MyStartUp in KZN This Week

Dear fellow entrepreneurs,

I hope all the KZN based go-getters are ready for a great week of inspiration, insight and brutal advice from the country's leading entrepreneurs and experts. 

If you haven't heard, the MyStartUp and IgniteSA team is hosting the Durban Business Fair Business Seminar taking place tomorrow, Tuesday, 16 September 2014 at the ICC from 07h30 to 16h30. Entrance is FREE, and you can email nonkululeko.mthembu@durban.gov.za to RSVP.

Then on Saturday, 20 September 2014 is the big one. #IAMANENTREPRENEUR comes back to Durban. We bring you construction entrepreneur, Dr Thandi Ndlovu, Founder and Chairman of Motheo Construction Group. 

Tickets are available at Computicket at R100 each. As usual a light breakfast with tea and coffee is included. Remember there are only 100 seats available so to avid disappointment, BOOK NOW if you want to hear from this trailblazer woman who has conquered the male dominated South African construction industry.

I hope to see all you Kwazulu-Natalians there!

Kind regards,
AK

The Omidyar African Entrepreneurship Summit: What a Day!

A few weeks ago, I was honoured to be invited by the MD of the Omidyar Network (Africa), Malik Fal, to participate in their 2nd Summit on Entrepreneurship in Africa. This summit, which took place yesterday, 02 October 2013 in Mauritius, follows on the heels of research on the state of entrepreneurship in 6 Sub-Sahara African countries done by Omidyar and The Monitor Group in 2012.

We have just completed the Summit, and WHAT A SUMMIT IT WAS!

It opened with some remarks from Malik and Tebogo Skwambane (who led the project during her time at The Monitor Group) about the key findings of the research, which argued for an ecosystem made up of four quadrants i.e. Entrepreneurial Assets (Financing, Skills & Talent, and Infrastructure); Business Support (Business Advisory Services, Government Programmes and Incubators); Policy Accelerators (Legislation, Administrative Burdens); and Motivations & Mindset.

Malik shared whilst Ghana, Zambia and Uganda rate highly in the measure of entrepreneurial activity in a country (TEA), the per capita income of these entrepreneurs is very, very low. This is largely attributed to African entrepreneurial activity being largely survivalist and not driven by opportunity and scale. The challenge posed is: "How do we change this?"

Tebogo shared a rarely know truth about how even late-stage entrepreneurs struggle to raise capital as many capital markets in Africa are under-developed. She got me really excited when she specifically highlighted that we have an opportunity and need to create an African angel investor network to fund early stage entrepreneurial activity as traditional banks are not geared to support this market leaving a huge chunk of entrepreneurial potential dormant.

That summarized the core of my own perspective of the greatest challenge facing entrepreneurs in Africa today.

My panel, expertly hosted by African Leadership Network (ALN) co-founder Acha Leke, tackled the issue of Entrepreneurial Assets, with specific reference to Financing and Skills, but also inadvertently roped in the role of governments.

I was joined by three awesome gentlemen: Hitesh Patel, an angel investor born in Kenya, built his business and wealth in Europe and now resident in Mauritius, Harkesh Mittal from the Government of India's Department of Science & Technology where he heads up the National Science & Technology Entrepreneurship Development Board and Thomas Andersson, a Professor of Economics and Senior Advisor: Science, Technology and Innovation to the Sultanate of Oman.

Hitesh shared some interesting experiences of models in the UK that have succeeded in encouraging angel investing. These are largely driven by tax regimens that offer up to 40% tax breaks for all investments made in startups. It was very satisfying to hear someone, as experienced and successful as Hitesh talk about something that our own South African government has also introduced. Check out this story that ran on www.mystartupsa.com a few months ago.

Hitesh also talked about how angel networks in the UK had become very formalized and how many people created clubs for funding and mentoring of startups. Government has also started matching angel funding in order to support these entrepreneurs at scale. He warned though that government support has to be end to end, and not sporadic and interventionist.

Thomas shared his experiences of how Finland initiated some innovative methods to support entrepreneurs in that market. He also spent time talking through the need for coordinated ecosystems and a focus on education.

