Jay-Z (and many others before and after him) said (say) it best: “Money makes the world go round”. As a result, many people fall into the trap of equating “making money” to “doing business”. Yes, there is a difference! Ideally, the one should follow from the other (otherwise what’s the point). But the end-goals of the two activities are distinguishable. Very early on in our afropreneurship journey, we made the mistake of chasing “deals” (in order to make money) rather than focussing on building businesses. In this short article, I will break down the difference and hopefully spare you some “school fees”.
Deals vs Businesses
Let’s start by distinguishing a “deal” from a “business opportunity”. There are many such distinctions, but here I am going to list 4 clear distinguishing factors: Turnaround times, margins and stakeholders and relationships.
Slow and steady
The first main difference is in the lag-time between investment and reward. In today’s world it is not “sexy” to invest in opportunities that will not yield IMMEDIATE windfalls (especially in Africa). Pitching an idea to someone [especially if you are wanting to borrow money from them] and only promising them their money back in 3-5 years usually doesn’t work out favourably. This is because we live in a world that has bought into the unrealistic and often detrimental mentality of instant gratification – hook, line and sinker. Quick turn-around times on your investment infers a “deal”, as opposed to “establishing a business”. The latter usually takes years to break even and become profitable.
The second main difference is the return on investment. Sadly, people have come to associate the African continent with “easy money” and immediate and out-of-this-world returns. I have even heard 100%+ margins bandied about on occasion. While this is possible on our beautiful continent (as I explain later in this article), the standard – “high risk, high reward” caveat applies just like in any other geography. It is true that investing in a developing market will usually yield you more cents on the dollar in profit than investing in established markets.[efn_note]This is because it is assumed a that developing economy is naturally more “high-risk” than an established one. While this is true – in part – taking precautionary steps and choosing a reliable “local partner” can significantly reduce your risk.[/efn_note]. However, stories that sound too good to be true usually are. The allure of reaping more than sow is what has landed many people in hot water on this continent – myself included.[efn_note]For my personal “school-fees” experience go here.[/efn_note]
Thirdly, deals are easy to spot because they very seldom involve empowering anyone but oneself. A [sustainable] business usually requires employees or a workforce – and all the headaches that involving others brings. As the adage goes: “good help is hard to find”. This is especially true for many areas on the African continent. Colonial education policies, wars and a myriad of other hardships have resulted in a shortage of skills in the workforce pool in many places. Therefore, in order to establish a business it will often be necessary to spend significant amounts of time [re]training staff in order to instil the correct amount and type of “corporate thinking”. It is seldom the objective of a “deal” to illicit the best productivity from staff-members or empower a workforce with lasting skills.
Fear of commitment
This is the most crucial distinction between a deal and a business: The nature of the relationship that gets created between the stakeholders or parties. Deals seldom create lasting, mutual relationships. More often than not, there is talk of “introduction fees”, “commissions”,”irrevocable fee protection agreements”,”[my] seller and [my] buyer”,”non-disclosure agreements” (to protect a given party from being “circumvented”) and so on. In my short experience these types of transactions very often fall flat OR result in barely enforceable agreements. For the most part these arrangements fail because there is one party (or multiple parties) seeking to benefit from a transaction in disproportion to their ACTUAL contribution. If you are looking to make money from “introducing” someone to someone else, it is likely that you are involved in a [ONE-TIME] “deal”.
Why Businesses are Better than Deals
As an Afropreneur, I would pick establishing a business over “doing a deal” every day of the week (and twice on Sundays). Even though it is more time-consuming, frustrating and often nerve-wrecking to do the former. Here are a few reasons why.
Construction of Solid Foundations
If “making money” is like pouring a cup of coffee, building a business is the process of grinding the beans, boiling the water and even getting the cup ready (and ensuring it is clean). Doing a deal or “just making money” is like adding the creamer. (Let’s just assume for the purpose of this exercise that coffee is best had with cream or creamer 😂). The point is that without going through the “trouble” and putting in the effort of establishing a business, you may make money, but is not likely to be consistent. Building a business requires (among other things):
- establishing a need;
- creating a product or service;
- investing in an infrastructure in order to build the product or roll out the service consistently; and
- selling the product or service to your customers or clients
Making money by doing deals does not require many of the above steps – if any. However, a business built with the future in mind and run sustainably will lead to results that can be duplicated and enjoyed more than just once or twice. It’s the difference between eating fruit versus planting a fruit tree.
A buffer against Loss
As alluded to earlier, the margins you are set to make normally indicate the amount of risk associated with the investment you are putting in. So, usually, if you stand to go home with 100% of your investment almost immediately, know that the chances are that the odds are in favour of you LOSING your entire investment (Lottery-type deal). As a rule of thumb, never get into these deals with money that you are not prepared to lose.
Conversely, if you stand to gain 20%-40% after 3-5 years (of sweating and gnashing your teeth), the likelihood is that there will be something you can recover even if the venture goes bust. Alternatively there will be a way to “pivot” so that not the ENTIRE investment you have made is lost. As outlined earlier, making money through “deals” doesn’t ordinarily involve much traceability, infrastructure or groundwork. Ergo, nothing to recoup in the event of something “going south”.
Doing deals is a derivative
Despite everything I have said, there is nothing wrong with making money by “doing deals”. In other words, making crazy margins in a short amount of time with very few people involved is actually a good thing. After all, people have been doing this (and getting filthy rich as a result) for centuries, if not millennia. There is, however, a difference when you get involved in a “deal” when you already have a solid foundation. In other words my position is that there is a right and a wrong way to do “deals”. When you have established and are running a sustainable business on the African continent, you will quickly realise that there are “spin-off” opportunities that result. People outside your normal course of business will also approach you with opportunities to engage in beneficial transactions. Under these conditions, “deals” are a derivative (a by-product) of an underlying investment already made. These are the types of deals I can recommend, as they constitute windfalls you have EARNED.
Furthermore, establishment in the region/area greatly mitigates the potential losses you might otherwise suffer. For instance, when you spend some time in a region, you will get to know the types of scams run. You will also probably come across the con-artists that run them – most industries are very small. Also, because you have a foundation, you will still have something to fall back on if the deal falls flat. This is assuming of course you are not leveraging your existing business to get involved in the deal.
The Continent needs Businesses
Lastly, there is the humanitarian argument. If we are to elevate the continent by alleviating poverty and building sustainable economies, “deals” are not the way to go. In fact they should be actively discouraged when outside the framework of a business. As mentioned earlier, deals benefit very few people in the long run – if they come off that is. [Good] businesses however provide employment, transfer skills and knowledge and empower employees to build businesses themselves. Generally speaking on the African continent, one person is usually responsible for sustaining 8-10 people. This means that one person uplifted, empowered and mentally transformed can have an exponential impact.