Mid last year, Guardian Health Pharmacy raised capital through private equity funding. Although Anthony, the Managing Director made it clear that he wasn't at "liberty to divulge the details", our sources revealed that it was in the region of $3 Million for a controlling stake.
Prior to this investment, the fund - which preferred not to be mentioned - had approached Anthony Natif, the founder and Managing Director of the pharmaceutical chain in 2015. However, at that time, the business was running just fine and he didn't see the need for a partner.
Founded in early 2013, Guardian Pharmacy, which aims to be “Your neighbourhood Pharmacy of Choice” embarked on a rapid expansion with the aim of having a pharmacy in all the upmarket suburbs of Kampala by the end of 2016. They, however, faced serious cash-flow problems stemming from their aggressive expansion.
According to Anthony, this expansion wasn’t well thought through at that time and in there, he says, lies a lesson for entrepreneurs. Especially those looking to scale their businesses.
After running out of cash flow, he was forced to go back and knock on the door of the very people he had turned away, previously. And, luckily enough, after six months of due diligence, he secured an investment from them.
In this interview, Anthony details all the mistakes he made prior to the investment from a private equity fund, the lessons he learned and also has a message for entrepreneurs at the end.
Startup Digest Africa: You previously turned down a funder, but again re-approached them. Tell me about that.
Anthony Natif: I wish we had taken them on back in 2015. Because we would be very far. They've been fantastic. They've really helped me. In 2015, we were doing very good in terms of turnover. And, we were making good money. Well, at least we thought we were. So, we felt that from that money we could easily finance our growth.
As a growing company, it is very easy to lose sight of your bottom line and instead put more emphasis on volume of sales. The amount of money you’re putting in the bank blinds you and you start thinking that all that money is your money. And then you pick that money and use it for expansion, that's what we did.
In 2015 we were doing very well, the fund came in and we signed a letter of intent and didn't bother following up. Then 2016 we get on an expansion drive and things started going south then we are like oh, we need this investor.
SDA: Was the cause the rigorous expansion?
Anthony Natif: Yes! We probably had opened 11 stores in Kampala alone. We have had to temporarily put some on hold. Which is now where that technical expertise comes in from. And the financial discipline.
SDA: Are you still in Kampala alone?
Anthony Natif: We are in Jinja and also going to Mbarara. We already have a pharmacy in Jinja on Main street. Hopefully, we will get to the Eastern part of Uganda and the Northern. We want to be in 10 main districts.
SDA: Is that by close of Next year?
Anthony Natif: We haven't yet put a clear timeline. But I think we shall have 35 stores in the next 2 years.
SDA: How does it feel to know that you're waking up but the challenge is not the cash for expansion, rather how to expand?
Anthony Natif: It is a relief. Because now you have a partner who has your back. When you're in a single founder company, you get tempted to think "I make all the decisions, I have all the freedom." But, you can not have freedom when you have all the worry of all supplier debt. You have the worry of, "I need to make the payroll, how do I make the payroll and then still expand?"
So, you know those challenges. You never sleep. There was a time I used to sleep for only 3 hours. Because you're constantly worried about your people's next paycheck. You mortgage everything you have to make sure your dream comes to fruition. But then this partner comes on board and says "well, I believe in you. I believe in what you're trying to build. Let's do this together." It's such a relief!
SDA: How much did they bring on board?
Anthony Natif: I am not at liberty to divulge that. But it's significant, it's really significant and they are willing to back us with insane amounts of money if it makes business sense and we think it does make business sense. But more than just making business sense, it helps the society in which we live, tremendously.
SDA: Did you retain control or you lost it?
Anthony Natif: You see, now, that control question is what stops a lot of people from considering say private equity or getting partners on board. Because they're so obsessed with staying in control.
But, what point is it for you to have all of something so small as opposed to having a bit of something really huge. Something that's going to reach millions of people. Which would you choose?
I would rather lose control but see my dream come true. And still, economically, it makes more sense. If you own 10% of a $30 Million company, as opposed to having 100% of a $100,000 company. Which would you take?
