persistence

When faced with challenges, persist. Persistence pays. Perseverance always outlasts persecution. Perseverance is a hallmark of entrepreneurs. There is need to sacrifice in order to create long term wealth. Immediate gratification and consumptive patterns rob the future.

“In order to succeed, most of the things that we value require us to be able to break through the wall of short term pain in order to have long term pleasure. (However) many people focus on how to avoid pain and gain pleasure in the short term, and thereby create long term pain for themselves.” Anthony Robbins.

 

Pafunge!

Entrepreneurial Principles from Institutional Investors Perspective

Entrepreneurial Principles
1. It’s important to have a credible business plan and model.
2. Who you are is more important than your business idea. The substance and integrity of the promoters is critical because investors invest in people and not business plans.
3. Be prepared to lose control in order to grow the business. 30% of a bigger pie is better than 100% of a miniature pie. Promoters are sometimes shortsighted and once successful become greedy and want institutional investors to exit. They forget that these supported them when no one else would.
4. Give the investor a level of comfort so that he believes that he has a competent and capable steward over his investment. Investors take calculated risks.
5. Your past matters. Where have you been? What have you accomplished or done? How faithful and successful where you, wherever you have been? How did you relate to others? Can you be trusted? These character issues are more important than competence. The Bible teaches that faithfulness in another’s business qualifies you for your own.
6. Investors are comfortable in the credibility of a pool of resources and competences in a team of promoters rather than risking their money on one person’s skills. Whenever there is a team the robustness of the internal relationships among promoters is critical. Compare the Unibank and Century scenarios to solid teams like Trust, NMB,
Kingdom, ReNaissance, Royal etc.
7. Demonstrate to investors that you are also putting your own resources at risk for the business idea.
8. To build transgenerational businesses one needs stability of shareholder base. However depending completely on institutional investors may be unwise as these tend to quickly change their positions and offload their equity. Most institutional investors think short term. It follows that once a business is established efforts should be made to replace short term investors with some stable long term friendly investors e.g. Econet Wireless Capital and Meikles in Kingdom Financial Holdings.
9. Entrepreneurs in the banking sector coming from a poverty mentality failed to convert to an abundance mindset. Consequently some focused more on personal success than the success of the business that would create transgenerational legacies.
10. Have a clear perspective of the purpose for wealth creation agenda. Why are you creating wealth and for whose benefit?
11. You can not build a structure without solid foundations. Success is about principles and values rather than gifting.
12. Do not be a copycat. Understand the business and the rules of the game you want to play.
13. Refrain from being greedy and selfish. As you share the cake, your piece grows.
14. Be transparent with, and communicate with clarity to investors and customers.
15. When faced with challenges persist. Persistence pays. There is need to sacrifice in order to create long term wealth. Immediate gratification and consumptive patterns rob the future.

“The one thing people and nations must understand is that in order to prosper they must be willing to sacrifice. I am willing to sacrifice now – knowing that the benefits will manifest in the future.” Founder of Daewoo.

Entreprenurial Principles

An extract of entrepreneurial principles drawn from the Trust Bank case study.

1. Perseverance always outlasts persecution. Perseverance is a hallmark of entrepreneurs. Its not for the fainthearted or the easily quit types.

 

2. Entrepreneurs are prepared to risk their own resources for the entrepreneurial dream.

 

3. Entrepreneurs are risk-takers. They however take calculated risks. Do not assume unnecessary risks without a cost benefit analysis. Risk taking does not equate to foolishness.

 

4. Broadening shareholder base spreads the risk of entrepreneurial ventures. Including employees in equity uptake motivates them.

 

5. Staying close to the customer and improving customer responsiveness is key to entrepreneurial success.

 

6. A strategic mindset is vital for success.

 

7. Entrepreneurs know how to handle loss and failure without allowing them to incapacitate them. In fact they view these as learning experiences.

Entrepreneurial Principles from ReNaissance Financial Holdings

Editor: I have left this post exactly as it is in Entrepreneurship On Trial which I penned in 2010 for a purpose.

Entrepreneurial Principles

This case study shows how an entrepreneur was formed, how each decision led to new doors and greater opportunities. It’s too early to adequately evaluate the FML foray. So far so good! But what events could cause this to become an albatross? How might Timba
avoid those vulnerabilities? What are the likely scenarios of how this investment will proceed from here? How might Timba proceed more effectively? What risks should he avoid taking? Answering these questions is the challenge of strategy.

