THE LESSONS OF THE NEW VISION

This week the New Vision makes 25 years. Started in 1986 as a weekly newspaper by the new NRM government, the company has grown into a multi-media behemoth (in Ugandan terms) dominating all but a few of the segments it has entered .

As of the end of the media group’s last financial year it showed a profit before tax of sh1.9b($775m) down almost 50% from the previous year, which had a lot to do with higher depreciation costs due to new investments in plant and machinery.

But the blip in financial performance is being determinedly reversed as the new assets start to throw off earnings. In half year results released recently pre-tax profits were up 63% to sh3.1b from the same period last year.

In the quarter century of its existence the group has served as a force for political, economic and social change and has exceeded its founders’ expectations in many ways. It has provided information, education and entertainment for millions of people. It has employed and provided business opportunities for thousands more. And more recently through listing on the stock exchange has served as an investment vehicle for hundreds of Ugandans

We could go on till the cows come home but my main interest is in the business model of the media group.

The New Vision as a dominant media player operating in a liberalised industry and economy, was for the first 18 years of its existence entirely government owned.

"Our experience with government owned companies is one of loss making, general malaise and drawn out decay. Understandable since the interests of governments are oftentimes slanted towards making quick political gains than growing wealth...

In many ways over the years, the stars aligned themselves benevolently for the New Vision.

A benign government policy that allowed the paper to be more independent in its editorial policy than many government’s would be happy with, a national economy that has quadrupled over the company’s life time and a succession of management teams that have not been content to seat on their laurels, but always willing to push the boundaries of possibility.

Ugandan businessmen can learn a thing or two about vision from the history of the company.

Former Managing Director William Pike took over management of the company in July of 1986 as a lean, tall and bearded 38 year old, who – judging by pictures of the time, may have been mistaken for a back packer.

Imagine that he might have graduated more than 15 years previously and his contemporaries were already amassing fortunes. His perspective therefore of what he wanted the New Vision to look like 10-, 15- or even 20-years down the road was always going to be bigger than most people around him.

His successor Robert Kabushenga has driven the company at tearing pace into the world of broadcast media, leaving many reeling and the naysayers sharpening their knives.
That too was driven by a vision that was bigger than anything being displayed locally.

Our businesses can also learn about building companies.

"Two things jump out when one examines the history of the New Vision; If you are organized internally to take advantage of market situations the money will come and secondly, that for a company to grow, a high degree of delayed gratification has to be exercised....

The building of the New Vision’s operations are still a work in progress. The commitment to building systems rather than centralizing decision making and power in the hands of one person, has ensured a smooth management transition and is what has propelled and continued to propel the company.

In an interview just before the New Vision went public in 2004 Pike said, $12,000 was the sum total of all the cash the company had received from the government.

By the time he left the company in 2006 the company had a book value – difference between assets and liabilities, of sh13.4b ($5.6m at current exchange rates).

The books are there for all to see, profits were largely retained and invested in increasing human and physical capacity in order to compete in an increasingly competitive environment, so much so that the company has grown largely through self generated resources through the years.

Going forward these same virtues will continue to serve the company, in addition to a maximization of its human resource, sharpening of its strategic process and improvements in operational efficiency.

But the New Vision should not forget in the famous words of Nelson Mandela, “After climbing a great hill, one only finds that there are many more hills to climb.”

WHY NO UGANDAN FEATURES ON THE FORBES LIST

This week the Forbes list – a ranking of the richest people in the world, was released. Bill Gates did not regain his title as the richest man in the world, partly because he gave away a lot of his wealth to charity and also because Mexican tycoon Carlos Slim’s net worth jumped 38%.

But don’t cry for Gates, his fortune still comes in at $56b or more than the size of the economy of Kenya, Tanzania and Uganda put together.

Africa’s highest ranked is Nigerian Aliko Dangote who has interest in sugar, flour and cement. He is in the top 100 at 51 thanks to a near seven fold increase in his net worth.

No East and central African made the list whose African interest was dominated by South Africans, Egyptians and Nigerians.

"The Forbes List which started in 1982 is a celebration of capitalism and as lists go probably means more to the readers of the lists than the entrants...

It has its place in determining which economies are generating wealth or in the case of Africa, which countries in addition are experiencing a rapid expansion in wealth disparities.

A friend of mine keeps saying that the reason we have so many problems – political, economic and social as a country is because we do not have enough rich men.

