Business became a whole new ball game, in which only those who understood and respected the laws of markets could survive. Previously business was protected from market pressures by government subsidies, an artificially valued currency, import controls, guaranteed commodity markets and prices, captive customers with limited choices and cheap finance.
Almost two and a half years have now passed. Some entrepreneurs have fallen by the way-side. Others are struggling to survive. The economy is characterised by slow demand, low disposable incomes, tight liquidity, an influx of cheap imports and low consumption by the most important consumer group: the government, its departments, institutions and the organisations that it owns. Are there any lessons learned from doing business in this new environment?
I have been asking this question to entrepreneurs who are still in the game and growing their businesses. Here are two lessons which we can all learn from:
Lesson 1: Money does not grow like mushroomMany potential entrepreneurs are failing to turn their dreams into reality because, according to most of them, they have no access to capital. The truth is, there are very limited sources of finance available for new businesses, even without the recession. Entrepreneurs need to accept this reality because evidence proves that money is not the panacea to business success.
Thousands of SMEs received US dollar loans in the past two years but only a few managed to significantly grow their businesses. In fact, the majority are struggling to make repayments. One entrepreneur, let’s call him Mike, told me recently how he learned an important lesson. After winning a big export order from a regional customer, Mike rushed to the bank and got a loan to process the order. Unfortunately, the customer had a change of heart and cancelled the deal, citing better prices elsewhere. Mike was put into a corner. He couldn’t sell the goods to anyone else because they had been custom-made to the customer’s specifications.
Broke and with a huge debt, Mike went back to basic business. After months of looking for customers, he got a couple of big orders. True to prudent business practice, he asked the customers to pay deposits. The deposits enabled him to procure the necessary materials and process the order. The logic here: a serious customer will show his commitment by paying a deposit; if the customer cancels or fails to pay the balance, you would have at least covered your costs.
Can you get credit from a supplier or financier without a thorough credit worthiness analysis and provision of some form of security? Why should you give a customer credit without taking the same precautions? In the old days, you could afford to absorb losses in Zimbabwe dollars because you could make more money from the many arbitrage opportunities resulting from shortages in the market. Unfortunately the US dollar, unlike its now defunct local counterpart, does not grow like mushroom, no matter how much bull dung you pile on it. Spinning money does not work in this environment. Go back to the basics, be financially wise, mind your cents and the dollars will take care of themselves.
More lessons will appear in future columns. The complete list of lessons, which I have gathered from working with SMEs in the past couple of years, will appear in my new book, Back To Business: Twelve lessons for Entrepreneurs in Zimbabwe’s Transitional Economy , which will be launched on August 12.
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A good business opportunity is one that solves customers’ problems and satisfies their real needs. Many entrepreneurs today follow the me-too approach, copying the type of businesses they see many others doing. As a result, many compete in flooded markets, making very little profit due to excessive supply and low demand. An important question to ask before launching a new business or product is, “Who really needs this product and is the market big enough to sustain my business?”
It is important to first research the market, identify your targeted customers and find out if they really need your product and WANT to buy it at the price you want to sell it. Without evidence that someone really needs your product, it will be difficult to succeed in this environment where customers are very frugal and won’t waste their precious dollars on “non-essentials”.
On the other hand, try and avoid easy-to-produce goods and services, which thousands of others are supplying. Such commodities with no value added typically have very low margins; they won’t grow your business.
The series of Business Plan Writing classes is continuing every Wednesday and Saturday for the duration of the 2011 Zimbabwe Entrepreneurs Business Plan Competition, which closes on August 31. Send me an email for details.
Please join us on http://www.linkedin.com and Facebook, search for the group SME BusinessLink to share your thoughts on doing business in Zimbabwe.
