NASTASSIA ARENDSE: Good evening and welcome to this special edition of the SAfm Market Update with me, Nastassia Arendse. Today we have the Wednesday conversation. But, as opposed to the little snippet we usually give you, we are going to be playing the full 26 minutes of a very interesting conversation I had, talking about a book titled The Magna Carta of Exponentiality. It was written by Vusi Thembekwayo, who is no stranger to interviews on the business front. He has made waves internationally. He is the CEO of My Growth Fund and IC Knowledge Bureau. He is also a member of the South African Venture Capital and Private Equity Association.
We’ll be talking a little about what he’s been up to in the past year or so, and also what prompted him to write The Magna Carta of Exponentiality.
Vusi, thank you so much for your time. I’ve read your book, The Magna Carta of Exponentiality. You got me thing of an organisation called Singularity University.
VUSI THEMBEKWAYO: Yes. Salim Ismail.
NASTASSIA ARENDSE: As I was reading the book I was thinking about your growth trajectory in the business environment. Let’s talk about what prompted the book.
VUSI THEMBEKWAYO: First, I’m very familiar with the work of Salim Ismail. Salim Ismail delivered a paper in one of my classes when I was doing my MBA in London, so I got to know of him and of the university fairly well. But the school of thought from which Salim Ismael and Nassim Taleb come really teaches us and talks a lot about the context of the past and the how that context is shifting.
So a lot of the work I do is because I work with leaders and executives and large typically listed businesses. And it’s in the working with them that one has had to help those leaders shift their own thinking. That’s how to do it, because a lot of leaders are technical people. They spend 20 years in a business, working and acquiring a certain skill, and they understand how that works. Then all of a sudden you say to them, the world in which the thing you were doing worked isn’t that world any more. You’ve got to make that shift.
So what prompted the book was close on 15 years of working with leaders and executives, myself sitting on boards, myself building businesses and recognising that there are some teams and some leaders that are able to make that shift, and some that are not. The question I sought to answer was: What is it that separates them? So that was the premise behind the book.
NASTASSIA ARENDSE: So if someone asked you what an exponential organisation is, how would you define that?
VUSI THEMBEKWAYO: Markets by their very nature tend to be singular, at least growing at a rate that is linear. Think about the South African GDP. So we’ll talk about how the GDP growth rate should be 1%, 2%, 4%. Exponential organisations are organisations that build into their DNA their future culture, processes and systems, the ability to outpace market dynamics. That’s really all it is. So, even if the market grows at 5%, we can grow our business at 55%, which is to say the only way we achieve that is if we eat somebody else’s lunch, because the pie is not getting as big as we are acquiring market share. So exponential organisations are organisations that are able to take off the table more than their fair share.
NASTASSIA ARENDSE: Salim delivered a talk when he was explaining his book as well, but also talked a lot about exponential organisations. I’ve always been looking for what the definition of a disrupter is. I’ve heard various definitions, but he gave one that still resonates with me. He said a disrupter is somebody who disrupts something that dos not exist.
VUSI THEMBEKWAYO: That’s interesting.
NASTASSIA ARENDSE: I’ve been hearing that you disrupt an already existing industry, like taxis. He said no, it’s something that doesn’t exist, because Uber did not exist. No one thought that you could call a cab almost immediately, and you can track to see whether your cab is on the way, that kind of thing. How do I start and think as somebody who could be a disrupter – think big. And how would that impact whether I have an exponential organisation?
VUSI THEMBEKWAYO: Our research shows us that disrupters do three things. The first thing they do is they collapse processes – and this is an important part, because processes build inefficiencies into businesses. I’ll give you an example. There are some organisations that are so large and have so many processes that for the staff to have a staff function they have to send a requisition which goes to finance. Finance sends it to the finance manager, who then sends it to the CFO. And before you know, the CFO has to sign a requisition asking for a staff function, and on it is a line item for cupcakes. So you now have the organisation, the CEO of a listed mining house, who must sign for cupcakes. I tell you that because yesterday I was with a group of leaders, and the CEO stood up said, I’m not signing any more cupcake requisitions. The point he was making was “we built this organisation and have so many processes to protect ourselves, but these processes have made us inefficient”.
So the first thing disrupters do is they collapse processes. They’ll take something that takes five steps and do it in two. They drive for that sort of automated efficiency, which is typically why you find them in technology, because through tech you are able to create systems and use APIs of systems to talk to each other and remove the human inference in the process. That’s the first thing the research tells us disrupters do.
