MORGAN BARNARD: Welcome to today’s Moneyweb podcast. I’m Morgan Barnard and this month we are doing a special series of podcasts. Moneyweb has partnered with an entrepreneur incubator initiative Grindstone to support South African entrepreneurs. So we are kicking off this series with our first company. With me today is Sea Monsters’ Managing Director, Glenn Gillis.
Glenn can you please tell us how Sea Monsters came about?
GLENN GILLIS: I got involved in the animation industry about eight or 10 years ago almost by mistake. I was a businessman I’ve got a business science degree, always looking to get involved in growing businesses and I got involved with a company called Moonlighting which is a big movie production company that does all those Hollywood productions, and then I got a call from a company called Clockwork Zoo and they were doing a lot of local productions, animated content for the SABC and a whole lot of live action stuff. And that’s sort of ran slap bang into the 2008 crisis, the meltdown at the SABC and various other things. So I got involved initially to fix it up and ended up more or less kind of running the business, sorting out all the creditors and restructuring the business and three and half years ago out of that, Sea Monster was born.
We realised that doing these big long productions, because in that time we’d actually created 13 hours of content for Disney, we’d done another 13 hours of 2D content for a Canadian company, so you know at our peak we had a 120 animators, but just being in that pure entertainment space making these long projects over extended periods of time, clearly is a risky business, exchange rate fluctuations etcetera. So when we started Sea Monster three and half years ago, we decided not to sort of go only for that market but also to look at brand building and learning and other ways that you could use animated content. And that’s pretty much what we’ve been doing.
MORGAN BARNARD: So what is the idea behind the name Sea Monster?
GLENN GILLIS: Yes everybody wants to know and actually we started with a story. We are a story business. We believe that it’s critical, that’s how people learn, that’s how people remember things and so when we were setting out to kind of create a new name we had this whole mythology about this animal that you couldn’t see everything of, you only saw bits and elements of it. Clearly we live in Cape Town and we wanted to bring in those kinds of references, so yes we shortlisted a couple of names. My team decided on something called Ninth Tentacle and I said to them that’s great phone the SARS contact Centre and if they can get the spelling right three times in a row we can definitely call it Ninth Tentacle, and clearly that didn’t work so it ended up being called Sea Monster.
MORGAN BARNARD: That’s very cool. How big is animation in South Africa and is it a sector where an entrepreneur can make money?
GLENN GILLIS: Firstly the inherent potential for animated content in South Africa is absolutely enormous. You know we could quite easily create a few hundred jobs in the next one to two years, not only in Sea Monster of course, across a number of different companies and we could create several thousand jobs in this category. We’re incredibly well placed with respect to Africa and the rest of the world – there is a little niche for us, but one of the problems there is that, you can’t lurch from project to project and that’s pretty much the way the industry is structured currently. So you’ll have companies who gear up, including Clockwork Zoo, when we were running at our peak, we’d gear up for the Disney series and then you’ve got to hold thumbs that you’re going to get the next series lined up.
But you’re running salary bills of R1m per month so if you don’t get your 18-wheeler trucks, if you like as an analogy to line up in the Karoo with a very little space between them, you’re quickly going to run out of money because essentially it’s a service business on that side of things and that really counts. The same applies if you’re creating your own content you really have to have two or three productions running and kind of overlapping so the government incentives aren’t structured that way, and companies can’t kind of get there organically. There’s no country in the world where that has proven the case.
However with a little bit of assistance and obviously attracting private equity into the industry you can grow your own IP, you can export around the world, you can do various things and obviously you create a lot of jobs in that space. So that’s animation in its pure sense, in the entertainment sense, in the sense that we’re making TV series or films, but of course you can use animation for so many different types of things. So increasingly we work with businesses who want to cut through the clutter, who need to cut across literacy levels and cultural differences and we use animation and our skills from these long series to drive down the cost and increase the sort of inspirational component of the messaging. And there the market is literally global. Companies in South Africa are realising how effective it can be and yes that’s a massive industry in its own right.
And then maybe the last and most exciting component to the industry, and the real in my view, the real sustainable competitive advantage that South Africa has is actually in the learning space. Now whether this is for kids or even higher education and also in companies I think South Africa, is really well positioned to understand culture, to create great messaging for Africa, at the top of Africa turn right going to India, into China, etcetera and eventually conquer the western world as well. And I think we can do that pretty much with the best of people in the world and that market is massive. Government department of education just locally is spending billions of rands giving smart devices to kids. The question is what are they going to be doing on that, how are they going to be engaging. Is it literally a PDF behind glass? Well that would be a tragedy you know…some things are best dealt with in the classroom but animation and games and things like that can really increase the effectiveness of that learning and that’s kind of another whole market category. So I hope I’ve answered your question there and I’m happy to expand on any aspect of that.
MORGAN BARNARD: Yes so what are your plans to growing the business of Sea Monster?
