Learn from the way we turned financial losses around

Are you struggling with financial failure resulting from a bad decision? Don’t worry, many business leaders have been there too! Here’s how they got back on the gravy train.

Whether you are an investor, in business, or employment, one of the hurdles you will inevitably face is losses. The difference between losses and profits, though, is usually in the ability to stop losses or turn them around into gains. This is certainly no easy task. A few entrepreneurs and business leaders who have been there and learned their lessons tell us how they managed to turn their losses around.

Nancy Amunga

Founder and director of Dana Communications Limited, a communications and transport company

“When I was starting out my courier business a few years back, I pooled together start-up capital of Sh70,000. I needed at least two motorbikes which would be used to ferry products. However, I knew that the cash I had was only good enough to get me one motorbike, sustain a simple, small office, and pay a rider.

As I shopped around for a suitable motorbike, though, I attended a forum for young entrepreneurs which was hosted by a company that offered soft loans. In the forum, the company’s top managers explained that they were offering soft loans for the purchase of motorbikes. Borrowers were required to pay Sh30,000 upfront. They’d get the motorbike and settle the remaining amount in easy monthly installments. I saw this as a breakthrough. I would be able to get the two motorbikes that I initially needed to start with.

“Unfortunately, I got so ecstatic that I handed over my hard earned cash without conducting proper due diligence. I should have explored whether there had been any previous beneficiaries from that soft lending programme. The company went bankrupt and with it, my money. I had to start all over again, and since I didn’t have a fall back plan, I hawked insurance packages, sold newspapers in the streets and sold mitumba clothes at Gikomba market to build a fresh store of capital. I have learned that sometimes it is better to just take the lesson and forge ahead rather than wallow in the losses you take.

At the end of the day, you cannot learn without failing and losing.

Over time, though, I have observed that young entrepreneurs will tend to incur losses due to implementation of wrong business strategies that include taking miscalculated risks and bad debts. In my courier and communication businesses today, I have set both long and short term operational strategies as a shield against losses.”

Ndindi Nyoro

CEO, Investax Capital Limited

“Although the Nairobi Securities Exchange is one of the finest money making channels, there are times when you will make losses there. However, I have learned that the best way to cope and recover from losses at the securities market is to be patient. At the NSE, what goes down usually comes up. Don’t sell.

Furthermore, a drop in share price becomes a loss (if you sell those shares at that time). In other words, losses remain paper losses up until the time you sell at a loss. However, there is another way to deal with losses called “averaging”. If for example you buy a stock at Sh40 and it drops to Sh20, you can buy a similar number of shares of the same stock at Sh20 thereby bringing your average cost of buying price to Sh30. This means that when the stock appreciates to around Sh31, your aggregate stocks will be in profit already.

“For example, I bought KCB shares at Sh40 earlier this year, I tried to average at Sh30. However, just waiting has yielded even more as the stock is currently trading at around Sh45. You can also choose to diversify your portfolio to recover losses elsewhere. In this sense, you look at your portfolio in entirety. If you had made wrong moves earlier you can purchase different stocks that are more likely to appreciate. This may give the whole portfolio a lift. “Cutting losses is another way of managing losses. This happens when you purchase a stock at a high price, and then new information comes up in regards to the company.

Instead of taking a beating until the price bottoms out, you can decide to exit the counter until after the price has absorbed all the bad information. A case in point is for those who bought KQ shares at highs of Sh140 some years back. Some cut losses by selling at Sh100, SH70 or thereabout. They are in a much better position now than those who held on since the share is currently trading at around Sh5 a piece.

“Usually, there are certain factors that will trigger a loss especially at the securities market. When big economies (like the US and China) cough, the world catches a cold. Stock markets are usually the first to catch the cold. When we have recessions in big economies, local markets and counters get affected. At the securities market, you must be prepared to incur losses triggered by factors beyond your control such as elections, unrest, or famine. At the same time, there are also sectorial factors that cause losses. For example when the law capping bank interest rates was enacted, the entire banking sector went down.

However, losses at the NSE could also prove to be good entry positions to make profits. For example, when prices of the KCB stock fell to below Sh40 last year, prudent investors took position. They are now enjoying profits of Sh5 and above.”

Perminus Wainaina,

Managing Partner and Head of Recruitment at Corporate Staffing Services

“I have learned and improved from each of my experiences. I remember spending money on some marketing initiatives that were not yielding fruits and every time this happened, I had to go back to the drawing board to find out what we missed. This greatly improved our next offering. Additionally, from my experience in the world of business, I have learned that the most important thing to do is to stop the occurrence of further losses. Always do this when you realise that things are heading south. You must look at the situation in an objective manner; don’t be completely emotionally invested. Some people may continue making a mistake because they have invested a lot of (emotional) resources, which is never a good idea.

“Some time back, I invested in a stock on the NSE. Unfortunately, the stock lost 30 per cent of its value in a span of six months. The loss had been triggered by negative publicity that touched on some of the company’s owners. I could not have foreseen it since at the time of investing, everything regarding the company’s stability and future outlook appeared sound. To turn around the loss, I had to do two things. First, I continued buying the stock as I knew that the bad press would not last long. I also had to be patient if at all I was going to make any positive return. A year later the issues regarding the company’s ownership were clarified and the stock rebounded. I smiled all the way to the bank!

“From where I sit, there are two main reasons that precipitate losses. The first is failing to be extremely clear on the expected return on investment. If you are clear on the approximate returns a business or investment will give you, you will be able to sift worthy ventures from cash draining ventures. Also, rushing to make a financial decision is a booby trap. Even if the numbers point to a profit, if you are not deliberate in your actions, the probability that you will end up making losses shoots up since speedy financial decisions normally impair judgment.”

Quick takeaways: This is how we came back from financial loss

Kiprono Kittony

National Chairman of the Kenya National Chamber of Commerce and Industry (KNCCI) and CEO of Capital Airtime Limited.

You can always make a comeback: It is important to know that you can always make a comeback following a loss or failure. You must also have a good name in the market and be truthful with both yourself and your creditors. I learned this when our horticultural export business went under in 1995. We had exported horticultural produce to France and Britain under Fresh Produce Limited and didn’t get paid. Our firm collapsed and I literally had to start from the ground again

Bryan Kariuki

CEO, Cellulant Corporation (Kenya)

Get your head back in the game: After three months of working intensively to launch a business in South Africa, the company I was working for, Rocket Internet, pulled the plug on the project because the market was not ready. What did I learn? That while it’s important to be optimistic in business, one should never fight the realities of the market. I reflected a lot on what had happened which enabled me to come back strong in the next project, which was to launch.

Rocket Internet’s operations in Kenya with Hellofood (now Jumia Food). The most important thing to do after a loss or failure is to work to get your head back in the game as quickly as possible.