Mpendulo and I also wanted to follow up on our client’s idea to work with Tibiyo, so we scheduled an interview with a woman working in their new business development department. I still haven’t figured it all out, but there are huge overlaps and very gray boundaries among what belongs to the king, his company Tibiyo, the government and the country. Thuli was intelligent, thoughtful, and articulate. She had previously worked for the World Bank outside of Swaziland but had decided to come home. She had given our objective a lot of thought and had several ideas as to how Tibiyo could use private-labeled water from a local source. Although her ideas were good, they were small volumes, and she knew it. She also was concerned about the viability of a new bottled water company because she had been involved in evaluating the potential for a similar company in Lesotho. The opportunity had seemed promising and the company had been funded, but it had always struggled. She referred me to some contacts at the company who would be willing to tell us about their challenges.
Our next step was to evaluate the market from the perspective of the only local supermarket where we got very clear feedback from the manager. Without any prompting, essentially his first words were, “I don’t want another supplier of bottled water. I have too many now, and I’m reducing the number of brands that I carry.”
As we talked to this major potential customer, I thought about the business school professors who teach introductory marketing and the authors who write books on starting new companies. Everyone who understands business success emphasizes the need to focus on the customer. Who are the customers? Why do they need your product? Where will they buy your product? Why will they choose yours over the competition? Throughout my business career, I had seen the importance of this type of customer focus reinforced many times over, and I have always believed that the customer is right. They have the money; you’re trying to get it. And if they aren’t willing to part with it, then your business is out of luck. In other words, it doesn’t matter if you have a great source of pure water and a beautiful bottling plant. If no one wants to buy your product, you’re bankrupt. Actually, you’ll probably never get that far. If there is any rationale in the organizations that might provide funds, they’ll never give you the money to build that beautiful bottling plant. We needed to check a few more sources, but I had already started to think about how to present the sad truth to our client.
Wendy was also staying busy. Although her primary objective was to establish the youth program, her mandate was to work more broadly on promoting entrepreneurship. Under this mandate, a specific objective was to work with Atiba to develop the TechnoServe Business Place for Emerging Entrepreneurs. This was envisioned to be a one-stop “gateway” to help people start small businesses, similar to the business place they had observed in Johannesburg. Resources were envisioned to include a reference library, Internet access with several computers, skill and knowledge assessment tools, in-person advisors for initial guidance, and senior consultants for more technical advice. Wendy was familiar with this concept because it is similar to a program operated in many major U.S. cities by the Small Business Administration and SCORE (Service Corps of Retired Executives).
However, finding a location, operational methodology, and funding model in order to establish a one-stop business center in Swaziland proved to be a major challenge. South Africa’s Black Empowerment initiative provided an umbrella for the concepts and funders to come together to create their center. No such movement or financial backing existed in Swaziland. TechnoServe had limited funds to initiate a center, so it clearly needed multiple partners to establish and sustain it. Additionally, determining exactly where to locate a center and exactly the right services were major issues as well. The next steps were much less clear for this project.
However, at this time, UNISWA (University of Swaziland) was also thinking of establishing a regional business resource center, but they had not gotten beyond the conceptual stage. They were struggling with what this new institute would do, the kind of programs to run within it, and how to fund it. After research, discussions and evaluating the alternatives for a business resource center, Leslie, Atiba, and Wendy agreed that the best way forward would be to partner with UNISWA and either locate a center on their campus or adjacent to the campus in Manzini.
Seeking a potential site for the business place, Wendy and Atiba drove the one-hour drive to Manzini, the largest Swazi city (over one hundred thousand people). Although it was larger than Mbabane, it was not the government capital and was not as well-kept. Its downtown was pretty old, dilapidated, and polluted from all the buses, cars, and kombis (small vans used as local buses); but it was the easiest city to reach from all parts of Swaziland.
