For the last two months, I have introduced you to a framework you can use to Start, Run, Grow & Fund a Business in South Africa using what you currently have.
So far I have been dealing with theory and abstract which is what a frameworks are about this is because any business can slot into Smuse. As there is not enough time to convert every page to use the Smuse framework right now I have chosen one business to show you. Please note this is a fictional business for illustrative purposes only.
How to use the Smuse Framework
Starting the Business
I have decided that I want to Make & Sell Paaper Bites
Supply Value Logistics Chain Analysis – Researching the industry
Value chain: skills, equipment and materials
I studied my industry and I found my gap.
I understand the Supply Value Logistics chain of my business. I am going to be a manufacturer. I know that paaper is made from the following:
Raw materials: flour, salt, water.
Equipment: Frying equipment
Skills: Frying and weighing
If you are wondering why isn’t oil in the raw materials? And why are a stove and pot not part of equipment if it’s being fried? That is because I spotted a gap in the market when I did my supply value logistics chain analysis: healthy paaper bites made with an air fryer. The niche I am entering is that I am using an air fryer instead of oil to fry the paaper bites. Air Fried Paaper Bites. My business name is AF Paaper Bites. Here is the technology I am using:
Now I use effectuation theory to test my suitability for the idea’
Effectuation theory has the following principles:
Bird in hand – start with your means
Affordable loss – risk what you can afford to lose
Crazy quilt – Built partnerships with to reduce uncertainty
Lemonade principle – create opportunities from challenges
And the final one is “pilot in the plane”
I have to combine the industry research (supply value logistics chain analysis) with the above principles.
I know what I need to start out with and to grow. My Bird in hand analysis tells me:
I have the main piece of equipment, the air fryer I got for my birthday that has taught me the wonders of air frying.
My Affordable loss (combined with the industry research) tells me:
I have enough money to buy a 10kg bag of flour and a bag of salt and some spices, plastic bags, (I have a heat sealer and label printer for packaging). I had some change left and spent it on R&D, just to pique my interest I bought a packet of samoosa sheets just to compare the end result (DIY dough vs samoosa sheets).
Just to interject, once you have done your Supply Value Logistics research and your Bird in Hand and Affordable Loss analysis. This is where you stop and analyse if you have the capabilities or know someone and have the resources to start the business you intend to. I have done it and come out with the above results.
I found me a paaper recipe online which I am going to follow. Can’t be too hard.
Actually, it is quite hard, I followed the recipe but my pastry is not coming out right, it is lumpy with dry pieces of flour inside this is not good. I try the samoosa sheets and it comes out fantastic.
I fry the whole pack of samoosa sheets and weigh it, I have a problem, samoosa sheets are too expensive to use to make paaper bites from, I also don’t have the money yet to hire someone. Then I remember I still have two principles left in effectuation theory to call upon:
Now remember, I already passed the means (bird in hand, affordable loss) hurdle here the first effectuation theory contingencies come in.
Lemonade Principle – Leverage contingencies.
Crazy Quilt Principle – Form partnerships (if you cannot do it on your own).
I know from my bird in hand (Who do you know?) analysis that I know a lady that makes samoosas (of which the dough can be used to make paaper bites). I still have over 9kg of flour left. I also know how nice my paaper came out when I used the off-the-shelf samoosa leaves. I plan to approach Samoosa lady thinking I will tell her I will give her half of the flour I have left in exchange for 4.5kg of ready-made paaper dough (which she makes herself).
So I arrive at Samoosa lady making the requisite small talk, I enter her kitchen and see, that when she makes her samoosas and spring rolls she cuts off little triangular pieces from the edges, these scraps of pastry also known “pastry offcuts” it turns out is what people use to make paaper with. Kind of like a dough recycling business. I marvel at the joys of heuristics of starting something and taking it step by step.
This lady sells frozen samoosas and spring-rolls, she has no intention of getting into the paaper business, I come to an agreement that I will swop 9kg of flour for 4.5kg of offcuts. Those pieces and sizes are perfect, now I don’t even have to cut the sheets up. This is a win-win partnership for both of us. Going forward she agrees to swop me offcuts using this ratio of flour (10kg flour for 5kg offcuts).
I do my pilot in the plane analysis and know what I cannot change at the place I am currently at.
Write Value Proposition
Now is the time to write the first section of your business plan: Value Proposition. Describing the gist of your business:
AF Paaper Bites makes delicious and healthy air fried paaper bites.
Problem Worth Solving to Establish Market Need part of Business Plan
Now I have already tested my suitability for the business, I know that I can produce this product because I did. Now we come to an important part: is there a market for this business? Do people want air-fried paaper bites? Testing the business and effectuation theory is internal testing. This is the external idea validation for the market.
Question to answer: Why do people need your product/service? Do they really?
I did some research, many people like to snack on chips like Lays or Simba but many don’t like the oil and salt, find it is expensive and many bemoaned the lack of variety saying we’ve had the same Simba and Lays flavours all the years and they love that my paaper won’t have fatty oils in.