The second thing is they create industries outside of industries, using existing industries. Put too simply, Amazon is a library, and the internet connected. Uber is the taxi driver, and the internet connected. Netflix is a Blockbuster, and the internet connected. Blockbuster exists, so too does the internet. The interplay of those two things creates a Netflix. Behind it of course they’ve got triggers and metadata and a whole host of research and tags. Sure. But at a simplistic level that’s it. So what disrupters do, and I think this is the point that Salim Ismail makes – in fact, Nasim Taleb makes it better in The Black Swan where he says they are able to understand how to take two things completely non-related and create a new industry, and the creation of the new industry destroys everything around the ecosystem.
NASTASSIA ARENDSE: So what role does leadership play in that, because you make a very interesting separation between leaders and managers. Tell me about that.
VUSI THEMBEKWAYO: Managers manage for what we know. This is the role of a manager. He gets given a budget, a target, a timeline and a set of tasks to execute. His job is to execute or typically delegate down and manage up. The leader’s role is to imagine a new future. So when I work with leaders, specifically in business, and the conversation around leadership and management emerges, the conversation piece I always take is remember, anytime you are talking about task-orientation, budget, timelines, you are in the management role. Anytime you are going, what does this thing look like in the future, what are the set of behaviours, cultures, etc, that we should be building, you are imagining you are in the leadership realm. I spent half a day with the leadership team at Nike, global and South Africa, and they were having this whole conversation about so, are we managing or are we leading? So in the world we are in today, where there is a new sneaker coming out, a trend coming out, where are we? The conversation piece for them is we’ve got to be clear about when we are managing and when we are leading, and knowing that these two can co-exist but they are not the same thing.
NASTASSIA ARENDSE: When you started out in the business world, did you have a clear understanding of that, or is it something you picked up over the years?
VUSI THEMBEKWAYO: It’s as you learn. I think there are a couple of ways to learn it. The first is when you have a terrible manager. I always say to people, bad managers are the best people to learn from because bad managers are like being in a bad relationship. When you leave you know exactly what you don’t want. You also know exactly what you don’t want to become. So I learnt by having bad managers. And then as I grew in business I then learnt how to lead by having great mentors. I was just watching how mentors were building amazing businesses, inspiring, motivating, energising people, and relating it with my experience – where your creativity was culled, you were given a fixed construct, you were not allowed any autonomy and space to think. And then you assume this is kind of how this thing works. I can see why he got these results, because he was doing it this way, and I see how she is getting those results, because she does it that way.
NASTASSIA ARENDSE: In one of the chapters you say as a company builds you start off small, and then you build your clients and then you get a bigger team and your team gets bigger. But sometimes, as you start growing, you forget why we’ve been doing this, and you sort of lose that connection that you initially had when it was just two or three of you. That’s very interesting, because that’s when sometimes the change happens in your industry, because you are so busy doing everything that you don’t see it coming.
VUSI THEMBEKWAYO: Ja. I had a session with a leadership team of a FMCG business – they are a French company, I’m not at liberty to tell you who, but they are a French company. You can buy their dairy products in any retail outlet. The conversation we were having was about this, and I said to them, just this morning, you do know that, if you read the Bible cover to cover, nowhere will it say on the eighth day God invented your company. And it means you don’t have the divine right to exist. Ergo, there was a time somebody imagined you, and employees, specifically employees who spent their entire lives in employment and worked their way up the ladder and became managers, are either absent of this realisation or they’ve never considered it, which is that the company you work for was once a start-up. Somebody imagined it. Once upon a time there were just two people, then just three people. So every process you work with and every part of the system was designed, everything. The requisition form you sign, the email you send, that whole thing was designed. And it was designed for a context.
The problem today, which is why small companies disrupt big companies, is because you have worked in a context where you could be slow, take your time, be methodical and be thorough. That’s not the world we are in now,. The world we are in is about short-term sprints, iteration, test, trial, error and iteration again. And when you understand that, you then understand why small companies start tiny and then disrupt big companies. It’s because the big companies wait for five years to roll a programme out, and then see if it works. A small company does it in five days, then they sit again – did it work, no it didn’t work, okay let’s try it again next week differently. They iterate and iterate and iterate until they find a thing that works.
So the point I was making in that specific part of the book is, I think employees and specifically managers have to approach the role of management as a role of being a business owner within a corporate. If you approach it that way, there is a deeper sense of ownership and you ask different questions, See, business owners ask different questions. A business owner askes why we do it this way. He doesn’t say “this is how we do it”. You’ll know bad managers because they love saying that. Anything you come up with, a new idea, they go, uh-uh, that’s not how we work here. In other words: “I’ve been here 20 years, and this is how we do it. Don’t ask me why we fill in this slip. Just fill in the slip.” Then you are thinking but it’s redundant, we could automate this whole process – or you just don’t need it any more. But you must still fill in the slip.