Consistent with partnering with UNISWA, Wendy and Atiba first explored the campus as they looked for potential colocation sites. Then they visited Mavuso Trading Center outside Manzini, a large convention-type complex built by the government/king that was meant to promote Swaziland by hosting business fairs. In its first three years of existence, it had been fully booked for only two weeks per year. The remainder of the time, it went mostly vacant with occasional social, sports, and business events; another grandiose idea on which a lot of money had been wasted. Not seeing any opportunities in university or government space, they also visited a number of commercial buildings. No one offered anything but retail rental pricing, some even above market rates. Wendy and Atiba were very dejected that no one wanted to help them and give back to the community. Since USAID, the primary donor for TechnoServe’s work in Swaziland was only willing to pay for a percentage of this business gateway, Wendy knew that she really had her work cut out for her.
As Mpendulo and I continued to collect data on the market for bottled water, one useful visit was to the country general manager for an Italian multinational food company that focused on dairy products. When asked about bottled water, he indicated that they had tried bottling and marketing their own line of water several years prior. They had abandoned it. He was sympathetic to our cause but said he wanted no part in the marketing or sales of bottled water. He was willing to discuss simple distribution of any products we had to offer because he had a fleet of trucks for distribution and carrying more products could reduce his costs per unit. However, he didn’t think that we could even sell bottled water to the major grocery retailers since they already had too many brands on their shelves. He knew the business, and his thoughts confirmed what we already knew.
Another interesting visit was to a real estate broker who was selling a water bottling plant complete with its own source of water. Mpendulo, my junior colleague, had called this broker to find out some business information on the property that was for sale. The young woman with whom he talked said that we would have to meet with the owner of the brokerage business. I’m sure they thought we might be potential buyers.
The owner of the brokerage business was a well-known mini-tycoon in Swaziland. He owned a number of businesses and had a reputation for being successful with everything he touched. His background was Asian, but he had lived in Swaziland since he was quite young. He was impressive to meet. He was a well-groomed, fast-talking, articulate, energetic businessman; and what a salesman! He told us how wonderful the water business was, how he had gotten numerous contracts to export water, how they had established a brand, how important water is for health, and how they had just been too distracted by his other businesses to aggressively pursue their bottled water business. That’s why they were selling this modern, high-capacity, stainless steel water bottling plant with its own source of pure clean water. We declined the offer to visit the plant, thanked him very much, and left with a different message than the one he wanted to sell. We knew that if the business had been a good one, he would have continued it himself or at least sold it as a going concern to get a higher price.
We also talked, by phone, to the bottled water company in Lesotho, another small country in southern Africa about twice the size of Swaziland. This company had been started a number of years ago with a lot of hope, fanfare, and the expectation that they would bottle water for export to Mozambique, Botswana, etc. They were operating at 12 percent of capacity and selling only in Lesotho.
Based on our research, and an informal conversation Mpendulo had with our client, we knew it was time to give him the bad news. We would not be helping him if we delayed giving the message. The sooner he dropped this idea, the sooner that he could possibly move on to something else. And maybe in our discussion with him we could give him some insight that would help him to better evaluate his next venture. I put together a short PowerPoint presentation that described the issues with his idea and the research we had done to back up our position. However, I thought it would be best for Mpendulo to give the actual presentation. In addition to making it easier for our client to accept our advice, coming from another Swazi, I thought this would be a good development opportunity for Mpendulo. Even though I wouldn’t be giving the presentation, I anticipated the experience with dread. The man was so nice and so optimistic. I hoped he wouldn’t take it too hard.
When our client came in, there was a conflict for the only conference room, so the three of us had to meet around Mpendulo’s desk. Mpendulo walked our client through the presentation. He explained the logic of business competition and what it takes to be successful. He explained our research and why a new bottled water company without some unique approach could not be successful. Our client listened carefully and silently. Mpendulo was very empathic and soft in his delivery. At the end, our client reiterated his original idea and why he had thought it would be a good one. He thanked us for our help and told us he would have to think about all we had told him. Then he left, obviously very disappointed. We felt bad too, but there was no value in wasting resources—his or ours—time, or money on a business that would ultimately fail. We needed to help people discover and develop businesses that would be successful.
