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

ketchup_3

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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editieffiong

#TeamAnakle Developer: business and code. Nigerian - Personal views

2 thoughts on “Dear startup, great job! But what if the VCs don’t come?”

  1. Oga Editti u’ve hit the Nail to the Coffin and mostly that is what most startups never understand, if u do not have funding that can comfortably take any risk or Operating Cost in our ever increasing way of life then dont go into Buisness just run a trade….its sad to hear Tiketmobile has closed down, it shows they didnt do their research well and with more than 300 transport companies running through Nigeria its really pathetic when a strong viable idea dies out, well people would learn from your mistakes and run ur idea only better and reap da Rewards.

    Startups must learn to think like advanced Buisness….its all about the money and nothing more.

  2. This is very sad and i see lots of naivety and business immaturity in Ticketmobile. First of all, if your business model cannot turn in profit, it is suppose to die except its a non-profit. Even non-profits are morphing into social businesses as they face challenges securing donations and grants.The culture of depending on external funding or dependency will further weaken your entrepreneurial fibre and your fibre makes or break you.

    My suggestion is carry out a proper survey or research, identify real local problems and build solutions to solve them in a commercially viable way. If you need mentor-ship or you want to leverage on my experience contact the author, please don’t expect a dime until your model turns profit sustainably.

    Just a little bit of background, I started a tech company three years ago in Lagos and the first 8mths i didn’t make a dollar but persevered until my first business came (value $200). Fast forward three years later, we are in three countries in Africa, revenue in excess of a million dollar with no external funding (bootstrapping all the way). It is rather tough building businesses in Africa and even tougher in Nigeria. Ticketmobile founders should have a new orientation and a realist outlook, its either your venture makes profit without external investment or it dies trying.

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