Why Give a Damn:
The intention of this series of posts is to share the story of the beginning and ending of a business. We will zoom in on lessons learned in different areas such as the business setup, funding, the market, consumers and technology. This post focuses on choosing the right business model for your business.
NICE International was a Dutch based flagship social enterprise operating in Africa that had to wind down its activities in September 2013. In 2011 the Managing Director of NICE participated in the Unreasonable Institute. We, the authors, hope that other social enterprises can learn from our experience. In a first column, the history of NICE was outlined. In this column, the lessons learned on the organizational model will be presented based on dilemmas that we came across in setting-up and running the business.
Idea Generation: Western Or Local Idea
We believe there are two options when starting a business in a developing country
The idea for NICE originated from a Western manager who visited Gambia. Although a local managing director was involved in the development process, most of the plan was developed in Europe. When the plan was ready for testing, more local management was hired to run the pilot and subsequently roll-out the business. All staffs of the local company in Gambia were local people, except for the technical manager. However, due to its origination, NICE has always had the character of a Western idea being implemented in Africa. Our local staff never took real ownership of the business. They took on the role of executor rather than entrepreneur.
Looking back we believe there are two options when starting a business in a developing country, and NICE has been operating in between both.
- Business Developer – The first option is to be a business developer, starting your own venture based on Western management principles. In this case, a Western entrepreneur should manage the business locally using a ‘my way or the high way’-mentality. If you choose to hire a local manager, make sure the manager takes risk by buying shares into the business.
- Investor – The second option is to be an investor in a venture started by a local entrepreneur who sees an opportunity in the local market. Instead of investing in the development and testing of the NICE Concept, the founders of NICE could have decided to invest in local entrepreneurs who were active in solar and/or IT. (Local) entrepreneurs are thus supported with expertise and funding instead of setting up a whole new company, taking a more distant and result oriented approach when it comes to managing the business.
Set Clear Targets For A Pilot and Dare To ‘Kill Your Darling’
The start-up of NICE was not set-up as a proper test of the business concept but rather as a start of the business to see what happens. There were no clear targets to be accomplished or assumptions to be tested and the budget for the pilot was not defined. When things did not work as expected, there was no formal decision to terminate or continue the pilot, neither was a decision taken about making additional budget available to proceed.
Unreasonable mentor Elnor Rozenrot provided an excellent training on testing of a business model. His approach is to define the few key assumptions that your business model is based on and to test these assumptions in an experiment with the minimum necessary amount of resources. Based on the results of this test, you and your investors can decide if and how to proceed. If some of your key assumptions prove to be wrong, dare to change your business model or even abandon it at all. This approach would have been very beneficial to NICE in the start-up phase.
Branch Management: Staffs or Franchising
We initially operated NICE Centres with staffs that were on the payroll of our local company. Over time we concluded that these staffs did not have the dedication needed to make the business successful. As an incentive for performance, we then introduced a partially variable payment system. This resulted in improved sales and the first profitable NICE Centre. For up-scaling we decided to use the same incentive principles and introduce franchising as the ultimate form of local entrepreneurship. We developed a franchise model combined with an operational leasing model for the high-tech equipment needed.
It was an instant success and his revenues quickly tripled.
Franchising was a new concept in Gambia and it took time to explain the concept to candidate entrepreneurs. The first franchisee was an experienced entrepreneur, who converted his Internet café into a NICE Centre. It was an instant success and his revenues quickly tripled. Following this first success, the word went around and we had no difficulties finding other franchisees. We even converted our two pilot NICE Centres into a franchise. We saw that the franchisees had the right level of drive and commitment. Not in the least because the success of the business had an immediate impact on their income.
Franchising also proved to be an effective instrument against fraud by staffs. After all it is easier to cheat a head office at distance than a local entrepreneur who is supervising the business 24/7. However, over time we started to discover the disadvantages of franchising. The franchisees took every penny they earned out of the business and did not invest in maintaining their NICE Centre. As a result, the standards at the franchise centers deteriorated over time. It even came to the point where we had to terminate some franchise contracts as they were damaging our brand reputation.
We started to discover the disadvantages of franchising.
Our biggest disappointment in franchising was in innovation. We had expected the franchisees to act as bottom-up innovators and to come up with ideas for new products and services based on the local market needs. But hardly anything useful came, even when we would regularly have meetings and brainstorm sessions to extract ideas from them. They took the position of an operator instead of an entrepreneur and expected a business-in-a-box from the NICE headquarters. When the market changed and revenues seriously decreased, their solution was that NICE should reduce the franchise fee instead of adapting their business to changing market needs.
Our main lesson learned is that the reason for this behavior was twofold:
- Local entrepreneurs had too little knowledge of IT to be innovative and,
- They managed their business with a directive management approach (which is culturally embedded) that was based on mistrust and did not allow involving more IT savvy people to run and develop their business.
In the next post we will look at finding the right management (local or expat) and how best to hire, groom and train your team.
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