Don’t let hubris fell you

Mwangi runs a hardware shop on Ngong’ Road. His clients are mostly small scale constructers. Most of his clients are repeat customers who also send referrals his way. Mwangi is a simple guy; you will underestimate how much money he actually makes. His shop turns over millions every month and is profitable. Even in slow seasons like the present election one, his monthly profit is roughly about Sh500,000. Not bad by any standards. And because of this,

Mwangi has become a victim of hubris.

I’ll illustrate what I mean with cows. Imagine you had a cow that was producing milk regularly and faithfully, then somebody came along and wanted to sell you another cow. Maybe it has an exotic breed and at some unspecified point in the future, if fed, fattened, and cared for properly, would also produce milk.

You buy into the aspirational narrative that comes with the cow.

You slaughter your current cow for meat to get the money to buy this exotic cow. However, you forget one thing: Your old cow was giving you regular milk, i.e., regular money. This new fancy cow will take some time before it can hopefully produce milk. In the meantime, you have no money.

A NEW COW

Mwangi saw a new dazzling cow in his line of work. He felt that the natural progression was to enter the construction business. He bought some land in Dagoretti and started developing a commercial building. He has borrowed for this project, apart from using funds from his current business. Because of this new project he is slowly slaughtering the cow that has been feeding him.

The combination of loan repayments and construction expenses is taking at least one million shillings from him every month. At the moment, construction has stalled because he wasn’t able to make some payments on time. He also hasn’t paid some suppliers of his store. This construction is slaughtering the hardware business.

Remember, before this project, Mwangi would only take money out of the business if it was in profit. He could also make the decision to reinvest funds. Money is now being forced out of the business before it has a chance to turn into profit and is not available to be reinvested. Mwangi let his ego get in the way.

Mwangi’s mistakes are not rare. When a business or certain investment has done well for a time we can get overconfident with our actions and believe that somehow, things will work out. We lay down the same survival instincts that got us this far and we chase an expensive and irrational dream. Some people have killed their business by taking out funds to buy a house. Some have even done this with a car. Some have expanded into a product or area that does not make sense. Does this mean Mwangi should never have enetered construction? No. It just means that Mwangi should have separated the funding of it from his business – and so should you.

Taking calculated risks means that you have done the calculations. Mwangi did not. Learn from him and do yours. What are his options now? If he continues to squeeze himself like this, he will destroy the hardware shop, which is his true source of livelihood. It’s worth letting go of the building to keep his normal business afloat. He needs to stop sinking more money in. Give up the building owner aspiration for now and sell the project to someone whose version of the normal cow is this type of construction. Bigger (or looking bigger) does not necessarily mean more profitable. Hang on to your normal cow. It’s worth it.

To sign up for the Centonomy entrepreneurship programme, please contact Waceke on [email protected].