A lot of services and products are expensive in Africa, not because the founders are not interested in the big market share. The problem lies in the cost of doing so. This post was inspired by a post on ICTWorks titled “Why African Internet Bandwidth Prices Are Still High“, in which the author drilled down on archaic business models in Africa. The excerpt is as follows

The second factor which I consider to be even more important is what I refer to as an archaic business model and business mindset. Telecommunication companies such as Internet Service Providers (ISPs) in Africa overwhelmingly rely on a small base of customers that they charge high prices. These customers (banks, large companies, multi-nationals, -collectively dubbed the “corporates,” large educational institutions, government agencies, development agencies and NGOs and a tiny number of high net worth individuals) need connectivity and are willing to pay these high prices.

This mindset still pervades the ISPs and thats why prices are still high as they “need to recoup their investments” from a small customer base. But this business model is flawed: there are millions of individual customers and small business that also need connectivity but cannot afford to pay the current high prices.

The success of mobile phone companies has taught us (and any ISP that is awake) that communication services are not the preserve of the rich and powerful. Unfortunately, the typical African ISP is unable to shift to a “large customer base, low margins” business model: drop the prices and attract a lot more customers. This is the main cause of recurring high prices.

Why are businesses in Africa locked into high margin models?

1. Cost of Capital – In a country like Nigeria, the cost of getting a loan from the bank which requires a collateral such as real estate is 25%. This loans are not upfront and they are usually what you can term credit lines or overdrafts.

2. Cost of Business Operations – The running cost of a business in a place like Nigeria is very high, because people rely on generators to power their business. A medium size business of about 10 employees spends around 500USD a month to power their business using generators, factor that to big corporations, i.e the ISPs

3. Rental Commitments- The average rental in a place like Nigeria requires 2-3 years deposit. A good business location for a small sized business would cost about 8,000 USD a year, that is about 16,000USD to 24,000 USD of the business capital tied down to rent alone.

There are much more factors that attribute to the reality of why businesses in Africa need to do all they can to ensure that their businesses reach critical mass. Unfortunately, it turns out that the archaic models work, hence the adoption.

This is just an illustration of just a little of what medium sized business in Lagos are exposed too, multiply that by a hundred or even a thousand to get the picture of what big businesses like the ISPs in Nigeria are exposed too.

So you have been following the trend of dotcom startups burning through hundreds and thousands and millions of dollars on their business to generate and force their business model or no plan into a viable one, and you are thinking you could do the same?

The reality is most startups have no chance at all. A chance that is to earn the privilege of playing with many business models with a boatload of external financing.

Don’t get me wrong, the concept of maintaining critical mass using longtail strategies is a well thought out strategy to tapping a massive market and monetizing it, but the reality is, it defies the laws of what a startup business should be about, and most ordinary startup going that way, would fail miserably without the required external boatload of finances to back such models lifeline.

What should a startup business be about to a young entrepreneur with no chance of funding?

1. It should be about a great product and service that its stakeholders are willing to pay for , from inception.

2. It should be about a structured business plan or a model you have developed, not about an idea that creates traffic and you hope that someday, you would turn it around into a business, and thereby make enough money through advertisement to sustain it.

3. It should be about a problem or an ingenious creation of a market for a solution you have created.

4. It should make money if its a business, and the revenue generated should be seeing profits within 12 months if you are bootstrapping, or at-least within 2 years, if you have the capital to support it.

5. Lastly I am presuming you have no chance of getting external funding and all you have is your idea and the big market out there, which is relevant to about 95-98% of startups out there.

Reality Check
This is the reality for 95-98% of ideas out there.

1. You are not funded by an Angel Investor or a VC

2. You dont have 100,000 USD, 1M USD or even 50,000 USD to burn

3. You are just an ordinary business trying to create an enterprise that is profitable and sustainable.

4. You have spotted a great market and a need and have developed a solution to cater for it.

5. You dont have all the time and money in the world to play with before you discover how to monetize it

You are not faceboook, Twitter or Google!

