Clear plan
Two years ago, the lives of hundreds of Russian entrepreneurs changed dramatically. People moved to foreign countries and over time started businesses there in the hope of regaining lost stability and providing themselves and their families with a comfortable standard of living.
That’s what I did too. Last year, three partners and I decided to launch a FoodTech startup called Greeno in Dubai. We planned to install “compact points” of self-service with healthy food in local offices. I decided to invest almost all my savings in it. Going all-in to a new business did not seem like a bet in a casino: we had a cool idea, we chose an empty niche and used a model tested in another region (a similar business was developed by one of the project partners).
We knew exactly what to do. We conducted an in-depth analysis of the market, drew up a business plan and strictly followed it at the start. From February to May, which is mega-fast by Dubai standards, we opened a legal entity, developed project branding and all sales materials, found our first big clients (we started with the largest in Dubai – the local telecommunications operator Etisalat), signed contracts with ready-to-eat food producers, rented a warehouse, ordered industrial refrigerators from Germany and equipment for micromarkets from local Indian suppliers, and staffed the staff with operational staff from the Philippines, India and Russia.
The first machine was planned to be installed at the end of spring. All that was left to do was to open a corporate account in a local bank and connect the terminals of the local payment system. However, the counterparties were wildly slow in Dubai style. Therefore, we opened the first point only in mid-July, a week later we launched another one, and soon another one. By September, we wanted to install micromarkets in 10 locations and reach the break-even point. However, in August it became clear that we were still far from this.
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Months of struggle
The market made adjustments. It turned out that most large companies in Dubai still have not returned to a five-day work week after Covid. Therefore, in many offices, employees show up three days a week. The rest of the time they work remotely. In addition, many are accustomed to ordering food through delivery services – Talabat, Careem, Deliveroo. We tried to compete with them by lowering prices, but the shift in consumer habits was not happening as quickly as we had hoped.
In addition, when we calculated the unit economics of one point, we did not take into account the high volume of write-offs. When you load ready-made food into the refrigerator, you must clearly meet the taste preferences of your customers. Otherwise, the dishes are sold poorly and go to the trash bin due to their short shelf life. And this results in additional procurement costs. Even at the start, we understood that in Dubai it would be difficult to predict consumer tastes, since it is a multinational city: Indians, Pakistanis, Arabs, Filipinos, Europeans work side by side in local offices, and everyone loves their own. But experimenting with the menu took more time than we thought.
Having adjusted the business model to take into account the new realities, we realized that it would take us a year and $400,000 of investment to break even. Let me make a reservation that, in addition to me, two more partners invested in the startup. One immediately refused further investments, noting that we had deviated from the plan and the prospects for the project were vague. The second one went with me to the second round. But he also refused to participate in the next one, in September 2023.
At the same time, the partners proposed to stop operating activities. This idea seemed unthinkable to me: how can you give up a month and a half after the operational launch? So I offered them the following: I will try to attract third-party funding and cover the costs from my own pocket for the next months. In total, since the start, I have invested $100,000 in the startup.
Every day I felt fear, anger, and also enormous pressure – I was responsible to employees and incurred enormous expenses. The fact is that while searching for investments you cannot stop development – you had to open new points. At the same time, I needed to convey confidence in the future to the team, partners, and clients.
I lived in this state for three months. During this time, I communicated with all the VCs (venture funds. – Forbes), angels, private investors, crypto investors, whom I reached directly or through friends. I received one answer from venture investors: this is not a venture project. These mainly include digital startups that scale quickly. But it was not possible to interest those who invest in real dividend businesses. They needed a high ROI (return on investment, return on investment. – Forbes) – above 20%. At that time we could not offer this.
By the end of autumn, I realized that finding funding would take longer than I thought. At the same time, my money for purchases and salaries has dried up. In November, I decided to close the business, but with a sense of accomplishment: I did everything in my power to save the project. As of today, operations have been stopped. The employees were dismissed with all salaries paid. I closed my debts to suppliers. I have vacated the office and warehouse, and am now selling off the remaining equipment. It turned out that all these expensive refrigerators, which we had difficulty finding at dealers in Dubai (one container of Liebherr refrigerators from Germany, which took three months to arrive to us, which cost), is not an asset, but rather a liability. It can only be sold at a strong discount, and during the sale it needs to be stored somewhere, which means additional costs for warehouse and logistics.
I talked to the clients: I honestly explained to them the situation that the money for scaling had run out, and without this we couldn’t reach the break-even point. I honestly promised myself not to cry at these meetings and honestly couldn’t help myself, especially when decision makers (decision makers – Forbes) in companies talked about how their employees liked our service and how, thanks to us, they were changing their eating habits.
Launch rules
Now, if we put emotions aside, I would like to analyze the experience gained. Below I share my findings on what to do and not to do when launching a startup in a foreign market:
- start with an MVP (minimum viable product – Forbes) and don’t inflate costs, no matter how much you want to reward yourself with a good office. Exception: design bureaus or real estate agencies for which the office serves as a point of sale;
- do not chase premium quality at the start, even if this is your USP (unique selling proposition – Forbes): you can test the first sales by assembling a product “from sand and sticks”;
- hire line personnel as budget-friendly as possible, but do not skimp on key employees (sales and business development managers) who are able to work autonomously and bring contracts with clients;
- in the B2B segment, searching for clients and various approvals can take several months. Therefore, start selling before the product is available;
- start looking for third-party funding before the project launches and before you run out of your own funds;
- at the start, set a budget for liquidating the project;
- learn to speak honestly and openly with clients, contractors, and employees. No matter how difficult it may be, you need to warn about possible problems in business or cash gaps in advance – many will understand and meet them halfway;
- even before starting work on the project, sign a corporate agreement with partners and investors. In half of the cases, business failure is associated with internal conflicts;
- Don’t skimp on market research! You need to know exactly how many of your customers are in your target market, what they like and how much they are willing to spend on your product;
- The key is to take your original financial plan and multiply your startup time and investment by two. This is your safety margin in case something goes wrong, and there is a 100% chance that something will go wrong. Underfunding is the main reason startups fail, not the inability to sell or create a good product, as many people think.
What’s next? The first thought after failure is “never again.” But then the entrepreneurial spirit takes over, and you realize that you will still try again and again and again until you achieve the result. And you will definitely achieve it – the accumulated experience, including negative ones, will help with this. As one businessman I respect says, the scale of a business is determined by the scale of an individual. And this personality, in the context of entrepreneurship, must be distinguished by its resistance to failures and the ability to recover like a phoenix bird – each time from scratch and without regretting anything.
2024-02-20 06:00:00
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