Hold off on a new Beemer for now
Conspicuous consumption can act as a brake on entrepreneurship
SOUTH Africa is one of the most indebted countries in the world. More than 86% of adults are indebted, compared with a global average of 40%, according to the World Bank. We ranked the highest out of 143 countries surveyed.
We are notorious for spending more than we earn.
High levels of debt can inhibit entrepreneurship because potential founders are less likely to leave the comfort and security of a normal job for a “risky” venture. The stress associated with high debt also robs potential entrepreneurs of the freedom and creativity required to start an innovative business.
Furthermore, increased debt levels mean that entrepreneurs are cash-strapped when starting a new venture, and less able to attract capital, a key challenge.
One of the drivers of our high levels of indebtedness is conspicuous consumption. We tend to believe that success needs to be shown by driving fancy cars, buying big houses and acquiring expensive gadgets.
I, too, fell into this trap and rushed out to buy my first BMW at the age of 21, on credit, as soon as I landed my first job.
We are so focused on keeping up with the Joneses, or, rather, the Khumalos, instead of being thoughtful about our finances. An expensive lifestyle may provide thrills in the short term, but it reduces financial flexibility for an entrepreneur in the long term.
Let’s pause and ask ourselves if that 2015 black Range Rover Sport is really necessary. Admittedly, we would look amazing in it. Everyone else would be green with envy. But is it really necessary?
There is some value in exercising restraint, especially in the early stages of the entrepreneurial journey. Sam Walton was a good example of this. He was the founder of Walmart, the world’s largest company by revenue. Despite his success, he lived in a humble home similar to the one in which he grew up. He drove an old truck to work every day, even though he was a self-made dollar billionaire.
Aside from avoiding unnecessary debt, potential entrepreneurs can also be the pioneers for a strong savings culture — something that we really need in this country. Our savings rate of 16.2% of GDP is one of the lowest among the Brics countries.
This leaves much room for improvement.
The first step towards pioneering a savings culture is to avoid spending a business’s cash flow as soon as it comes in.
We need to realise that an initial round of cash inflow does not mean “we have made it”. It only means we have made it past that first hurdle. It’s the first victory in a long journey. Saving cash flow puts entrepreneurs in a powerful position to take ad- vantage of opportunities as they arise, invest for future growth and build a business that will last.
One of the biggest priorities for a new business is cash flow. There is a good reason why all the best books on business advocate that “cash is king”.
South Africa’s very own highly successful entrepreneur and Dragons’ Den SA investor, Lebo Gunguluza, promotes the idea that cash is king. He was once quoted as saying: “Cash runs out quickly and it does not come back.”
Gunguluza admits that he, too, initially made the mistake that young entrepreneurs often make, and did not put aside the cash flow when he was starting out as an entrepreneur. He admits he spent his money on a lavish lifestyle during his 20s. This lost him his first million within a year, and he was blacklisted. Fortunately, he turned things around and has since built and invested in many successful businesses. Let us learn from the mistakes of those who are ahead of us.
One of the trademark characteristics of an entrepreneur is their ability to derive maximum value from each rand they have. They need to stretch a rand’s potential by making sure they get bang for each buck. I believe that this is something that all entrepreneurs should emulate. This will help us build businesses that will thrive long after the first million is made.
I encourage more people to choose building businesses over spending on things such as flashy cars.
Fortunately, I have since sold that expensive car I used to own and used the proceeds to invest in high-potential start-ups and the development of my business ideas.
This continent needs entrepreneurs who are dedicated to building businesses that will solve major problems in the long term — not onehit wonders. My hope is that one day we will all be building businesses that will serve many generations to come.
This is the era for African founders to rise and take the lead.
Let’s pause and ask ourselves if that 2015 black Range Rover Sport is really necessary
Sikhakhane advises and funds African entrepreneurs. She is an international retail expert, writer and motivational speaker, with an honours degree in business science from the University of Cape Town and an MBA from Stanford Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za