sent by his father to deliver food to his three brothers in Saul’s army. After hearing of Goliath’s challenge and the reward on offer, David prayed and then volunteered, a boy showing more faith in his Higher Power than the entire army of men.

King Saul was so impressed he dressed the boy in his own tunic, the royal coat of armour and then placed a bronze helmet on his head. David was barely able to move, so stripped them off, sparking the event that was to inspire so many for millennia.

David_GoliathWe all know how the story ended. The shepherd boy with a sling fired one of his five pebbles into the giant’s unprotected forehead. Then he used Goliath’s sword to kill the prostate giant before cutting off his head. And yes, he did marry Saul’s daughter Michal, became close pals with new brother-in-law Jonathan and eventually succeeded King Saul himself.

For three millennia, mankind ascribed David victory to divine intervention. Indeed, getting him onto the battlefield in the first instance surely required it. But as Gladwell explains so eloquently in his book, with hindsight, the duel itself was a mismatch.

Goliath, represented the power but also immobility of heavy infantry. He was unbeatable in the rules of engagement he prescribed and struck a fearsome pose. But Gladwell and other scholars also say Goliath had a hidden weakness. He was almost certainly suffering from Acromegaly, a benign tumour on the pituitary gland which causes excessive growth and a side effect of poor eyesight.

David, by contrast, was light and fast moving – and possessed a weapon that from a distance of 35 metres has the stopping power of a modern handgun. Once David threw away the rulebook, put ego in his pocket and risked ridicule by entering the duel with his sling rather than traditional weapons, there was only ever going to be one winner. It was like taking a gun to a knife fight.

David’s example carries a wonderful message for entrepreneurs. With speed, agility and surprise you possess the power to overcome those with far greater resources. Acting in a way others believe is ridiculous, however, requires being impervious to social convention. And that needs a seriously suppressed ego – a challenge which is extremely difficult for any human being.

In his book David and Goliath, Gladwell refers us to a work by historian Ivan Arreguin-Toft called How the Weak Win Wars. The author kicks this off with a reminder of the epic “rumble in the jungle” in Kinshasa on October 30, 1974 – another inspirational lesson for entrepreneurs.

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At that time, world heavyweight boxing champion George Foreman was easily the strongest, hardest hitting fighter on earth. He had knocked out every one of his previous opponents within three rounds. Foreman was a boxing freak at the peak of his powers.

His opponent Muhammad Ali’s major assets were being lighter on his feet and possessing a slightly faster punch. To prepare, the workaholic Foreman sparred for hours against nimbler opponents. When the bell rang for the first round, the Champion was tuned to a fine pitch.

Yet in the eighth round it was Ali, who by all conventional rules had no chance of winning, who delivered the knockout blow.

His victory, with hindsight, was achieved by throwing away the rules of engagement.

Ali tricked Foreman during the first five furious rounds, suppressing his famous ego to apply what he later called a rope-a-dope strategy. Ali spent the early rounds cowering on the ropes, defending for all he was worth while getting Foreman to lose his temper with taunts like “George, you’re not hitting,” and “George you disappoint me”.

By the eighth round, Foreman had punched himself to exhaustion. Ali’s strategy, using the ring’s elastic ropes to absorb much of the power in Foreman’s fearsome punches, won the day.

Muhammad Ali vs. Ernie Terrell, Houston Astrodome, Houston, TX

Arreguin-Toft researched 197 of what he called “asymmetric conflicts”- wars between unequal forces, Davids and Goliaths – from the year 1800 and 1998. His conclusions reinforce much of what entrepreneurs intuitively know but are often too insecure to apply: Provided they ignore Goliath’s rules, even though less resourced Davids actually win more often than not.

During those two centuries, when both the strong and weaker armies both applied conventional warfare, the one with greater resources was victorious 76% of the time. These wars lasted an average of two and a half years.

But when the weaker army threw away the rulebook and fought unconventionally, it was they who mostly prevailed – 63% of the time, with the wars lasting almost twice as long. In other words patience is another powerful weapon in David’s armoury.

I grew up in Newcastle, and often visited the arena which hosted a near perfect example of how Arreguin-Toft’s theory works in practice.

In 1880, the British Empire was near its zenith. India was the jewel in its crown and in an age when the Suez Canal was but a dream, the sea route around the Cape of Good Hope was regarded by the British as of crucial importance.