The learning points for entrepreneurs from this case study are:

1. An entrepreneurial business is built on a solid business model and philosophy. The business model can be remodelled, as Prof. Mitchell argues so powerfully in his books.

2. In entrepreneurial investments sometimes one does not have to own the asset if he can control and derive benefit from it. For example using Econet Wireless Capital’s resources when his had run out, Timba managed to acquire control of FML.

3. A keen concern for the human resources of the entrepreneurial venture and delivering value to them increases the value of the business.

4. Cultivating and protecting a network of relationships is critical for an entrepreneur. Timba’s relationships with Strive Masiyiwa, Shingai Mutasa and Gideon Gono, for example, have proved beneficial to him.

5. Business challenges can be converted to opportunities, depending on how one views them. It all depends on one’s mindset. The threat that FML posed to RFHL was successfully converted to an immense opportunity.

6. Decisiveness is critical to entrepreneurs but this does not imply risk-taking without counsel. Surrounding oneself with strong leaders who can offer counsel is beneficial in the high stakes game of business.

7. A strong and supportive family environment is crucial to business success.

8. At times, fortuitous decisions define an entrepreneur’s path. Strategy is not only planned but can also emerge. There is an unseen hand directing the steps of humanity. At times it is important align to oneself with that direction.

9. Prior experiences enable an entrepreneur to face more challenging tasks. Entrepreneurs analyse their experiences to derive learning points. Timba gained critical experience in being faithful and diligent in handling other people’s business and this qualified him for his own.

10. Entrepreneurs are very deliberate in their strategic thought processes.

Benefits of Strategic Alliances

Purpose and Benefits of Strategic Alliances

From a theoretical perspective, strategic alliances bring enterprises
numerous benefits as discussed below.

• · Increase in capital for research  and product development and yet lower risk associated with new product  development. This facilitates innovation. Trust Bank wanted to develop a  sustainable product for export agriculture. It therefore created a strategic  alliance with Europort, a consortium of horticultural farmers, to create Trustea  (Trust Export Agriculture). In the deal at listing, Europort was offered some  Trust Holding shares and Trust acquired an interest in Europort. This created  mutual interests and assured Trust of a committed client base, thereby reducing  the main risk of product development, having no takers for the product. It was  assured of customers. The close relationship enabled Trust to acquire knowledge  of the structure of the agricultural market in general, giving it a competitive  advantage in crafting products relevant to the agricultural export market.
• · Decrease in product lead times and  life cycles (time pressures).
• · Ability to bring together  complementary skills and assets that neither company could easily develop on  its own. The Heritage Group, which owned Bard Discount House (100%) as well as  significant stakes in First Merchant Bank Holdings (FMBH) and udcH, championed  an equity-based strategic alliance of the three companies through a share swap,  creating African Banking Corporation (ABC), a huge investment bank. This  strategic alliance created synergies and complementary skills that made ABC a  huge regional bank. Subsequently the bank dually listed on both the Botswana and Zimbabwe Stock Exchanges.
• · Access to knowledge, expertise and  complementary resources beyond company borders (technology and resource  transfer). The key to technological competitiveness is an ability to manage a  portfolio of technologies that have become increasingly complex and more  integrated. But the increasing complexity of technology, the rising costs of  R&D, and the need to integrate new technology quickly to obtain maximum  advantage have made it nearly impossible for companies to develop internally  all the technology they need. In the case of proprietary or highly specialized  technologies, alliances may be the only option, but even when internal  development is possible, technology alliances can be an attractive alternative.  Alliances are almost always the fastest and most cost effective way to gain  technological competence.
• · Rapidly achieve economies of scale,   critical mass and momentum (-bigger is better).
• · Expansion of channel and  international market presence. Trust Holdings and FML consummated a complex  strategic alliance deal which was meant to enable each organisation to enter  new foreign markets.
• · Building credibility and brand  awareness in the industry. First Bank was an underrated bank until it acquired  controlling equity stakes in a building society and an insurance company. This  increased its brand visibility and credibility.
• · Providing added value to customers  through value added services. Most banks created strategic alliances with  technology firms and cellular firms to provide value added services to their  clients e.g. bill payments through cell phones.
• · Beating rivals in the rush to  market. Speed to market is particularly important. The greatest share of  profits usually comes at the beginning of a product’s life cycle. In some  highly competitive sectors, such as the financial sector, being late to market  can spell death for a product. If a company is sufficiently quick to market, it  can pre-empt competition and lock up market share. Since development and  perfection of technology is one of the most time-consuming aspects of product  development, outsourcing key technology can dramatically cut lead time.