Given that with our GDP of $16b we would not be even in the top 50 on the Forbes list maybe we need to ask ourselves why that is.

To begin with we are unlikely to get a member of the Forbes List in the foreseeable future because our rich men run local operations.

But maybe more importantly our businessmen are not harnessing the power of collective investment. They are going it alone. Financing their businesses with personal savings and for the more sophisticated ones, bank financing.

Last week Tony Wainaina, whose experience includes stints with Kenya’s most successful investment companies Centum and Transcentury, was in town to talk about creating wealth using investment groups.

During a talk organized by financial advisors, Akamai Global and sponsored by the Competitiveness and Investment Climate strategy Secreteriat of the finance ministry, Wainaina listed commitment, vision, governance and trust as critical success factors.

Wainaina said that in Kenya investment groups control up to a billion dollars in assets – and we haven’t even counted the Savings & Credit organizations.

Just as with an investment group, a lack of vision will keep your business small even if it had a chance to grow bigger.

"I think the key for our businessmen is to look at business as satisfying the needs of others beyond the individual founder or founding family. There is only so much one can eat, one house one can sleep in at a time and only so much of life’s pleasures one can savour in a life time...

But if the business’ vision extends to creating jobs and services for thousands and even millions then we will see bigger concerns come. Without this they will continue to be big fish in small ponds.

As a nation it is also important that we have big local businessmen and concerns not only because they create employment and provide services but also because as a result national stability has a chance to gain root.

Big business will need cash and the more businesses there are the more likely they will tap the local population for capital. In so doing – beyond the jobs, more people will have an interest in continued stability of the nation.

Poverty levels should not be viewed as just a statistic but also as a real threat to national security. A poor population has nothing to lose and when people are desperate the rule of law is suspended so that people can make a living any which way they can.

Singapore’s founding father Lee Kuan Yew in his book “The Singapore story: From third world to first” describes how demonstrations in the city state became less violent in the city state as the rate of home ownership increased.

So we should be concerned that we do not have an entry on the Forbes list or have some of the biggest companies on the continent or in the region.

And as a consequence our business men should know they can not do it alone, especially using our small economy as a launch pad. Aggregating our resources through collective investments is the way to go.

BUFFETT’S LESSONS FOR BUSINESS

It’s that time of the year again when the world’s richest investor Warren Buffett publishes his letter to the shareholders of Berkshire Hathaway, a conglomerate he runs and in which he has a controlling stake.

Berkshire Hathaway is a $210b company – this is almost thrice the size of the East African Community economy, which employs 250,000 people in the more than 70 firms it owns. A Berkshire share goes for $130,000.

While impressive, these numbers belie Buffett’s reputation as the world’s premier investor.

Buffett who turned 80 last year, took over Berkshire when it was a floundering textile company in 1965 and through buying stakes in public companies and acquiring companies provided superhuman returns for his shareholders.

The book value of the company’s shares have shown a compounded annual growth rate of 20.2%, meaning if you had met the nerdish 34 year-old Buffett when he took over Berkshire 46 years ago and placed sh1m with him, that investment would have grown to about sh500m today.

At the end of last year DSTV’s BBC Knowledge channel had a revealing documentary on “The Sage of Omaha” as he is affectionately referred to, in which they broke down his investment philosophy into a handful of principles.

Far way as he may be in the American heartland, Buffett’s annual letter to his partners has useful lessons for businessmen and investors in Uganda.

Below are some of the lessons I was able to glean from this year’s letter.

On the economy,

“Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and a Civil War – remains a live and effective”



On Managing managers/companies,

“At Berkshire, managers can focus on running their business: They are not subjected to meetings at Headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish….. There are managers to who I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me”

“Berkshire’s CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.”


On Corporate culture,

“Cultures self propagate …. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behaviour. … As long as Charlie (Munger, vice-chairman) and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

“Our compensation programs, our annual meeting and even our annual reports are all designed with an eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent. This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.”

On Investment,

“You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about.”


On corporate governance, (in letter to his managers)

“The priority is that all of us continue to guard Berkshire’s reputation. We can’t be perfect but we can try to be. As I’ve said in these memos fro more than 25 years: “We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”

“Sometimes your associates will say “everybody else is doing it.”… It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as rationale, in effect they are saying that they can’t come up with a good reason. If any one gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them.”

The 26-page letter is devoid of illustrations and graphics but still makes for compelling reading.