Tuesday, May 9, 2017

THE TALE OF THE BUSINESSMAN AND THE BUSINESSWOMAN

I had not seen him in close to a year. It turned out his business – a printery, was being adversely affected by the economy, just like any other business in town. It was his first beer in months and it was nothing to do with Lenten period.

He reported he was coming out of a very difficult restructuring of his business, which on several occasions during eth last year had been on the verge of going under. He had terminated staff, improved his costing procedures, renegotiated his rent, shed marginal clients and got an equity partner. He could now see light at the end of the tunnel but only just.

We remembered a time when Mr J, was flying high, when his business was throwing off cash like it was going out of fashion, as contracts flowed into the business effortlessly. He could do no wrong in the business.

"Mr J remembered those days fondly. Money had seemed like an infinite resource. He shuddered to think of all the money he took out of the business to holiday around the country, buy new shoes (his major indulgence), phones and cars. He even sheepishly admitted that some of the loans he contracted from the bank he diverted to his high living, after all he used to argue, “You can eat the profit before or after the project”....

In hindsight he recognises that his cost discipline was non-existent. That he was not building the company for the hard times that inevitably come along. He was operating as if the good times would always be around.

In sharp contrast to our friend was Ms D. She started a catering service in her early job life almost two decades ago. Initially it catered to parties and special occasions on weekends. She soon built her capacity to serve five days a week. She now owns a restaurant in an addition to an ever growing outdoor catering service.

We see her around. She has never fallen off the radar. Partly because of the nature of her business but also because she has not been going through a restructuring her business like Mr J.

She has always run a tight ship. Keeping costs to a bare minimum. Only until recently the car that ferried food around to her clients also served as her personal car. Whenever the needs of the business and her own needs clashed the business always won. She refuses to say, but going by her income tax bill for last year she is easily turning over a few hundreds of millions of shillings.

Ms D has a healthy paranoia. She knows that the bad times will always come so she is making hay while the sun shines.

It helps that she is in an industry that will always be in demand – people have to eat. But it is also testament to prudent management style and her respect for the money she makes. She has a saver mentality and is clearly a business builder – taking every opportunity to build her business rather than have a blast.

"She acknowledges too that the economy has thrown speed bumps in the way of her progress, estimating she would probably have had a second restaurant by now had it not been for the slowdown. But despite that the business is growing, she is meeting her obligations and she is free of panic....

My friend with an MBA who has business theory flowing out his every orifice, says the difference is that Ms D thinks more strategically than Mr J.

In practical terms this means that Ms J focuses on building her balance sheet, which has ensured her durability but Mr J is forever seduced by his Profit & Loss statement, where in the good days he would appropriate more and more of his business income to his personal use, retaining little money in the business.

All businessmen know that they are supposed to operate like Ms D rather than Mr D, but heir baser instincts take over, making us put more priority in the present than the future.

In between sips of his black label Mr MBA said that Mr J’s lack of strategic thinking has cost him a share and full control of his business, while Ms D still has free rein to build the business of her dreams.

Mr MBA postulates that assuming all things remaining constant Ms J will be a lot wealthier in the medium to long term even if the asset base of Mr D’s business is currently much larger than the restaurateur.

"As a final note of their differing fortunes, as Mr J has had to downgrade from his Mercedes G-Wagon, Ms D is signing off on the architectural plans for her new restaurant, which will be the fulfillment of her dream to own her own place...


“You will know who was swimming naked when the tide goes out,” Warren Buffett.

3 comments:

  1. The title of your article should have been: "Why most African businesses fail" . Mr. J is very typical! add to his woes the social obligations with our egos - contributions to weddings; funerals; school fees for lazy relations; graduation parties, expensive monthly trips to the village, purchase of non-utilised land... the list goes on. I can bet you the equity participation is probably from a non-Ugandan.

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    1. Paul - I read and enjoy your blog weekly. I look forward to reading it every Monday and Tuesday. I particularly like the coverage on entrepreunership in Africa because I believe that is our biggest problem. I know you have written about it in the past - but could you repeat it. The biggest problem we also have in Uganda and Africa in general is that most of our entrepreuners are "replicative" and not "innovative". I took it from the economist of 16th February 2014 - Quote follows "Schumpeterians distinguish between "replicative" entrepreneurs (who set up small businesses much like other small businesses) and "innovative" entrepreneurs (who upset and disorganise the existing way of doing things). They also distinguish between "small businesses" and "high-growth businesses" (most small businesses stay small). Both sorts have an important role in a successful economy. But they are nevertheless very different sorts of organisations.
      Most people who try to measure how entrepreneurial a society is try to measure the first type of entrepreneurship. They measure the number of small businesses or the number of people who are self-employed or the number of startups. But this produces perverse results. Egypt regularly comes out as more "entrepreneurial" than the United States. It also produces a highly distorted picture of entrepreneurial activity within advanced economies."

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