Making career transition from salaried employment to entrepreneurship
Although it had been clear to all for quite some time that the old Kenya Cooperative Creameries (KCC) was heading towards the rocks, few of its employees actually believed it would hit the bottom that soon and with such a thud! Suddenly, and under unclear circumstances, the massive corporation had changed from being a farmers' entity - a cooperative - into a privately owned one. And in the newly found zeal to turn the corporation back to profitability, its new owners had gone on mad a spree, closing down almost all of the corporation's satellite plants. This is how Andrew Kiprop, a father of four, found himself on the road again and jobless, after faithfully serving the corporation as a supervisory for 12 years.
"The whole saga was mind boggling," he explains. At home, his wife and children sympathised much with him, though they still expected him to put food on the table each day as usual. Finally, he had to tell them the truth: the loss of job meant some harsh changes to lifestyle. To start with, the week-long grace period had already expired and they had to vacate the company house immediately. Many more adjustments were on the way too; the kids had to transfer from a private high cost to a public primary school - one they had for long despised. With Andrew's dwindling savings, changes in eating and dressing habits were inevitable. In retrospect, says Andrew, losing a job at the height of an economic slump was not a lovely experience."
With his remaining savings and no job prospects in sight, Andrew finally made up his mind to get into business, buying milk from farmers in Nakuru and delivering it to restaurants in Nairobi. This he has done since 2002, and he is evidently miles ahead from where he started. But to this day, and despite his professional qualifications as a food technologist, salaried employment is a predicament he would rather not find himself in again.
In recent times, more people have suffered the same fate as Andrew's and have mastered different survival tactics. In spite of this, the fear of losing one's job can be motivated by many reasons. For one, few people would wish to give up the financial security and social status that come from a stable job. Fewer still would be brave enough to quit for an untested idea, especially if they have pending loans or a mortgage to repay. Change of lifestyle and loss of company house among other side kicks, or fear that one's skills might not be adequate to run a business can also motivate one to tighten his grip on the job he has, even when it is clear that he would be doing better on his own.
Experts say the chief cause of such anxieties is usually lack of adequate information on which to base one's decision. If you knew you were going to lose your job within the next six months, you would certainly put in place a strategy to ensure that you do not land on your head when the inevitable finally happens. So, the question begging for an answer is this: must people be threatened in order to make them realise a better lifestyle or a more productive way of using their skills?
"If we are committed to making a better life for ourselves and our dependants," says Alice Makau, a Nairobi based personal finance expert, "then we shouldn't shy away from making important decisions when the occasion calls upon us to do so".
Contrary to this, you will be surprised to learn that a large number of today's successful entrepreneurs indeed never dreamt of becoming one. Some were even averse to the whole idea of starting a business. But tossed into the ocean by retirement, retrenchment and the massive layoffs of the 1990s following a decade of economic recess, most of the then unwilling casualties have now learnt not only how to swim, but also how to dance with the sharks in the deep seas of entrepreneurship. Like Andrew, many of them today run thriving businesses and on their own premises. These are the people who now provide a significant proportion of job opportunities in Kenya.
Nevertheless, the spirit of entrepreneurship thrives even among salaried employees, and some of them already run their own businesses on the side. The best thing about this is that besides supplementing family income, such ventures also create employment, pay taxes, and offer the proprietor a cushion in times of job loss, ill health or retirement.
This is enviable. But trying to find their way into the world of business, a many salaried potential entrepreneurs reason that they would rather save enough cash first, and then look for a suitable business in which to invest. Though a good idea, a better one would be to start by identifying a business idea and assessing its market potential before pouring in your savings into it. This would give one a better picture of the required financial commitment and enable good planning.
Still, there is a lot more to being a successful entrepreneur than having adequate capital alone. One needs to invest long working hours, develop persistence, learn financial discipline, and above all, acquire the necessary skills on how to deal with staff and customers.
However, experts are clear that although a business can greatly boost one's financial standing, transition from paid employment to entrepreneurship poses significant risks too. For starters, a business can take a considerable amount of capital to kick off, but take longer than expected before it turns in its first profit. Should this catch the entrepreneur without adequate back up capital, the easiest reprieve is usually to eat into other accounts, with the first casualty being cash for domestic upkeep. Once this gets exhausted, some resort to taking loans to shore up the business. This brings to the front the importance of contingency planning even for the simplest of all investments.
Sound planning is much like doing the plumbing before letting in the water: it acts as a guide. Planning ensures clarity of thought in decision making both at the inception of business and as it grows, and also guarantees that every cent you invest goes towards ensuring the success of the venture. There is no definite order in which thoughts of starting a business must follow, but below are some brilliant considerations that you should make before promising your boss a more interesting job under you!
Identify a unique business
For many would-be entrepreneurs, every conceivable business idea seems to have been exploited to the hilt. And while you count some of such lacklustre opportunities around you, someone starts another "mundane" venture right at your doorstep, takes off and you see it grow into what you thought you too could do. Deciding on the field and focus of your business is perhaps the most challenging part of it all. But naturally, if your heart yearns for a certain kind of venture, the passion can give you the necessary endurance to see your brainchild through the initial challenges of starting up and turn you into a first line business person.
