“My Worst Mistake in Business and What I Learnt from it”
Highlights from our inaugural Alumni Reunion on 15 December 2017
Last Friday, 15 December, we held the very first alumni reunion for the Advanced Entrepreneurship Program. The event’s theme was “My worst mistake in business and what I learnt from it” moderated by Dr. Fred Ogola. Participants shared their experiences and held fruitful discussions on growth, progression and improvement. Here are some highlights of the discussion.
Preparing your business for investors
Caleb Wasilwa of Home Biogas Kenya shared how he went through failed negotiations with investors. He put down his problems to lack of preparation, low negotiation skills and a lack of knowledge on how to value his company.
Selling anything first entails knowing its value. Valuation methods vary based on industry, company size and many other factors. Valuations based on Discounted Cash Flows (DCF), Multipliers or the Venture Capital Method are all applicable, but the latter is probably the most suitable for SMEs in emerging markets. At the end of the day, the most important thing you hope to achieve is to get the best, most realistic value of your business. At the negotiation table, use the method that yields the highest valuation of your business and start with this value.
Next to more or less exact valuation figures there exist multiple soft factors that vary from investor to investor. They also influence the pricing. Venture capitalists typically seek 30% return on investment annually, inject capital and expertise and exit in the medium term of 3–5 years. Strategic investors (in case of vertical or horizontal integrations) on the other hand don’t look so much at the immediate returns, but pursue synergies and acquire businesses for the long term. Make sure you understand what type of investor you are dealing with.
It is also crucial that organizational cultures and vision of your company and your potential partner converge. Clashing cultures have caused many casualties in the merger history.
Prepare your position for the forthcoming negotiations and “don’t go shopping when you’re hungry”, i.e. don’t be desperate as desperation leads to poor decisions.
When is the best time to exit your business?
Exiting the business altogether should not be confused with closing it down. Whereas businesses are usually wound up due to some difficulties, exiting is best done at the peak when you can achieve the highest price. One of the challenges entrepreneurs encounter is getting too attached to their businesses, which makes it even harder to sell at the climax which means they miss the best moment to sell. The point of exit also depends on your personal qualities and interests as entrepreneur. Exit when you think you cannot add any more value and the business is no longer interesting to you.
Selling a business typically requires 1–2 years preparation. Your systems and process must be solid, legal structure clear and an audit should produce a clean bill of health.
Personal brand vs Company brand
An interview with Charity Wanjiku of Strauss Energy gave rise to another interesting discussion on how to separate entrepreneur’s personal brand from the company’s. As long as you don’t plan to exit, this doesn’t really constitute a problem. But there will be clients (mostly businesses rather than individuals) who will prefer to work with a company with strong systems and processes rather that just with one strong personality. So it will all depend on the stage your business is in and on the circumstances.
Charity gave a very useful insight as to how to fight the widespread me-too copycat culture in business. Rather than beating her competitors on price, she strives for collaborations and mutual benefit wherever possible.
Do your homework
Alex Kiragu of Mokeira Seedlings shared about his real estate business that went sour in the U.S.A. He take away from that experience was that he should have done a lot more research before starting out. He is now in agriculture — or what he likes to call it “value addition to the seed” — on a big scale and swears by value addition. His motto is “no produce should leave the farm the way it is harvested”. Something should always be done to it to add value. One of the problems he observes with land in Kenya is that “we don’t look at it as a means of production. That’s why so much of it is lying idle.”
At ISBI we pride ourselves in creating impact on every single enterprise that takes part in our program. There is truly no better reward than to hear our alumni saying “ISBI was a God-sent program for me; it helped me understand the nitty gritty of the business, how to manage the finances and allowed me to dedicate more time to important strategic issues and let go of many routine activities” (Charity Wanjiku).
The event concluded with the alumni being awarded certificates for their successful completion of the Advanced Entrepreneurship Program. (All personal photos will soon be available)
We thank all our alumni for their trust and readiness to share and hope to welcome many more of you during the next alumni gathering. Your discussions gave us an impulse to launch a new program on all aspects of attracting investment. We are looking forward to welcoming you back in 2018!