Dear startup, great job! But what if the VCs don’t come?

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Last night, I read that post by the co-founder of tiketmobile, and was really saddened, but without a lot of pity. It’s sad that he had to shutter up, and power down a business that must have been his big dream. But then, someone has to fail for the business schools to have case studies.

Someone has to fail, but it’s sad when it has to be you. But the part where I do not pity Celestine, the tiketmobile founder, is where he came off sounding entitled, like he was doing someone a favour starting a business. That sir, I do not agree with. No one is sitting up at night losing sleep about how your business is doing. That’s your darned job.

Because Celestine didn’t give any insights to why the startup failed, one has to  guess that revenue was low. Unfortunately, tiketmobile won’t be the last Nigerian startup to fail because founders didn’t think through about the revenue/profit stream, while sitting on grant funding, waiting for venture capital funding.

So what is the problem here?

Over the last year, I have met too many Nigerian startups who have told me their business plan is to build a smart enough app and get VC funding. Many are going to fail. Most people who know me on the business front probably have come across my model – ww.makeaprofit.dazall aka WMD. WMD is a purely capitalist model. At least that is what I have been told. The cynical have said it’s cutthroat, while others have said that it rather paints everything a business should be doing into a small corner. But I ask, how many businesses have survived from not making profits? Or more importantly, why do we go into business?

I for one went into business so I could buy Nike Sneakers, but I was 17 then, I think. But for any grownup looking to start a business, you have to see the big picture, and realise that you are there to secure you’re livelihood first, simple. I am an ardent proponent of existentialism and one of our canons is John-Paul Sartre’s proposition that “Existence precedes essence”. Until we have solved the basic problems of food, clothing and shelter, everything else should be secondary.

In Nigeria for example, the average entrepreneur has to deal with problems of power, space and funding, along with the 3 basics of life. There is little room for error. If you fail, you call through the cracks. And no, there’s no welfare. God bless you if you have family to fall back on, but if you don’t, well God bless you anyway, because if He doesn’t, you’re done for.

This is why I’m a “make a profit” proponent. Every business decision should be taken with the question of profits in mind: will this help make a profit? If you’re not seeing revenue and calling yourself “co-founder” just because it’s cool, well, watch that thing you’re sitting on, it’s probably long.

Startup romanticism

A part of this kerfuffle that is silly is that tiketmobile did get a chance to receive funding, but I will get to that later.  Turning down investment to keep stake is silly, and may well be why tiketmobile failed. Another is the lack of business experience – too many startups flying into business (some form NYSC) without a day of experience at a job or business.

One of the guys I work with started a service last year, and could have well left to start his own gig. But he spoke to me and I offered him a deal: put your service under the company, use our resources and sell. Company takes 60% of profits, you keep 40%, but you spend nothing in sales and R&D. He took that deal. His first sale was over $10,000. Note the emphasis on the money there revenue = $10,000, cost of business = $0. I don’t know what could have happened if my friend did not take that deal, but that there is an example of how losing some stake could also mean gaining some wiggle room to breath, and also build business experience from an Autobot position.

I am hoping, before Celestine gets into his next venture, he would have found a Kenny Rogers tape and listened to “The Gambler” on repeat for at least 7 days.

“You got to know when to hold ’em, know when to fold ’em,

Know when to walk away and know when to run

Seek ye first the path to profits

The need to make profits for African (read Nigerian) startups is real. Unlike the Americans we read about on TechCrunch, we don’t have welfare or unemployment benefits. An American kid whose business has failed at least does have the option of welfare. But you Nigerian, remember when your mum said you should get a real job and you didn’t? Well, this is what they were talking about – that is if you have parents. Again, even if you have parents or relatives able to help, you can be sure to get a healthy dose of “I told you so” before you get a kobo of their money.

Let’s say you’ve passed the first test of feeding yourself, you want to expand the business so you make even more money (I believe the fancy word for this is ‘scale’), you decide to hire one or two people. That’s cool because it’s the logical thing to do. But imagine going the first month, no pay, second, no pay, and third, same, because business isn’t going too well. Well, you staff didn’t join you to understand that business doesn’t go well sometimes. They joined to get paid. So imagine that you can’t afford to pay them: what would Jesus do? Unfortunately, unlike Jesus, you can’t make a salary out of five loaves of Shoprite bread.

Some wisdom from a bottle of ketchup

Next time you happen to hold a bottle of Heinz ketchup, pay a little attention to the labelling, and you’ll find a little phrase “Grown not made.” Well, that little nugget of wisdom says all you need to know about what makes a business. It’s grown, with a plan and actions. From the moment Tiketmobile got the $5000 grant, the thinking should have been where the next funding was going to come from. Mind, I’m still a profit driven head, but if the business was setup with the intention of scaling based on funding rounds, then the guys at tiketmobile should have been thinking of step 2 right at the point go securing funding round 1.

