From Silicon Valley to Swaziland, Rick & Wendy Walleigh [i love reading books .txt] 📗

the workmen were supposed to continue their work. When Brian’s wife walked into the house, she was grabbed, roughed up, tied up, and put on the floor with the workmen who had already been tied up. The thieves then continued their robbery. No one was critically injured, but there was some physical trauma, a lot of emotional trauma, and some dealing with the police. I was very willing to wait for the financial numbers, and I wasn’t going to Johannesburg (other than the airport) unless absolutely necessary.

My colleagues heard that I had time to take on more responsibility, so this same week I picked up partial responsibility for two additional clients. One company was in the business of installing thatched roofs on houses but wanted to get into making products, such as roll-up blinds, out of thatch. This idea immediately sent up red flags for me because the only obvious connection between these two businesses was the raw material, which is usually not a good justification. I immediately had trepidation about what my new clients were thinking, but the proposed business could potentially employ a significant number of rural women in collecting the thatch, in weaving it, and also in the final assembly process. So I agreed to try to help them. The other new client was a six-month-old baking company that was making a traditional Swazi cornbread product. The thatch company wanted our help in starting up their new business and the baking company wanted our help in figuring out how to be profitable and get additional financing. With these additions, I was busy.

I paid a visit to the bakery company, Tasty Meals. The founder Phiwa (pee-wah) was a warm, energetic, and very likable young man in his mid-thirties. He was a native Swazi but had attended Colorado State University, in civil engineering, and was quite intelligent. He had thought a lot about his business, both before and after founding, and had done some analysis of his financials and his marketing. Although his analysis and insight were not up to what I would expect from a thoughtful U.S. MBA (masters in business administration graduate), they were much better than what I had seen to date in Swaziland. He also had a woman working for him as basically the COO (chief operating officer) of the company. Nolwazi had a degree in business, and from our brief meeting, I could tell that she understood both marketing and financial concepts and had some good marketing insights. However, she was nine months pregnant and on maternity leave. Since she was bored waiting around at home, she came into work and joined us for our meeting.

In starting the company, Phiwa had seen a market opportunity to produce and sell a traditional Swazi cornbread called mealie bread, made from green mealies and typically served with emasi (soured milk). In southern Africa, mealie just means sweet corn, which most Africans call maize, and green mealies just means fresh corn. Although the name was not appealing to us, it was the type of treat that grandma would make for the family when fresh corn was in season, and Swazis associated it with home and family. Mealie bread required careful, time-consuming preparation, and was not produced or sold commercially. Phiwa thought that busy families would be interested in purchasing this traditional product commercially, so he started the business.

Although our first meeting was primarily introductory, we went over some analysis and ideas. Based on his prior month’s costs, I calculated his breakeven, which was about twice as many loaves as he was currently selling. While his margins were below what would be expected in the specialty bakery business, 45 percent versus 60 percent, a small price increase would have put them right in line. Whether or not he increased his price, Phiwa needed to focus on increasing sales. We discussed a lot of approaches to doing this, with emphasis on broader distribution and a “push” marketing strategy using merchandising materials with the retailers and at the point of sale. We all knew that trying to create broad consumer demand that would “pull” the product through the distribution channels and the retail outlets was totally unreasonable because of the cost of the advertising that would have been required. Nolwazi had some excellent ideas for marketing, but they would have required investment in promotional materials, and since Phiwa had already exhausted his savings and his borrowing limit, his options were very limited. And he was continuing to lose money.

That’s why he needed our help. I thought it might already be too late, but I really liked Phiwa’s entrepreneurial spirit, his intelligence, and his friendly personality. And he was creating jobs for poor women in both food preparation and sales. I was excited to try and help. We quickly met again, and I began my analysis and consulting. I knew the company had to increase sales to get to a breakeven point, so we started talking about where and how they sell their product. I had lots of questions to lead us through a disciplined analysis, but the discussion jumped all around. Phiwa and Nolwazi had lots of stories as to where they were selling, where they weren’t, what had been successful, and what hadn’t. They also had lots of ideas as to how to improve, but they didn’t have a logical step by step plan as to what to do, how, and when. After our discussion, Tasty Meals still didn’t have a plan, but I realized how much time it would probably take to help them create one.

