From Silicon Valley to Swaziland, Rick & Wendy Walleigh [i love reading books .txt] 📗
- Author: Rick & Wendy Walleigh
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Our plan was to drive to a settlement in Carolina where we would pick up a man who had the keys to the shuttered factory and would show us around. He had been the foreman when the factory was operating. We drove to the border and passed through immigration. As we drove into South Africa, the land became flatter, and we passed miles and miles of rolling brown grass fields mixed with timber plantations.
When we got to Carolina, we pulled off the road into what I can only describe as a small settlement. It was more than one house, but much too small to be a town. It was surrounded by a barbed-wire fence, and we entered through a gate comprised of only barbed wire strands held in place by sticks. We drove along two tracks in the dirt and pulled up in front of a house with a young woman sitting in front. This house was one of two in the settlement constructed of brick with metal roofs. The other buildings, arranged in no particular pattern, were all wattle and daub (sticks and mud) in various states of disrepair. Some looked inhabited, others did not. Many were too dilapidated to be inhabitable. Perhaps some were for animals as were the many barbed-wire pens and corrals, also in various states of disrepair.
It turned out that the man we were supposed to meet was not around. However, the young woman sitting in front of the house was his daughter, and she communicated to my fellow passengers that she could get the key and go with us to the factory. She went into the house and returned with the key and a woman who was apparently her mother. After some discussion back and forth in Siswati and Zulu (which are mutually intelligible), the mother evidently agreed to let her daughter show us the factory. However, as her daughter was about to climb into the car, her mother called out to her one more time. The mother seemed to be concerned. There was a brief exchange, and the girl reached into her pocket and handed her mother a cell phone. Then we drove to the factory less than a mile away.
The factory was not expansive. It was more like a large workshop. The building was brick with multipane metal-framed windows. It was exactly the same type of construction seen in many abandoned factories in the United States. However, no one had begun throwing rocks through these window panes. Inside, some of the equipment and half-finished products were still on hand and collecting dirt. From the remains of the simple manufacturing equipment that was used, I could deduce the process. Basically, stalks of thatch, about eighteen inches long, were packed side by side into a metal frame. The tips of the thatch that protruded were covered with a piece of fiberglass tape and then dipped into a viscous resin. When they passed through an oven, the resin hardened like solid rubber and held the thatch together to become a roof tile.
Building similar equipment and manufacturing similar tiles would not have been hard. Perhaps even this factory was for sale. However, as I told my client later, we didn’t know anything about the market. I had researched some sites on the web that sold thatch roof tiles in the United States, UK, and Australia. However, none of us had any idea of the size of the market, the prices paid to the factories, or what the competition would be like. I explained to Jabulile that we had to look at the sales and marketing side of the business as well as production. He agreed to do some research on the market before I saw him again in two weeks. I suggested that he try to contact wholesalers who might buy the products.
When we next met with the people from Linopp, they wanted to know what my plan was for their new business. I was taken aback. I explained to them that it wasn’t TechnoServe’s role or responsibility to independently create a business for them. I explained that we would give them a lot of help, coaching, and even do a lot of the writing up of a business plan, but that it had to be their plan. They needed to do the research and make the decisions around what they thought could work and how they wanted to approach the market. They seemed surprised and left shortly thereafter. They hadn’t done any market research, and I never heard from them again.
Observations and Lessons Learned, So Far
After working with Swazi businesses for just a short time, I came to a conclusion, not surprising in retrospect. Economic development is hard and can proceed very slowly. Any entrepreneur in the United States knows how difficult it can be to start a new business, and that’s within a highly developed business ecology. In Africa, it’s much harder.
I quickly came to another conclusion. The Swazi business community had a tremendous lack of entrepreneurial sophistication. On one hand, the majority of people had no idea how to start a business beyond subsistence agriculture or simple retailing, and there were few resources to help them. On the other hand, there were educated people who believed that because they had an idea and were willing to make a small investment that they could hire a consultant to write a business plan that would make them worthy of major outside investment. Clearly we were literally and figuratively at the other end of the world from Silicon Valley with its large venture capital community and cadre of experienced entrepreneurs.
