Austin Okere, the founder of CWG Plc, is an Entrepreneur-in-Residence at CBS, New York. In this interview with EHIME ALEX, he speaks on the approach and survival strategies for startups amid COVID-19 disruption and socio-political headwinds
Last year was uneventful for businesses as a result of the Coronavirus Disease. For startups, were there opportunities lost?
First, it depends on who the startup is. Second, do the entrepreneurs have a problem they want to solve? Third, do they have a business model for that problem? Fourth, it depends on the team and the resolve they have.
When I say who the startup is, I am talking about whether the person has conviction in his vision. A good example is Zoom. Founder, Eric Yuan saw that the pandemic gave him a very good opportunity to solve a collaboration problem. How do people communicate and interact while maintaining social distance? That is a problem begging for a solution and he solved it. Where some people see challenges, others see opportunities because both are two sides of the same coin. When opportunity meets preparation, you have success.
To launch fully into a scalable business that is sustainable, you need to have a business model that will look at the customer segment to expand into, your value proposition or unique selling advantage of the product or service and partners needed to prosecute the business. For instance, people in agriculture are partnering with the Central Bank of Nigeria to succeed with their projects. You will also look at key activities and key resources you need to exploit the opportunity, their costs and how much they will be returning. If what you are making is much more than what you invest, then you have a viable business.
Again, the startup must be sure it has a winning team to work with, typically not a big team. A typical startup has an entrepreneur, who is the hustler that puts everything together. If it is a technology business, you need a tech guru in your team, and then a financial/operations guru to look after the money and operations. So, that is a very good tripod.
The last thing will be the resolve of the team, which speaks to attitude. Attitude is sort of your willpower; your tenacity to succeed because there will be challenges along the way. Looking at what I have said, the pandemic will decimate some companies; some will just be hanging in there. But if a startup can imbibe these qualities, it will actually profit from the pandemic. Quite a few companies like Netflix, Zoom and some tech companies in Nigeria have profited from the pandemic. So, you won’t say, generally, that the pandemic has hindered startups or helped startups. It depends on who the startup is and the mindset of the founder and his team.
Nigeria improved in the World Bank’s Ease of Doing Business Index 2020, moving 15 places higher amid the COVID-19 disruption. What leverage does it still have for startups?
The EoDB measures involve quite a plethora of indices . The one that I read recently about Nigeria is where the government said startups could register at the Corporate Affairs Commission without fees, a sort of waiver. That could help in moving up a country’s ranking in the EoDB index. If you look at the indices that move the needle in the EoDB, you also have to look at the sustenance of business because the ease of starting and that of sustaining a business are quite different. Out of 100 companies that start up each year, less than 20 make it beyond their fifth anniversary, which means 80 per cent die.
A startup is not just there to start up; it is starting up, hopefully, to sustain the business overtime. In moving up the ranking, we have to ask ourselves whether the other indices are also positive. How does regulation treat business? Is it an enabler or a headwind against business? Do we have other enablers such as good education to produce skills that entrepreneurs can hire in their businesses? Do we have infrastructure in terms of power and broadband? In today’s world, broadband is a critical need for economic boom. Do we have security and political stability? So, these are questions that I will ask about the other indices . If you say people should not pay to register a business in CAC, that is fine; you move up on the ranking. But when you look at the sustainability of the business and if startups are becoming sustainable businesses, then unemployment should go down. What do I mean? If you look at the report from the National Bureau of Statistics, we have about 41.5 million Micro, Small and Medium Enterprises. Let us say they are all doing so well that they add one person each to their employment, that is about 41 million jobs. Is that what is happening? I don’t know whether your experience is the same as mine. Rather, my experience tells me that more people are falling into unemployment. What does that say to the real issue around business sustainability?
You mentor a lot of entrepreneurs. Where do startups usually get it wrong?
