SME Entrepreneurship 101

How do you pass on entrepreneurship to your suppliers?

For a business to grow in any environment it has to feed on information that it can understand and interpret. For it to thrive, these interpretations have to be original enough to allow it to gain an edge over its competition. These insights however, are irrelevant if the business cannot transform them into the right products, services, or actions.

Now given that some producers are by nature proactive and quite receptive to market dynamics, while others are less commercial but more creative in developing products, we can focus with the particular supplier on the relevant weakness: product / market opportunities, or product development.

And how is this communicated to the producer?

At the very early stages of a relationship, we try to explain to the producer that exploiting and/or creating market opportunities is not a luxury: it is a necessity without which we cannot survive. This approach helps us to attach a sense of urgency and excitement to the relationship, and sets the pace at which we would like to see things develop.

So you sort of set the stage in a way.

Absolutely, what counts here is that we are on the same page:

We have a need for innovative products that can potentially fill gaps in the market and for suppliers who can deliver these products according to certain terms – but we are also there to provide the necessary information and the support that will allow them to supply these products.

Interdependence and entrepreneurship are the underlying theme if you like: cooperating on the interpretation of information and on product development in order to thrive, and share in the success.

And this interdependence requires them to become entrepreneurial.

Sure, and as discussed earlier, this becomes apparent when we focus with them on customer outcomes. In a sense entrepreneurship is learnt as a byproduct of the initiative rather than a prerequisite to it.

What are some of the critical factors in this learning process?

There are two things that we keep an eye on and that are crucial for us as we look at a product’s future potential. Without them the chances for success are greatly diminished, and the risks associated with further investment in the product become more significant.

The first is to make sure that the producer sheds the illusion that we are the market, and this has to happen at the time of the second order. If they cannot do so they are either:
. incapable of interpreting information which is beyond our scope of control, or
. they are focused on short term gain.
In both cases, this diminishes our ability to to exploit or create opportunities with them.

The second is to make sure that the supplier is ‘delivering’ by the time their product has established a presence on shelves. If they have failed to do so they are incapable or unwilling to act on information, and this diminishes our ability to deliver outcomes for our clients.

And what about those insights?

Like the drive to succeed, they are also a byproduct of accomplishments. Our aim here is for our suppliers to accumulate the relevant knowledge in such a way that its interpretation is in line with our own vision. More on this later !

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NGOs and Beneficiaries: what’s in my account?!

So how about those NGOs?

On the supply side, our main focus is on building the skills of our producers and this is done as our commercial relationship with them develops. Our work in this area is pragmatic, focused, and results oriented.

And this is where the NGO support comes in

The suppliers often need the support that development projects provide, and we try to get as much of it for them as we can.

What are your main concerns when approaching the NGO?

We have come across a number of challenges but the main concern that I’d like to cover in this post is that of accountability.

Can you elaborate?

In a venture, the parties involved usually hold each other accountable on the basis of certain mutual obligations, the achievement of specific objectives, and the overall experience and results. Unfortunately, we have found that in many cases this accountability is not apparent in the NGO-beneficiary relationship, and this can have a negative impact on our own business if we are not careful.

How so?

Introducing a producer into an environment where the outcome of the support is not clear, and the party delivering the service cannot be held to account, carries all sorts of risks for us.

But donors usually do look for positive outcomes don’t they?

Sure, and putting the donor’s overall agenda to one side, the project will have a number of deliverables that are designed to have a positive impact on the beneficiary/community.

In our view however, if the activities that are directly relevant to the beneficiaries’ businesses are not tied to specific financial objectives and a bottom line, the financial outcomes of the social investment become fluid, and this positive impact becomes dubious.

Other than making it difficult to judge and monitor the sustainability of a particular business, this fluidity implies two things :

. Measuring if, and to what extent the producer has benefited from the activity becomes difficult.
. Measuring the beneficiary’s personal development over the course of the project becomes impossible.

Now this might be fine in some cases, but not when we are trying to help communities generate incomes and jobs, or we are helping small businesses become sustainable and successful.