Harvesting Your Investment

Exit and Harvest

Entrepreneurship, like any investment, requires definite strategies for exit and harvest at the appropriate time. If these are not planned for in advance there is risk of forced departures or overstaying at the helm to the detriment of the organisation. A number of the entrepreneurial bankers were forced out of their investments through poorly crafted and ill- intentioned regulations.

Initial public offering of shares of the company is a way of harvesting a portion of the initial investment while growing both the organisation and the value of the entrepreneur’s wealth. A significant number of banks listed on the stock exchange and reaped enormous benefits. The advantage of this is that one reduces one’s shareholding while reaping from the investment. The harvested investments can be re-invested in other projects rather than having all wealth tied up in the venture.

Another exit mechanism is through sale to family members (succession), to management as a buy-out or buy- in transaction, or as a trade sale to outsiders. CFX was a bureau de change which bought over the merchant banking licence of Unibank to create CFX Merchant Bank. From this transaction the founders of the failed bank harvested their investment and exited banking.

Some financial institutions were liquidated due to liquidity and insolvency challenges they faced. However liquidation normally indicates a failure by entrepreneurs to manage the preceding challenges that emanate from entrepreneurial growth. This results in the loss of the investment capital. A well managed entrepreneurial venture can provide an exit strategy that is beneficial to the original shareholders.

A final harvesting or exit strategy is through controlled growth due to a strategic decision to consolidate and focus. This strategy is currently being embarked on by most banks in Zimbabwe. The Central Bank had instituted a floating USD linked capitalisation structure for banks. This forced many banks which held numerous banking licences to consolidate their sister companies into commercial banks. This would allow them to release the other licences, e.g. merchant banking, discount house, and convert these into divisions under the commercial bank.
Others have had to make decisions to quit certain market segments completely and focus on core business dependent on their core competences. Others have had to reduce their involvement in regional markets, initially in a bid to build the local institutions. Later the central bank de-linked the issue of capitalisation – but it had already affected the strategic thrust of many banks. This highlights the challenges of ill considered and frequent policy reversals.

This posting demonstrates the need for an entreprenurs to have back of his mind the way he will exit his investment.

Challenges of Organisational Maturity in Entreprenuerial Organisations

In today’s post we look at the challenges faced by entreprenurial organisations as they mature and become bureacratic.

As the banking organizations grew larger, their nature and methods of operation changed. More formalized structures, processes, information systems and controls became necessary, thus producing several layers of management. This bureaucratic structure distanced the entrepreneurs from the customer while creating a layer of middle managers who have been billed as “enemies of innovation”. The organisations became bureaucracies, which hindered innovation. As Nigel Chanakira of Kingdom observed, “As the bank grew it lost its agility and got buried in a bureaucracy.”

The challenge for entrepreneurs is discovering how to instil and extend the recognition and capture of innovation throughout the organization while maintaining customer orientation. Franky Kufa at Kingdom created time to visit with large customers in their offices offering advice and counsel without directly soliciting their business. He contends that this process has been possible because he has let go of managerial work and focuses on the strategic issues. On one such visit to Bulawayo he noticed how the client was losing value and advised him on how to make more
money. When this was followed up, the client’s performance greatly improved. Benefit accrued to Kingdom as the client’s banking with Kingdom increased while at the same time the client’s board members requested Kingdom to create more financial structures for them.

Chris Goromonzi and the team at Trust reduced the distance between the entrepreneurial founders and the client by making sure that on most financial structures at least an executive director would be actively involved and visit the clients. The clients appreciated that they were not relegated to junior bankers. These strategies kept the entrepreneurial bankers close to the action while they mentored the younger bankers. It created an opportunity for customer loyalty as well.

Evidently, as the organisation grows, an entrepreneur has to actively and intentionally seek to preserve and maintain entrepreneurship and innovation, for without constant attention the forces of bureaucracy would stamp it out. It has been noted that with the growth of the industry a significant number of banking services became generic as banks copied each other rather than producing innovative services and products.

Entrepreneurial growth is usually good and desirable as larger companies have more resources, greater credibility, and a deeper and more varied human resource skill set from which to draw. However it is easier to be nimble and change with new knowledge and innovations when you are small. Finally only the constant attention of entrepreneurial leadership can provide the force necessary to keep the company entrepreneurial and opportunity seeking.

Another critical role of entrepreneurial leaders at this stage is to a) provide the vision, b) participate in its dissemination, c) share in its interpretation and d) support and coach during its execution.

