When SWEET went sour

January 5, 2010

, NAIROBI, Kenya – Recently, we went through the trials of an Investment Group called SWEET (Sisters With Eternal Energy and Trust). They started well but ended up going through several experiences which now threaten their continuity as an Investment Group.  Indeed specific things went wrong but focusing on only this would be like curing symptoms without analysing the disease.

The main problem with SWEET is that the fundamental objective of the group had not been agreed upon.

One of the most crucial things that a Group needs to deliberate on from the very beginning is whether the main objective will be Social or Business. Many people looking at this statement right now are probably saying – of course my chama has a Business Agenda. We meet, contribute money and have investments.

We are going to be the next big thing, the next TransCentury. These intentions are extremely honourable but SWEET also had the same intentions. They all knew of Groups that had been very successful, they contributed and they invested. They obviously had a business objective or did they? Let us look at the story a bit more closely and rethink the Business versus Social Dilemma.

“The main criterion of the Group was friendship”. For an Investment Group certain skills are important (in fact crucial) to have such as legal, finance, investment, business etc. The initial membership may be made up of friends and we do recognise Investment Groups are usually formed by people who know each other largely from social networks.

It is however important to either seek out additional members who have these skills and more importantly are willing and available to use these skills for the Group, or make a conscious decision to use professionals who can provide regular advise in these areas. So it is not the fact that they were friends that made them a social group but that they limited their abilities and hence the potential to create wealth to the immediate circle of friends.

Lack of professionals also saw the Group’s transactions being handled on the basis of trust. Due diligence was not conducted on the investment opportunities or the people handling transactions.  They did not engage professionals such as lawyers and financial advisors. 

We saw SWEET buying a property only to find out years later that they held no title deed.  We saw them using brokers who went under receivership. We also saw their ignorance on keeping financial records as well as how to make decisions on their investments such as when to sell.

How could this have been avoided?  Apart from the professionals, maybe the start is as simple as prioritising the business and not the social agenda during meetings. The agenda as well as the venue as much as possible should reflect the business objectives of the Group. There is a reason East African Breweries does not have its board meetings at kengeles. After a couple of beers, it is probably hard to remember that you never did a search on the property you are buying and easy to believe the stock market will keep going up indefinitely or members relatives must be trustworthy.

It is also hard to invite professionals such as lawyers and accountants to your meetings when the driving force behind coming together is to have a jolly good time! In summary the second thing that makes SWEET a Social Group is how they handled their business affairs.

Friendship is never the problem and in fact with the right structures in place, is able to accelerate the business agenda. We are also not propagating that the social fabric of the chama is ignored. However, if the fundamental objective of the Group is business related, certain structures do need to be put in place to avoid the mistakes that we saw with SWEET and ensure that the business objective of the Group remains priority and is achieved. If this common scenario is anything to go by ‘business gone bad’ can adversely affect friendship.

In many ways SWEET put the horse before the cart. What are some of the things they should have done to achieve their business objectives from the very beginning even before investing. Find out next week.

(Origins Investment Group Advisors. waceke@originsiga.com)

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