Concurrently, we worked on MPE Timbers, making some progress, but not nearly as much as hoped. We brought the principals from the company, Brian and Robert, into our office for a multihour meeting, hoping to get some good financial start-up numbers from them so we could start doing our analysis. Unfortunately, the numbers they had were too general. They might have been right, but they had no support. Also, expenses for the first year had been estimated and then spread evenly across the months. We really needed to know what would be spent at the beginning, then as they ramped up, and finally what would be the steady state. When starting a business (and later as well) cash flow is critical! There was some grumbling about doing more detailed work, but we emphasized that if they were lending money, they would want to know where it was going. So Brian agreed to get us numbers by the following week.
Later the same week, we had an exciting development. We met with an investor, Dave, who was potentially interested in putting money into MPE Timbers. He had already been a successful lawyer and investor in Swaziland. He had been talking to TechnoServe about another opportunity and then got referred to us. Dave had been involved with the timber industry before and was interested in doing more value-added activities to timber in Swaziland. At the time, Swaziland was exporting a lot of raw timber and importing wood products. It seemed to all of us that this situation created multiple business opportunities. Brian was coming back to our offices the next week, so we planned to introduce him to Dave.
The following week was an interesting one for clients. On Monday, Brian drove over from Johannesburg to meet in our office, so we included Dave. The meeting was friendly and both parties were interested in talking about Dave’s possible investment. I was in another meeting when Brian and Dave were introduced and started talking, so at first, Brian thought this was a chance meeting. Later I assured him that it wasn’t chance. Although there was some luck involved with our initial identification of Dave as a possible investor, I told Brian that I had already spent considerable time with Dave to introduce him to the project.
We all knew that we were just starting a long process of courtship and negotiation before a deal could be worked out, or not. However, we did get into serious discussions on some issues such as ownership. At the end of the discussion, we agreed that the next step would be getting numbers from Brian so that we could do our analysis and see what worked financially. Then we would familiarize Dave with the whole business, have him visit the actual plant, and ultimately get Dave to figure out his conditions for a deal.
Throughout the week, I worked with Dave to familiarize him with the economics and the possibilities of the business while giving him a chance to bounce his ideas off me. His wife, Fiona, also got involved, especially looking at the numbers that had been developed so far. By the end of the week, Dave had come up with the conditions for his interest. After looking at everything, Dave saw the proposition as high risk. I would have called it medium risk, but since the business had run out of cash twice and it was Dave’s money, we called it high risk. In return for the risk, Dave wanted the possibility of high return while minimizing his risks in other areas, including potential problems with disgruntled shareholders. Since a lot of Dave’s law career had been in pursuing shareholder suits, he knew the pitfalls. Consequently, he wanted 100 percent share ownership. We knew that this would be a tough hurdle to overcome, but Dave was interested in structuring attractive ongoing incentive arrangements for the existing shareholders to persuade them to give up their shares. He had a number of other conditions, but this was the most challenging. I planned to present it to Brian and Robert and to see what their level of interest would be.
Brian was supposed to have new start-up numbers to me by Wednesday at the latest, but I didn’t have them Friday morning, so I called him. As mentioned, Brian lived in Johannesburg, which was known for its high crime rate. His wife had been a victim. Although she had survived, she was very shaken up. The mugging happened when she went to her sister’s house to check the progress on her sister’s new kitchen. Her sister and husband had gone out of town, but the workmen were supposed to continue their work. When Brian’s wife walked into the house, she was grabbed, roughed up, tied up, and put on the floor with the workmen who had already been tied up. The thieves then continued their robbery. No one was critically injured, but there was some physical trauma, a lot of emotional trauma, and some dealing with the police. I was very willing to wait for the financial numbers, and I wasn’t going to Johannesburg (other than the airport) unless absolutely necessary.
