Friday, April 19, 2024
ECONOMYfeatured story

Most first-generation entrepreneurs lose their fortune, opinion.

Ndoro-Mkombachoto is a former academic and banker. She has consulted widely in strategy, entrepreneurship, and private sector development for organizations in Zimbabwe, the sub-region and overseas, she shares her opinion.

According to Ndoro, founding entrepreneurs or first-generation entrepreneurs are the first people in their family to start a business. They take the bull by the horns and throw all caution to the wind as they enter the entrepreneurial fray.

They are discouraged by family members and friends because, generally speaking, the socialization in the family is, “go to school, get a job for life, retire and die earning a pension.” Being a groundbreaker and a pathfinder in the family means that, within that family, there is no familial guidance as the ‘employee’ and not ‘employer’ mentality is rife in that family.

“Do not get me wrong here. Being employed for a life can itself be a profitable undertaking. In predictable market environments, always prevalent in the northern hemisphere, a job for life, coupled with frugal and good financial management sensibilities, has led many to enjoy decent and comfortable lifestyles and retirements.” She said.

In Zimbabwe, the yo-yo and unpredictable public sector policies have created an uncertain, unstable, capricious, and hostile business environment.

Over the years, those who have thrived and succeeded in employment are those who have remained top dogs at the apex of food chains in the C-suites. That is why, it is not uncommon to find people remaining in C-suites, for 10 years or more, in Zimbabwe, in organizations they have no skin in the game. They are acutely aware of the risks associated with untenable risks in the game of entrepreneurship, so they stay in employment, whilst having side hustles.

Many of those side gigs, have never truly constituted genuine entrepreneurship, because often, when the champions of these kinds of entities leave their C-suite positions, some unwillingly for that matter, they are forced to fall back on those gigs full-time and many of those gigs have floundered.

What is apparent is, unless you are chowing at the apogee of food chains, full-time employment could be riskier than entrepreneurship.

“During the last two weeks, we have had thought provoking revelations about the fact that 70% of families worldwide tend to lose their fortune by the 2nd generation, while a staggering 90% lose it by the 3rd generation.” Ndoro underlined.

Be that as it may, it has been observed that, particularly in under-developed communities across the globe, fortunes have been lost by those who toiled to start them. Zimbabwe is no different.

“Everywhere we look there are carcasses of evidence within the black community where the 1st generation entrepreneurs have found and lost wealth, essentially failing to have that wealth graduate to intergenerational wealth. There are several reasons for this reality, some of which are listed below:

Black tax

You cannot pour from an empty cup and neither is it wise to pour from a cup that belongs to a fledgling business, in essence eroding the capital base of that business.

While now used globally, black tax is a term whose origins are located in South Africa. It seeks to describe the ‘pay back’, through periodic, often monthly remittances, back home, by a family member, perceived to be ‘advantaged’ sending these monies to parents and other family members, who are yet to climb the ‘advantaged’ ladder. It is an expectation by the family back home, to fund the upliftment of the younger ones.

It extends to funding ad hoc expenses like funeral expenses of extended family members, medical expenses of parents and other family members, in some cases, contributions towards lobola payments, etcetera.

In many cases, the moment one gets a good job, gets married or starts a business, there is a huge expectation from parents, for the ‘advantaged’ member of the family to take on more responsibilities from the parents.

It is expected from both men and women. Oft times, when a first born son marries, they are given one more school going children to live with, whilst educating them full-time. These could be young brothers and sisters, a brothers’ or sisters’ children, and so forth.

It is perceived as a tax because those benefitting from this practice, do not see anything wrong with it. It becomes tricky when one’s business which is in its infancy, is expected to take on large familial bills through the founder withdrawing large amounts from it.

Sometimes ego plays a huge part as the ‘giver’ garners more respect within their family and neighboring community. The more the giver, parts with resources, monetary and otherwise, the more their ego is fanned, to the detriment of the business!

“Whichever way one looks at it, diversion of resources in the name of “ubuntu” or our culture, as a form of investment within the family, can be ruinous to the 1st generation entrepreneur, who might have borrowed to fund the greenfield venture.” Ndoro notified.

Premature scaling

There is always a good case for scaling a business. But timing is everything. Some businesses when they attempt to scale prematurely, might lose sight of the key factors that catapulted them in business, thereby ending up being all things to everyone, when their initial value proposition had a specific target audience. This can easily lead to failure.

A story is told of a local entrepreneur who scaled up too fast and yet there was no economic merit to do so, because turnover at store level was mediocre.

Instead of shutting down some of the stores, he went on a borrowing spree, escalating his financial commitment to keep the scaled up stores, that were unprofitable, open. As a result, corporate failure ensued and bankruptcy was declared.

Failure to diversity income streams

In a country like Zimbabwe, where government missed the memo on consulting sector stakeholders before policies are devised and announcements made, diversifying income streams has become a business imperative, in order to spread out the sector risk.

You do not want government to make an announcement and out of the blue, your business is rendered irrelevant in the marketplace. Diversity of income streams is crucial so that, if one source of income declines or fails in one sector, the impact on your overall business financial situation is not reduced, because other income streams from other sectors are able to offset the loss.

It is unwise to put all your eggs in one basket in an unstable market like Zimbabwe.

Diversification of income streams serves as an astute business strategy in order to provide more financial stability over the long term. For example, where a business has multiple revenue streams, across different sectors, it may serve to strengthen the financial well-being of the organization, reduce the business’s vulnerability to economic downturns, changes in consumer behavior as a result of affected disposable incomes, or unexpected events.

Many 1st generation entrepreneur who did not master this point, failed to weather tough times and maintain their positioning in their marketplace.

 

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