Business Roundtables

THE iZONE STORY: A Thriving Local Enterprise in Our Current Difficult Times

2016 • 1st Mar, 17 • 0 Comments

 

Good afternoon everyone and thank you for the opportunity to present to you. It is great to be here.

My purpose here is to narrate the “iZone Story”. But, before I do that, let me tell you briefly about iZone and what we do at iZone.

iZone was incorporated in 2011 as a telecom service provider and distributor of MTN products and services and awarded the Greater Accra Region by MTN as its primary territorial focus to develop and distribute in.

iZone was formed from the amalgamation of five fairly large distribution companies that essentially did the same thing, trading in the same product within the same territories.

From a competition regulator’s point of view it was a dream; from the point of view of the competing companies it was worse than a nightmare.

The story began, however, with seven companies that eventually formed two-- iZone and AshCell.

Once upon a time, there were seven independent companies whose main business was the distribution of all things MTN. One of those companies was mine.

Day-in and day-out we all found ourselves in vigorous but needless competition for market share.

More often than not, our competition was based solely on price which meant that to avoid being undersold you had to beat the price of your fellow distributors and drive the price lower sometimes into a tailspin.

There was no consideration for profitability.

It became a matter of how much one could turnover and, of course, the beneficiaries were our bankers and sub-dealers in the trade, as we all engaged in classic over-trading with its resultant accumulation of debt.

No matter how much we earned in commissions it was all thrown out in unwarranted discounts. We had placed our future at risk and risked placing the business of our supplier at risk as well.

We needed to find a way out, and fast!

So, seven fierce competitors, iTel Limited, my own company; Fonecards Express; V-Mobile; Microcell; Mobile R Us; Mobile Choice and Ghacell, who didn’t like each other much, sat down one day to sanitize the environment in which they operated....

iTel, Fonecards Express, V-Mobile, Microcell and Mobile R Us would eventually form iZone and Mobile Choice and Ghacell would form AshCell.

I believe we all know that the telecom industry is on the verge of maturity and has been for a while. There has been global consolidation and, certainly, Ghana cannot be immune to this trend.
We also recognize that we are now living in an era where the number of telephone subscriber lines far exceeds the population.

The number of subscriber lines in Ghana in the year 2000 was 330,000 translating to a teledensity of 0.02. Those numbers today are 35 million and 130 respectively. It defies logic, yet those are global trends.

Viagra-type growth in the industry is therefore a thing of the past.

The gravy train left the station long ago.

So, factor in Number Portability, a fierce competitive environment amongst operators themselves, changing customer requirements of timeous delivery of services and you begin to see that perhaps size matters.

To the extent that size drives market leadership it will drive profitability and assure the availability of resources for investment in innovation to further solidify leadership in the market.

To remain relevant at the second tier in this industry, therefore, required that we place ourselves in a position to serve our customers more efficiently, and that required that we remove the needless and reckless competition amongst ourselves and focus on customer service and innovation in the marketplace.

So, we began by asking ourselves basic questions about our business – how do we squeeze profitability out of the business that we were doing?

What are our choices for relevancy? 
Will coming together give us any advantages with our consuming public? We knew that profitability was the key to our long-term survival but with the adversity we all faced, we needed scale. ...We needed scale to be able to achieve cost and profitability synergies.
Having gone through this thought process, the seven principals concluded that the only path to survivability was through a merger of our respective MTN distribution businesses.

But how?

How long will the procedure for consolidating seven businesses with different processes and cultures take?

Could we afford a long drawn out process that entailed a series of valuations and negotiations? The longer it took, the higher the chance of derailment. We all knew that.

Could we afford the costs of engaging M&A professionals to shepherd the process along?

We also thought about the migration of individual organizational culture; how we could preserve what is best from all our individual organizations while remaining lean and more customer-focused. We had to identify what we had as our strengths and create what we needed.

Eventually, our need for speed prevailed over all other considerations and we decided to do it our “own way”....

In retrospect, there were a lot of positive attributes surrounding our proposed deal and, instinctively, we were aware of these attributes and they actually simplified the procedure and made it easy for us to do it our “own way”:
1. We were consolidating like businesses
2. The consolidation was going to help us achieve clear market leadership in our business space
3. There was no requirement of cash to change hands
4. The consolidation was going to result in clear and verifiable costs and profitability synergies
5. We did not need any regulatory approvals; only the consent of our main supplier

History has shown that when mergers are done solely for diversification or as a way of bringing market laggards together they have often-times failed.

Ours was a merger to consolidate several market heavyweights with complimentary capabilities, similar market strategies and operating in the same market.

One thing we understood well was that the adversity we faced and our acceptance of the dire situation we were in had presented us a rare opportunity to come together to advance our collective market position, reduce our operating costs and increase profitability.

Also, our people represented the embodiment of the legacy of our individual organizations. They deserved an all out effort on the part of the principals to conclude on a structure that could benefit from the skills and dedication that we had carried with us over the years.

We certainly had the capabilities. It was a matter of figuring out how we address our issues and capitalize on the opportunities presented.

