Start-ups worse hit by surging inputs costs

The recent spike in prices of critical inputs is making it increasingly difficult for start-ups and early-stage businesses to survive.

The situation has worsened the failure rate among start-ups in Africa’s biggest economy despite having the highest entrepreneurship rate globally.

A 2022 Nigeria MSME report shows that 80 percent of small businesses in Africa fail within the first five years of their existence.

The cost of doing business has continued to increase with the recent surge in prices of all inputs. In addition, an increase in the prices of many commodities has spiked inflation in recent times.

Also, the recent hike in the country’s Monetary Policy Rate by 100 basis points to 14 percent by the central bank will increase commercial banks’ lending interest rates and make it difficult for small businesses to access cheap loans.

Analysts say this will reduce lending to the critical sectors of the economy as most businesses cannot survive under a high-interest rate.

Small businesses are the hope for economic prosperity for the country, seeing that they represent about 90 percent of all firms globally, provide roughly 70 percent of employment and, by some estimates, contribute up to 70 percent of Nigeria’s GDP.

According to the Business and Sustainable Development Commission, sustainable business models could open economic opportunities worth $12 trillion and create 380 million jobs by 2030, with more than 50 percent being located in developing countries.

Achieving this will require a transformation associated with adapting new business models, bringing in new innovation and technology, and doing business more sustainably and ethically.

BusinessDay spoke with some start-up operators to share their experiences amid surging inputs costs.

Adenike Badejoko is the founder and chief executive officer of Frootify – a leading wellness and nutrition start-up.

How are you coping with the rising input prices?

We increased the prices of our products in February 2022 in the hope to accommodate the rising cost of raw materials but it’s of no significance as input prices keep burgeoning almost every day; so we have chosen to ride the tide of this negative economic trend to sustain volume in hope that we will arrive at a glimmer of hope fast.

It has been difficult but we keep tweaking our business model to survive the economic hardship while retaining and getting new customers.

Are you making much more money compared to before?

No, we are not, as our sales are yet to record any major growth due to the continuous surge in inputs.

Read also: Data, travel, rent top Nigerians spending cut

Are people buying your products?

Yes, our products are targeted at a mass market so that makes us favourable within our chosen customer segment. Healthy living isn’t an investment to compromise on despite economic shortcomings. If there’s one lesson that has remained vital since the advent of the pandemic, it is that the world is a survival of the healthiest.

How is the worsening power supply affecting your cost of production?

Due to the worsening power supply, we experienced a huge loss in our inventory, especially because we work with products that need to be kept fresh constantly and regularly, but rather than dampen the morale of our workforce, it has inspired us to be data-driven and creative even with our supply chain.

What strategy did you adopt to survive the pandemic?

Our retail stores were inoperative during the lockdown. However, after the lockdown, we positioned some of our outlets close to residential areas and pivoted our core services into a technology platform.

Is the Nigerian business environment improving?

No, it is not. While there are momentary sparks and occasional cheers, the overall currently tilts in the negative, and its impact can be seen on the Nigerian consumers. From burdensome and unnecessary taxation, inadequate business support particularly financing; lack of basic infrastructure such as power, unfavourable policies, whatever improvement gained is lost as fast as it was made. Atilogwu dance aptly defines it, one step forward two steps backward.

Amara Nwamara is the founder of Triple D Investments – a business in the sale of fairly-used laptops and gadgets at Westminster market, Lagos.

Are you making more money compared to before?

An adage says when things change, people change, so I will not tell you that I am making more money than before because of the economic situation but I can tell you that I am making sales because customers will always come to us when they cannot access something brand new.

Are people buying your products?

Yes, like I stated earlier, people are buying our products though not like before. The only issue we are facing at Westminster is bad roads. Due to the trucks parked around, the road is no more motorable and you can’t access the road with a car. It is affecting us a lot and our business too. Some customers will rather to go to where they can comfortably drive down and purchase items.

How is the worsening power supply affecting your business?

It is affecting my business in the sense that when there is no light, you have to devise another alternative which is buying fuel for your generator which also consumes a lot. We deal with electronic and tech gadgets, so our light is always on for customers who may want to test the product they are purchasing. So it is affecting us too.

What strategy did you adopt to survive the pandemic?

Businesses were shut down then and it affected me. I had to join my wife in her small business. She sells Indomie and other noodles and delivers it to people at their doorstep, so I have to join her in the business to survive the pandemic and it was not funny.

Is the Nigerian business environment improving?

I will tell you that it is not improving. For example, in a market like Westminster where business is booming but there are no ways cars and people can access the road. There should be an infrastructural investment to put all these things in place but for now, there is generally no improvement.

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