MSME Digest
Kola Owolabi
I have made this mistake before and I know most small business people have made the same mistake and more are still making it today. The mistake is that when we all want to start a business idea the first thing we start talking about and looking for is capital.
I can remember something that I did about 18 years ago when I was planning to start a business directory. I went for a loan from my Uncle first. After getting the loan I proceeded to print beautiful brochures and branded envelopes to be sent to the prospects I was targeting and whose names and businesses I wanted to list in the publication.
The loan I got enabled me to take off beautifully but it did not guarantee the success of the idea because I got fed up after sometime when patronage was not coming in as fast as I had projected. I had spent so much useful time chasing capital in the first instance.
By the time I was starting another business many years after, I was wiser and so did not bother myself about the capital. I had a revelation of how to start and execute a business idea with any amount of capital at my disposal. So I bothered myself about more important things.
Let me explain the dilemma that you will face when you make capital your first love in business start-up or growth. The capital you are chasing about is not likely to be yours. It may be somebody else’s equity contribution or something like that. Let us say somebody invested in your business. I believe you must have spent useful time pursuing that person to invest. Thereafter you will be working for him because a company exists to serve the interest of the shareholders. You will have to pay him dividends. If he recalls his investment at anytime you are obliged to return it and this may spell the collapse of the business because you will have conditioned yourself to depend on the money.
The long and short of it is that the capital is not yours. It is a liability (accountants record capital as liability) hanging on your neck and which will weigh you down. The more of it the worse for you because it means you have a bigger weight on your neck to account for. I believe you won’t enjoy any weight on you. Won’t you like to start your company very light.
So what should you start with? Just like I have always advised, please start with sales. Spend the useful time you have to pursue sales rather than capital.
What are the reasons behind this wisdom?
One, the money you get from sales is yours and contributes directly to your bottom line.
Two, it gives you the opportunity to learn the selling experience very fast which adds to your ability meaning more sales subsequently. On the other hand, the experience you get chasing capital is not so useful to you (unless your business is financial consulting where you raise money for others).
Lastly, sales is the reason for creating the business and not raising capital and so the earlier you set about doing your core business the better for you.
You may ask me that what will one use to chase sales since you will need money to set up in the first instance? At least one would need money to produce the thing to show to people to buy.
What I recommend that you use initially are the two most important forms of equity – Brain and Sweat equity. I will explain how to use these two forms of equity creatively to your advantage next week. Meanwhile, let me tell you that two of the biggest companies in the world today, United Parcel Service (UPS) and Microsoft Corporation (that I like to quote so much) were started with these two forms of equity.
These two forms of equity are what a business needs because the capital you have most of the time gives you the means to hire those who will make available to you their brain and sweat equity (which you will now use the capital to pay for) rather than you do it on your own. If you throw money at problems in your business as a small business person you deny yourself the opportunity to master the critical areas of your business to enable you grow it exponentially. That is why you discover that managers hired to run such businesses will suddenly resign and leave taking away all the customers.
So why would you now use your time to chase capital that will be used to hire abilities that you can provide while starting and which will help you develop critical proficiency particularly in the area of selling?
What I know is that you should start doing it the other way round. Start with sales and build your capital with the profit you make from sales. With this model you are sure to endure the test of time because it is sales that you write to your profit and loss account and not capital and it is profit that ensures the long time survival of any business. Availability of cash (capital) can only ensure your short time survival. No company survives on capital.
The sermon I am preaching here today is that you seek first the kingdom of sales and all other things you need shall be added to you.
Kola Owolabi is the CEO of David Solomon Consulting – He is a Fellow of the Nigerian Institute of Management Consultants (FIMC.CMC).He can be reached by phone or WhatsApp through 08023203198.