 

Extract from Entreprenurship On Trial 2011 Rapha Trust

Changing Personal Goals

As the entrepreneur grows and matures his goals change and necessarily the organisational goals may need to change to reflect this. Consequently this often leads to a change of strategy as well. If this is not managed well there will be conflict between the entrepreneurial founder and professional managers or other shareholders. Conflicts also arise when an entrepreneurial venture has co- founders whose goals may diverge with the growth of the enterprise. This may lead to either significant internal corporate fights or disposal of the enterprise to outside investors. When Century Bank was growing, the founding directors’ vision diverged resulting in the ouster of CEO Jefta Mugweni by his deputy and co- founder Gary Shoko. Thus entrepreneurs should plan for this and establish a process for the orderly dissolution of the partnership if differences between the owners can not be resolved.

Sometimes as the entrepreneurial venture grows the original shareholders acquire significant wealth, which opens up new opportunities for their investments. These new opportunities may be at variance with the best interests of the entrepreneurial venture. For example Dr Mthuli Ncube of Barbican Bank developed an interest in mining and for a great while explored the possibility of the bank underwriting the takeover of a 15% stake in a huge mining conglomerate. At the time of this writing it is not clear whether the beneficiary was Barbican Holdings or another vehicle in which Ncube had an interest.

However the bank did not have the capacity since it was too small to fund thistransaction.

Similarly the entrepreneurial executive directors of Interfin Merchant Bank are reported to have used the bank’s influence and resources to fund personal investments into different sectors of the economy including furniture, hospitality, real estate, construction etc. The challenge posed by these diverging personal interests is not only financial but also a loss of concentration on the management of the primary entrepreneurial venture. Issues of conflict of interest may also arise.

This post confirms that the entrepreneur should keep his eyes on his personal interest and manage them so that as they change they do not adversely affect the investment. Similarly when the promoters are a partnership it is important to manage the personal interests of the partners and monitor them as they change. Strategic flexibility should be built into the shareholders agreement to cover the eventuality of changing personal interests over time.

Extracts from Entrepreneurship On Trial by Dr T. A. Makoni

Leadership versus Management

As an enterprise grows there should be a change from a leadership focus
to a management focus. In other words, dependent on the size, complexity and
diversity of the organisation, the dominant leadership profile needs to change.
The enterprise leader stops being the management and manages through
delegation. At inception the entrepreneurial venture is led by the visionary
who in most cases embodies strong leadership competences. However leaders
thrive on change and conquering new ground. They are forward looking and are
spurred by the thrill of the hunt more than the maintenance of what has been
acquired. The entrepreneurial bankers grew their organisations to levels where
there was a need for strong managerial competences, which most of them lacked. At
this stage it was observed that systems were inadequate and cases of serious
fraud were unearthed within some of the banks.

Nigel Chanakira observed, with the wisdom of hindsight, that the move
into commercial banking for Kingdom was premature as there were no managerial
competences to handle it. This situation was rife in the banking sector as most
of the banks converted from merchant banks into commercial banks with
inadequate management competences. Commercial banking is complex and risky as
compared to merchant banking which requires a small staff complement and fewer
people having access to cash transactions.

Some banks, e.g. NMB and Kingdom, worked hard at creating and acquiring management systems. NMB had a deputy managing director who had been an auditing partner with a chartered accounting firm and was good at systems. He effectively acted as the Chief Operating Officer. Because of this, even when the bank had an aggressive run on deposits and an assault from predators after the forced exit
of the founding directors, it remained stable because of strong managerial
systems. It survived where many others could not stand. Kingdom benefited from
a decision to acquire managerial skills through a management agreement with a
Holland-based bank which provided seasoned bankers to complement its skills
base. These helped create systems for the bank. Unfortunately this agreement
seemed to have lapsed by the time it entered into the commercial banking project
when it needed it most. The shortage of foreign currency in the country could explain
why Kingdom did not renew the contract or find a replacement, as the service fees
would have to be paid out in foreign currency.

Other entrepreneurial bankers were hesitant to delegate management
functions as this would have meant the risk of entrusting their hard earned
investments into the hands of others who might make mistakes with them. For
many entrepreneurs, delegation is not easy as it implies that they have to:

• · manage and coach people instead of
  just making the decisions. This is particularly hard as leaders pride
  themselves on their decisiveness.
• · Stand by and watch people make
  mistakes with their money.

The governor of the Reserve Bank correctly diagnosed the need to
separate the leadership from the managerial role. However what is disputed is
whether this was the right time in the life span of these businesses to move
them into the hands of professional managers and whether it necessarily implied
an expulsion of entrepreneurial bankers from their own investments.

