Starting up a business in order to become financially independent is what many people desire. But, for most, getting it right by building and sustaining the business appears to be a hard nut to crack.
Every day, thousands of people venture into one form of business or the other, small or medium-scale. But only a few of them are able to weather the storms and absorb the heat that usually comes with it, particularly at incubation. Due to lack of proper feasibility studies and perseverance, millions of naira has been blown off, sometimes leaving investors heavily indebted.
Many are those with tales of triumph, though, by businessmen who are able to deploy the right techniques to surmount obstacles on their way. Though it is argued that the businesses that have collapsed far outnumber those that are succeeding, financial experts have maintained that creating multiple sources of income is the only dependable way to conquer poverty.
This issue was extensively dealt with at a recent online interactive programme hosted by Christ’s School Ado-Ekiti Alumni Association, Class of ’87.
General secretary of the association, Mr. Joseph Adeleye, moderated the session. Adeleye, a United Kingdom-based business analyst, is principal consultant, McRehoboth Consult Limited.
Dissecting the topic “Small and Medium Business Start-up and Management – the Nigerian Perspective,” was a marketing guru, investment expert and CEO, Timeless Print Solutions, Lagos, Mr. Opeyemi Obafemi. Obafemi, also the founder of Debrah James Investments Limited, asserted that every human being should be running one business or the other, even when one is in paid employment.
The reasons, he noted, are multifarious. “People could lose their jobs at anytime; they could retire while still mentally and physically strong, and every income base ought to be diversified,” he explained.
He allayed fears by many people who might be scared of venturing into a business, and assured them that running a business wasn’t such a difficult venture. According to him, all that was needed was to learn the culture of entrepreneurship and have the determination to pull through with it. He emphasised that sticking to the rules of the game was one step to becoming successful in any business.
With over 22 years’ experience in different successful businesses, and on the board of many companies that deal in different commodities and services, Obafemi had an answer to any question that was posed to him by participants.
While pointing out that micro, small and medium businesses could be established with funds ranging from N5 million to N1 billion naira, Obafemi explained that businesses could also be started on a much smaller scale, stating that there were businesses that could be started with less than N200,000.
On which particular small business one could start that would leave the investor smiling to the bank, Obafemi recommended investments that bring daily income, especially when the individual could not boast of a huge capital base.
He advised Nigerians to try their hands at farming or agro-based ventures such as poultry, piggery, crop plantation or processing, egg distribution and bakery or bread distribution. Other areas that could be ventured into, according to him, were the car wash business, website design and maintenance, phone and accessories, online foodstuff supply, shawarma or suya spot, nightclub/bar/pub/restaurant, blogging and mini importation.
In raising capital for business, Obafemi noted: “Without sounding alarming, taking commercial bank loan is very challenging. It is more challenging if it’s a new business. Banks are always reluctant to lend to new businesses. The interest rate in Nigeria is killing at 25 per cent. My advice is that, before you take a commercial bank loan, you must be 100 per cent sure that the business can repay the loan; otherwise, banks are merciless when it comes to taking over the collateral in the event of default.
“This is one of the peculiarities one has to be aware of when trying to start up a business in Nigeria. In fact, it’s one of the major obstacles, whereas, in other climes, all you need is an idea and the required finance is a given.”
The lecturer, immediate past president of Rotary Club of Omole-Ojodu, Lagos, stated that uniqueness, life circle and value of a product were important factors to be considered while planning any business. Another thing to be considered, according to him, is source for the required capital, which he said could be raised from personal savings, cooperative, conversion of personal assets to cash, partnership with friends or business associates and Bank of Industry loan.
He said other areas that could not be ignored include target markets, particularly the customers’ needs. He noted that, nowadays, online marketing has become an aggressive strategy to make sales anywhere in Nigeria and even abroad.
Underscoring the role of price, he said research had shown that price decision has been one of the commonest factors for failure of small businesses. In his words, players engage in price war, which eventually wipe off their margins and send them into insolvency.
