Start Up Answers

I want to Expand My Side Hustle, but I Don’t Have Funds

Dear Startup Doctor,

I started my fashion design business in school as a side hustle to augment the money that my parents gave me. I made at least two hundred thousand naira sewing clothes from my room in the school. Due to the potential that the business has, I want to scale it up, but I don’t have the funds needed for renting an office where more people can see and patronize me. Please, I need your advice.

Ngozi. O. Nsukka, Enugu State.


Dear Ngozi,

I commend your earnest desire to grow your business from a small-scale Campus hustle to an established organization. In this era where every graduate hopes to get a job after school, you are ahead of the curve, creating jobs for yourself and others. It is a commendable endeavour and worthy of emulation.

There are several things to explore before you can decide to scale up your business. From your letter, it is not clear if you have graduated or are still in school. Your desire to expand your business does not necessarily mean you need to acquire the additional expense of rent and utility bills. I would assume that since you are currently working from home, that your overhead is low, due to the convenience of running your business from your room in the hostel or fathers home. In either case, your customers are already all around you. This situation might eliminate the need to invest in aggressive marketing as word of mouth would have contributed to the growth of your business. Therefore, your desire to expand might be based on a false premise and a bit premature.

Let us assume that you are growth poised. Let’s put your business to the test; will you be able to answer the following basic startup questions? Have you registered your company? Do you have a corporate bank account through which you transact your business? Do you know how much it costs to run your business? Have you projected how much you will need if you find an investor? How much is your marketing budget? These and many more questions must be answered before you decide to expand your business.

Let us carry out a small exercise. Grab a book and write down what your capital expenditure is every month. Cost of power, rent, raw materials and the time you invest in creating each outfit. Also, add the cost of workforce, taxes, branding, marketing etcetera. Total all this up and subtract it from the two hundred thousand naira. Now it was not also clear if the two hundred thousand is per annum or your monthly income. Regardless, carrying out this exercise will help you gain a clearer picture of what your actual income is and if your business is ready to be scaled up.

It is not every business that looks successful, that is profitable. The basis for scaling up any business is that you have a proven system that consistently delivers value to a ready market in need of your services or products. This is why your balance sheet is a vital part of your business and must be meticulously kept. Your balance sheet should paint an accurate picture of your income and will help you make the right decision with regards to expansion when the time comes.

In addition to that, there are other things you need before you can begin to think about scaling up your business. Beyond your ability or competence to deliver on the job, you require capability and capacity. Capability speaks to the readiness of your business to handle expansion. The structure, system and processes that need to be in place before you expand. Capacity, on the other hand, speaks to the ability, experience and competence of your team to implement the processes that have been put in place.

The simple truth is that if you grow too fast, the likelihood of failure is high. There have been many cases where startup businesses outgrew their founders’ capacity to run them successfully. You need both capacity and capability to lead your team into the next growth stage.

I am emphasizing this to draw your attention to the fact that funding is crucial for business expansion, but human capital is fundamental—maybe even more critical. You cannot do without these two. If you get financing and cannot manage it properly, you will end up squandering it all. If you have developed the capacity to shoulder the responsibility of growth, even with little funding, you can multiply it in ten folds.

Now, the reality in an emerging economy is that you don’t get funding easily as a small business owner as much as those in more developed countries.  So, while expansion would seem to be a great idea, funding this next move might be an uphill task. Therefore, I would advise that you begin today if you haven’t already started to keep a proper inventory of your OPEX and CAPEX and also build up your leadership and management skill. This inventory will help you have a more realistic projection on when your fashion business will be ready to move into an independent space.

Let us talk about funding since this seems to be a significant issue for you. For a startup such as yours, there are different funding options you can explore. I will show you a number of them and how best to identify the one that works best for you.

FRIENDS AND FAMILY

The easiest way of raising funds for your business expansion is by reaching out to friends and relations. This type of financing is a low hanging fruit as there might not be much pressure for you to pay back as soon as possible. These are people who love you and want the best for your business. Your friends and family sometimes might not require you to show them your business plan. They believe in you and often, will support your dream interest-free.

BANK LOAN AND GRANTS

Another way to raise funds is to consider getting a loan from the Bank. This type of loan might be difficult unless you can access the SME loans that most banks are currently mandated to give by the CBN. As earlier stated, you need to make sure your bookkeeping is without error as the Bank would be interested in your inflow and outflow to be sure you will not default. However, it is slightly much easier to get a soft loan from a microfinance bank than a commercial bank. The catch is that you might need to belong to a business community or cluster to access this loan. This is a more challenging route to getting the funding you need for your business.

 

PARTNERSHIPS

You can also explore the option of getting someone to invest in your business. It is not as simple as telling your investors to invest in your company. You need to exhibit a level of professionalism by presenting your business plan for them to peruse and make their decision. You would also need to submit your current balance sheet so they can assess the potential of the business based on its historical picture.

Apply to Funding Agencies

 

There are different funding opportunities in the country that support micro-businesses such as yours, which you can explore. You can apply for the Tony Elumelu Foundation Grant, LSETF, BOI, Nexim bank fund, Grofin fund, Afrexim etcetera. These opportunities are available if you know where to look.

When External Funding is Not Forthcoming

However, when external funding is not forthcoming, you need to become strategic. From what you said in your letter, you want to get a shop to attract more customers and increase your turnover.

Like I earlier stated, while that’s a good idea, the truth is that you can increase your sales and get more exposure without the added overhead of rent. Let me show you how you can achieve this fit.

Invest in creating an online presence for your business. Get easily found on Google by listing your business on Google my business. Download WhatsApp for business. It allows you to add your business details so anyone who sends you a message will get your business information.

There are apps such as Quicksell, My Product Catalogue, Zahomy product that allows you to create a digital catalogue of your products which you can share inside WhatsApp messages.

Create social media accounts and aggressively market designs on your social media platform with posts about your business. Your social media platform is your PR stage, so use it to your advantage.

Boost your posts and use sponsored adverts on Instagram, Facebook and Twitter to increase brand awareness for your business. These platforms have a wider reach instead of relying solely on walk-in clients. Take high-quality pictures of your products as visuals drive the social arena. You might also consider partnering with a boutique or salon as a contact place where your customer can meet you for the measurement and delivery of finished clothes for a percentage of any item sold in their store.

 

In the words of Oluyomi Ojo, the CEO of Printivio in an interview on the Unknown Nigerian Blog, “Funding wasn’t the first thing on my mind but rather getting the business off the ground. Getting into sustainability, if not profitably, as fast as possible. That was our first goal. Within the third month, we were already making enough to keep the business going. Every other extra funding that was coming inside, we kept pumping it into expansion. Investors are not Santa Claus. Most of them are investing other people’s money. What this means is that as you are looking for profit, an investor is also looking for profit. So you need to show your prospective investor a business portfolio that if he invests, there is something in it for him.”

 

Finally, don’t allow yourself to get stuck. Explore all the funding opportunities mentioned above. Continue to develop the capacity to multiply the current income you are generating. Register your business if you haven’t and open a corporate bank account. Introduce innovative approaches that will get your business in front of your potential customers. Keep a clean book that documents your inflow and outflow. Stay accountable and ensure your overhead does not cripple your business and finally, invest in personal development. You are already on the right path.

To your continued success.

Keep Sparkling.

The Startup Doctor.

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