A rebellious little Boer republic in the hinterland couldn’t be tolerated. So after formally annexing the Transvaal Republic, on hearing trouble was brewing, in 1881 the British sent a force of redcoats to enforce Imperial Law. The pride of England’s 58th Regiment and the famous Gordon Highlanders were led by one of the global power’s best, General George Pomeroy Colley.

After a few smaller battles had gone badly for them Colley, the man who had written Encyclopedia Britannica’s section on The Army, led his force in a daring overnight climb to the top of Majuba Hill. Once reaching the summit, his soldiers celebrated their ascent as though they had won a famous victory. Convention in those days said he who controlled the heights controlled the battle.

On waking the next morning, the initially dismayed Boers threw away the rulebook. Skilfully using their superior musketry, camouflaged attire and Majuba’s dead ground, they slowly fought their way up to the summit.

Legend has it that Colley died in his dressing gown, having taken a nap after the nightly exertion and only leaving his tent when the battle was effectively over. He and 91 other redcoats died and a further 134 were wounded and 59 captured. The Boers lost a single man with five wounded.

The British had fixed bayonets and jeered their enemy’s refusal to engage in hand-to-hand combat. The Boers defied battlefield convention of the time, stayed at long range and picked off Colley’s hearties at will.

David achieved such a crushing victory over Goliath that the next day the British Empire agreed to a humiliating surrender at O’Neill’s cottage on the slopes of Majuba, freeing the tiny republic from Imperial clutches. It was almost 20 years before the greatest empire on earth again tried their luck with the Boers – and were it not for the heartless but unconventional slashing and burning and introducing concentration camps, would surely have lost that war as well.

Examples of conflict illustrate important points because, in a market driven economy, business owners face similar pressures every day. Companies in the private sector operate in an environment where their reality is apply limited resources in their ongoing battle against more powerful opponents with rules written to favour incumbents.

In the light of this reality, it is no surprise that Bloomberg research shows that 80% of new businesses fold within 18 months.

Business schools are full of important people who offer rather naïve reasons why there is such a high failure rate. Mostly, they say, it is because start-ups are poorly funded; over-estimate their early success and are mostly forced to close shop because they simply run out of cash.

That’s asinine.

The real reason isn’t to be found in one of the 10 000 new business books churned out every year. It lies, instead, in what he world learnt at the Battle of Elah – but which ego and the teaching of well intended academics stops us from applying.

Like David, to prevail in an uneven battle, one needs to act unconventionally. And never stop believing you will win.

Some of my own entrepreneurial story may help explain this a little better.

I am from the school that believes entrepreneurs are born, rarely made. My first business was as an 8-year-old, creating the town’s first newspaper round.

In adulthood, after a couple of mediocre businesses, I worked briefly in the corporate world earning the big bucks with little real responsibility. It was here that I was introduced, in 1995, to the fledgling world wide web, the Internet. A year later I’d engineered an exit from the corporate, cashed in my share options and used that capital to start my own new business.

It revolved at first around a weekly email newsletter called Boardroom Talk. Email was in its infancy, so even though the service was free, each new subscriber who signed up was celebrated with gusto. Using the newsletter as a base, I started a website, Moneyweb, in 1998.

That little acorn, planted in the rm above my garage at home, grew into a serious media player, one that thrived despite Telkom’s premeditated decision to starve South Africans of bandwidth and thus keep connectivity costs excessive. As the business developed and my priorities shifted, missives to my Boardroom Talk subscribers dropped from weekly to monthly to a couple times a year, to never.

In 2012, for reasons fully articulated elsewhere, I resigned as the CEO of my business which had by then become controlled by a modern day Goliath, printing and local newspaper company CTP-Caxton. The  resignation triggered a one year’s notice period. Caxton paid me my full salary but demanded that I did nothing to compete with my old business.

Some months before leaving Moneyweb, while on semi-sabbatical I had resuscitated the long neglected Boardroom Talk subscriber list. Many of the addresses had changed so before being able to use the list, I had to spend a few thousand rand getting it “cleaned”.

My departure from Moneyweb was so sudden that I wasn’t even able to say goodbye to listeners on my 15-year-old nightly radio show. The now relatively clean list was a handy way to communicate, as I did monthly, with people who had supported my career over many years.

After sending out a few monthly mailers, Caxton told my attorney it believed the subscribers belonged to it.

