Financial Data
Updated 29 Sep 2020

The big contract conundrum

Big contracts can mean big growth – but they’re also risky. 

Nadine Todd, 10 September 2013  Share  0 comments  Print

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Avocado Vision was launched in 2000 when founder Jules Newton recognized a significant gap in the market for financial education training in the lower LSM sector.

Through Avocado’s model, local community members are upskilled to be able to provide the training themselves, thereby creating jobs, feeding the community during training days, raising overall literacy levels, and providing a link between big corporates who pay for the training and the lower LSM market.

The business has enjoyed steady success, and 2012 closed with 30 projects lined up for 2013. And then Newton made the decision to employ a project manager with big infrastructure project experience.

“Hilton Johnson’s skills set complemented what we do, and we had grown to the point of needing a project manager who could streamline our projects,” explains Newton. But Johnson brought something else to the business too: A holistic view of what Avocado does, and how the company’s skills are suited to large infrastructure projects.

Signing big deals

“We were focused on what we were already doing well, and hadn’t considered different opportunity channels,” says Newton. “Hilton made us realise that we’re perfectly positioned to spearhead off-site change programmes at large infrastructure development projects.”

And so the team put a proposal together for an off-site change programme at the Madupi power station project. 290 value propositions pitched for the project, and six were chosen, of which Avocado Vision was one. The deal is worth R11 million to the company, which is more than half its 2012 turnover.

In fact, towards the end of 2012 Avocado signed two contracts that matched its entire turnover in 2012, with a further 30 smaller projects already earmarked for the year.

It was a big growth curve, and the company needed to upscale to accommodate – which is where big lessons lay in wait.

Expect the unexpected

“Growth is a good thing. For a business to move forward you need to be able to scale. But there are dangers in scaling as well, which is something all businesses focusing on growth should take into account,” says Newton.

By early 2013 the business had all its ducks in a row: Additional consultants had been recruited and trained, the processes and systems to handle the increased work load were in place and everyone was ready for Avocado’s biggest year yet. And then the unexpected happened.

The large insurance company who had signed one of the large deals in 2012 stalled due to internal changes, and the Madupi workers went on strike. There was no way of knowing how long either delay would take, and the business was geared to begin working – without the necessary capital required to sustain the growth coming in. Without being on site, Avocado couldn’t invoice.

“The biggest challenge was that both contracts were still in place. We needed to be ready to start working at a moment’s notice, which meant we needed to keep everything in place. It was an enormous challenge.”

Reaching the growth curve

The new capacity was costing Avocado hundreds of thousands each month. “We needed to cut costs to survive. I approached SARS and struck a deal to pay our tax off.

We needed a tax clearance certificate for the contract, but we couldn’t pay tax if we wanted to make it through the year. I’ve found that SARS will always accommodate where it can, as long as you have an agreement in place and you stick to it.”

Newton then spoke to all of Avocado’s full time staff and consultants. “Everyone agreed to be paid just enough to cover bills. It was going to be an incredibly tough few months, but we were doing it together.”

In addition to approaching SARS, Newton also took advances out on various bonds she holds for investment properties. The business also cut additional costs where possible, and ultimately was able to raise R3 million, enough to survive for six months.

“The strike ended just in time. It was close,” says Newton. Now well on its way to a record year, the lessons have held firm for Avocado:

  • Foster excellent relationships with your staff and consultants. People will be more inclined to stick with you through the tough times if they trust you and are emotionally invested in the success of the business.
  • Always ensure you have the capacity to handle the unexpected. Newton needed to be able to access R3 million while the business waited for things to stabilize. Don’t follow a growth path unless you understand the risks involved – and can mitigate them.
  • Have a ‘will do’ attitude that allows you to find solutions, rather than thinking nothing can be done.
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Nadine Todd

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