Monday, 23 June 2014

Abiku businesses II

Let us recap from my last post. We were examining how unlisted non-Nigerian businesses thrive for decades in our country while their Nigerian counterparts, which began operations at the same period, are long forgotten or remain runts with lack-luster performance. A friend who read the last post called me and said I trivialized it with the examples I gave. He then began his own catalogue of comparisons I should have used: DSTV and HiTV; Sumal Foods Ltd and Okin Biscuit Ltd; Dana Air and Air Nigeria etc. It must be said that each of the moribund companies have their peculiarities for closing down and would require a thorough investigation to unearth them.

One of the factors I believe to be responsible for the abiku syndrome is how early entrepreneurs lose their hunger for more.

Because it’s a business in its infancy, a start-up isn't much different from a baby. We know that soon after babies are born, they start breastfeeding. Many mothers are surprised by the frequency of their need for breast milk and often wonder where all the food has gone. However, as days turn into weeks and weeks into months, the baby’s voraciousness is vindicated. Its limbs get longer, its bones stronger and it’s mentally smarter. But, let’s consider a scenario where the baby lost its appetite a few weeks after birth and never regained it; not only will it not stop growing, it will start dying. This is the fate of many Nigerian businesses where the entrepreneur quickly loses his taste for risk and adventure.

In management classes, we are taught that the business cycle begins with the start-up phase, then the growth phase, expansion phase, maturity/established phase and finally the decline phase. But, when an entrepreneur loses appetite and relaxes the moment his start-up has taken off, he can’t progress through the other phases. Instead, he immediately leapfrogs to the decline phase. When businesses start, they are often small and there is nothing wrong with starting small. But, a problem arises when the business stays small. Remaining small implies a lack of growth, and a lack of growth is a sign of dying which is often the result of waning entrepreneurial passion.

Take for instance, my barber whom I’ve been patronizing since 2006. By 2008, he stopped working for his employer and opened his own business. He didn't have to labour to get new customers because most of us just followed him to his new shop. It was such that in a matter of months he had established himself as the biggest barber shop in the neighbourhood. Then he began getting apprentices who were diligent and very professional; and many continued with him after the training period. One day, I suggested that since his role was now more managerial and less ‘operational’, he should open another shop in another neighbourhood. Evidently, the idea had never struck him as he told me he will consider it. But five years on, he is still considering it!

If he makes x profit from running a shop, he can make 2x profit if he opens another shop; especially since he has delegated the shop operations to his workers. Regrettably, I was there last Saturday to cut my hair and I found him sleeping on a chair while two of the ‘graduate apprentices’ were working for him. As I looked at him taking a snooze, a nasty thought crossed my mind: All it takes is for one of the apprentices to dare and open a shop in the neighbourhood. In a matter of months, just like his former employer, my barber will be out of work and his business declared dead. Like many Nigerian entrepreneurs he finds it hard to transition from the ‘self-employed’ business model to the business chain/franchise model.

There is a lot of hard work and sacrifice that will be required to grow and expand. But, the benefits far outweigh the cost of remaining small. One of the benefits is economies of scale. In the areas of procurement and advertising, having three or four barber shops will reduce the effective cost to the business, compared to having only one shop. It’s for this reason we read about the merger of two businesses or the takeover of one by the other, both of which are very rare in the Nigerian business landscape. The last time we heard about mergers and takeovers in Nigeria, was during the crazy scramble of banks to meet up with capitalization policy of the Central bank.

Entrepreneurs must learn to keep their appetite for risk and greater profit constantly whetted. Risk is to start-ups what breast milk is to babies; you lose it and you find yourself nursing an abiku business.

In my next post, we examine another factor responsible for the abiku business.

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