Are you ready to start your own business?
05 February 2016
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Welcome to Old Mutual Live Business, my name is Chris Gibbons. Our topic in this latest podcast, why start and business and how do I know if I am an entrepreneur. Our special guest is an expert in this very field, Pavlo Phitidis, CEO of Aurik Business Incubator. Pavlo, hello and welcome, why do people start their own businesses?
Pavlo Phitidis: For two reasons Chris, you either a start a business out of necessity, which is the most common reason. Or if you have spotted an opportunity that you think a business could be built out of, you would start for that reason. So, it’s either necessity based or opportunity driven.
CG: Isn’t this a very risky time to be branching out on your own? I mean the global economy is not in great shape, it could be argued that South Africa is even worse?
A good time to start your own business
PP: I actually do believe that South Africa is in the worst position and that’s why I think it’s also a really good time to consider looking at starting a business. The reasons for it are as follows. Chris, if you consider the environment that everybody lived in, us as consumers, three years ago or two years ago. If you consider the environment that businesses operated in a year ago, two years ago, that environment has changed dramatically.
When environments change, so do the problems that consumers and businesses experience. The incumbent businesses that are out there serving businesses or serving consumers, have less ability, less flexibility to change and adapt to meet these new problems.
Whereas if you start a business, in this environment and you start it sensibly, intelligently, if you tape into what that new problem is, either for the consumer or for the business, you have a fresh start and you can take a fresh approach. You’ll be meeting them where their pain points are now.
CG: How do you then decide, Pavlo, which areas to focus on, which areas of business?
PP: I’m not a believer that you should do these big market scoping exercises if you’re starting a business and I really think that you need to be fundamentally practical. By that, I mean the following: Firstly, you need to have an affinity for what it is that you’re doing.
If you, for example Chris, have absolutely no relationship with technology and as such, you despise technology, then don’t go into the tech space. If you no affinity with people, whatsoever, don’t go into the hospitality/tourism industry. Find something that you, first of all, have an affinity with.
The next thing is, I’m a firm believer that you should always start a business with what you have, rather than what you need. Because otherwise you’ll spend most of your time obsessing about what you need and what you need is not going to be easily gotten in this environment.
If we look at some of the assets all of us have; we have relationships, we have history, we have an understanding of a particular community, a particular space, a particular place. Going into those areas and speaking to people or businesses in those areas and saying; this new world we’re facing with the shocking rand/dollar exchange rate, growth that’s going to dip below 1% without doubt this year.
A commodity cycle that may last three, five, 20, 30 years, as some people are predicting. What problems does that create for you in the environment that you operate in and how can I be of service. I think you need to be that simple and that close to the first, let’s say transaction, if you get it right.
CG: Is it then enough, just to have a great idea?
You need more than just a great idea
PP: No, it’s never enough just to have a great idea because if we start looking at opportunity, the driver, the motivator, in many instances a great idea that’s uncommon. A great idea that hasn’t been tested before, takes a tremendous amount of time and effort to bring to market. You know, a great idea in its own right Chris, if it’s your own great idea, I’m doubting that it’s an idea that will turn into a business. I’ll share some of my personal experience here.
The very first business I started was all about me and that’s we’re like as entrepreneurs. It’s about what I wanted to achieve, my goals, me-me-me, and that business failed. The second business I started, then was all about the product, the idea of what this product could do. It was the great idea and that business also failed. The third business I then started was about this thing called ‘the customer’ and when I tapped into actually what the customer wanted and how they wanted it, that business worked.
That business turned into a tremendous success. So, it is an evolution that we would naturally go through because without ego to drive you into business, you won’t get out of the starting blocks. But once you’re in business, that ego needs to be set aside and you need to realise that you committed your life to a life of service.
It’s not about you, it’s about that customer. If that customer is everyone and everything, you will fail because you can’t service everyone and everything. If you define the customer well, it’s their ideas as to what they need, it’s the shortest route to cash flow.
