JUST BEEN PAID (IS IT A PONZI SCHEME?)

To understand the operation of a Ponzi Scheme, you need to know the history. The first mention of such a scheme is in Charles Dicken's 'Little Dorrit' where the scheme operated by the fictional Merdle's bank collapses after Mr. Merdle dies leading to the imprisonment of one of the main characters, William Dorrit at Marshalsea debtor's prison.

In 1920 Charles Ponzi created such a scheme and it grew so big that it attracted the attention of the federal government. Like William Dorrit, it wasn't long before he was also imprisoned. The biggest documented ponzi scheme to date was the scheme operated by Benard Madoff between the 1990's and 2008.
A ponzi scheme can be thought of as an investment vehicle which promises and seems to make consistently high returns without a clear investment strategy. The returns on investments are mainly made out of the funds put in by new investors. The key words to note when such a scheme is introduced to you is offshore investments, hedged securities, arbitrage and such other words that only a financial expert can clearly explain. Rarely do ponzi schemes invest the money obtained from investors. The money obtained from investor A is paid to Investor B, the money from C is paid to B and so on. Therefore for such a scheme to stay in business it needs one chief ingredient: a steady inflow of new money. The ultimate collapse of a ponzi scheme results from a shortage of new money, disappearance of the scheme's promoter or government intervention.
The difference between a ponzi scheme and a pyramid scheme is that a ponzi scheme does not require you to introduce new members into the scheme while a pyramid scheme requires you to. This is the reason why pyramid schemes collapse faster than ponzi schemes because their obligations are higher and introduction of new members increases the payout from the scheme. Once the scheme can no longer meet its obligations, collapse is inevitable.
The hugest scheme recorded in history was the scheme operated by Benard Madoff. His  scheme was operated for over a decade and it paid consistent returns all along. No investment was made with any of the funds put into the scheme. The success of the scheme was pegged on its investors. The fund mainly targeted charities and other elite investors and with incentives to maintain funds in the scheme and strict penalties for withdrawal, liquidity was maintained all along. The fund could therefore consistently pay out profits to investors without having to invest in anything because there were funds available to make such payments. Another key factor for the success of Madoff is that his scheme paid out a return of between 10% and 20% per annum which is very low by the standard of Ponzi schemes.
Kenya has had its fair share of such schemes, starting with DECI (and its flying managers), which made away with a whooping 1.7 billion shillings in investor's cash and a bunch of other smaller schemes that gained public notoriety by taking  Kenyans for a ride. The internet has seen hundreds of such schemes come into operation and as always there exists a bunch of gullible investors who decide to put up their money in these schemes before they collapse.
If you do any type of online business, I'm sure you have come across this investment vehicle: Just Been Paid, with its JSS tripler plan that is supposed to answer all your financial troubles. Frederick Mann, the man behind the scheme, is this internet guru, who according to their website has come up with a fool-proof (I detect some pun here) formulae for making anyone rich starting from zero (Because once you join you get $10 of free investment money).
According to their website, JSS TRIPLER pays a return of 2% for 75 days. You don't get your money back but with that return you will have made 150% percent of your initial investment at the end. so with simple interest you make 50% of your initial investment in 75 days. You can either choose to withdraw or reinvest your money at the expiry of this period.
When you are investing, you purchase JSS Positions (which are simply JSS positions, not blue-chip stocks). Each position costs you $10 dollars. So for the enterprising investor you could put up $500, earn $10 everyday and buy a position everyday during the 75 days and earn the interest described above over the 75 day period on these positions. This changes  the simple interest into a special case of compound interest. I have calculated the amount of money you would make at the end the 75 days with $500 initial investment and new positions purchased everyday and the total payout would be $1,305, so the profit is $805 which represents a 161% return on investment in 2 and a half months.
This is not a sustainable rate of return by any means. Anyone who has done mathematics knows that compound interest results in exponential growth. The problem with exponential growth is that it moves towards infinity with continous compounding. So with any start point, unless a finite limit is put in place, the system will grow to a very huge number. The fact that JSS triplers earnings can be compounded everyday makes this problem worse because its almost continous. The 75 day investment window is only theoretical because the restart button on the JSS tripler system could ensure perpetual earnings for anyone in the system.
The money earned on this website is totally virtual. They do not specify their trading strategy (which is a legal requirement in many countries for investment funds), the JSS positions sold by the system are unregistered securities, they have no registered office and their website is the world standard of poor workmanship.
The way they have optimised their website is the clear work of some very ingenious search engine optimisation. Just go to google and type Just Been Paid, the first three pages of search results will consist of domains and sub-domains all owned and managed by just been paid. Their website is full of CAPITAL LETTERS, highlighted text and bold wording to ensure that they rank high in any keyword ranking on search engines. The fact that their landing page is totally dis-organised is a proof of the fact that their optimisation was aimed at manipulating search results. This means that whenever you do research about Just Been Paid on the internet you will most likely land on a domain or sub-domain that will lead you to a blog, article, press-release or website managed by Just been Paid. This is the reason why all the reviews you read about Just Been Paid will most likely be positive and yet they still have no registered office.
Currently people are making money on this scheme and they will continue making money. Operating through a website gives you the power to create virtual earnings and earning reports from the comfort of your bedroom. The virtual earnings will be incentives to the people already in the scheme to delay withdrawing their fund hoping to reach $10,000 and higher and then one day the investors will start withdrawing huge sums of money. This is the day when the owner of the scheme will close the gate way and all the investors will have nowhere to run to. They will discover that Fredrick Mann is the ingenious figment of a creative hacker's imagination and that the blurry introduction video on the landing page was shot from a webcam in the basement of the hacker's garage.
I will advice anyone thinking of putting up money in the scheme to put up a sum of money which he can afford to lose. If the scheme collapses before you can withdraw your money, your tears will not be very painful and if it does not collapse you will make a tidy profit. Ultimately, like all Ponzi Schemes, Just Been Paid will collapse and the stupid people who lose their money will blame the government.

