This is part 1 and the starting point to How to Start, Run, Grow & Fund a Business in South Africa (using what you currently have)

Today I will share with you a tried-and-tested way to start a business and make a living, maybe even be successful. A way that can be used to start, run, grow and fund all the business ideas on Khoi Capital. I say “tried-and-tested” as this is the techniques used by many entrepreneurs ( including immigrants who have come to SA) to start, run and grow a business. This is the guide for people who don’t know what to do after they have chosen a business idea they are interested in and should be used as a companion to every business on Khoi Capital, Side Business, Niche Business, Luxury Business, Township.biz etc.

I am also going to use something we use in business called a framework: a framework is defined as a basic structure underlying a system, concept, or text. There are many different frameworks out there for different purposes, and in business, you will use different frameworks to guide you every step of the way. At its simplest, a framework guides you from the start and where to next.

These concepts are nothing new and have been used for a long time by entrepreneurs to start businesses, and even though some of the principles have been given names to identify them, people using common sense have taken similar routes without even knowing about such concepts, I will use an example of the foreigners that come to South Africa that open successful businesses but the locals struggle, that is because they take a practical heuristic approach (Effectuation Theory) to reach their goals with the resources they have on hand (wherever that may lead them) whereas the locals believe that they need “capital” to start a “dream” business which they won’t get so they never start. I have also simplified some concepts to make it easier to understand.

The framework that we use called Smuse looks at the entrepreneur’s internal environment, micro environment and macro environment. And is defined as follows:

Internal Environment – You and your business
Micro Environment – The industry you and your business operates in
Macro Environment – The country you, your business and industry operate in: South Africa’s, its economy and environment as a whole.

If you thinking that you don’t need to consider all these things then you are thinking wrong.

You need to know your capabilities for the business and you need to know the industry whether you are able to compete. And you need to know your macro environment:

  • If you want to start a business that has a high power consumption, your macro environment is Eskom with an unreliable and expensive electricity supply.
  • If you want to start a labour-intensive manufacturing business, your macro environment is ANC policy, their labour proxy henchmen COSATU and one of the most unproductive workforces in the world.
  • If your business gets a certain size, security will become part of your expenses that you need to budget for due to South Africa’s macro environment – the high crime rate.

As this is a way to start a business using what you currently have (even nothing), it is the hardest way but one that has the highest chance of succeeding. It also is designed for South Africa’s macro-environment where there is a lack of support for small business as it makes no provision for using capital to start up, funding is instead used to grow the business. This is a practical way to start a business, it does not entertain pie in the sky ideas, if you don’t have the money to start your “dream” business, you would just have to start something with the means you have available, if you want to you can use that as a means to an end to start your desired business, this process may take years of hard work and you must be willing to see it through (or at least until something better comes along). If you are looking for an easy way to make a lot of money, close this page, as it cannot be found here.

Smuse is a guide or framework to help you start, run, grow & fund your business. and is divided into four broad parts:

Starting a Business
Running a Business
Growing a Business
Funding a business

The goal with this framework we call Smuse is to be able to help with any business, the “lean” business plan is no different, it will cover most aspects, some business plans might call things differently. You will also see that we use no “Executive Summary” in our business plan for the simple reason that it is not needed. We use lean planning which is short enough to be understood in one or two pages. An “Executive Summary” which is just that – a summary – is suited for large business plans: 50, 100 pages where you describe the gist of the business.

As our business plan is just intended for operational purposes and not to raise finance, there is no need for that many pages. That being said our business plan format can be expanded to many pages in which you can add an “Executive Summary” which is described as “a short document or section of a document produced for business purposes. It summarises a longer report or proposal or a group of related reports in such a way that readers can rapidly become acquainted with a large body of material without having to read it all”.

However don’t get too caught up with fancy words that are used, it is no different than any summary which is simply a brief statement or account of the main points of something.

This is the business plan format that we use:

Lean business plan format

1. Value Proposition
2. Market Need
3. Your Solution
4. Competition
5. Target Market
6. Sales Channels & Marketing Activities
7. Operations: Resources & People
8. Financials: Budgeting & Forecasting
9. Funding Needs & Use of Funds

Guide
I am firstly going to write about the context that we are operating under, then we will look at the prerequisites to start a successful business. Then I will look at the business plan format, then the main components of the Smuse framework. Then I will discuss how the business plan fits in the Smuse framework as well as the completed internal framework to guide you through starting, running, growing & funding your business. We will basically be building a business plan and eventually a business step-by-step. I will start with a primer then summary and then the full framework.

