When multiple partners build a startup, how big a stake should each one get?
Read more...
Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts
Wednesday, July 1, 2009
Wednesday, June 17, 2009
Five ways to grow the market and create value
After years of restructuring, reengineering, and downsizing many companies are now emphasizing growth. They are under pressure to do so from three directions: shareholders, competitors, and employees.
Shareholders have become more active and demanding in the US, but increasingly so in Africa, Asia and Europe.
Consider the number of companies that have fired or gently pushed out their CEOs in recent years. Shareholders demand value creation. This is closely linked to corporate growth. The obvious limits of value creation through cost cutting now make revenue growth essential.
Then there is heat from competitors, particularly in industries such as banking, pharmaceuticals, automotive, defense, airlines, and personal computers, which are undergoing consolidation. Here growth is essential if economies of scale in technology development, operations, capacity utilization, marketing, distribution, and network externalities are to be captures. Those companies that fail to expand as fast as competitors will lose competitive and enter a downward spiral. The only options then are expansion or a vicious cycle leading to oblivion.
Finally, employees are an important influence. Employees in an expanding company have greater opportunities for career advancement, financial rewards, job security, and job satisfaction. It is more fun to go work every day and the collective mood is more upbeat in growing company.
While growth is important, it is ot easy. Asked about their target growth, companies in the US and Europe will respond that on average it is between 10 and 15 percent. As the overall economic growth rate of the countries in which they trade is about 2 to 3 percent, there is no way all of them can achieve their targets.
Put differently: add up the five-year projected market shares of all the competitors in an industry and you get a figure well over 100 percent. For every company that achieves its growth target, another will be well short. To count among the successful, a company needs a wise growth strategy. Developing this involves two major decisions: the direction and the mode of growth.
There are five possible growth directions:
- from current business by gaining market share and increasing market penetration;
- in the same business, but in a different geographic location;
- by vertical integration, either backward or forward;
- in another related business;
- in a different, unrelated business.
A company does not have to pick only one such direction. However, it is unlikely that simultaneous pursuit in all directions is wise. Instead, given limited resources, a company should determine the relative emphasis to place on each chosen growth direction.
The most promising growth directions in today's environment are: market penetration, globalization (particularly where emerging country markets are concerned), and forward integration.
Shareholders have become more active and demanding in the US, but increasingly so in Africa, Asia and Europe.
Consider the number of companies that have fired or gently pushed out their CEOs in recent years. Shareholders demand value creation. This is closely linked to corporate growth. The obvious limits of value creation through cost cutting now make revenue growth essential.
Then there is heat from competitors, particularly in industries such as banking, pharmaceuticals, automotive, defense, airlines, and personal computers, which are undergoing consolidation. Here growth is essential if economies of scale in technology development, operations, capacity utilization, marketing, distribution, and network externalities are to be captures. Those companies that fail to expand as fast as competitors will lose competitive and enter a downward spiral. The only options then are expansion or a vicious cycle leading to oblivion.
Finally, employees are an important influence. Employees in an expanding company have greater opportunities for career advancement, financial rewards, job security, and job satisfaction. It is more fun to go work every day and the collective mood is more upbeat in growing company.
While growth is important, it is ot easy. Asked about their target growth, companies in the US and Europe will respond that on average it is between 10 and 15 percent. As the overall economic growth rate of the countries in which they trade is about 2 to 3 percent, there is no way all of them can achieve their targets.
Put differently: add up the five-year projected market shares of all the competitors in an industry and you get a figure well over 100 percent. For every company that achieves its growth target, another will be well short. To count among the successful, a company needs a wise growth strategy. Developing this involves two major decisions: the direction and the mode of growth.
There are five possible growth directions:
- from current business by gaining market share and increasing market penetration;
- in the same business, but in a different geographic location;
- by vertical integration, either backward or forward;
- in another related business;
- in a different, unrelated business.
A company does not have to pick only one such direction. However, it is unlikely that simultaneous pursuit in all directions is wise. Instead, given limited resources, a company should determine the relative emphasis to place on each chosen growth direction.
The most promising growth directions in today's environment are: market penetration, globalization (particularly where emerging country markets are concerned), and forward integration.
Thursday, February 12, 2009
Breaking Views: Microfinance Risk? What risk?
Microfinance entrepreneur Dave Van Niekerk thinks Afraica is a safe bet and is lending the money to prove it - even though his customers don't have bank account between them.
Feeling Blue?