Harkesh was easily the coolest government representative here! He opened by saying "If you super impose on the world map which countries have the richest allocation of resources, and then super impose which countries have the highest rates of poverty, you will find that most are in Africa and Asia" - this further highlighting the lack and need for in supporting entrepreneurship.

He shared some great examples of Indian entrepreneurs, one Sanjay Vijaykumar, now CEO of MobME, who led the establishment of a startup incubator in Kochi, when he raised 50% of the initial funding after Harkesh promised that he would match whatever he could raise. His company is now a multi-million dollar company headquartered in India.

Harkesh was full of stories and told of a story of the World's Youngest CEO, Suhas Gopinath who started his business at 13, and made a tempting offer by an established US corporate to sell his business in exchange for a life time job, paid up eduction at a leading school in the US, paid up accommodation etc etc. He was 14 years old. He turned it down, built his company. Globals Inc is now worth hundreds of millions of dollars. He's 27.

Harkesh could've spoken for hours more about India's "technology-led economic growth strategy". I got to spend more time with him later and we agreed we need to get African entrepreneurs exposed to the India start-up scene more. Watch this space!

In my submission I advocated for two main items.

Firstly, we need to realize that not all Africans are going to be entrepreneurs. Many will be in business, mostly at an informal level as a means of earning a living, and driven by a survivalist outlook. I think this is what they mean by SME's. Then there are entrepreneurs. They may start out as SME's but they aspire for more, they want more, they want to scale their businesses and ideas to global proportions. They are not large in number. They are a special few. Yes, I do think we need to always work on uplift ALL of our people, but we must also embrace the fact that to do this also requires us to support, at scale, the few exceptional individuals who can change the world, and back them unapologetically. In my experience, it's a few exceptional individuals who have the ability to change the world. We lose them when we insist on a communal approach.

Secondly, of all the challenges that face entrepreneurs, I think access to early stage finance is number one. Until we find a solution to this, we will forever struggle to see entrepreneurship flourish in our continent. Banks are not geared for such funding. It's equity, it's risky, it's early stage, it's unsecured - all this doesn't work for a bank. We have a unique opportunity to put together an angel investor scheme of sorts that will, in return for equity, support high-impact entrepreneurs with seed capital and mentorship.

During the coffee break, I was very humbled to meet so many entrepreneurs who felt duly represented in this outlook.

Our panel was followed by another which covered Policy Accelerators and Business Support, and after lunch we were treated to an interview of our guest speaker, Kenyan dollar billionnaire Manu Chandaria.


He simply blew me away! He spoke so clearly and effortlessly about the principles that drove he and his family in building the empire that is today COMCRAFT. He talked about the importance of an attitude to 'keep learning' and how being open-minded shaped him as a young man, who lived a very different lifestyle to that of the US, where he studied his engineering degree. He says "What we know is not good enough, there is so much more to know"

He talked about how being adaptive to changes that life throws at you contributed to his ability to be resilient. He says "Hardwork never stops paying back" and how he "never kept my mouth shut, and always asked questions" - reminded me of someone I know :-)

He also talked about the amount of times he and his cousins would think about quitting. He was an engineering graduate from the US and often fantasized about taking a cushy job, get a car, a driver and a nice home and get out of this hard family business. The only thing that would not let him do this, was the "fire in his belly".

His wisdom came through when he warned the Western schooled audience that the West teaches "I am me". In Africa, this does not work, he says because it's a divisive approach to life and business. We must always seek to do much more than what satisfies us alone.
He concluded with words that are not likely to leave me soon "Always meet your commitments, in time and preferably ahead of time. It will show all who come in contact with you that you are credible"

During the Q&A, the idea of the angel investor network then took another turn. An old acquintance, and now very successful entrepreneur based in London and Nairobi, Julian Kyula challenged the house to start this network right there and then! He proposed a commitment of $10,000 per person per year. He figured if we can get 100 people to commit to this we will have $1,000,000 to kick off.  Mr Chandaria committed his $10,000. Julian committed his $10,000 and invited others to follow suit. I'm soon to be a proud co-investor with an African billionnaire!!!

