Irrational Exuberance: A Threat to Entrepreneurial Success

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What is Irrational Exuberance?

Have you ever wondered why companies like Johnson and Johnson, Ford Motors, and

JP Morgan have managed to survive for over 200 years, long after their founders passed on? Have you ever pondered why our own African companies, such as the indigenous bus companies we were showcasing in our last conversation, ended up folding even though they had so much potential to grow?

In this article, I dissect the phenomenon of irrational exuberance (IE), which stifles business growth. Irrational exuberance refers to excessive, undisciplined, or reckless spending by

entrepreneurs, often driven by instant, explosive, and unexpected success, which can jeopardize business sustainability. For individuals, this IE can make you tumble from grace to grass overnight! Just look at how the heavyweight champion Mike Tyson tumbled from a net worth of over USD 400 million to becoming a bouncer at a local hotel! Or how Michael Jackson, of the ‘Thriller’ and ‘Moonwalk’ fame, would end up dying depressed and bankrupt?

The Pitfalls of the Mbinga Culture?

In Zimbabwe, this phenomenon is called the “mbinga culture.” Buoyed by instantaneous success, the entrepreneur, who has been practicing cautious optimism, and austerity for prosperity, suddenly embarks on illogical, unreasonable, and unnecessary lavish expenditure simply because monies are available! The entrepreneur feels that they have finally arrived and that their pockets are now boisterously deep that they can do anything with it. They go on a spending rampage. Precipitously, we start seeing preposterous wild card acquisitions, for instance, luxury possessions such as private jets, yachts, extravagant offices, jewelry, and elegant and arrogant cars, becoming a top priority!

Failing to Plan is Planning to Fail

The collapse of South African companies like Steinhoff (2017) and Fidentia (2006), Zimbabwean bus companies (1980s, 1990s-2000s), and indigenous Zimbabwean banks such as Trust, Royal, and Renaissance Merchant Bank (2000s), among others, can be attributed to ridiculous exuberance in several ways. The propensity for excessive leverage, taking on too much debt to finance aggressive expansion or acquisitions, has been a common causal factor. Lavish spending, where directors spend company funds on extravagance and superfluity, has been another disconcerting element. Poor corporate governance, coupled with a lack of oversight, conflicts of interest, and questionable related-party transactions, are some of the common pitfalls of African enterprises.

Key Lessons for Zimbabwe

Why Business Ethics and Corporate Governance Matter?

Zimbabwean entrepreneurs should embrace strong corporate governance by ensuring that boards have independent directors and robust oversight. They should embrace astute financial discipline, avoid excessive debt, and prioritize sustainable growth. It’s important to prioritize budgeting, saving, and investing wisely. Transparency is also crucial. They should maintain accurate financial reporting and accountability. As far as incentives are concerned, they should tie executive compensation to long-term organizational performance. African entrepreneurs should realize that strategic planning is key and focus on sustainable growth, not just rapid expansion. Risk Management is also central. They ought to mitigate risks and avoid ‘get-rich-quick’ schemes. Lastly, they must embrace mentorship and seek guidance from experienced entrepreneurs or advisors.

The Power of Delayed Gratification

Delayed gratification in business is an age-old principle dating back to the time of Tom Burgis’ book, The Richest Man in Babylon. It entails that long-term success is attained through prioritizing sustainability over short-term gains. It underscores that saving and investing wisely builds resilience and reduces financial risk to our companies. Businesses that are focused on long-term growth are often more attractive to investors. Genuine trust and goodwill are built when companies demonstrate

Commitment to long-term relationships with customers, employees, stakeholders, and partners. In closing, here is food for thought: how did the likes of Henry Ford, JP Morgan, or Steve Jobs managed to keep themselves level-headed in the face of explosive success and wealth?

Professor Mufaro Gunduza coaches and mentors Business Intelligence at Mount Carmel Institute (Harare), Indian School of Management (New Mumbai), and UNISA. He is the SADC Investments Advisor to Dr. Farzam Kamalabadi, Founder of Future Trends Group and Special Presidential Envoy on Business and International Relations, Government of Botswana. He has written several books, including Unleashing Blue Sky Thinking, Spotting Business Opportunities, and Big Picture Thinking (Bookboon Publishers, London & Denmark). He has just assumed the Presidency of the Southern African Chamber of Commerce. He can be contacted on WhatsApp: +263774868896 Phone: +263718925350 Email: mgunduza@yahoo.co.uk