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I HAD an interesting experience this week which I think might be quite relevant to a number of would-be technology entrepreneurs, considering all the interest in the sector at the moment.
Our small and medium enterprise incubation team was approached to look at a technology business concept which had apparently been very successful overseas. We were to check out whether it would be viable to replicate or bring it to the South African market.
On the surface it looked interesting, boasting more than 300 000 "customers" and with thousands of quotes being bashed off each day.
We've seen a couple of these types of businesses, and so often the entrepreneur will say: "Business X has 300 000 customers; if I can secure just 10% of that in the South African market then we'll be well on our way."
Obviously, that's great on paper but sometimes it is interesting to scratch a little deeper.
Technology companies are always worth a look because of their often "loose" definition of customers.
There wasn't a lot of data around about this particular company, but I did manage to find some press releases and media interviews with the 25-year-old CEO. He disclosed a couple of revenue numbers when pushed by the interviewers.
Do your legwork
In year one, he was boasting 45 000 customers but revenue was just a shade over $60 000. In year two of his business, the numbers rose to an "impressive"” 160 000 customers, $500 000 in revenue and six employees.
The second number sounds great when you first convert it to rands, but basically it means that in year one each customer was spending $1.32 with his business and in year two this rose to $3.12.
Remember, this is revenue, not profit, and while many big businesses have been founded on the principles of low margins and high volumes, it is not easy to build a start-up on $3 a customer.
What the above example does show is that you have to have an appreciation of numbers and the story they tell. You can't build a business plan or even a funding proposal until you understand what you are looking at.
I am not a numbers guy, but if I can do that calculation with a couple of hours of internet research, then it is pointless for you to sit across the table from me, saying "If I get just 10% of what Business X is doing then we will be profitable in six months." This is because with the information I picked out of the public domain, this business isn't profitable in year three yet.
I often get shouted down when I point out that many of the most successful South African entrepreneurs are either strong at numbers or have a strong "numbers" guy at their right hand - but the above highlights why you have to understand what you are looking at to make an informed decision.
Work hard to understand what the numbers are telling you and in the long run it will help you work out where best to focus your energy.
- Fin24
Our small and medium enterprise incubation team was approached to look at a technology business concept which had apparently been very successful overseas. We were to check out whether it would be viable to replicate or bring it to the South African market.
On the surface it looked interesting, boasting more than 300 000 "customers" and with thousands of quotes being bashed off each day.
We've seen a couple of these types of businesses, and so often the entrepreneur will say: "Business X has 300 000 customers; if I can secure just 10% of that in the South African market then we'll be well on our way."
Obviously, that's great on paper but sometimes it is interesting to scratch a little deeper.
Technology companies are always worth a look because of their often "loose" definition of customers.
There wasn't a lot of data around about this particular company, but I did manage to find some press releases and media interviews with the 25-year-old CEO. He disclosed a couple of revenue numbers when pushed by the interviewers.
Do your legwork
In year one, he was boasting 45 000 customers but revenue was just a shade over $60 000. In year two of his business, the numbers rose to an "impressive"” 160 000 customers, $500 000 in revenue and six employees.
The second number sounds great when you first convert it to rands, but basically it means that in year one each customer was spending $1.32 with his business and in year two this rose to $3.12.
Remember, this is revenue, not profit, and while many big businesses have been founded on the principles of low margins and high volumes, it is not easy to build a start-up on $3 a customer.
What the above example does show is that you have to have an appreciation of numbers and the story they tell. You can't build a business plan or even a funding proposal until you understand what you are looking at.
I am not a numbers guy, but if I can do that calculation with a couple of hours of internet research, then it is pointless for you to sit across the table from me, saying "If I get just 10% of what Business X is doing then we will be profitable in six months." This is because with the information I picked out of the public domain, this business isn't profitable in year three yet.
I often get shouted down when I point out that many of the most successful South African entrepreneurs are either strong at numbers or have a strong "numbers" guy at their right hand - but the above highlights why you have to understand what you are looking at to make an informed decision.
Work hard to understand what the numbers are telling you and in the long run it will help you work out where best to focus your energy.
- Fin24
