It is sad how our minds have been conditioned a certain way towards debt. We are told that debt is bad, but there is good debt that can work for an entrepreneur.
There are cases for and against debt. It was the Holy Grail that allowed the automobile, housing, banking and furniture sectors to become successful; it was also the curse that ushered the world into the economic meltdown in 2008.
So, what is good debt and how has it benefited those who know how to play the game?
In real estate, people use debt in innovative ways, like going to the bank to apply for finance for a new house. Once the bank approves, a tenant is brought in and their monthly rental is used to repay the loan. Then they go back to the bank as they still qualify for another property as their income at the time of application still remains the same. This qualifies them for another property, and the model is replicated while tenants service the loan, and their balance sheet increases.
Property developers use this model with a cluster of residential buildings, apartment blocks, and major developments. Developers identify the land, get the correct approvals and compliant paperwork in order, then they hire architects to draw the building plans. Once this is done, the properties are sold off-plan and this money is used to construct the infrastructure.
Another sector where people use debt, with less risk, to become successful is franchising. Firstly, franchises have a proven business model with high probability to succeed. Secondly, banks are more willing to finance new sites or buy an existing branch if the franchise has an established brand. With good management, the debt will be settled.
As entrepreneurs in Africa, we need to be savvy in gearing debt to work for us, and understand the power of leverage.
The recession hit when the US economy was over leveraged in real estate asset class. This is the same asset that many entrepreneurs use as their capital base. They approach banks to take another bond on their house to start a business, or grow it, at the risk of losing their primary residence should things not go according to plan.
Leverage is crucial when you are dealing with financial institutions, particularly banks. However, there is another avenue where leverage is not necessarily a physical asset; there are venture capitalists that fund a company on the perceived current or future value of the company. Others go further by focusing on the team behind the company, credibility and successful track records.
Above all, entrepreneurs need to be careful not to over-leverage themselves. When under-leveraged, the risk is manageable.
Start-up entrepreneurs are famous for bootstrapping their companies, until they produce a viable prototype or penetrate the market. An example of this is Fuseware, a successful African tech company founded by Mike Wronski before he sold it to Ornico.
This presents a challenge between two funding models: debt versus equity financing. Well-structured debt is preferable, provided the company can service the debt in the short term. This is best option for expansion purposes.
Equity is best for start-ups and growth-stage businesses. In this regard, an investor buys a stake in the company and takes on the same risk as you. The downside is that that the entrepreneur loses some control the moment an investor comes into a company.
Sooner or later, it is going to be necessary to approach capital markets to raise money. The fundamental reason for listing on a stock exchange is to raise money. Today, there are other reasons, but raising capital is the main one. A company’s share price is based on perceived value that might be influenced by its income, assets or track record. At the end of the day, the company is worth what the market is prepared to pay for and what investors agree to sell shares for.
There are many times when an entrepreneur’s personal debt overlaps with his company’s debt, predominantly in small to medium sized companies. If able, entrepreneurs should only deal in debt held by the company, rather than their personal accounts.
While debt is not entirely encouraged, any company that is going to be of global significance needs to be familiar with it.

