The Present Situation
If you
want to sell a small or medium-scale business in Kenya, you have a few limited
options:
ü
One
option is to use word of mouth and inform your friends and family that you are
selling.
ü
Another
option is to list on an online classifieds platform like Jiji.
ü
You
can also post on social media pages and groups.
ü
Alternatively,
you can share on WhatsApp or Telegram groups.
ü
Putting
up a poster on the door of the business is yet another method.
ü
Utilizing
a real estate broker or agent is another avenue.
ü
Lastly,
you can resort to traditional newspapers.
Similarly,
if you want to buy a business, often the information comes to you passively,
perhaps from a friend.
However,
if you're proactively seeking to buy one, you would search through online
classifieds or relevant social media groups. If you can't find the type of
business you're seeking, you may have to wait and hope someone lists one soon.
Furthermore,
even when you do find a listing, the information provided is often shallow.
While not everything can be publicly disclosed about the business, the
classical listing usually looks something like this: 'Barber shop for sale in
Mlolongo. Well-equipped. Owner relocating.'
The
process is fragmented and uncertain for both the seller and the buyer, leading
to numerous missed business opportunities. Businesses are forced to close not
due to a lack of potential buyers who could have kept them running, but due to lack
of a streamlined way to connect with buyers.
Likewise,
entrepreneurs miss out on opportunities to invest in high-potential businesses
given the right mix of factors.
Is
there room to create a more seamless business buying and selling marketplace?
Context
ü
Kenya
has 1.5 million registered micros, small, and medium enterprises (MSMEs), with
approximately 5 million operating informally.
ü
Competition
among MSMEs has been on the rise.
ü
The
growth of the side hustle has become integral to urban life, leading to
management stress among owners, prompting some to sell their businesses, not
necessarily due to poor performance.
ü
A
sluggish economy has compelled certain business owners to consider selling.
ü
There's
a prevalent trend of copycat entrepreneurship, where individuals start
businesses without thorough planning, simply because it's trendy. After a short
period of aimlessness, they become bored and seek to sell.
ü
The
economy is highly dynamic, with growing infrastructure projects opening up new
areas, thus creating fresh business opportunities. Some entrepreneurs opt to
sell their current businesses to free up capital and pursue what they perceive
to be bigger opportunities.
The Opportunity
The
opportunity is streamlining buying and selling process for small and medium
sized businesses. Sub Kshs.10m.
How it Would Work
The
most basic approach is to establish a specialized platform for buying and
selling businesses. Imagine a website where sellers can list their businesses,
but not in the barebones manner of platforms like Jiji.
Instead, it should include essential details
to provide buyers with a comprehensive overview of the business.
Buyers
visit the website, browse listings, and if they find a business of interest,
they can contact the sellers directly. There may be some screening processes in
place to filter out non-serious inquiries.
In
this scenario, you act as a facilitator, and the buyers and sellers manage the
business transaction themselves. Your revenue comes from listing fees.
To
ensure success and value for both sellers and buyers, you need a sufficient
number of listings and buyers. This requires investment in marketing. The traditional
approach involves distributing leaflets door-to-door, but using the internet is
a more modern alternative.
A more
advanced model involves becoming a business broker. You would fully or
partially manage the buying and selling process. When a buyer expresses
interest in a business, they contact you, and you act as the intermediary
between them and the seller. The specifics of this arrangement will depend on
your business plan.
In
this model, you earn money through a commission paid by the seller based on the
selling price.
Characteristics
of The Product
·
Easy
to use
·
Quality
listings
·
Checks
against jokers
·
Wide
variety of listings
·
Discoverable
·
Well
marketed
·
Multi-platform
·
At
least partially premium as opposed to being fully free.
Product Possibilities
The
product could take the forms of:
ü
An
easy-to-use website where sellers and buyers meet.
ü
A
USSD platform through which entrepreneurs can buy and sell their businesses.
ü
A
mobile phone app (medium term) designed for buying and selling businesses.
Revenue Models
ü
Listing
fees charged to sellers
ü
Selling
commissions based on successful transactions
ü
Premium
listings with additional features or visibility
ü
Buyer
subscriptions for enhanced access or features
Validation
ü
Entrepreneurs
are already buying and selling businesses, albeit inefficiently.
ü
Business-for-sale
listings exist on various local and international online platforms.
ü
Comments
reflecting frustrations about selling businesses are prevalent.
Back of the Envelope Calculations
Listing Fees:
·
Assuming
listing fees of Kshs. 500 per month.
·
Projecting
minimum listings of 250 businesses based on listings on various platforms and
offline sources in a two-month sample in Nairobi only.
·
Total
revenue: Kshs. 500 * 250 = Kshs. 125,000
·
A
countrywide platform could possibly attain 1500 listings a month with efficient
marketing.
Commissions:
·
Commission
rate: 10%
·
Average
transaction size: Kshs. 500,000
·
Number
of transactions: 12 (3 per week)
·
Total
transaction value: Kshs. 6,000,000
·
Commission:
10% * Kshs. 6,000,000 = Kshs. 600,000
The
commission may seem high, but conversations with some business owners reveal a
desperation and urgency to sell, potentially leading to higher commissions.
The
most significant expenses will likely be in marketing and transactional or
legal fees.
Process
·
Conduct
a quick survey of for sale business. You can do this online.
·
See
the types, the information included, value and such other information
·
Get
in touch with the sellers; act as a buyer brand understand the thinking of
sellers.
·
Act
as a broker and ask if they are open to use selling on their behalf
·
Act
as someone who owns a listing website and ask if they would be willing to list.
·
Design
how the product will look like.
·
Get
the website developed
·
If
need acquire a USSD
·
Acquire
licenses
·
Start
advertising online
·
Reach
out to those who have listed their businesses for sale on different platforms
·
You
could start with free listing, if listing is the model
·
Do
the leg work and spread the word door to door among existing businesses?
Challenges
·
Getting
the initial critical number of buyers and sellers.
·
Keeping
off jokers more so buyers.
·
Due
diligence process and cost if acting as a broker.
·
Trusting
the seller if you ae acting as a broker.
·
Poor
record keeping among small businesses could make it difficult to value or
conduct other due diligence.
Haters
Objection: There are more businesses
selling than buyers.
Counter: While this may seem true,
there are still many buyers actively seeking businesses to purchase but lack a
centralized platform to find them.
Objection: Sellers will not be willing to
pay listing fees.
Counter: However, some sellers are
already paying for boosted posts on platforms like Jiji, indicating a
willingness to invest in advertising.
Objection: The economy is doing badly; no
one is buying businesses.
Counter: Entrepreneurs don’t sell
loss-making businesses only. What may not work for one individual might be a
lucrative opportunity for another.
Resilience to economic downturn
During
an economic downturn, there is likely to be more sellers than buyers. However,
an efficient and well-known platform can encourage potential buyers who may not
have considered purchasing businesses before or who struggled to find
opportunities.
This
platform can bring buyers out of their cocoon, providing them with access to a
range of business opportunities they may not have otherwise discovered.
Competition
·
Online
classified sites
·
Social
media
Purchase frequency
·
Once
a year
Substitutes
·
Word
of mouth
·
Social
media
·
Online
classifieds
Critical Success Factors
ü Product awareness
ü Quality of listings
ü Quality of buyers
ü Efficiency
ü Sufficient number of buyers and sellers
ü Effective marketing strategies
ü User-friendly platform interface
ü Secure transaction process
ü Transparent and fair pricing model
What do you think ? Please leave a comment below.
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