In spite of these challenges, I’d learned a lot and had concluded that I could contribute a lot. Although the businesses I as working with in Swaziland were much smaller and simpler than those I had consulted to in Silicon Valley, the basic principles were the same, and the fundamental requirement for understanding what to do was still basic business analysis. Although TechnoServe’s objective in Swaziland was to encourage people to be entrepreneurial and start businesses, I knew we also needed to help people understand what it really takes. Most people had no concept of how hard successful entrepreneurs have to work or the upfront analysis and thinking that are required for a successful business. Coming from Silicon Valley, I had seen some wildly successful ventures and many that were not. I knew that although there was always an element of chance, most of the successful ventures were rigorously thought out in advance and had to go through a tough review process before receiving venture capital. And once the company began operating, the work hours were extreme and the pressure intense.
The hopeful entrepreneurs in Swaziland had never had the benefit of learning the requirements for starting a new business from observing a highly developed entrepreneurial culture and the role models it generates. More problematical was that they didn’t have a good grasp of some of the basic disciplines. They especially lacked understanding of marketing (other than advertising) and finance. Production was much more familiar and more tangible so that when most people thought about starting a business, they thought about production first. Then after they’d done exhaustive analysis on hiring, training, constructing a factory, costing the product, etc., they would give only a brief explanation of how they would sell it. They didn’t spend a lot of time analyzing who would buy the product, why customers would buy, what the competing products were, how much the customers would be willing to pay, etc. All of these are basic marketing questions that a new company must answer well if it is to succeed. But these were unfamiliar concepts to most of the people I worked with.
So I worked with my clients to answer these questions. We couldn’t just do comparative research using databases available on the web or reports from research firms. In most cases, we did our marketing research by directly interviewing potential customers. In the case of MPE and the potential bottled water company, it was pretty easy because there were so few large customers. In the case of Tasty Meals, we sent saleswomen throughout the country to interview hundreds of small shop owners. I also encouraged the other consultants in our office to think about sales and marketing first with their clients. My point was that if you don’t know how you will sell your product and why people will buy it, then it is a waste of time to do detailed analysis on how it will be produced. This was hard for most people because marketing and sales were so much less tangible and familiar than production, but we made good progress.
The other concept that potential entrepreneurs really struggled with was how to finance a business. Although some people didn’t know that financing could be available, the larger problem was that others thought that just because they had a business idea that capital would magically be given to them. Also, there was a very limited understanding of the different characteristics of equity and debt. It seemed that equity capital generally wasn’t available, and no one wanted it anyway because they would have to give up a large percentage of their ownership. Many people seemed to think that just because they had a good business plan, a bank should love to loan them 80–90 percent of the necessary capital and expect only prime plus a few percentage points in return. I wasn’t dejected or discouraged; I was just learning what needed to be done and trying to figure out my approach. As I had always told my junior colleagues in management consulting when they complained how difficult some of our assignments were, “If it was easy, they wouldn’t need us.”
Even with a good understanding of finance, finding investment capital was still a problem. Although some entrepreneurs could qualify for loans under special programs with relaxed credit terms or guarantees, few lenders would provide 100 percent of the capital required to start a business. Existing companies who wanted to expand were often highly leveraged already so experienced the same problem. For both of these, some equity capital was required before additional loans could be obtained. However, since most of TechnoServe’s potential clients were not wealthy, they did not have the necessary investment capital to start a business. Further, very little equity capital was available for investment in the Swazi market. This was particularly true for the types of businesses that were TechnoServe’s clients. Most were in agribusiness and would be characterized as high risk, moderate return ventures, which made them unattractive to strictly commercial investors looking for the highest returns and the lowest risk.
For our clients in Swaziland, TechnoServe wanted to bridge this gap and fortunately had some available funding that could be used for direct investment in small and medium enterprises. For deserving ventures, funds could
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