1.That business will break even in the first yearNelly Tuikong, founder and director at Pauline Cosmetics Ltd
One big misconception about entrepreneurship is that one will become an instant success. It took me two years to break even. My initial business plan had been to break the bank in six months. I’m laughing at that plan now.
Because the makeup industry was a late bloomer in most of Africa, I started the business when there was basically no market. I was looking at the future and I believed change was coming and I was going to be one of the industry leaders.
Creating your own brand back then was not common, except for big companies that had existed for a long time. Today my predictions have come to pass and the beauty industry is thriving. But sometimes I feel like I started too early. It was a struggle for almost three years with no market. And I had so much of me tied to it. I was always praying for a breakthrough, and when it finally came, it made up for all the waiting. Still, it was tough, but no experience goes to waste. All that has toughened me up and given me the courage to go take risks and be able to survive them.
Another big misconception is that the business will always generate wealth. A lot of people have tied their identities to their business and its consuming them whole.
Their businesses are black holes. They have mortgaged their houses, borrowed up to their necks to keep the business afloat and they can’t seem to be able to break through or to let go all together.
It is important to take time to explore why one wants to start a business. If the reason is to make money, then you need to be willing to wait a really long time, and in some cases be willing to lose money or walk away from the business.
Consider working or interning for small businesses and/or start-ups where you will be able to see the ins and outs of a business and determine if you see yourself in that position.
2.That every business owner takes risksMary Muthoni, founder and chairperson at St Petroc Premier Schools
The biggest misconception about entrepreneurship is that everyone takes risks in business. Risk takers are a minority. Most businesspeople gain success by being smart, limiting risks, and planning carefully. The other misconception is that funding is always needed. This is not necessarily true. Sometimes you need to start with the little you have as opposed to always waiting to get funding from banks, friends, or family. People also say that you will be your own boss once you start a business.
That’s false – your clients will be your bosses. Also, you don’t need to quit your job to start your own business. Are you able to sustain yourself after quitting? Why not invest in a business and create systems that work for you? Lastly, there’s a myth that all you need is a great idea. The truth is, just because you love your idea doesn’t mean that there is an actual need in the market for it. Will other people get behind this idea? Get opinions from business owners you know and respect.
3.That a great business idea is all you need
Flora Mutahi, founder and CEO at Melvins Tea
Six months into running my business I realised that that not everything was as simple as it looked on paper. Free time was a mirage as I had to put in more works hours than usual to get the business going. That entailed doing everything from being the receptionist, messenger and accountant. Time also becomes your most valuable resource as you realise you only have so many hours in a day and you have to make an impact. How you spend your time has a direct impact on how much value you will produce. You have less free time as you always take your business with you wherever you go. What you do get is flexibility to manage your own timetable without necessarily answering to someone else’s time.
There’s also an assumption that all you need is a great idea and you’re ready to go. A great idea is obviously important; however, execution and timing are equally just or more important than a good idea. An idea will just remain an idea on paper if extra effort is not put in bringing it to fruition. No matter how good your idea is, it is only valuable if it solves a problem. The idea has to be feasible, practical and profitable for any form of execution to proceed.
Finally, there’s a misconception that you will start making money immediately because other people in the same business are making money. Far from it. It takes time for a business to break even. It is advisable that you have over six months’ worth of savings to be able to pay your bills. This figure varies from industry to industry, so it is advisable to speak to people in your intended industry and hear their story.
4.You do not need high returns and high savings to grow moneyBeth Thuo, vice president of Consumer Banking at SBM Bank (Kenya) Ltd
The biggest misconceptions about growing money is that you only grow money or create wealth when you stumble upon a great investment idea. What they don’t tell you is that a consistent saving culture is more important. Most people also think they are too young to save and invest. Saving then is not a priority and is delayed.
The reality is the younger you are when you start saving and growing money, the better off you will be. This misconception made me unconscious about present consumption and the need to apply wealth in a manner that created even more wealth.
I delayed the need to create a consistent savings culture from when I began earning, waiting for a moment when I would have “enough” to start investing. The best time to start saving is in your early twenties because you have fewer responsibilities and expenses. Time is a valuable asset, so an early start for savings compounds in value. Also, the best investment you will ever make is in yourself. Improve your network. Increase your expertise, talent and experience. Invest in becoming a better version of yourself. That will generate better long-term results, than any other investment, and the only one that will help you live a more fulfilling life.
5.That life insurance is a scamDorothy Ooko, head of Africa communications and public affairs at Google
Many of us let two main emotions around money dominate our decisions: fear and greed. That’s why we still believe the outdated mantra “Go to school, go to university, get a job, play it safe” when in reality no job is safe anymore. Covid-19 is showing us this.
