Building businesses into assets of value
Pavlo Phitidis sets a challenge for small business owners and offers practical advice.
Wits Business School alumnus Pavlo Phitidis (MBA 2001) and co-founder of Aurik shared a personal tale of his business journey in a talk titled “Reset Rebuild Reignite” with about 240 alumni on 27 May 2021.
As an entrepreneur and innovator Phitidis was earnest about harnessing the skills and expertise within the alumni community to affect global change: “We are finally getting an alumni community together. Those friendships have yielded me not only with tremendous meaning and joy, warmth and love, but also tremendous value. I think that we’re becoming Argonauts as South Africans. It’s really important to figure out a way to connect with each other because the success of South Africa, or any other part of the world is a success to all of us because we are part of a community,” he said.
Phitidis, who comes from a family of entrepreneurs used Carl Gustav Jung’s sentiment – that we are all somehow trapped by the images of our past and carry them into the future – to frame his talk. “I was born into a family of entrepreneurs and I saw directly what business life was all about for individuals who had to get into businesses to generate income to raise their families, feed their families, educate, house and create a legacy of some form. Employed people see it as a pension, entrepreneurs see that classically as an exit of sale of a business. Two of my uncles worked into their late 80s, not because they wanted to, but because they had to. They built businesses that generated income, but built businesses that were simply not able to be sold.”
From his 25 years of direct experience in conceptualizing and building businesses across four continents, as well as expertise in mergers and acquisitions he said there was an enormous gap between what people think their business is worth and the actual calculations – even that of his father’s business.
“I got hauled into the family business with my father, only to realise that a man I truly loved and admired, was in dire straits. His life’s work was coming to an end and there was no value in the business. He’d done everything right, done it by the book. He had done everything we are taught to do, and yet it was just not possible for him to get that exit.”
Over the years Phitidis learned the mathematics of valuation, which helped to close the enormous gap between the way that people build businesses to generate income and how businesses need to be built in order to be sold. Based on the data-rich economy of the United States, he was able to analyse that 94.6% of businesses started in the US failed to sell. This statistic was similar to a study in Australia, which showed that 97.2% of businesses started, failed to sell.
Phitidis’s business specialises in the genesis of starting, investing and building businesses into assets of value. “Over nine years, we sold 12 businesses, across six sectors: two listed on the JSE, two failed, three sold to management buyouts and five were bought by corporate entities looking for growth and innovation.”
He offered a guide on the lessons learned from these experiences. “We defined 207 very clear activities and put them into a very well-structured sequence which we now offer to over 2 871 businesses.” And the results are impressive: “The average compound growth rates that we have seen across that portfolio sits at 28.9% – that is a business that doubles in its revenue every 33-34 months! The average exiting growth rates sit at 32.4%,” he said.
The COVID-19 pandemic presented a particular crisis. “I got the fright of my life; it felt like the blood left my entire system because we’ve got about 600-odd clients and you can imagine 75% of our revenue attached to their growth performance. This was not looking good.”
But from this experience, he produced this latest book Reset, Rebuild, Reignite: Build Your Business to Thrive in a Crisis, which argues “the action you need to take when a crisis hits must do more than help your business survive. It must see you thrive,” he said.
Phitidis challenged alumni to connect: “Please help. We are growing a highly sophisticated service and product built in South Africa into foreign markets and we want to work with South Africans. There is a resilience and an attitude that we have baked and built into us that we are unaware of that distinguishes us and sets us apart. We’re looking for colleagues and contacts across the US, across Europe, across Ireland, across Australia, across New Zealand and across the UK. So please reach out and let’s have a conversation.”
A full version of the webinar is available here.
For a summary of responses to the questions posed during the webinar contact Heather.Bangwayo@wits.ac.za