I think we have to look at the empirical data rather than just guess work. A lot of people focus on funds. The test question I always ask a startup is, assuming that I am an angel investor that can give you as much money as you ask for, can you just write five key things you will do with the fund to create a sustainable business? They don’t even pass two. What does that tell you? It means there is no business model. What exactly is the problem you want to solve? How scalable is the market for that problem? Do you have a business plan that includes cash flow, break even, competitor analysis, annual mission plans? I have never seen a startup tell me I want to be the biggest or best in Surulere or Yaba. The first thing they say is, I want to be the biggest in Africa. I would ask, where is your business starting from? Have you even conquered your locality, let alone Nigeria? The dream does not seem to connect to reality.
We have to dream big but be realistic about our dream and what we can do as the first step towards achieving that dream. We have to be a bit more detailed in the plan. For instance, an indigent expatriate could go to a bank, present a solid business plan and get a loan because he has done his cash flow analysis and the bank sees where the loan repayment will come from. On the other hand, a flippant Nigerian entrepreneur goes to the bank to get a loan and he won’t because he just doesn’t have those details. He has not sat down to look at the customer segment he wants to serve, the geography, channels of distribution and value proposition. No cogent business plan. So, that is the first step that signals that you want to be taken seriously.
The second challenge is the shortage of skills. A startup doesn’t have the money to compete with established companies on getting good skills. However, if you are a good finance person, look for a good technical person and sales person, maybe give them some shares in the business, so that together you could create more chances of success. Since you cannot pay them, let them share the responsibilities of growing the business and reap from it.
The third challenge; even when a startup is doing well, they tend to confuse fund raise with business success. They go on social media announcing they have raised $5m or $10m, and everybody would be hailing them. Business is not just about just raising funds and celebrating it. No! When you raise funds, the rule of thumb is that you are going to return three times the money you raised in five years and you are going to return it in the currency of raise, most likely in dollars. So, you have to be very careful to be sure that the business you are doing is yielding so much naira to cover inflation of 18 per cent and currency devaluation, because you are going to pay that money in dollars, devaluation or not. We all know that $1m in 2015 was N190m and $1m in 2021 is N500m. You see that your plan is already in tatters and it is not likely you will be able to pay back the money. So, we have to be very careful about being too early to raise capital because it is like you are eating your seed. When you are able to hold the business to the fruit level, then it is better. For example, when CWG was growing, a venture capital company approached us and said it would give us $2m for 25 per cent share in the business, which meant they were valuing the business at $8m. We did not take it. We continued to grow our business. Another offered us $8m for 25 per cent share in the company, and again we did not feel it was the right valuation. Yet, another came in 2009, offering us $10m for just 17 per cent share of the company – a valuation of $55m. In 2008, there was a global finance meltdown, so everybody was in need of money. In 2009, CWG was in need of money, and that was the right time to take the offer, and that is when we accepted the money. We listed the company on the Nigerian Stock Exchange in 2013 at $90m, so it was a win-win for everybody. If we had taken the money too early, that would have been a big disservice to us. I also caution successful startups not to raise too much money too early and celebrate it on social media. Raising too much too soon is a wrong strategy. You will waste it as you are not fully prepared for it. You are not sweating it to be able to pay back the multiple.
From your analyses, how attractive do you think Nigeria’s startups are to foreign investors
Well, it depends on the sector. We have seen a segmentation of interests in different sectors. But the sector that is attracting the most interest in foreign investment is fintech; obviously because of the boom in digital currency and payments, which is really powering fintech to do well and return very good investors’ profit. I am not so sure about other sectors like manufacturing, hospitality or real estate because of the infrastructure deficit, challenges in supply chain, the inefficient port and the exchange rate parity. These do not make it interesting for foreign investors. Again, there is also a lot of interest in agriculture because of the support from the government for easier access to funds, fertiliser, farm inputs and so on. However, the overall attraction is depressed by the current unstable socio-political and security environment. Even if you are answering to your greed and feel that there is opportunity for higher returns, you have to be alive to enjoy the fruit of your hard work. Can we guarantee anybody’s safety in Nigeria? Despite the fact that most of our customers are in Nigeria, we (CWG) had to set up in Ghana because they have a stable socio-political environment, good infrastructure, a strong rule of law and EoDB. Those are the factors that impact Foreign Direct Investment interest into a country. We also have operations in Cameroun and Uganda serving the Central and Eastern African markets respectively.