Control is overrated, help is what you need. Then you grow together. I hope your readers and budding entrepreneurs realize that control means owning all the stress. Spread it out. Let someone help you out with that load.
SDA: Is it control that made you turn down the first offer they came with?
Anthony Natif: Not really. I hadn't paid much attention to private equity, quite frankly. But then that first encounter with our partners got me curious. So I read about it a bit. The need for money, I didn't think it was there. And that's partly because I never paid attention to my bottom line. I was paying more attention to what we were putting in the bank.
Back then; our expansion wasn't informed by clear financial analysis as it is these days with my partners onboard. You start thinking, if I am turning over x billion shillings, why would I need someone to give me more money? I already have enough money. So, I suppose part of my refusal wasn’t the loss of control per se but it was largely down to not properly having systems in place to help inform our decisions to expand.
And, another part was fear of the unknown. You don't know what's going to happen. And, you just don't take it up. Which is a really stupid decision that I made. But at least, I can live to smile about it. Other people don't. Their companies don't survive that expansion.
SDA: Have you interacted with people that refused to take this route and things go South?
Anthony Natif: Yeah. Several. Of course, I am not at liberty to tell you. But there are some in the pharma area.
I have friends who have turned this down and I think they are regretting. And it is sad because these are smart people, but growth is expensive. You can't just grow organically if you want to be at the cutting edge of innovation in any industry. You need some external funding. It is a natural thing; you want to have control of your company. You look at it like your baby.
SDA: You recommend that one brings in an investor or partner when the curve is going up but it is hard to know when the curve is going to go down. So at what point do you tell that the curve is going down or about to?
Anthony Natif: It is very hard to know when the curve is going down. And, I think your question is when do you know that it is the right time.
SDA: Yes. Is there a time when it is too early when it is too late?
Anthony Natif: Yeah. Because you're lost in there, and not looking at your business from an outsider’s perspective. So, you are the last person to realize that the business is going down. You need to have people you disagree with as part of the team.
People who challenge your thinking. People who are pessimistic. As an entrepreneur, you're all adrenaline pumped. You have a goal you want to get to and you'll do whatever it takes to reach that goal. Even ignore risks.
So, you want people in there who'll point out these risks to you. Pay those people well and listen to them. Those same people will be advising you on the health of the business.
SDA: So, these people you're talking about, are they employees, board members or just shareholders?
Anthony Natif: All the above. But it is important to have a board. It keeps you the entrepreneur in check.
SDA: Did you have one at that time?
Anthony Natif: No, I was the last voice. And when you run the analysis of a lot of these companies that we think are doing really well, the SMEs that are growing very fast, you'll find they don't have that corporate governance structure in place.
They are relying on the founder to drive growth. To be the guy who approves numbers because part of the money that runs the company is coming from this guy's pockets. So he feels he has a right to everything and every decision.
When you have a board in place, benefits from that are immense. They keep you focused. But remember you're also part of the board. So you have a chance to push back. It is not that the board dictates what you do. It provides you with guidance. Invaluable guidance.
SDA: But how important is the timing you talked about? Before the curve starts going down.
Anthony Natif: Let me tell you something as an entrepreneur, timing is very important. If you make a decision to grow your company beyond just subsistence, you need to get the timing right.
At what point do you bring an investor on board. Often times we wait until stuff is going awry in terms of our cash flows and then we panic and try to get an investor on board. Yet, what I have learnt is that the best time to get an investor on board is when your curve is looking up. It becomes much easier to sell your story.
You get more funding and there's no need for a turnaround. You also get a better valuation of your business.
So, if you're in a business like Pharma, like how we are, we think about footprint like what's your spread? That'll factor into your valuation. But then ultimately, the main point of valuation is going to be how much you have in profitability.
If you use a lot of your working capital to expand, that may be good but then it is eating up your profitability. Every time you open a new store you're going to take up to 6 months before you start seeing its promise to turn a profit.
So then if you have spread out so thin, you've exhausted your working capital and you're not a consultant, you're in the business of selling products. You're not gonna have products, so you won't have good numbers.
