Something From Fola
Hey Tribe
Here's a new one for you. Filled with answers to your most burning questions as a founder.
This answers are from Fola OD, Founding partner of Kickoff Africa, a startup offering early-stage startup support through seed funding and connecting founders to people who can help them grow faster at different stages. Fola is a business adviser and strategy consultant for Africa focused startups VC funds and Investors. His core skills cover people, program and product management and also has expertise in management consulting, growth hacking, and business development.
By the core definition of what founders do they have to ask questions. I argue that the best founders ask the most questions: either to customers, advisors, mentors, investors, and even their competitors.
Here are some answers I have given to startup founders' questions
- At what point should an entrepreneur throw in the towel concerning an idea?
An idea needs to be validated early enough so you can know if its worth working on. Most times what kills businesses isn’t competition or pure lack of funds, it’s because the founders are working on what no one needs or no one is willing to pay for it. That’s what a minimum viable idea does for you, it helps you determine early if what you’re working on is useful and if you can find customers for it. If the answer is no to these questions, then throw in the towel. It can take a few days or a few months, but you need to find these answers first.
- How do you determine the type of partner to choose for one’s business and after selecting this partner, how do you determine their ownership in the company?
Partnership for business is almost like a marriage — you don’t just marry the first person you see. You look for someone with attributes that you like and that your business needs, and someone who will be interested in the marriage/business for a long time. For ownership structure, I typically ask people to divide the company based on how much money and time they will invest in the business or how much they will be bringing as value/revenue. You don’t want to give too much out to someone that is doing nothing, and you also don’t want to give too little that the person doesn’t feel valued. There are interesting ways of creating partnership agreements where the shares a person gets only comes to them after some certain condition has been met (typically time) — this is called vesting. For example, if you tell me to join your business for 20%, we can have a vesting agreement that I will get the complete 20% after 4 years, so for every year I stay with you I get 5%. If I decide to leave after 2 years, I will only get 10% etc.
- What are investors really looking for in a business
Investors look for opportunities for growth. Most institutional investors know that they only make money when you make money so your business needs to show them how you would first make money, then how they would make money too. That’s the bottom line. They also want to know that you have the skill to take the company from small to large scale — this also includes your team. There needs to be evidence that you will not carry the money and run :)
- Product or service which is more profitable in Nigeria?
They have their pros and cons… products can be mass produced, services require you to physically be there or have someone offer it. On the other hand, products require up front cost (machine, materials, labour, etc), while services often just require your tools and your brains. For most products, alternatives are clear eg. I want to drink water, I can either drink Eva or Faro water. For services on the other hand, your direct competition might not be so clear. So there’s no direct answer. The goal is to make whatever you’re doing able to scale without you physically being there… so at the end of the day, become a product.
- How do you break into a market with so many competitors as a start up.
I haven’t seen one startup that has died because of competition. NOTE: I said startup, not just any business. This is because a startup looks for ways to survive. When Peak milk was dominating the dairy industry, Cowbell launched in N10 sachets, when bottled water was dominating, someone started pure water.
There’s this book, David and Goliath by Malcolm Gladwell
Think of the bible story of these two men, David would not have lasted 5 mins if he fought Goliath with a sword so while everyone expected him to get a sword, he got stones because that’s what he was good at. If you watch football, you would know that Chelsea won the champions league in 2012 not by being the best team but by using a mix of defence and counter attacking football.
As a startup looking to survive you need to compete based on what you’re strong at, and offer customers what your competition cannot. A lot of times we think this means giving them a discount but it doesn’t. I have a laundry in my estate, but I still use the guy that comes to my house who is more expensive, but he puts the clothes in my wardrobe for me. This is a small detail, but it’s why I choose him over others.
- What are the components of a good pitch?
There is no perfect pitch, it just takes you knowing what you’re talking about, and being clear in your messaging. Think of it as a guy wooing a girl — there’s no perfect style, but some things should be there -small admiration, small flattery, testing the reaction and finally the ask.
In some instances, you can ask a girl directly to be your girl from day 1, but 90% of the time you will get a big NO if you do this. That’s exactly how talking to investors are, you need to show that you’re sincere and you know what you’re talking about, then slowly work your way up to an investment ask.
Your pitch isn’t about getting money on the spot, its about getting some investor interested in your business for a second meeting
That said, a good pitch should have:
- Quick info (your name and startup name)
- Problem you have identified
- Product/Solution to this problem
- Business Model and how you’d make money
- Unique selling point (why you’re different)
- Traction (what you have done) so far
- Growth Plan Over The Next 6 Month
- Market Size/Potential of the business
- Vision for The Future
- Team structure
- How does investing in a business work from an investor’s point of view? I am a bit confused about it, does it mean as a business owner looking for investors, I have to relinquish some sort of control over the business
Investors are different and their demands are different. Let me try to group them into 3 types for simplicity
- Friends, family and fools: They just give you money because they love you or you pester them, typically have no control over your business
- Angel Investors: Typically are rich people that have some knowledge of your business, they will normally collect a percentage of your company (around 10–25%) in exchange for the money they give you and will be meeting with you weekly or monthly depending on your arrangement — they won’t have control over your business, but they will feel like a nagging parent sometimes.
- Institutional Investors (Investment Funds, Venture Capitalists, Private Equity, Project Finance, etc): These groups of investors typically come in when you need matured money — think N25m and above. They will typically ask you to create a board of directors that they will sit on, and put in place some corporate governance structure. They are not there to joke, and at this level can sack you based on the conditions of the agreements you sign. They are also very interested in the growth of the company so they are more hands on, and sometimes add a key management staff to your team for oversight.
- Debt financing (loans from individuals or banks): Typically they allow you to do whatever you want except you default on repayment.
- What is the best way to approach a potential investor and convince him to invest in your business, and how do you know the right people that will be willing to invest in your business?
Show value. Show how you can solve a real problem and how everyone can make money. Investors are human beings and are moved by what they perceive. If they feel this is a potential money spinner, then they’d be on your side.
No one knows who or where the best investors are, just keep doing the hard work of building your business and telling people about what you do and how you intend to expand.
- Does it make sense to do something you’re not passionate about because there is an opportunity there?
I don’t advise people to do this. But then again, I understand the present realities in the country and the need to survive pushes us sometimes to do this. The truth is doing business is hard and when you get pushed to the wall, your passion is what would make it worthwhile. But passion cannot pay the bills.
My advice is that you take the learnings from doing business generally and start with solving a problem within your reach, when you’ve mastered that and gotten some success, then you can start chasing the things you’re passionate about.
I don’t think Elon musk only started thinking of Space travel and electric cars a few years ago, but he had to work his way through other businesses and acquire learnings and resources.
If you have the resources from day 1, chase your dreams please.
Source: https://medium.com/@fola
There you have it,
Answers! Answers! Answers!
I hope you found some new knowledge
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