Serie 4: Other great paths to successful business ideas in Africa

So here are some other great ideas to successful business ideas in Africa following Serie 3 blog which was my most clicked blog of 2013. Some of you emailed me to expand so here we go: Path #4 – Closely watch … Continue reading →

Investing in Africa. Serie 3: 3 sure ways to profitable ideas in Africa

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Everyone says Africa is the next big thing and the land of endless opportunities. Investors, multinational corporations and entrepreneurs from across the world are swarming to Africa in their hundreds and thousands, looking for a piece of the action. But many … Continue reading →

Investing in Africa Start-Ups – Serie 2: Investors please consider this

Startups in agriculture, technology and several other growth areas in Africa can be sources of significant return – and risk – to an early investor. Although more than 90 percent of startup businesses fail in the first five years, many … Continue reading →

Investing In African Start-Ups – Serie 1

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It usually takes three vital ingredients to make a business idea come alive: a determined and resourceful entrepreneur, a marketable idea, and yes, you guessed right – capital. Nine times out of ten, a lack of access to capital to … Continue reading →

Asset Protection: Holding Company and an Operating Entity

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How to use Holding Company to protect assets Eight out of ten entrepreneurs will fail within two years and 80/100 of the remaining ones will not make it up to 5 years. Those are the staggering statistics. If you are … Continue reading →

To Be a Successful Entrepreneur in Africa, ‘Wake up Every Day Ready for Change’

Recently, I had the pleasure of conversing with Nigerian custom furniture mogul Ibukun Awosika during Wharton’s recent Africa Business Forum that we both attended. She very kindly had a few words of advice for investors leery of putting assets in Africa: “Don’t listen to CNN.” The news media are highly selective in highlighting trouble spots, such as violence in the Democratic Republic of Congo or the tumultuous reign of Zimbabwean president Robert Mugabe. Rarely, she said, do Westerners hear of Africa’s triumphs, such as galloping economic growth (that showed little sign of slowing until a recent collapse in commodity prices).

“Africa … is highly diverse. It is [not] one country. It is 52 different countries.” She takes to task anyone who still clings to the Western business stereotypes that dog the continent. Not checking out business opportunities in such a vast and underdeveloped market is costing those people money, she and others argued at the forum. “Those markets that CNN tells you are not the good markets are actually the hidden secret,” said Awosika, general manager and CEO of The Sokoa Chair Centre, a privately held furniture manufacturer with several million dollars a year in revenue. The former chemist’s implication: Her enterprise serves as an example of the lucrative deals in African countries that savvy outside investors can encounter, if they know where to look. Personally, I could not agree more.

After centuries of colonialism, and despite bloody civil wars and turmoil in some of its nations, Africa has the potential to be counted among the emerging markets poised to offer outsized returns for foreign investment, according to investors and entrepreneurs at Wharton’s recent Africa Business Forum. Still, they caution, transitional or ill-defined regulatory frameworks pose significant downside risk to doing business there.

According to Judith McHale, managing partner of the Global Environment Fund/Africa Growth Fund and a former Discovery Communications chief executive, the reality of the risk diminishes with the application of due diligence and thorough market research. “All the dynamics for us showed an incredible opportunity,” McHale said. Micro-lending programs, of the sort popularized through the research of Nobel Prize-winning economist Muhammad Yunus, already address, if not completely satisfy, the low end of the lending market. This is indeed a sector that my company JN Financial has dived into and intends to expand exponentially. Sovereign wealth funds and other large investments are active at the other end of the spectrum. But, McHale added, there is a critical shortage of investment players in what she called the “critical middle” — the small and medium-sized businesses that form the stout foundation of national economies. “We saw an emerging consumer class wanting quality goods and services. Our model for this is what happened in the United States in the 1950s.”

African business people are quick to point out that the uninitiated can soon find themselves in over their heads because they lack the ability to respond quickly to change. Uncertainty is almost a given, they said, although infrastructure and institutions are becoming more reliable through steady development and reform.

