Tip: This strategy works if you are based in Africa but also if you want to manage your African business from abroad!
There is good news and bad news. Let us start with telling you the bad news first: One challenge that African entrepreneurs face is the lack of access to capital. This is absolutely true. Assisting others in their endeavour to succeed we regularly come across enquiries about how we can assist with raising finance in Africa.
Many aspiring entrepreneurs spend a lot of valuable time and energy trying to get a significant amount of capital before getting things off the ground. Others never get started in the first place – the lack of capital seems to be just too big a hurdle to overcome.
Now here is the good news: You can become successful – even very successful – by starting on a shoestring budget! Yes, absolutely! The lack of capital should not, we repeat should not, hold you back!
Firstly, we really hope that you have read the African success stories throughout this book with the necessary focus. If not, please revisit those chapters. You will realize that many, yes a significant number of the successful entrepreneurs we have featured in this book started with little to nothing in hand.
So, what do you need to do? The most important aspect is probably that it requires some flexibility at your end. You may have to let go of your business idea or plan as it stands right now and approach it differently. And you need to let go of your fears and insecurities of going it all the way with nothing in hand other than clear vision, determination, and humility to start with the basics.
Here is an example: Don‘t plan to build a modern manufacturing company or to import 1,000 solar panels if you have no money. Instead, start with simple business models that work. Build gradually, consolidate and expand until you get where you want to be and beyond.
Here are a few tips that will help you start a business on a shoestring budget:
(1)Facilitate the business interactions of others
OK, let‘s say you want to import cars, but you have no startup capital to buy those cars and transport them over to your location in Africa. What do you do? You can build an online car auction site that makes money by connecting buyers and sellers. By facilitating this trade, you could ask for a 1 or 2% commission for each sale they make. Provide a market or service to which people in your country have usually no easy access to. This is how you stand out and some people have become very wealthy doing exactly that. This is exactly what Cheki.com is doing in the African car trade market.
Or you can become an agent, a focal point for a certain country or company that you may have a relationship with (or you build that relationship). Let‘s say Femi sits in Nigeria and some kind of car dealer he meets at a networking event in Lagos wants to import Mercedes cars from Germany for Nigerian diplomats. Femi can ask Peter in Germany to find the local Mercedes dealers for him and by facilitating the deal he could make 5 or 10 % of the purchase price of the cars.
And so on. It works for almost every product, just be flexible in your business concept if lack of finance is an issue. The good thing is that you still become very knowledgeable about your product in the process and you will get the contacts in your niche and other opportunities usually turn up along the way. Who knows, you may not even want to return to your initial plan in the end.
(2) Find a partner with assets but a lacking vision
This is so simple. Find someone who has money or access to the assets you need and partner with him. An example: You want to start fish farming. You have read all about it, studied it and you know it is very profitable. But you may need access to a plot of land (if you want to build ponds) or you may need a small lorry to ship the fish from the lake or sea into the capital city to sell. You need capital and have wasted months looking for it and you‘re getting nowhere. Skip it and change your approach and outlook.
You may just be amazed how many people with a plot of land or a big car may want to partner with you. They may have the assets, but no ideas, no inspiration, or no education and knowledge. This is what you can bring in and the two of you can be in business immediately as partners and get started. It‘s so straight forward.
(3) Start a crowd funding group
You have US$2,000, but you are absolutely convinced you need $10,000 to invest in a project with super returns. Start a crowd funding group among your friends, like-minded startup entrepreneurs, or among village or clan members. Get 4 more people to put in US$2,000 and you have the 10,000 you need to get started. Get 50 people who ship in US$1,000 each and you have 50,000. Draft a written agreement regarding the business management, responsibilities, and the distribution of shares and pay a lawyer for it if necessary. Now you can get your business started or you can finally invest and let the money work for you.
(4) Build a business online
E-commerce is the business of the future and it is becoming increasingly popular across Africa, especially in countries like Nigeria, South Africa, Kenya, and Egypt – but it‘s also starting in many other countries.
You don‘t need to pay rent for a shop or an office, no utility bills, and no expensive human resource cost. Many of the most successful e-commerce businesses on this planet (and Africa) were started in someone‘s garage or bedroom. Expenses are minimal and if you sell no physical goods, but products like courses, e-books, audio (it must be of high value) then you can even generate your income automatically at one point with little input.