My colleagues heard that I had time to take on more responsibility, so this same week I picked up partial responsibility for two additional clients. One company was in the business of installing thatched roofs on houses but wanted to get into making products, such as roll-up blinds, out of thatch. This idea immediately sent up red flags for me because the only obvious connection between these two businesses was the raw material, which is usually not a good justification. I immediately had trepidation about what my new clients were thinking, but the proposed business could potentially employ a significant number of rural women in collecting the thatch, in weaving it, and also in the final assembly process. So I agreed to try to help them. The other new client was a six-month-old baking company that was making a traditional Swazi cornbread product. The thatch company wanted our help in starting up their new business and the baking company wanted our help in figuring out how to be profitable and get additional financing. With these additions, I was busy.
I paid a visit to the bakery company, Tasty Meals. The founder Phiwa (pee-wah) was a warm, energetic, and very likable young man in his mid-thirties. He was a native Swazi but had attended Colorado State University, in civil engineering, and was quite intelligent. He had thought a lot about his business, both before and after founding, and had done some analysis of his financials and his marketing. Although his analysis and insight were not up to what I would expect from a thoughtful U.S. MBA (masters in business administration graduate), they were much better than what I had seen to date in Swaziland. He also had a woman working for him as basically the COO (chief operating officer) of the company. Nolwazi had a degree in business, and from our brief meeting, I could tell that she understood both marketing and financial concepts and had some good marketing insights. However, she was nine months pregnant and on maternity leave. Since she was bored waiting around at home, she came into work and joined us for our meeting.
In starting the company, Phiwa had seen a market opportunity to produce and sell a traditional Swazi cornbread called mealie bread, made from green mealies and typically served with emasi (soured milk). In southern Africa, mealie just means sweet corn, which most Africans call maize, and green mealies just means fresh corn. Although the name was not appealing to us, it was the type of treat that grandma would make for the family when fresh corn was in season, and Swazis associated it with home and family. Mealie bread required careful, time-consuming preparation, and was not produced or sold commercially. Phiwa thought that busy families would be interested in purchasing this traditional product commercially, so he started the business.
Although our first meeting was primarily introductory, we went over some analysis and ideas. Based on his prior month’s costs, I calculated his breakeven, which was about twice as many loaves as he was currently selling. While his margins were below what would be expected in the specialty bakery business, 45 percent versus 60 percent, a small price increase would have put them right in line. Whether or not he increased his price, Phiwa needed to focus on increasing sales. We discussed a lot of approaches to doing this, with emphasis on broader distribution and a “push” marketing strategy using merchandising materials with the retailers and at the point of sale. We all knew that trying to create broad consumer demand that would “pull” the product through the distribution channels and the retail outlets was totally unreasonable because of the cost of the advertising that would have been required. Nolwazi had some excellent ideas for marketing, but they would have required investment in promotional materials, and since Phiwa had already exhausted his savings and his borrowing limit, his options were very limited. And he was continuing to lose money.
That’s why he needed our help. I thought it might already be too late, but I really liked Phiwa’s entrepreneurial spirit, his intelligence, and his friendly personality. And he was creating jobs for poor women in both food preparation and sales. I was excited to try and help. We quickly met again, and I began my analysis and consulting. I knew the company had to increase sales to get to a breakeven point, so we started talking about where and how they sell their product. I had lots of questions to lead us through a disciplined analysis, but the discussion jumped all around. Phiwa and Nolwazi had lots of stories as to where they were selling, where they weren’t, what had been successful, and what hadn’t. They also had lots of ideas as to how to improve, but they didn’t have a logical step by step plan as to what to do, how, and when. After our discussion, Tasty Meals still didn’t have a plan, but I realized how much time it would probably take to help them create one.
As we continued to talk about the many marketing and sales activities that could increase sales above breakeven levels, Phiwa, our entrepreneur, went off on another tangent. However, this one turned out to be critical. Sales weren’t his only problem. It would have been foolish to spend money to increase his demand because he was having trouble purchasing enough green mealies to consistently support his current sales. So developing a reliable year-round supply of maize was critical to his survival. Because of the tremendous seasonality in availability and price of fresh maize, he thought growing his own might be the only way to assure a continuous supply at a reasonable price. However, even if this could work, it would take three to four months from planting to a first harvest, another challenge. I was beginning to feel that I didn’t have enough fingers to plug all the holes in the dike.
