Last week was a sad one for the South African economy.

A business that had been in operation since 1979, one that many pension funds were invested in, that employed 310 people at one time and paid tax, was put into liquidation.

Ellies Holdings was a big player in the consumer and commercial electronics category. They imported things like LED lights. Had great ambitions to take advantage of the ongoing energy crisis through the supply of things like generators, inverters and solar panels, and even manufactured some of their products locally.

Their most lucrative commercial venture was selling DSTV satellite decoder sets; that old thing with colourful lights that used to sit on top of your old Blaupunkt TV. For decades they sold millions of them together with satellite dishes, cabling, plug sockets and all the other paraphernalia that goes hand-in-glove with legacy television technology systems.

Twelve years ago, you couldn’t find a financial talking head on one of those DSTV money channels that didn’t give the JSE-listed company a theatrical thumbs up when asked if the shares were a screaming buy.

Back in May 2013, Ellies Holdings was priced at well over R9 a share. The assumption was almost unquestionable that as South Africans became more prosperous and Multichoice grew its offering into the rest of Africa, the demand for satellite television would be exponential.

Last Friday it was trading at one measly cent after the business rescue programme that was meant to save it was announced to have failed.

There is an old saying that was used quite a lot during the pandemic lockdowns that perhaps has some relevance here: “don’t let a good disaster go to waste”.

What on earth happened to Ellies Holdings? What mistakes were made along the way, and what can we learn from its implosion?

Taking a step back and scanning the success factors that propelled this business over the decades, it’s clear that its management were very good dealmakers. It was a shrewd deal with Multichoice that enabled Ellies to make a fortune by supplying DSTV-related equipment to the market and later they signed an agreement with government to exclusively supply set-top boxes as a part of its protracted migration to digital terrestrial television (DTT).

Champagne popped in celebration of securing great deals can however become dangerously addictive — and cloud one’s judgement when momentum in the marketplace inevitably changes direction.

Winds of change

Looking back to January 2007 — nine days before Steve Jobs introduced the world to the first iPhone — Netflix introduced a video-on-demand service. Together with the increasingly plummeting price of high-speed internet connectivity, the nature of video entertainment delivery was already changing way back then.

As viable alternatives became increasingly mainstream, once-loyal DSTV subscribers started complaining on talk radio stations that they were “sick and tired of paying R700 a month to watch yet another rerun of ‘Come Dine with Me’”. Netflix was cheaper, you could binge-watch Game of Thrones whenever you wanted and frequent bouts of rolling blackouts also didn’t exactly create ideal conditions to justify paying the high monthly fees for access.

DSTV subscriber growth rates slowed as these complementary forces of change were coalescing into a perfect spindle of radical transformation that should have set the radar screen on the desks of financial analysts ablaze.

Digital satellite television was no longer the only future, a new video entertainment future was busy dawning on the horizon.

What did hold promise back then was the State’s increasing inability to reliably supply electricity, which Ellies saw as an opportunity to make yet another great deal. This time with Eskom. Labelled as an inspired move in 2012, “Project Power Save” saw Ellies initiate a countrywide campaign on behalf of Eskom to replace old, incandescent light bulbs with efficient LEDs in millions of homes… for free.

The initiative saved us all a lot of electricity and Ellies was lauded as a corporate hero. Apart from somewhat improving the chances that DSTV viewers would continue to pay for a service that they could now power, it was clear that there was rising commercial opportunity in the electricity crisis.

Read more in Daily Maverick: How to reduce your electricity usage by at least 30% without sacrifice

But that insight was apparent to everyone else as well, and Ellies sadly completely blew their chance to capitalise on the great head start that they’d engineered.

Competition flooded into the renewable and alternative energy category. Players differentiated themselves on price and product features and a fight to the bottom of the segment ensued.

Instead of investing in the development of their brand, or actually bothering too much with marketing at all, Ellies products just sat on a random shelf somewhere in the vast expanse of a Builders Warehouse — hoping to be picked by bewildered customers ahead of hundreds of other similar imported products being sold at better prices.

Unbelievably the business ran out of stock of some of their more popular items and repeatedly turned to a thickening playbook of excuses as to why they continued to face hardship.

There was a glimmer of hope that yet another deal, this time to buy an alternative energy business called Buntu Power, would save them. But it didn’t. The JSE has lost yet another counter and our economy has lost a job-generating business that we can ill afford to be without.

Lack of development

In so many ways Ellies Holdings did nothing wrong; they made great deals and had useful products. But the business completely overlooked the one thing that would have saved them in favour of what they were more comfortable with. Deal-making often unlocks sales volumes, but without a commitment to increasing margin value through brand development, a business will be very busy with being busy, but will also be busy putting themselves into a huge hole.

Drawing inspiration directly from Steve Jobs, in 2015 Elon Musk publicly debuted the Tesla Powerwall to a live studio audience. The design of the battery housing was beautiful. It was baptised with a memorable name. It was promoted aggressively by Musk himself, and today — selling at over R160,000 a unit — many consider it the world’s most desired inverter brand.

Tesla’s Powerwall is the group’s highest margin business, contributing over $500-million in profit per quarter. The Powerwall story is an impressive case study in how to differentiate a commodity product in a crowded marketplace to unlock predictable consumer demand and profitability.

It’s a crying shame that a business offering solutions to a power problem, from a country that is a world leader in understanding the lack of power, couldn’t deliver on the economic opportunity that was available to it.

Everything was lined up, but the missing component was a commitment to the marketing function. Surely if jobs and economic growth in this country is our intention, then our businesses need to get far better at creating value.

This is ultimately the crux of the issue that needs to be solved. DM