BARS BEATING MUTUTHO TO BECOME PROFITABLE

When Mututho decided that Kenyans had had more than their fair share of the frothy stuff, he didn’t really have the best interest of the bar owners at heart. To say that revenues took a nose dive is a gross understatement. Slashing the drinking hours by half is not really good for business. That the rules have made the country better or less drunk is a debate for another day. I happened to come across statistics on “The rise of spirits against beer” and boy are they shocking.

I’ll present a case of a bar I work for as an accountant and the journey it has taken from profits, through reduced profits and losses to profitability under the new rules. This bar took a particularly hard hit when the said rules took effect. We saw revenues fall by over forty percent in one month and remain at that low level for over six months. Improvements have been realized at a time when we actually expected a further dip given that the football season is over everywhere.

As a business owner, when faced with declining profits, you have a few options: Cut costs, Increase revenues or do both. The obvious cost cut is to render some employees redundant since keeping them on the job can no longer be justified (You can be sure that many waiters and bar managers are not very happy at Mututho’s antics). The obvious solution to increase revenues is to increase prices. Any drinking Kenyan can bear me witness that beer prices have never shot up with such ferocity as they have since the bill was passed.

At the bar, we chose to implement both options several times, adjusting the parameters until an acceptable level (Break-even) could be achieved. The inflation levels experienced last year (Which I still believe was engineered) did little to solve the bar-owner’s woes. The drinkers decided that the best way to shore up their losses was to cut their drinking budgets and the bar owners cringed.

Somewhat 2011 was a dark year for many retail businesses. Retail is driven by aggregate demand and inflation has a downward pressure on aggregate demand. The brewer screams that the high barley prices, power and distribution costs must be matched by an increase in price, the bar-owner passes on the high prices to the drinker and the drinker retaliates by reducing the number of bottles he downs. Ultimately the hugest loser is the bar owner.

When the football season started last year, expectations were that demand would recover because football fans love beer. This being a sports bar expectations were very high, up until most fans (I won’t name the team they support) decided to switch to sodas, actually one bottle of soda per game (apparently this soda is called a screen saver). You can only hike the prices of soft drinks to a certain level and consumers can only take in so much soda at a time. Thus the only solution is to sell only Soda Kubwa.

