In one week, I have read about 5 stories of failed Nigerian startups. I could see a pattern and that spurred me to write this article.
Nigerian startups should not mistake investment funding for profitability.
The more money you start off with, the farther your breakeven point.
Jumia and Konga are two of Nigeria’s biggest ecommerce sites today, partly due to the huge funding backup they have since they launched. They both have enjoyed over $ in investments. However, both are yet to become profitable. Infact Jumia just lost 61m dollars in the last 6 months.
I believe the business that can work in Nigerian harsh economic climate is a business that should make profit as soon as it takes off.
The Nigerian economic factors would frustrate any startup that wants to sacrifice for some years before making profit. The recession and forex drought cost Jumia and Konga 70% of their sales as most of their goods are imported.
For me, the key is always start lean, make profit as soon as you can. For Pukena, I ensured we scale up with as little capital as we can and make profit organically and from the profits we can scale further. We don’t mind going from house to house washing cars and cleaning houses as long as the money keeps flowing in. Our services in Pukena are solutions to everyday needs and our target market are within our reach. We are positioning Pukena to be the go-to for every middle class Nigerian for his daily service needs. But we are starting small. Not biting more than we can chew per time. For now office is not important. Our office is in our client’s homes! Little overhead, more profit.
I learnt that as a Pastor in Winners Chapel. We were taught never to spend more than 30% of the income on overhead. So the lower your income, the lower should be your overhead. In winners, your church branch can’t talk about spending on capital project if your project account can’t afford it. Very strict financial principles.
Right now in Pukena, we are targeting a gross monthly income of *** millions with as little marketing budget as we can. Hence am teaching my team how to get results with little or no money.
You have peace of mind when you build like this. I have used this principle throughout my business career till date. I always ensured I started small so that everything that comes in is a profit. Its not the easiest way to do business. But its the smartest.
You stand to maintain the controlling shares in your company if you follow this path. Even when you open your doors to investors, they are coming to join and scale an already thriving business.
Most businesses that fail, in my opinion, are businesses, whose owners usually start off with so much fiscal liability, and they keep chasing the shadows to just offset the liability before even talking about profitability, which in most cases, they never do. That was the case of etisalat. When you borrow money at a particular interest rate at a particular time, as time roll by, the value of that loan interest increase and the more difficult is it to pay up.
Start small. Make profit at your own pace. Build a great business
Visit www.pukena.ng to be inspired!