Blue Financial Services (www.blue.co.za) began life in 2001 as a finance provider for low-income earners in South Africa unable to afford mainstream financial services. By 2003 it had expanded into Botswana and by the year ending February 2005 it saw turnover reach R80 million ($11m). A swift listing on tha Altx board of the JSE in October 2006 and capital injections from AIG and IFC among others sponsored an ambitious expansion programme that sees it now operating 173 branches across Soth Africa, Botswana, Zambia, Uganda, Tanzania, Malawi, Lesotho, Namibia and Kenya, employing over 1,000 people.
David Van Niekerk founded Blue Financial Services in 2001 and has led it since as CEO. He has worked in microfinance since 1997 when he joined Unity Financial Services, later becoming a shareholder and the operational manager. Unity was eventually sold to Theta investments to become part of its microfinance stable, which was then merged into South African loans provider African Bank, to become African Bank Investments Limited. Van Niekerk held various senior management posts there until leaving for Blue. He was officially to Blue's board in October 2005.
Q. Why does your company Blue focus on microfinance for the bottom of the pyramid?
The opportunities in the microfinance area across the continent are just enormous - banks are simply not servicing this market. In Zambia for instance, you can’t get a home improvement loan or even a loan to buy a vehicle from a commercial bank - the restrictions and costs are too high.
The majority of our customers live on a subsistence living, and they don’t have a large savings base. Many of them don’t have any savings, they live from hand to mouth, so the smallest emergency expense will set them back dramatically and they need to have access to capital to fix the problem.
Q. How successful has the venture been so far?
We’re currently the top-listed company on the ALTX, with a market capitalisation of about two billion rand (U S$281m). We have strong international shareholders like IFC, part of the World Bank; AIG, one of the largest insurers in the world; Stanlib from South Africa, and the Dutch Development Bank recently also placed funding with us. We have a nice investor base, and a lot of international flavour.
We want to become Africa’s biggest credit provider, and our intention is to be in the majority of African countries in the next five years. We’ll go where others fear to tread. Our Kenyan operation is continuing despite the political chaos and will continue, and the people that pull out now are the ones that are going to get hurt.
Q. What financial services do people in this market need?
People primarily need day-to-day finance - they need salary advances, which is instant finance. Second, they need term loans, which are essentially personal loans that can be used for a variety of purposes from home improvement to an emergency. Our third most popular product is the home improvement loan. In our experience the majority of our clients don’t want loans or advances paid into a bank account, they want to receive cash.
It’s not as easy as dealing with a high-profile customer: it’s a more labour-intensive market. We spend, on average, half an hour with each customer to get things done and we pay out advances or credit on average within an hour. People need access to credit in a hurry - they’ve got jobs they’ve got to maintain, and they don’t want to go and apply and then come back for an answer three weeks later. They will often travel large distances from rural to urban areas to get finance.
We give typically home loans of up to 350,000 rand ($49,000) - an area where the banks won’t play. We’ll give education loans, home improvement loans and normal personal loans, and advanced credit with fixed repayments over time.
Q. Why don’t the banks serve these customers?
The banks are not geared for this market. It’s not their fault they’re not geared, it’s a very tough market and there isn’t necessarily all the information to hand to grant credit.
Most of this population is also unbanked. So, if you’re a bank, you’re looking at banking that person first, to get them a track record, and a history to be able to grant the credit on. Banks look at this market from a very different perspective - we don’t measure our customers’ credit ability or credit worthiness from his bank account, we look at a number of factors. Banks like to have a customer with them before they will grant credit. So you first have to bank the population - it’s a chicken and egg situation, do you bank them first or lend to them first? In Tanzania, 35% of civil servants don’t have bank accounts. They get paid by collecting cheques from banks assigned by the government, but they don’t have an account there. These are civil servants, your more educated, higher level employees - it just illustrates the limited nature of banking in Africa.
Q. What can microfinance do for economic growth in Africa?
There are many stats showing that if you lift the GDP of a country by 10%, you raise the bottom income earners by 3% - you’ve taken 3% of the population out of poverty. How do you do that? You create employment, you give potential entrepreneurs access to funding.
In Zambia, most of our customers are existing civil servants who run a small business on the sideline; where they have agricultural crops, they have a poultry business, they do repair work, and they do it through loans they get from us. We have one lady there who borrowed money from us to start a chicken business. Over a year that has blossomed and she now makes three times her teacher’s salary through her business. That’s the kind of access to finance that people require.
Q. Africa’s low-income market is perceived to be credit-risky - would you agree?
In our experience, people who have new access to credit don’t want to disappoint the lender because they’ll never be able to borrow from you again, and they want to continue that relationship. So, we have a much better payment history in the rest of sub-Saharan Africa than we do in South Africa, and strangely enough the more informal or rural the country, the better the payment culture.