As I prepare to leave this beautiful island, I am encouoraged by the quality of entrepreneurs I've met and interacted with over the past two days. Great friendships were rekindled and new ones were made. I foresee a watershed 2014!

It's time for Africa!


AK

Cash Is King

I have recently been fascinated by the specific factors that contribute to the high failure rate of startups. We have seen many reasons for small business failing including poor planning to poor staffing, and ineffective marketing. 

However, if I was to name one main reason for business failures, it would have to be Cash Flow. 

Nothing recently highlighted this fact more than an article I read in The Financial Times of 30 May 2013 entitled"Consumer Giants Turn Screw on Ad Agencies" written by Andrew Edgecliffe-Johnson in New York and Neil Munshi in Chicago. 

The article broke the story of how Europe's biggest advertisers had unilaterally made the call to start paying their advertising agencies up to six months late. A move started by one company and followed by major advertisers in the developed world, caused serious problems for the ad agencies there. 

The article opened: 

"Some of the world’s largest consumer products groups are delaying payments to advertising agencies and commodity producers for up to six months, squeezing cash flows and causing alarm at critical points in their supply chains.

Mondelez International, the former Kraft snack food group, is extending payment terms to 120 days from July 1 – a decision one advertising executive described as “iniquitous”.

Procter & Gamble, the world’s largest advertiser, this month told suppliers it was pushing back payments from 45 days to 75 days, following similar extensions at Johnson & Johnson, the healthcare group, and Anheuser-Busch InBev, the brewer" 

Pause and think about this for a second. 

First of all this is happening in the developed markets of Europe, who are still reeling from a very expensive global economic crisis. 

Secondly, the move to pay these agencies late is driven by the largest advertisers in the market, who are probably serviced by the largest agency groups, meaning that this is likely to affect the entire marketing and advertising industry in Europe. 

Thirdly, a typical ad agency would have 70% of its costs as people, 15% as property and the balance of the15% being administrative overhead. Salaries are due at least every month (some Europeans pay wages every forthnight). 

Paying these business as late as 6 months after rendering services, creates a huge cash flow problem that forces them to borrow in order to finance their operations until the customers pay. 

The article continues: 

“Once a big company like Procter & Gamble goes public with this, it almost gives permission for other marketers to do it,” said Nancy Hill, chief executive of the American Association of Advertising Agencies. “I fear this is just the beginning.”

“Clients are asking us to take on risk like an insurance company and take on debt like a bank,” she added. “Neither of those are what we were set up to do. Our supply chain is largely people. We have to make payroll every two weeks.”

Bob Liodice, chief executive of the Association of National Advertisers, said he was “hearing screams” from agencies, but was aware of only a few that had turned down accounts because of the new terms. “The process began in the recession when cash management was a critical issue but, like anything, once you start it it’s unlikely you’re going to stop it.”

If large agency networks with operations all over the world are "screaming" at the impact of late payments from the world's largest advertisers, what about the small guy? Can you imagine the impact delayed payments have on SME's? 

The cash flow PINCH felt by the agencies quoted in the article above can be a KNOCK-OUT PUNCH for many entrepreneurs who often cannot borrow the funds required to cover their operations until the "big" clients pay. 

I have heard many stories of entrepreneurs who had designed a unique product, and after many years of knocking on doors, finally succeeded in getting it listed with the big retailers. Though you often find their product on the bottom shelf in the 'specials' aisle these entrepreneurs are not bothered by this and often grateful at the opportunity to have their products in store. However, a few months later the realities of selling to big retailers start to hit home. Payment terms from the big retailers can be horrible, and can put an entrepreneur out of business as he needs to cover manufacturing, staff and logistics costs even before he delivers his stock to the retailer. 

Ironically these large retailers are themselves not short of cash as they do not extend credit to their customers, and collect cash immediately when they sell the entrepreneur's product. Government is no different either. 

Entrepreneurs need to keep their enterprises running in order to create jobs. I plead with you big corporates and government: Pay your suppliers, especially the SME's ON TIME!!! 

For us, it is often a matter of life and death! 

AK