Lining the wall of the newly listed Blue Label Telecoms boardroom are hundreds of Johnnie Walker Blue Label bottles. “You can track the company’s entire history in those bottles. Each one tells a story,” says Mark Levy, who, together with his brother Brett, started the company as Blue Label Investments in 2001.
The bottles tell a story worth listening to and one that will no doubt serve as inspiration to all entrepreneurs who dream of making it big. Looking at the wall, you’d be forgiven for thinking you were in the company of ardent whisky-lovers, but this is not necessarily the case.
The Blue Label bottles are important because of what they signify. “The bottles are part of a company tradition that started at our inception. Brett and I decided that every time we signed a deal, we’d buy a bottle of Johnnie Walker Blue Label whisky and write the details of the deal on the back.
It’s not so much because we love whisky (although we’ve both drunk our fair share of what that wall represents), but rather because Blue Label is such an exclusive and aspirational brand. It symbolised success to us,” Mark explains.
From that tradition came the company’s name, which today has brand equity of its own. And thanks to the many deals signed, it produces and distributes a wide variety of pre-paid secure electronic tokens of value and transactional services, including pre-paid airtime, pre-paid electricity, bill payment, electronic funds transfer, gift vouchers, loyalty programmes, stored value cards, location based services and other pre-paid tokens of value (both physical and virtual) that are allied to the telecoms, utilities, insurance, financial services and transport industries.
On listing in November last year, Blue Label Telecoms which has a global presence, bought out its minority shareholders, raised R1,3 billion and entered into a strategic partnership with Microsoft’s Unlimited Potential Group. So, it’s unsurprising that the Levys are currently riding the crest of a wave. But rewind a couple of years and you’ll find them selling radios out of the boot of a car. “We’ve always been traders.
Our mother used to joke that if something wasn’t nailed down, we’d sell it. So while I was studying and Brett was still at school we used to drive to Pretoria to buy stock and then sell it from the boot of the car,” recalls Mark. After building up some capital, the brothers registered the company as Sounds Alive, operated out of a house and then eventually owned their first store.
“They were humble beginnings but we learned two things that have remained important. Firstly, consumers are generally lazy so if you make it convenient for them, they’ll buy from you. Secondly, we learnt about the importance of building and interacting with a distribution network and to this day, that remains one of our strengths,” he says.
Within a short while the brothers started bringing in their own products to sell to chain stores. Over time they built up a national distribution footprint which was to stand them in good stead in 2001 when they tendered for a nationwide Telkom distribution license for public payphones.
“We already had some experience in the pre-paid environment and had started trading in handsets and pre-paid vouchers through what was then The Prepaid Company. So when we landed the Telkom deal, the distribution network was in place. We were at an advantage because no one else was really interested in focusing on Telkom,” says Mark.
Even in those early days, Blue Label was starting to innovate. “We realised early on that the physical world is very limiting when it comes to things like pre-paid cards and the like, and there are a range of challenges that physical cards pose,” he explains.
Among these, the brothers identified as key issues, card pilferage at both a manufacturer and merchant level, the logistics and cost of moving and distributing stock (especially to small-time merchants) and stock management. So they came up with a solution that no one else had thought of and did away with the physical card altogether.
“If you think about it, the card was just a vehicle to get the secure PIN to the customer and we realised that there were better, more efficient ways of doing that, and if we could bypass the physical world we could save on costs and logistics and pilferage, and all those other hurdles,” explains Mark.
It was the tipping point of a business that today is built on providing a range of different enablers that get a pre-paid product from a supplier to a customer, all in the virtual space. The devices vary but all have in common the fact that they bypass the physical world.
For one application, Blue Label developed software that could be integrated into the mainframe solution of chain stores, allowing them to print pre-paid airtime PIN numbers from their till points, thus obviating the need for pre-paid cards. Another application is built into an ordinary credit card machine, turning it into a vending device that connects to Blue Label’s own back-end, thus providing smaller merchants with the ability to sell pre-paid products.
The company also pioneered the development of virtual vending machines that print pre-paid airtime PINs but don’t stock any physical cards. “The beauty of these is that you never miss a sale because you never run out of stock as you ordinarily do with a regular pre-paid vending machine,” explains Mark.
