John is a young urban professional. After obtaining his qualification in 2006, he decided to go into business offering Information Technology solutions to companies.
When a few large corporates showed interest in his services, John knew that the sky was the limit.
In order to walk the talk and make himself presentable to his potential clients, he asked his rich relatives and friends to invest in his business, convincing them with colourful charts and graphs of the huge returns they stood to gain when his business really made it.
In order to look like the successful professional his clients expected, John bought a late model flashy car, rented plush offices in the city centre and hired half a dozen pretty secretaries and executive assistants. His office was well-decorated, with Persian rugs and a genuine Chesterfield leather couch.
John wanted potential customers and others to notice that he had arrived. For two years, business was brisk. Due to the acute shortages of foreign currency in the country, local companies that had been using foreign IT solutions had to look for local service providers, like John’s firm. With the “burning of money” of those days, John was making a killing from desperate customers. His lifestyle changed and he was looking like the rich entrepreneur that he always wanted to be.
Unfortunately, things didn’t keep on going his way. When the Zimbabwe dollar was removed in 2009, John’s business began to tumble. Local firms were now able to openly source their IT solutions from the region at competitive prices.
The imported solutions were more modern and of better value than John’s. When asked to match the quality, value and price of imported solutions, John could not. His employees were not up to date with the latest technology and the global trends in the industry. They only knew products that worked in 2006 when they joined the company.
Unsurprisingly, John went out of business. He emailed me his story in response to my quiz last month on what key things make a business successful. He learned his lessons and started again, this time on a more sound footing. We can all learn a few things from John’s experience.
The most important lesson is to pay your assets before paying yourself.
According to Robert Kiyosaki, in the book quoted above, a successful business owner knows when and how to pay the five important assets in his business. According to the ranking of who should get paid first, the assets are:
Professional advisors or consultants
Investors and financiers
The ranking of who gets paid most is the opposite of the above. When the business has succeeded, what you will get as the owner will far exceed what you would have paid to all the other stakeholders.
Mark Zuckerberg, the co-founder and chief executive of Facebook, worked hard, building and reinvesting in the company since 2004.
Eight years later, as Facebook is set to launch its initial public offer on May 18, 28-year-old Zuckerberg will realise the real market value of his asset. Already his wealth is estimated to be US$17,5 billion, making him one of the world’s youngest billionaires.
It takes time and resources to build a really valuable business. You need to reinvest your profits again and again into the business to make it strong and grow.
Apart from money, you need to invest in new technologies and processes in order to remain relevant and competitive in a constantly changing market. John failed to adopt newer and cheaper technologies, so his customers dumped him for cheaper and better value suppliers.
Similarly, you should seek professional advice in order to build a valuable business. Skimping on professional advice has resulted in many entrepreneurs like John making bad decisions, following cheap advice from experts from the streets.
The BusinessLink team has planned a seminar for entrepreneurs themed “Building a Really Valuable Business” on May 23 in Harare. More details will be on our website http://smebusinesslink.com
Phillip Chichoni is a strategic business planning and financial management consultant who works with entrepreneurs and SMEs. He may be contacted on email email@example.com