This raises an issue of conflicts in leadership theory on the role of
managers and leaders. In my view, managers are concerned with the stewardship
of resources whether material, financial or human. Consequently they tend to
exhibit a more conservative approach.

This in no way makes them subservient to leaders in importance. They
play a critical role of maintaining and conserving what would have been gained
through the entrepreneurial activities of leaders. They build the capacity to
contain and grow what leaders acquire and exercise innovation and originality
in their sphere of influence. Managers thus are creators of structure and
systems that enable consistent performance while reducing chaos and risks in
the work place.

Leadership experts, Kotter and Buckingham both contend that strong
leadership and strong management are needed in large organisations. Kotter argues
that strong management alone discourages risk taking and enthusiasm while
strong leadership alone disrupts an orderly planning system and undermines the
management hierarchy.

It is my view that with start- ups there is more leadership first and as
they grow into complex organisations, one needs to have strong management
coming on board to bring order and create systems. A failure to appreciate this
has adversely affected the Zimbabwean banking industry. Since 1998, when the
financial services were deregulated, there has been explosive growth of
financial institutions with new banks being born as entrepreneurial bankers
exploited the opportunities. However as these new banks grew, the
entrepreneurial founders continued to create innovative products and assume
risks without strong managers to create order and structure to the increasingly
complex organisations. This led to a major crisis that resulted in some of
these banks collapsing.

This is a case of entrepreneurial organisations which were “over-led and
undermanaged”, contrary to the situation in developed countries wherein
companies are mostly over- managed and under- led.

The decision for the delegation to professional managers is dictated by
the entrepreneurial life cycle stage of the businesses. In the growth stage one
still requires a strong leadership role. However in the maturity phase there is
urgent need for strong managerial competences.

In retrospect, although the RBZ’s view that banks needed strong
managerial competences was correct, the decision to force strong
entrepreneurial leaders out of management was unfortunate. The industry had not
reached maturity stage at that time. It was in a strong growth mode within a
high risk and highly competitive environment which necessitated strong
leadership roles. The sector needed both strong leadership and strong
managerial roles within banking organisations. Strong managers and strong
leaders are not mutually exclusive. It can be argued that the positions of both
the bankers and the central bank were faulty because they were largely based on
an either/or perspective. Strong entrepreneurial leadership would have
benefited from strong managerial competences at this critical stage in the
growth of the financial services. We needed banks which were both well led and
well managed.

Extracts from Entreprenurship On Trial by Dr T. A. Makoni

Entrepreneurial Lessons from Kingdom Financial Holdings

Extracts from Entreprenuership On Trial by Dr T. A. Makoni 2011

1. The fallacy of explosive growth unmatched by managerial competence in a fast shrinking economy. The commercial bank project could have been slowed down or postponed. Errors in strategy, competence and attention to detail occur when growing fast. It is critical to ensure that there is sufficient capacity to maintain and manage the growth.

2. Monitoring regulator risk and scanning the environment to reduce exposure. Who is your regulator? Keep your eyes set on what he is doing and planning to do and what impact will it have on my business model.

3. Failure to synchronise the values of key players will ultimately sabotage the entrepreneur’s dream. The case of a visionary being very clear where he wants to take the business and who he wants to help him take it is vital. Nigel’s partnerships with business executives and non-executives was successful up to a point when KFHL soared from a start up company in 1994 to becoming the Top Company on the ZSE in 2001. Nigel may be faulted with taking his focus and control off the affairs of KFHL in the very trying period of business upheavals in Zimbabwe in general and the banking sector. In his own confession, the spiritual foundations of KFHL were shaken in his own life and perhaps the unequal yoking with fundamentally different partners. He yoked with people of significantly different values like a Hindu, a traditionalist and others.

4. An entrepreneur needs friendly equity holders on his team to safeguard his investments and reduce risk of a coup. This should be coupled to a certain degree of executive leadership control. Professional managers do not always seek shareholder value, they can also be self- serving.

5. The strategy of regional penetration with minimal capital requirements almost caused the loss of the Botswana venture and yet a significant strategic thrust depended on this venture. It is therefore important to maintain strategic consistency.

6. The Kingdom entrepreneurial model was based on a core skill set of competences. The initial partners were chosen based on desired competence set. This is critical to assess competencies of partners rather than to just focus on friendships without considering the value they add.

7. A strong HR policy is required to undergird significant growth.