What constitutes an as an investment?

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In last month’s blog I was commenting on the potential of entrepreneurship among our youth and the role that technology and innovation can play. I also talked about the trinity [entrepreneurship, technology and innovation] and how, if well harnessed, it can ensure a future of enabling tools and applications that will resolve many problems. The ‘trinity’ is therefore squarely in the hands of the youth of today to drive us into the future.

Of late, coincidentally, several people have pitched to me about schemes which promise easy and quick bucks. All the designs are based on a solidarity basis where participation or implementation requires one to recruit friends; who in turn must recruit their friends and so on. So the friends for friends for friends’ chain will secure cash streams for the rest of my life. I don’t need an education, I don’t need a lot of money; I don’t need a plan; there is little or no risk apparent. All I need is to stake a small initial amount sometimes as little as K300 to get started. I then recruit a few more friends and close relatives to invest the same amount and we are good to go into a lifetime of payoffs without me having to lift worry about income!

How cool is that!

Why do we have so many people struggling every day to make ends meet when such easy means of sustenance already exist? Why is this good news not available to all who need it? Why are the business schools still attracting hundreds and thousands of students to study MBA’s etc., on how to run a good business and attract investment for growth? Thereafter, why does the entrepreneur spend years nurturing the business to take off and sustain in the future?

Meanwhile these easy business models exist where I don’t need business acumen. I stake a little money upfront as initial subscription ‘seed capital’ and ensure that I recruit my friends and relatives to do the same. For every recruit that I find, I get recognition for any future purchases that they make and for every progression that they make, I get a commission. So I recruit you and I am forever etched on your case. I am assured of a lifelong cash stream of commission on every move you make and any other person I will have recruited. So everyone after me and including me must work hard and recruit a good number of followers for one to make enough money.

So far the scheme seems simple and risk free. The principle seems to be go forth and recruit and if you make 100 recruits, you will receive commissions on all 100 each time they make purchases.

My suspicion is that because of the simplicity of the design, people do not stop to ask real questions that may give them the true picture. When does one actually become eligible for a payment and how much is it? Over what period does one continue to receive commissions? Where is the risk and who bears it? How much control does the participant have over the business? How much is it growing?, what are the products and are they appealing or useful to the recruiters? What is it really that is being sold here, a service or a product?

I have deliberately chosen this subject this month against the background of the discussion on entrepreneurship and its possibilities, which is a sure way of securing life-long cash streams for oneself.

Because of these factors, I will recap on the topic of wealth building which I covered in the beginning just so that we are clear about what it takes to make it financially.

Without going into too much detail, if it sounds too good to be true it is probably is. If I am able to live off commissions of recruiters, this is free marketing for the producers. They produce stuff which I help them sell for a small commission. In order to keep the orders coming, everyone in the loop gets a small something for every new recruit that they register. Meanwhile the producers mint all the money. There are no surprises here because as founders of the idea, they are being rewarded for their brilliant selling model. This type of selling, ‘solidarity selling’ is replicated in different business offerings and people still fall for the same principle. Recruit buy and recruit some more and you get rewarded in commissions from all round.

My appeal to young people is that the only business that will pay you well is one that is yours or one that you have taken a risk and invested in. You cannot remove the element of risk and return. The more risk you take, the higher should be the return. If seemingly there is no risk as in these schemes, so the commissions are also small. The real money goes to those people from whom you are buying the goods.

Ladies and gentlemen, this is not even an investment. This is speculation. An investment has the following characteristics: –

  • A business idea: to be, to make, to sell
  • The idea must generate income streams
  • The investment must derive benefit to the investor
  • The investor must have a say in what or how the money is being used
  • There must be an element of profit sharing

If any or many of these factors are missing, then one has not invested and has no claim to the future cash streams of the company. If any of these schemes folded up, the owners have no responsibility to call a meeting and advise any of the recruiters. Their responsibility is to shareholders, which you are not.

Investment is about taking a risk to develop an idea into something tangible; a product or service that people are prepared to buy. The upside is that your product is desirable and people will buy it. The downside is that people will not like it. Be prepared to lose money when you are investing. It is not all a guarantee that when you stake money in an idea that it will succeed.

That is why the imperative is that investment ideas take time to fruition; there is some failure along the way. Ultimately when you are committed to the idea in its current or revised form, at some point it can pay off. The lesson is that one must be committed, passionate and totally believe in what you are trying to create. So a belief in the idea is one of the first fundamental characteristic of an investment plan. You cannot easily walk away from it.

Another attribute is ‘own’ the idea and take responsibility for its outcomes. That is the value investors will respect.

My blog this month is to remind young people that schemes will always be around. They may differ in one way or another but the promise of lifelong cash streams seems to be common. This is not an ‘Investment’ by a long shot. It is a promise to make you rich by being a super sales person. Invest in your own ideas; this comes with hard work and commitment and knowledge. Our country will grow from ideas that produce tangible goods and services over time.

BN

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