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Lessons to learnt from the Raise and fall of Akamba, a formerly successful business in East Africa

This week it was reported that after 50 years of ferrying the region's travellers between capitals, Akamba Bus Services was winding up.

Recent travellers report that the company was already in decline with poor time keeping and constant breakdowns, which did not help in an increasingly competitive market.

The final nail in the coffin was the company's inability to meet its financial obligations to its lenders, who are now forcing a firesale of its assets to redeem the company's debts.

In other news, the Kenyan partners of fast rising supermarket chain Tuskey's are in conflict and have gone to court to resolve their issues.

Both companies have been highly successful firms, growing from national to regional businesses, turning over millions of dollars a year and employing hundreds.

For a business to get through its initial teething pains where revenues are low, profits are nil and the future is uncertain is a feat of herculean proportions, going by the statistics that less than 10% of businesses have survived past their fifth birthday.

But going by how many businesses do not transcend a generation, in Uganda enough businesses have not factored in the challenges that comes with subsequent growth.

They struggle to manage their success in a way that will ensure further longevity.

Business management guru Charles Handy thinks he has the answer. He likens the life span of a business to a Sigmoid curve, where there is low growth at the start, moving to steady growth, wealth and success and then the inevitable decline.

He believes the curve is applicable to life, the economy and any other endevour for which there is a learning curve.

As a business grows, it increases in complexity - more workers, more money (hopefully) and more shareholders, managing these new stakeholders will mean the difference between further success or failure.

The root of the implosion at Akamba or the current internal wrangles at Tuskys are not clear, but one can almost bet that a difference of opinion in whatthe company's vision is going into the future is at the bottom of it.

When you are a single proprietorship, your needs can be met with a few million shillings in dividends. But as soon as you invite more shareholders, they will need multiples of the millions you were taking home.

You can increase the dividend payouts, thus eating into much needed capital for expansion and face the inevitable collapse, or you have to struggle to grow the business so the increased profitability can match future increases in dividend payouts.

Multiple shareholders may not all share a long term view of the business, which in its extreme would be no dividend payouts, with all profits reinvested to build the business with eyes on bigger payments in the future. Some prefer to start seeing a cash return on their money yesterday.

It is this tension that undoes businesses - often at the beginning, but especially when some success has been attained.

A business can only grow as far as the size of the promoters' vision.

If the business is meant to meet the day to day needs of the founder(s) it will only grow that much, but even the promoters dare to dream of national, regional even international ambitions,then the business has a chance of growing that far. There are no accidents.

Back to Handy, he suggests that to overcome the inevitable decline that comes with age, businesses at the growth stage blessed with money, people, networks and reputations, should find ways to reinvent themselves - branch out into new endeavors, shed off excess or redefine their products or industry.

And these can and must go on numerous times during the life cycle of a business.

The New Vision Newspaper
29 MAY 2012

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