How to save a dying business: Lessons from a failed entrepreneur

by | Aug 24, 2016

After my last article on why funding can kill your business fast, I received a lot of calls and mails asking different questions on how to run a startup with little capital.

I had a mentoring session with an eCommerce founder. This session will help you avoid some mistakes he made and also help you setup your business more effectively.

Tobi (not real name) had just resigned from his job to startup his eCommerce company which he called www.onlinestore.com (not real name). He had managed to save the sum of ₦500,000 to startup his business.

The Employment phase

Tobi was of aware of the manpower needed to run an eCommerce site. He started out by employing:

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  • Two NYSC corpers to be in charge of merchant acquisition;
  • One business developer to be in charge of sales and marketing;
  • Two customer service agents to handle customers complains and enquires and
  • One accountant to manage finances in the business

Their roles

NYSC Corpers: Their role was basically to call merchants from existing eCommerce sites and ask them to sell their products on www.onlinestore.com. These corpers had the responsibility of converting 10 merchants per day. For 22 working days, that’s a total of 220 merchants per month per corper. If the merchants had a minimum of 10 products to list, that would amount to 2,200 products per corper. With this calculation, the 2 corpers were to deliver a total of 4,400 products listed on the site every month.

The accountant: The accountant was basically in charge of remitting merchants’ money and dealing with the logistics company in all financial transactions. The presence of the accountant made it possible for the merchants to get paid less than 24 hours after every successful sale.

The customer service agent: Tobi initially employed 1 CS agent to handle his customer service functions. In less than 2 weeks of launch, the CS agent wasn’t able to cope with all the calls, the emails and CS activities so he had to employ another agent to join her in the job role

The business developer: Tobi brought in a business developer to physically meet with merchants that requested to see someone from the office. This developer was also responsible for the sealing new business deals with telcos and other businesses.

The Income and Expenditure

Photo Credit: anka.albrecht via Compfight cc

Photo Credit: anka.albrecht via Compfight cc

On the first day of launch, Tobi placed advert on one of Nigeria’s blog at the rate of ₦50,000. He also incurred some other marketing expenses which consumed another ₦70,000.

He placed the corpers on a salary of ₦20,000 each, the accountant on ₦40,000,  the business developer on ₦40,000 and the customer service agents on ₦35,000 each.

The first month salary payment was ₦172,500 (paid half salary to the 2nd customer service agent). Total sales  for the month was ₦570,000. The company had a markup policy of 7% on every sale. This brought the total income made by the company in the first month to be ₦39,900 ( 7% of ₦570,000).

Income = ₦500,000 + ₦39,900 = ₦539,900

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Expenses = ₦120,000 + ₦172,500 = ₦292,500

Total cash at hand/bank  = ₦247,400

The 2nd month

Moving into the 2nd month, Tobi saw that he had to make a drastic decision in order to stay in business. He initially planned to do another round of marketing spend but he put that on hold and engaged newsletter marketing, bulk SMS and re-marketing strategies. He only spent ₦30,000 this month in achieving this. He called the business developer who had not brought in any sales as at then and sacked him. This was done as a measure to reduce cost.  At the end of the 2nd month, sales was  ₦315,00, salary expenses totalled ₦150,000 and income from sale was ₦22,050 (7% of ₦315,000),

Previous cash = ₦247,000 + ₦22,050 = ₦267,050

Expenses = ₦30,000 + ₦150,000 = ₦180,000

Total cash at hand/bank = ₦87,000

The 3rd month

Now, it was so important that to stay in business, Tobi had to increase sales. He placed another advert on the blog at the rate of ₦50,000. He had a discussion with the staff and gave all a pay cut. The corpers were placed on ₦15,000 as against the initial ₦20,000. The customers service agents’ salary remained the same and the accountant was placed on ₦35,000 as against the ₦40,000 he was collecting.

The 3rd month looked good as customers were gradually getting used to his website and referrals were becoming big.

Tobi made a sale of ₦738,100.

