I had to stop and look again when the neighbourhood rollex guy took delivery of four trays of eggs on a wet and cold morning.
Just in case you missed it four trays of eggs contain 120
eggs. I could not believe he could sell in a day all that rollex, the popular
street food which is basically an omelette rolled up in a chapatti. I had to
hurry off to a meeting but made a mental note to talk to him about his business
on my return.
An hour later he was down to three trays.
The rollex guy, let’s call him Musa, for sh2000, the cost of
a rollex, agreed to field some questions to the extent that he could.
From his work station, a small box with a tin roof, he told me he sold at least 50 rollex a day and that all the eggs went into the omelets none in the chapatis. So assuming at least two eggs an omelet he had projected he would sell 60 rollex that day for gross sales of sh120,000 every week day...
After all expenses – wheat flour, cooking oil, charcoal, he reckons
and what sounded like protection money, he pockets about sh30,000 to sh50,000 a
day. He wasn’t quite sure.
He has been at the same spot for at least three years, he
said. The Covid-19 pandemic has however dented sales. Before the lockdown he
says he was selling much more.
A hundred rollex? I asked. He was not sure but it is
possible, he thought.
I had slowed down his chapatti making so I had to move
along.
Maybe he was content with his lot but as a thought
experiment I wondered what for starters he would need to do to attract
investors to his business.
An investor is defined for our purposes as one who is
looking to commit money where there is promise of return.
"There are the four Ms the investor is looking for, which should jump out at him when assessing a business, before he can reach for his wallet...
Does the business have meaning for him, beyond that it will
make him money. Food is a very emotive subject and the investor who
understands, enjoys, appreciates food would be a good place to start. He might
even understand the vagaries as the industry and will not cut his losses at the
first down turn.
Does the business have a Moat. In medieval Europe the
castles were surrounded by a ditch filled with water, with access restricted to
a draw bridge. The ditch is called a moat and kept the enemies or competition
in our case away. Essentially does my man Musa have a competitive advantage
that we can exploit to sell more rollex or increase the price.
The third M is management. Is the investor confident in the
manager’s ability to show a return. In serious companies this may be reflected
not only buy consistently good returns on investment annually but also a steady
increase in equity, the share of the company that belongs to its owners.
And when all is said and done is there a good margin of
safety between the value of the business as calculated by taking its projected
revenues and the price at which it is being offered. Essentially can he buy the
company at a discount to its actual value.
So back to my man Musa the key questions to answer will be
the last three, I am going to assume anyone wanting to invest in a rollex stand
enjoys food, or at least rollex.
Musa may struggle to show his competitive advantage. I
looked up and down the road and at interval of at least 100 meters there was
another similar stall doing the same thing. And I am willing to bet the taste
of rollex stand do not differ significantly. It also seems to me that startup
costs don’t seem to be enough of a deterrent to other players getting into the
market.
But maybe a competitive advantage can be developed. One of
the impediments to selling even more rollex Musa said is that some people are
wary of buying food off the street. An investment in some white paint, to
whitewash his shed, a white apron and chef’s hat may improve the perception of
cleanliness around Musa’s stall. A source of running water too, besides the
grimy jerry can he now has.
A menu in full view may help too in not only attracting
clients but further differentiating himself from the competition.
Make sure he is current with all municipal dues and is the
worst came to the worst, organize for the competition to get a friendly visit
from local authorities, harass them off the street.
Musa’s ability to show he is a good manager would be helped
by him organising his books. No serious investor will bet good money on Musa’s
flowery tales of how his revenues are increasing without some intelligible records.
Does Musa have a bank account? I didn’t ask, but that would would be a good
place to determine the businesses cashflows. Maybe he has a SACCO or mobile
money account.
Ralatedely, the investor cannot determine the value of Musa’s business and therefore how much he can commit to the venture. If Musa can demonstrate that he actually makes sh50,000 and show that this happens over a longer period—six months say, the investor may be able to get a rough value of the business.
The point is that Musa will struggle to find investors to
take him to the next level in his current state, what he might get is charity,
the kind where the giver has no interest in his business and its future
progress.
Musa is not unusual.