Moving from sales and marketing to finance, I learned that Phiwa had recently gotten a R150,000 ($21,500) overdraft facility (line of credit) for working capital. He had planned to use this for marketing activities to increase sales. However, he had a lot of past due bills when the loan came through, and now he’d used R140,000 out of the R150,000 available. I calculated that he was losing about R20,000 per month. So in summary: Our entrepreneur was selling about half the volume he needed to break even. He couldn’t increase sales because he couldn’t find enough raw ingredients, but he probably couldn’t pay for them anyway. And he would run out of money in less than a month. I knew how to help a lot of businesses in a lot of situations, and I knew I could help our friend to figure out a solid business plan, but I wasn’t a miracle worker and didn’t have money to lend.
A week later, I met again with Phiwa and his partner, Sifo, the owners of Tasty Meals and told them that I didn’t lend money and didn’t grow mealies, so I couldn’t help them with their short-term problem. I was trying to give the situation a little humor, but they already understood how grave the short-term situation was, and they recognized that they would have to deal with it. This gave me some relief. So we sat down and started to discuss a business plan that could lead to success in the longer term and possibly financing, which would be absolutely necessary. The two primary areas that needed to be addressed were sales/marketing and sourcing of mealies. Since you can’t sell something you don’t have, we started with the sourcing strategy.
The major problem with sourcing was that the mealie bread product requires fresh corn (green mealies), which was only available at an attractive price during four months of the year. During these four months, farmers throughout the country have had the right combination of rain and warm weather to grow lots of fresh mealies. Since the supply is high, the price is low. However, during the rest of the year, as the weather gets colder, there is less land at a low altitude to be warm enough to grow the mealies. In addition, at that time of year, the land has to be irrigated because it doesn’t rain. Naturally, the supply goes down and the price goes up. In their business planning, our entrepreneurs had used an average year-round price that was double what farmers charged in the plentiful season. They thought that this would be sufficient, but it wasn’t, and it also neglected other logistical problems. Unfortunately, in the coldest season, the price of green mealies could be four times its low price. Moreover, the farmers with irrigated land that is warm year round don’t harvest corn in the plentiful season. They only plant it when they know it will be scarce and command a high price. So Tasty Meals couldn’t pay these farmers an average price for a year-round supply. They had tried a number of approaches to contract for a consistent year-round maize supply at a reasonable price but hadn’t been successful. The farmers liked the higher prices in the plentiful season but, when the mealies were scarce, didn’t want to part with their crops at a price lower than what they could get from other buyers. It’s one of those things that looked good on paper but didn’t work in the real world, a good example of how entrepreneurs get educated.
We created a lot of scenarios and did a lot of analysis to reinforce the conclusion that the entrepreneurs had already reached: They had to grow their own mealies for eight months of the year. We even calculated exactly how much land they would need based on the yield per acre and the number of loaves they would sell. Our cost projections said that the business could be profitable, but it would depend on the price paid for renting the land. So their next action item was to look for irrigated land in the Lowveldt (lowland area) where it would be warm year round and hope that the rental price would fit into our model. Then all they would have to do (on the supply side) would be to reliably grow the mealies, a challenge for any farmer, much less, two civil engineers.
By the time we finished these calculations, we had spent four hours analyzing the supply problem and our brains hurt. It had actually been a very productive session. Because the two principals in Tasty Meals were both engineers, they understood the concepts and the importance of analysis and were quite facile with numbers. It was actually a pleasure working with them. However, creating business models was not as hard as trying to reconcile the models with the real world, and that was the next step on the supply side. If they couldn’t operate like the models, mealie bread couldn’t be profitable on a year-round basis, and Tasty Meals would have to be radically changed to survive. And that was just the supply side. Our next meeting would be about marketing and sales where the engineers had much less knowledge.