Context
This is a very important point for people who are new here or don’t know what this project is about. Whenever I use the terms “us”, “we”, “our” I am referring to normal people that are neither part of the old guard with family connections or the new guard with political connections nor with high-value skills (medicine, law etc.) that either want to have or start a business regardless of race, religion, gender, sexual orientation etc. People that do not have access to formal finance and want to start a business from the ground up.

If you do not meet this definition then I am not talking to or about you. Smuse does not discriminate against or favour skin colour in our business it’s not going to help you, we are right at the bottom of the market, merit, hard work (it helps in our business), delayed gratification, seriously applying your mind those are the things that will help. I have also simplified some concepts dramatically to make it easier to understand, our education system is unfortunately not very good and people often leave school without the basic skills to earn a living.

Don’t ever forget the context we operate under, you will see in some instances we use very loose definitions. That is based on the environment we are aimed at. Those unfamiliar with us coming from a well off background need to understand this context.

Prerequisites
There are a few things you need to start and run a successful business:

The right mindset: The reason most people can’t start a successful business is simply that they don’t believe that they can.

Business Management: Understand your business supply, value and logistics chain and the skills required for the day-to-day running. It goes without saying you should have basic maths literacy. You can hire someone to do the day-to-day management, and you might want to as you grow bigger but starting out you need to know the basics.

Work skills: You need to know something about the work required in that business (even if just something as simple as sales) and the equipment and materials needed (if required). How to do it or how to direct someone to do it. If you going to hire a person to do the work then you obviously need to know less. But you still need to know something about your industry.

Finding a gap
Before you start a business, always try to find a niche or gap no matter how small. Almost every industry has existing companies in the market. How are you going to approach it, are you going to offer a cheaper or better or product or service?

What we will be doing is:

  • Come up a business idea and start writing the business plan
  • Research the market of that business idea
  • Look for opportunities in the business industry (that gap in the market I spoke of previously)
  • Research customers (and competition)
  • Cost and price goods and/or services
  • Market and sell goods and/or services (Take products and/or services to market)

These six steps will be broken down into many more steps.


Putting it all together. I have tried to streamline this process to make it as “step-by-step” as possible, but due to the dynamic nature of business, it is very hard to find a “one size fits all” solution, depending on the business you would be coming back to certain points you already passed.


Short Summary
Each blue link below will link to a page you need to open to read more about it.

Starting a Business

1. You come up with a business idea you want to start. Read Choosing the right Business Idea for You

2. Then you research understand the industry the business is in (making sure to spot any available gaps or niches in the market). Making sure you know what skills, equipment and materials you need to carry out your value proposition and business model. Read Supply Value Logistics Chain – Research and Understand Your Industry

3. Then you test your suitability for the business/idea and industry (Test if Business Idea is right for you)

4. Then you write the Value Proposition of your business plan

5. Then you determine what exact problem your value proposition solves (refine value proposition if you have to) (Problem Worth Solving)

6. Then you write the Market Need section of your business plan based on the problem you are solving.

Running a Business

7. Then figure out how you will be solving that problem (Business Model)

8. Write down the “Your Solution” part of your business plan going into detail about your solutions/offerings which is the products and/or services you will be offering.

9. Next you plan Strategy, assess and write how you will deal with Competition and the people you will sell to (Target Market)

10. Day to day running of the business (Business Management)

Growing a Business 

11. Then you decide where you are going to sell Your Solution to your Target Market (Sales Channels)

12. Then you have to figure out how you are going to tell your Target Market about Your Solution to their problem and get them to your Sales Channel (Marketing, Advertising & Sales) in order to write the Sales Channels & Marketing Activities section of your business plan.

13. Then you need to figure out what you need to carry out your Value Proposition / Solution and to grow (Operations: Resources & People)

14. How many products/service hours you need to sell to break even, make a profit, grow, Budget and sales goals (in order to write Financials: Budgeting & Forecasting)

Funding a Business 

15. Then you fully assess the resources/money you need to start, run and grow (Funding Needs & Use of Funds)

 

The big picture

How to Start, Run, Grow & Fund a Business in South Africa (using what you currently have)

Starting a Business

Come up with business idea
The next part is to come up with a business that you want to start [Business Idea Generation] (you can use Khoi CapitalNiche BusinessLuxury BusinessTownship Business or Side Business to help you generate a business idea). If you still cannot come up with a business idea you can use the Khoi.biz community “Business Idea Generation” section to help you come up with an idea. Read the business idea page.

Understand  business & Industry – Study the  Supply Value Logistics Chain

Test business idea
When you know what business you want to start and understand the industry and what is required, you then need to test your suitability for the business [Test Idea Internally]. To see if the chosen business is right for you, you can use Effectuation Theory.

