Michael Jordaan has invested in 25 ventures since he stepped down as FNB CEO, including Rain, Bank Zero, and NMRQL, which uses machine learning to make investments.
All these businesses operate in large markets – telecoms, banking, and investing – with powerful competitors like Vodacom, MTN, FNB, Absa, and Standard Bank.
This is an interesting investment strategy which is not aimed at dominating a small market, but rather to enter a very large market.
The world’s largest companies, like Google, Facebook, Microsoft, and Amazon, all targeted small industries when they started.
The went on to become dominant in their respective markets, with Google with online search and Facebook with social media, and now demand a large share of revenue in these markets.
Jordaan, however, did not follow this principle in his investment strategy. Many of his companies, he said, operate in “huge markets and against massive competitors”.
One would expect that this choice was based on the potential upside of entering a large market, which typically requires a disruptive approach.
While money and disruption may be side effects of successful ventures, it is not Jordaan’s primary goal.
Instead, he told MyBroadband, the thing that gives him a kick is when startups can solve real problems, sustainably.
“In the case of Rain, their unlimited packages have made data abundant and the concept of gigs irrelevant,” Jordaan said.
“In the modern world, abundant data is nearly a human right and Rain is solving this problem in an affordable way.”
He added the same goes for Bank Zero, which is reducing bank fees, and NMRQL, which is cutting management fees.
“Bank Zero will bring huge relief to consumers by making electronic banking free while businesses that use electronic options will become more efficient and profitable,” Jordaan said.
“Likewise, NMRQL seeks to outperform market benchmarks at a lower cost than the industry majors.”
He said the compound benefit of lower asset management fees has a big positive impact on investors over time.
Taking on large companies
Taking on large companies in lucrative industries is not for the faint-hearted. Many businesses, like Cell C, have tried and failed.
Having been in charge of one of South Africa’s big banks, Jordaan is well aware of the power of the incumbent players and the risk to smaller companies.
“All these start-ups have inherently higher business risk as they use completely new concepts, have less-known brands, have no customers to start with, and cannot rely on annuity income yet,” he said.
What they have going for them, however, is a great team of entrepreneurs who are passionate about solving problems and comfortable to operate on a frugal budget.
These entrepreneurs also don’t have to rely on legacy technology, can choose the best open-source alternatives, and can make business decisions fast.
Even with these valuable attributes, it remains difficult for small start-ups to take on large, established players. Jordaan is realistic about the chances of success.
“The question is whether the start-ups will get distribution before the incumbents get innovation,” Jordaan said.
“We will only know the answer in a few years.”