GLENN GILLIS: Well I think we’re just out of our survival mode. We’ve come out of three years and it’s really, really tough. We put a lot of our own money and obviously a lot of our own blood, sweat and tears into it. The opportunities are very much the ones that I was referring to in terms of where the industry is going as a whole. We need to work better as an industry to attract the entertainment projects and ultimately to develop our own IP because we do manufacture intangible products and export them around the world. Everybody can see that there’s an opportunity there, but it does cost a lot of money to develop ideas up front and you’ve got to figure out what that business model looks like. And then yes, the brand building and the learning space are really the ones that interests us. So we’ve got some great corporate partners on-board who are really starting to see the business results of the stuff that we do, so we’re entrenched with financial services companies and retailers who are looking for new and innovative ways and frankly, very cost-effective ways to get messages across. Now the question is how do we then grow our services business and at the same time try and create some intellectual property, some products in that category and its that’s exactly what the challenge is, that we’re dealing with in our transition from year three to four.
We don’t want to be a big digital agency for example. We want to work with digital agencies around the world, but we specialise in animation and games and we really understand that space well. So yes, it’s an evolving conversation and we’re delighted to be part of the Knife Capital-Grindstone process and to partner with their partners who are guiding us through that and looking at the kinds of questions that we’re asking and saying, you know, how can we help? So that’s all good.
MORGAN BARNARD: So we have recently seen that Ikubu, another one of Grindstone’s business being sold to Garmin. What role do you see Grindstone playing in your business and where do you see yourself in a year from now?
GLENN GILLIS: I think the Ikubu story is amazing in many respects and I was really fortunate – I’ve just come out of a two-day session with them and we spent some time with Frans from Ikubu sharing his journey there. And in many ways what he got from Grindstone was exactly the kind of things, the money, as important as it is, is actually in a way not really what Grindstone is about. It’s the advice, it’s accessing the network, it’s figuring out what the right question is to ask at the right time and their deep experience in structuring deals is something that literally money can’t buy, and also they work very carefully on the valuation models and the business models. So in a way that’s really exactly the same thing that we need. I think Ikubu is also useful for us because it demonstrates that some guys sitting in the southern tip of Africa, can literally think about products and create products, whether they are physical products or intangibles that can compete with the very best in the world.
The tragedy is that often we don’t get recognised locally and you know, unfortunately the government support processes aren’t aligned with our needs. They’re very risky, very complicated and bureaucratic, and I know there’s a lot of goodwill in government to try and address that, but of course that process moves very slowly and ultimately what you really want is efficient, private capital. And so Grindstone and Knife Capital have clearly developed the elements that you need to go and sit down with serious investors who understand these things, understand when calculated risks need to be taken and then can also help you achieve and unlock the value in that. So that to me, is the journey with Grindstone over the next year and as I say, Ikubu is a demonstration that it’s all possible…so yes.
Being in your own business is quite lonely, sometimes you lose hope so it’s great to celebrate these things as well.
MORGAN BARNARD: I agree. Referring to your first statement it is the advice and the network and the guidance that Grindstone is giving you.
GLENN GILLIS: I was thinking, Morgan, you know that I don’t recall actually ever having submitted my formal business plan to Grindstone. I mean, it’s so crazy – if you think about how many other agencies there are that are supposed to support businesses and so on, and what they want is this business plan that is supposed to be the embodiment of all – your all-seeing, all-knowing future – and that’s frankly just impractical and the impossible.
So what Grindstone has done is they’ve teased out key elements of the things that they needed. Obviously we went through an incredibly rigorous process to get selected, and the rigour now really starts because they’re starting to ask us really difficult questions. And the point is let’s build that business plan but it’s not an end in itself and I find that really inspiring because it shows the reality of what running a business is like in South Africa. Yes, we need to be very clear strategically and yes our value proposition needs to be clearly articulated to our different markets. But the details change and opportunities come up and you’ve got to be able to figure out whether they’re on track or not and submitting a business plan to some bureaucracy in the hope that they’re going to kind of approve it in nine months from now, is just not real. So anyway…
MORGAN BARNARD: So lastly what is your number one tip for entrepreneurs?
GLENN GILLIS: It’s much easier and much harder than you think. I think that’s the reality – is that it’s much easier in that you just actually need to do it, you need to pick an opportunity, you need to take that leap of faith, you need to walk away from that corporate salary and just start doing stuff because there’s no good theorising about it and so on. It’s being an entrepreneur, being a growing business. In fact being in any business – we see a lot of corporates who are unfortunately struggling with this sort of analysis paralysis or this audit mania where they’re thinking the solution. And often the answer is yes, of course those things are important, but just get out and do it.
And then on the other hand it is incredibly, incredibly tough. The bad news for us, is that I kind of having run a number of businesses and have consulted to many – sjoe man – you don’t want to know about compliance because it can literally kill you and we just took a view from day one that we would be absolutely compliant in everything we did and it almost – literally in the middle of the night you’re busy filling out your Sars forms and doing all of those things. Doing business is tough and you’re selling something that doesn’t exist if it’s an intangible product, so you’ve got to sell your souls and you’ve got to build trust and credibility, and you’ve got to find the right partners and frankly you’ve got to deal with a lot of challenges in decision-making in big companies and getting people to share the journey with you. So it’s very exciting I must say. It’s really been worth it and maybe I would have lost my house – and maybe I still will – I’m not saying that flippantly. I really have skin in the game and I think that’s an important element as well. You can’t sit there and think that you’ve got the world’s best idea. The idea actually is relatively unimportant. It’s the execution which really distinguishes you from anybody else.
MORGAN BARNARD: That was Glenn Gillis, managing director of Sea Monster.