Savings culture: A must for the future entrepreneur

‘Nowadays, when one thinks about ‘Savings’ it’s often simplified as money set aside for a rainy day after all expenses might have been taken care of. However, with the low-interest rate and high inflation environment we currently face in Nigeria, savings must be complemented with investment to ensure that value is not lost and when the ‘rainy day’ arrives, what has been stowed away is sufficient in meeting the desired need.

To commemorate ‘World Savings Day’ in what has been arguably the most unpredictable and challenging year in the past decade, the Consumer Awareness and Financial Enlightenment Initiative (CAFEi) highlights the importance of developing a savings culture, particularly for future entrepreneurs.

The year 2020 has been one for the record books! From the COVID-19 pandemic to Nigeria’s 60th independence celebrations, closely followed by the youth-led peaceful protest to #EndSARS – this has been a year that no-one, unless divinely inspired, could have predicted. In analyzing the effect of these events on Nigeria, this year could be defined as an inflection point in the country’s development.

Research by The World Economic Forum suggests that although the COVID-19 pandemic created a tough environment for many entrepreneurs with primary sources of funding eroded, it has simultaneously led to an increase in entrepreneurial activity. This is not surprising if you consider the unemployment casualties as a result of the pandemic and the creative ways in which many individuals and businesses have chosen to respond to it.

In Nigeria, unemployment rose to 27.1 percent in the second quarter of this year with the youth accounting for 64 percent of the unemployed. Due to the irregular reporting of the data, it is not clear if this is a result of the pandemic or a prevailing situation before it. Nevertheless, entrepreneurship can be expected to be both a short and long-term option for many of the unemployed in Nigeria and it is safe to assume that this will primarily be the youth (defined as those aged between 15 to 34 years). While this is encouraging, as entrepreneurship is a driver of wealth creation and economic development, it is important that these start-ups are sustainable and a key requirement to achieve this is funding.

So, you want to become an entrepreneur?

A simple Google search on the top challenges facing entrepreneurs anywhere in the world is likely to list capital/funding in the top three challenges. In Nigeria, it is even more difficult securing funds to get a business started, with the majority relying on their savings or loans from friends and family before considering approaching banks and other lenders. Without securing adequate funding, most business ideas are likely to remain just an idea, never taking off the ground.

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To address the gap in funding for start-ups, the government and some private institutions have developed various options for young entrepreneurs. These include loan facilities from the Bank of Industry (BOI), and Lagos State Employment Trust Fund (LSETF) at more favourable rates than deposit money banks; and initiatives such as the Tony Elumelu Fund (TEF) and National Economic Summit Group (NESG) Pitch Competition in partnership with Sterling Bank and the Venture Garden Group through its accelerator, GreenHouse Capital, to fund and mentor start-ups. However, one key requirement to access these loans is that the business should already be in operation. Without a track record demonstrating viability of the business idea and the capacity to scale the idea, securing funding through any of these means will be difficult if not impossible.

For a young unemployed Nigerian with a brilliant business idea and no funding, this is the end of the road. However, this does not have to be the case if such an individual cultivates a habit of saving as defined earlier.

Why save?

One thing the pandemic is achieving is the acceleration of innovation – work has become flexible with many now able to work from any location by leveraging cloud services; meetings have gone virtual as Zoom, Microsoft Teams, and Cisco Webex to name a few, cash in on the sudden surge in demand for their platforms, and banks have augmented their digital channels to offer a more seamless and contactless customer experience.

This has translated to many sectors across the economy including healthcare, education, and hospitality management and agility is being marked as a major ingredient for the success of any business. Without sufficient funding to quickly launch an idea or respond to evolving customer preferences, entrepreneurs could lose out on a first-mover advantage, market share, or be entirely left out of the race.

For those who can start a business, sustaining the business till it generates sufficient income to run itself is often a challenge. A recent study revealed that 90 percent of start-ups fail and only 50 percent make it past the fifth year. For Nigeria, this is likely to be worse given the additional infrastructural challenges business owners contend with from lack of constant power to inadequate water supply and a transportation system under pressure. Consequently, entrepreneurs might find that they need to inject a considerable amount of cash into their business in the early stages. Having access to personal savings will alleviate some of this pressure, particularly if the funds have been invested wisely and generated significant returns.

For entrepreneurs who are already well established and running successful businesses across the country, there is already an understanding of the cycles their business goes through and they can plan for shifts in demand and supply. However, in a year like 2020, where lockdowns forced some businesses to be shut for up to two months, income was lost, but expenses remained for many. A savings buffer would allow some businesses to continue operations once the lockdown was lifted while some might have been forced to lay off workers, scale back operations or in the worst case, close shop.

Achieving success as a future entrepreneur

In the past few weeks, the youth have dominated the headlines with the #EndSARS movement displaying tenacity, boldness, and innovation in the way the peaceful protests were conducted. Funds were raised quickly through donations or what can also be referred to as ‘crowdfunding’. Donations came in different currencies and eventually only in Bitcoin, the digital cryptocurrency. However, this would not have been achieved if organizers did not demonstrate accountability and transparency which inspired others to believe in the movement and donate.

The amazing feat of Sola Akinlade and Ezra Olubi who co-founded Paystack and recently sold the company for a record-breaking US$200million to American fintech Stripe, also throws light on another way the future of entrepreneurship is shaping up. After making history as the first Nigerian start-up to be admitted in the world-renowned Y-Combinator accelerator in Silicon Valley, the pair also secured US$8million from Stripe in their Series A funding round. Again, Sola and Ezra had demonstrated viability in their business idea and had begun operations before enrolment in the Y-Combinator program which eventually led to the interaction with Stripe.

These two examples highlight that the future entrepreneur is global, seeking funding internationally to scale quickly and efficiently. As of Q1 this year, 24 start-ups had raised a total of US$55,370,000, an over 300 percent increase when compared to the same period in 2019. In Q2, this dropped to US$28.35m probably as a result of the pandemic, though this was still 14 percent above Q2-2019.

With the appetite for Nigerian start-ups in the international investor space, there are increasing opportunities for the future entrepreneur to achieve success but as with most investments, investors require a track record of performance to part with their funds. Both examples stated above were able to deliver this.

While having a savings culture does not guarantee success as an entrepreneur, it alleviates significant pressure along the entrepreneur’s journey and could lead to opening up of international funding opportunities for their business. Even then, the habit of saving must be sustained to create a buffer for shocks that could plunge the business into significant debt or cease its operation if not effectively managed.

There’s a popular saying, not credited to anyone in particular, but aptly summing up the importance of saving, ‘Save money and money will save you’. This is a key message this ‘World Savings Day’ for future entrepreneurs. Imbibe the habit today and be better positioned to take advantage of the opportunities abound in the future.

*Osibogun is president, Consumer Awareness and Financial Enlightenment Initiative (CAFEi).