Talking through lawyers, I argued this wasn’t the case as Boardroom Talk preceded the creation of Moneyweb and had always remained my personal property. So we suggested entering arbitration to settle the issue.

A few weeks later, one Friday afternoon the Sheriff arrived with a doorstopper document demanding my appearance in the High Court. Caxton wanted to fight matter through the hugely expensive court structures, an arena where it trained cannons against my pea shooter.

What happened next was a watershed.

For a moment, my lawyer and I were full of ego, keen to expose our opponent in court; to show the world how small-minded and petty Caxton was behaving; to take the battle into the public arena. As the court challenge arrived only a few months after effectively being forced to leave my creation, the wound was still raw.

Our eventual decision, to capitulate, didn’t come easy. It never does when you believe you’re right. In this case the settlement included the indignity of Caxton demanding that it send IT specialists from KPMG into our home to scan all our computers to make certain we hadn’t kept the subscriber list hidden somewhere. This was an act of pure malice. Anyone with an ounce of tech savvy knows electronic files are easily stored on a flash disk that could be hidden anywhere.

Looking back, the decision to not fight my own particular Goliath where he chose, worked out brilliantly. Just over two years after starting the competitive, the audience accessing our website and the Biznews section at our partner Fin24 exceeded that of the near two decade old company I had left behind. By consciously removing the distraction and cost of a High Court law suit, we were able to focus on winning in the only place it really matters – the marketplace.

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So how does that marketplace look for those of us operating businesses in South Africa?

It is easy to get depressed when you live with daily examples of Government incompetence, appalling political leadership following a bankrupt ideology and widespread corruption and cronyism. But, once again, for entrepreneurs, to get caught up in that web is counter-productive.

For some years, EY used to sponsor me to cover its annual World Entrepreneur of the Year event. The highlight was a few days in Monaco spending time with the finalists who represented a couple dozen countries. As you might imagine, this was an exquisite learning experience.

Especially when in 2006 I was sitting next to Imperial Holdings’s builder, the late Bill Lynch, when he was announced as overall winner of the global award. It was due recognition of Lynch whose most often repeated advice to entrepreneurs, by the way, was “just do it” – avoid analysis paralysis, start small, learn as you grow and heed the lessons.

My over-riding insight from spending lots of time close-up to all this entrepreneurial wisdom, was even simpler: The role of an entrepreneur is to assess the parameters and work out how to work within them. It is not his or her job to change the rules, much less distract themselves by complaining about them. Doing so destroys the entrepreneur’s greatest weapons – their ability to be nimble and their inherent optimism.

On that score, it’s worth noting what political analyst Moeletsi Mbeki told me recently – the full interview is on Biznews by the way.

The younger brother of former President Thabo and son of the late SACP leader Govan says we should care less about the outrageous anti-business statements spewed out by politicians – and headlined in the media.

To quote Moeletsi: “The ANC is not very good at implementing anything – this has always been my disagreement going back to when I was at primary school. It will pass all sorts of resolutions and then fails to implement them. So I wouldn’t be too worried about the pronouncements that are made.”

Especially so, if you are nimble.

It’s virtually impossible for the country’s major corporations to avoid well intentioned but anti-competitive Government policies like BEE, restrictive labour practices, Affirmative Action and the like. That’s the major reason why Corporate South Africa is on an investment strike, funnelling capital out of the country and, on that which it cannot export, leaving a record R500bn earning a pittance in the bank.

Paradoxically, the ANC’s raft of anti-business laws are actually only enforceable by the companies themselves. The people who prefer life in big companies embrace the job security of red tape. So they tend to work with rather than around the politicians’ energy-wasting obstacles. But it’s no longer sustainable.

The world has enjoyed almost a decade of high liquidity generated in the wake of the Global Financial Crisis and its rescue package, Quantitative Easing. Like any major wave, the flood of cheap money had the effect of raising all ships, hiding a multitude of sins embedded in uncompetitive businesses with disengaged staff.

It is only when artificial stimulants like the financial drug known as QE get withdrawn, that, to use Warren Buffett’s expression, we get to see who has been swimming naked. Only in such climates does meritocracy truly prevail.

South Africa, and the world, is entering a lengthy period of where the tide will be going out. With a far more competitive political environment being ushered into the country, there has rarely been a better time than now to be an entrepreneur in this country.

Thank you.

Alec Hogg SA Keynote Speaker

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