Look at:
The resources you have at hand: Who you are, what you know and who you know (Bird in Hand)
As well as the time, the effort and the money you have at your disposal (Affordable loss)

This is where you stop and analyse if you have the capabilities or know someone and have the resources to carry out the value proposition.

If you do not have the capabilities and resources to carry out your desired business, you need to go back to effectuation theory and:
– If you run into problems leverage contingency to come up with a plan B that will work (Lemonade principle)
– If you still cannot do it on your own – establish partnerships to enter an existing value chain (Crazy Quilt). See business circles to help you find partners in your value chain.

If you reach this point and you still cannot find the capabilities and resources, then it’s time to start over, perhaps at a lower point of your supply value logistics chain. If you still cannot find a way to start your desired business and don’t want to start lower and build towards it, then it’s the end of the road, you clearly don’t have the means to start it. Smuse does not entertain pie in the sky ideas. You can continue to dream, send people Emails, walk around with your business plan looking for investors like in the movies or you can start small and build something realistic and grow it but that is your prerogative.

If all else checks out continue.

Make sure you know what you can and cannot change in your chosen business (Pilot-in-the-plane)

Write Value Proposition
Now is the time to write the first section of your business plan: Value Proposition [Value Proposition]. Describing the gist of your business.

Test Market (for Value Proposition) / Idea Validation
Then you need to refine your business idea to establish the problem you are solving if it is really solving a problem. Is there a business? Why do people need your product/service? Do they really? [Problem Worth Solving]

This is the external testing of the idea/value proposition (Idea Validation). Depending on the outcome rewrite the Value Proposition if you have to.

If you wondering how exactly this fits in considering you already wrote your value proposition, it’s like this. When you come up with an idea, and you know you have the means to execute, that idea to you will be the best thing, obviously because you are biased and so is your family or friends you initially bounced it off. You still need to establish is there really a market. That and we are trying to have things flow in order which as I said is difficult.

Write Market Need
If you are satisfied that your product fulfils a need or a want, you can write the next section of the business plan: Market Need [Market Need]. The “problem” your product is responding to by being in the market.

If you run into any problem’s with the above, use the Khoi.biz community “Help with Business Ideas” section for help. Only once you have already done your supply value logistics chain “homework”.
Running a Business

Determine Business Model & Write Your Solution
Next, you need to add your value proposition and market need together and determine your [Business model]: how you are going to make money. How you are going to be positioned within your industry’s value chain. You have already established the problem you are solving, now you are establishing how you are solving that problem to write the “Your Solution” [Your Solution] part of the business plan.
Here you can use Porter’s Generic Strategies to determine a primary business model: are you going to be a:
Low-cost Provider
Broad Differentiator
Best-cost Provider
Focussed Low-cost Provider
Focussed Differentiator

Another important part, so what exactly is it? Providers and Differentiators?
Every single industry in the world either has one of the above.
A provider is a company with a broad range
A differentiator is a company with a niche range
Remember what I said about finding a gap? Are you going to offer a cheaper or better or product or service?
Low cost is cheaper
Focussed is better

A few examples:

Pep stores is a low-cost provider.  They sell school uniforms, clothing, workwear, homeware a lot of different cheap stuff.

Woolworths is a broad differentiator, they on the other end of the spectrum, people pay the premium because they want (or are expecting quality).

Before I get into best cost provider that is going to be a longer story because we say “you can be cheaper or better but you can’t be both”, best cost is a balance of the two. But hold that thought as I want to introduce you to a concept separate of Porter’s Strategies called the Blue Ocean strategy defined as “the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant”.

I can’t think of a very good local focussed Low-cost provider let’s use Mr. Price Sport. They seem to be a low-cost sportswear shop compared to other players like Sportsmans Warehouse. A low cost “no-frill” airline is an often-used example here.

Porsche (automobiles) & Smeg (domestic appliances) are both examples of focussed differentiators, as with Woolies people are paying a premium because they expect a better quality product, but unlike Woolies, they specialise in a product category.   Harley Davidson in motorbikes is another often-used example.

Each of these business models attracts a different target market, dedicated to the solution (products and/or services) you are offering. For example, some people may pay a premium for a sports car but won’t pay a premium for a toaster. I personally won’t buy Smeg as to me it’s a waste of money. I know there are cheaper brands that can do a comparative job. The same way I’ve never owned an iPhone (or a Mac) which I also think is a big waste of money. Now Smeg and Apple fanboys might be rolling their eyes thinking “this guy doesn’t know what he’s missing” but there’ll also be people like me thinking “what moron spends R3000 on a toaster?”

Another thing to consider with business models and target markets is that just because a brand is positioned in that category it does not mean that they will be viewed as such. BMW is a good example, perceived by poor people as a status symbol but these days common urchins drive it. Not only that but there is most certainly better value from competing brands out there.

