I moved to Gbagada, Lagos Nigeria, a few years ago and I still remember clearly what “The Prince Superstore” was. The Prince used to be the only supermart in the locality. The business was simple – sell the basics. However, in recent years, I have witnessed a deliberate attempt by the business owners to diversify revenue streams. The question is – “if I have ten thousand people walk into my store daily, what else can I offer them?”.
Over the years, The Prince has included the village market where they sell tubers and other food items. The store now has a smoothie bar! In this day and age, where people are more conscious of their health, a smoothie bar within the store is not a bad idea. Recently, I saw a vanity store, where women can buy all their accessories from human hair to jewellery amongst others.Surprisingly, they added Suya, Shawarma, pepper soup and other snacks to their service offerings. I concluded that the owners of this business are trying to ensure that their 10,000 customers have all they require from one spot.
How to retain your clientele
It is important for your startup to think about what else to offer to its range of clients. The best way to view this is to understand the space your business is playing in. Then you seek to understand the behaviour of your customers and see what complementary services you can offer. Imagine you are in a food business. Consumer behaviour suggests that people that buy food might also request drinks. Then you can offer drinks to these sets of customers.
A number of startups have expanded their business using this strategy. Hotels.ng started as an online hotel booking platform, but now, it has transited gradually to become a foremost online travel agent by adding other service offerings to its hotel booking business. Now on its platform, you can buy airline tickets or book a holiday package.
Cars45 is another example. It started as a platform for used car sales, now you can trade in your old car for a different one. Again, I applaud this quality of thinking. People want to buy a newer car, but they currently drive one. What typically happens is that the buyer will first have to look sell his current car, add a few hundred thousand naira to buy a new one. What Cars45 has done is that it has taken away that stress of you looking for a buyer for your old car. You can complete the transaction all on a single platform.
SureRemit just concluded an ICO to leverage Blockchain technology for remittance services to Africa. I believe that this offering is from learnings from its existing business – SureGifts. Relatives abroad want to send in cash for specific purposes including food for the family, relatives’ school fees or medicine for the grandmother. But a lot of times, some of these monies are misappropriated by the uncle that received the cash, hence the need to buy the value (through a gift card) rather than send cash. This same rationale can then be extrapolated to people trying to send cash to specific people.
Flutterwave started by providing payment infrastructure for businesses and other payment gateways, but now, through Rave, it is competing with some of its own customers. To stay relevant in this business, you have to own your value chain. Your business is as strong as its weakest point, please remember that.
I can go on and on about examples of Nigerian startups already doing this, but I think EVERY startup should look for ways to ensure that they add a lot more value to their current list of customers. So, in the coming days, I will expect PiggyBank to offer loan services at least to its consistent savers. This will no doubt serve as an additional incentive to save on the platform.
Defending your Turf
You, however, need to be careful that your startup is not an extension of another. This is a tricky point and it is dependent on how fast you grow. For instance, Facebook wanted to consolidate its position as the leading social media site. Based on consumer data, users prefer images and really short videos, hence the need to incorporate that into their business. Rather than building their own product, Facebook acquired Instagram. In other to deepen engagement with the younger generation, Snapchat was another interesting acquisition target. However, the founders of Snap were not willing to sell, hence Facebook was compelled to build its own Snapchat features on all of its platforms including Instagram and WhatsApp.
If your startup is an extension of another, you have to grow quickly enough to be a potential acquisition target. If not, you might just lose that space to the bigger company who will just build the feature on its own platform, thereby killing your startup.
- You need to diversify your revenue stream by ensuring that your customers have access to all they might need within that vertical from your platform. I am not saying that Hotels.ng should add online retail to its business. But I am saying that if it has Hotels listed, Holiday Packages, Airline Ticket, why not add a taxi service at least for airport pick up and drop off.
- Be careful if your business is an extension of an already existing (larger) business. This is because the larger business can just add the feature to its own. But if you grow fast enough, you can just be an acquisition target, or you might expand your operations to compete with the larger business. Anything can happen!
- It is all about creating value for the customers and ensuring that your business stands the test of time.
How MSMEs can get easy access to finance
MSMEs must take the following steps for loan readiness.
MSMEs are considered the backbone of the Nigerian economy. In 2019, they made up 90% of all registered businesses, contributed more than 50% of the country’s nominal GDP, and employ 84% of its labour force. Despite this, MSMEs were the recipients of less than 5% of all credit granted by the banking industry.
