An inspiring story about entrepreneurship is that of the launch of WhatsApp. It was founded by Brian Acton and Jan Koum, former employees of Yahoo!
In January 2009, after purchasing an iPhone and realizing the potential of the app industry on the App Store, Koum and Acton began discussing a new type of messaging app that would display “statuses next to individual names of persons ”. However, instant success did not come by itself. When WhatsApp was first made public, it was very unpopular. The product had a very limited number of users and was constantly crashing.
Their luck seemed to turn out when Apple released push notifications that allowed WhatsApp to notify users once they have received a message.
Improvements on the app
The app has been adapted to become an instant messaging app where users send messages to contacts around the world at no cost. The SMS-like functionality has attracted attention and WhatsApp the popularity and user base started to grow.
Since 2009, WhatsApp has continued to grow and over the past 10 years the app’s success has exploded, with 1.5 billion active users. The app is used in 180 countries and is the largest of all messaging networks.
In 2014, Mark Zuckerberg acquired WhatsApp by Koum and Acton for the price of $ 19 billion.
the WhatsApp The story is an inspiration to several innovators around the world and provides insight into how some of the great companies around the world started small. Here are some ideas of small businesses that can also grow into large companies;
In this article, Piggy focuses on the different types of businesses that can be started. This includes an (i) individual entrepreneur, (ii) a partnership and (iii) a company (private / public).
Sole Proprietorships are self-employed individuals who focus on a specific area such as plumbing, carpentry, and hairdressing. In addition, most freelancers such as photographers, designers and artists opt for this business structure. An individual business structure, with its ease of setting up and full control, makes it an attractive business structure.
Control and Decision Making: The main advantage of being an individual entrepreneur is that you are your own boss and can dictate the direction of the business.
As an independent entrepreneur, you will be able to run your business as you wish. This is perhaps one of the main reasons people quit their jobs to start their own businesses.
An individual entrepreneur has more freedom in decision making compared to a partnership structure, for example.
Retain All Profits: An individual entrepreneur retains all of the after-tax profits of the business. It is not necessary to split or distribute dividends to shareholders.
Easy to set up and low start-up costs: The process of setting up a sole proprietorship is much simpler and simpler than setting up a limited company.
There are of course also some disadvantages to starting a business as an individual entrepreneur.
Unlimited Liability: Essentially, an individual entrepreneur and his business are the same. All commercial actions and debts are the responsibility of the owner. There is no protection of personal finances and assets, therefore, being an individual entrepreneur can be more financially risky.
Less attractive to customers: Limited companies have a certain prestige that independent traders do not. This prestige can help attract investors and clients as well as create a professional image of the company. As an individual entrepreneur, it will be difficult to create that big business image that public companies have.
Difficult to obtain financing: As independent traders are considered riskier than other business structures, they are less likely to obtain financing from traditional sources such as banks.
A partnership is a type of business structure in which two or more people pool their investments and knowledge to create a business. Like an individual trader, each partner would reap the benefits and rewards of the business, but would also be responsible for the liabilities and losses.
Three types of partnerships are to be considered:
General partnership (GP)
All the associates of a GP are involved in the day-to-day decisions and management of the business. The partners are personally liable for the debts of the business and share the profits according to their ownership.
Limited Partnership (LP)
Some partners will be general partners in accordance with the above and the other partners will be limited partners, which means that their personal property is protected from the actions of the company and the general partners.
Limited Liability Company (LLP)
All partners are protected by the limited liability status, thus not putting their personal assets at risk if creditors demand payments.
Benefits of a partnership
A general partnership has low start-up costs and minimal administration;
Being able to divide profits can be tax advantageous;
The business affairs of the general partnership are confidential; and
Share the burden of running a business.
Disadvantages of a partnership
A general partnership has unlimited liability;
Risk of disagreements between partners;
Partners joining or leaving will require a valuation of the assets of the partnership, which could lead to additional costs with the accountant; and
Unlimited liability and limited capital can hamper the growth of the business in the future.
Limited liability company
A limited liability company is the most common form of incorporation in different economies. It has a separate legal entity from its shareholders and directors. This means that personal assets are not threatened because the risk is limited to their investment. The responsibility of the administrator would be engaged only in the event of fraudulent or abusive operation.
Liability is limited to the investment made in the company
Directors are not bound by the minimum wage, therefore benefiting from tax advantages
Improved reputation and credibility
Company name cannot be used by anyone else
Incorporation fees payable
Annual accounts and tax returns must be submitted to regulatory bodies
A public limited company is registered under the Companies Act and its shares can be bought and sold on the stock exchange. Each scholarship has its own registration requirements that must be met.
Being able to raise capital by issuing public shares
Shareholders can sell their shares or buy more
More credibility and professionalism
- More regulations to follow
- Full transparency required for shareholders and investors
- Accounts should be audited on an annual basis by a qualified auditor, which will incur additional costs
Chapter 5 of the Investor’s Handbook 101 covers the different types of businesses that can be set up in Zimbabwe. Download a copy of the book at www.piggybankadvisor.com
Matsika is Head of Research at Morgan & Co and Founder of piggybankadvisor.com. – batanai @ morganzim.com / batanai @ piggybankadvisor.com or +263 783 584 745.