"I've rushed things. I should not have started the franchising system until I made sure I had a solid business model and the right people to take care of the franchise. I thought the franchisees would run the restaurant branches the same way I would,” Mohannad, a 33-year-old Saudi entrepreneur told Majalla English. After specializing in the F&B sector, he has recently closed 3 restaurants in Cairo, Dubai and Riyadh only 4 years after launching his first restaurant.
Mohannad belongs to the emerging generation of Saudi entrepreneurs, who prefer to start and run their own business to being employees. However, the picture is not always rosy. The sweet taste of early success might entice some to push their businesses beyond limits, so they get involved in miscalculated adventures.
Majalla English recently spoken to 4 Saudi young entrepreneurs, who have experienced both success and failure, to highlight the mistakes committed by them or other entrepreneurs that could hinder their success. Three of them have learned from their mistakes and flourished again; however, Mohannad has decided to exit the market temporarily.
RUSHING TO FRANCHISE
Out of quick success and the lure of making fast profits, some entrepreneurs seek to become franchisors even before their brand matures.
"Frankly, I thought I would make money just because I created a restaurant brand that was successful from the very first days. I had the illusion that it’s a matter of wall branding and recipes. My real plan was to attract more franchisees, sell the brand and retire before I reach 40,” said Mohannad.
“I have discovered that establishing a solid franchise system is never easy as quality control is the most crucial matter. I didn’t have the right tools to make sure the brand experience I offer my customers here in my Jeddah restaurant is the same one offered by the franchisees,” he added.
After huge losses and failed partnerships, Mohannad is now looking for a job. It could be difficult for a business owner to become an employee again. However, he is optimistic about finding a job with a good package due to his experience in the F&B sector. He believes he will invest again after financial recovery that might take years.
PAYING EXTREMEY HIGH WAGES
This mistake is committed by newbies. They think that when they offer managers or business consultants salaries higher than the market, they become highly likely to succeed early.
Abdulkareem, a 29-year-old entrepreneur based in Jeddah, started a small enterprise in the field of perfumes. He hired a part-time consultant and paid him USD 11,000 a month. The consultant proved useless.
“I hired the marketing and sales consultant in my third year in the business to boost the revenues. I paid big money to see tangible results. After one year, nothing changed. On the contrary, the consultant convinced me to take steps that harmed the business. He was a burden or let’s say a liability. He was good at making presentations; that’s all he could do for me. Sales dropped and I couldn’t cover my expenses!,” Abdulkareem talked sadly about his experience.
“I fired the consultant and returned to the roots. I restructured the business again and things improved. I knew the secrets of expansion and growth: good location, competitive/ affordable prices and bonuses for employees based on their performance. Investing in employees yields the highest profits. Theorizing about the business without measurable results and effective strategy that is translated into action plans is impotent,” he added.
Ineffective headhunting for high positions leads to financial attrition and other sales and marketing problems. Some entrepreneurs bet on the wrong person/ people and pay a high price in the end.
Rashed, an entrepreneur, who started his small business in the field of confectionary, faced financial problems not because of the lack of money. On the contrary, he got a bank loan more that his fresh business needs based on a feasibility study that lacks financial accuracy.
In the first two years, the sales predictions didn't match reality, a matter that led to more liabilities.
"Because I received funds much bigger that business needs, I had to pay higher interest to the bank. A considerable amount of the profits was dedicated to repay the loan. It was money I didn't need and couldn't return to the bank,” said Rashed.
On the other hand, lack of funds could negatively affect the execution of basic business plans. There is no perfect formula for funding. Sometimes, external factor such as inflating raw material prices or sudden increases in operational costs (taxes, fees, etc.) can derail financial plans.
MISUSE OF GOVERNMENT SUBSIDIES & TAX EVASION
"After the outbreak of Covid-19, the Saudi government provided financial aid for companies to retain their Saudi employees. Some entrepreneurs try to outsmart the government by misusing government funds or playing with tax records. They believe they can run away with their violations. However, the digitalization of all corporate transactions has helped the government agencies to track the fate of subsidies and hold businesses responsible for their wrong actions,” said business analyst Kareem Yousef.
The lack of transparency might lead to business closure. Manipulating public funds that are given to entrepreneurs is considered corruption. The Saudi government is becoming more and more intolerant of corrupt practices. Hefty fines are imposed to the extent that the business is torpedoed.
Cost management is one of the most crucial aspect of business. Consumers look for value in exchange of the services and goods they buy. Exaggerated prices without justification results in abstinence and looking for other providers.
"The pricing issue is problematic. The problem comes from ignorance; you don't know who your customers are or you can't produce goods or services at reasonable prices for multiple reasons including failure of cost management, not addressing the right customer base and lack of knowledge of market dynamics,” said Hamza, a Saudi entrepreneur in his late thirties.
"I have a kabsa (chicken/meat and rice) restaurant. This dish, kabsa, is popular and affordable for all citizens and expats. I invested too much in the decoration and tried to upgrade the kabsa experience, and introduced a higher pricing system. I discovered later that more than a half of my customers belong to the working classes due to affordability. I lowered the price to save my business and it took me a while to make profits. In my other branches, I invested less in decoration and branding, and things are much better now. Hygiene, good taste and affordable prices suit kabsa restaurants more than luxury decoration! I thought I came up with something totally new,” he added.
The mistakes mentioned above are not the only ones entrepreneurs commit in their investment journey. However, they are the main ones.
"Success factors vary from one entrepreneur to another. Knowing the exact needs of your customers will save you from making mistake. However, luck plays a role sometimes,” concluded business analyst Kareem Yousef.