Laying Foundation For Business
Can you imagine building a skyscraper or multi-storied high rise building all by yourself? The first critical issue is laying the foundation. Well, the process of building up your business can be as intricate and as mind-bending as that. You must lay a foundation first, before you build or set up the business. Several things have to be factored in when building a skyscraper. You have to design the tower, calculate wind pressure, adhere to regulatory requirements, estimate construction and financing costs, manage an army of subcontractors, calculate the rents to accrue from leasing the building, so as to ensure a return on investment (ROI) for the project embarked upon. Similarly, the process of building your business will be impacted by numerous questions and unknown variables. The following questions for example, are key elements you must first address in your quest:
- How do you get access to capital or funding?
- How do you balance growth and profitability?
- What is your financial model for implementing your dreams, goals and visions?
- How do you get competent staff?
- How and when will you reward yourself?
- How do you manage the risk associated with getting capital?
- How do you acquire assets?
Building up your business then is both a science and an art and will require a well-defined and systematic approach, particularly in the foundational stage. Why? The kind of business foundation you lay will determine if your business will be able to withstand the winds of adversity, the vicissitudes of life, and if it will cave in under pressure or topple over when bombarded by difficult circumstances.
Self-Assessment (Who or What are you)?
Take a few minutes to look through the list below:
Which one of these creatures do you most identify with?
Congratulations, you have just carried out a simple self-assessment. The grid above compelled you to contemplate who you are as an individual- in other words your very essence. There are certain fundamentals that not just define your business, but define you as an individual. Your traits, behavioural patterns and personality type confer on you by nature, certain qualities that makes you better suited for certain lines of work, fields of study or types of engagement. As a wise man once said ‘Above all things know thyself’.
2 types of entrepreneur
Your ability to secure the financing your business requires, puts you into one of the following 2 categories namely:
- The Credibility-enabled entrepreneur (CEE)
- The Credibility-deficient entrepreneur (CDE)
Access to capital is determined by certain factors such as interest rates, loan terms, equity and collateral. However, these factors are very unaccommodating, and extremely exacting for most business people in the Nigerian workspace.
1- The Credibility-enabled entrepreneur (CEE): If an individual with a “bank CEO status” decides to start a business, he will easily have access to funding because he has credibility. Why does he have credibility? It is because he has a proven track record of resource management. Such people have a business model that assumes income growth from day 1:
This model assumes steady and sufficient cash flow/income growth from business startup. The cash flow ensures that a loan pay-off of say 20 million Naira in 12 months is realistic, achievable and feasible.
2- The Credibility-deficient entrepreneur (CEE): Most budding entrepreneurs (and probably you) fall into this category. Most likely you do not have CEO status (takes time to attain), few (if any) connections, and possess neither inheritance nor a pedigree of wealthy parentage. If this scenario defines you then the CEE model is unrealistic, not feasible and unattainable. The problem is majority of young aspiring startups pursue, and try to implement this which is virtually impossible. A wide gap exists between the demand for capital by a CDE and the reality of getting it. Therefore, it will not be surprising if you as a CDE view lack of capital as your Achilles heel (point of fatal weakness). This is the common lamentation of CDEs:
In the depiction above, there is a period of negative growth during start up, it is usually a time when your business will likely sustain physical, emotional and financial losses. If you are confronted with these realities in the course of building a business, you may (like many others) either become overwhelmed, give up or may try to artificially induce (or rush) growth. Both responses usually result in business failure.
What then must you as a CDE do? You must develop patience, dedication and endurance to get to the point where losses ebb and profits begin to flow. This is what is known as the break-even point:
It is at this point that your dreams begin to be realized. However, the bitter truth is that for the CDE, getting to this point requires a substantial amount of time and resource investment. Therefore the average Nigerian CDE faces twin challenges of not just securing capital, but also that of survival in the midst of a very hostile environment beset by all manner of unforeseen situations. These could be unfavourable changes in government policies, currency devaluation, and decrease in consumer purchasing power but to name a few. The only way to overcome this is to persist while adopting a methodical approach to growing your business. A wise person once said “persistence is the twin sister of excellence. One is a matter of quality while the other is a matter of time
Finally, to lay the foundation for a business, address key elements involved, assess yourself honestly then persist till you get to the break-even point.
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