Between April and May, the accounts are finally looking up. I have been racking my brain, trying to think of the cause of this recovery and several reasons have stood out. One of the reasons is something I have named: ‘Inflation muscle’ (I don’t know the economic term). I describe this as the consumer getting used to the inflation level even without a matching increase in income. This is the toughening up of the consumer by adjusting their lifestyles and allocating incomes to reach a new equilibrium. For example, petrol prices rose past the Ksh. 120 mark and we all sang ‘Hang the central bank’. The amazing bit is that the prices have remained at around that level yet nobody is screaming anymore. Along the way, we get used to the high prices: our ‘Inflation Muscle’ toughens up.

I have estimated the amount of time that it takes for Kenyans to develop an inflation muscle at around 5 months. In five months, we all forget the item that made the most news and we jump on to the next bandwagon in frenzy.  By March, the drinkers had toughened up and voila! Suddenly there was money in the wallets to buy a few more pints.

The second reason is actually the lack of football. I know that you all think that is a contradictory statement but bear with me. Well, we know that most people drink in a bar, and somewhere during the year drinks in the bar became expensive. The football fans use football as an excuse to escape from the house and if possible catch a few drinks. When the drinks become expensive in the bar, an ingenious solution emerges. Why not pay your DSTV subscription at home, buy a few spirits from D.O.D or some other duty-free joint and call your friends over during the weekend to watch the game at your place. So, what happens when the football season is over? Home becomes boring and you have to escape. The obvious escape route is the bar and suddenly sales shoot upwards.

The most powerful reason that I have identified is marketing. If you have a bar in some estate, you most likely don’t want to spend precious cash on elaborate advertising campaign on Classic 105. The best option is to marshal up drinkers to your joint by calling your friends and telling them to bring their friends to your place. Make these drinkers feel that they are part of the business and that they own the place. Simply make your bar their preferred hang-out joint. You breed a loyal following of drinkers very cheaply and with great effect. During the month of May, the owner of this bar was around and I believe that he implemented this strategy very effectively.

The good news for the bar-owners is that the strategies implemented to ensure that they remained in business during the tough periods are now contributing to high profitability with increased sales. The cost cutting reduced the fixed costs borne by the business and the increase in prices increased the gross profits per sale. This can only mean that any increase in sales results in a more than proportionate increase in net profits.

I can clearly see brighter days ahead for the alcohol business. 

GENESIS

A few weeks ago I made an emotional (or was it?) plea to my readers to forward business ideas to me for a story series that I'm working on. Either I do not have as many followers as my stats would have me believe or my followers are key hunters who find the trouble of the keyboard such a bore that I have not gotten one idea.
I will not make additional calls. I am one known to improvise when in doubt and even when doubt is not a factor of interest. I have therefore chosen a business that I know very well for review. This is a business that my mother did throughout my childhood: THE MILK BUSINESS
I however believe that she went about it the wrong way from a business perspective. Given that milk is a commodity that is consumed everyday by almost every household in the country, there is not contention on the scalability of the business. This is a business whose potential is only bound by the management's vision and the strategy adopted to capture as big a market as possible and to lock in the market by proper branding and differentiation.
For over ten years, my mom sold milk to the households of Nakuru; always complaining of the frustrations that the business was bringing her way. My aim is to analyse the business from a professional perspective and look at a theoretical way in which the business could have been run. This series will take my readers through every step: starting from registration of the small business and subsequent scaling to reach a level of processing and expansion. Every step of the way, I will allude to the pitfalls to avoid as an entrepreneur and I hope that this will be a great resource to anyone who wishes to do business in kenya.
I would love to involve my readers via comments and to engage them in generating ideas and solutions to the problems. So always comment to anything that may contradict your knowledge or beliefs. Most of all I want you to have fun reading this so enjoy yourselves.

THINK TANK

A very lengthy and heart-rending apology is long overdue to my readers. I've been away for a while. All thanks to some complicated math papers that are now over. However, now I'm back, ready to take you through the different experiences that I go through everyday.
I would like to call out to all entrepreneurs who read this blog to post their business ideas issues and products on this blog. I will do everything I can to give the best help to the best of my abilities.