One Way of Managing Your Entrepreneurial Risk in Nigeria

One Way of Managing Your Entrepreneurial Risk in Nigeria

For Nigerian entrepreneurs, it is a future-proofing strategy in a nation where policies are unpredictable: run multiple businesses at once. Yes, they might have taught you in a foreign business school to develop and accumulate capabilities in specific areas, and then use the concept of core competency to win a specific business category. Those things work in America and Europe; you have no luck in Nigeria if you just depend on them over an extended period of time.

Companies must develop and accumulate capabilities in order to compete in the marketplace. In this video, I explain how any firm can do that and why accumulating capability is very strategic. From Google to Dangote Group, when companies accumulate capabilities, they see themselves operating in the segments of markets with higher value (usually upstream) compared with where their competitors operate (usually downstream). Dangote Group can deploy massive assets and technical know-how in cement production, making it harder for new entrants and rivals.

Here is the deal – it is either you quickly do vertical integration or branch into new areas. Take an example: for years now, solar panel installation has been rising, drawing many players into the sector. Now, government has remembered it for additional revenue, increasing tariff on imports by 5%. But if you check around the world, the trajectory is actually to subsidize and make renewal more affordable for the citizens – not in Nigeria. Largely, I expect some foreign investors to be concerned on that 5% tariff move, possibly cooling the funding effervescence we are witnessing in that space. If you had banked solely on solar, this change should be a concern.

Then enter into rice farming because one government is all in to help rice farmers. Wait for few years, another will come and abandon the plans. From agriculture to education, there is no way you can see stability to actually invest all your energies in one thing. Doing that is sheer stupidity, in Nigeria.

Do what the legends do – they spread across sectors, hoping that no matter how the wind blows, they would be fine. Ovia, Elumelu, Dangote, Rano, Kanu, etc all have businesses that cut across sectors. Yes, they are not conglomerates by choice: they want to hedge risks in a market no one knows its tomorrow. If you hit one sector, they will be fine with another. So, technically, they will always be fine.

Summary and Analysis of Dangote Presentation at 2017 Elumelu Forum

Please note that you can be in one sector and still manage your exposure by vertically integrating your business: you bring most of the things others do for you in-house. For example, the Indomie Noodles maker does internally most important things in that business, and using the One Oasis Strategy can make money in most of the supporting investments if they want. Largely, if they open their FMCG academy, it will find more students than most business schools in Nigeria. My point is this – Indomie Noodles maker can sell excess power if necessary to mitigate slow sales during recession because it has one of the largest power generating plants in Nigeria.

The same applies to Dangote Group which commands, independently, at least 50% of the total power distributed in Nigeria. Simply, Dangote Group is the largest distribution company (Disco) in Nigeria; that is another business within a bigger business! As it throws all the risks, it is always ready for any wind that blows in the economy. But if you just do one thing as they do in U.S. and Europe, one policy will knock you out!

How To Beat Dangote Group: How Indomie Noodle Did It

 

LinkedIn Comment on Feed

CommentEven though there is merit in this analysis Ndubuisi Ekekwe , i am not really sure if this is unique to Africa and if this approach follows your concept of sustainable and long life companies which Africa needs presently. We have less speciality companies who can compete in the world,because we keep jumping into numerous fields as companies. I would say,its a problem and needs a solution,rather than an acceptance….

My Response: I am not sure how you can solve it; as a business, you work with what you have. At national level, it is an issue. But at personal level, you need to have options. Read our national priorities, they change radically every 4 years depending on who is on seat. But America knows where it wants to be 30 years now and companies can plan into it.
While I do not like the multi-hedge, that is the best way to plan. Also, note that most sectors are small which means growths cannot just keep happening. Nothing says you cannot do this and be sustainable!
Dangote Group may not see lots of growth in flour. But if it stays #1 there, it can increase revenue via cement. Then rice farming. You may think it may just focus on flour. But 100% of flour market share is simply small for it. Contrast with U.S with bigger markets where even being #3 is a huge deal in some sectors. Until we have an integrated bigger African economy, it makes no sense of getting that over-focus.

NB: Post written for those who have succeeded on something, not for entry-level entrepreneurs who are yet to thrive on anything.

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