TIGblogs - David

DANGOTE’S SECRETS
How to make money
By Mike Awoyinfa and Dimgba Igwe
Saturday, February 3, 2007
•Dangote
Photo: Sun News Publishing

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He is a money-spinning machine—a man who wins lottery everyday! He has been called “Nigeria’s richest man,” a man whose financial worth has been put conservatively at $4 billion, making Aliko Dangote probably the richest man in Africa’s richest country.

Everyday the Dangote business jackpot rings, the sound is loud enough to make King Croesus the fabled richest man ever, turn green with envy.

In Nigeria the name Dangote has become a brand that means many things, from rice to sugar to cement. The list goes on and on. Currently, his pet project is building a super factory where raw sugar would be refined.

On November 16, 2006, he went to the Stock Exchange to seek three billion shares from the public and before he could blink his eye, the project had been oversubscribed reportedly by over 300% and over N54 billion had landed in his pocket as part of the N180 billion sugar refinery project which is projected to be the biggest in Africa, second only to Brazil—the world’s leading sugar producer.

Dangote’s world is a sweet world of money, money, money. By his own admission, he makes a daily turnover of N300 million. And that is only in the sale of sugar. With N300 million, you could live a lifetime of affluence. But for Dangote, N300 million is just chicken feed. A drop in his ocean of affluence.
Mention Dangote and what comes into the mind is the man who owns Benue Cement put at $1 billion and Obajana Cement in Kogi put at $2.5 billion. Then there are other businesses like Dangote Textiles, Dansa Food Limited, Executive Jets Limited and an oil bloc to crown it all.

Aliko Dangote makes money with the ease of Michael Jordan defying laws of gravitas. For him, money making has become so routine that it has ceased to excite him. What really excites him these days, he says, is when he creates the opportunity for others to make millions.

He told us recently during a meeting at his posh but modest home in Victoria Island district of Lagos: “In Benue Cement, we have created over 4,000 millionaires. Because people that had bought N3.50k shares at N6.50k, some of them have sold the shares at N45.
“At a point, people that invested N100 million in Benue, they came out with a profit of N1.4 billion. So if you have invested N10 million, you might have made about N140 million. This is the kind of thing that people would now, when somebody wants to mess you up, they can rise against any such person and say: ‘Don’t touch this person.’

“Making money right now means something to me but not very much, in the sense that what I enjoy doing now is wealth creation than just making money. Because it would reach a point where what really gives you satisfaction is how many people you have given employment to, how many people depend on you, that if something happens to you, they are in trouble. This one would give you a lot of joy.”
In two of our books, 50 NIGERIA’S CORPORATE STRATEGISTS and NIGERIA’S MARKETING MEMOIRS, we missed the opportunity of interviewing this rich, humble man and sharing in his secrets of business success. Now, when the opportunity came, we seized it firmly with both hands. He had only 45 minutes to share with us. But within that limited time, we were able to distill what can be called the essential Dangote business credo. Here are 10 of them:

1) Manufacture something. Don’t just trade.
Dangote says: “The biggest move where our organization moved at a supersonic speed was when we moved from trading to manufacturing. We thought trading would give the most money. But honestly, trading doesn’t give money. There is more money in manufacturing. When many people understand, I am sure they would try and move into manufacturing. There is more money in there, but industry also has a lot of risk.

The risks were more then when we started. Right now, they are actually mitigated because government don’t rampantly come and change laws. They have been stable. Exchange rate has been stable. And that is what you need. In the eighties, we brought in goods, but the exchange rate moved dramatically from six or seven naira to twenty-one naira per dollar. And also during Abacha’s time from that twenty-one when they cancelled the different exchange rate to eighty-something. So you could see that the risks were there. Right now there are less risks. Policies are spelt out and government don’t really always come out and say: ‘Okay, we have changed this, we have changed that.’ Right now, you want to go and borrow money outside Nigeria, you can do so because they have given a band of three percent maximum up, three percent maximum down. So you can’t lose. You know your worse case scenario and you can work on your worse case scenario. If it gives you a good margin, you work on it, if it doesn’t give you a good margin, you say, ‘no, I am not going to go with this.’

