23/11/2014
How Sole Trader’s Business success quickly turned to failure
It is surprisingly easy to sabotage your business and kill your entrepreneurial dreams. Read about Ryan and how a partnership led to business failure.
Ryan (not his real name) started a retail business with just over Kshs 50,000 four years ago . He sacrificed a lot of time and gave up almost all leisure activities over the next few months as he struggled to build up his business. Eventually, Ryan got a few lucky breaks and within a year, his business, Home Retail Shop, started making monthly sales of Kshs 350,000 on average. This left him with about Kshs 75,000 business profit each month and his friends began to admire and talk about his business prowess. One of Ryan’s friends’ , whom we will call Dominic, heard about it and approached Ryan to get into a joint business venture with him to sell digital technology services. Dominic, who is a digital guru, said he wanted to take advantage of Ryan’s great marketing skills to grow their new joint venture which they named Digi-P . Ryan invested all his Home Retail Shop profit reserves in Digi-P. Over the next few months, Ryan’s Home Retail Shop continued to thrive. Digi-P was also starting to stabilize.
All went well until Dominic persuaded Ryan that they should rent more office space for Digi-P instead of continuing to share on single room for the two businesses. Dominic also hired two new employees for Digi-P. Previously, both businesses had been sharing one office assistant who performed multiple roles as receptionist, messenger and technical assistant . After these changes, Digi-P share of expenses rose by Kshs 125,000 per month . This did not, at first, affect Ryan’s Home Retail business which continued to run successfully.
Soon thereafter, Dominic started experiencing some major domestic challenges from his extended family and was not concentrating on Digi-P. He convinced Ryan to let him ‘borrow’ about Kshs 200,000 from the Digi-P business account and promised to return the cash within 10 days. After getting the soft loan, Dominic disappeared for several weeks and did not repay the money on time, as promised. When Digi-P share of rent and salaries were due, Ryan, who was now alone, decided to divert money from his Home Retail Shop and paid Digi-P’s bills of Kshs 160,000 since Dominic could not be traced.
Dominic eventually resurfaced, but without any cash, and still unable to focus on business. Subsequently, Digi-P lost their biggest client account because Dominic missed two key delivery deadlines. Dominic begged Ryan to advance another Kshs 90,000 from Home Retail and assured Ryan that he was awaiting a personal bank overdraft facility which would be approved within the next few days. In total, Ryan had now diverted Kshs 240,00/= from his Home Retail business to support Digi-P. This is in addition to his initial investment of Kshs 180,000 from Home Retail Shop profit reserves .
Needless to say, when the bank declined to grant Dominic an overdraft, Digi-P was unable to refund Ryan the Kshs 240,000/= that he had loaned out. Ryan could not pay his own suppliers and as a result, they refused to supply Home Retail with new stock unless he paid in cash. When confronted by Ryan, Dominic disputed the facts concerning what he owed and became openly hostile. That night, after Ryan left for home, Dominic secretly packed up his computers and executive furniture and moved out.
With all his savings gobbled up by Dominic and Digi-P, Ryan could now only afford to buy a quarter of his usual stock volumes and, as a result, his Home Retail sales fell to about Kshs 100,000/=. Since he needed cash to live on, he bought ever reducing stock quantities until his sales shrank to Kshs 20,000 by the end of the third year. Ryan had now accumulated not only personal debts but owed six months rent arrears for the Home Retail Shop. At this point, the landlord evicted Home Retail Shop. All Ryan’s furniture, office appliances and remaining stock were confiscated by the landlord who vowed not to release them until the rent arrears were paid. In three short years, Home Retail Shop rose quickly to success, only to collapse because Ryan made some simple and avoidable errors in judgement.
To protect the privacy of the people involved, all personal details and business names have been changed.
What personal and business lessons do you find in this story ?
