Money Flow #001: The Entrepreneur Still Looking Up To God

Money Flow is a series intended to understand how entrepreneurs within Africa interact with money and how it affects the health of their businesses.  

Tell me a bit about your business 

My company is basically an online food production and delivery service. I make and deliver food within Lagos. 

For how long now?

Three years.

What’s your financial background like?

My dad is a civil servant. We were not poor but no excesses. I don’t consider myself rich, not even close. My parents paid for all my expenses while I was in school. At a point when I started making a small change, I told my dad to stop and he scolded me. His words were ‘it’s my responsibility to take care of you till you graduate, after that you can sort yourself’. I didn’t have any jobs in school, but I interned at a couple of places and had a few gigs here and there. Plus my fish farm started generating revenue when I was in 300level. 

When did the fish farm come in? 

I started the fish farm when I was in 200 level with proceeds from my gig and selling cold drinks in hostels at a N50 markup. 

What kind of gigs? 

Retail, software, middleman-ism. 

What is the fish farming business like?

I raised catfish, bought them as fingerlings and grew them to maturity before selling them off. The whole process took 3-6months. 

What is your history with entrepreneurship?

I have a long history of entrepreneurship. I have been doing gigs since I was sixteen. My first gig didn’t turn out nicely. The next one came when I was seventeen. I did software with some guys. That was my first million. 

Tell me about the software. 

It was a school management portal for parents and teachers.  We deployed it in a school and they paid per student. 

Absolutely bonkers. lol

Afterward, I ventured into agriculture, tech, and then food. 

How much did you have at the start of the business

My current business is started with zero. I leveraged what I already had in terms of skills. 

What kind of skills are we talking about?

Programming skills. I was good with C# and Database Administration. I also dabbled a bit in Java

Okay. Go on…

The business is web-based. I built the first version to a certain degree. I was getting commission off sales through the website. My initial cost was hosting and getting a  domain name. I didn’t have any other start-up costs. My entire business was based on leveraging other people’s startup costs to make a little margin. We grew gradually to where we are now. 

How do you decide on the pricing of your product?

This is more complex. Because we are a production-based model and we have multiple facets of production and delivery so our pricing model starts from top-down. Also, we are in a competitive industry. In the early days, I did a survey of people with similar businesses and took note of what they were charging. Then I did backward integration.

Can you break down what backward integration means? 

Sort of like starting at the end point and working backwards to see what makes up that end point. Like instead of buying eggs at retail, you start a poultry or get supply at wholesale.

Okay go on. 

I wanted X amount margin and great quality as well. I split 100% into part. The 100% being  the amount I was going to charge for my products. Production cost is X, staffing cost is Y, rent is Z, profit is A. Over time I have tweaked that according to economic realities. I ask myself if the business can afford to spend 20% of its revenue on staffing or 50% on production cost so this forces me to look for alternatives to secure the things we need.

This also includes shipping from out of state just to keep the quality strong and cost low. After a point, I stopped looking at the competition and more at the quality of the product. I ask myself what is the best quality I can give at this price point. As a rule of thumb, I always make sure I have 30 to 45% profit margin on all of our products

How do you deal with the competition?

By staying innovative, avoiding stagnancy. 

Do you have a financial advisor?

I have mentors I run to when I am about to make a financial decision. Though they are not strictly financial advisors, I tell them my plans. They grill me on the reason for the expense and make sure there is a direct path from that decision to profit. 

Have you ever taken a loan? 

Yes, I have. 

How did it go? Would you advise entrepreneurs to take loans?

It depends. I would advise them to never to take loans for capital expenses, only operational ones. Also, only when you’re dead sure of your margins. 

For example: taking a loan to buy equipment doesn’t make sense but taking a loan to buy raw materials does. Now, even when you take a loan to buy raw materials, the interest rate on the loan should never be more than 30-40% of your expected profit margin. Though, this is for production-based businesses. I can’t say much for retail businesses.  

What’s the biggest challenge about doing business in Nigeria?

Doing business in Nigeria is tough, very tough, you’re either a shark, or leeching. The Biggest challenge for me, is the amount of funds required and the difficulty in raising those funds, because you’re providing everything you need for yourself, from power to security.

What financial advice do you wish you knew at the start of the business?

When I first started this business, I put every other person’s financial well-being before mine. That means that I paid everyone else before I paid myself. It might sound noble but the problem with that is that when you don’t have a strict pay yourself first policy, what ends up happening is that your target subconsciously is every other person’s salary and you forgot yours.

When you have paid everyone else and you don’t have funds, you start to dip into company funds to cover expenses and that is how people go bankrupt. The financial advice I wish I had at the beginning of this journey is pay myself first – responsibly, of course, and then pay people as you need them. That way attach the value to their contribution to your business and you can watch the value grow and unfortunate; id is not start doing this until a few years ago. 

I have deliverables as well – Key performance indicators and when I meet those targets I deserve my pay.

Secondly, never owe your staff. 

Thirdly, never over promise your staff in terms of compensation. It’s better to come clean to say with our current projections,  this is how much we can but we are hoping with your addition to the team, we make a lot more and we will subsequently increase your salary and you have to keep to your word. If the revenue is growing as a result of certain input, you have to compensate accordingly. 

Fourthly, when hiring, you need to be able to tie a direct path to revenue. From each hire So you are not just hiring people to reduce the workload from you but hiring people to generate more revenue. It could be customer service, technology, operations but all hire should be tied to revenue.

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