GLAMOUR caught up with successful business owner Shona Macdonald to discuss important issues facing start-up businesses in South Africa.
The former Shark Tank winner, Survivor SA contestant and owner of Thursdays, designer of lingerie and swimwear for girls C cup and up, has shared major deets that will benefit the aspiring young female entrepreneur. Take a look at the in-depth Q&A below.
Where is the best place to start looking for start-up finance?
As an entrepreneur, your best bet is to try and self-fund your business as much as possible, especially in the early days. You will likely be spending a lot of the money on concept development and testing, and external parties will not be interested in financing this stage. More than this, anyone who is likely to lend you money in the future wants to know that you back yourself first. If you are not willing to risk your own money, why should they?
Give yourself a budget, and bootstrap. You need to prove your concept before looking for any formal source of funding – if you are trying to get finance for just an idea, you are going to be wasting your time.
Once you have proven there is a product-market fit, and you have sales channels in place, you can start looking for backing, and only do so if you really need it in order to grow. As an early stage start-up, your negotiation power will be very low, so you want to put off this step until your position is as strong as possible.
My business, Thursdays Lingerie and Swimwear, is capital intensive. In order for us to produce our designs, we have to meet large minimum ordering quantities for most of our raw materials. This means without external financing, we couldn’t be in business.
In order to prove concept, we did a lot of market research with our target market, asking them what problems they had and pitching our designs as solutions for feedback. I then financed the prototype and product testing myself, through my day job. Don’t quit your ‘job-job’ too soon – it takes a lot longer to start earning profit than you might think!
Unless you have assets or large confirmed orders, looking for finance from a bank is going to be very challenging. I would highly recommend leveraging your personal network. Your friends and family know you best, and know how much blood, sweat, and tears you have put into your business until this stage. This is most likely where you will have success finding your first round of funding, and it will likely come with more lenient repayment terms, and a better interest rate too.
Doing business with friends and family can be tricky, and you don’t want to risk the relationship over money. Make sure you treat it like a business deal, and pitch to your loved ones the same way you would to any high-profile investor.
Show them how you have proven your concept, go through your sales and distribution channels, explain your marketing campaign and how you will be spending their money. Show them you have a strategy on how you plan to pay them back, include an interest rate and set deadlines. Don’t be greedy and ask for too much, but make sure you have accounted for cash flow and unexpected costs, so you are not in a similar position of needing funds again too soon.
What are the biggest challenges that come with looking for funding?
As a new business, that is yet to launch, looking for funding is challenging as you have not yet properly proven market demand and viability. You should have done your research and at least secured a few pre-order sales, but it is very difficult to actually predict how successful your business will be – and how long it will take until you break even and start generating a profit.
It’s widely known that most start-ups fail, and many of the rest take a long time before they gain traction. Investors know the projections you show them will change, and they are most likely going to be investing in YOU, rather than just your pitch deck. To overcome this uncertainty, try demonstrating to your funders how you have shown tenacity and overcome challenges in the past.
The biggest financial challenge most entrepreneurs face is cash flow. There are so many unforeseen costs, and if you can’t manage these properly, or come up with creative solutions to reduce expenses, you are bound to run into trouble. An entrepreneur’s slogan should be, “always be hustling”!
When Thursdays went into production for our first swimwear collection, I thought we were in the clear financially. I had secured a loan from family that would pay for the collection, and was planning to make all the money back, plus more, from sales. I’d chosen to manufacture in Mauritius, as the South African suppliers were not taking my small business seriously and the production costs would have basically priced me out of the market.
Mauritius is well known for their textile industry, and I met a supplier there who seemed to understand the vision of my business and wanted to work with me on more flexible terms.
As this was my first time ever producing anything on a large scale, there were several unforeseen delays and complications. The whole experience was stressful, and really took a toll on my confidence.
What I learnt from this is that it is best for you to keep as close to your supply chain as possible. Have contracts in places with pre-determined consequences if deadlines are not met. Always account for unexpected costs, and ask people who have similar businesses what these unexpected costs could potentially be so you can plan for them, and hopefully avoid them.
How did you overcome the financial challenges facing you and your brand?
I have had to make a lot of personal financial sacrifices during the development of Thursdays. I moved back in with my mom for a while to save money on living expenses. I quit my full-time job and started au pairing so I could have the flexibility to focus on launching a business, but still be generating income.
By doing this I was earning much less than my peers, and spending a lot of that income on Thursdays.
As an entrepreneur your personal and work life become intertwined so you should definitely open a work bank account and keep your finances separate. I think the secret is to be happy living a humble lifestyle, knowing you are building something that matters.
I got creative when looking for Funding for Thursdays. There are often competitions where you can pitch your business and win some seed capital and mentorship.
I think my success in securing investment on Shark Tank South Africa was because I’d had so much practise pitching! I walked away with R200 000 for 30% of my business and access to unlimited working capital after having had offers from three out of the five Sharks.
I am about to embark on a relatively under-utilised form of financing (in Africa anyway) to help me with cash flow and allow us to continue to produce our beautiful lingerie. Thursdays will be launching a crowdfunding campaign on Thundafund in the next two months. The way crowd funding works is you generate many small investments from a large group of investors (the general public) rather than from one specific investor.
There are several types of crowdfunding, for example donations, rewards based and equity financing. The one you use is dependent on your type of business and the reason you need the funding. Thursdays will be launching a rewards-based campaign, where anyone in Africa can pledge money in exchange for a specific reward. The pledge can range from R75 to R100 000, depending on the return you’d like.
Patience really is a virtue. Thursdays has been a concept of mine since I was in university in 2011. However, it feels like we have only really started now, at the end of 2018 when we launched our core product range of lingerie! I am very happy to be manufacturing locally in Mitchell’s Plain, and working with a group of women who have learnt how to make a bra from scratch. If you believe your business will make a difference, stick with it, and don’t let lack of finances stop you – there is always a way!
Become a creative problem solver. If you always want to give up when you hit an obstacle, entrepreneurship is never going to work for you. Instead of letting the inevitable challenges frustrate you, let them fuel your creativity. As an entrepreneur you are a natural problem solver, this is why you are in business. Leverage that skill and find a way to make it happen.
Don’t quit your day job! It takes a lot longer than you think to start making money, and even then, it is unlikely you will be able to support yourself properly. If possible, try and negotiate with your current job to have more flexibility, even if it means taking a pay dip.