Next month I end my four-year stint as the chairperson of the New Vision Staff Savings & Credit Coop. It has been a great learning and a gratifying experience. A learning experience because there is no better way to learn about business than to be in business and gratifying because of how many people the SACCO helped, helps and will continue to help well into the future.
1.
1+1=11
I once read a definition of synergy which went, with synergy
1+1 is not 2 but 11. That the sum of the whole is much more than the sum of the
component parts. I understood that on an intellectual level but seeing it in
action was a revelation.
When the SACCO started in 2005 with about 50 members saving
a minimum of sh40,000 we did not envisage how big it could become in a small
while. In our first year we made sh2.3m in profit and built an asset base of
sh66m. Last year we made a profit of sh661m and logged assets of sh9.6b. There are
now about 1,200 members of the Coop.
The human mind tends to think in arithmetic progressions but
when you work as a group geometric progressions kick in. So given our sh10b asset base, arithmetic progression
would suggest that we will double that over the next 15 years, but geometric
progression, given the past rate of growth, suggest that the asset base will
almost triple over the next 15 years.
This wisdom was not lost on our ancestors who said, if you
want to go fast travel alone but if you want to travel far move with others.
2.
PROFIT IS GOOD, EQUITY IS BETTER
For mere mortals looking in on a business they get excited
by profits made, but when you are in the business, the more important thing to
focus on is the balance sheet – the statement of assets, liabilities and
equity. Profit is good, it shows that the business model works – you are making
more money than you spend, but the strength of the balance sheet – how much higher
the assets are than the liabilities, is what determines the sustainability of
the business.
Profit is where you determine how much you made, the balance
sheet tells you how much of what you made you have kept. That is how wealth is
created.
Many a Ugandan business has been profitable, or at least
made sales, but collapsed the next year because they ate all the profit in the
good times and when a small crisis happened it crumbled like a pack of
cards.
3.
CUTTING COSTS IS NOT AN EVENT, IT’S A BEHAVIOUR
Related to the above is the issue of the costs. For many
companies they start cutting costs when they get into trouble, but holding
costs under control is not an event but a behavior. US billionaire Warren
Buffet says it’s a red flag when he hears management is going into cost cutting,
for him cost cutting is like breathing, no resolution needs to be made to
manage costs.
Cutting costs by a business is an admission that they made
some unwise spending decisions in the past, why not keep costs low, without
compromising the productivity of the business, to begin with?
Even more important is that the savings from managing costs
should be ploughed back into the business.
4.
GET GOOD PEOPLE, LET THEM RUN
The customer is king, but to make him feel like a king you
have to have the right people working for you. We have three staff – Edith,
Treasure and Emmanuel, who know their work and are everyday increasing their
understanding of what the business is about.
They run the day to day business. We have been fortunate to hire only
good workers over the 15 years of the SACCO and I would like to think that this
is the factor of the executive committee’s putting the stability of the
business ahead of family and friends.
But more importantly good people treat your customers well
and as a result the business grows. There is always scope for improvement.
Whenever a businessman now complains that the economy is
doing badly I ask them how their customer service is. You will be shocked how
much business falls through the cracks because your employees treat your clients
with contempt.
5.
MAKING MONEY IS NOT SEXY
Most of the processes that are required to make money are
very mundane and boring activities. When you think about it, making money is
about putting money in one side of your business and it coming out the other side
with something extra on top. And repeat until rich.
It took the NV SACCO almost 15 years to achieve a net worth
of a million dollars, so who are these overnight millionaires (are they
millionaires?) in our poor economy?
Critics can brand you conservative but in chasing sexier
lines of business, which show huger margins, it often is that you are
increasing the risk to the business – in a financial institution this risk can
mean sinking the business altogether.
Innovation should be encouraged and that is where new value
is created, but for every business this should always be with an eye on the
downside, the risk of loss.
6.
ITS ALWAYS ABOUT THE LONG GAME
The company’s vision is important, no, critical. The New
Vision SACCO’s vision is, To serve as a vehicle of financial freedom for the
members. One becomes financially free when he no longer has to labour for
money, but that the assets he has created or bought throw off enough income to
sustain him.
Last year the coop paid out just under sh450m in interest and
dividends to its members, but the payroll of the New Vision is about sh20b a
year so there is still some way to go. Achieving the long term goal will take
the continued profitability of the SACCO but also improvements in the members’
financial literacy, because you can take a horse to the water but you cannot
force it to drink.