NASTASSIA ARENDSE: If you have a big organisation and are thinking, hang on, we don’t want to miss this change, does it make sense to say, okay, I’m going to create a small team and I’m going to, say, sit at the corner of whatever part of this building and work here, but not part be of the system [Vusi laughs]. And your job is to “go and change the way we do things here”. Basically, pick any industry you like and let’s just go and create something there that could change the way people see us.
VUSI THEMBEKWAYO: You’re sneaky, Nastassia. I know you’ve read the literature, that’s why you ask that question. The concept is actually interesting. It was birthed first in the 1940s, specifically around 1943. Just to make a quick point – I don’t know how many of the audience listening to this would know – management is a study of war. Where we learnt first how to manage was in war. The first time human beings had to manage complex systems was during conflict, when tribes were conquering tribes and then nations other nations that created mega-nations, which became empires. Today, as we have it, we had the First and Second World Wars. Those who won were those who learnt how to manage better. The very science of strategy was birthed in the First World War. Before the First World War nobody spoke about strategy, nobody spoke about tactics. So the way we manage in war – and this is an important point – is that there is a general at the top and there are foot soldiers at the bottom. The general has a set of lieutenants who have sergeants who manage the foot soldiers. It looks exactly like an organisational pyramid. The instructions get issued down, the feedback goes up. That’s how it works.
So, to answer you question, around the 1940s Hitler comes up with this idea – and tell me if this sounds familiar. He says the problem with the people we are fighting, the Allied forces, is they are innovating at a rate faster than us. So he creates this little division. It was called the Skunk Works. That’s where “skunkworks” comes from. It was a group of people who were thinkers. He removes them from the business of war, gave them a small little office and said, please go and find out how we can work better. One of the things, the Skunk Works Project came up with was a way to heal the human body faster than the human body heals itself. They invested in a regime of medicine which we today know as steroids. So that’s where the whole Skunk Works programme comes from. If you drive a BMW, anytime you see the letter “M”, it was designed by the skunkworks division of BMW. If you drive a Mercedes Benz, anytime you see “AMG”, it means they took this car and they gave it these guys who sit in the corner, and said, make it look amazing. And that’s what those guys do.
That era worked. It doesn’t any more. Here’s why is doesn’t. It’s because the people whom we take to sit outside of the system now lack credibility in the system, and the first person to write literature on this, actually a dear friend and I reference him in the book, was Jorgen Knutsdorp, who took over Lego. He did this, he created a skunkworks, he removed it from Billund in Denmark where the Lego factory is, and he said: “Go and imagine a new [thing] with Lego.” It didn’t work, because every time they came up with a new idea, the factory still had to buy in, so did procurement, so did sales, so did strategy – and they all went, nah, we’ll think about it. Call us in five months’ time. They lost time and they lost pace. So today what we know, and John Kotter talks about in his book Accelerate, is that rather than take the people outside of the business, you have to take people from outside and embed them strategically into the business. So you have to inject the new thinking, not take old thinking and put it outside and hope that you can bring back insights. It doesn’t work.
NASTASSIA ARENDSE: I was wondering how many leaders and how many big organisations are sitting there, thinking we are not agile enough. In fact, over the past five years we have not had a new strategy – probably since 2000 – so how are we even going to think exponentially if we haven’t adjusted strategy from that period. Do you work with organisations that may listen to you and think, we are too big to all of a sudden change overnight? Or is it something that you do gradually? Not every big organisation is open to change. Are they at risk of dying out?
VUSI THEMBEKWAYO: Absolutely. I can answer that question without even considering it. I worked for a company that in its heyday was the largest wholesaler and retailer in South Africa. In its heyday it was the largest distributor of fast-moving consumer goods in the African continent. In 1995/96 it was the only company in the Johannesburg top five that was not a mining house. Today that company no longer exists. So I just want to make the point to every single business leader listening to this: don’t ever think you are too big to fail. That’s the first mistake all leaders that run organisations that are failing make. But to answer your question, I sympathise with it. Because you are running a big business, you employ 20 000 people, there are departments and departments, there are executives and MDs who report to CEOs – it’s a very complex machinery.
