How East Africa’s Fastest Growing Casual Dining Chain Was Built
Inside the C-Suite, Episode 2. Morne Deetlefs, Founder & CEO of Big Square
Founder and CEO of Big Square, Morne Deetlefs is an entrepreneur in the truest sense of the word. Born with what he describes as his father’s “Entrepreneurial Red Ant” in his pants, he’s been willing to risk it all in order to make his dream a reality. His persistence has paid off, obtaining the necessary funding for Big Square to become the fastest growing casual dining restaurant chain in East Africa.
Morne is joined by Sebastian McKinley (Seb), East African representative of the private equity firm, Uqalo that recently invested in Big Square. Jason Spindler, CEO and Managing Director of I-DEV International, who facilitated the deal is also present. Having gone through an intense journey together, the three have an enjoyable, but highly insightful discussion around. The podcast concludes with some essential wisdom that will help both budding entrepreneurs and investors alike.
EPISODE SUMMARY
0:54 — “The life of an entrepreneur is definitely not very rosy”
Morne gives an honest account of the highs and lows of his entrepreneurial life and what led him to start his business in Kenya.
6:04 — Getting bitten by the Kenyan Bug
Seb talks about his extensive background in private equity and what attracted him to Kenya.
12:38 — “At the end of the day, you guys have to sit here next to each other, like each other, and work together for the next five-to-seven years”
Jason, Seb and Morne discuss how they came together, setting the scene for what was to become an incredibly tough 18 month-long negotiation process.
24:13 — It’s not a deal. It’s not a transaction. It’s about forming a partnership”
Morne explains why he opted to raise money from an institutional investor, while Seb gives his perspective of things from the investor’s point of view.
31:32 —“It’s not our area of expertise. We’re not legal people. We’re dreamers”
As an entrepreneur, the process of raising capital for the first time can be a long and lonely road. Morne reflects on his journey, giving excellent insights and talking through the lessons he’s learned.
38:43 — Can local founders find big investment?
Morne, Seb, and Jason have an interesting discussion on whether local Kenyan
entrepreneurs have a hard to time attracting foreign investment.
“I really believed we could take the casual dining niche by storm if we created a brand with my knowledge of the Kenyan and African market in general. And that’s how Big Square was born.”
Introducing Morne Deetlefs
From the outside, entrepreneurial life can often appear exciting and glamorous. South African born Morne tells a different tale, explaining how “the life of an entrepreneur is definitely not very rosy and easy.” Despite numerous setbacks, Morne has been able to defy the odds, turning his dreams into reality. After settling in Kenya, he used his extensive experience to capitalize on a gap in the market, creating his own casual dining restaurant chain.
Introducing Sebastian Mckinlay
Fresh out of university, Seb began working in private equity in London. After ten years, he took some time off to travel and enjoy a bit of family time. Refreshed, he returned to London, successfully listing his own private equity firm. After a disheartening experience with the firm’s chairman, however, he decided to leave his homeland in search for a new and better life. Setting his sights on Africa, he eventually settled on Nairobi, where he eventually met Giles Hefer of Uqalo, a specialist investment firm focused on sub-Saharan Africa.
Introducing Jason Spindler
Jason is the CEO and Managing Director of I-DEV International. He facilitated the entire process of Big Square’s fundraising efforts, bridging the gap between the Morne’s expanding business and Uqalo. As Morne puts it “If we didn’t have someone like I-DEV helping us, I’d have still been looking around.”
The Journey of Big Square and Making the Deal
1. The Birth of Big Square
Like many entrepreneurs, Morne suffered many setbacks on his way to success. With a sense of humor, he reminisces about the time he and his wife were forced to leave their family home in order to move in with Morne’s parents to save money. As he explains, “every time I fail at business, I have to go and work… I end up working for someone because I’ve got to pay some bills.”
Whereas many entrepreneurs become disheartened when they find themselves working for someone else, Morne wholeheartedly threw himself into a job with a South African fast food chain. Starting from the bottom, he quickly learned the ropes, gaining expertise in operations. Shortly after, he was given the opportunity to manage the company’s international expansion plans. Despite lacking in business development experience, he learned quickly. This led him to Nigeria, where another great opportunity would present itself. He spent six years helping a business to expand in Kenya. His career was going great… But then his entrepreneurial instinct kicked in. As he puts it, “the perpetual Red Ant was biting again.”
Morne had amassed a wealth of both operational and development experience. Add to this his optimistic outlook and entrepreneurial drive, he did the inevitable, quitting his job and committing fully to a new business venture, after spotting a gap in the market. “I really believed we could take the casual dining niche by storm if we created a brand with my knowledge of the Kenyan and African market in general. And that’s how Big Square was born.”