Now I write the market need:
AF Paaper Bites creates a healthy alternative to deep-fried paaper bites which is unhealthy. It also appeals to people who don’t like the current mass-produced bland offerings from FritoLay/Simba.
Running the Business
Business Model – & Your Plan to make money
Determine Business Model & Write Your Solution
Next, you need to add your value proposition and market need together and determine your Business model: How will we be solving this problem, 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” 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:
Focussed Low-cost Provider
To solve the problem I am buying samoosa offcuts air frying it packaging it and reselling it.
Now I go to Porters Generic Strategies to determine my model
I am entering the chips business. I’ve done my Supply Value Logistics Chain analysis.
That competition will come from three areas: other paaper makers, the cheaper maize snack chips and the more expensive potato chips. There aren’t really well known paaper brands in SA with the exception of Alibaba and they lost popularity in recent years due to a change in recipe and cost increase.
The low-cost providers are the R1 – R1.50 “maize snack” guys Nik Naks, Truda Foods, IQ Snacks, Crack n Snack, Redos La Bamba Beef etc.
Within the chips industry, the potato guys: Simba, Lays, while they might be mass market, they are far beyond the affordability of most South Africans, Lays is almost R10 for that small bag of air. I consider them to be premium, (yes Woolies is a better example of premium), but like Coke and Pepsi these are premium brands in SA. These are Differentiators within our market, they market based on quality, remember the “I want to be a Simba Chippie” advert, potatoes look forward to becoming “Potato Chippies”. Same with the cooldrinks do you see Kingsley or Jive positioned the same like Coke and Pepsi? No they low-cost they not going to spend a lot of money on marketing or sponsoring expensive competitions.
The goal of AF Paaper is to be positioned in between the low cost (maize) and premium (potato) mass-market brands with our air-fried dough snack and be a Best-cost Provider. Relevant parts:
Best-cost provider strategies aim at giving customers more value for the money.
The objective is to deliver superior value to buyers by satisfying their expectations
on key quality/features/performance/service attributes and beating
their expectations on price (given what rivals are charging for much the same
Being a best-cost provider is different from being a low-cost provider because the
additional upscale features entail additional costs (that a low-cost provider can avoid by offering buyers a basic product with few frills). Best-cost
provider strategies stake out a middle ground between pursuing a low-cost advantage and a differentiation advantage and between appealing to the broad market as a whole and a narrow market niche. From a competitive positioning standpoint, best-cost strategies are thus a hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation (upscale features delivered at a price that constitutes superior value).
One thing that you have to remember when using and explaining Smuse is that there is some stuff going on behind the scenes. Like when I researched my industry I already had an idea of how I want to position AF Paaper Bites.
A description of your products/services.
How do you solve your customer’s problem? What products and services are you offering? Describe your product or service and why it’s better than the alternatives.
I will sell 25g bags of air-fried paaper bites that is healthier than low-cost brands and cheaper than premium brands.
Business Strategy & Competition
When I did my industry research, I took note of both my low-cost (Niknaks, IQ Snacks, Truda) and premium (Simba/Lays, Messaris) competitors weight. Nik Naks is usually 20g (currently running a 25% extra at 25g), IQ Snacks is 24g while Lays is 36g.
Some other behind the scene info into my pricing. The first time I took a kilo of raw dough, air fried it and then weighed it again just to see how much it weighs when fried. This is to give me my costing info to make sure I was on the right track (can make enough profit).
1kg weighed 800g after fried. In other words, it lost 20% of its weight. This will not be surprising to bakers. A loaf of bread loses up to 11% of weight. “Dough losses weight by giving off gasses and moisture and by a small amount of dough that sticks to the mixer…Dough also loses weight during the proofing, baking and cooling. This loss usually averages about 11 percent.” – source
I am paying R100 for 10kg of flour which samoosa lady uses to make dough from and gives me 5kg, however, I lose 20% of its weight when I fry it (and end up with 4kg). This means I am paying R20 per kg of raw dough and R25 per kilo for unflavoured air-fried paaper.
My plan is to make 25g bags. This will give me 40 bags per kg. So my cost price for 25g (before packaging) is 63c. My research tells me that the low-cost guys retail at R1 and the premium guys retail at R6. So my retail price point will be R2-R3 (R2.50). With wholesale pricing of R1.50 to R2.
I’m a manufacturer and I have no desire to sell direct to retail. I want to sell wholesale. But I don’t have the volume to sell to wholesalers (yet), that is why I am selling directly to tuck shops. Starting out my target market is school tuckshops.
Remember: target market vs. target audience
The target market is who you sell to. The target audience is who you expect to buy the product.
My target market is tuckshop owners but my target audience is students who will buy from tuckshops who’s owners will reorder.
Day to day management
Growing a Business
We have a plan that chugs along nicely. Now we need to look at the things that can grow the business.
Sales channels (bringing Your Solution (product) to market where it can be purchased by Target Market)
Marketing, Advertising & Sales (how are you going to tell your target market and target audience) about Your Solution (product)
The above two combine to create the Sales Channels & Marketing Activities part of your business plan.
Continued next time…