To start with, take the time and discover yourself. Do you feel deep within that self employment is the best thing for you at this point? If your answer isn't certain, thank yourself for being honest. Do not spend your savings doing the very thing you don't believe in, or starting something good at the wrong time. But if you are convinced that you are ready for business, then take the next step: conduct a field survey and identify a market that is either unexploited or is not being adequately served by the existing players.
Think of an area in which you have adequate talent and skills, or where you can easily access these to back up your quick start in case you are running against time. Also, consider offering a product or service that is unique enough to establish your identity, yet broad enough to ensure a wide customer base. Monitor the competition, the strengths and weaknesses of competitors, and how you can offer value added services. Above all, remember the importance of a good location that is easily accessible to your customers.
Work out a realistic financial plan
Armed with your unique business idea, take some quiet time and work out how you are going to transform those ideas into reality. In other words, make a business plan. At all costs, resist the temptation to postpone this crucial requirement, since every moment you spent on planning will be handsomely rewarded in due course.
Put down how you expect to spend your capital and how you expect the cash flow at your business to be in terms of expenditure and income for the first three months, six months, and in a year's time. This will help you avoid depleting your account too soon on avoidable expenditures at the start up stages, while giving you a pretty picture of when to expect the business to register its first profit. This will also give you the anticipated health of your business and help you plan on how soon you can diversify and in which direction.
Often, debut entrepreneurs err by focusing more on selling goods than on making profit. Granted, one can give a discount at the beginning to lure new customers, but this should only be done to the extent that it makes economic sense.
At this point remember to draw a thick line between your personal finance and business cash. It is ironical that while personal financial sacrifices that you make in order to boost your business will count as investment, similar sacrifices on business finances in order to champion a personal agenda will negatively affect your business. To avoid this conflict of interest, you will be required to set up two separate accounts: one for your business and the other for your personal finances.
While you are still working, set aside enough cash for each of these accounts before starting the business as a cushion, just in case the business takes longer than expected to pick up. A few months' worth of your average monthly expenditure (including health, rent, school fees and other recurrents) for the personal account isn't a poor bet, while the chest for business account could include several months' worth of rent, staff salaries (if any) and other recurrents, depending on the nature of business.
Discuss your plans and build your network
As Terri Lonier writes in Working Solo Sourcebook, sharing information with like minded people creates a dynamic synergy that is impressive in its power. Not only does speaking out your mind make your vision more clear to yourself, it also gives you an inner conviction of whether your vision is indeed achievable.
People have different experiences of success and failure in businesses, and discussing your plans with trusted friends can help you tap into this reservoir of experiences free of charge. This can help you identify possible pitfalls along the way and help you chart various avenues for growth. Besides, it gives people an opportunity to contribute to your success by committing to assist in various roles that suit them. Such friends can also bring along an important resource to your business: their individual networks of friends and professional associates to be among your first clients.
Financing your Venture
Some of the most common methods of financing a new venture include savings, as well as loans from banks, SACCO's, micro-finance institutions, non-governmental organisations or other informal groupings. Another common way of raising capital is borrowing from relatives or inviting them to be shareholders in the investment. In all these methods, repayment is expected and you might be required to give some form of security for the amount of money you borrow.
With the current upward turn of the economy, there are certainly more opportunities for new businesses than ever before. Local banks have developed innovative products, among them personal loans with flexible terms of repayment, which offer a good source of capital for the already employed potential entrepreneur. Personal finance experts advise that if you ever dreamt of starting your own business, the time to start 'growing your wings' is none other.
Tips, cautions, and information
- Money is like eggs; resist the temptation to invest all of it in one deal. The business idea might sound convincing and water tight, but you never know how many unexpected twists and turns could arise along the way.
- You might have an idle relatives or friends, but if they are not competent for the job, better hire professionals. There are countless cases of business owners hiring incompetent relatives and paying them highly to supervise their productive counterparts. This becomes a recipe for business failure as it leads to de-motivation of those hired on merit.
- Give a great deal of consideration about going into partnership with other people. The failure rate of partnerships is very high. Sometimes it is because of poor planning, or lack of capital, but most often it is because the partners can not get along. When there is a clear division of duties with skills to match assignments, as would be the case if an engineer handles manufacturing and someone experienced in sales takes care of marketing, agreement is more likely. But when partners, even very good friends, of similar interests and talents try to make decision on the same matters, problems frequently arise, especially in times of trouble when emotions enter the picture.
- If you have registered a limited liability company, be sure to keep the books properly and hold board and other stakeholders meetings as scheduled. Also, keep the minutes of each meeting properly, they form a very important part of your company's history.
- Irrespective of the type of your business, prepare trading profit and loss statements each month. You might need them when seeking funds for business expansion, inviting new partners, or when assist you in coming up with a good price in case you decide to sell your business later on.
© 2007 John Wanjora
First Published in Small Medium Enterprises Today Magazine, Nairobi.