Regular readers of this column will know that we’re gradually shifting away from pure theory around how to value your business and increase its potential, to more of an i nteractive discussion around the f inancial/valuation/strategic issues that entrepreneurs face. What this means is this:
If you have a question/issue you’d like to discuss with us, send an email to firstname.lastname@example.org and we’ll try to answer it in this column. This could be anonymous (if the numbers/industry or problem is particularly sensitive – this is entirely your call), it could also be public – in which case you’d get the added benefit of your name, company and what you do, in print. As a wise man once said, there is no such thing as bad publicity.
One of the greatest things about my work is that I get to spend time with ambitious entrepreneurs, generally at a time when they are experiencing a real challenge and need to get help to make more informed choices.
Like all ambitious people, they have a view of their business and their worth that is not always bedded down in reality and nowhere is this more true than in their perception of the real risks they face. into the public sector. Its supplier has other distributors who sell to the private sector (not so BEE) and has other BEE distributors who get exclusive rights to sell some of its smaller products.
The company I met with has grown nicely for over five years. It has a great relationship with its supplier to the extent that the supplier even gave it a R10m working capital facility to help it when Government paid slowly (of course, the company ceded its debtors book as part of this deal). Things were good and it made a few million PAT a year… until last year, when the supplier changed its terms and cut the margin a bit.
This year the supplier has come back to the company with ambitious growth targets it must meet or else the supplier will terminate the contract. The problem is it can only sell to the public sector in an industry that isn’t growing nearly as fast as inf lation and that is extremely price sensitive. In other words, the company’s up t he creek k without a paddle. dle.
So what is it doing? It’s scrambling to o open doors with other suppliers, uppliers, which s o u nd s g o o d u nt i l y o u remember that at the supplier owns i t s debtors btors book, which will include nclude the new suppliers. rs. So it ’s faced with the e only real choice – it has to do what it can in n the exist- ing business but open a new one in parallel. Whether it can eventually get a cent from five plus years of hard work in its existing business is uncertain, but unlikely. Would you buy its business? For what?
So what happened there? Supplier power, coupled perhaps to the unintended consequences of BEE legislation and entrepreneurs who couldn’t understand the risk of having all their eggs in one basket, especially when it was going so well. In the second instance there is another entrepreneur in an unrelated industry. He’s built a great team and great testimonials. They represent a sole supplier in the local market but do not have exclusivity on any market or territory. They’ve literall literally sold their way into where they are now: building relations relationships, delivering on time time, and delighting with c customer care.
T They ’ v e made som some money and w wa nt to start a acquir i ng t he other distribut or s of this suppliers’ prod product here. I n t heor y t his s ounds good: they can c buy market access from underperforming un