At the beginning of 2014, Kegaugetswe Florence Mukwevho and her two business partners started a food company. The startup, which launched in April of that year, was on a mission to create youth employment by operating a low cost, scalable mobile kitchen for a local growing chicken brand.
The business was doing well in its first few months; sales were high, showing that there was a market for the product and service they offered. Startups in their early stages need funding for growth and expansion and this was the case for the food company.
Kega came across the 2014 She Leads Africa Entrepreneur Showcase and thought that it provided a great opportunity for the company to get much-needed funds. With the support of her co-founders, she applied and was selected as one of the top 10 finalists. Although she didn’t win the competition, she received great feedback from the judges and mentors and support from the SLA team.
Upon her return home however, Kega noticed that the dynamics in the company had shifted. In partnerships, group dynamics can bring synergy or divide at the expense of the business.
The latter was the case for the food startup. Ultimately, the three entrepreneurs decided to go their separate ways. Although it has been a difficult journey, Kega shares firsthand what she learned from the failure of her first startup.
1. Have a partnership agreement
Our business relationship was going so well in the first few months that we delayed creating a partnership agreement. For me, it was unspoken. Our official agreement came much later as a reaction to issues rather than as a proactive step in the initial phase. It is important that one does not assume that common sense is common to everyone. We are all human beings with different backgrounds therefore we do not think the same way.
“We could have avoided some disagreements by clearly putting down expectations regarding our roles and responsibilities, how to run the business, funding and equity earlier on.”
Make sure you seek assistance from mentors and other entrepreneurs to get an idea of some of the real issues that may arise in your business.
2. Be 100% involved in your company
When we started the business, we were full-time students with the exception of one partner who was studying part-time. As such, he was the operational partner and was on site all the time. Starting a business is no easy task and it is well known that the failure rate for new startups is very high within the first 18 months.
It is during this infant stage that a business needs the most tender, love, and care. I was juggling being a full-time student and a business partner. As a result, I did not give the business the undivided focus and attention it needed during this critical stage. Not only did this hurt the business but it also placed a greater burden on my partners.
“We did not realize from the get-go the kind of hands on involvement and input we needed in order to thrive.”
I wish I knew then the importance of being more involved in the daily running of the business.
3. Things are not always as they seem
Business is about testing assumptions. While we might have had a very convincing story on paper including a probable financial model, things don’t always turn out the way we envision them. According to our business plan, we were set for success. In drafting any budget, there is a principle that you “overstate your costs and liabilities and you understate your revenue and assets”.
This is particularly important for a startup. We did not prepare for the worst case scenario and found ourselves running into serious cash flow problems. It may seem like everything will go well, but things do fall apart. You must be prepared for the possibility of failure.
When it comes to financial modelling, you should rather exaggerate your costs and other expenditures by using the worst case scenario, just to be safe. Also, financially, physically and emotionally, prepare yourself to not be profitable for the first few months.
4. Don’t underestimate your competition
We chose to locate our business in a township. We assumed that because we were selling grilled chicken, it would be better to sell it near a large hospital because people would want a healthier alternative. Unfortunately, this was not the case.
We had underestimated our competition. Although there wasn’t a flame grilled chicken option in that area at the time, we had competition from people selling cakes and other fatty foods.
The market wasn’t open to having healthier alternatives. Our competitors had already realized this.
5. Invest in a stellar marketing strategy<
Around October of last year, our sales were increasing organically because it was the festive season. But even then, we knew there were certain challenges. In the beginning, business was good because we had a new product that people wanted to try out.
But in the long term, it was not. People tasted our chicken and liked it but in that township, eating chicken was more of a status thing. We were trying to create a lifestyle but most people could only buy our chicken at the end of the week or month when they had been paid.
We made a lot of assumptions but I think that is what business is about – testing assumptions. We tested our assumptions and some of them didn’t turn out as we hoped. We tried to have more marketing to increase sales to the level that we wanted.
However, we did not allocate a sufficient budget for this and as such we could not do everything that we wanted to do. There is a lot more we could have done with a lot more time and money; we should have thought to invest in a marketing strategy much earlier on.
6. Keep employee morale high
The loyalty of employees is very important as they are the operational drivers of the business. Having a relationship with the people who work for you makes a world of difference. This is even more important when you are struggling and having cash flow problems.
Initially, we paid our employees competitively – above minimum wage. Then we started having pay issues. When things were not going well sales-wise, we weren’t able to pay them as well as we previously did. Our staff was constantly updated on the progress of the business and when we were having tough times.
Whilst some of them endured the struggle and remained a part of the story right until the end, we lost some key employees earlier on. Staff retention is unfortunately a real struggle for any business.
While employees have to be paid well regardless of what is happening in the business, it is important that you incentivise them in other non-financial ways, as well as communicate with them regularly and honestly. This way they will have your back during the darker days.
7. Share the spotlight
Participating in the SLA Pitch Competition came with a fair amount of media attention. It was mainly focused on me as the only woman on the founders’ team. This brought some tension. I have been thinking a lot about this.
If you had a partner who wasn’t as involved in the general running of the business but saw an opportunity to promote the business, took it and ended up in the spotlight it, it would affect you.You would think, “But I am the one doing all the work”. It’s a natural reaction. This would negatively impact your working relationship.
Overall, I don’t regret getting involved in the startup at all. I feel like I bought a valuable experience with my investment in the company. I have so many projects that I want to venture into after I complete my CTA Honors in Accounting and Finance postgraduate studies. I am moving forward wiser and with a better perspective on what it takes to run a successful business.