In all these analyses, one important realization kept coming back to us...that we are in a rapidly changing and transforming business environment and that required that we change as well.

The freight train was coming and coming fast, and we had two choices---stand in front of it to try and stop it---not smart ;or alternatively stand to the side and jump on it as it rolled by.

We chose the latter. Continuous growth, we figured, was essential for us to remain relevant.

We concluded that size matters in an industry that is ever-changing and dependent on innovation and creativity to survive.

Let me pause from the iZone story and digress a bit.

Let me take you back a few years....If you look back at the genesis of Spacefon, now MTN, and analyze how a late comer was able to trump first movers you see the classic application of creativity at work.

The first movers in our industry came in, looked at the market, and estimated the market potential based on prevailing disposable incomes, and within a short period of time they achieved their projections......a whopping 20,000 subscribers who could afford to pay for a call whether they generated the call or received it.
Spacefon, on the other hand looked at the remaining market after the cream had been scooped and asked the critical question: 
“How do we address the communications needs of a population that has very little disposable income and do it profitably?”

The answer lay glaringly in how calls were billed. If you charged for outgoing and incoming calls then only the “rich” could afford to use your service.

With his revelation, the Spacefon network would be designed with digital technology that allowed for caller identification which then led to the concept of “Flashing”.

For those of you who are too rich or too young to know what flashing is...let me explain...

Flashing is when a call is made and allowed to ring on the other phone just long enough for the caller identification to register on the receiving phone as a missed call.

The recipient of the missed call, presumably the party with the higher disposable income or ability to pay, having been prompted of the need to communicate returns the call and pays for it.
To the network, it doesn’t matter who paid for the call. The need to communicate has been addressed and paid for. Communicating parties are happy and the network is happy.

This very simple but creative customer need assessment changed the face of telecommunication in Ghana.

Nothing to do with the iZone story, but important for illustrating how important it is to think outside the box.

So, coming back to our merger...As I said earlier, the seven companies decided to do the merger our “own way”.

So, rather than employing M&A specialists, spending a lot of money on relative business valuations that could possibly bruise egos and put the whole deal at risk, we called for a meeting of all principals.

We locked the door to the meeting room and prevented anyone from leaving the room until we reached a deal on relative valuations...through simple horse- trading with everyone understanding that all egos had been checked like coats, at the door.

We needed to be flexible, then and there, to agree on a deal without regard to any valuation, real or imagined, that we had placed on our respective businesses.

By the end of a couple of hours of deliberations, we had a valuations deal.

This was the most important part of our negotiations. This deal would form the basis for the anticipated formation of a company that would represent our collective aspirations.

But, we needed the approval of our main Supplier, MTN.

Like a market regular and anti-competition watchdog, MTN looked at the composition and potential size of the new proposed entity and decided that it would pose potential danger to its business as it would be in control of close to 75% of its product distribution.

So, we settled on a watered down deal by breaking the proposed new entity into two. This resulted in the formation of iZone and AshCell.
Once iZone was formed we had to move quickly to begin the process of addressing some of the crucial factors for a successful merger execution.

In our case, we had no time to spare. We had to “build the aircraft as it was flying”.

We were doing integration planning while executing on our combined existing sales targets.

Our decades of combined experience in the industry had to be brought to bear for a smooth execution.

We couldn’t afford to have a lull in the achievement of our sales targets even at a time when we were engaged in:
1. staff integration; 
2. making sure that customer service representatives knew exactly what to say when they received a call; and 
3. that everyone was singing the same tune at the same time.
There were many other issues to be addressed as well:
....migrating employee leave days; health insurance policies; perks, etc. The nitty-gritty stuff that seem trivial yet so important that they could severely affect employee morale negatively. 
We needed to define governance for our new entity including the preparation of policies and operations manuals.

While we are proud of doing things “our way” we did not leave certain important aspects of the merger execution in our layman’s hands and rather engaged the services of Ishmael Yamson & Associates to help us define governance and prepare the important sections of our policy and operational manual.

All in all it has been a great experience.

Any misstep along the way could have been quite disastrous. 
While the valuation deal we reached was not perfect we accepted that waiting for perfection could spell the end of our businesses. It was a give and take process and some had to give more than they took. Today we are all happy with our relative shareholding positions. And, that is very important!

In conclusion, I state again that size matters and there is strength in numbers.

As credit dependent as our business is, we have had no difficulty securing the necessary credit and financial advice from our bank partners.

Our new strength and our market size have made us a coveted partner while the combined synergies fuel our growth.
Many a time, a lot of us have resisted changing with changing times and economic tide only to be crushed by the speeding freight train that we saw or should have seen coming from miles away.

It is my observation that indigenous Ghanaian entrepreneurs find it difficult to work with each other.

Until and unless we are willing to relinquish some control to become part of a bigger entity with strength, we risk being run over by bigger and better resourced competitors.

I thank you for the opportunity.

 

 

SPEECH DELIVERED BY KWESI AMOAFO-YEBOAH AT THE ISHMAEL YAMSON & ASSOCIATES EXECUTIVE BUSINESS ROUNDTABLE 2016

 

 

 

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