BORING BUSINESSES ARE
BORING BUSINESSES ARE GOOD BUSINESSA Silver Tsunami is on the way, says Ryan Cohen, co-founder and Chief Relationship Officer, Merchant Capital, and Africa’syoung entrepreneurs have opportunities to take over established businesses. Bakeries and laundries might be “boring”,but they can attract capital based on their record.models are uncomplicated, they’re tried and tested. In your neighbourhood, whatdo you have? You’ve got a pharmacy, you’ve got a pet store, you’ve got a hardwarestore, you’ve got a fuel station — now these businesses aren’t cutting edge butthey’re essential and often they are very successful.”Boring businesses tend to be in the same place for a long time; they becomea fixture in the community. “For the incumbent it is a real opportunity and for theguy who is looking for the next opportunity it is slightly more difficult,” notes Ryan.However, if these boring businesses, which have been providing essential servicesfor many years start becoming available to a new generation of entrepreneurs asthe Silver Tsunami grows then, “There is a huge opportunity of boring businessesthat are available for young, ambitious people to buy into or to take over and givingthemselves an opportunity to become entrepreneurs.”Ryan Cohen, co-founder and Chief Relationship Officer, Merchant Capital.An interesting trend in business ownership that has been identified in the UnitedStates could be relevant to the local markets. And Merchant Capital, which offersfunding to small and medium enterprises, has spotted the trend and is acting on it.In the course of a Zoom conversation with The Journal of African Business,Ryan Cohen, co-founder and Chief Relationship Officer, Merchant Capital,referenced a “Silver Tsunami”, a concept which he says caused the penny to“properly” drop for him as a provider of business finance. His research uncoveredthe fact that millions of US business owners are coming up for retirement:2.3-million business owners over the age of 60 who are responsible for employingabout 25-million people.A second trend which Ryan has identified is also relevant here: the importance of“boring” businesses. By boring, he means businesses that supply the basic productsand services that communities need.“These guys are actually the backbone to the economy, the businesses thatprovide essential goods and services,” he notes. “More often than not their businessFinancing factorsTime in business is an important input regarding business finance. These businessesare often highly profitable and because they have been managed by seasonedprofessionals they have stable foundations with established operations, making iteasier to forecast future performance. Cohen mentioned that on average buying anexisting business can cost up to 40% less than starting one. With a trading history,it is far easier for established businesses to apply for the working capital or fundingthey need to grow the business.Ryan says, “We refer to our value proposition as asset-free, so it is unsecured.The process is very quick, simple and easy. These business owners are often timepoorand may not have the ability to put together long complicated documents.Process approval and funding time happens in less than 48 hours. One of the otherkey benefits is that repayment fluctuates in line with businesses’ turnover. That isthe combination of the unique selling propositions of this offering.”Managing Merchant Capital’s risk profile is based on the company’s“really strong credit know-how and understanding that relate to SMEbusinesses”. That experience goes back to 2012 and includes deploying aboutR10-billion to close to 50 000 businesses. The funder’s deal size range isbetween R250 000 and R5-million.The grey dividendThe other side of the Silver Tsunami is that grey hair can sometimes be a goodthing in an entrepreneur. Someone who has worked in a bakery for decadesis likely to have a good understanding of what it takes to run a bakery.Notes Ryan, “I am generalising here, but people who are 40 and up, based on theexperience that they have and the fact that they are bumping their heads less, thechance for success is certainly greater.”The old adage about not being able to buy experience applies. Ryan adds,“You need to have seen a movie in order to make a better decision the next time32
SME FUNDINGit presents itself. It can be countered in younger business owners when there isa strong mentorship and let’s call it grey hair or access to grey hair. In someinstances, that’s not available so the propensity for success may be less. But witholder business owners in many respects, they are the grey hair.”Boring benefitsGiven that Merchant Capital’s model is partly based on turnover, it’s easy tosee how the concept of “boring” businesses has traction. Remarks Ryan, “Thekey benefit to a boring business is the fact that there’s stability and there ispredictability from a customer perspective and customers translate into revenue.You have a predictable revenue stream going through the till on a monthly basis.There is often lower completion in a particular area and that means higher andmore consistent margins.These businesses are also resilient. A practical example of being stress tested wasduring Covid. A lot of these boring businesses were deemed essential and were ableto navigate and trade through this period, and they are well enough positioned totake advantage of opportunities when times are good.”And it is these businesses which are coming up for renewal, and not only in theUS. Ryan states, “In South Africa there are about six-million people who are overthe age of 60. A percentage of those people are business owners and a percentage ofthe children of those business owners will want to pursue other careers. But whatif in that community there is a young industrious person who says to themselves,I could add operational efficiency through tech and upgrading of customer serviceto it and eek out higher margins and a better return. All of a sudden it becomes aninteresting opportunity for older business owners to sell out, get the cash that theyneed, and you’ve got new young blood in the business.”The younger owners bring the “ingenuity that comes with youth and energy”,together with ambition. Ryan relishes the story of the owners of a small tuckshopin Mamelodi who approached Merchant Capital for a small loan about ten yearsago. As Ryan reports, “The last advance we gave him was about R750 000 and heruns a liquor store, a bar and a restaurant. Now he is building accommodation!”Stories like that inspire Ryan. As he says, “This ingenuity is such a powerful thingbut if you don’t have the working capital and the know-how as to where to get it, youare left sitting with this genius that is just nascent and stuck. Being able to unlockthat is why I get out of bed.”The bigger picture includes the role of SMEs in the broader economy,“the lifeblood of the economy”, as Ryan describes it. He states, “If we are to havea successful and active SME layer to the country, the economy can thrive, newbusinesses will open, more people will be employed, and we need that badly.We wake up every day to serve the entrepreneur and anything that we can doat Merchant Capital to help this sector for the greater good of themselves,potential staff and the economy that’s what we want to do.”Scaling up a butchery to become a Shisanyama, a venue for barbecuing meat, or creating afully-fledged restaurant are options for new owners taking on an established business.Providing what communities need is a good basis for a solid business.PHOTO: SA Tourism/Flickr | PHOTO: 5M2T33