Previous cash =  ₦87,000 + ₦51,667 = ₦138,667

Expenses = ₦135,000

Total cash at hand/bank at month end = ₦3,667.

The beginning of the end

It was at this point that Tobi shut down his business in order to re-strategize.

What are  your thoughts on what Tobi did wrongly? What measures do you think he should have taken to keep his business going?

Photo Credit: adam_moralee via Compfight cc

Múyìwá Mátùlúkò
Múyìwá Mátùlúkò

Chief Servant. I bully myself because I make me do what I put my mind to.

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Chinedu7
Chinedu7
5 years ago

Tobi should not have shut down the business. His business is doing well as his sales rose in the third month. If the Companies lack fund to pay workers, he should have try to convince the employees to accept an equity in the company than salary and also seek for investors who can bring in fund to the company.

Most successful business don’t even make much sales at first or profit at the first year and here is Tobi making profit at the first month and driving more sales at the third month. It’s a great strength and all he needed was a good team to think of creative ways to make profit in the site maybe by adding a premium rank that displays first before other listed products and convincing the merchants to go premium for better conversion of sales.

There are other ways Tobi and his team could raise money. But at first they should focus on getting more merchants because with more merchants….comes a way to raise more money. Tobi should stop charging the merchants 7% and let the 7% be deducted in the price of goods so that customers can get it cheaper. That will increase the customers rate sharply and merchants in Tobi’s website and Tobi will appear not to be earning money at this time. But if Tobi is an entrepreneur, that is what he needs.

For the future is so bright as earning 20,000 Naira from 100 people is not the same as earning 1,000 Naira from 1 Million people. Tobi should think about the future, Tobi should leverage the equity of the business. Tobi should find a leverage way of running ads, Tobi should go back to business. for more critical tips and strategies..Tobi should contact me but most promise he will go back to business.

Adeposi Okupe
Adeposi Okupe
5 years ago

I love what Chinedu said, however in addition, I think that starting out, Tobi did not need to hire a Business Developer and Accountant. Tobi should do the work of the Biz Dev Manager, invest in better customer orientation processes (FAQ and How-Tos), and for accounting use an online software solution which is cheaper than hiring an accountant.
The problem here was that it wasn’t bootstrapped properly, but if he held on longer, he might have winged it and maybe found a balance that would work.

Life is Good
Life is Good
5 years ago

Well I think this is a case of ambition vs reality. So many things went wrong and this business was crash-bound from the onset. First is that since this is not an entirely new business idea but an attempt to share an existing market caution in very necessary. I think Tobi should have made a one-year plan with nearly all expenses (one full year budget) ready . Three months is rather too short to nurture such a business to real profitability in my opinion. Even with the meager budget available, I feel using part time volunteer staff (friends, colleagues, etc.) who will earn a portion of the markup as commission at least till the business is profitable should have been a more cost effective approach to staffing. That way he will live within his means.
Secondly the staffing is excessive . With that lean budget I expect the founder to play many of the roles he employed people for like the accountant and the business developer. It may be stressful to him but that should last until the business profit is able to afford additional staffing strength.
Creativity is another thing. When entering an eCommerce business that already has strong players, any new entrant with lean resources needs some outstanding creativity to carve a niche in that segment because that’s the only way to fight and win a market share in the presence of big players. By creativity I mean some smart cost cutting ideas that reduces expenses and still delivers a better or even more outstanding service. That to me is the best way to compete when your resources are smaller.
Finally i have observed that most of our startups are copycats but that’s not the main issue. Every startup should have a better, even if not entire new, new strategy that will give it an outstanding long term edge in the market. Many startups don’t really sit down and work out detailed blueprint and pitch their ideas against financial sustainability (long and short term), evaluate best and worst case scenarios for business survival, setting up minimalist time constrained milestones, etc. before embarking on the journey. Not every model is realistic and its better to know before setting out.
I hope Tobi can go back to the drawing board and re-strategize, learn from others and be more creative and realistic before his next adventure.
Kudos to you guys at Techpoint. You’re doing a Great Job! God Bless!

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