My good friend James
is quite observant. Around mid-2008 he was living in Umoja. Back then there
were so many buildings (flats) coming up within that estate. He could
occasionally observe what was happening in those sites. During the casting of
the slabs (koroga), the fundis would have some hand operated machinery
(concrete mixers, poker vibrators and concrete hoists) to make work easier and
cast the slabs faster. Back then before the advent of the hand operated
machinery, casting a slab was quite a task; what with erecting temporary stairs
with wooden posts and mabatis and positioning strong men on the stairs.
Concrete would be mixed by hand and put in karais, then the karais were passed
on from one workman to another till they reach the slab level. This was tedious,
wasteful, time consuming and required a huge workforce. The simple machines
helped a great deal.
James thought it was a
nice idea to acquire such machines because the rates were not that bad. One day he
decided he’ll acquire an unsecured loan of 300k from a bank and purchase the
machines. He started with the two (concrete mixer and Poker Vibrator) and
decided that the cash generated from the two would eventually help him acquire
the more costly concrete hoist. Back then a concrete mixer was costing 250k, poker
vibrator 40k and the hoist 400k. The charges per working day irrespective of
the number of hours the machines run were 3k for the two he bought. When having
3 of them, the charges were 7k. The net income per day would be approx. 2k or
4.5k when you factor in transport, fuel and operator fees.
What convinced James
that it was a worthwhile business was the fact that if you get 15 working days
in a month, then the earnings would be 30k per month. Notice the impressive ROI
of 10 months. In his own estimation in 20 months or so, the revenue from the
two machines would comfortably purchase the third machine at 400k. The 3rd
machine would really boost his income.
James bought the 2
machines from a supplier somewhere around City Stadium. He went ahead and looked
for two operators (they are in plenty in Umoja) and entrusted them with the
business. The operators convinced him that they’d get business because they knew
the fundis who would ordinarily require their services. During the first week
of operation, James only got business once on a Saturday; a day when the demand
for the machines is usually highest. He realized that he had one big challenge;
transporting the machines to sites. Trouble was that the pick-ups for hire
would charge around KES 1000 for every delivery to and from site and that was
within the estate; much more outside the estate. Notice that this reduces his
earnings by 50%, so his net earnings would be 1k. He thought that it’ll get
better if at least he’d get an average of 4 days a week. Bearing in mind that
the business was still new, he had hopes that customers will come flooding.
During the second
week, he also only got a client on Saturday. By end of the 1st month of
operation, he had 5 days of working and a total earning of 5k.
The second month
started much better than the first and within 2 weeks he got 5 days of work and
that was encouraging. His biggest issue was how he’d get a cheap pick-up to
ferry the machines but he realized it’d take quite some time with the kind of
earnings the business was generating. Unfortunately, he did not have more cash
to acquire a pick-up. The second month was not that bad bacause he managed 14 days.
The 3rd month also
started very well because by then his operators had passed word around that his
machines were new and hence chances of breakdown were minimal. Breakdowns in
this kind of business are a common problem. Unfortunately midway the 3rd month,
the concrete mixer broke down. That was quite strange because the machine was
barely new. When one of the operators called the mechanic who repairs those
machines, the mechanic observed something that made James to almost jump out of
his skin. According to the mechanic, his checks confirmed that the engine of
the mixer was not new, in fact he noted that it was only the body that was new
but the engine had only been repainted. In his own words, the machine must have
been at least 3 years old. What a shocker for James. The mechanic recommended
that instead of struggling with the junk engine he could assist James get a new
engine, a model called Lister Petter from UK whose lifetime is at least 8
years. James realized that he was actually conned. This is Nairobi for you!
Trouble was he could not afford to buy another engine at that point in time.
The mechanic however repaired it and it worked for 2 weeks or so and failed
again. When he was giving this story it reminded me of a day as a teenager who
was very new in Nairobi I ended up buying a SONQ radio thinking it is a SONY.
After several days of
soul searching and reflecting on the problems he was facing, James threw in the
towel and sold the concrete mixer for 90k and the poker vibrator for 30k.
“Business is not for the faint hearted”, he said. He thought that he’ll never
attempt another business; he basically gave up.
Isn't it
obvious why he failed?
Let’s
see what he got wrong:
1.
He
did not seem to have understood the business; it is an idea he just saw and
went for. Notice the glaring misses that included wrong expectation on returns.
He never got his facts right. Then he ought to have carefully thought through
the processes of the business including the transport bit; maybe he thought
clients organize for the transport but surely he should have confirmed. He
ought to have talked to an investor in that business and not a machine
operator. This is a common mistake we make when starting a business. The people
already in that business have a wealth of info; unless yours is a totally new
business idea.
2.
He
bought an old machine thinking it was new. If he engaged the mechanic at the
point of acquisition for a small fee, the mechanic would have probably advised
him on which one to buy and where. Another common mistake; we often fail to
engage professional in the respective fields we put our money in.
3.
He
set up the business at the wrong location. Like where I stay, the two machines
have much higher returns because they’re not as many as in Umoja. Location is
extremely crucial for some business. In fact for particular businesses, it is
the most important thing.
4.
His
business was under-capitalized. Notice that if he had a pick up and the hoist, he’d
generate an income of approx. 8k per outing.
5.
Why
do I suspect that the operators would even get jobs and fail to inform James
especially because he was an 8 to 5 guy? I think in the evening when they met
their peers, they’d say “tumepata kafala hakajuangi nini kinaendelea”. More
often than not we trust people to run our businesses without performing proper
due diligence on them. Sometimes they are our relatives whom we think have our
interests at heart. For this type of business trust is very important a factor.
6.
He
failed to manage risks properly. Notice that he got stuck when the engine
failed. Each business has risks and we are better off having mitigation
strategies against those risks.
Each business is
unique and failures would vary depending on the business. Each failure must
however be treated as a learning experience.
Interestingly, my
friend James mentioned that business he wanted planning to venture (import and
sale of finishing items for houses). I think he has overcome the fear of
failure. I am also very sure, he’ll plan better and understand the business
better. My gut feeling is that he shall succeed this time round. After all his
mentor is also in that business, so he’ll draw lots of advice from him.
Next
lesson will be on traits of successful entrepreneurs. Do you have them? If not,
can they be acquired?
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