This post is about you the entrepreneur not making money in your online business because you believe that money making does not involve spending money. This is also for you if you are considering starting an online business and you are scared that they you might not have enough or could possibly run out of cash if you start spending your savings in the business, before you even gain your first customer.

I am sure you have heard stories of entrepreneur’s who started online businesses with nothing and yet made millions? Well don’t let them sell you that PR gimmick, because if you follow their footsteps, you would definitely have a better chance winning the lotteries to actually gaining enough customers to pay for your operating cost!! That’s right.

So the question is are you really interested in starting an online business and making money?
If the answer is in the affirmative. Well the good news is you are now actually ready to run a successful online business. I would like to dissect through what you need to do to run a successful online business but that would deviate from what this post is all about. The often neglected operating cost of running an online business to actually make money.

How much do you need?

I can’t tell you exactly how much you need, as the cost varies from one business to another, but I can tell you a few things you should develop your model around that cost money.

1. A domain name - This is the web name that carries your brand and points your customers to your web portal where your products and services are. This cost between 9USD – 25USD a year depending on where you register the domain at.

2. A web Hosting Account to host your internet business - This is the space where your website is located and where your customers come to, to buy your products or subscribe to your services. This cost between 12-100 USD a year.

3. A proper Customer Relationship management system – You need to develop a mailing system that has all your canned messages that properly covers everything there is to know about your product or services, and does that in a very systematic way streamlined with your business with functionalities such as automatic follow up and synchronizes properly with your billing system. You might need a developer for this and this would cost you between 200-500 USD to develop altogether with the billing software custom built for your business needs.

You could consider going for most of the complex open-source or even Software-as-a-service solution out there instead of developing one to cater for your business, but I would tell you this. You have a better chance in differentiating your business through developing one that wraps around your business delivery needs and your expected target customer expectations and needs.

4. Marketing Campaigns. There are a lot of ways to actually market your business. There are cheaper methods and there are very expensive methods. This primarily depends on your market target and how you intend to convert that market target.

You would need to ask yourself a question on the profitability of your business. Assuming each customer brings you a net of 5 dollars, how much are you willing to give back to that customer? This is otherwise known as the customer acquisition cost. Would you be comfortable with giving back 10% of your net? Well that would be 50 cents each back to your customer, and no don’t give discounts on sales just yet. Your product has not yet gained value. Spend it on gaining traffic. Advertisement would be a good start.

So if for your first month, your target is to acquire 10 customers, you would need to find a way to spend 5 dollars to achieve at-least 10% of that target, which is just 1 customer , thereby increasing your acquisition cost to 100% of your net, which is a break even value. Now you need to continuously iterate the process till you make profits from your conversions.

What should you do if you run out of cash?
Remodel your business, its not about your product or services, there would always be a market for it, it all depends on how you lock the sale or convert the customer. Ask yourself this questions

1. Why am I not converting customers? If I converted, how many? And at what cost? Perhaps this would involve Re-adjusting the pricing of your product and services?

2. Is my products or services not good enough? Perhaps this would involve going back to the lab?

3. What are my competitors doing? Am I doing it any different, and yes every business has a competitor, don’t say you dont have one. Is my differentiation harming my business?

4. Approach your target customers indirectly through using mediums such as forums, emails. I would personally recommend Startups.com, they have a great community of season entrepreneurs. Tell them your story and ask them politely whether your product is right or not right for them and why. Jot down all the feedbacks and rework your business to fit into the constructive points.

5. Brainstorm with friends with business experience and go through your entire model diligently.

Lastly borrow x 2 of the money you need to get the business back on its feet, from friends, family and give it another shot. If you get it wrong again, go through steps 1 to 5 again. There is a very low chance that you would get it wrong the third time, if you do, then definitely that business is not for you to sell. Move to another business or well get a job and have a staggered structure to repay back your debts

Starting and running a business be it online or offline is extremely risky, do it we caution, with a define path, structured model, a clear strategy and an exit strategy, if things go wrong.

This is a lesson learned and this is a lesson I would like to share.