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In the developed world, Awosika noted, “you don’t have to think about power.” But power outages can cripple her production facilities and threaten business, so she keeps back-up generators on standby at her factory in Nigeria. “I have to think about power every day.” Infrastructure issues aren’t the only hurdle. Changes in government policy, which can happen quickly and with very little notice, can instantly invalidate a business plan, she said.

Like the time in 2004, when the Nigerian government banned the importation of furniture, giving practically no notice. Awosika feared the ban would destroy her business, which at the time depended on overseas manufacturers. Her company approached a key supplier, office furniture maker SOKOA S.A. of France, with the idea of a joint venture to produce chairs in Nigeria. With an investment of nearly $200 million, the gamble paid off in about a year. “You’re going to have to be very creative. If you’re an entrepreneur in Africa, you’re going to wake up every day ready for change.”

Shoreline Energy International, an energy holding company, has created a successful business model of buying the struggling operations of foreign firms in sub-Saharan Africa and “re-starting those businesses,” said Toks Abimbola, a partner in the company. He and the other panelists suggested that cultural differences make Africans better suited than Europeans, Asians or Americans to navigate the complexities of doing business with locals. “We know how to manage our people and we know how to manage our customers.”

Sidestepping Corruption

Abimbola acknowledged a perception that African nations are rife with corruption, which in turn adds significant inefficiencies to commerce. “Nigerian businessmen have a reputation for being less than honest,” but such assertions are “not true.” Nevertheless, he cautioned potential investors to check out the track record of would-be partners before making a big commitment. Shoreline Energy, he asserted, is proof that prudent investment partners can be found in Africa: “You don’t get into [deals] with Goldman [Sachs] if you’re dodgy,” he said, suggesting that a relationship with a major Western financial player amounts to a seal of approval. Transparency International, a corruption watchdog group, observed that at least one form of corruption across Africa has decreased between 2006 and 2007. According to the group’s Global Corruption Report 2007, petty bribery decreased from 47% to 42%. In other words, 42% of respondents reported having had to pay a bribe to receive a service.

Hand-in-hand with corruption are bureaucratic delays that hinder trade. A business magazine, The Africa Report, noted in its August-September issue that “the bureaucracy of filing in reams of paper-based documents slows exporters and leaves them open to requests for money from overzealous or corrupt customs officials.” Citing the International Finance Corp., the magazine noted that it takes the filing of an average 8.1 paper documents to export a shipment from a typical Sub-Saharan African nation, compared to an average 4.5 documents required in Organisation for Economic Cooperation and Development member countries.

McHale said her firm has found success by putting its foot down on corruption. “You have to send a clear message to the marketplace that, ‘We’re not going to participate in it.'” Rather than trigger a “you’ll never work in this town” reaction, she said such messages get the word out that the GEF/Africa Growth Fund enters only into deals that are above board.

Just as the African continent has enjoyed proportionally little of the global development that has ignited the economies of other developing regions in recent decades, it has also been slower to suffer the debilitating effects of the world financial crisis — so far. The leap in commodity prices earlier in the year helped the economies of the resource-rich continent. But those prices have more recently been sinking as worldwide demand for everything from oil to South African platinum has plummeted. From Africa, McHale and her partners at GEF/Africa Growth Fund see the rest of the world’s economic crisis as “a cloud on the horizon that we’re still assessing,” as she puts it. “I personally remain very optimistic.”

I personally could not be more in agreement with the elaborate thoughts and words of wisdom that were shared at the forum. Africa while being full of uncertainty is most certainly not the pothole of bad luck and misery as usually presented in western media. Better yet, it is a development powerhouse where great ideas led by adaptable entrepreneurs lead to incredible success stories.

Must Read Entrepreneurs & Start-ups: “Audi Parterm Alteram” and its implication on you.