When I chat to clients about it, I always say, think about it as trying to shift the direction of the Titanic. You built this thing to go really fast down a specific path. But the reason the Titanic hit the iceberg wasn’t because they didn’t know they were going to hit the iceberg. They saw it. The problem was it was too big, going too fast to change course. If it was a cruise liner or a speedboat it would have easily changed course. So today what business leaders who are looking for agility are doing is they are actually deconstructing Titanics. We saw it here with Anglo American. They broke it into little bits, created smaller businesses, which gave them agility and an ability to respond to the market, because they understood running a complex machinery like Anglo American – where you’ve got coal and gold and platinum and chrome – is too complex. But if you break these things up into their meta parts, then each of them is able to respond to the moving parts of its own segment of the market.
So that’s the advice to the business leaders. You actually have to break down the Titanic. The hard part is that most business leaders have spent the past 30 years working their way up the Titanic. I worked my way up this thing, and I just got here and you are telling me I must break it if I want agility and speed? Size is mutually exclusive with speed. That’s just the way these two things work. There is a reason David beat Goliath, because he was much faster. Now if Goliath had landed one on David, the story would have gone a different way. What I often say to clients is your advantage when you are big is that when you make a thump it’s a big thump, because you’ve got size and scale and capital and a balance sheet. You can dominate. But you’ve got to make sure you make the thump in the right place, and the only way to do that is if you break into smaller bits, try and test, iterate, be agile. Then once you’ve found the market that works, you commit resources.
NASTASSIA ARENDSE: Let’s talk about the process of putting this book together.
VUSI THEMBEKWAYO: It was a bugbear of mine when I was doing my MBA. Today I’m CEO of two separate companies, so I run a Knowledge Research advisory business and the fastest-growing venture capital fund in South Africa. I sit on several boards. One of them is the South African Venture Capital Private Equity Association. So my time is spoken for. I don’t have the time to read a 300-page book. I’m not an MBA student, and I think that’s the shift authors have to make too. We are taught to write these large copious business books – and it doesn’t work. No business leader in his right mind is going to spend five weeks reading a book, because he can dedicate that time reading a board pack, answering emails, managing stakeholders, giving shareholders guidance on where the stock price is going. He is not going to do that.
So deliberately in the process of writing the book, as the copious amounts of research were coming out, we deliberately filtered it down. There is a portion in the book where I do comparative analyses, so I compare FNB with Standard Bank and Absa, I compare Discovery with Liberty, I compare Pick n Pay with Shoprite, and I show the performances of those businesses overa period of time. There was a copious amount of data. I deliberately went through the process of distilling it into its best essence over a couple of pages, because the audience for this book are the people who will read it and understand the underlying numbers. That’s also why there is no index. So if I write FY2018, there is no place where I tell you FY means financial year. I’m assuming you are a complex enough manager and business leader to know what ebitda is. If you don’t, you need to find out. It’s written for a specific set of people who want knowledge.
Look, we can’t be talking exponentiality, agility, speed and then I write a 500-page book. It goes against the very grain of what we are talking about. Give me the knowledge, give me what I need to know as quickly as I need to know it, and I’ll make the call. That’s it.
NASTASSIA ARENDSE: Then are you open to having the book in an audio format?
VUSI THEMBEKWAYO: We are working on that.
NASTASSIA ARENDSE: The CEO is saying, well, I don’t have time to read, but I can run and listen to what you have to say. What do you hope people will get out of this. When I read Salim’s book, and books by other people who’ve written on something similar to Exponentiality, I get the sense that a lot of people in South Africa talk about entrepreneurship and we should be teaching young people entrepreneurship from a young age.
VUSI THEMBEKWAYO: Which is rubbish.
NASTASSIA ARENDSE: I don’t think you can teach people to be entrepreneurs. You’ve got to want to do something. When I read that young people at varsity think entrepreneurially anyway, they should be getting their hands on it. Is there some part of you that says, you know what, I’m going to dedicate a little bit of my time to work with some of the young people who have fabulous ideas and they get where this is going?
VUSI THEMBEKWAYO: Two things. First, specifically in the fund we have a programme just for entrepreneurs of micro businesses. But there is an entry point. You’ve got to make a million rand or more a year, and when you come and in the processes we take you through, we make three commitments. The first is we are going to help you achieve 5x growth and revenues in three years. In other words, if you came in at a million, I get you to five. If you came in at five, I get you to 25. And if I can’t do that we drop you in the programme. The reason I say if I can’t do that is because I take on the responsibility, the accountability, but he takes the responsibility.
NASTASSIA ARENDSE: On that note, where do people find your book.
VUSI THEMBEKWAYO: It’s available at Exclusive Books. Go to my website and there is a whole list of where it’s available. It’s available at Exclusive books, at the CNA, at Africa Books. But all of these failing, you can buy it on Kindle – Amazon Kindle. The digital version of the book is available. You can also buy it online on Takealot.com.