A couple of weeks ago Sibusiso Ngwenya (Skinny Sbu) shared on his social media platform that he had been struggling with depression and that the business which he founded over five years ago, Skinny Sbu Socks, needed a cash injection. He then made several media appearances, such as at Drum, SABC News and Metro Fm, writes SINESIPHO MANINJWA.
In those engagements he detailed that he had spent a significant amount of resources (approximately R2 million) on maintaining a certain image to external stakeholders and that he required a cash injection of R5 million. Please note that he didn’t specify the application of the fund, nor did he provide any tangible information. As a private entity we respect his right not to disclose the inner workings of his organisation and that is not the issue at hand. For those that are not familiar, Skinny Sbu Socks is a premium branded sock company, which is sold at large fashion retailer like Markhams, and on various e-commerce platforms.
Socks are a multi-million-rand industry, with men being the dominant purchaser of the product. The male sock market is split between athletic, casual and formal. From a segmentation perspective, Skinny Sbu Socks can be thought of premium brand operating in the formal and casual market. It is a highly competitive market, with very little-to-no differentiating factors between brands, and therefore a key consideration for consumers is brand loyalty and access.
The business has been in operation for just over five years, this is important to note as the rate of failure of small business is around between 70% – 80% this according to research undertaken by the department of trade and industry. This is as a result of a combination of factors primarily lack of business skills, lack of adequate access to market, poor business planning, poor money management i.e. financial literacy and lastly the inability to secure funding whether be debt or equity.
In reviewing the conversation unfold on Social Media, I thought it apparent to shed some truths on some of the challenges that entrepreneurs such as Sibusiso face.
The basis of my analysis is primarily based on background and follows the below themes:
Entrepreneurship is not easy and is filled with anxiety. There is no shame in an entrepreneur admitting that they are struggling with their mental health, however a key success trait of an entrepreneur is managing your emotions. An entrepreneur doesn’t exist in isolation, there are many stakeholders that need to be managed. It is unfortunate but an entrepreneur, specifically a start-up entrepreneur, cannot afford to act out or be seen to be untrustworthy. (Unfortunately, this applies to mental health too. You cannot be seen to be “mentally unstable”.) As a start up the founder behaviours reflect directly on the brand and vice versa there is no separation and as such character can make or break your business.
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Socks are sold using business-to-consumer models. You sell your product directly to a consumer through a distribution outlet who uses and enjoys the benefit of your service or product. The problems with a business-to-consumer model is that you must build a brand, which means years of spending advertising budget, people need to know you exist, you need social media campaigns, billboards, Google AdWords, you need to become famous.
Business to consumer businesses are hard, no one tells you that, they are driven by volumes because mostly you are targeting a larger number of consumers. These markets also very competitive, any product that you can think of that is consumer facing has fierce competition from established monopolies and oligopolies, 98% of the time you cannot compete with their marketing teams, budgets, and balance sheets and their bloody bill boards.
Financial institutions such as banks are a business and as such are under no obligation to provide additional support to entrepreneurs besides financial resources for which they expect the entrepreneur to provide security, and in addition the bank would like to earn a return on the cash provided. And as such if an entrepreneur does not have enough security, and they cannot demonstrate through their business plan that the bank will be able to earn a return. It is then highly unlikely that you would be able to secure funding at any of the premier financial institutions. This would mean of the capital available in this economy, as an SMME you are unable to access 95% of it.
The next option would be then to consider to Development Finance Institutions, the challenge is that most of these institutions are understaffed and under-resourced with extremely long lead times, this can be catastrophic for an SMME who needs funding for a specific transaction. Although there have been inroads in capacitating these institutions with business support services, feedback has been this type of support is usually generic in nature and doesn’t take in consideration the development stage the SMME is currently in. And like banks, DFIs also seek to make a return on the funding they have instead which means on a like for like basis they are more expensive than banks due to the high-risk nature of their business.
Online sales only make up a minority of the South African retail market, though they are steadily growing. So unfortunately for any business-to-consumer product the only way to gain credible scale and growth is to be stocked at retail stores. Unfortunately, retail is incredibly competitive as mentioned in the above and in addition it takes significant financial resources to grow your business on this platform. Retailers typically order non-perishable items between 60 – 90 days before any season, they then only pay the entrepreneur on a 90 – 180-day basis. Furthermore, the retailer usually requires a minimum order quantity, i.e. a large order. This is great for the business as it means a sale to single client will mean a significant increase in revenue.
Note that it’s standard practise that the retail suppliers are liable for any external marketing and advertising that the retail store does on behalf of the product. This presents two problems: the entrepreneur is effectively having a sale, but no payment for a period of up to 6 months and in the interim they still must pay tax, salaries, rent, stock, advertising and marketing costs etc.
What it means is that to grow your business, you are in a sense paying the retailer to distribute your product. The above description is the standard industry practice and the reason why retail as a distribution point can cripple a small business.
A key part of being an entrepreneur is being able to hustle (finding ways and means of earning an income whilst the business is still growing.) But it should be noted that these activities should never be perceived as taking away from your business. The entrepreneurship journey and recognition should only be based on working on your core business.
It is worth noting, that Small Business as a category is the largest single employer in this country. However, in terms of the current support mechanism for SMME in this country, there isn’t a cultivated and deliberate ecosystem that is there to capacitate entrepreneurs to not only exist but to thrive to the next growth level.
I do hope that this is not the end for Sibusiso Ngwenya and his sock empire. A key enabler for his growth would be listening to advice. Like he was told during his interview on the SABC.
Disclaimer. Please note that I have no sight of financial or contractual records of the company, this is me merely providing my opinion on the subject matter. The purpose of this article is to provide information young entrepreneurs on some of the pitfalls that they may encounter.
Sinesipho Maninjwa is a Chartered Accountant.
The views expressed in this article are the author’s own and do not necessarily reflect the editorial policies of The Daily Vox.