It’s essentially about responsible lending - the customer has to be able to afford the instalment, so you adjust the term, the period and the value of the advance to the use of the loan to ensure they can afford it. We match the term of the repayment to the product - we won’t give somebody a school fee loan over three years, it must be a one-year loan.
Q. How do you check the creditworthiness of your customers?
We have a scoring model that we use to determine the customer’s affordability and whether he should get the loan, and that involves working with ITC bureaux and credit bureaux in these countries, often using data shared between banks and financial institutions. We base our model on factors such as length of employment, how much the customer earns, how long he has lived at the current address, and a number of different aspects of his personal life.
Q. Do you back up your loans with money management support or mentoring?
We’ve only now moved into SMME lending - small business loans - and yes, we do. There is a lot of hand-holding involved; we give the person coaching, mentoring, we manage his bank account with him for the first few months.
We’ve got education courses for our customers and education booklets to train people on budgeting, managing their money, how to use a loan, why not to use a loan, how to repay a loan, what the effects of interest rates are. This is all designed to educate our customer base, because for many this is their first experience of credit. When we opened in Malawi we were the first formal microfinancier in the market, as they had only previously had loan sharks who would break their kneecaps. They knocked us over - we couldn’t keep up with demand for the first few weeks. It’s a big education process.
Original Article: Africa Investor
Integrity Counts
Vimal Shah, CEO of east African FMCG giant Bidco, has built a household name by matching business sense and commitment with firm ethics. He explains his vision to Alison Lock, Africa Investors.
It isn’t an easy time to be doing business in Kenya at the moment, but Vimal Shah, founder and head of the Bidco empire, has weathered a few storms in his time. "It’s a phase we have to go through and it’s good to learn from," he says stoically of the current political upheaval.
"These are our peak months, but they’ve been the opposite," he says. "It’s disrupted the distribution systems and the way people work, and in Uganda we’re down by about 50% from normal levels."
It was a similar story 15 years ago, during the 1992 multiparty elections in Kenya, when his small consumer goods company, producing and selling edible oils, fats, soaps and margarines was in its crucial expansion stage.
"It was a very tough period for us when we started off. Interest rates went from 15% to 80% per annum. The exchange rate was also very high, worse than it is at the moment in Kenya, it was very hard to operate. Lots of companies didn’t make it."
Bidco did survive, however, and has since grown from an idea conceived out of his father’s textile business into a household name with production plants in Kenya, Uganda and Tanzania distributing 26 brands across 14 countries. Shah’s ambitions for his business now stretch continent-wide: "Africa’s per capita consumption is very low. It can only go up. We have a goal - 2030 - by which time we want to be all over Africa in this industry."
Read More..
It isn’t an easy time to be doing business in Kenya at the moment, but Vimal Shah, founder and head of the Bidco empire, has weathered a few storms in his time. "It’s a phase we have to go through and it’s good to learn from," he says stoically of the current political upheaval.
"These are our peak months, but they’ve been the opposite," he says. "It’s disrupted the distribution systems and the way people work, and in Uganda we’re down by about 50% from normal levels."
It was a similar story 15 years ago, during the 1992 multiparty elections in Kenya, when his small consumer goods company, producing and selling edible oils, fats, soaps and margarines was in its crucial expansion stage.
"It was a very tough period for us when we started off. Interest rates went from 15% to 80% per annum. The exchange rate was also very high, worse than it is at the moment in Kenya, it was very hard to operate. Lots of companies didn’t make it."
Bidco did survive, however, and has since grown from an idea conceived out of his father’s textile business into a household name with production plants in Kenya, Uganda and Tanzania distributing 26 brands across 14 countries. Shah’s ambitions for his business now stretch continent-wide: "Africa’s per capita consumption is very low. It can only go up. We have a goal - 2030 - by which time we want to be all over Africa in this industry."
Read More..
Wednesday, February 11, 2009
RAISING FUNDS FOR THE SMART & SERIOUS ENTREPRENEUR
We're expecting $400,000 in revenue this year and considering seeking outside capital for the first time. What do investors usually want in terms of percentage of ownership and rate of return?
The answer, in two words: a lot. Which makes sense, because the investors are taking a lot of risk. Out of any 10 investments, half will fail completely. Of the remaining five, two will break even and two will return a couple of times the investment. The profit needs to come from the last company, which means that every one them has to have the potential of being a home run.
What's a home run? In an angel's ideal world, an equity investment of $100,00 would turn into $1 million to $3 million in five to seven years. Angels won't complain about a lower return, however, if they can exit more quickly.
