The Entrepreneurs' Union MONTHLY NEWSLETTER
ISSUE
01 MAY 2010
In this edition CBN’s N200b Lifeline to SMEs P.1 Upcoming Events P.2
Editor ’s Note: Whether launching a new product or a new business, entrepreneurs striving for success must understand the tricks of the trade and dig deeply into unbroken ground. The Entrepreneurs’ Union monthly newsletter serves as a medium to share indispensable ideas, address common business challenges and disseminate business information including key events and success stories that will inspire and empower Nigerian entrepreneurs to overcome seemingly insurmountable challenges. In this maiden edition, we share with you the impact of CBN’s N200 billion lifeline to SMEs. We also highlight upcoming events aimed at ensuring that our members gain unforgettable business insights in 2010. Finally, we give you some insight into the creation of The Entrepreneurs’ Union and the organization’s vision for the development of the entrepreneur community. Enjoy the read!
Introducing The Entrepreneurs’ Union P.2
CBN’s N200billion lifeline to SMEs In October 2008, at the peak of the financial crisis, Sequoia Capital, the legendary Silicon Valley -based venture capital (VC) firm, which provided funding for Apple, Cisco, Google and YouTube in the past, warned entrepreneurs that the days of easy fundraising were firmly over. The firm warned that a good business idea and proven team are no longer enough. Only the toughest would survive the drought; and toughness was defined by an established business model, a clear understanding of the market uptake, possession of a must-have service or product, customers’ willingness to pay, superiority over competitors and disciplined management of spending, growth and earnings assumptions. The time to adapt was yesterday. Tomorrow would be too late. Honestly, there is really no alternative to Sequoia’s advice. Nonetheless, the fact remains that most entrepreneurs are tongue-tied when faced with questions like these. They think that if only they had access to capital, the rest will fall in to place. That is so mistaken. Not even a big, fat credit guarantee from the government can generate the solution. More bullets do not win wars. Better tactics and strategy do. Frequently, many think that if they only had more money to throw at problems – a bigger office, a larger sales team, next month’s salaries, more raw materials, better qualified engineers, etc – then things would turn around for the better. The plain truth is that more money may postpone the evil day, but it cannot turn a loser into a winner. The Central Bank of Nigeria’s announcement that it had created a N200 billion fund to among other things, “fast-track the development of manufacturing SME sector, set the pace for the industrialization of the economy, increase access to credit by promoters of SMEs and manufacturers, increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis,” falls squarely into this category of “capital is the solution” thinking.
But without Shepherds to guide these businessowners, there is the high risk that they may thrive for a few years then fizzle out in a few years. For a business to scale, it often requires experienced advisors who bring the right mix of objectivity, networks and cross-sectoral experience to entrepreneurial ventures. Getting the cash is one thing, identifying an optimal capital structure, finding the right partners, choosing the timing of an exit or liquidity moment, attracting the right team, imposing the discipline that earns the confidence of banks, all of these go far beyond the initial Father Christmas cheque. Laudable as the CBN’s intentions are, the lack of clarification on the management structure of the fund and its designation as the sole Management Agent for the administration the fund may have doomed it to failure before the disbursement of the first sums. Although it is correct that venture capitalists typically make equity investments while the CBN will be providing debt, its lack of experience in the area is almost guaranteed to yield sub-par results at best. Even if the entrepreneurs end up paying it back in full, providing them the capital without the benefit of top-notch advisory boards is a big disservice. My advice to the Central Bank is to include Nigerian VC firms with proven track records in the management and distribution of these funds. These firms will also take up a stake in the companies they recommend, tying up their interests with those of the government. The specificities of their fees and interest will be made public in an annual report of the fund. For the business owners, who are allowed to tap up to a ceiling of N100 million, my counsel is this: do not touch the cash until you have spent time with professionals who know how to grow businesses.
By: Obi Tabansi Onyeaso Obi is the CEO of Customs Street Advisors.