What does “Audi Partem Alteram” mean to entrepreneurs (eternal founders of companies), and start-ups?
Yes, if you guessed that was Latin – Well! You’re right. I took two years of Latin years ago. Not that I had any thought about what this ” Audi Partem Alteram” meant but I ran into it in an in-flight magazine article. It means “Hear the other side” and is attributed to St. Augustine. Here’s why it struck home and why I believe it applies to those of us eternal entrepreneurs and start-ups founders or executives:

By definition, entrepreneurs have to be driven to believe in their vision, beyond the point of logic. Because logic says that by far the most probable outcome is you will fail, and fail badly. That’s just a reflection of how hard it is to start and grow a successful enterprise. Every start-up has to essentially say to itself (or ignoring reality not even think about…) that while “thousands of other equally bright, equally driven and passionate people have traveled this road before and died along the way, that won’t happen to me.” So it is with all explorers, and start-up founders are the explorers of the business world.

For venture capitalists, the reverse is true. There, we (I’ve been on both sides asking for financing and attempting to fund other’s projects) know that after sorting through literally hundreds of business plans and smart teams, and doing countless hours of diligence on a new deal, the default answer on yours is we should pass – because history says that if we invest at least two out of three times we are either somewhat wrong, or completely – totally – embarrassingly wrong. So, as part of diligence, we are looking for all the reasons the new enterprise might fail, and then trying to see if the risk of failure is maybe just a little less than normal and the rewards if successful are maybe more than just a little better than normal. This, in the face of data that tells us no matter what we think,that the most likely outcome is that yours is to die along the road also. That’s what make private equity firms and venture capitalists (2 sources struggling entrepreneurs and start-ups always turn to) the explorers of the investing world.

So, what can we learn from each other? How do we audi partem alteram?

First, start-ups need to recognize that PEs/VCs have the advantage of pattern recognition. We (PEs/VCs) have seen many thousands of potential deals, have done maybe hundreds, and so have our pattern recognition engines loaded with case studies that form our collective judgment. We are far from always right (see the 2 out of 3 misses above), but we are way better than average (versus about 1-2% success rate for all start-ups). Therefore, when we hit you with questions and concerns, accept them as perhaps the best free consulting you’ll ever get. We are asking you questions you need to be asking yourself. If you can hear our side, go back and then return with good answers to most of our “objections”, you will head down the perilous road with a far higher chance to survive – whether you take our money or not.

But PEs/VCs need to hear the other side, too. It is very easy in our line of work to end up jaundiced. We see failure so often we get numb to it. Sometimes, we forget the power of a high-performance team, operating with intensity, and how much a small set of people can accomplish when driven by a shared goal where they must succeed to survive. Sometimes, we can temporarily forget that our investors have paid us to suck it up and take those leaps of faith along with the entrepreneur. I know this from personal experience as I remember everyone I knew in my close circle telling my first venture was going to fail. You see it’s more than OK for you to not just tell the story, but share your passion for it. In fact, one of the best ways to get a polite “no” from a VC is to show up with a polished PowerPoint, but an uninspired delivery. Make sure we hear not only what you plan to do, but why and why it matters to you, personally.

Hearing the other side comes from a fundamental belief that none of us has all the answers. And that hearing the other side, as annoying as it may be at times, is the best vaccine against preventable mistakes. It is why smart executives know to reward those who come to them with bad news, rather than shooting the messenger. It is why smart entrepreneurs and PEs/VCs know that often the best gift they can get from each other is a well-reasoned argument.

Finally, I’ll leave you with one of my favorite “Latin” expressions.
After all the deep analysis is said and done, it describes the keys to success in start-up business.

“Veritas per intestinem intuitionem”
(Truth through gut feel)…go figure!

For Your Start-Ups: Just say ‘NO’ to PTO

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Start-ups: Just say “No” to PTO No, I am not talking about some Parents-Teachers Organization. I am no parent to any kid out there. You see more and more companies are offering a benefit to their employees usually referred to … Continue reading →

“Time Kills All Deals”

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The quote above comes from a Sales VP for whom I have great respect. And it rings true in every definition of a “deal.” If you are a Sales VP selling your company’s product or service, and the sales process … Continue reading →

Tell me a story

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In the past, I’ve had two entrepreneurs come into our offices to present their respective companies, only to get the same reaction from me. You see my day-to-day job also deals with providing emergency working capital to companies. Out of those … Continue reading →