Happy Friday, I hope that you had a productive week and are looking forward to relax over the weekend. I think I have officially realize that I am unable to write on weekends when I am home as there is just so much going on. I am however committed to posting daily from Monday to Fridays.
My new business ventures are reminding me of certain key principles that are necessary for any business to survive and grow. Remember the article that I wrote for start- up entities? In that articles I highlighted a few things that hinders growth for smaller business. I have recently launched a driving school and a TV subscriptions, airtime and electricity reselling business and this is what I would like to remind me you off:
- Everyone has a risk appetite and that is what guides you as to how much risks that you are will to take on. In other terms , how much are you prepared to loose if the worst had to happen? Knowing that will assist you when assessing what sort of business you would like to venture on and the type of partners to be looking for. I consider driving school a slightly high risky business given the level of driving experience the learner drivers have but on the other end, the airtime, electricity business is low risk as its around essential services. Everyone will have to buy electricity and pay TV once a month, the only x I must solve is how do I get people to do it with me as opposed to their current method?
- Too much growth too early can cripple your business. With the driving school, the strategy at this stage is to start with a few people as my driving instructor kind of have a temporary job in the mean time, so we are trying to schedule classes after 5 or during weekends. When we get enough customers, such that its worth focusing on driving school 100%, then we can enter in an aggressive marketing campaign. On the airtime side of things, my start up capital was N$ 1 500 (excluding the cost of the machine). That means, at each point in time, I can only sell to the value of N$ 1 500 before having to go deposit the money in the account. If I start pushing for orders in excess of that, I will end up having to either turn away clients due to insufficient credit on my side or invest more in the business ( capital may be limited). So take it slow until you have enough resources.
- Returns on your capital should not be viewed in isolation. Look at the opportunity cost of putting your money in an airtime machine versus how much it would have earned elsewhere ( and for many of us , it’s in your bank account). I could have saved the N$ 4 500 ( machine cost plus start-up inventory cost) on my call account at an interest rate of 2.4% per annum. That means that all else remaining the same, I will be generating a return of N$9 per month if that money was invested in my call account. With the machine, I have already managed to make N$52 profit just using inventory to the value of N$ 1 500. This gives me a return of 3.4% per months averaging to 41% per annum. Do not evaluate investment decision in isolation.
- Finally, bear in mind the payback period of your investment. How many months will it take you to be in business before you can generate enough money to recover your start up cost? In my example of initial capital of N$ 4 500 , assuming that my monthly profit is N$ 200 per month, it will take me 22 months before I can start profiting every cent out of the business. My payback period may be shorter considering that I used sales in the first month is my calculation of 22 months, which is normally lower as I still have to build a brand name.
In conclusion, the greater the risk, the more the reward but also the higher the probability of failure. Assess the opportunity and compare it to other opportunities that you could invest in before making a decision. Be prepared to built your business during its infancy stage and patiently wait for your revenue to absorb all your start up costs before starting to withdraw funds from the business. There is no magic wand, it all depends.
All the best assessing your risk appetite.