My second new client was Linopp, the company that wanted to start a business manufacturing products from thatch (grass). Linopp had arranged for me to go with them to a defunct factory in South Africa that had made thatch roof tiles thinking that they might want to go into that business. I had scheduled Kiki, the TechnoServe driver, to pick us up at the office at 7:00 a.m. to go to Carolina, South Africa, about an hour and a half from Mbabane. My primary client contact, Jabulile, arrived on time, but his colleague arrived about a half hour late, something I experienced a lot in Africa. Some of this can be blamed on the lack of reliable transportation, but a lot of it is just custom and culture (which can be incredibly frustrating for a Silicon Valley transplant committed to the pursuit of productivity). Our passenger gave a friendly apology for his lateness and the fact that we had been sitting around waiting for him, but he didn’t seem to be hurrying as he casually bought himself a newspaper for the ride.
Our plan was to drive to a settlement in Carolina where we would pick up a man who had the keys to the shuttered factory and would show us around. He had been the foreman when the factory was operating. We drove to the border and passed through immigration. As we drove into South Africa, the land became flatter, and we passed miles and miles of rolling brown grass fields mixed with timber plantations.
When we got to Carolina, we pulled off the road into what I can only describe as a small settlement. It was more than one house, but much too small to be a town. It was surrounded by a barbed-wire fence, and we entered through a gate comprised of only barbed wire strands held in place by sticks. We drove along two tracks in the dirt and pulled up in front of a house with a young woman sitting in front. This house was one of two in the settlement constructed of brick with metal roofs. The other buildings, arranged in no particular pattern, were all wattle and daub (sticks and mud) in various states of disrepair. Some looked inhabited, others did not. Many were too dilapidated to be inhabitable. Perhaps some were for animals as were the many barbed-wire pens and corrals, also in various states of disrepair.
It turned out that the man we were supposed to meet was not around. However, the young woman sitting in front of the house was his daughter, and she communicated to my fellow passengers that she could get the key and go with us to the factory. She went into the house and returned with the key and a woman who was apparently her mother. After some discussion back and forth in Siswati and Zulu (which are mutually intelligible), the mother evidently agreed to let her daughter show us the factory. However, as her daughter was about to climb into the car, her mother called out to her one more time. The mother seemed to be concerned. There was a brief exchange, and the girl reached into her pocket and handed her mother a cell phone. Then we drove to the factory less than a mile away.
The factory was not expansive. It was more like a large workshop. The building was brick with multipane metal-framed windows. It was exactly the same type of construction seen in many abandoned factories in the United States. However, no one had begun throwing rocks through these window panes. Inside, some of the equipment and half-finished products were still on hand and collecting dirt. From the remains of the simple manufacturing equipment that was used, I could deduce the process. Basically, stalks of thatch, about eighteen inches long, were packed side by side into a metal frame. The tips of the thatch that protruded were covered with a piece of fiberglass tape and then dipped into a viscous resin. When they passed through an oven, the resin hardened like solid rubber and held the thatch together to become a roof tile.
Building similar equipment and manufacturing similar tiles would not have been hard. Perhaps even this factory was for sale. However, as I told my client later, we didn’t know anything about the market. I had researched some sites on the web that sold thatch roof tiles in the United States, UK, and Australia. However, none of us had any idea of the size of the market, the prices paid to the factories, or what the competition would be like. I explained to Jabulile that we had to look at the sales and marketing side of the business as well as production. He agreed to do some research on the market before I saw him again in two weeks. I suggested that he try to contact wholesalers who might buy the products.
When we next met with the people from Linopp, they wanted to know what my plan was for their new business. I was taken aback. I explained to them that it wasn’t TechnoServe’s role or responsibility to independently create a business for them. I explained that we would give them a lot of help, coaching, and even do a lot of the writing up of a business plan, but that it had to be their plan. They needed to do the research and make the decisions around what they thought could work and how they wanted to approach the market. They seemed surprised and left shortly thereafter. They hadn’t done any market research, and I never heard from them again.
Observations and Lessons Learned, So Far
After working with Swazi businesses for just a short time, I came to a conclusion, not surprising in retrospect. Economic development is hard and can proceed very slowly. Any entrepreneur in the United States knows how difficult it can be to start a new business, and that’s within a highly developed business ecology. In Africa, it’s much harder.
