Why Herman sold MXit

The contrast was clear to both men. Alan Knott-Craig (Jr) breezed into the office of MXit founder and CEO Herman Heunis, well groomed, smartly tailored and brimful of ideas about opportunities in the local technology market. Heunis, whose craggy features, long wiry hair and faded blue jeans did little to disguise more than 30 years' of writing software, listened patiently. Toward the end of the discussion, Knott-Craig mooted the idea of buying MXit. Heunis agreed to think about it. Knott-Craig left the office, climbed aboard his blue Vespa scooter, and sped off to his nearby premises on the outskirts of Stellenbosch. Heunis had found his buyer.

Seven months later, the deal was done. World of Avatar, the technology investment company headed by Knott-Craig, announced in September that it had bought control of MXit. Heunis sold all his interests in MXit - 60% in MXit Lifestyle South Africa, and 50% in MXit Lifestyle International. World of Avatar also snapped up the 30% stake in MXit's local operation held by media colossus Naspers as well as its 50% interest in the international business. The investment firm now holds all but 10% of MXit's South African business, which has been retained by a staff trust. None of the parties are keen to talk about the size of the deal, but technology industry pundits put the value of World of Avatar's investment at around R500 million.

Heunis, 52, began looking for a buyer for MXit early last year. In December 2010, he sold software development firm Swist Technology Solutions to Altech for R52 million. The company, which Heunis founded in 1997, supplies software and services to telecommunications network operators. Profits from the business were used to fund the launch and early growth of MXit.

I don't think my real strength is running companies - it is starting companies.

Herman Heunis, founder of MXit

Heunis says he was negotiating with potential US investors when Knott-Craig made his pitch. “Alan contacted me out of the blue. We chatted over a cup of coffee and talks picked up speed soon afterwards.”

MXit is one of the great success stories of the South African technology industry. After several false starts and encounters with innumerable obstacles, the business took off five years ago and continues to soar. It established an almost cult following among young South Africans by providing them with a cheap way of keeping in contact with friends. The popularity of MXit and the rebellious, urban streetwise image it projected often raised the ire and suspicion of parents and school authorities.

Today, MXit is big business. It boasts more than 43 million registered users of its free mobile instant messaging and social media services in 128 countries. New registrations are being clocked up at a rate of up to 50 000 a day. It has been endorsed by the Department of Basic Education for widescale maths instruction, the Indonesian government for disaster relief, and the US State Department to promote the visit of president Obama to Africa. Unlike global rivals Twitter and Facebook, MXit claims to generate profits as well as growth. Revenue is garnered from advertising, chat room usage and content sales.

With MXit delivering such impressive numbers, why is Heunis getting out? Fatigue. “My energy levels have been in constant decline over the past 18 months. MXit has been my life for most of the past eight years. I have invested millions of rands into the company and poured in enormous amounts of sweat capital,” he says. Heunis is confident Knott-Craig and his fellow executives at World of Avatar have the necessary energy and passion to drive MXit forward.

The task that faces Knott-Craig and his team will not be easy. MXit pioneered the instant messaging business and took an early lead over most of its rivals. However, the market is fast maturing and there's stiff competition from several international heavyweights. BlackBerry developer Research In Motion (RIM) and US firm WhatsApp, for example, have already made strong inroads into the rapidly-growing smartphone messaging market - a sector where MXit lags. Furthermore, MXit's foray into mobile social media, with the provision of entertainment, games and payment services on the back of its messaging facilities, is likely to become increasingly tough as multinational giants such as Facebook and Google move aggressively into this market.

Heunis dismisses naysayers who suggest MXit is past its prime. “There were many people who told me in 2004 that the concept of free mobile instant messaging would never succeed. The opportunities for MXit are endless. I can think of at least five ideas that could be real game-changers. Why compete with smartphones, for example? Embrace them, utilise their power and capabilities and create something so irresistible that users cannot wait to engage with the platform,” enthuses Heunis.

The purchase of MXit gives us the biggest social network in Africa.

Alan Knott-Craig, CEO and founder of World of Avatar

The son of a Namibian sheep farmer, Heunis began programming as a teenager in Windhoek in 1980. Soon afterwards, he moved to Stellenbosch to obtain a B.com. He married a local girl and, apart from a brief stint writing software for the Navy during his national service, has remained in the university town. Fiercely single-minded, Heunis acknowledges that he is better suited to starting technology companies than managing big businesses.

“MXit is no longer a small company. It has a staff of 150 people. I don't think my real strength is running companies - it is starting companies.”

World of Avatar has bold plans for MXit. “The purchase of MXit gives us the biggest social network in Africa. It provides a great platform to roll out a variety of mobile social media services,” says Knott-Craig. MXit boasts more than 30 million users in Africa.

Knott-Craig, who succeeds Heunis as CEO, believes the extensive reach of the MXit service, its proven robustness, support of many different handsets (more than 3 000) and high penetration of the youth market give it an advantage over rivals. He recognises that competition will be tough and already has eyes on fixing some of MXit's weaknesses. “We need to improve the MXit experience on iPhone and Android smartphones. On BlackBerrys, it's great,” he says.

Knott-Craig is a well-known champion of business in Africa. His focus on Africa may temper MXit's ambitions elsewhere in the world. “Our home patch is Africa,” he says. He adds that MXit might, at a later stage, push into developing markets in India and Latin America.”

The new head of MXit may have already pulled off his first masterstroke. Knott-Craig has recruited David Weber as COO of the company. Weber is a software and systems engineering specialist with a doctorate from Carnegie Mellon University and an impressive academic and business track record. Heunis pulled in Weber's consultancy firm, Stone Three, to help MXit complete a mammoth overhaul of its core software in 2008. Weber, who sold Stone Three last year, knows MXit's technology, its people and its culture well. Heunis first mooted leaving MXit in 2007. Touring the Namibian desert, he was almost killed in a motorbike accident. He broke his back and fractured several bones. Seven months of painful rehab gave Heunis plenty of opportunity to reflect on what he wanted to do with his life.

Four years later, Heunis has nothing left to prove. He leaves MXit a tired but wealthy man. He enjoys a reputation not as a maverick but as a successful entrepreneur and technology visionary. He is courted by potential investors and business partners keen to capitalise on his experience and expertise. He remains cagey about future plans.

Was it worth it?

“Of course. It's not just the money. One Sunday morning, when I was in hospital after the accident, an old lady walked into my room and said to me, 'I'm sorry to bother you, Mr Heunis, but I was told by the nurses that you started MXit. I came to thank you. I use MXit to talk to my grandson in Dubai and my granddaughter in London every day. I cannot afford to SMS.'

“We really created something. We changed the way we communicate in this country.”

First published in the November 2011 issue of ITWeb Brainstorm magazine.