The most annoying part of this businesses is that they did get a funding proposal from SPARK. There are reservations about SPARK’s model, and no one knows the terms Jason Njoku offered, but it’s not a fair world out there. People go on about Jason’s motives, and I ask: who doesn’t have motives? One of the problems Nigerian startups have is the illusion of owning it all. Well, if you’re not ready to chase a sound bootstrapping model, you have to be ready to lose some stake.

It’s great to own all your stake, but there’s nothing fun about owning 100% of a dead company. You dig?

By the way, Cele, Tony Elumelu does not owe you anything. But even if Tony Elumelu did bring VC funding, remember…

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The low hanging fruit, development, and the rest of us

Often when the history of civilisation is written, it is the names of the elite who make it as heroes. The rich and the middle class make the news, and the poor who stood in the advance of harsh weather – well nobody cares about the poor anyway. Which is why @ceezeks’s article on Low Hanging Fruits (LHF) interested me so much.

I’m a self confessed existentialist, who drank up St. Thomas Aquinas’s thesis and declared it the gospel of development. As such I tend to stay suspicious of superlatively lofty ideas which seem rooted in the sky. I love big thinking. In fact “big thinking” is one part of my company’s three-legged mantra – and I currently live and breath as the product of big dreams.

So why do I disagree with the assertion that chasing the low hanging fruits will inspire mediocrity?

I once wrote a blog on how governments can directly put money in the pockets of unemployed youths in local communities. I also have the privilege of seeing the difference simple infrastructure can make in the lives of local communities.

My grandmother is from a small Eniong community in Odukpani LGA, Cross River State. The community is small in population size, but blessed with arable land. Every year, during the rainy season, the farms are flooded, bringing fresh humus to the soil, which allows the people to farm every year on the same spots and record good yields. They mostly cultivate what European chefs call ‘gourmet vegetables’, and boy, those peppers and garden eggs taste amazing. The same floods also bring tons and tons of fish into the flooded forests.

At the end of the flood season, the locals would have constructed huge dams across the rivers, catching most of the large fish coming back out of the floods. When the farm lands dry out, the farmers return.

This amazing cycle continues year after year. Tons of produce come from the farms, millions worth of fish is caught. Yet the people are mostly poor, for a very simple reason: because they can’t store their farm produce or fish, they have to sell way below the market value, hence they are stuck in subsistence.

As far back as I can remember, the every incoming government had promised a road to that community, and never built it. A road would have made the market more competitive, and cut short the two hour journey by boat to the market at Itu in Akwa Ibom. Better still, a road would have allowed the community site their market in their own community, which would bring the buyers in there, and expand the economy. The people of the community would have had a chance to monetize their famous hospitality by building small restaurants and motels, since the travellers would need places to stay and eat too.

Now imagine if the electricity project I heard has finally started came through, and someone went and setup a storage facility and unionised the farmers, so they can opt to either sell their fresh produce, or store them. That ability alone would increase the value of their goods by over 25%. Simple things like roads and electricity really can provide quick wins, and unlock billions in revenue.

Consider on the opposite side of the river, where farmers in Akwa Ibom have recently been smiling a lot more, because Godswill had happened to them, and their governor had taken a big hoe into the state, and built roads all over the place. The argument about the size of state revenue vs. the development is for another day. The point here, is in the contrast between the two states, as regards infrastructure. I’m not sure Akwa Ibom has a quarter of Cross River’s agricultural potential, yet Akwa Ibom is likely to dwarf her sister state in actual revenues, simply because the farmers in Akwa Ibom have a choice of markets to take their produce to.

Low hanging fruits are evil, huh?

Remember when the world economy tanked? Guess what the US and German governments did? The started building more roads (and other infrastructure). By putting money in construction, they were able to stimulate the economy along the entire construction supply chain.

It’s important to build the base of development by providing the basic infrastructure and social services: roads, water, power, healthcare and schools. Do the basics, make those basics accessible to the poor and get out of the way, so businesses can do what they do best – make more money to create more jobs to more people.

LHF as a concept is great, I belief. It often builds sustainable systems, since the people who benefit from LHF projects often see the near term benefits. Local appreciation is a key stone in building the foundations of sustainability. History doesn’t need to remember the poor, it just has to ensure they are taken care of.

But I sign off by agreeing with Chuba Ezekwesili here. A governor building a much needed road, and throwing a party to celebrate it is insane. The people are celebrating in their hearts already, so there is no need for a party. They are celebrating as they whistle to the market with more produce than before; they are celebrating as they wave their hands in the wind as they are driven past their friends’ villages; they are celebrating as they thank the Governor who built the road in their kitchens at dinner.

Again, while I praise roads and other low hanging fruits, it’s no excuse for any overfunded governor to do same. I don’t expect to be praised for doing my job at the office everyday, and you are only doing your job. Shut up and carry on.