Magazines
Members of the public outside Tuskys Supermarket branch on Tom Mboya
Street yesterday. It was one of the two stores formerly belonging to
Ukwala which were closed after the Competition Authority of Kenya
blocked a takeover bid by Tuskys. NATION | DIANA NGILA
By Odhiambo Ramogi
In Summary
Breaking even is not equivalent to profitability. It
simply means the business is able to meet all its overheads in providing
solutions to its clients.
There is a general consensus in entrepreneurship that
one should start small and grow steadily, aiming high. At the
beginning, there is little information on how the business will perform
given the only data available is historic from research and any
futuristic data is just a postulation of aspirations.
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It is thus wise to play safe, invest only in the most
important things and save for a rainy day. This is in line with the
principle of a lean startup.
In most businesses, success will not be immediate.
In cases of fast-moving commodity goods, break even happens between the
third and the sixth months depending on various factors.
These could be location, competition or lack of it
and the size of the market. On the other hand, service businesses can
take longer to break even. It is estimated that most service businesses
will take between 18 and 36 months after start up to break even.
Yet breaking even is not equivalent to
profitability. It simply means the business is able to meet all its
overheads in providing solutions to its clients. Real profitability
might come even later on in business. Yet the question many ask is; when
is the right time to scale up?
Scaling up refers to the act of increasing the
capacity of the business either by investing in the business enablers or
by buying more stock to service larger markets or bigger clients.
The latter end of that definition is important
because the key driver of any scaling up process must be the market.
This is why entrepreneurs who want to scale up at the point of starting
up are never taken seriously as they are not responding to their
markets, but rather to guesswork.
This means that for there to be further investment
in the business, it ought to have operated for some time, estimated the
market’s demand in line with its model and established the need for
scalability.
Government policy also influences scalability. When
the government demanded that matatus have a minimum capacity for 25
passengers, it was a decision that forced small matatu operators to
scale up.
Trends and technological advancements may also
influence scaling up. The decision by the Kenya Railways Corporation to
go for the standard gauge railway line was not informed by their market
needs but by international trends and changes in that technology.
Finally, scaling up might be influenced by the
business costs. If the business is producing in small quantities and the
costs of production are high, it may choose to scale up to enjoy large
economies of scale and make some savings. This is mainly seen in
agriculture where large-scale farmers enjoy large economies of scale as
compared to small scale farmers.
The process of scaling up requires one to be
prudent in financial management, sensitive to the needs of the market
and open to the industry dynamics to remain relevant and profitable.
Scaling up is a process. The business needs of today are not the same as
those of six months later.
As such, there should be a strategy to plough back profits and increase capacity continually.
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