2. Ambitious plans
Morne acknowledges his lack of expertise in certain areas. When discussing the world of investment, he explains that with entrepreneurs “usually, it’s not our area of expertise. We’re not legal people. We’re dreamers.” However, he had made ambitious plans along with his partners at Big Square. Deciding upon a rapid expansion plan to scale the business, it became clear that an institutional investor was needed.
Feeling out of his depth, Morne identified the need for someone to take him through the whole transaction process. “We need someone who bats for us. And that’s how we ended up engaging with I-DEV.” Jason and his team went straight to work, speaking to many investors on Big Square’s behalf. Eventually, it was Seb who identified the possibility of investing in the business, after being impressed with the “customer experience” that was being offered.
3. Making the Deal
After being introduced to Big Square and Morne, Seb was keen to investigate the potential of investing in the company. “We definitely liked the concept… One of the first things we look for in businesses are businesses where the clients just love it… You could see it in Big Square… It gives people an experience here, which is a really enjoyable experience at a very affordable price.”
The next 18 months, however, proved to be anything but plain sailing. As is often the case between owner and investor, there was a big disparity between the respective valuations of Seb and Morne. Seb insists he wasn’t playing any games and that he stuck to his guns because he offered what he considered to be a fair price. On the other side, Morne had proven his business concept and was determined not to undersell himself.
Despite a lot of battling back and forth, neither party knew how things were going to work out. Morne is now able to put a positive spin on the experience, realizing that “in hindsight, it was actually a very healthy process. Because we got to know each other better. And we’re better for it today, as they’ve come into our business as our partners.”
Valuation was not the only issue. Since Morne was not the only representative of Big Square involved in the deal it was difficult to keep each individual happy. On many occasions, Morne would agree on a certain issue, only for his partners to later contest the issue. A lot of the process had to be redone since it was hard to get all relevant parties together during meetings. Seb admits “at that stage, we should have got legal advisors at the table much earlier.”
Seb explains that most of the items could have been settled quicker if everyone had spent more time together earlier on. Eventually, however, both sides had spent “enough cumulative hours” together to form a working relationship where they could agree on all the issues at hand. The deal was made and Big Square has now raised $6.5 million to finance its expansion to 33 locations.
Despite an extremely arduous 18 month journey to making the deal, Jason has some profound words to say: “as contentious as these negotiations get, at the end of the day, you guys now have to sit here next to each other, like each other, and work together for the next five to seven years. And trust each other!”
Key takeaways
Morne had an incredibly steep learning curve to conquer in order to raise finance for his business. On the other side of the table, Seb was going through his own journey of adapting to the local market, despite many years of experience in private equity. Between the two of them, there are some fantastic takeaways, including:
- “It’s not a deal. It’s not a transaction. It’s about forming a partnership”
Seb is quick to point out that behind a deal lies a relationship. While it was a bumpy road to singing, Seb explains that they had spent enough cumulative hours together. In fact, he doesn’t particularly like the term “deal,” because it undermines the relationship element. He advises to “invest in it as a partnership.” - “Run finance and admin as though someone might walk in tomorrow and do due diligence”
Having made the decision to raise capital via private equity, Morne had to face some very tough questions about his business. What he did have going for him, is that he’d kept on top of finance and admin from day one… Something that doesn’t necessarily come naturally to an entrepreneur. If you want to attract investors, you have to “put yourself in the shoes of the investor,” maintaining well-organized procedures and anticipating what an investor might be interested in. - “You could leave the company that you’ve started at some point. Get your head around this.”
Raising capital via private equity is not a decision to be taken lightly. Morne talks about the loss of control that an entrepreneur can expect if external investors are brought in fund growth. Of course, not every entrepreneur decides to do this. However, if you do take this route, then you have to accept that the nature of your business will inevitably change over time as it grows. Learn to let go of control and accept that one day in the future, you may be saying farewell to the company you created. As Morne puts it “just because you’re able to create a business, it doesn’t mean you can run a 500 million dollar business.” - “You could see it in Big Square… A really enjoyable experience at a very affordable price”
Investing can be a highly complex world. Seb, however, acknowledges that if you want to attract an investor, first and foremost “you’ve got to deliver value to your customers.” He clearly saw the value proposition and that’s what prompted him to take a closer look at the numbers behind Big Square. Other essentials include:
1. You have to understand your core economics and they have to be strong. It should be obvious what your ROI is and it needs to exceed investors’ expectations.
2. The team of business owners has to understand the main issues, which are operations and the customers. Having local knowledge of what the customers want is especially important. For example, Seb wouldn’t invest in a Kenyan business if the management team was full of non-Kenyans.
3. The objectives of investor and owner have to be aligned. Seb is clear about what his expectations are and would never invest in a business if the owner had other plans.