How To Make Debt  Work For You

Only 21 of the Fortune 500 companies are led by women. One woman who wants to be included on that list is Rita Kavashe. She is Africa’s first female managing director (MD) of American automobile giant General Motors (GM). Kavashe leads the African operations of the number two global automobile seller as of 2012. Globally, GM sold 9.3 million units last year compared to Toyota’s 9.75 million.
The motor industry has been dominated by men; it is only now that, 105-year-old, GM has appointed 51-year-old Mary Barra as its first female senior vice president, global product development. In April, another woman, Veronica Johns, made headlines when she was appointed CEO of Fiat Chrysler Australia.
“I don’t believe there is anything like a glass ceiling. As long as there are opportunities to grow in an organization, there is no excuse regardless of whether you are a man or a woman,” says Kavashe.
Kavashe is the only female managing director in Kenya’s male-dominated motor industry. She took over the reins of GM East Africa in 2011 after an 18-year stint, which began as a sales representative. After three years she was promoted to general manager of national sales and was responsible for seven dealers in Kenya. In 2005, she was made the commercial director and five years later, she was given a short-term assignment in GM South Africa to set up their export operations.
When she returned from South Africa, she was appointed MD for GM East Africa and export director for GM Sub-Saharan Africa, where she oversees more than 40 Sub-Saharan Africa countries. In 2012, GM sold 180,000 vehicles in Africa and controlled 10% of market share.
Kenya’s motor industry is largely dominated by multinationals: Toyota, Simba Colt, Cooper Motor Corporation, DT Dobie and Indian conglomerate Tata. All of them have male directors. According to statistics from the Kenya Motor Industry (KMI), in 2012 GM lost the number one spot in terms of car sales to Japanese car maker Toyota. Kavashe is determined to regain the number one slot.
“We recently opened a new factory for buses, it can assemble three buses per day,” she says.
In Kenya, GM controls 26% of the market, while its closest rival Toyota enjoys 24.8%.
According to Business Monitor International report, domestic production is one of the ways Kenya attracts investment especially from Chinese companies. Commercial vehicle manufacturer Beiqi Foton Motor launched its first domestically-produced trucks in June 2011, after establishing a local subsidiary in the country in late 2010. As part of a growing focus on Africa by Chinese automobile companies, there are growing investments in automobile assembly plants.
While established dealers such as Toyota and imported second-hand vehicles—mainly from Japan and the United Arab Emirates, that account for around 70% of the market—give her sleepless nights; her experience of almost two decades is an advantage she has used to build local networks and contacts. Isuzu buses are one of the leading brands in Kenya because of the growing public transport and education sector, which are its largest clients.
Being at the top, especially as a woman, comes with its challenges. Grant Thornton International research shows that women hold less than a quarter of senior management positions in privately-held businesses globally. Only 24% of senior management positions are held by women. Women tend to fizzle out as they rise through the ranks because of the societal pressures that weigh heavily on them.
According to Bringing the other half to the boardroom: Case study of state corporations and listed companies in Kenya; a study by the Kenya Institute of Management, many women fear failure, which affects their confidence. There are also cultural issues that come into play. Most men are uncomfortable having a female boss and would likely do things to sabotage their leadership.
Kavashe’s management team is 80% male and although she has not encountered major challenges managing men, she says that it is important for you, as a leader, to ensure the team rallies behind you so as to achieve set organizational objectives.
As a trained teacher, with a degree in education, she applies many of the skills she acquired during her teaching career to her job in the motor industry.
“I learnt human psychology, understanding and interacting with people and planning, which I use to set and monitor my objectives.”
Her role involves making strategic decisions regarding investments, expansion and distribution in both the public and private sectors. To sit at the helm, she dedicated much time to study the competition and overcome the gender stereotypes that often discourage women from getting to the top. Women are judged harshly beginning with their looks.
She admits that sometimes she sacrificed family time and wished that she could have spent more time with her children.
“You have to manage many balls in the air because of the demands on your time. You can have your cake and eat it as long as you learn to balance,” says the mother of two.
This balancing act has forced Kavashe to make certain conscious decisions—she stopped traveling during weekends to spend time with her family.
“Before, I was busy working, then I realized that one part of my life was not moving. If there is a weekend event, I go with my children. It is very lonely at the top, you need your family to be with you!” she says.
It has not all been smooth sailing for Kavashe. One of her most challenging moments came during a review of GM’s distribution footprint; the change was not taken well by dealers. She admits that it was a frustrating moment, but after consulting with stakeholders, she went back and made slight amendments.
“As a CEO you are not always right. It was a tough moment for me because my best dealer was not happy and it created a lot of anxiety.”
For now, Kavashe is focused on motivating 350 employees at GM East Africa and ensuring that the company remains profitable. She has set her eyes on the road ahead and plans to be global CEO at the GM headquarters in Detroit. Who knows, she may just be the first African GM CEO.

