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.