One reason for this is self-selection by MSME owners. Many MSMEs refuse to apply for loans from banks due to a fear of rejection and a belief that banks charge exorbitant fees and request hefty collateral before giving loans to MSMEs. Now more than ever, in this era of cashflow-based lending and low-interest rates, this harmful myth is costing businesses access to finance that they need to scale.
Another reason is the MSMEs’ lack of loan readiness. Unlike large companies, small business owners do not prepare themselves before applying for loans. This causes them to make many mistakes that discourage banks from lending to them due to a fear of non-repayment.
In order to overcome this hurdle and join large businesses in taking advantage of the low-interest climate, MSMEs must take the following steps for loan readiness:
1. Maintain financial records – Research shows that 69% of MSMEs in Nigeria do not keep detailed financial records. As a business owner, you must ensure that funds pass through your business account. Your business’s financial records as reflected in your bank statement will help your bank determine your repayment capacity. This is important, whether you want a collateral-free or collateral-based loan.
2. Use narrations for transfer into personal accounts – Again, always use your business account for business funds. However, if funds must be paid into your personal account for any reason, then ensure that those payments have a narration that reflects the purpose of the payment. For example, Two shirts purchased. This helps isolate business funds from personal when computing your turnover in order to determine your loan amount and repayment capacity.
3. Know what you want – Always know exactly how much you want and what you want it for. If your account officer asks you how much you want and you say “any amount you can give me”, they automatically assume you have no plan for the money or a plan for repayment. Before approaching your bank, determine how much you need and how much you can repay per month, using your monthly income.
4. Have a repayment plan – Always have a plan for repayment. Know how much you can afford to part with per month. Note however that your repayment plan might not align with that of the bank. Banks prefer not to take more than 33% of your monthly income in loan repayments, so your loan repayment period will probably be dependent on how much you can pay per month. Regardless, a well-thought-out repayment plan will build confidence in your repayment ability.
5. Engage your account officer– It is important to have an engagement with your account officer before applying for the loan. Instead of just writing a loan application letter to the bank and waiting for a response. Armed with your financial statement and your knowledge of how much you need and for how long, visit your account officer and have them work with you in getting your loan.
Ese Atakpu is a writer and banker.
AFEX raises $50 million to Finance Agri-SMEs in Nigeria
The $50 million Agri-SMEs fund is expected to bridge the funding gap between lenders and borrowers in the agric sector.
AFEX Commodities Exchange Limited (AFEX), a private commodities exchange company, has announced the first Warehouse Receipt Backed Commercial Paper in Africa. The paper has tech-enabled operations and a 24-hour fast cash turnaround for borrowers.
This was disclosed by AFEX in a statement issued and seen by Nairametrics on Thursday.
The $50 million Agri-SMEs fund is expected to bridge the funding gap between lenders and borrowers in the Nigerian agricultural sector with a commodity-backed instrument – for the first time.
Ayodeji Balogun, CEO, AFEX, stated, “The AFEX financing deal will help eradicate the high cost of procurement incurred by processors by deploying a discounted value of a warehouse receipt distributed among five leading players in the Food and Beverage, Trading Poultry and Animal Feed segments in Nigeria.
“The receiving companies are top 10 players in their respective segments. They have now been enabled access to a tool for managing price volatility, enabling up to 30% direct savings on prices.
“With our vision to reach a cumulative total of over $5 Billion in investment to the agriculture sector over the next five years, this financing deal is right on track to achieve this goal.’’
He added that as AFEX move towards building a derivatives market in Africa, “we want to be able to reduce exposure to price risk for stakeholders, by enabling them to hedge their positions and trade in commodity derivatives.”
Why it matters
- The warehouse receipts, which can then be transferred from commodities to a financial asset and listed under the borrower’s portfolio on the AFEX trading platform, will create a sustainable funding structure and address underfunding in the Nigerian agricultural sector.
- With the warehouse receipt system linked to financiers, the system allows financiers value and marks the commodities’ price to market on a real-time basis.
What you should know
- AFEX’s mission is to provide low-risk working capital facility for stakeholders in the Agro sector, in a way that is transparent and has a very high viable investment return.
- As a licensed commodities exchange and warehouse receipt system operator, it deploys a warehouse receipt system and collateral management infrastructure to increase market confidence for both lenders and borrower.
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