“When we went into manufacturing, we started with salt. We went into building eleven factories at the same time. We had a lot of cash. We didn’t have any teething problem, because we went into goods that we were already importing and trading on. We didn’t really create something new. We were importing pasta, so we produced pasta. For us, it was just to convince the consumers or the Nigerian public that the one we are producing here is as good as the one we were importing. And also to hide under that name Dangote, because it is a very good brand.

That is why whatever we sell today under the brand, it sells very well. We were importing sugar, so we decided to manufacture sugar. That is what we did.
The major reason why we shifted was that we realized that we had actually reached the end of the road, because if you are going to import say rice, you would be crazy to go and import ten ships. Because people would only consume what they need. And it was really difficult for us to turn around our money. Because at the end of the day, we look at the whole thing and asked: How much capital did we invest? And how much return do we have on that capital? If we have maybe ten billion naira, there is a limit to what we can turn around, because we won’t go and buy ten billion naira goods at once. If you go and buy ten billion naira worth of sugar, rice and all these, people would not just go and buy these things from you.

If the market consumption is ten ships in a year, you cannot go and bring twenty ships and expect to sell all of it. We realized that we had more cash than we needed for that trading business. We were not able to turn around our money more than one-and-a-half times in a year. And that is very bad. So we needed to find form for the excess cash that we had. Once you are a trader, it is difficult for you to go into industry. Because in industry, when you sink money, you don’t even see anything for four, five years. And this is a society where interest rate was about forty, fifty and even sixty percent at the time. So it was difficult to go and borrow money and do an industry.

But we were lucky we had a lot of cash and we had good support and established good rapport with our bankers. So what we did was to build eleven factories. Fortunately for us, everything worked out fine because our goods were accepted by the market. They were all accepted at that time. And it gives us a lot of hope. When we used to import EEC sugar and Brazilian sugar, people weren’t buying the EEC sugar at all. Everybody went for the Brazilian sugar. It was what was accepted in the market. The EEC sugar was much, much refined but it did not outsell the Brazilian sugar. The people who sell sugar in the market sell by measure, by weight.

So they would never touch European sugar. They touched always Brazilian sugar. We thought over this and when we started producing local sugar, our challenge was how to convince the market that our sugar is better than Brazilian sugar which is the biggest in the world in terms of sugar production. But we took the risk. And we were lucky. Within four, five months, our sugar started selling at a premium than the imported Brazilian sugar. That’s how we broke into the sugar market in Nigeria. That’s how we did it. Otherwise today, we would not be able to have a turnover of N300 million per day on sugar. It would have been almost impossible. But it’s one of the success stories that we have. And our distributors have really helped us quite a lot. Because they are the one doing the marketing. We don’t have branches. The only few branches we have is just to market and monitor what they are doing. But they supported us all through. There is nothing that we have done that they have not supported us. Our story is a success story.”

2) Build a brand and don’t destroy it
“We didn’t create a brand until 1981 or so. We have built this brand for 24, 25 years—and we have never had any accident. When I say accident it means bringing a bad quality product under that brand. Nigeria is a brand conscious market. If today you go and remove my bags of sugar and you put in Dimgba or Awoyinfa’s brand, you won’t be able to sell. Even if I put my name on newspaper, I would sell more than some newspapers. The secret of this brand is that we give good service to the customers, we make sure that the product is very good. Any time we go out, we make sure that we put in the best quality of any product—whether it’s rice or sugar. Even with sugar, we never really cut corners.”

3) Sell cheap, give quality and don’t kill the competition
“We make sure that we make our money on volume business. We never really want to charge a higher price. People often say that wherever we go, we kill the competition. It is not about killing our competitors, but that we want to make money. If we are big, if I have one million bags of any product to sell—because we are big in terms of size—and you have only 50,000, why do I want to kill you? Because I have one million and you have only 50,000. So if I drop ten naira per bag, you only lose ten naira for the 50,000 bags. I will lose ten naira times one million.