I don’t have an MBA in business, at-least not yet, but the idea of developing a successful software related tech start-up goes beyond cutting down development cost. Don’t get me wrong using non proprietary software or rather language in developing your application, i.e going the opensource way, is a good strategy to developing a product. Having a product for sale be it in rendering a service or for consumption does not mean you have a successful business, infact it does not mean you have nothing to lose or you have saved considerable amount of money. You have everything to lose !! Developing a product even without direct cost takes considerable amount of time. Time is money, and definitely an opportunity cost.

Being frugal about your expenses when you are starting a business is expected but not in a way that would harm your business or prevent your business from getting noticed.

You have built a product cutting down your cost considerably and then what?
Building a product, be it a cheap or a very great product means you have to have a business mechanism, system or model to support it via marketing campaigns, evangelism etc, the question is how cheap can this be?

How cheap is promoting your biz?
I am yet to come across a very successful start-up that didn’t spend a considerable amount of money to get the product across to their market together with having a CRM system with time spent on making it a reality. Blog promotion can help you get noticed but won’t help you gain sales. You need a good budget and a good model and system in place to push your products to the right place.

Going Lean does not mean cutting down on promotions, marketing or even cutting corners to get your product or services across to your market target. You have to make the sacrifice.

Would you give me a dollar, if I would return your dollar with 3 dollars more? Yes you would and that’s exactly how you would need to allocate a budget for customer acquisition to get somewhere.

Nairajobs a new job search engine in Nigeria has successfully simplified the job searching process with its new portal at http://www.nairajobs.com.

Nairajobs is a Nigerian job and career search engine that aggregates jobs for Nigerians be it overseas or in Nigeria. This jobs are gathered from various sources across the internet. This is an initiative to create a one stop station for all jobs that is related to Nigeria for Nigerians and friends of Nigeria.

Nairajobs aggregates job postings from job boards, corporation websites, online classifieds and newspapers every day through your contribution and through our own manual entry.

So why should a job seeker use Nairajobs?

Nairajobs makes it extremely easy for you to search for jobs by entering a variety of keywords (job title, company name, industry, etc) by state or by city or just browse for jobs using relative already created user friendly links.

As you grow older, certain things become priorities in your life. You might think you have it all figured out, but sometimes you become deluded by the little success you have achieved in your endeavors. I would agree, that I am guilty of this, and I am working towards fixing my life fully with a focussed goal and a written plan in a business plan format.

Enough self directed motivation pep talk, so whats going on with me? A lot actually, most I cant discuss here due to the confidentiality clause etc, anyway a new E-commerce site in Nigeria has sprung up, pretty cool if you ask me, and well stocked too.

You should check them out. Its name is flegz, and it was founded by a friend of mine. The shop is located in Lagos, provides free shipment within Lagos and their website is at http://www.flegz.com, you should check it out, they might have a thing or two you might be interested in buying. I wanted to write a review, but I decided not too for now.

We developed a very interesting income model at Advertfarm.com that many members have been asking me about. The response has been phenomenal.

The model involves getting paid to receive an SMS, which I think is a pretty cool feature, considering that you get informed plus you get paid to be informed.

What we do is actually allocate a percentage of our income from our sponsors to our members. Its a revenue sharing model that ensures that everybody is happy.

We are currently in talks with some sponsors, and they are very excited about the market we are exposing them too. So If you have not registered, please do so at www.advertfarm.com. We are only currently accepting 1000 members, we have less than 500 more to go, as you don’t want to miss out in this outstanding service of making money from your mobile phone, while on the move.

For more information, check out our illustration at http://www.advertfarm.com/earncash.php

We are proud to announce that Advertfarm has finally gone public with the beta today. This has been made possible by the priceless feedback from our Private Beta testers.
We are currently limiting account sign-ups to ONLY 1,000 users at the moment. So, hurry and get yours now.

