Although capital is normally needed before a person starts a business, it is not the basis of business, according to a business expert.
Speaking to The Business Wiz in Dar es Salaam during an interview recently, Diligent Consulting Ltd Senior Consultant Sosthenes Sambua said it was possible to start a business without capital.
“A person may have TSh 5 million capital to start a business and be successful, while another person may have the same amount of capital to start a business and end up making a loss. If the latter had only TSh1 million capital, the situation could have even been worse.” He said.
He added, “On the other hand, another person could start a business with a capital of just TSh 50,000 successful. What does that mean? It simply means that it is the proper identification of needs that are the basis of a good business and not capital, for it is these needs that create an exchange of goods for value (money)”
Sambua said that the the logic is a person buys what he or she needs or wants, not what the business has invested.
“If a person doesn’t need anything, he or she won’t buy it. So, it is human needs (customer needs) that determine the nature and success of a business,” he stressed.
He categorised these needs into basic needs and wants (simulated needs). “A person cannot live without basic needs, but can live without wants. However, a person can enjoy life more when his or her wants are met. So, both basic needs and wants should be studied, established and analysed before a person starts a business,” he emphasised.
According to Sambua, once the needs are established and analysed what follows is to know who and how many customers and suppliers of goods and providers of services are available as this narrows or broadens the scope of business.
“A person who has a good business idea and implements it by meeting customer needs survives stiff competition, while the one who starts a business simply because he or she has capital risks making a loss. So, to start a business one needs to know well the science of business,” he said.
He added that a person who wants to start a business needs to have a clear and workable business idea and customer needs acumen.
“A person who starts a business wants to make a profit – that’s the income a businessperson gets after deducting the costs of goods or services,” he pointed out.
Sambua said there are some businesspersons who have capital and started their businesses, thinking their businesses would take off, but because they have no clue of what their customers need, and how many competitors are in the market, they end up incurring losses.
“Some people bought commuter buses, opened bars, shops and butchers and others started selling second hand clothes because they had capital, but ended up incurring losses,” he added
He pointed out that many people made a big mistake by simply jumping into business without having a clear and workable business idea and without studying, establishing and analyzing customer needs.
“This means customers can only spend their money on the goods they need or want and nothing else. Therefore, it is important to know this.”
He decried persons who started a business simply because other persons had a similar business in the area adding that “You may find that a person starts a business because his or her neighbours too have a similar business. As a result, they start scrambling for the same customers. If a new business fails to offer something new to customers it won’t survive the competition.”
He also decried lack of customer care, lack of business etiquette and being unpresentable, saying they were snags that impacted on businesses.
“Businesspersons who wear shabby clothes put off customers. If you want to attract customers you have to be presentable. Thinking that customers will just come to buy what you have is counterproductive in business. So, you need to know business etiquette,” he added.
Sambua said he was encouraging ordinary persons to learn how to start a business even if they didn’t have capital, in the way that middlemen (dalali) operated.
“Middlemen dealing in houses for rent or plots on sale do business without any capital. They work hard to know where rental premises are, and offer these to those needing premises. They just sit at a strategic place and wait to connect needs (premises seekers) to the value (premise owners). The investment is the knowledge and their mobile phone.” He added.
He said if any person offered to rent a house or buy a plot, then he or she had to pay for it first after which he or she would be shown where the house or plot was.
“The same with builders; they make money without having initial capital, but will request for advance money. That is how they make money and this too is a form of doing business without capital. There are other forms of business too,” he noted.
However, he made it clear that he neither discouraged people from looking for capital, nor was he against it, but he just wanted to show that even without capital one could still start a business and get capital later, by connecting needs to that which satisfies the needs.
“One can get money from a bank, from a money lending institution, from a money lender or from a credit transaction.”
Sambua wondered how some businesspersons, who instead of working hard, expected divine intervention in their businesses, forgetting that they were endowed with intelligence to learn, understand and make right judgment on what needed to be done. “Some people believe if God wants then their businesses will grow and prosper. So, instead of working hard to make their businesses productive, they leave it to divine providence. This cannot make business thrive.”
He also decried business as usual mentality which conditioned some businesspersons to remain in the poverty trap or in the working poor category.
“With this type of mind-set poverty reduction efforts hit a major snag. But we have to do something about it and this is what my colleagues and I are doing,” he explained.
Sambua, who has an MBA degree in Corporate Management and a Post-Graduate Diploma in Planning and Management of Development Projects, is also an international consultant in competitiveness, innovation, clusters, enterprise growth and entrepreneurship. He has rich experience in corporate governance and served in several boards in private, civic and public sectors.