If you could advise the government in terms of policy direction for startups, what would that be?
I think we have to look at what is important for startups to do well. You mentioned one, which is EoDB. How costly and protracted is registration of business? Simplifying this and making it more affordable is a very good step. Another is the sustenance of the business, and this speaks to infrastructure, access to capital, skills and avoiding regulatory headwinds as well as opaque and inconsistent policies
When I talk about regulatory headwinds I mean changing regulation willy-nilly, nobody knows the rules and nobody takes accountability. When I was running CWG, there was a time we were bringing in precision computers for a client in the oil and gas sector. The systems were on the high sea when the government changed the clearing rules that it should be source inspection, instead of destination inspection. What am I to do? My goods were already on the high sea before the rule came into effect, and you make a rule like that and say with immediate effect. The goods came and I could not clear them. The order was almost cancelled. Now, we have gone back to destination inspection, no explanation offered. I also remember another major incident that hit me very hard. We were very big in Automated Teller Machines and the regulator banned banks from putting ATMs outside their branches, which did not make sense. The whole essence of the ATM is to extend bank branches to where they do not exist. So, by banning banks from putting ATMs outside their branches, the banks cancelled all their ATM orders with us citing force majeure, and I was left stranded. Again, there has been a policy summersault. We are now back to banks putting ATMs wherever they want.
Those regulatory inconsistencies are a big issue. Inflation is above 18 per cent, meaning that in six years’ time, what you are buying you won’t be able to afford because your money would have lost all its purchasing power , coupled with exchange rate issues. Even if there is exchange rate devaluation, let there be one uniform exchange rate, so that everybody is pitching from a level playing field. But when you select some people, give them an exchange rate at N387 or N400 and other people are buying at black market at N500, how do you compete? Is there a fair competitive ground? It is very clear that a new startup who does not have any contact or connection will struggle to survive. These are the things I will say to the government. First, let us have a stable regulatory and policy environment, stable socio-economic environment and security, and let the rule of law hold supreme regardless of creed or tribe. If businesses do well, the economy will improve and we may have a lot of local input going into production. Another critical factor we should not forget is education and skills because it is the output of education that goes into skills for industries. That is where we are now; a lot of people are not bringing their skills to the table to local companies even when they sit in Nigeria because of comparative lower salaries. The pandemic has accelerated and proliferated digital transformation. Somebody can sit here in Nigeria and work for a company in Canada or Australia, just from his Notebook and Internet connection. You may be paying him N250k a month and they are paying him $10k (about N5 million) a month. Even when he is here, body and soul, he is not working for you, he is working for an external economy and adding to that economy.
There is hope for a post-COVID-19 business environment. What should startups be on the lookout for?
I always say there are two ways to look at a glass of water; half empty or half full. So, the first advice is a positive mental attitude that will look at how to surmount obstacles. A negative mental attitude will look at the reasons you cannot surmount obstacles. Take for instance the acronym VUCA. Where people talk about volatility, you should look at vision. That is what Netflix has done. Where they see uncertainty, talk about understanding. That is what Uber did. They understood that people would need a taxi to pick them up from their doorsteps. Where they see complexity, look for clarity instead. Have a positive mental attitude. That is what Airbnb used to take businesses from hotels. And where they see ambiguity, you should strive for agility instead.
My final advice for success will be what I call the three ‘Ws’. The first is ‘Way’ power. It speaks to Aptitude , the understanding of your business. Learn the business to know it so well that when someone comes to you and sees your output, they will come again and tell other people. The second is ‘Will’ power. It speaks to the attitude and resolve. We talk about the tenacity to succeed, where everybody says it will not work, if you are convinced, follow your conviction. And the last is ‘Wait’ power. It speaks to patience. When you plant cocoa, it takes five years to bear fruit; but it can feed you forever. Somebody may plant corn, it takes three months; but after his harvest, he has to cut it down. Don’t cut your cocoa down because your neighbours’ corn has matured and your cocoa hasn’t. You have to exercise patience to see that the fruitful tree you have planted has yielded fruit; do not always look for short cuts, they will not take you to anywhere worth going.
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