This is part of a series on How to Start, Run, Grow & Fund a Business in South Africa. These pages have to be read in order:
- How to Start, Run, Grow & Fund a Business in South Africa (using what you currently have)
- Choosing the right Business Idea for You
- Writing the Business Plan
- Supply Value Logistics Chain – Research and Understand Your Industry
- Raw Materials Business
- Equipment Business
- Skills Business
- Manufacturing Business
- Distributor Business
- Wholesale Business
- Retail Business
- Service Business
- Hiring / Rental Business
- Agent Business
- Test if Business Idea is right for you
A business agent is somebody who represents the business interests of another person or company and usually takes a commission for their work (an agent in our context works independently and is paid commission only). This is one of the few businesses that can be started with little to no capital. An agent can be active in any point of the Supply Value Logistics Chain, circled in red below:
An agent is a middleman that connects buyer and seller and get a commission after every successful sale, they are usually out there looking for a buyer for a sellers product or looking for a product for an interested buyer. For now, I will only cover looking for buyers for a product the seller sells.
The most common agent model today, and a company that uses this model as its retail sales strategy is Avon. An Avon “representative” has a catalogue they don’t have possession of that product, they don’t hold any stock they only order in when the buyer places an order. So if the agent commission is 25% the agent gets R25 for every R100 worth of products they sell.
Heuristics in action
You should know by now that we are about starting a business based on available means.
Let’s say you used the Smuse framework, you did your supply value logistics chain analysis and you came to the Test Idea part where you tested your suitability for the idea. You just don’t have the means to start your dream business. You don’t have the money to manufacture, you don’t even have the money to buy from a wholesaler to retail. Smuse says go further down the chain and you’ve gone right till the end until after the consumer has used the product and it is the end of life (recycling) yep you’ve analysed the complete supply value logistics chain of your industry. But you do not have the resources to start and you have no desire to enter the recycling business (the other link that requires little capital to start at the lowest point).
There is a way to start a business in your desired industry by becoming an agent in virtually any part of the supply or value or logistics chain.
Who you know
When you tested your idea using effectuation theory, part of the bird in hand analysis is who you know. If your analysis came back that you know someone in your desired industry, then you are in a good position to becoming an agent, yes, you can become an agent for someone you don’t know, but it is far easier if you know someone.
This business can take a few configurations based on how well you know the seller, here I will go from very well to not so well. All examples below the agent do not outlay any capital:
Very well: The seller trusts you enough that he provides you with product on consignment which you sell and pay the person who supplied you. You are actually an agent for that person. So what happens here behind the scenes is the following.
The consignor supplies you with goods that sell for R40, let’s say a chicken. They paid R20 for that chicken and is expecting R30 from you. And you get an R10 for selling it.
Retail value: R40 (selling price)
Buy wholesale for: R20
Supply to agent on consignment: R30
So the consignor gets a R10 for doing nothing but outlaying capital, you get a R10 without putting up any capital but putting in the effort to find a buyer.
You don’t know the person too well or the business is not suited to the above scenario (high-value items)
In this case, you can find the buyer, bring them to the person’s premises to inspect the item and conclude the deal.
I’ve done a few of the latter deals. When I was much younger, a teenager still, an auctioneer I once met did liquidation auctions and had some VHS movie tapes that he had left after he had auctioned off some or other business. He wanted to sell it to me to resell, I didn’t have the money to buy it. So I advertised it in the CapeAds classifieds (paper) despite not having it in my possession, I told the buyer to get me in Cape Town (I had to take a taxi to get there) I think I met him in the Golden Acre and took him to where the items where took him up, he had a video shop and he bought some, let’s say for R30 each. The seller wanted R20 each, I took my R10 for each video sold.
Later in my career, I did some deals in the printing industry for machines, also from a guy that bought from auction. Agent deals are actually quite common in the used equipment for the graphics industry where they act as an intermediary for people looking to sell machines and people looking to buy machines. A funny thing happened once in this business to show you the potential, I once sold a machine to a business right around the corner where the seller was that I was living far away from. The buyer didn’t know that there was a seller around the corner, and the seller didn’t know there was a buyer around the corner I connected the two and took my commission.