So because the donor does not expect the NGO or the beneficiary to delivery any financial results through their investment, the levels of accountability drop?

Yes, and despite the fact that a project document is technically good, it is incomplete in a sense because on the one hand there are few or no requirements and design elements that pressure the NGO to work around concrete financial results, and on the other, there is little said about the beneficiary’s role and obligations in helping to achieve these results.

And how does that effect your beneficiaries?

This varies of course. The point is that the initiative ends up being mostly a unilateral affair where the beneficiary can become a happy recipient of aid rather than an effective partner in achieving outcomes. They might have gained some assets, but their future prospects aren’t necessarily any better. They haven’t learned much!

Quite a challenge!

Look, on both sides of the equation people quickly get a sense of this game and become dependent on it as they would a subsidy.

Our own producers are commercial partners and we have an obligation to guide them so that they can get the support they need while staying focused on the business at hand. In a sense we have to empower them so that they as ‘clients’ can set the agenda. How well the NGO responds to this is a measure of their responsiveness to the actual needs of their beneficiary.

Have you found NGOs receptive to your model and your approach?

We’ve had some positive experiences and are working on collaborating on more projects in the near future. As far as the relevance of our model to the sector, we can perhaps look at this in a later post.

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When it all goes horribly wrong

After the longest journey, and yards away from destination…some things you can’t do much about 😦

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A quote from the email we received informing us of this mishap which occurred yesterday.

” Hi Wadih

The driver said he had to brake sharply as he came up Camley Street. The pallets fell as you see. Some were built 7 foot high and a plastic pallet even broke underneath one smaller load. We have separated what we can and will have to go through all the boxes. We have thrown a certain amount away already and I think we may have over a third of the consignment affected with stained labels and ruined boxes. ”

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A Focus on Outcomes

How do you define your experience with suppliers?

Our relationship is contextual. We see a world where food is more than just a commodity or a personal indulgence; we see food as a vehicle of exchange, of ideas, and of conflict. This is who we are and what we do.

As a business, we also constantly ask ourselves the following:
. How do we interpret the market?
. What future do we envision for our products, our company?
. And, how do we act?

And where does the supplier fit in?

From our perspective every customer is looking for an outcome. Products can make those outcomes possible but, it is the supplier who delivers the outcome. In this respect we need to develop a kind of synergy between ourselves and our producers, otherwise it just can’t work.

Can you give us an example of product and outcome?

Ok, so we use a shipping agent because we need to ship our goods halfway across the world. The agent has the product/service that makes this possible, but all that we care about is getting our shipment from A to B, on schedule, and without hassle; that’s the outcome that we’re looking for.

If the shipment is problematic the agent has not delivered the outcome. This might be due to their own shortcomings or that of the shipping line, irrespective, they have both possibly just lost a client.

And this is where your supplier risks come in?

Yes, this is where the risks that we’ve talked about are either resolved, or not! Given our supplier profiles, this is a gradual process that takes a bit of time to get right, and we need to make sure that it’s intimately related to the framework that we have assigned to the producer.

Can you tell us a bit more about this framework?

A case in point: one of our supplier’s products does a lot better than expected for the quarter, and with the lead times for delivery that we carry, our customers will run out of stock.

This event is a trigger ( one of the key junctures on the road map ) that signals to the supplier that demand for their product is starting to kick in, and that the other stakeholders will be starting to re-evaluate the risks and investment levels that are associated with it.

This is an opportunity however that can easily turn on its head, and in trying to adequately prepare our suppliers, we are trusting that they can quickly react to it, eventually becoming proactive and taking initiative to help us in crossing the hurdles that are associated with this stage in their product’s development.

This is an example of how the framework helps to guide our suppliers by clearly explaining to them the meaning and implications of particular developments. It also highlights to them the decisions and actions that they will need to take in these eventualities. The framework covers possible developments related to country risk and logistics, as well as those specific to distribution channel and consumer behaviour. It’s dynamic work in progress.

What about the context?

