Manufacturing SME successful despite sector struggles
Although the manufacturing industry in South Africa expanded by 4.5% in the fourth quarter of 2018, according to Statistics South Africa, prior to this, the sector experienced a massive upheaval and it hasn't been easy for businesses to navigate through this.
However, business owners that were able to tap into their entrepreneurial instincts and apply relevant business survival tactics were able to implement innovative ways to weather the storm, according to Arnold February, regional investment manager at Business Partners.
For him the story of Gregory Gomes, owner of Classic Work Life, is a good example. The business sells high-end furniture to the corporate sector, mainly sourced from Europe.
"This story is one of survival and growth amid tough economic conditions, an increasingly difficult exchange-rate environment, and major disruption in the South African manufacturing sector," says February.
Gomes cut his teeth in the office furniture industry in Johannesburg, starting off as an accounts clerk and working his way up to marketing manager for a large furniture maker.
However, due to the challenges faced by the manufacturing sector, it became increasingly difficult to sustain large traditional factories and the business ultimately closed its doors.
Taking the plunge
Recalling his entrepreneurial journey, Gomes explains that this business closure was what prompted him to take the plunge and start his own business in 2011.
"I decided to focus on the local assembly of imported Wilkhahn Furniture, a high-end German office furniture company that awarded me with an exclusive distribution licence in South Africa, rather than manufacturing from scratch where I would be faced with large overheads in a manufacturing facility," he says.
"I then set up a partnership with a local office moving company, with the idea that I would concentrate on bringing orders in, and they would take care of the assembly and installation of the furniture."
This lasted for two years before he was able to set up his own small assembly facility in Industria, under the name Classic Work Life, partly financed by the proceeds of a big order that he had won, and his business was born.
Even though Gomes had worked on a profit-sharing basis at his last employer, he says that stepping out on his own was a big challenge.
"Issues that I previously took for granted, such as understanding and vetting licence agreements with my suppliers, and the logistics of assembly and delivery on every order, now became my direct responsibility," he explains.
The biggest challenge, however, was finance.
"This is because the business of supplying furniture to the corporate sector works on large projects of millions of rand, and when my business won a contract, it needed substantial finance to import the furniture, assemble and install it, and take care of the overheads until the client pays, which is usually several months later," he says.
As such, in the early years, every contract that Gomes won was a double-edged sword - it was another victory for Classic Work Life, but it set off another desperate scramble for bridging finance.
"You just have to have faith that it will be okay. You can't not go for the deal because you don't have the finance, so you just go for it. Once you've got the deal in your hand it becomes a little bit easier to go to somebody and say: can you help me with finance."
The banks, however, were unfortunately not prepared to take the risk, he says.
"When the banks turned me down, I managed to get capital from Business Partners Limited, as they were prepared to look at the business model and to look at me and say 'there is potential here'."
Six years since the start of Classic Work Life, Gomes says that it is becoming easier to raise finance for each successive contract.
"Despite the slow economy, the business is looking forward to a good year, especially now that the company has a Level 2 BEE rating that was received for setting up a workers trust which holds 49% of the company," he adds.