For example, when you get a raise at your job, a wise choice would be to invest the extra money in something that builds wealth like stocks or bonds, which has medium to high risk, but also a very high reward. Maybe you find a good fund with a 60 per cent chance to double your money within a year, but a 40 per cent chance of losing it all.
However, most likely your fear of losing the money altogether will keep you from doing so. But when your greed takes over, you might then spend the extra money on an improved lifestyle, like buying a car, and the payments eat up the money – this way you’re guaranteed to lose 100 per cent. This gave me a glimpse of how important it was to educate myself financially. Now l think that had this been my way of thinking much earlier in life, I would have had more assets at a younger age.
Since we don’t really receive any financial education at home or in school, sadly, we make a number of bad choices before learning. No one ever talked to me about growing money. I looked at anyone who talked to me about it with great suspicion.
Take, for instance, life insurance brokers. I was taught to look at insurance sellers as thieves who just wanted to get commissions from my lack of knowledge. When I started working, I thought taking life insurance was a waste of money when l could travel and see the world. When looking for a loan for my first home, the banker asked if l had a life insurance which would serve as a collateral.
We calculated how much that would have been if l had invested earlier when l started working. We need to teach our children how to have a healthy relationship with money, and especially how to work for it and save it, and how to make money work for them.
6.That you need a loan to set up a business Esther Muchemi, CEO at Samchi Group of Companies and author of ‘Give Me My Mountain’
Many people have been made to believe that you need to have it all to start growing money. This is not true. Everyone has something they can start with. When looking for capital, for instance, always start from a place of possibility, a place of belief that something can be birthed from the little that you have. While there are some people who may have had significant capital at start up, majority of people (including myself) had to start from where we were.
When I started Samchi, I only had Sh50,000. The starting capital was so little that I couldn’t afford to employ anyone. I did everything from cleaning to selling and taking the stocks. Another misconception is that only the rich can save. You can start saving even as a student from the little pocket money your parent offers. We save by spending less than what we earn and by having the discipline to put away a portion and then reinvesting it. When you cultivate a culture of saving early in life, it becomes much easier for you to save later when you have more.
People also often say that money is the root of all evil. What determines whether money is good or evil is the use of it and the attachment or the relationship you have with it. What is the money being used for? Is it being used for God’s glory or is it being used only for pleasure? Does it bring pride? Or is it being used for a higher purpose? Money should be used to create a comfortable life for yourself and those close to you, but more importantly it must have an impact on the larger society. You should find the bigger purpose of the money. I believe in chasing wealth not riches, and I also believe in sustainable wealth creation. Sustainable wealth creation has a long-term view that outlast the current generation or season. Being rich is having the ability to spend lots of money now; being wealthy is accumulating assets that allow you to preserve your money for use in the future. I believe in being wealthy. There are several forms of capital that form a circle of wealth generation.
These are spiritual capital, social capital, human capital, innovation capital and financial capital. All these must be managed sustainably for long term benefits. Therefore, I advise people to work on creating wealth and not riches.
7.That you can’t grow wealth off your salaryTimothy Wambui, principal officer at Natbank Trustee and Investment Services Ltd
The three most common misconceptions about growing money are you have to have a lot of money for you to grow money; you are too young to start thinking about growing your money; and there are some asset classes where you are guaranteed that your wealth will keep growing forever (for example, property).
I was lucky to work in a wealth management firm right after college. Continuous financial planning training and interactions with clients made me realise than one can begin growing their wealth using their salary.
I had clients who started investing a very small portion of their salary and after four years, the growth was exponential. Previously, I believed that people aged over 40 are the ones who should be thinking about growing wealth.
The belief was that those under 40 have a small salary and huge bills to maintain, so they have no money and therefore cannot grow wealth. I realised this was a misconception when I saw my clients who began with the little monthly savings that saw their investment grow to almost double in six years. The property bubble burst in the United States which culminated in the global financial crisis in 2008 made me realise that property too can depreciate in value. The jury is still out on whether the Kenyan property bubble is bursting, but the point is if it can happen elsewhere, it can also happen in Kenya.
Diversification is the backbone of all investments. Once you diversify your investments across various asset classes, the risk is mitigated. Always engage a professional before investing in the stock market. You could also give full discretion to a professional to invest on your behalf. Natbank Trustee and Investment Services, a subsidiary of the National Bank of Kenya, caters for clients interested in investing in financial assets in the capital markets. We invest in stocks, and Treasury bonds and bills.