Ex-banker learns from hotel failure to be more prudent

When it comes to the ups and downs of running a business, Leonard Kithinji has seen it all.

Mr Kithinji once owned two thriving restaurants in Meru town but after a series of blunders they collapsed under a Sh10 million debt burden.

However, he did not give up and is back in business — this time wiser. His is a lesson on how not to run a start-up, and how to get back on track.

Mr Kithinji said he went into business with so much confidence that the thought of failure never crossed his mind.

After all, he had a successful career as operations manager at prominent financial institutions. “When I got into the business I knew nothing would stand in my way. I had worked with Equity, Faulu, Sidian and Jamii Bora banks to the level of branch operations manager and did not imagine that running a simple restaurant would be a challenge,” he told Enterprise during an interview at his new restaurant.

Mr Kithinji quit banking in 2014 and using his savings and a loan, pumped more than Sh3 million in one restaurant.

It was a good start and within a short period of time the outlet, which specialised in African dishes and fast food, was thriving.

After seven months he borrowed another Sh2.5 million and invested the money in another hotel. He dreamed big, he said, so much that he projected running at least five outlets under his business name — Royal Chain of Restaurants — within five years.

The two outlets did well, turning in combined sales of up to Sh30,000 daily. Mr Kithinji also provided outside catering services to several institutions and individuals, making a net profit of about Sh150,000 in a good month.

He was literally smiling all the way to the bank, daily. But he soon realised that one outlet was eating into the other. He also noted that he had over-invested in the business without first assessing the success of the first one.

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The money he invested was also borrowed, and servicing the loans became a challenge even as there were weak controls that made it easy for workers to take advantage of his hands-off style and steal from him.

“One big mistake I made was to assume that I would succeed in business simply because I had done well managing money in banks. What I did not know was that most of my experience was in the corporate sector where businesses have structured systems.

“The other serious blunder was that I over-invested without first studying the performance of the first outlet,” he said. “The restaurant sector is largely informal with people being forced to micro manage and devise means of running their businesses and dealing with workers in a hands-on management style.

“I discovered that there were loopholes and without proper controls, employees were deliberately creating gaps to allow them siphon money.” Mr Kithinji took up loan after loan to resuscitate his ailing restaurants but they were bottomless pits.

What he had envisioned as a blissful business had gradually turned into a nightmare.

Finally, he sold them off to service a Sh14 million debt burden. His family assisted him to repay some of the debts.

When institutional clients discovered that he had shut the restaurants they withdrew their outside catering contracts, compounding his problems.

Mr Kithinji then set up a small time supplies business which gave him time to review his operations as he plotted a comeback.

“Before I opened my first outlet, while still working, I entered into a restaurant and was forced to walk out since it was full to capacity. This is what inspired my idea and as I reviewed what had gone wrong I realised the business has potential with restaurants full during meal times,” he said.

This year, Mr Kithinji raised Sh400,000 and invested in a new outlet under the brand name Golden Prince Restaurant. He sells pork meat as a specialty besides other dishes.

“Although the response is good so far, this time I am careful because I have learnt a vital lesson. I have also identified a market niche in pork meat,” he said. He also runs a butchery and supplies pork meat to various institutions.

“At times it is important to fail because then one is able to look back and assess mistakes they made and rectify them. At the moment the little profit I earn I cautiously plough back,” he said.