The Chief Executive Officer, R&S Consulting Limited, Mr. Olufemi Adebiyi, talks to SIMON EJEMBI about the importance of entrepreneurial training and the attitude entrepreneurs should have towards bank loans, among other issues.
Why many businesses are failing
A lot of people don’t know that many businesses are failing because they keep seeing new businesses on the streets. A study had shown, some years back, that only one out of every five businesses live up to their fifth year, which means four would have died before they are five years old. There are several reasons for this. What I have found over time is that the major reason why businesses fail is ignorance.
Most people think all you need to start and run your business is vocational or technical skills; you know how to sew, repair electronics and to do this and that. They believe that how well you do is a matter of how skilled you are in those businesses. They do not bother about another set of knowledge they require, which we call entrepreneurial knowledge. In other words, to succeed in business there are two things you need – your vocational skills, which determines your technical knowhow of the business, and your business knowledge or entrepreneurial skills. If you have one without the other the business will almost certainly fail. What makes you an entrepreneur is not just your vocational skills but in addition doing the business that you have carefully identified based on your passion and also your vision for life and then going further to acquire the necessary business skills to transform your vision into a reality. That way, if there are challenges along the way your heart will tell you ‘keep on, you will make it, and then you will start using your skills to address the challenges.
Possibility of running a business without technical skills
It is possible but you are still running a very bad risk. We always advise that people start their businesses small. The first attempt of Nigerians to start a business big was Transcorp; where is Transcorp today? The pattern has never changed; start small and grow big. And if you are starting small, usually the norm is that you are the master of everything. You are the ‘Jack’ of all things you want to do in the business and you are the master of all – You are the accountant, you keep your records; you are the marketer, you market your goods; you are the producer, you know something about producing.
The risk you run as somebody, who investing his money in a business he knows nothing about, is that you are working for others – even in matters as simple as buying and selling. In Nigeria today, you open a shop, you equip it, you bring somebody there to come and work for you and before you know it, he understands what is selling more in the business and starts to buy his own supplies. When you come back to take account he would tell you I have only sold one piece of this item, whereas he has sold 10 – he sold nine for himself.
If, for example, you are into fashion designing and you don’t know anything about sewing, you just put your money on the line and you employ people to do the sewing. What they do is wait for you until around Christmas, Easter or any of the Muslim festivals when your market will be at the peak and tell you that they want salary increase.
You now have to decide what you are going to do; to bow to their blackmail so that you will not disappoint your customers or you call their bluff and your business flops because your customers will go and look for other service providers. So, it is not a right strategy for a small business promoter or entrepreneur to put his money on the line and employ people to provide the service.
You as an entrepreneur must know something about your business. But as your business grow, as you begin to build your turnover and increase the scope of your operation, you will find out that you can no longer cope alone, so you bring somebody to handle one aspect for you while you focus on the aspect you are better equipped to handle.
Growing your business despite huge competition
There are several factors that determine competitiveness. One of them is price; there are markets for expensive products and there are markets for cheap products. Everybody is targeting and minstring to the segment of the market they have identified. So if I am producing my own water at Idimu, Lagos, and Nestle is producing its water in its big plant, as long as the market is there, I can always have my own niche – where I will play from. And the advantage I have over Nestle is that I can be more flexible with my cost, Nestle cannot because it has set up huge plants and if it is producing below a particular capacity it will suffer a loss. This is because the unit cost will depend on how maximally it is using its capacity. At any rate, when I start small and I’m proud to put my label on the product, it is a question of people trying my product and seeing that it is good. Once they see that it is good and it compares to what Nestle is doing, I will have my own market and as I succeed in letting people know about my product so will my market grow. Don’t forget that Nestle water may not be available in some local area. That is why we always tell small businesses ‘don’t ever think that because you are a small business and you operate in a local area you can compromise quality’. Once your product is good and it meets market requirements, it will have market penetration. But the problem is that someone who is just putting his vocational skills to use doesn’t really care, but an entrepreneur know that what it cost him to produce a pen that is poorly finished is what it will cost him to produce a good one.
The right attitude towards loans
Many people believe that they cannot start a business until they borrow money and many people borrow money and the money chokes their business. In most countries of the world where small businesses drive development, the money they get from third parties is not a liability fund or borrowed fund, it is from equity funds and such funds are provided by private equities and venture capitalists and so on.
What I have found and which I always counsel people with small business ideas is that because of the hostility of our environment to small business is that if you are starting, start with money that comes as gift you’re your friends or your own savings or family donations, etc. because if you borrow money, it will almost instantly choke the business. If you feel so concerned and serious about your business idea and you don’t have money then look for a partner, pool your money together and start the business. Run it at the small scale that your money allows you to. When you build your track record and you are now looking for a third party, maybe a bank, to give you money, they will see the seriousness with which you have run the business and you may be asking for N1m and they will say ‘why not take N2m”.
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