But, you already have an asset, which is the footprint. Yet, when you're getting an investor onboard at that time, you're selling yourself short because the investor is getting the upside of your spread. But using your lack of profitability to drive down valuation. This, I’ve seen in many businesses.
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SDA: Talking about expansion, earlier on you talked about expansion that wasn't well thought out. How is it valuable that one stays focused?
Anthony Natif: If you don't have the information that guides your expansion, you are running blind. If you're running blind, there's a chance you'll finish a race without a problem. But there's also a chance you're gonna run into a stray boda-boda or a wall.
So, at the base of every business should be data and information. Get as much as you can and make sure any decision that pertains to your business is informed by data.
SDA: So, was there times when you were expanding by just waking up and feel like you can go to a new location?
Anthony Natif: I was expanding by intuition. I wasn't running any numbers. Though there was a certain formula to our madness. We would look at these mobile money companies and ask for towns where they had the most mobile money transactions. We would go there. Because there, that's where we thought the most action was.
Traditionally you'd look at where there are most surrounding hospitals, homesteads and stuff like that. It was rudimentary but still, we had some information.
SDA: Apart from the fact that you were running out of operating capital, is there any location that turned out to be a wrong target?
Anthony Natif: No. All of our stores are in very good locations.
SDA: So, was it just an issue of not paying attention to the bottom line?
Anthony Natif: Yes. You're expanding without paying attention to what you're going to use to fund that expansion.
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SDA: You talked about expanding to other districts in Uganda. Are there plans to expand outside Uganda?
Anthony Natif: Of course, there are other plans that we may not be able to talk about now. But we want to own the East African market. We want to be your neighbourhood pharmacists, wherever you live. We want to do to pharma, what mobile money did to money.
We want you to think about a drug and think about us. We want to give you a product that's cheaper and better quality in a timely and convenient manner, yet delivered professionally. There are no clear timelines for the expansion but that's the dream.
SDA: What's your upside in the market?
Anthony Natif: We have a very broad, smart and experienced team running the company. These guys are exposed. We are able to go all out to find the best for our clients. We source medicine from all over the western world and are able to give a client a high-quality product, cheaper.
And now we want to maintain that consistency. Build exclusivity around certain product lines, and give them to clients at prices that are mind-boggling. Our people are price sensitive.
SDA: Did Centum ever approach you?
Anthony Natif: No. But I have heard about Centum. Though they didn't approach me.
SDA: Because they came for an event at The Innovation Village last year organized by BiD Network last year. Did you attend it?
Anthony Natif: Yeah. Actually, BiD Network is the one that had got us money. Though what they got us wasn't enough. Actually, I think that companies should pay a lot of attention to BiD Network and accelerator programs like theirs. They do a fantastic job of preparing the entrepreneur for funding.
They get you to understand your business better than you could. They help you understand the importance of having clear books and also put you out there. Allowing you to pitch to high net-worth individuals.
But, the kind of money we were looking for to achieve the dream we had was bigger than we could raise from BiD Network. Though we learnt a whole lot of stuff from them and owe them a debt of gratitude for that.
I would encourage businesses to go out there and approach organizations like BiD Network and engage them. It is going to prepare them for the process of looking for capital.
SDA: Which kind of business do you recommend to go to BiD Network?
Anthony Natif: I am looking at a business that has a turn over of at least 100 million shillings a year. It may look small but for the start it is good. Then you'll learn things that will help you take your business to a whole other level.
SDA: Do they run an accelerator or mainly networking?
Anthony Natif: It is both. They have partnered with the Dutch embassy and it has these retired entrepreneurs, business leaders, big time players in several industries. I think they call themselves PUM experts. They take off time and come and donate it or help give technical expertise to budding entrepreneurs in Africa.
So BiD Network has been able to create an ecosystem around this. Where you have these guys come in and entrepreneurs come in and marry the two. Say you're in the pharma industry and you're spending time with a guy who used to run a $2 Billion pharmaceutical company.