Said he: “There is no product that can sell without promotion. if you have the best product with the best price but you keep it in your bedroom, it will not sell. For small business, you don’t need a huge budget on promotion. The advent of social media is an advantage. You can reach out to millions of customers free of charge.”
To guard against failure in small businesses, Obafemi advised: “You monitor your business even if you employ family members. However, since it’s impossible to be around at all times of the day, you can employ measures that will mitigate stealing, e.g. CCTV, regular audit, employee reshuffle, deployment of divide-and-rule tactics and so on.
“Non-adherence to simple financial management principles accounts for over 80 per cent of factors responsible for business failure. The following ‘rule of thumb’ must be observed: Separate your personal finance from that of the business. Distinguish between capital and profit. Profit-taking at year-end is allowed, but this is after the business has achieved some level of stability. Develop a budget of income and expenditure and enforce it to the letter. Prioritise the growth of the business over luxury, at least for the first three years.
“Keep standard financial and transactional records and do proper audit regularly. Employ competent and skilled hands to handle your product/service delivery. Consider ingenious ways of bringing down your operational costs. Do not over-staff to avoid huge personnel cost. Buy raw materials in bulk to gain quantity discount.
“From the beginning of every financial year, set a growth target and track your growth trajectory so that you can discover when a decline sets in, and you can employ new strategies to halt the slide and return to the path of growth.
“Do not start a business on impulse. Do not say that ‘people are making money from a particular business, so I will start my own.’ Always do your due diligence before venturing into any business. If you invest in a business you are not skilled in, you should go for basic training to acquire basic knowledge. Otherwise your employees will exploit you.
“Do not reveal your trade secret/formula to your employees (unless mandatory), because they will copy it and become your competitors.”
Speaking from the United States, president of the association, Prof Folarin Oguntoyinbo of the Department of Chemistry and Fermentation Sciences, Appalachian State University, Boone, North Carolina, sought to know how one could cope with the unstable currency exchange rate in Nigeria, especially if one’s business is dependent on importation of foreign equipment or raw materials.
In his response, Obafemi agreed that there was hardly any business in Nigeria that was not affected by the unstable currency saga, especially since virtually all raw materials were imported. Noting that the instability of the naira was one major reason that businesses don’t grow as expected in Nigeria, Obafemi agreed that when the naira loses value, prices of raw materials go up, and, unfortunately, the businessman cannot pass all the increase to his customers, thereby leaving him to live with reduced profit.
But he implored investors to remain consistent and resilient, no matter how bad the situation, and in spite of the decaying infrastructure in Nigeria. He also suggested that small business management should be a compulsory course for all disciplines in Nigeria’s higher institutions.
In his contributions, an investment and financial management consultant, Dr. Adepoju Asaolu, opined that the microfinance platform might be a great option for start-ups in cash regenerative business. Though Obafemi did not disagree outright with Asaolu’s suggestion, the guest lecturer asserted that he was personally uncomfortable with the bank’s 5 per cent monthly deduction.
On his part, United Kingdom-based pharmacist, Mr. Adewale Anigilaje, was concerned about the reality that many businesses in Nigeria die as soon as their founders pass on. He sought to know what could be done to ensure that more business enterprises in Nigeria outlive their founders.
“The pharmacy that I bought in a small village in England was established in 1941. I am the sixth operator, but this is not the case in Nigeria. Why is it not always easy for fresh hands to buy existing SMEs in Nigeria?”
Obafemi responded: “The lack of continuity of the business after their founder is a management deficiency on the part of the owners. Two things can be done: You can make one or two of your loyal staff a part-owner some years to your retirement (even if they will have just 2 or 3 per cent of the stake). With this, the employee will see himself as part-owner, and even if your child is going to take over, he will get mentoring from him.
“You can enter a partnership with younger entrepreneurs who will be strong when you are weak. You can make the company public; allow core investors to hold majority while you hold minority. The problem with investors here is that they want to leave such as a legacy for their children and would want the children to run it without experience. Giant conglomerates worldwide accommodate investors and experts to grow from little beginnings to where they are today.”