Top Job In A Man’s World

The invention of the automobile has gone hand-in-hand with an unfortunate counterpart: accidents. This has been, mainly, due to driver error, rather than mechanical failure, so the objective for some time has been to eliminate this factor and make the daily commute less stressful. Popular culture brought us examples of cars that were capable of driving themselves, Knight Rider’s Knight Industries Three Thousand (KITT) for example, and it seems these once fairy tale visions will soon be realized.
The development of autonomous cars—and we’ll get to why this term is specifically used, rather than “driverless” vehicles—has been built on advances in safety that really started with seemingly innocuous features such as ABS. Here, an on-board computer senses heavy braking and intervenes before the wheels lock up. It’s therefore trying to circumvent human error, which is what autonomous cars do—just on a grander scale.
Volvo introduced its City Safety feature on their XC60 range some years back, which made use of lasers that could sense an impending accident. The technology assisted drivers by applying the brakes, up to 100% if required. The goal has been to use autonomous driving technology for those tedious commutes to work and back where frustration, tiredness, traffic jams and all those other aggravating factors come into play. This led to the development of FROG (Free Ranging On Grid technology); a car with an on-board computer loaded with maps. The vehicle knows where its starting location is and it checks its progress along the way by counting wheel revolutions, and its proximity to electronic beacons.
FROG is already being used for loading cargo as well as in factories, and the intention is to use it for public transportation. In this scenario, passengers go to a stop point and press a button; essentially calling the car as one would an elevator. You’d then get on and disembark at whichever location you’d selected as you would on a bus or train. Naturally, the downfall of the system is that the vehicles only go to predetermined places.
The autonomous cars of our future will make use of a range of technologies including radar, GPS, computer vision and would necessitate that the various systems of the car communicate with each other. Like the human brain, the aim is to take sensory information, interpret it and react in an appropriate manner. Some systems even allow for their maps to be updated as a result of changes to the environment. Once the technology is widespread enough, we could imagine a scenario where cars could “talk” to one another by sending warnings, to those further behind, of forthcoming obstacles.
Numerous car manufacturers have jumped on the autonomous vehicle bandwagon, but perhaps the most innovative leader in the field is not a maker of transportation, but search engine giant Google. The company has made use of retrofitted cars—usually a Toyota Prius or Lexus RX450H—loaded with LIDAR (Light Detection And Ranging), rangefinders, cameras and GPS sensors. Each car’s equipment costs in the region of $150,000 and there are usually 10 vehicles on the road at any given time, testing the systems thoroughly. The current expense of such technology is certainly a deterring factor for any prospective users, as polls have already indicated.
With time prices will decrease; in the future drivers may get some form of rebate or financial assistance from insurance companies. Offsetting the initial outlay are numerous benefits such as increased safety, fewer collisions, less congestion therefore increased road capacity, higher speed limits for autonomous cars, alleviation of parking problems—cars could drop us off and find parking far away and come collect us when required—and an increase in fuel efficiency.
Engineer Sebastian Thrun, the co-inventor of Google’s Street View and a director of the Stanford Artificial Intelligence Laboratory, started the Google autonomous car project. Extensive testing has taken place and the cars have driven on roads notorious for their choking traffic or dangerous bends, such as San Francisco’s Lombard Street.
Each car is accompanied by a driver, with an unblemished record, and a Google engineer in the passenger seat. In case of emergencies, the cars have an override system in place, which is very similar to those we find on modern cars with cruise control. Only two minor accidents have been recorded during the more than 482,000 kilometers of testing. Google claims that in both instances a person was driving, not the autonomous system and that the last instance was a bumper-bashing where the Google car got rear-ended.
The above begs consideration for two important points, firstly legislature concerning driverless cars and secondly, who is liable in the case of litigation. In all countries, the law presumes that a human adult is driving their vehicle. On March 1, 2012, the state of Nevada was the first to pass a law allowing for the operation of autonomous cars. In September, California and Florida followed suit.
Unsurprisingly, Nevada requires a person to be behind the wheel at all times to take over in emergency situations. License plates for future driverless cars in Nevada will be red and have an infinity symbol on the left-hand side. This of course limits the benefits of such vehicles as intoxicated drivers, minors or the unlicensed still couldn’t operate them.
In terms of the legal repercussions governing autonomous cars involved in accidents, some creative solutions have been put forward. One idea makes use of an example we’d never normally associate with driving: vaccines. The idea is that autonomous cars will be extremely safe but like a vaccine, where there is a tiny chance it could harm the patient, these vehicles could too. When a fatal accident occurs, according to this theory, the family would be compensated by a fund set up for this purpose.
Another school of thought is that the purchasers, not the manufacturers, of such cars take upon themselves the responsibility. This sounds reasonable until we consider that a software bug or mechanical failure could result in jail time or the driver being sued when in essence, he had no control over the situation. The more likely option is that the manufacturer would carry the blame, and costs incurred, should their product be found wanting. That’s a bitter pill to swallow as even if the percentage of defects is 1, this could still translate into extremely expensive lawsuits.
The last option is to spread the responsibility across all driverless car owners. They’d take out a special insurance package and the insurers would be responsible for determining whether the system, manufacturer or driver was at fault. This is still a complicated approach and difficult to implement but it would necessitate that car manufacturers would have to up their game which, in the long run, benefits everyone.
Jim Pisz, head of Toyota’s business strategy in North America, sums it up: “We feel that with autonomous driving, the driver should always be in control. It’s a critical element to our philosophy: autonomous does not mean driverless.”
Guess we won’t be calling KITT on our watch phone to save us from a sticky situation any time soon.