That's huge, and this guy is not in a hurry. He helps you understand your business and is the same guy who'll hook you up with funders. It is a good thing that BiD Network is doing. We need programs like that.
SDA: Are they mainly into Angel Investment or bring in venture capital too?
Anthony Natif: They mainly bring angel investors. They helped us raise $500,000 though it wasn't going to be enough for what we were going to do. So, we couldn't take the money.
SDA: Why did you choose to go for Private Equity? Why didn't you give Venture Capital a chance?
Anthony Natif: You want peace of mind. But again, someone shouldn't just bring money to your company. They should bring you more than just money. They should protect you from yourself. As entrepreneurs, we are driven by the need to grow. We run on adrenaline
You need someone who'll check that growth. If someone just writes you a check and says, go and do what you said you were gonna do. You are going to blow that money. You need a partner who'll keep an eye on that.
SDA: So, which other partners did you look at before deciding to settle for the one you got?
Anthony Natif: My current partners are, quite frankly the best. I told you about the other fund [he preferred that we leave it out] out of Kenya that approached us, but we went with these guys because they offered the best combination of money, approachability and technical support.
It is a really good fund and they have smart people who not only care about the growth of the business but also want to have a positive impact on the communities we serve. When you get a funder who cares about the society in which you operate, that can't be replaced with money.
SDA: Which other investments have [the fund that invested in Guardian Pharmacy] they done here in Uganda?
Anthony Natif: If you have been reading the papers, they've invested in African queen, the distributors of BIC Pen, among other FMCGs. They have also invested in Chims, the mobile money giant.
SDA: Earlier on you told me that you turned down one fund but accepted these guys. Why? Who's a good investor, according to you?
Anthony Natif: Now, it has to feel right. Initially, when we talked to that other fund, it just didn’t feel right. They struck us as hardnosed capitalists who just cared about their bottom-line.
Now, with the investor we finally ended up going with, we struck a balance. They spent time understanding us as individuals, where we wanted to be, how we wanted to get there and we found alignment. The valuation wasn't brutal. Though we probably would have gotten more, I can't really complain about that because I got the best of both worlds.
And then these guys go beyond just getting you money. The question is; what are they gonna add to your business?
The guys we have now are fantastic. They bring so much technical expertise. From the financial side, they organize your company.
Now I look back and I am like what was I running before these guys came in? Things were just all over the place. Now you see certain order. If you want document X, there's document X. Of course, it is still a work in progress but there's a clear direction.
So, if an investor is coming on board and just giving you money, I don't know but I think you'll be getting the short end of the stick. You need someone with whom you align. Who brings more than just money and is going to drive you forward. Challenge you to be better as a person.
Recently, I was giving a talk at Deloitte [Uganda] and there was this young man with a very good business he has been running for over 5 years. But, he is finding it hard to separate his money from the company money.
It is a struggle we as founders face. We always treat our businesses as an extension of our lives. We've put in our money, mortgaged whatever we have, the whole nine yards to ensure our businesses are successful - it is very hard to separate ourselves from our companies. But, when you get a good investor, they'll help you achieve that.
SDA: Any last words?
Anthony Natif: To grow [a busines], you need money. Don't think you won't need money to get there. But, in a country like Uganda where you have very low levels of employment, we need to have an understanding around the growth of companies so that these companies can grow beyond the founders.
The question any entrepreneur should ask himself or herself is; how can I grow beyond subsistence and be able to employ more people? How do I own the market?
We should spend a lot of time teaching entrepreneurs what to do to make a business investable. When you get to that level, we shall see less business failure rates in this region. You'll be shocked to learn that in 2015, 10% of adult Ugandans opened a business. But then 1/5 of those between 18 and 65 closed a business.
We are the most entrepreneurial country in the world, but also, we have pretty much the highest business failure rate. Why? Because there's that gap in knowledge in how to run a business. How to grow businesses.
We need to spend a lot of time teaching our people that. And then doing these networking events, connecting them to potential funders. Potential people who'll give them expertize. Doing mentorship programs from right down in secondary schools, which will produce the future business owners. Let's be purposeful about this.