Is your Investment Group a Business or Social Venture?

This week we were discussing Investment Groups in our course. Many people are in investment groups, which started out with the very noble intention of creating wealth for the individual members but somewhere along the way things took a turn. Many groups now have to deal with irregular contributions, lack of quorum at meetings, lack of communication, no leadership, no execution etc.  What makes one Investment Group really successful but three others (with people of the same financial capacity) fail or simply not make any progress? One of the keys to that answer is the difference between reporting to work and going for a party. When you report to the office, you know what your job is about.  You realise there are expectations and a certain way you must perform your job. You know there will be consequences for not performing your role at a certain standard.  You are compensated for performing at your job. When you go for a party there are no such expectations.  You are there to have fun and socialize.  If you decide not to turn up at the party there will be no dire consequences. There is no financial compensation for coming to the party. The fundamental reason many groups do not work is that they have not decided whether they are at the office or at a party.  You cannot have both a social and business agenda.  One of them must take priority and structures set up to support that agenda.  Many groups want to arrive at a business related destination (e.g. creation of wealth) but have set up social structures. They want to get to the office through a party.  These are some of the areas that resulted in some heavy debates this week in our class.

You will see many organisations as we get into the Christmas season holding staff parties. However in January, you will not see any of them having internal meetings to start planning the next Christmas party. This is because the Christmas Party is a bonus event and not the main business agenda of the company.  The mistake Investment Groups are making is to spend significant time, money and effort with social related activities and yet the main agenda should be investments.  For example I met a group that was very adamant about supporting its group members with school fees.  The problem is they started using money (contributions) that would have otherwise gone into investments to pay for school fees.  This was obviously compromising their returns.  The school fees agenda is what was being discussed in meetings first leaving investments as a secondary topic. This was starting to cause a rift between those who genuinely joined this group to create wealth and those who wanted to continue paying fees through this vehicle.  They now have to sit and decide which agenda is going to be prioritised and forge forward even if it means losing some of the members.  If you find your group is keen to stay together simply just for social reasons, that is also OK, just as long as you aware you are a social club and not an investment group.  If you want to invest through a group, you can look for another alternative.

An Investment group must clarify where it is going.  There must be a single vision that has been bought into by everyone. What do you want this group to do for you?  Do the others want the same thing? This will determine how the group will operate and even what investments will be made?  For example you can all agree that this will be part of your retirement plan. This is the financial compensation I mentioned earlier. There must be that single objective that everyone buys into and a plan to make it happen. This is what is known as the strategic plan and this is the process that everyone should be involved in. Then this plan has to be executed.  Say you had some shares in one of the companies on the Stock Exchange.  When they want do something different e.g. open in other countries, do they consult you and every other shareholder?  I would think not. Nothing would ever happen this way. When you bought the share, you also bought into the vision and management. Not everybody in the investment group needs to be in agreement for the group to move forward on a decision. You don’t all have to agree on what share to buy. A business cannot move forward with fifteen CEO’s.  Your group (investment company) should have a board that is mandated to execute day-to-day decisions in line with the overall vision of the company.  This board can be elected every year by the shareholders of the company i.e. the group members.  Just like you would not like to see the board of the company you have bought into having its meeting at social venues, neither should you. Many investment groups do have their meetings in social venues or in homes.  The business is discussed for 10 minutes and is then promptly forgotten. They forget the office and proceed with the party.  Have your meetings in places that are conducive to concrete business discussions. Last but not least is the name you give the company should speak to a business agenda as well.  You are an investment company and one day another investor could buy that company or you may be applying for a loan with that bank to pursue bigger ventures. That name will form a perception.  Name the company accordingly.  Many have made the mistake of naming the company out of social/personal preferences rather than what is an appropriate name given the agenda of the company.

Given the above factors, evaluate whether you group is set up for success in wealth creation or social success.

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com|

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