As we continued to talk about the many marketing and sales activities that could increase sales above breakeven levels, Phiwa, our entrepreneur, went off on another tangent. However, this one turned out to be critical. Sales weren’t his only problem. It would have been foolish to spend money to increase his demand because he was having trouble purchasing enough green mealies to consistently support his current sales. So developing a reliable year-round supply of maize was critical to his survival. Because of the tremendous seasonality in availability and price of fresh maize, he thought growing his own might be the only way to assure a continuous supply at a reasonable price. However, even if this could work, it would take three to four months from planting to a first harvest, another challenge. I was beginning to feel that I didn’t have enough fingers to plug all the holes in the dike.

Moving from sales and marketing to finance, I learned that Phiwa had recently gotten a R150,000 ($21,500) overdraft facility (line of credit) for working capital. He had planned to use this for marketing activities to increase sales. However, he had a lot of past due bills when the loan came through, and now he’d used R140,000 out of the R150,000 available. I calculated that he was losing about R20,000 per month. So in summary: Our entrepreneur was selling about half the volume he needed to break even. He couldn’t increase sales because he couldn’t find enough raw ingredients, but he probably couldn’t pay for them anyway. And he would run out of money in less than a month. I knew how to help a lot of businesses in a lot of situations, and I knew I could help our friend to figure out a solid business plan, but I wasn’t a miracle worker and didn’t have money to lend.

A week later, I met again with Phiwa and his partner, Sifo, the owners of Tasty Meals and told them that I didn’t lend money and didn’t grow mealies, so I couldn’t help them with their short-term problem. I was trying to give the situation a little humor, but they already understood how grave the short-term situation was, and they recognized that they would have to deal with it. This gave me some relief. So we sat down and started to discuss a business plan that could lead to success in the longer term and possibly financing, which would be absolutely necessary. The two primary areas that needed to be addressed were sales/marketing and sourcing of mealies. Since you can’t sell something you don’t have, we started with the sourcing strategy.

The major problem with sourcing was that the mealie bread product requires fresh corn (green mealies), which was only available at an attractive price during four months of the year. During these four months, farmers throughout the country have had the right combination of rain and warm weather to grow lots of fresh mealies. Since the supply is high, the price is low. However, during the rest of the year, as the weather gets colder, there is less land at a low altitude to be warm enough to grow the mealies. In addition, at that time of year, the land has to be irrigated because it doesn’t rain. Naturally, the supply goes down and the price goes up. In their business planning, our entrepreneurs had used an average year-round price that was double what farmers charged in the plentiful season. They thought that this would be sufficient, but it wasn’t, and it also neglected other logistical problems. Unfortunately, in the coldest season, the price of green mealies could be four times its low price. Moreover, the farmers with irrigated land that is warm year round don’t harvest corn in the plentiful season. They only plant it when they know it will be scarce and command a high price. So Tasty Meals couldn’t pay these farmers an average price for a year-round supply. They had tried a number of approaches to contract for a consistent year-round maize supply at a reasonable price but hadn’t been successful. The farmers liked the higher prices in the plentiful season but, when the mealies were scarce, didn’t want to part with their crops at a price lower than what they could get from other buyers. It’s one of those things that looked good on paper but didn’t work in the real world, a good example of how entrepreneurs get educated.

We created a lot of scenarios and did a lot of analysis to reinforce the conclusion that the entrepreneurs had already reached: They had to grow their own mealies for eight months of the year. We even calculated exactly how much land they would need based on the yield per acre and the number of loaves they would sell. Our cost projections said that the business could be profitable, but it would depend on the price paid for renting the land. So their next action item was to look for irrigated land in the Lowveldt (lowland area) where it would be warm year round and hope that the rental price would fit into our model. Then all they would have to do (on the supply side) would be to reliably grow the mealies, a challenge for any farmer, much less, two civil engineers.

By the time we finished these calculations, we had spent four hours analyzing the supply problem and our brains hurt. It had actually been a very productive session. Because the two principals in Tasty Meals were both engineers, they understood the concepts and the importance of analysis and were quite facile with numbers. It was actually a pleasure working with them. However, creating business models was not as hard as trying to reconcile the models with the real world, and that was the next step on the supply side. If they couldn’t operate like the models, mealie bread couldn’t be profitable on a year-round basis, and Tasty Meals would have to be radically changed to survive. And that was just the supply side. Our next meeting would be about marketing and sales where the engineers had much less knowledge.

My second new client was Linopp, the company that wanted to start a business manufacturing products from thatch (grass). Linopp had arranged for me to go with