You may have to give away a large stake to get the money you need. Whereas a tech company with your level of revenue might be valued at $4 million to $5 million, a toffee maker probably is worth from $1 million to $2 million. If an angel estimates that your company is worth $1 million, then gives you $250,000, the investor will get a 20 percent stake. That's because the size of the stake is determined by the postmoney valuation of the company - in this example, $1 million plus the $250,000 investment. If you can show that sales are growing rapidly, you may have some leverage to negotiate a higher valuation. But may be not. Consumer products is a risky sector; even if your toffee is already on grocery store shelves, a larger company could drop its prices and drive you out.
Don't want to give up a large chunk of your company, only to see it sold off? You could approach friends and family members instead. Unlike a professional investor, Grandma probably can't tell you how to find a great new VP of marketing. On the other hand, she is much less likely to demand a full-ratchet anti-dilution provision. And there's something else to keep in mind. Like VCs, angels are increasingly asking for their shares to come in the form of participating preferred stock, which ranks higher than common stock. In an exit, your angels will receive the face value of their original investment plus any accrued dividends (usually worth about 8 percent a year) before you or any friends-and-family investors receive a cent. then if there's any money left over, the angels share in the rest of the pie. If the pie is big enough for all to share, great. If not? Well, you're in for an uncomfortable conversation with Grandma
This Blog Post was adapted from " Tough questions, smart answers ASK Inc." from the November 2008 issue of INC. Magazine.
The answer, in two words: a lot. Which makes sense, because the investors are taking a lot of risk. Out of any 10 investments, half will fail completely. Of the remaining five, two will break even and two will return a couple of times the investment. The profit needs to come from the last company, which means that every one them has to have the potential of being a home run.
What's a home run? In an angel's ideal world, an equity investment of $100,00 would turn into $1 million to $3 million in five to seven years. Angels won't complain about a lower return, however, if they can exit more quickly.
You may have to give away a large stake to get the money you need. Whereas a tech company with your level of revenue might be valued at $4 million to $5 million, a toffee maker probably is worth from $1 million to $2 million. If an angel estimates that your company is worth $1 million, then gives you $250,000, the investor will get a 20 percent stake. That's because the size of the stake is determined by the postmoney valuation of the company - in this example, $1 million plus the $250,000 investment. If you can show that sales are growing rapidly, you may have some leverage to negotiate a higher valuation. But may be not. Consumer products is a risky sector; even if your toffee is already on grocery store shelves, a larger company could drop its prices and drive you out.
Don't want to give up a large chunk of your company, only to see it sold off? You could approach friends and family members instead. Unlike a professional investor, Grandma probably can't tell you how to find a great new VP of marketing. On the other hand, she is much less likely to demand a full-ratchet anti-dilution provision. And there's something else to keep in mind. Like VCs, angels are increasingly asking for their shares to come in the form of participating preferred stock, which ranks higher than common stock. In an exit, your angels will receive the face value of their original investment plus any accrued dividends (usually worth about 8 percent a year) before you or any friends-and-family investors receive a cent. then if there's any money left over, the angels share in the rest of the pie. If the pie is big enough for all to share, great. If not? Well, you're in for an uncomfortable conversation with Grandma
This Blog Post was adapted from " Tough questions, smart answers ASK Inc." from the November 2008 issue of INC. Magazine.
Monday, February 9, 2009
AllTech Ventures Management Adding Value beyond Capital to Entrepreneur's Project
Good initiative to provide financial, technical and managerial support to ensure long-term success of businesses or entrepreneur's project that will ultimately provide exceptional returns for both the entrepreneur and investors.
AllTech Ventures Management is the Allegiance Technologies Limited (a subsidiary of Steersman Enterprises, Inc.) vehicle for entrepreneurship development for technology creators, and venture creation services and resources for entrepreneurs committed to bridging the gap between technical ideas and viable companies.
AllTech partner with entrepreneurs to build leading evolutionary technology companies. Founders face significant challenges today in planning, staffing, launching, and financing new ventures. AllTech understand the gap that exists between great ideas and sustainable growth companies. AllTech Ventures Management provides extensive services and resources designed to turn great ideas into scalable enterprises. Portfolio companies receive:
• Access to proven funding, team-building, and customer networks
• Hands-on consultation from our experienced venture staff
• Technical expertise, to support product development, from one of the region’s leading research institutions
• Valuable infrastructure, such as advanced computer and biotechnology labs
The AllTech team is drawn from top start-ups, high ranked corporations, and world-class universities. AllTech Ventures Management professionals have an established record of excellence in the tasks they have dedicated themselves to — from academics to operating businesses.
AllTech Ventures Management draws upon the start-up, corporate, venture capital and management consulting experience of its founders to foster successful entrepreneurship and the management of technological innovation.