We operate in a food sector that is saturated with all sorts of products, and where competitors big and small are constantly vying for buyer and consumer attention. This environment is positive in that it encourages innovation, but it is also very difficult because of the level of resources that are required to manage and sustain performance, and to protect market position.

Do you focus on a particular sector in the food industry?

When we first started, an obvious niche for us was the health-food and natural products sector where the ethical perspective was high both on the trade and consumer sides. This market grew and blossomed in the U.K through a grass roots movement that had taken shape back in the sixties and seventies. Many of the early advocates are now major players in the sector and are at the forefront of what mainstream supermarkets and convenience stores consider trends. It was in this neck of the woods where we felt we could find the support we needed to establish and grow.

And how do you interpret this environment?

It is with our customers and potential customers that we first share our vision. It is with them that we develop and introduce products, so understanding why and how we can deliver outcomes for them is crucial.

Like-mindedness?

Sure, most of the time thankfully: people with whom we can share visions and act upon them.

And can you define the outcomes for your customers?

Yes, products that work!

But not just financially, which is an assumption here. These products also carry with them additional meanings that are realised when the product sells.

What kind of meaning?

Other than generic outcomes: i.e. profitable trades, adequate order fulfilment, product support and so on, these meanings are specific to the client at a particular point in time, and can vary in substance and scope.

For example, they might be related to the launch of a new line or category of product, to addressing competitive forces, to a focus on differentiation, on costs, on particular consumer behaviour.

The point is that in many cases for a product to really work, it has to address outcomes that often carry a multitude of significance beyond the product’s immediate utility.

And how do you factor this in then?

So a product is contextual, and this means that demand for it depends on external factors.

There is little incentive then, in initiating any export activity without first understanding this context, and having a sense of customer outcomes provides us with a clear future vision for the product. In this respect we are also looking for indications of momentum: i.e. the ability to carry through longer term objectives.

So in a sense you have to create demand

Absolutely. The stronger the contextual meaning the better the chances for the product to work. In a successful product the relationship between product and outcome becomes self-evident.

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Developing Country Supplier Risks

So tell us a bit about supplier risks.

Our primary role is to source authentic quality products for buyers in developed markets. The products are relatively hard to get a hold of because they are made by producers in developing countries who often face substantial social and economic challenges.

So you act as a link between the two.

Sure, but getting to market is only part of the story. To operate effectively, we need to service buyers who have expectations regarding the level of support that a product gets. We build our credibility through our consistency of supply as well as the marketing efforts that we place to back our products.

These are activities that you take on, so where does supplier risk come in?

The risks related to production standards and the capacity to produce quantities are eliminated when we first screen the producer. That said, we also look for suppliers who have a strong ability to conduct research and development so that we are able to quickly adjust products based on market feedback and recommendations.

Putting aside country risks, we have to also deal with risks that are associated with our producer profiles: small or medium-sized, rural, and located in countries that are not fully integrated into the global economy. We can define these risks as being sets of skills that our suppliers might lack.

Can you give us examples of these?

Sure, but let me start by saying that when we first go with a producer, our focus is on building a personal relationship with them. This is the beginning of a commercial relationship and its success will depend on how we work with them as a team.

I say this because to start a relationship from a social / developmental perspective clouds its true purpose. The objective is not for us to provide support or build skills for the sake of it, but rather for them to learn new skills through the necessities of a commercial opportunity. This has sometimes been a point of contention for us with our NGO partners but we can go into that in a later post.

So you consider that your proposition to suppliers can also carry certain risks?

Sure and some of our producers did get side tracked into focusing on the support that NGOs gave them. This came at the expense of our relationship, but these things will happen I suppose.

Going back to supplier skills.

Having assessed the supplier’s production process and capabilities, we are forthcoming in our views on the product and its potential, while explaining to them the significance of the first order. We then get into the nitty gritty of pricing, and are ourselves transparent with the margins that we look for and with those of our distributors. We also explain to them retailer margin expectations, and go over our findings on the competitive situation and the suggested retail price for their product. We then discuss their own pricing in view of this information, as well as cover trade terms and the how risk sharing plays out across the supply chain.

