No matter where you are in the world, a high percentage of new businesses don’t make it. They close down for a variety of reasons. The story that I’m going to write you in this post will be about a Nigerian Company that just closed. And the reasons why it closed are all too common in Nigeria. I know this owner very well, and out of respect, I will not disclose the name of the Company or any of those specifics. All of that is irrelevant. However, the story of how it got started and why it ultimately failed are important to discuss. The reason is because what happened seems to be a familiar theme in closed businesses in Nigeria.

First, let’s go over some basic numbers. In Nigeria, over 90% of start up companies will not make it to 2 years. And after that, almost 100% will not make it to 5 years. This leaves you with just a very small percentage of businesses that last and are sustainable.

This story starts with the owner. He already had owned several businesses in multiple countries. He had an ambitious idea for Nigeria. It’s services and products had not been introduced in that region of the world, so it was a solid idea. He decided that he wanted to use his own money to get things started. He had never owned a business in Nigeria but because he is Nigerian, he felt that he had a good grasp on how things run over there. I believe this initial decision to use his own money was ultimately the reason why it failed. He could have easily acquired capital to get this company started because of his past success of other businesses and he had a number of assets he could have used as collateral.

Either way, in the beginning, he did all the right things. He invested on infrastructure, inventory, over 20 employees, top notch training for the employees, and office space in Lagos. Before any revenue came in, he was set up and had everyone ready to get business and then satisfy that business with excellent customer service support. The first year there was hardly any revenue. The second year, revenue averaged close to 2 million naira per month. By the third year, revenue totaled 25 million naira per month. By this time there were over 100 employees on the payroll and there were offices nationwide in Nigeria with clients nationwide. It was turning into a true success story.

This is when things turned very bad. The reason most businesses don’t make it 5 years is because they do not finance their growth. So ultimately the rapidly added growth closes down the business. I advised this owner as a friend to seriously consider getting investors or to get financed for the next stage of growth that he was already in. He needed a serious capital injection. This business is a service oriented business. They get a client, they sign a contract and then they start the services. The client pays 30 days after services rendered. So the first month of every contract yields zero revenue. As he was pushing the marketers to get new business, he was not prepared to handle the added costs. In this type of business, if you are using your own money and relying on existing revenues to handle costs, you will not see profit for a very long time. It doesn’t mean that the profit doesn’t exist. It simply means that as you look at the numbers on a daily basis, you don’t see it physically because so much is going out to cover daily costs.

His existing business had daily costs and unplanned costs not to mention monthly costs such as payroll. Remember, as he continued to get new business, the first month gets no revenue so his company incurred all the initial expenses to satisfy the first month of the contract. When unplanned costs came up for existing clients, he started to refuse to inject his own money to cover the costs. He insisted that existing revenue should cover all the costs. And with that mentality he crippled his business. He started to feel that is wasn’t profitable enough so he laid off employees and cut salaries all the while the company was growing. So what happened? They no longer could do the services they marketed.

In this type of business you need to finance your costs and sales. If he did that, he would have seen his profit daily. He would have seen the picture clearly and this would have allowed him to make non emotional decisions and also continue to grow the company.

Over time many employees quit and these were really awesome employees. He couldn’t make payroll on time. He stopped paying insurance and health insurance. He stopped paying pensions. He stopped paying the 13 month bonus. He stopped paying rents on the offices in other states. His new clients cancelled contracts because they weren’t getting good service. His long term clients cancelled contracts because what they had been doing for so long they stopped doing. When he said that he would no longer send money to cover costs, he started this domino reaction. And it didn’t take long. He made that decision 18 months ago. Last week he closed the doors on the business.

It’s very sad because this was a great idea and when he was funding it, the services were upscale and clients loved them. Not only that, their clients referred them to new clients. They started with zero revenue and in under 3 years they were making 25 million naira per month. If he were to do the right thing and acquire capital for the second stage of growth, I have no doubt that his company could have been making over 100 million naira per month. I think it’s safe to say that he would have seen a lot of profit at that point.

Let this be a lesson to all of you ambitious Nigerians. When you are planning your company, you can’t just plan how you will get started.
You need to anticipate how long it will take to grow to another level and you must be ready to acquire another round of funding to grow it. If you are satisfied with any level you reach, you can just run your business with budgeted costs and predicted sales. But if you are the kind of owner that wants to grow and grow and grow, you must realize that with each growth stage you must finance it. Walmart in the United States makes billions of dollars in revenue per month. But you can bet that they absolutely finance all of their costs. Same thing for Apple and Virgin Atlantic. All of these companies have billions of dollars in loans. It’s the only way to grow and the only way to make proper decisions. Also, consolidating your costs into a monthly debt makes it easier to run your operations.

Lastly, not everyone is supposed to be an owner. If that was the case there would be no employees. Some people have that purpose while others have a purpose to just be great at what they do or what they have a passion for. Do not go out on that risk until you are totally ready to do so.

Wishing you success

Source:http://www.tlkdrum.com/

tl/dr

Corruption and an inhumane government are the bane of prospective Nigerian enterprenours.

An interesting write-up... A lesson for all

charix:
tl/dr

Corruption and an inhumane government are the bane of prospective Nigerian enterprenours.

Corruption ke? Did you read the post at all? #JustSaying

Infomizer:


Corruption ke? Did you read the post at all? #JustSaying

Thats why I said "tl/dr"

"too long, didn't read".

charix:


Thats why I said "tl/dr"

"too long, didn't read".

I understand the meaning of TL;DR. But sometimes, you should use it as a summary of the article for the sake of someone who, for reasons best known to him/her, cannot read the long epistle. That's why I asked if you read it at all.

Sounds like something a certain Brian Botts posted on linkedin a whileago

Space booked! Incase this see's d light of FP

Trillyonaire:
Sounds like something a certain Brian Botts posted on linkedin a whileago

,Yeah that's the same post.He posted the same on this website too www.tlkdrum.com,that's where I lifted it from.

Nice one!

So how did this very businessman succeed in having businesses in other countries ?