AllTech Ventures Management venture building activities includes:
VentureAccelerator Program (VA)
VA is a program open to Entrepreneurs committed to creating new companies based on Allegiance Technologies innovations. Once registered into the program,
VA company founders receive intense, hands-on assistance with a range of new business processes, including market validation, business planning, staffing and initial funding through grants and/or equity investment.
Technology Advancement Program (TAP)
TAP is a venture incubator that partners with entrepreneurs to build early-stage companies. TAP expedites the maturation of young firms by providing extensive hands-on business support from experienced and entrepreneurial staff, access to funding sources, technical expertise and turn-key infrastructure.
The Technology Advancement Program (TAP) staff is comprised of seasoned veterans of technology startups and venture capital firms who will provide:
• business advice and support
• product planning
• project management
• program management
• market intelligence
• introductions
• access to funding
• other critical assistance that can accelerate the growth of your technology venture.
AllTech Venture Creation programs provide to entrepreneurs in the emerging markets of Africa. We seek opportunities in multiple industries including wireless, digital media, software and service companies.
Submit business plan: bizplan@steersmanenterprises.com
AllTech Ventures Management is the Allegiance Technologies Limited (a subsidiary of Steersman Enterprises, Inc.) vehicle for entrepreneurship development for technology creators, and venture creation services and resources for entrepreneurs committed to bridging the gap between technical ideas and viable companies.
AllTech partner with entrepreneurs to build leading evolutionary technology companies. Founders face significant challenges today in planning, staffing, launching, and financing new ventures. AllTech understand the gap that exists between great ideas and sustainable growth companies. AllTech Ventures Management provides extensive services and resources designed to turn great ideas into scalable enterprises. Portfolio companies receive:
• Access to proven funding, team-building, and customer networks
• Hands-on consultation from our experienced venture staff
• Technical expertise, to support product development, from one of the region’s leading research institutions
• Valuable infrastructure, such as advanced computer and biotechnology labs
The AllTech team is drawn from top start-ups, high ranked corporations, and world-class universities. AllTech Ventures Management professionals have an established record of excellence in the tasks they have dedicated themselves to — from academics to operating businesses.
AllTech Ventures Management draws upon the start-up, corporate, venture capital and management consulting experience of its founders to foster successful entrepreneurship and the management of technological innovation.
AllTech Ventures Management venture building activities includes:
VentureAccelerator Program (VA)
VA is a program open to Entrepreneurs committed to creating new companies based on Allegiance Technologies innovations. Once registered into the program,
VA company founders receive intense, hands-on assistance with a range of new business processes, including market validation, business planning, staffing and initial funding through grants and/or equity investment.
Technology Advancement Program (TAP)
TAP is a venture incubator that partners with entrepreneurs to build early-stage companies. TAP expedites the maturation of young firms by providing extensive hands-on business support from experienced and entrepreneurial staff, access to funding sources, technical expertise and turn-key infrastructure.
The Technology Advancement Program (TAP) staff is comprised of seasoned veterans of technology startups and venture capital firms who will provide:
• business advice and support
• product planning
• project management
• program management
• market intelligence
• introductions
• access to funding
• other critical assistance that can accelerate the growth of your technology venture.
AllTech Venture Creation programs provide to entrepreneurs in the emerging markets of Africa. We seek opportunities in multiple industries including wireless, digital media, software and service companies.
Submit business plan: bizplan@steersmanenterprises.com
Unleashing ideas with venture capital
There are many Nigerians with fantastic ideas that require capital to start or grow their existing businesses. Accessing the needed money from banks or other financial institutions is usually difficult not because all the ideas lack credit but there are certain factors that the lenders contend with it. In addition to funds, many people with ideas also need a partner to work with.
Read More
Read More
Friday, February 6, 2009
Investors accuse of banks inhibiting market recovery
As the Nigerian capital market continues to wallow in the troubled waters of prolonged loss of value, investors and operators are railing accusations against the banking sector for their die-hard posture on recovering margin loans, an instrument that played a crucial role during the market boom period. Read More
Thursday, February 5, 2009
Monday, January 26, 2009
Playing an integral role in the revival of Africa.
LONRHO is a pan-African company with a diverse portfolio of investments focusing on Africa. Its investments range from primary infrastructure to transportation, support services, hotels and natural resources.
The Company is focused on servicing Western investment and African business by investing in emerging sectors across Africa, creating hubs of business through key investments.
Lonrho is re-establishing a significant presence on the African Continent through strategic investments across sectors in fast-growing African economies.
Subscribe to:
Posts (Atom)