Lessons Learned: You Will Need More Money

Entrepreneurs are overly optimistic people.  The concept is obvious to you — that’s why you’re making the plunge — so it should be obvious to everyone else.

You’re wrong.

There’s a reason why things are done the way they are.  For instance, SMS-based payment has proliferated in Kenya while it has not in Ghana.  The reason: mobile telecom in Kenya is dominated by one company.  In Ghana there are at least five mobile carriers (MTN, Vodafone, Airtel, Glo, TiGo) and they do not allow payments across platforms. Thus, it is often more convenient to pay with cash, check, or bank transfer.

It will take time for people to learn of what you do, try it out, and ultimately stick to your superior concept.  During that time when you are convincing people to try you out, you will need to burn cash to sustain yourself and the business.

Last year I had to take a real estate consulting gig because we needed the capital to sustain our business.)

We do a fast moving consumer good (FMCG) type business so the average ticket is relatively small.  Thus we need volume to support our cost structure.  The critical expense that I underestimated was acquisition cost per customer.  What advertising channel did I want to use? sales force? billboards? radio? TV?  More importantly, how would I measure the effectiveness of each?  ( 2 cedis = US$1)

  • Sales people: depends on the level of experience you require and the commission/salary structure you want to implement.  The people who sell credit on the side of the road are on a commmission only structure and may have a high school diploma while the guys selling Mercedes all have university if not graduate degrees.  Lowest cost of a fresh graduate is probably around 300 cedis; a bank probably pay 600-700 cedis (net of taxes) for a non-sales position while a sales position is 300-350 cedis base + commissions.  This is the only advertising method that is measurable.
  • Promotion stand at A and C Shopping Center is $75 per day while at the Accra Mall it’s $800 – $1,200 per week and Marina Mall it’s $600-1,000 per week.  This has been pretty effective because the traffic can lead to adequate sales.
  • Billboards: requires a 6 month upfront payment of $4,800 ($800 per month) for a 3′ x 4′ billboard and $6,000 – $18,000 ($1,000 – $3,000 per month) for a 20′ wide billboard near a major thoroughfare.  That’s for one sign.  A proper campaign should have at least three.
  • Radio: A 30 second spot in the morning rush hour is around $100 on a second tier station
  • TV: requires producing a spot, then buying time — I never seriously considered this option

Let’s say I hired three sales people, three small billboards, and two weeks of radio spots for 6 months.  The cost would be:

  • Billboards:$15,000
  • Sales people: $6,000
  • Radio spots: $12,000

In other words, more than my initial $30,000 investment in inventory, software, capital expenditures, and working capital.

All this time spent on experimenting is money out of your hard earned savings.  For instance, I discovered that the most effective way of selling was for me to make sales door-to-door.  First, our concept requires someone to spend 5-10 minutes explaining how it works.  We learned we could not just put up a sign and have people figure out what it was and how it works.  Second, Ghanaians liked that I was white because it suggested quality.  I know it’s not very politically correct but Ghanaians generally favor foreign things over the same domestic ones.  Unfortunately, this concept bit me when I created a sales force of local, educated Ghanaians, I learned that they could not replicate my sales success.  I would need more than one person to replicate my numbers.

You will have churn.  In other words, not everyone will love your service as much as you do. Thus, you will constantly need to make changes to suit their needs.  For instance, initially we had three price points – 24 cedis, 30 cedis, and 36 cedis – based on the number of items they wanted delivered.  We thought that we needed a low anchor to justify the higher price points.  Recently, I tossed out the 24 cedi option;  I  found people were constantly complaining that they wanted more but were unwilling to pay to upgrade.  They just wanted me to give it away for free as a “favor” to them.

For most people, you will be learning how to run a business, how to provide services/goods to your customers’ tastes, and how to get the word out.  The time you estimate in your forecast is probably half or a third of the real time it takes to get everything sorted out.

 Recommendations

  • Take whatever number you’re starting from and triple it.
  • If you  can, experiment with as many aspects of your business while still earning a salary.  (This was not possible for me because the whole venture needed to be set in Ghana.)
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: