We know building a business in Africa isn’t easy. It takes years of practice, not to mention a certain amount of trial and error. The expertise our investment team has acquired over many years is invaluable and something our partner entrepreneurs benefit from on a daily basis. We believe in sharing the skills and experience of our team to help support as many entrepreneurs as possible. So whether you are just starting out, or are at the critical expansion stage with your SME, we have canvassed our senior team members for their top tips to help you build your business, and to help get you ready for investment.
Business top tips
Setting out
Know your audience
Kenneth Ibbett, Investment Director, West Africa
The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.
Business plan ownership
Barnaby Terry, Investment Director, West Africa
Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.
Size matters
Barnaby Terry, Investment Director, West Africa
Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!
Revenue counts most
Stephen Dawson, Chairman and Investment Director, East Africa
In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage, pricing, marketing, converting prospects into customers, routes to market etc.
Start-ups: simplicity is key
Christian Opoku Biney, Senior Investment Manager
When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.
Validation
Barnaby Terry, Investment Director, West Africa
To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.
Don’t try and do everything yourself
Paul Fitzsimons, Investment Director, West Africa
Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.
In business, starting to grow
Plan your exit
Barnaby Terry, Investment Director, West Africa
Most companies sell to companies they know already. Remember this when you are dealing with business relationships.
Key Performance Indicators
Barnaby Terry, Investment Director, West Africa
Choose less than five key performance indicators that best reflect your business and measure them on a timely basis. You wouldn’t fly an aeroplane without instruments after all.
Be decisive
Barnaby Terry, Investment Director, West Africa
If things obviously aren’t working in a part of your business, act quickly and cut your losses. A half-hearted approach to important business decisions wastes time and money.
Product-line profitability
Barnaby Terry, Investment Director, West Africa
Many businesses have multiple activities, whether they be: a mix of products and services; multiple product lines; different territories etc. Find out which activity makes money and put resources behind it. Find out which activity loses money and either fix it or close it.
Focus on gross margins
Barnaby Terry, Investment Director, West Africa
Gazing at revenues can be seductive, but they are often not the right thing to measure. Make sure you know your margins, and also make sure you know them at a customer level.
Be competitor savvy
Stephen Dawson, Chairman and Investment Director, East Africa
Be aware of your competition; you may think you do not have competition but they are always there (even if indirectly); by studying your competitors you can learn from the things they do better than you and make sure you make the most of the things you do better.
Manage your cash
Paul Fitzsimons, Investment Director, West Africa
Cash flow is everything in a growing business – a business must have a robust method of forecasting cash receipts and payments – on a very detailed basis for the next 12 weeks and on a broader basis for the next year. The business should look at actual versus budget on a weekly basis and follow up on any variation from the original plan.
Initial growth: management teams
Barnaby Terry, Investment Director, West Africa
We like owners or CEOs who have the ability to hire and retain very good individuals who, together, make strong management teams. This shows that the CEO is self-aware; understanding the gaps in their own ability and demonstrating a determination to scale the business, and we like businesses that scale.
Ready to expand, looking for capital
Be a team leader
Stephen Dawson, Chairman and Investment Director, East Africa
Do not hire a personnel manager even if your business employs large numbers of people: selecting, motivating, managing, and communicating with your core team is one of the most important things that you do and cannot be passed over to another manager.
In-house finance manager
Stephen Dawson, Chairman and Investment Director, East Africa
You may think that financial management capability is something you can hire in as needed but as your business grows you need to have this resource in-house; these skills are very different from the entrepreneurs’ and you may need help (e.g. from a private equity investor) in choosing the right person for this role.
Don’t run too fast
Stephen Dawson, Chairman and Investment Director, East Africa
Beware of over-expansion and particularly moving into new fields before you have really proven the model in your core area; this applies to product / service range expansion but especially to geographic expansion.
Know your strengths
Kenneth Ibbett, Investment Director, West Africa
Look for patient value-added capital that will round out your weaknesses. We expect you to have the vision and the domain expertise to get started- together we can then build up the execution team together.
Prudence always prospers
Kenneth Ibbett, Investment Director, West Africa
Don’t borrow money just because you can – spend only on what is critical to improve your bottom line. Frugality forces discipline and focus.
The courage to change direction
Barnaby Terry, Investment Director, West Africa
Once you raise money, don’t be afraid to deviate from the plan. Circumstances change, more market information emerges, so don’t be afraid to rework the plan with your investors and team as you go along.
Think entrepreneur
Kenneth Ibbett, Investment Director, West Africa
We like entrepreneurs – so think outside the box, challenge convention, outwit the competition. Be savvy when it comes to strategic partnerships with investors and other partners. A real entrepreneur realizes it is better to seize the opportunity with a good partner now, rather than haggle over terms for six months and be left empty handed.
Expansion: consider all your options
Ezra Musoke, Partner, East Africa
As you expand, look at the case for equity finance as an alternative to bank finance: a private equity firm can be a valuable partner in your business and strengthening your equity base means you can also prudently take on more debt.