I can make ten naira and survive also and make good margin, you cannot make ten naira and survive because you have a lower quantity than me. And the customers that you have, we don’t have that customer base. So majority of these things, we try as much as possible to have affordable prices, quality product with presentable packaging. You have to package a product well before you can give it to consumers. And these are things that we really work so hard on. There is never a time somebody would come and pay for goods and the goods are not available. We have created that confidence in people’s minds that this is the right company to deal with. And that has helped us quite a lot. And that is why I say that today, it’s not the same. It is not easy. Once somebody wants to now come and start something. It doesn’t work like that. You cannot just come and take over the market. You can try, but if the market is tough, that is when you know who the big guys are and who the smaller guys are.

4) Start small
“There are certain businesses you wouldn’t like to do because your name is So-and-So. And this has happened to a lot of my relatives who will see a small business where they can make money but they would not do it. Instead they may say something like: My name is Dangote. Or my name is Dantata, this kind of business is too small, I am not going to get myself involved. And once you start having those kinds of ideas, it is very difficult for you to make inroads. Because you have to start from somewhere. No business is too small to do. As they say, Rome was not built in a day.

For me, I started as small as a trader in cement. Then I left cement around 1978. Because there was this armada and cement was very difficult to get at that time. I had my own money which my grandfather gave me free, but then he gave me also an additional loan of 500,000 naira which was big money in those days. With 500,000 naira in those days, you could buy yourself ten Mercedes Benz cars. Mercedes then was 5,000 naira. I am talking about Nigeria in the year 1978. Volkswagen Beetle was sold for 900 to 1,000 naira. It was a substantial amount of money then. It was a loan that I was supposed to pay whenever I was okay—probably after three years or four years. But I paid the money within six months.

To start with, I realized I didn’t need that much capital. Because it was during the era of cement scarcity and people would come and pay us and tell us: ‘We would wait for six months. Just guarantee me you would give me when you have it.’ An average deposit was three months to four months. So, people would now come and pay. So I realized that was the only business I was doing and I didn’t need capital, because people were paying me well in advance. At that time, when you had one truck of cement alone, your profit was almost 1,400 naira. With that you could buy a Lada car in those days and still put a change in your pocket. That was for one truck. And I was getting about four trucks every day. So my income was sort of like I was making money for one Mercedes Benz every day. That was quite a huge amount of money. I started with a bit of hard work and luck.”

5) Have connections and pray for a big break
I had an uncle who was in cement business at that time. He was one of the nominated agents. You know it was controlled by government at that time. And you had names like Yinka Folawiyo, Dantata Holdings in the business. So I was getting allocations from Dantata. I bought once in a while from Yinka Folawiyo through an agent. We did also a lot of business during President Shehu Shagari’s time. But the problem at that time was that it was an import license era. You had to be well-connected but I wasn’t really up to that level of being well-connected. Obviously there were people who had license but didn’t know what to do with it. So we normally take over their company, open a letter of credit under their company and then import the goods. So we had to buy over the company, because the license was not transferable. So we started with that. One of the biggest breaks that we had was when Buhari came into power.

Majority of the people who were actually in business at that time, a couple of them went to prison. So there were very few importers. Because the import business was mainly done by few people here and majority of them were from the north. We were importing commodities—mainly sugar, rice and stuff like that. During Buhari’s government there was controlled pricing. And majority of the people that got involved with this Presidential Task Force on rice issues and whatever, almost everybody went to jail, apart from myself and an uncle of mine. But he too lost a ship of his rice. We did quite well at that time. And we continued to do well when Gen. Babangida came in and liberalized the whole thing by canceling all import licenses.