Please, feel free to distribute the following press release:

Website: http://www.advertfarm.com
For Immediate Release:

Advertfarm, a mobile content network, has emerged today from private beta. This start-up is privately funded and based in Lagos, Nigeria. Advertfarm, as a stand-alone company, focuses on delivering mobile contents to users across Africa through Short Message Services (SMS). Our services include but not limited to SMS marketing, SMS Recruitment, Events Broadcasting, Sponsored Mobile Services and Mobile Alerts.

Advertfarm provides advertisers with permission-based targeted marketing. These advertisements are delivered to subscribers based on specific interests and demographics. Advertfarm only sends its network members localized subscribed mobile content that matches their interest, and gives them total control of when they want to receive it, and how frequently they want to receive it through settings available on the Advertfarm platform.

With over 200 million mobile subscribers in Africa, Advertfarm allows advertisers to target a specific base of consumers in a meaningful way while allowing them to see a much higher rate of return on their investment. The system is developed to fully ensure that advertisers do not waste money on a demographic target that is irrelevant to their goals.

The Advertfarm network has a strict privacy policy on all data collected from its members. The Advertfarm mobile content delivery solution is the first of its kind in Africa as they not only deliver permission-based content to their subscribers but also pay their subscribers for subscribing.

Meanwhile, Advertfarm rewards its subscribed members through a revenue sharing model. The income earned by members of the network is automatically sent to the ATM cards attached to their account.

Advertfarm is currently running its pilot mode only in Nigeria and will launch it 2-WAY SMS interactive system by July 2009. This system would include features such as “SMS Service Un-subscription” where subscribers to a particular service could un-subscribe for certain services without having to visit the web portal. We will be launching services in other African countries in the next quarter.

if only Network marketers could spend the amount of time they spend promoting other products to promote their own businesses and services.

Then perhaps Network Marketing organizations would go broke, and New ideas, businesses or even start-ups would thrive and flourish.

Is self Motivation, Loyalty and Discipline dead? Or are we just naturally insecure and gullible to promises of a likelihood fortune through promises and assurances from third parties?

If I walk up to my friends, family and even strangers, and tell them about my products, services and its benefits. Imagine the potential market and awareness, I can create?

But we don’t do that, do we? I suppose not, we surely are very insecure about our own business or services, Or perhaps its an oversight?

Thought provoking isn’t it?

Do you promote your businesses and services to your friends, family or even strangers?

Let me know how you promote your businesses and services. I currently only use business cards. Perhaps I can learn a thing or two from you my readers.

I have been very busy lately working on my new start-ups. One is a recruitment search engine and the other is a mobile content network.

This two startups would work seamlessly together, but the before, that is the recruitment search engine is still in alpha, and only the mobile content network is ready for beta testing. I have started sending beta invites to people and the response I have received so far is very positive.

The new mobile content network is named Advertfarm. Advertfarm is a mobile content network that delivers permission based content to its members via their mobile phones.

Advertfarm currently provides daily stock alerts, free sms, reminders, and job alerts to its members, who in turn get bonus points that is convertible to products on its website. We provide a variety of content on a subscription bases from our partners to your mobile phone.

We share the revenues generated from our partners with our network members. We allow our members to opt in and opt out at anytime. We have privacy policies in place to address all privacy issues that relates to the usage of our service. We only send our members contents they want to receive, and pay them by sharing a percentage of the revenue in doing so.

We are working on an API that allow businesses to plugin our signup module on their websites for their campaigns, in return we provide a discounted broadcast of their campaigns to their members. That should be ready by June

We would be partnering with a lot of agents would be representing us in their locality. For more information visit Agents Registration.

We have an interactive forum that allows agents, members and the staffs of Advertfarm to discuss on general topics, and also share information on how we can improve the network.

Advertfarm is still in private beta, and I have 10 private invites to my blog readers. If you are interested just comment so, and I would send you an invite.

The other start-up is Nairajobs, which is a recruitment search engine that provides you with live updates on jobs availability on your mobile in real-time. This would work seamlessly with Advertfarm, but its still in alpha testing mode, as there are still a few things I need to fix, so please stay tuned.