CG: Now raising money, that always seems to be the big problem.
The trick to raising money
PP: It is, Chris, I often wonder why? You know, I get a lot of applications with people coming to me saying we need funding, we need funding, we need funding. Honestly, out of every 100, maybe 7-8 are valid. When you raise money, there are a couple of things, when you start up.
If you had to raise money to start, then I think you’re approaching your start up environment incorrectly. There are many ways to start a business without money and I’ll give you a good example. Let’s say you want to be involved in a service that requires you to build capacity and capability in a business. Let’s say it’s going to be in the production of sausages.
You want to make sausages for the market and you go out there and you investigate this and you realise that you need to buy meat, you need to buy some ingredients, you need to buy some plant and equipment, you need to buy some machinery and on that basis you can then make your sausages and you can then take them to market.
A different approach would be to turn around and say: I want to get into the sausage business, I have no money behind me at all, the only way I will ever raise money, in fact, is if I have a customer first. What I’m going to do is find a job as a sausage selling expert, or consultant for sausage making companies.
In doing that, you gain employment, you go to market, you start to learn what kinds of sausages people want. What size sausages they want, what frequency they want the sausages deliver. How they want them delivered and as you gain that insight, you then start to see what current service providers of sausage making are doing wrong. What you could do differently to allow you to have the first two or three customers.
If you come to me with that already in hand, saying Pavlo, I’ve got my first 3-4 customers and I need R100 000 to buy the sausage making machine, the probability of you securing that funding from friends and family first, is far greater than if you simply said: I’m brand new, I’m starting from scratch, I need machinery to make sausages so I can sell them.
CG: Should I ever be thinking about a franchise? I know that’s a topic for a much longer discussion, but briefly, are there benefits?
What are the benefits of a franchise?
PP: Yes, there are benefits Chris. Firstly, franchises don’t come for free, so you have to have money in order to get into a franchise business. Whereas if you start your own business, you can start it for free, if you’re smart. The second thing is, if you’re very, very apprehensive, and very, very nervous about business, then going into a franchise environment gives you some shape and structure, but don’t be deluded.
I think there are over a thousand franchises in South Africa and honestly, if ten of them are really good, that’s a lot. Most of these franchises, they’re not well thought through, they’re not cleverly thought through, they really don’t have a good reason to be in the market.
There are a lot of fly-by-night franchise or operators out there. I’m a big believer that if you’re going to go the franchise route, then you need to go with one of the bigger brands. The problem is here, a bigger brand, the set up costs start at around a million rand.
CG: That also brings us then to the question about the type of personality involved. Does there come a point where I have to look in the mirror and ask myself: Am I really cut out to run my own business? How do I answer that question?
Are you cut out to run your own business?
PP: Yes, it really does. I still answer that question every single morning and I’ve been doing it now for 20 years. It’s something that you should always be considering and asking. I’m going to go back to the issue of affinity. You know, when I work with entrepreneurs, I look at 14 different attributes and those attributes all work together and against each other.
If you, for example, have a personality where you might be slightly more introverted, you might have a deep interest in research, you might be fascinated by innovation. Then you’re going to be suited to a different industry, let’s say the tech industry. As opposed to if you’re more outgoing, you’re more social, you’re more vivacious, you’re more active, you enjoy people, you are empathetic, then perhaps the hospitality industry is a better bet. I think you need to look at your personality from that aspect first.
The second thing is, Chris, you’ve got to, got to, got to be able to tolerate failure and rejection. It typically would take about 30-40 ‘no’s’ before you get your first yes. If you’re going to tear yourself apart every time you face a no and experience a no, then I think, honestly, that, more than anything else says that you might struggle in the space of entrepreneurship. If that is the case, find a business partner. I’m a big believer that businesses should be started in tandem.
CG: Pavlo, sound advice, thank you for having been with me on Old Mutual Live Business.