Untitled Document

Are you looking in the right direction?
By Nilooka Dissanayake
Athwelage Sarath, our imaginary entrepreneur has been busy with his own research for the vegetable retail business which he wants to set up. "You may have a clear vision; but are you looking in the right direction?" This was a question which grabbed Sarath's attention while he was reading a magazine. All this time Sarath had a clear vision of what he wanted. But now, he is less excited about his dream of a little shop in town. He realises that the new consumers are concerned about the quality of vegetables. The busy modern housewives prefer pre-cleaned vegetables which can easily be stored in a fridge without fuss. His own market research has shown him that the average householder prefers fresh vegetables. And good quality, fresh, clean vegetables at a reasonable price seems all but a dream to the average housewife.

"And no wonder!" says Piyaratne, Sarath's father. "I read somewhere that well over one third of vegetables in this country is wasted. The farmers don't look after the picked produce and often do not pick it at the correct time. The middlemen and wholesalers pay by the weight and do not care for quality. Surely you have seen vegetable lorries with workers sitting or sleeping on the vegetable sacks. So, when over one third goes waste, their cost obviously has to be recovered from the rest of the produce." Sarath knows this is true.

He recently visited the vegetable farming areas as part of his quest to understand the vegetable market and its workings. Most of the farmers were frustrated at low prices and the volatility of prices. Many were quite willing to come into an agreement with Sarath and his father, to supply vegetables on a continuing basis. But, how much vegetable can you sell in a little veggie shop?

Sarath now sees grander opportunities than he would ever be able to realise as a shop owner. He sees opportunity in wholesale supplies of high quality vegetables. The original idea of retailing has now transformed into a wholesale concept. "If I were you Sarath, that is what I would have gone into. Finally you have picked a good business idea," Piyaratne says, endorsing Sarath's new way of thinking.

All the above, my dear reader, is intended to demonstrate that your original idea may not be as bright as you thought it was. It is good to go by gut feelings, but before getting into business seriously, it is necessary to really look at the underlying economic and market conditions. And as I have said many times before, a good business idea has to suit you, the entrepreneur, your circumstances and the market.

For an ambitious and energetic young man like Sarath, keeping a shop in town would indeed be a very tame occupation. As for the economics of the project, a shop requires substantial capital outlay. It is also difficult to see how much business one can expect from such an operation. I am not advising people from going into shop keeping, but merely observing that when one opens a shop, one has to count a lot on consumer behaviour and perceptions rather than on business acumen to generate volumes. Of course there are ways and means of getting people to come to a shop. But it is difficult to guarantee that they actually would give their custom to you and continue to do so. That is the risk involved in dealing directly with consumers.

I am not making a case for wholesaling against retailing. I am simply taking you through Sarath's thinking and decision-making process in the hope that you can benefit from the experience. If you are new to business, it is always better to take on a business which ensures sufficient volumes which can be predicted. This helps you to keep your risk under control. In business, as in investing, the general rule is that high risks will bring high returns. However, what you need to take is a calculated risk.

Do you think that Sarath now has a better business idea? Let us ask Sarath to look into his project again to see how his cash flows and profitability are in the new project. One thing is clear: Now he is fishing in a bigger ocean. Earlier, his market was confined to those who could be persuaded to drop into his little shop. Now, it is up to him to persuade buyers to give him their custom.

There is also another side to the story. You would recall that Sarath's money is rather limited. He does not even have sufficient cash to set up a shop. It seemed rather difficult to predict his cash flows and this made it difficult to get a bank facility to go forward with the original project. The new idea opens up new possibilities. Now he can find buyers in advance and show a predictable cash flow pattern. Success now depends more on business acumen than on luck and consumer behaviour.

Still, there is a lot more work for Sarath to do before he can put together a workable financial plan. There is also a lot of thinking to do. After all, one does not start a business everyday and changing a business idea is not to be done lightly.

Ask yourself: Can this happen to me? Recently, I was speaking with M. Azmeer of Media Solv, a software company involved in the Concept Nursery, the Sri Lankan technology incubator. According to Azmeer, picking a winning idea is only part of the story. "A good horse alone does not make you a winner," he says. "One also needs a good jockey." But, the opposite is equally true.

However, success in business is not simply picking a good idea and the skillful execution of it. Strategy matters too. So, in choosing your business idea, it is not sufficient to have a clear vision; you need to be looking in the correct direction. Are you?

In the coming weeks, we will look at how Sarath plans his cash flows and puts together his business plan. Keep your comments coming in. You can reach us on btimes@wijeya.lk or 074-304100.

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