Some experts call this passive income, money made without any active participation on your part. So for example, you create a course once – but then people can download it again and again when they use Paypal or a credit card for payment; and you are generating income while you may be on holiday with family.
(5) Sell your knowledge and skills
It is not easy to sell your knowledge and skills, but if you are truly good at it and you find the right avenue it won‘t cost you money to produce it or import it, because you already own it. It‘s all in your head! And once you have made a name for yourself as an expert, you can earn a lot of money indeed.
So think of online marketing or brand design, there is a huge market out there in Africa, you just need to position yourself to get noticed (with a website and a blog, networking at events with business cards, or providing totally free services for a while to great clients so they refer you).
Sell your skills and knowledge as a personal coach or in business management, provide copywriting or editing services, or become more creative: become a personal shopper and style consultant or provide couple or parenting counseling. The possibilities are manifold!
(6) Be creative with a ‘zero capital’’ business model model
There are many ways to achieve success if you desperately want it. You just need to sit down and do things the unusual, creative way. In entrepreneurial terms, it‘s called hustling‘ and you have to do a lot of it for a year or two at least (or long-term), and you will be amazed how far you have come setting your business up. Here are some examples of getting your foot in the door, making valuable contacts, finding partners and sponsors:
i. Create a unique networking event in the industry or niche you want to get into. Choose a great hotel or bar for the event. Suggest to the hotel or bar manager that you will invite 20-40 people into the bar/restaurant on a day where they do not have many guests. Send invitations for a special networking opportunity in a particular industry or for start-up entrepreneurs announcing that it is completely free, but participants are expected to buy their own drinks.
This will cost you nothing, yet now you are mingling with the right people and if you can pull your event off regularly for a year or so, you may even consider an extended event adding speakers, ticket sales or sponsorships – you are in business! Alternatively, if events management is not your thing for the long-term, you have at least managed to get to engage with the people in your industry through the meet-ups you organized. If they trust you and see skills you can bring along they will be very open to cooperate. This is a smart strategy to get your foot into the door.
ii. Are you interested in developing a food brand, a home-made recipe or an organic beauty product? Start it in your own kitchen! Seriously, several entrepreneurs have done it! Perfect your product, let family and colleagues try it. Make improvements where necessary, get some very cheap (but still smart looking) packaging, put a sticker with your brand on it. Produce 100 units and pay for a very small stand or desk at the next food or beauty exhibition.
You may have heard of Avon or Tupperware – who run a business network through individuals who sell for them. There is an increasing number of such direct marketing companies now operating in Africa selling creams, coffee, and holiday packages. It is one way of starting a business for yourself using the product of others.
But you could also use your own product and establish a network of individual sellers for your product who earn a commission for each item they sell for you to their friends, colleagues, neighbours and customers. This way you are not relying on supermarkets for example to buy from you and you don‘t have to do all the selling yourself, it is mostly done by others.
iii. Offer a service – any service (like delivery, laundry, copywriting. But instead of buying the cars, the washing machines, or paying the office rent, you actually use the services of decent and reliable small businesses who already offer those services, but have no recognizable brand and serve only a very limited reach. Add something unique to the services they offer – you could be the fastest service in town for example.
Build a network of small businesses. You are really just coordinating the process, but you have a wide outreach this way, and your network can act fast because you give the job to the one that delivers in time. This way you get jobs to these small businesses while building your own company and brand. Fastest in town and 24 hours per day? Your customers will love it!
There are many more efficient and creative ways you can use to start your business on a shoe string budget. The most important point in our view is that you do not let the world pass by and the competition build up while you are still looking for capital. Besides, many who finally managed to get the big money‘ together they were desperately looking for often face sudden cash flow problems along the way.
Thousands and thousands of start-up business fail despite the initial start-up capital raised, leaving a lot of people in debt or with little motivation to start all over again. Yes, access to capital can give your business a head start or may be necessary to grow your business at one point. But the above examples and models are very feasible avenues for those who simply don‘t have the money – be it as a new entrepreneur or those who are looking for a second chance after failure.