The other day, I was in a Matatu busy “reading” facebook when this strange number called me (is strange even the right thing to say?). The caller was a young founder who was curious. He didn’t waste too much time on the preliminaries (I trained them on making savings on calls), he shot straight, “Mwalimu, other than profit, how else can I measure the success of my business”. That caught me off guard, I needed to think up things, but also, those are not answers you give while seated at the back seat of a 14 seater (remember you are an upcoming biz consultant), so I promised to call back a little later which I did.
It isn’t an easy question, especially if you don’t want to go fully academic. The underlying measure must always be the profit (the sophisticated call it bottom line or return on investment), otherwise hii sio missionary work. A cautionary note: You will need to resist the temptation to consider proceeds from sales as profit. Even the smart attempt of subtracting the purchasing price from the selling price still won’t be enough. To tell if you are making profits you must take care of all costs, something you may not easily do if you want to consider individual sells (deals). You can only begin to get a clearer picture after a longer period, say a month to a quarter. In fact most companies will only be comfortable to consider profitability at the close of their financial year. Don’t you pity the Agripreneurs who are wont to run to figures? You easily hear that an acre of melons can make you 400,000k. What they forget to tell you is the cost of all the inputs involved right from planting to selling. No one even mentions that you may need to divide the balance you get after subtracting the costs by 3 to see if the monthly profits are really that good. Not to bore you. Here are other important considerations
If you want to consider broadly the financial success of your business you might want to ask an accountant to take a look into your books. There are things they do they call ratios. From these, they are able to check how much output you are getting from the input you put into the biz (Kizungu sio mdomo changu). There is what they call liquidity ratio for example that shows the relationship between your current assets versus your current liabilities. This helps point out if you are building your business on quick sand of too much short-term debt which often translate to quick death on the smallest of shocks. Then there is also the profitability ratios that will show you how much profit you are making as compared to the revenues you make (the profit margins). There are businesses that have low margins e.g. petrol stations whereby a liter of fuel (soon to be 120) leaves the seller with less than 10/= as profit. To make good profit, therefore, you need to sell big volumes. On the contrary, a guy selling those earth moving tractors “Caterpillar” may only need to sale one per month and he is into much bigger profits. The other ratio is the capital structure ratio that tells you how much of your biz is yours. You might be making some profits, but you will not boast with a biz whose total liabilities (debts) are far more than your own holding in share capital. Otherwise, if you sold your biz today and first had to settle debts then you would need some guys wakuchangie fare. The ratios are many. We may not exhaust them here but like I keep saying, you can get a good accountant even for 1k monthly and (s)he will sort you big time.
Although in our biz culture what matters is the money you make and boast about, other cultures do consider the social impact their business creates. A Kenyan entrepreneur whose main motive is to make the optimum profit with every single sale (deal) will be shocked at how entrepreneurs from the first world view success. The things they consider…
Longevity of the Business
It is not uncommon to hear guys taking particular pride in how long their business has been around. Easy to hear someone say their chemist biz in the fourth generation (that’s like 100 years). Of course from the tone they will have, you will realize they don’t think it’s their turn to kill the biz. The learning curve for any enterprise is usually steep. Very costly to master your systems and to know the details. Just like everything that grows, it gets better with time.
Number of Employees
There are places in this very same earth where entrepreneurs really care about their employees. The more the employees the better. To them, the number of employees and families they support it’s a badge of honor they wear with pride. This also challenges the employees to do all the best they can to see the biz succeed. Again, it’s also not uncommon to hear of someone working in the same company his dad and granddad before him worked. How about building a company where you know your son and grandson will find ready jobs? Not easy; but if you didn’t spent time planning how to steal from your job that might just happen. It would in fact almost be guaranteed if the entrepreneur was also encouraged not to ‘steal” from his own business and employees.
Number of Customers
Do you know how many business ideas get born and die without even making a single sale? Yeah! Sometimes it’s very hard to get customers. It is therefore important to celebrate each customer you get. Better still, every loyal customer you have should always take priority in your prayers. Depending on the business model, some businesses don’t even need to make money from the customers directly, all they need is just to have the customers. How does People Daily make money? How does Facebook make money? Will you be shocked that a business that sells nothing like WhatsApp sold for $22b?
Supplier Base/Chain Supported.
Someone made a statement the other day that got me thinking: Eti Kenya has become a country of shopkeepers. Thinking deeply, you will see that we don’t really have many serious manufacturers. Manufacturing industry is always premised on well-developed and supportive value chains. Toyota for example has more than 200 suppliers, who have their own suppliers too. Even after the car is manufactured, Toyota also has countless dealers too across the globe. Most businesses have suppliers too. Just imagine how many suppliers got into problems with the sinking of Uchumi and Nakumatt. They also had suppliers at the second levels and many employees too. How many suppliers are you supporting? Do you care about them?
There are other businesses that even though they must make profits to survive, it is always not their first concern. They care more about preserving the environment. This could be those group of young guys who are happy to collect your garbage every few days. Others are running businesses that help keep widows, people with disabilities and early mothers employed. Their goal isn’t really the big money. In fact, others will see to invest that kind of money right back into the biz
There are other businesses that also exist for the purpose of sustaining the common good of everyone even if they don’t make money. These are usually established and sustained by the state due to the key roles they play. Roles that would be risky to leave entirely to the private sector who might lost the bigger picture in pursuit of big profit. Our water companies for example, KPLC, Youth Fund etc, their role and impact goes beyond the profit in monetary terms. They have to work and deliver services to the most of people regardless.
However much you might want to measure your business success, the standard for me is quite simple. You will have succeeded in business if ever you get to a point where you start giving back to society Giving back not only to your customers but also to those who may never get to buy from you. Those entrepreneurs who have private foundations are the biggest business stars. Don’t be mesmerized by the fact that Warren Buffet $3.17b last year. For me I will celebrate you if you shared your little profits with a children’s home or paid school fees to support a struggling family.
There are countless other ways to know if you are succeeding in entrepreneurship. It would be interesting to hear what you have to say.