And this tells you something about their commercial skills?

One usually gets a good sense of the supplier’s integrity and capabilities from the existing state of their business, and from the people in their operations. The drive and perseverance that are required to succeed can only become apparent with time so absolutely, the conversation is very indicative of their experience. A lot of things come out at this point and it’s fair to say that we have a good idea of some of the challenges that we ourselves will face in making the relationship work.

So if you do identify skills shortages at this stage what might they be?

Other than the often very local nature of the business and the general lack of experience in exporting, they will of course vary from person to person. We can however classify the skills as either relational or technical.

Putting aside idiosyncrasies, relational skills are those that are developed from the experience of working with others. These might include things like understanding client relationships, deadlines and working in teams, but also include things like time management and planning.

Technical ones are those that are more foundational in nature. They might include for example limited knowledge of and use of spreadsheets, a lack of basic accounting, pricing & costing principles, poor researching and business planning basics, and sometimes an attachment to a homegrown take on sales and marketing.

Ok, what then?

Well, that depends on what we find. Our first real initiative is taken if the trial order performs well enough for us to go for the second. At this stage we propose a logical framework to them, a sort of road map that highlights key junctures where certain skills will be needed. These are matched to objectives and outcomes and in this way they can anticipate what is required from them at each point and hopefully prepare themselves for it.

From our end, we have set up logistical partnerships to support our suppliers with shipment and are always geared up to support them financially so that the resources are there to enable them to execute the order.

Does this work?

This is essentially a way for us to try and manage the risks: to anticipate problems and to try and avoid mistakes. Whether it works or not depends in large part on the supplier. Businesses everywhere are fraught with imperfections or lacks in professionalism, so these issues are not necessarily confined to developing countries.

The problem that we have is that whereas in places like the U.K the market tends to hold you accountable for your imperfections and mistakes, our developing countries suppliers do not necessarily operate under the same pressures.

It’s also been our experience that for many of these suppliers, short term gain is far more important than long term success. In some ways this is justified because of the context of survival in what are sometimes unstable environments. In other ways it is a shortsightedness that becomes ingrained in their business practices, becoming a hindrance to entrepreneurship if you like and to the prospects of creating significant markets for themselves abroad.

Does it work? The degree of our success is always tied to the readiness of the producer to respond and develop. Successful businesses can be created by people who lack many skills, including sometimes an education altogether, so it is through our working relationship that we try to pass on our experience and know how.

For us the important thing is to put our efforts in trying to make it work, and when it does it’s very rewarding for both parties, not only financially but also in that it fulfils and projects the hope.

Let’s discuss some of these experiences next time.

Sure, with pleasure.

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Risky Business !

Picking up from our last discussion regarding your business model, can you give us examples of the successes and failures you’ve had with your products and suppliers ?

Sure, but before we get into these, I’d like to cover some of the basic risks that are there at the beginning of any relationship.

Fair enough. So I assume that like any other business you must assess the risks of a new venture. How is this risk managed to ensure a positive outcome?

Well, let’s start by covering the product risk and say what most grocery buyers will tell you: the potential sales performance for an untested product are unknowable.

The implication is that those involved in a new product launch will want to minimise their financial exposure. Putting it simply you might not get back what you put in!

So why take the risk?

The basic motivator here is how strongly you and those in your network feel about a product’s potential.

So, how do you deal with this risk then?

First and foremost before placing our first trial order, we try to obtain as much product feedback as possible from our network of retail buyers, shop owners, distributors and consumers. We do this to assess sentiment, the competitive environment, and peoples’ readiness to invest in the product.

What next?

If the outcome is negative, we get back to the producer with the reasons behind the decision not to go with the product and often include some positive suggestions from our findings.

If people’s reaction to the product is favourable, we’re ready for a trial order and always start with a basic calculation that helps us minimise the financial risks associated with it.

Can you share this with us?