These are important points which we will get into later, starting with the target market but later on I will go into strategic frameworks like VRIO where we will look deeper into your competitive advantage with regards to product development,  comparative and substitute products.

Business Strategy & Write Competition
Then determine your business strategy [Business Strategy] which is how you are going to achieve your objectives outlined in the value proposition business model / your solution considering your competition [Competition], you can use Porter’s Five Forces to guide you: a method for analysing competition of a business.
Threat of new entrants
 – Profitable industries that yield high returns will attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents
Threat of substitutes – A substitute product uses a different technology to try to solve the same economic need.
Bargaining power of customers – The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers’ power is high if buyers have many alternatives. It is low if they have few choices.
Bargaining power of suppliers – The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes.
Competitive rivalry – For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully marketing a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors‘.
Competitive Analysis

Write Target Market
And factor in your target market [Target Market]. Starting with a primary target market: B2B, B2C, B2G, B2M, C2C and narrow it down from there to more specific metrics.

Day to day management
Business management is implementing value proposition, solving the problem, executing on the business model, organising, planning and directing your strategy to accomplish your goals.
Growing a Business

How you will market and sell products, write Sales Channels & Marketing Activities
You know your strategy, which will have a bearing on where you sell your product or service [Sales Channels] whether brick and mortar or online. And your target market will dictate the types of marketing activities [Marketing, Advertising & Sales] you use to get your product or services in front of them. This will be used to write the Sales Channels & Marketing Activities part of your business plan: How are you going to communicate the benefits of your value proposition and business model to your target market. How you are going to get your target market to your sales channel to buy your product or service.

Business Operations: Putting all the above together.

Now you look at the resources and people that you have, need and want to execute the vision you have set out above.

Then you look at the financials: budgeting and forecasting. This with resources and people needed will partly determine your funding needs.
Funding a Business

Funding Needs & Use of Funds

Look at the initial funding [Initial Fundraising] needed to start, the working capital [Working Capital] needed to run and the debt [Debt] and equity [Equity] sales that may be needed to grow the business.

The correct way, the proper way, for people in our context, is to start a business within their means, get cashflow, if a big opportunity comes, then get working capital for it (making sure that the profit from the opportunity exceeds that of the working capital loan). Debt is used to grow the business, again making sure the profit exceeds that of the interest payments. Selling equity (a percentage) of the business to an investor/partner is a controversial topic because that partner will now have a say in the business – a say that may well end up differing from yours.

Right off the bat, within our context, the chances of you getting investment or finance for a new business based on idea only is virtually zero. Secondly getting investment is not like in the movies where you call and Email people and they call you in for an interview and you get money. It doesn’t work like that and I’m not sure where people get that concept from. Just sit down and think for a moment why would a stranger who does not know you, know your abilities, place a bet on you with their own money? Investors are also not going to help you based on some sob story to garner sympathy. It will be seen as a negative because you are desperate and like the three things mentioned above it delegitimises your whole business idea. The investor cares about making money and that is what you should lead with, leading with anything else just means you don’t believe in your business. If you start your pitch with I am a {race}, {gender} and {sob story}.  Investors don’t care and within our context, those things don’t mean anything. If you don’t want to believe me go and look at the market. Does the market care about such things? Then investors won’t care.

If you want to know when is formal capital available for a business. There is an easy way to read the local environment. Go and look at the slew of local “working capital” shops (some calling themselves “fintech”) that have popped up recently Lulalend, Business Fuel, Merchant Capital and a dozen others. Look at how they operate, look at their requirements, a certain period in business and a certain amount of revenue (around 1 year / R1 million). Some of these guys have interest rates that will make loan sharks proud. Ask yourself, why is a business with at least R1 million in annual turnover (R83333 a month / R4166 a day in a five day week) lending from people that charge the same interest like Georgie Zamdela? That is because even if you making R1million a year the banks will still bullshit you. Can you imagine how they treat startups? But don’t take my word for it (or the word of Lulalend, Business Fuel, Merchant Capital etc. clients) you are more than welcome to waste your time going from pillar to post looking for finance for your startup. And be very wary (especially females) if someone from formal institution strings you along by promising you funding or finance). They have no mandate to do so and probably have ulterior motives. I’m speaking about private institutions here and not state-owned entities like the PIC, where anything is possible especially if you have political connections or are young, pretty and female. But I don’t deal with government institutions or doing business with the government.

How to Fund a Business in South Africa Part 1 – Introduction
How to Fund a Business in South Africa Part 2 – Initial Funding
How to Fund a Business in South Africa Part 3 – Working Capital, Debt & Equity