When they cancelled the import license, we were lucky because we had been keeping our money, we did not embezzle money, and we worked so hard to make sure that we use that cash we had to leverage in terms of our imports. We started importing two, three, four ships at a time. First of all, there weren’t too many players at the time. Secondly, we didn’t need that import license anymore. Because it was the biggest barrier. Even when you had the money then, you couldn’t import. So we had a big break. Any serious person had a big break at that time, because there was no barrier in terms of entry. The entry then was that even if you had the money, you didn’t have the import license. But now, they took the import license in 1986 and that gave us a really good break.

6) Believe that there is money to be made in Nigeria
The best business advice I ever got was from Mr. Felix Ohiwerei, the former managing director of Nigerian Breweries. I remember one day we had a retreat, when we really wanted to move into industry. And we invited Ohiwerei and he was telling us that the potentials in Nigeria are too great. That we have not even scratched the surface. And I took that one up as a challenge that in Nigeria the potentials are great, we would hammer on those potentials to make sure that we achieve them. But going to Brazil also, I took an advice from a company called Arisco.

It was somebody that started just before they changed their currency. And he was telling me how difficult their environment was. But he said that when things started working out fine, they just found that all of them they became billionaires in dollars overnight. During their era of hyper inflation, prices were changing per second. If you queued up to buy something, by the time the man queuing behind you wants to buy in the same shop, prices may have changed to a higher price all in a matter of seconds. All their computers were connected to the banks, because prices were changing every second. They had about 1,500 percent inflation. So when I see the kind of challenges that they had and how they overcame it, I find that in Nigeria we don’t have these challenges. We were ready to work.

7) All work and less play makes Jack a rich man
I believe in hard work. Hard work is the key to success in life. Once you are ready to work and you are consistent, you would make money. The other point is that people are making a lot of mistakes. Two things don’t go together. Enjoyment and money-making. These things don’t work together. You must choose one. And follow that one aggressively. You must reach a point before you start that enjoyment. These two things don’t go together at all. For anybody who wants to enjoy himself too much: going to parties, buying this one, buying that one, impressing the society people—let me not say girls—and you want to also work hard and make money, they don’t work together. You make sure you give up one and concentrate on one.

8) Give back to those who made you
“Making money right now means something to me but not very much, in the sense that what I enjoy doing now is wealth creation than just making money. Because it would reach a point where what really gives you satisfaction is how many people you have given employment to, how many people depend on you, that if something happens to you, they are in trouble. This one would give you a lot of joy. For example in Benue Cement, we have created over 4,000 millionaires. Because people that had bought shares at N3.50k, some of them have sold the shares at N45. At a point, people that invested N100 million in Benue, they came out with a profit of N1.4 billion. So if you have invested N10 million, you might have made about N140 million. This is the kind of thing that people would now, when somebody wants to mess you up they can rise against any such person and say: “Don’t touch this person.” Because you mean a lot to the society. We have a lot of programmes we want to implement. Programmes like taking over some few hospitals. We would be doing a lot of foundation work. Because we believe we have to pay a lot back to what we got from the society.”

9) Obey the laws of Nigeria
“The person I truly see as my father is my late grandfather, Sanusi Dantata. I learnt a lot from his hard work, from his simplicity. People always talk about my humility but nothing can compare with him. When you see him you would think he doesn’t have anything. But he used to be one of the richest people in the north. His humility is the type I have never seen anywhere. He was a very humble person. He never looked down on anybody. He is always a respecter of authority. He always advises us that: No matter what you do, you must always respect the authority of the day. Do not fight government. You must be an obedient person. And that’s something I learnt and took seriously.”

10) Have business in your blood
“I inherited my business skills from my grandfather. They were also business people—the Dantatas. Having come from a rich family doesn’t give you an automatic license to riches. You just have to create your own idea and work hard. I have never seen any Nigerian that has really made money from inheritance. It is very, very difficult. And that is why I would always encourage my own children to work very hard. Especially when it comes to making their own money. I am not saying that they shouldn’t rely on the fact that yes, they come from a rich home. But sometimes, it can be a great disadvantage.”