Sure, the questions we ask are basically:

A. How much does it cost per unit to ship a certain minimum amount of product from country X?
B. How much per unit profit do we think we can make?
C. How many units do we need to sell to make enough money to cover the cost of goods, the shipment cost, and any other necessary initial marketing expenses that are incurred?
D. Finally and most importantly, how strongly do we feel that we can achieve B & C?

But don’t you have any idea of what you might sell based on how similar products are doing?

Sure, that’s where the initial optimism came from, but don’t forget this is a trial order and there is no need to rush into things: wait and see if the product works!

So what you are trying to do is recuperate your initial investment in a worst case scenario?

Yes

Ok, so you’ve put in your first order and it went well, does your risk assessment now change?

Not significantly at this stage, not unless the product flies! It’s early days yet and we now need to factor in new variables before deciding whether to go for the second order. These include:

A. How long did it take to sell the stock?
B. Did we achieve the price point we wanted or did the products have to be discounted, or go on promotion?
C. How often did the stores who bought the product order it over the period?
D. How many new stores ordered the product every month?
E. What feedback did we get from the stores, form consumers?

So a second order is not guaranteed?

That depends on the above factors, but if the feedback in general was good we would certainly go ahead to the next stage.

Is the second order the most important order?

No that comes later! The order however is important for two reasons:

First because it is confirmation of our commitment to the supplier: more on this later.
Second, because the product needs to now perform against a set of objectives that we outline.

Can you go into more detail regarding the second point?

Sure, bare with me.

Not all products will do well enough to justify a continuing investment in them. This is a reality that people deal with in most industries. As a result people diversify their product portfolios across categories, price points, and so on… focusing on those that yield the most while nurturing and growing those that have potential. To carry a product medium term however it needs to perform at a certain level.

Can you give us an example?

Sure. Let’s say we had a bit of money available to invest in a new product opportunity ( ie the second order), we would need that investment to deliver in the medium term at least what it would be delivering if it were invested in one of our successful products, or any other investment opportunity we had at the time.

You mention medium term twice, how long is that?

Oh I don’t know! That might depend on the existing economic environment I guess, and on the resources we had available: a couple of years maybe.

Ok, so what you are saying is that order two is important because it helps to measure the expected financial returns of a medium term commitment to the product.

Sure, we set the returns we would like to see, and then measure the performance in view of those financial and market objectives. If the product can deliver the performance, it has demonstrated profitability and shown signs of growth.

Can you give us examples of these objectives?

Based on order one’s performance, the second shipment would be placed to cover sales expectations for a given period, say six months. From a commercial perspective, we would be measuring the following against objectives:

A. A certain overall sales volume
B. A certain monthly growth rate in new stores taking up the product
C. Consistent or growing monthly orders by store
D. A certain numbers of distributors listing the product.

And if the product performs, you can expect to carry and nurture it over the next two years?

Precisely, stage one completed!

And what about supplier risks, how do they play out?

For us as you can imagine, supplier risks are in many respects very apparent. How we measure and deal with them is quite particular to our business model and I look forward to covering this with you in the upcoming post.

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Wesgro Beneficiaries in London

In December of 2011 we were asked by Wesgro, the official Investment & Trade Promotion Agency for the Western Cape, if we could present an overview of the U.K market to a group of their beneficiaries who were on a trip to London. We suggested to them that a trip to one of our distributors and to a number of retail stores in London might be more substantive for these South African producers…

…so off we went to visit Patrick Tobin and his team at Marigold Health Foods in King’s Cross! This was a great experience for the producers who also had a chance to get feedback on their products and on how they might perform in the very vibrant and competitive U.K market.

We then went to Whole Foods Market’s Soho store where they had a chance to meet with the grocery manager who gave them a sense of what consumers were buying and how their products might do.

Whole Foods Market Brewer Street, Soho

Many thanks to everyone at Marigold and at Whole Foods who helped to make this a very fruitful and productive day.

A walk around the warehouses

How can I get my products listed with a U.K distributor?

Patrick, Marigold’s MD giving feedback on a producer’s product

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