South Africa’s pre-paid market holds almost unlimited potential, particularly in the emerging sector and it was here that Blue Label turned its attention next, developing an application for informal pre-paid public phone street vendors. Mark explains:
“We wrote software for a very inexpensive handset that would allow a pre-paid vendor on the street to resell pre-paid minutes, decide how much he wanted to charge for them so he could make a small profit and tell him how much change to give a customer. The only thing it couldn’t do was print, but that wasn’t important because the customer writes the PIN down and uses it immediately.” The next major breakthrough came with the development of a bulk printing solution for pre-paid PIN numbers. “Still focusing on the emerging market, we developed a printing solution for wholesalers that allowed them print pre-paid products on demand. Because there is no physical stock and the numbers are printed only as and when they are required, there is no pilferage risk for the wholesaler, and they can sell the pre-paid PIN numbers in bulk to smaller spaza shop owners,” he explains.
But while Blue Label was first out the blocks with innovation, it had to wait for the market to catch up. One of the biggest challenges the Levys faced was how to re-educate the market about virtual pre-paid products. As Mark says: “People were used to a physical card that they felt held a store of value, and it has been a constant re-education process to convince customers that the value is held in the PIN and that it doesn’t matter what format the PIN comes in. We also had to gain the confidence of the merchants.”
But importantly, he goes on to add that once the market had accepted the new method of transacting in pre-paid, the sky was literally the limit. “It enables you to sell other things in the same way and when it comes to pre-paid, we haven’t even started,” he says.
Blue Label’s view is that the world will move increasingly towards greater use of pre-paid applications and that South Africa is a prime market. “There are tens of thousands of South Africans with cash who don’t have bank accounts or credit cards and they are willing to transact in First World products if you only provide them with the opportunity to do so. And we believe there’s no reason why they shouldn’t, so we’ve developed things like pre-paid funeral insurance in partnership with Hollard, and there are other opportunities in pre-paid electricity or pre-paid tickets to events such as soccer games. Although telephony is where pre-paid started, the future is in no way limited to that sector. Once you’ve built the environment, the doors start to open and in cash dominant emerging markets, the possibilities are almost endless,” he says.
The First World too is increasingly making use of pre-paid products. “In the UK for example, you can buy pre-paid bus tickets.” Where pre-paid buyers were once penalised because they weren’t loyal to a particular service provider, this practice is becoming less frequent, particularly when it comes to products that are not loyalty dependant.
Going global has been both exciting and challenging. “The challenge has been to find the right partners in the countries where we have a presence but in all instances we’ve been very lucky in this regard. I believe in the laws of attraction and I think that we’ve managed to attract the right people because of what the company is,” says Mark.
Undoubtedly one of its most important partnerships is the one with Microsoft. The relationship will further the company’s strategy of establishing a global transactional services platform in emerging markets and with Microsoft’s support, it aims to increase its global footprint of contact points with customers.
Microsoft will provide the company with advertising services, and access and licenses to various web-based and mobile technologies and services. “They’re a fantastic partner to have on board and we intend making the most of the synergies that exist,” says Mark.
The deal came at the time that the company listed in November 2007, a development that Mark says has definitely lent it credibility and weight in the global arena. The listing was, however, somewhat marred by reports and an investigation into directors’ contraventions of the JSE Limited Listing Requirements.
Three directors of a major subsidiary were found to be in contravention of the requirements and have been since been disciplined. The company has accepted the JSE’s findings and points out that the trades did not take place during a closed period or in respect of which there were any insider trading irregularities. The brothers are confident that the matter is now behind them.
Mark describes the listing process as very positive, particularly because of the growth opportunities it has created. “A number of factors influenced our decision to list, including the desire to eradicate some debt, create additional visibility on the global stage, incentivise staff, buy out some of our minorities and create a bigger coffer of expansion and organic growth funds,” he says.
R450 million is now available for growth, and he indicates that the company will be looking at different vertical growth opportunities and strategic acquisitions, both locally and internationally, that dovetail with what it hopes to achieve across a number of markets.
“I think the biggest challenge now is to manage that growth, but what’s exciting is that we’re not under pressure to do anything yet. The R450 million has not been earmarked and there’s no need for it to burn a hole in our pockets. We need to grow for the right reasons.”
Growth and innovation has been the company’s hallmark since its inception. In a few short years, the Levys have created a global company worth billions (its interim results for the year showed pro-forma revenue of R6,17 billion). Looking to the future, Mark concludes:“We’ve only just begun.”
Learn cash management early on
Blue Label’s business has always been about cash management, says Mark Levy, and the company’s accountants still run a tight financial ship. He believes that the best time to learn effective cash management and good financial habits is early on.
“When you’re making big money, you don’t notice if you lose money here and there. But when you’re small and you’re making small margins, those losses hurt you, so you learn to manage your money wisely,” he says. “Because we didn’t have money and our margins were small, it really taught us to watch our money, because every missing buck was a big one. That culture and mind-set is now a part of the company and has filtered down everywhere. What we’ve lost in stock in seven years of trading is minimal because of that culture,” he concludes.