The Car That Chauffeurs You

Ever since the first steam-engine automobile (capable of carrying people) was developed in 1769, manufacturers have constantly sought to improve their vehicles; not only in terms of technology, performance and safety, but also with regards to their luxury offerings. An exemplary brand is Bugatti—founded in France in 1909 by Italian-born Ettore Bugatti. Raised in a family consisting of artists (his father Carlo was an importer of art nouveau furniture, as well as a jewelry designer); Bugatti emphasized design when he strove for success in competitive motor racing.
Ettore’s attention to detail was such that Bugatti engines were hand scraped to ensure gaskets weren’t required for sealing. Rather than bolting springs to their axles, Bugatti’s springs were passed through a perfectly measured opening, which proved a far more elegant solution. Ettore famously described Bentleys—whose name has become synonymous with luxury—as “the world’s fastest lorries”, which highlights just how prestigious he believed his rare cars to be.
Other notable brands that offered unsurpassed creature comforts (along with their extravagant price tags) were Delage, Delahaye, Rolls Royce, Jaguar, Cadillac, Lincoln, Buick, Packard, Peerless, Pierce-Arrow, Marmon, Mercedes-Benz, BMW and Audi, along with newcomer, Lexus. In modern times, the three German marquee carmakers have dominated the luxury (or premium) market, but French and Korean companies are now challenging their global dominance.
China, South Korea’s closest car-manufacturing neighbor, has one of the largest and hungriest luxury car markets in the world; this segment grew more than 30% last year. Audi has been the dominant supplier for this insatiable demand with some 313,000 units making their way into Chinese hands last year. In 2008 and 2009 respectively, Hyundai began tapping this lucrative market with its Equus and Rohens offerings and more recently with the Genesis. Termed ‘Intelligent Luxury’, Hyundai, in taking on the Teutonic powerhouses, has delivered competitive quality, power, performance and customer service without a hefty price tag.
The global luxury segment has room for expansion, especially in China says Audi’s sales chief, Peter Schwarzenbauer.
“We expect the premium segment to grow much more strongly than the overall market. China has 304 cities with at least a billion people and, so far, we have dealers in only 187 of them. The premium market still has extremely good growth prospects. We’re scratching the surface in China,” he says. China is expected to overtake the United States as the world’s largest luxury car market by 2015.
As a sign of things to come, Hyundai’s Genesis was named ‘Near Luxury Car’ segment leader in 2010 according to Strategic Vision’s Total Quality Index (TQI) ousting rivals BMW (3-series), Mercedes-Benz (C-Class) and Audi (A4). TQI measures are taken according to the complete experience the cars have to offer, from purchasing to owning, driving and performing. The Genesis scored well thanks to its competitive price, warranty, many standard features and reliability. Hyundai also provides its Equus owners with a service called ‘Your Place, Your Time’. Owners simply schedule their service appointments on a mobile application and a customer care representative collects the car and leaves a loan vehicle (another Equus) in its place. Such endeavors have seen Hyundai rated among the Top 5 Brands, on the basis of brand value, according to a recent Consumer Perception Survey.
