Risk & reward. Thabani Zulu
times of crisis, and you will not know how best to drive your business forward.
I recall that there was once much hype about information technology (IT) businesses and every young man wanted to get into IT. The millennium (Y2K) hurricane was blowing all around, and everyone thought they could make a killing. Hardware and software solutions were everywhere! The problem was that IT was still a highly specialised area, and people needed to know what they were getting themselves into. Many who bought hardware failed to sell it because they could not give the necessary technical demonstrations to customers. Many who were given rights by overseas companies to distribute software could not do so because they were unable to answer the basic questions that clients posed in order to take the decisions to buy such software. They did not have the skills to succeed in such businesses, even when there were opportunities.
Attitude
You attitude towards entering into business plays a vital role in determining your success or failure. If you get into business to “try it out”, you will probably fail. If you get into business with the determination to succeed, however, chances are that you will. This does not mean you enter into business with no sense of the practical dynamics that we will explore throughout this book, but you enter with a winning spirit that will result in a winning business. Do not enter into business expecting quick success. It will not come, and you will despair. It will be a long and dusty road to freedom. It will have pitfalls, some so major that they make you doubt the very decision to venture into business. Some hurdles will be too high. A strong sense of perseverance and resilience will come in handy on your road to freedom. Your most likely recipe for success will be to focus your attention a lot more on the end goal whilst manoeuvring through the storms!
Business experts will tell you that it takes about 24 months for a typical business to start taking off. There are businesses that I have controlled and run for the past three years, and I am still not seeing my way clearly as far as their future is concerned. Some days I just want to shut up shop and start something else. The truth, though, is that these businesses are new, and in the midst of competition you cannot just expect the market to trust you instead of seasoned and established players. You have to penetrate slowly and make painfully tiresome strides on your road to success.
Your personality
Let’s face it, running a business is about making money. Money does not fly from the sky. It comes from somebody. This means that as you make money, somebody else is losing it. The question is: do you have the nerve and personality to charge people? Yes, you may and should find this easy if you are confident of the value they get from you in exchange for their money: a quality product or a decent service. You will come across those who need your product but cannot afford it; friends who want to eat free of charge in your restaurant, or family members who feel entitled to your products or services for nothing. You will need to draw the line somewhere – the question is, can you?
My friend’s restaurant business collapsed because of family members who ate at his expense whenever they were hungry. He was running a restaurant in central Durban and literally ran it dry because he was cooking for family and friends every night and every weekend. His problem was that he could not say no. He felt it would be selfish to do so and that he would lose their blessings if he drew the line. He did not run his restaurant successfully and was eventually bought out.
In business you will have to negotiate for the benefit of your business, whatever it may be. Realise that those across the table with whom you will be negotiating also have the best interests of their businesses at heart. You will need to be strong and sharp, but you will also need to be reasonable. You will have to be very aware of the outer limits and negotiate to find and settle on a scale that does not compromise your operation. Know what you are willing to give and what you want to get, and just stay there!
People often think that the personality of a businessman or -woman must be rude, aggressive and almost arrogant. I believe, on the contrary, that success in business is realised when you are reasonable but purposeful, aggressive in intention but assertive in approach, with the ability to speak your mind in a manner that does not offend others and seeks to create an atmosphere of humour and positive energy around those you mix with in business. Ultimately, you want them to enjoy doing business with you.
Your capacity to take tough decisions
Successful businessmen and -women make decisions, easy or hard, in the interest of their businesses. If those decisions are delayed, they will compromise the bottom line. A decision to let go of a worker who is a liability to the business needs to be taken swiftly and promptly (of course considering the labour laws , which we will discuss at length in Chapter 12). Delaying that decision for one month will cost you a salary for which you will get no benefit.
Trust me, I have been a victim of this, and it has cost me dearly in business. I once employed a young boy because I knew the family and sympathised with their financial situation. Maybe that was a mistake in itself! It turned out that the boy did not have the same values as the family I knew. His work ethic was inexcusable, his attitude indefensible. I kept thinking about the family every time I had to take a logical and desirable decision. I confided in the father instead of confronting the boy. His father “fired” him from my business before I did.
The bottom line
Remember that business is about taking a risk for a reward. There is no point in doing it if it is not profitable. We are not talking about starting up an NGO, we are setting up a business, and a profit is what the business has to offer. You need to remember that there are various alternatives to starting and running your own business, for example:
1 earning a salary through formal employment, or
2 investing the money and earning interest and growth.
Although these options have their advantages and disadvantages (for instance, formal employment could require a qualification and experience which you might lack), the message is that they should be considered carefully before you venture into business. There is no point in entering into a business that will ultimately give you a return of R5 000 a month when you could be employed and earn R15 000. By the same token, there is no point in putting your hard-earned savings into a business to earn a return of 4% when you could be investing elsewhere at a rate of 7%.
Before you embark on a business venture, make sure that you are entering a profitable course that will generate the returns you are looking for.
There are various things that you need to anticipate here to assess whether this venture you are embarking upon will work for you and give you the financial results to which you aspire.
Return on investment
An estimate of your return on investment will indicate to you if the money you will put into your business will give you the rewards you are looking for. It is based on a simple calculation of the net profit (we will discuss this concept in the following chapters) as a percentage of the savings that you have generated over the years and invested into your business.
Example
Sam puts R30 000 into his catering business and anticipates that, after paying all his monthly bills and the running costs of his business, he will make a net profit after tax of R1 500 a month or R18 000 a year. His return on investment is R18 000/R30 000 x 100 = 60%. By business standards, that is a good return on Sam’s investment.
Your bottom line will be impacted on by a number of factors that we will discuss in the chapters that follow. At this point it suffices to alert you to the fact that unless your business provides better financial benefits than the alternative does, it is not worth entering into.
I think it is critical to note at this stage that, although the bottom line and the return on investment are key financial considerations for or against getting into business, there are numerous non-financial issues you may want to consider. The business may not offer you the profit or the returns that you are looking for, but may provide you and your associates with employment opportunities and an opportunity to make a contribution to society that fulfils your ethical desires. I have been running a business for the last three years that has not given me a cent in returns or profits.