Some people say that you have to lose money to make money. But what if the loss is too great to bounce back? Five entrepreneurs share what they have learnt the hard way.
Cheap is very expensive
As an early-career entrepreneur it is quite normal to seek and go with cheaper options to achieve your goals.
This is commonly known as re-inventing the wheel: the art of using an existing blue-print to come up with a cheaper yet similar solution.
When we went into hotel business, we needed a management software. At the time, one already existed in the market – but it was expensive.
So, I thought, instead of spending all the money to buy the software why not get something tailor-made, at, of course, a cheaper cost.
We spent less money and got the cheaper software. But that was not the end of it. The software, almost immediately, began causing trouble. For two years we grappled with it.
By year three I came to the conclusion that the hotel could not continue offering quality services with the bogus software. We needed to buy the software I had decided against in the beginning.
We ended up spending the money we were trying to save
I cannot quantify how much money we lost during the time we were grappling with the cheaper software. Time is money and the two years we wasted trying to work with something that wasn’t working could probably have made a big difference because I would have concentrated on other things to grow the business.
The lesson: They say cheap is always expensive. It is very true. Go for quality – which may look expensive but in the long run it is cheaper.
Hasnain Noorani, CEO and Founder Pride inn Group of HotelsI lost Sh5 million to a conman
Tangerine Outdoor Investments is an outdoor advertising company.
During our first year of operation, someone got hold of my number and began reaching out to me – offering to sell me advertising sites for billboards.
He said he owned several billboard locations in the city. I did not show much interest in what he was selling.
Until about 10 months later. He was still persistently calling me with offers. We had meetings and even met over coffee.
He was very good at selling. He even took me to some of the sites. But the one I was interested in was in Nairobi’s Waiyaki Way.
The site was located inside a gated compound. But he showed me from the highway looking across.
With only a sale agreement – and no more binding documents – I made an initial payment of Sh2.5 million to him.
Come to think of it, I did not even have a copy of his ID.
I paid a second instalment of Sh2.5 million – bringing the total to Sh5 million.
When we went to the site – to work on the site and the billboard we were met by the actual owner of the billboard who proved his ownership with valid papers. That is when it dawned on me that I had been conned. The guy’s number stopped working. I reported him to police but it was too late.
Lesson learnt: You have to do your due diligence before you part with your money. Losing that amount was a big blow to my business.
Rajiv Mehta, founder, Tangerine Outdoor InvestmentsI went broke and got burnt
We are still a young company. But before starting Sidai I had run another start-up – Merlin Group.
Even though Sidai is only a year old, the lessons we have learnt are grand. One painful lesson is taking up big-money projects early on in the business.
I would advise those hoping to be entrepreneurs in future to start small and grow into the business space. What I mean by this is, do not join telecommunications world now and want play on the same level as Safaricom – start by selling scratch cards as you grow.
When we started Sidai we bought equipment and hired top-level staff. And because the business has to be given time to grow, I ended up digging into my own pocket to pay for working capital.
The problem is, some of the equipment we bought (and they were expensive) are now lying idle after getting the initial work done.
The best thing, now that I look back, would have been to lease equipment instead of purchasing.
The other thing is, I shouldn’t have hired top level staff whose salaries cost a fortune. I should have started with low level staff whose pay I would have easily afforded.
Lesson learnt: Do not start big. Start small and scale up as business picks up. Because you do not want to finance a start up from your pocket over a lengthy period of time. You will end up losing money compared to what you will be bringing in.
Lynette Njogu, MD and Founder Sidai Concrete LimitedI mixed love and business
When you are running a business – and you want to rope in a spouse as a partner – have boundaries and ground rules.
After a great business success in the initial years I brought in my fiancé into the business.
As a partner in the business, I gave him access into the bank account – which acted as my personal account and the business account.
Not separating business from personal bank accounts meant that we could not track the business’ financial health. Any withdrawals made affected the business. Sometimes we overspent on personal needs and the business suffered.
Because of our differences in managing the business, we ended breaking up. But then I continued with a few wrong decisions.
For instance, I made some huge purchases that the business did not actually need: purchases that were more emotional than practical.
I sunk into debt. Then depression followed. I was in shambles.
I lost everything including my cars. At some point, depression got the best of me and I lost a full year’s worth of work.
I would say the collapse was the result of many factors working in unison.
Lessons learnt: One, I did not involve the right partner – someone with whom we shared similar objectives. Two, the business account should never have been functioning as a personal account. Three, I made many unnecessary purchases: If possible, make do with the absolute bare minimum.
And lastly, we should have saved for a rainy day to avoid sinking into debt.
Rose Jebet, founder, Yolo Adventures and Safaris