Sister company, Kia, is mirroring this bid to take over the premium segment. Sketches of its upcoming Cadenza–to be released in the Korean market in the first half of this year–which is code-named KH, have garnered much interest in the press. Kia will make use of Hyundai’s existing platform and thus shorten its learning curve. “Our new flagship sedan integrates all of our key capabilities such as design, performance, high-tech features and infotainment,” claims the director of overseas marketing for the group, Soon-Nam Lee. Kia and Hyundai plan to appeal to first-time luxury car buyers who can’t afford the traditional German juggernauts.
Naturally, the greatest stumbling block to dethroning the competition has been the fact that Hyundai, Kia, Citroën, Peugeot and Volkswagen’s brands were built on the concept of producing economical transport. Ominously, Nissan Motors CEO, Carlos Ghosn, believes the strategy of mass-market car companies branching out into the higher echelons could backfire.
“The definition of a luxury brand is a brand for which you’re ready to pay a higher price tag for what it represents. If you start to be a bargain, yes, you’re going to have a boost in sales in the short-term, but you’re going to lose the luxury halo after a while,” he says.
His view isn’t a commonly held one as other manufacturers feel that by providing premium products, they can compete in the same space.
“Volkswagen is positioned as ‘Das Auto’ or ‘The Car’ and we are the volume premium brand in SA. This is manifested in both the type of vehicles we produce and sell and in the quality, finish and materials found in our vehicles. In addition to this, while we are the market leader in South Africa, we offer a premium range of vehicles which includes the Passat, CC and Touareg,” says Matt Gennrich, general manager of Communications for VW South Africa. “The big three—BMW, Mercedes and Audi, account for the majority of sales while other players such as Jaguar, Land Rover, Lexus and, of course, Volkswagen, are all competing for a share in the premium segment which accounts for about 19% of the total passenger market. It takes time to build a brand, and we have invested substantially in the last few years in television, print, and outdoor advertising. The Touareg established its credentials right from the launch of the first generation with the V10 diesel and the class-leading technology offered in the car in the luxury SUV market,” he says
French manufacturer PSA Peugeot Citroën is also not sitting on the sidelines. The long-awaited Citroën DS5 is on the brink of being unveiled, and this will be the flagship model in its premium DS range of cars. Based on the C-Sport Lounge concept unveiled at the 2005 Frankfurt Motor Show, the DS5 combines a coupe with some grand touring features. This car emphasizes technology and luxury embodied in clever elements such as a color heads-up display, individually-selected lighting for the cockpit roof, seats employing the ‘watch bracelet’ design and significant soundproofing. The DS5 even sports a refrigerated storage compartment under the armrest and has Citroën Wi-Fi On-Board so passengers can surf the internet while they’re being driven.
While the mass-market manufacturers are striving to get a slice of the premium pie by offering more for your money, it remains to be seen whether consumers will be swayed by the affordability of the competitor brands, or whether they’ll subscribe to Ghosn’s ideology of paying for the privilege of luxury and exclusivity.

Tag: automobile

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How To Make Debt Work For You

Top Job In A Man’s World

The Car That Chauffeurs You

Luxury On A Budget