NAIROBI, KENYA: In a country like Kenya where majority of the youth population are unemployed, many resort to opening up businesses to meet their daily life demands. Statistics has shown that such start-ups fail in the first five years of formation.
Nikki Summers, the Regional Director for Sage in East Africa offers tips on how to overcome challenges associated with start-ups.
Question: In recognising a business opportunity, what are some of the indicators one may use to confirm the viability of an idea?
Answer: Speaking to customers is the best form of market research. Ask yourself what you can do to improve the customer’s life by solving a problem for them or presenting an opportunity to them.
Investigate the companies and brands you would be competing with to see if there is a gap in the market for a new offering or if there is a market that is not being well-served.
Can you give customers access to a product or service they couldn’t purchase locally before? Can you provide them with a higher quality alternative to something that exists in the market already? Is there a possibility to offer a product or service at a lower price than the brands you will be competing with?
If the answer is yes to one or more of those questions, think about costs you will face and the profit margins you will need to ensure that your business is sustainable. You need to make sure that there are enough customers who can pay the price that will enable you to make a profit. Create a business plan encompassing the problem you are trying to solve in your market, the customers you are targeting, milestones such as launch dates, customer targets, and revenue and profit forecasts, funding plans, costs, competitors
Question: How best can one maximise starting a business with a loan to ensure it doesn't cripple it at some stage?
Answer: This is about robust planning and forecasting. Start with a realistic assessment of your potential revenues and costs so that you borrow an appropriate amount of money to run a sustainable business. If you borrow too little, you could run out of money before you become profitable. Borrow too much, and the repayments and interest mean you will never become profitable.
Once you have a budget in place, you need to keep track of how well it reflects the reality of your business. Be sure that you are on top of money you will need to pay out in the near future. If cash outflows are more than you budgeted for, look at why this is the case? The same is true if cash inflows are lower than your budget.
Question: Most start-ups fail due to a crowded market with stiff competition. How can one blow past it? How should entrepreneurs build a consumer culture around the products or services?
Answer: A successful start-up usually shows a deep commitment to its customers and meeting their needs. This starts with developing products and services that address a target market’s requirements, and stretches through to post-sales support. Segment your customers, understand what they’re looking for, and give them a personal touch. Give people a customer experience they can remember and build relationships—don’t just compete on cost.
The biggest challenge is reaching new customers. Even with a small marketing budget, you can compete with the big guys in terms of publicity if you are creative and tactical. Here are some ideas:
Question: What are some of the untapped gaps in the Kenyan business market?
Answer: With a growing consumer class and rising adoption of technology, Kenya offers many exciting business opportunities. From childcare, solar power and technology retail to real estate and fashion, there are many growth sectors. Agriculture and horticulture are also growing fast, with some wonderful export opportunities.
Question: What are some of the mistakes most startups make and what are the best ways to deal with them?
Question: What should one do when they fail a startup
Answer: If your business is going to see its share of failures, it’s best that they happen in the early months. Identify problem areas early on and make the necessary corrections to your business plan and operations. If the business fails completely, learn from it, if you plan to launch a new start-up. It is wise to keep your business and personal finances separate so that the failure of a business does not also result in personal bankruptcy.
Question: Should one pursue funding for growth or build organically, and why?
Answer: That depends on the nature of your business as well as your personal goals. Some businesses need a lot of capital to expand, and need to move fast to scale up and secure customers before they get locked out of the market. In that case, you may need to seek funding to ramp up your growth.
But bootstrapping may be more appropriate if you to retain complete control of the business and grow slowly and organically. Bootstrapping is about financing the business yourself, perhaps through personal savings, credit cards and overdrafts. The risks of bootstrapping are high, but so are the potential rewards.
It is hard work and may put your personal finances under strain, but you control your own business rather than needing to report everything you do to an investor or banker. Your profits are your own, and if you do decide to sell equity in your business further down the line, you’ll get a better price for it once it is more established.
Question: What should an entrepreneur do to recharge when they feel drained?
Answer: Most successful entrepreneurs appreciate the value of regular exercise and at least eight hours of sleep a night in allowing them to stay focused and productive. Look after your mind and body to stay sharp and in control of your business. And don’t neglect your family – they are a big reason you’re trying to build a successful business, after all, and they can be a pillar of strength for you.
Question: Any last advice those entering entrepreneurship need to know?
Use cloud software
Automate business processes such as your payroll and accounting can save you time and improve efficiency, so you can focus on your customers rather than paperwork.
Build a strong team
When you start hiring, make sure your team is made up of people who are committed, driven, and experts in their fields.
Equal parts passion and patience
Keep the bigger picture in mind and remain as patient and as positive as possible. Hold on to your passion.
Share the load
You can’t do everything all the time. Share your work with others. You also can’t be an expert in everything – rather let the people who are most suited to certain tasks handle them.
Plan for a rainy day
Even the best-run businesses have occasional months where they face a temporary cash crunch. Here are some ways to handle the situation:
Set up a line of credit for your business to bridge any future cash shortfalls, for example, an overdraft.
Look at your most important bills and settle them first. Tax should be first on your list. Your payroll and your critical suppliers should be next.
Phone to any customers whose accounts are overdue. If they have exceeded 60 or 90 days, you might offer them a discount to settle quickly.
Be proactive and speak to any creditors you can’t pay on time.
If you have old inventory that is losing value (for example, food products with a looming sell-by date or computer equipment), consider selling it at a discount. It might be worth absorbing the loss to make critical payments on time.