Tuesday, July 7, 2015

BUSINESS LESSONS FROM BUILDING A SACCO

Last month the New Vision Staff Savings & Credit Cooperative hit the billion shilling mark in net worth – the difference between assets and liabilities.

This is also the year that the Coop turned ten. During the last decade a lot of lessons have been learnt about business during the building of the coop, which it is hoped has another millennia or so ahead of itself.

1.       Start where you are

There had been attempts to start a savings scheme for staff for years but it finally took off in 2005, with 26 (not 27 members). There was nothing to start with apart from an idea, the integrity of the founding members and the indulgence of the New Vision company. Clearly it was an idea whose time had come because the record shows that by the end of that year more than 100 people had signed up.

2.       Be clear about your objectives
From day one the objectives of the Coop have been clear. In decreasing order of importance to help members save, to provide below market rate credit and to provide an investment vehicle for them. Everything the Coop did was with in mind. This clarity of purpose has kept the Coop focussed and growing by prodigious amounts annually.

3.       Keep your costs low. Make your money make money
US billionaire investor Warren Buffett says it is red flag for him if he hears management announcing they are cost cutting. What have they been doing before he says, cost cutting is like breathing you shouldn’t think about doing it you do it all the time.  The coops major costs are in interest payments to members and not in pampering administration or bad loans or losses from Hail Mary investments.
The Coop has invested mostly in government paper which revenue stream is growing every year as the stock of these investments grow.

4.       Collect what is due to you
The Coop’s major revenue stream is interest on member loans which accounts for eight in every ten shillings the Coop earns. Thankfully we deduct at source so we collect most money due to us. However not everyone is willing to pay, for some strange reason they think monies owed the Coop will be forgotten. So with much discomfort debt collectors were contracted in the last few years to chase down these members who have chosen to abuse our hospitality. The results have been to the Coop’s satisfaction. They say profit is an opinion but cash is fact. One can be posting impressive profits year in, year out, but without cash even the most profitable company will sink.

5.       Don’t get excited
In the first year the Coop closed with sh33m in cash on its account. At the start of the enterprise to imagine that such amounts will be seating around earning anaemic returns from the banks was inconceivable. The temptation to go into speculative endeavours may have arisen but a clarity of mission helped to keep the Coop off the crooked path.  I remember a talk once where the speaker said that if even a million shillings fell from the sky it would discombobulate most people to the point of sweating.

6.       Take care of the customers and the money will follow
It sounds like a cliché but by working to keep the processes unclustered with too much red tape and complexity the Coop has grown from strength to strength. It is true what they say if you want to get rich serve more and more people. Thankfully the coop is member owned so returns accrue to the members in terms of interest and capital appreciation so there multiple benefits for the Coop’s members. And you can achieve win-win when measured against all the conventional business metrics of success. Last year the Coop showed a net profit margin of 57 percent and return on equity of 40 percent.

Understandably the Coop has social objectives, which mean it does not run with the sole intention of maximising profit otherwise they would charging extortionist lending rates while paying out a pittance in interest on savings.

But probably the final lesson will be that everything takes time. To get to a net of a billion shillings it has taken a decade of systematic and consistent practice, repeated with uncompromising diligence.
There are no short cuts you have to put in the time before you can drive the monster truck or holiday in the Bahamas. If you have not put in the time and are partying already rest assured doom is stalking your every footstep.

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