Freed from shareholder politics, this factory owner thrives
It is perhaps in the nature of manufacturing that entrepreneurs feel they need partners. Very few people have both all the technical know-how and financial capital to build a factory on their own. But there are some serious downsides – seldom acknowledged – to running a business with co-owners. If anyone knows about this, it is Gradus Wendt, proudly and thankfully the sole member of Pro-Galv CC, a metal galvanising business in Stikland, Cape Town.
Gradus, a mechanical engineer who entered the galvanising industry as entrepreneur in 1993, feels his business only really took off in the last three years after he’d managed to buy out his last remaining partner in 2009. Since then, he has been able to focus fully on becoming the highest-quality hot-dip galvaniser in the Western Cape, as well as the greenest.
It is ironic that the institution that allowed him finally to thrive as sole owner of his factory is called Business Partners. The small-business finance company advanced the finance that enabled him to buy out his last partner when his bankers could not decide whether to risk a deal.
Business Partners take a small shareholding in about a third of the businesses they finance, but Gradus made it clear that he wasn’t interested in a deal if Business Partners wanted shares – he had had enough of shareholder politics. He certainly has run the gamut from starting out with no fewer than four partners (a collection of industry insiders and ex-colleagues), to a disastrous deal with his in-laws to BEE partners.
Gradus can see why entrepreneurs take on partners. The prospect of growth seems extremely daunting, and you feel that you really don’t have any other choice, be it for a lack of capital, expertise or access to a certain market. And he is quick to acknowledge the contributions of his partners to the development of his business through all its permutations. His last partner, for example, “worked extremely hard and helped me enormously” to sort out the damage done by his previous partners who had defrauded the business. She also brought in a lot of business through World Cup related contracts.
Yet, overall, Gradus found that the energy tapped by shareholder disagreements, the differences in priorities, strategic approach and values weighed more heavily than the advantages and in the end had probably retarded the growth of the business. And in hindsight he can see that every one of his decisions to enter a partnership could have been avoided. “I could have made a different plan,” he says, “but I lacked the confidence.”
For example, the government acknowledges the discomfort of artificial BEE partnerships for owner-management businesses, and Pro-Galv now uses the official broad-based BEE scorecard to achieve a high empowerment score without black ownership. Today, no less than half of Pro-Galv’s senior managers are black. And skills development among the staff of 40 is central to Pro-Galv’s approach.
Gradus may have lacked confidence at times, but he never lacked determination, entrepreneurial thinking and creative problem solving skills. He and another business partner (whom he later bought out) built the large, modern facility which houses Pro-Galv today virtually with their own hands by working over weekends. He was desperate to move from the previous premises which the company had completely outgrown.
Just as he managed to move the business over into the brand-new premises, the price of zinc, the main consumable in his business, shot up from about R12 000 a ton to over R45 000. He had to buy a large amount of zinc for several large contracts, but the bank was unwilling the advance the full amount. It is testimony to Gradus’s entrepreneurial chutzpa as well as his excellent client relations that he was able to raise no less than R1million as deposits from three clients.
The facilities at the Pro-Galv plant were designed and built with a timeframe of at least two or three decades in mind. The centrepiece, a 25 cubic meter hot-dipping tank, is the only one in the Western Cape built on a special layer of volcanic material to stop it from losing heat. It was very expensive, says Gradus, but it has paid for itself in electricity savings. The recent Eskom increases has pushed up the energy-intensive business’s bills from about R60 000 per month to over R200 000.
It also helps to turn Pro-Galv into the greenest galvanising facility in South Africa, a requirement that Gradus identified early on as crucial to positioning the business in the high-end, top-quality side of the metal coatings industry. Most recently, Gradus installed a water-recycling facility which once again saves expense and adds to the business’s green credentials. Next on the list is building an acid recycling facility.
The Pro-Galv factory also has space to add an epoxy-coating facility that will turn the business into a true one-stop shop. Gradus might have to move forward these plans, as the business has been doing so well that it’s been able to settle most of the hire-purchase contracts on its equipment, and the repayments on the loan from Business Partners, the only kind of partners he is willing to consider, are almost half-way.