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ou may have never heard of him but Lonnie G. Johnson is the president and founder of Johnson Research and De-velopment Company and three smaller spinoff companies. He is most famous for inventing the “Supersoaker” water gun, a

top selling toy for two straight years in 1992 and 1993, which has generated close to a billion dollars to date. This week we use Start/Ups as medium to shine a spotlight on an early African American entrepreneur who paved the way for Mr. Johnson and countless others black entrepreneurs.

Business minded individuals at the turn of the last century would have found it extremely hard to found and nurture any business in the face of discrimination and a relative difficulty in sourcing capital. Despite this, Rev. William Reuben Petti-ford, born in 1847 to freed parents was a unique and resolute soul. It is said that Pettiford, who was an educator in addition to being a man of the cloth, observed an Af-rican American wom-an with a bottle of whiskey as her com-panion on a street car shortly after receiving her pay. Pettiford felt that a business that would help black peo-ple save their money rather than wasting it was needed. Using this as impetus, Rev. Pettiford and local black leaders in Bir-mingham, Alabama banded together to form the first black owned and operated bank in a state which was fraught with racial segregation at the time.

The Penny Savings Bank of Birmingham thrived because of the directors’ emphasis on affording black residents of Birmingham the ability to build. The bank financed the con-struction of houses and churches that housed thousands of citizens and improved the standard of living to a level that would not have been possible otherwise. In 1911, the bank had increased its deposits by almost 500% in a 9 year period.

By this time Penny Savings bank was the largest black owned bank in the country and the building that it built to house its operations in 1913 was an even greater testament to Afri-can American self help and unity. The building’s upper floors were all rented out to African American businesses that paid a highly subsidised rent agreement.

Unfortunately, the Penny Savings Bank failed in 1915, one year after the death of Rev. Pettiford who had apparently forged such a unique relationship with the larger banks that even after a merger it went under. Despite operating for just 25 years, The Penny Savings Bank is a unique example of a sound business plan that was executed well and prospered through a desire to uplift.

yourmoney ezine

...A penny at time

start ups

by andre Burnett

YWilliam reuben Pettiford

yourmoney ezine

Collateral Damageminimizing

Business Lounge

pound of flesh was the collateral asked of Antonio in return for a loan with an interest charge of zero in William Shake-speare’s The Merchant of Venice. In the play Antonio readily accepted the terms, undoubtedly more enthralled

at the aspect of paying no interest than the idea of being bodily harmed, but today’s small business owner might find it hard to present collateral as easily as Antonio offered up his body. Financial institutions today have chosen to manage the risk of default by potential business debtors by hiking up interest rates for unsecured loans while lowering rates as more collateral is put forward. This puts many an aspiring entrepreneur at odds with these institutions because while institutions have made an effort to make their loans as at-tractive as possible by offering lower interest rates, the issue of collateral is still the elephant in the room.

The banks’ position is totally understandable; they are sim-ply managing their risks and who wants to lend money to someone who is more than likely start buying new SIM cards when the payments start racking up. It could be ar-gued however that the banks’ stance is extremely myopic and is inadvertently stifling the business potential of our vital small and medium sized sector. Without the backing of our financial institutions our entrepreneurs will find themselves forever mired in an economic limbo until the resilient few find alternate sources of funding and the rest fail.

The onus must be on our financial institutions that are the lifeblood of our economies to examine alternate routes of determining an institution’s creditworthiness without resorting to the ‘C” word. The implementation of lending programmes that are more sophisticated and involve much more than the presentation of bonds and land titles should be a priority of every institution that offer loans to small and medium sized enterprises.

The reality is that a credit rating agency has been proposed and has been in the works for some time now and when it arrives that will be all well and good. However it may be pos-sible for the banks to exercise some due diligence by incor-porating some of what a ratings agency uses to determine credit-worthiness in its own method of determining interest rates. What is the relationship between the business and its suppliers? Does it meet its payroll in a timely manner? These

are but two of the many questions that could be asked to provide a much clearer picture than a land title ever could of the potential of a business. Good public service is all it is, and Jamaica would be much better off if the entrepreneurs were given a little breathing room.

Aby andre Burnett

yourmoney ezine

hen it comes to Ponzi schemes, the early bird definitely gets the unlucky invertebrate and this was the case with victims of many of the “alternative invest-ment schemes” that popped up in Jamaica in the last decade.

Cash Plus and Olint were undoubtedly the kings of the roost but there were tens of these schemes that simply disap-peared into thin air leaving empty offices, unanswered calls and despairing individuals. The effectiveness of the promot-ers to convince usually sensible people to part with their hard earned dollars seems uncanny but can really be attributed to persuasion tactics employed by these crooks. The previous article touched on certain scam tactics which could be as-sociated to the 6 principles of persuasion made famous by American psychologist, Robert Cialdini.

The first tactic is the promise of wealth that seems too good to be true or as I like to say, “The Case of the Spooky Phan-tom Riches”. With Cash Plus, “investors” were offered up 12% return monthly a tactic that involves up to three of Cial-dini’s principles. The principles of scarcity, reciprocation and consistency were all used to hook existing clients and attract new ones. People want more of what is less naturally and an investment that pays out that well is definitely scarce. In terms of reciprocation and consistency, the client feels like he is being given back to and for a long time Cash Plus, Olint and a number of others met their obligations month after month engendering trust within their “investors”.

The “source credibility” tactic takes into account the fact that people will trust almost anyone who is able to convince them that he is an expert. Trust me...I’m an expert writer. This tactic mirrors Cialdini’s Principle of Authority exactly and is best outlined in the case of David Smith. Smith was made out to be a Forex market guru by people in the know and as such many people felt secure handing over money to someone who was considered an expert in the field. This also draws on the “social consensus” tactic which employs a bit of peer pressure where new investors are drawn in simply through

association with peo-ple who are already a part of the scheme.

Hopefully these two articles read like a guide to avoiding be-ing the victim of such a scam instead of a “How to” manual. Fortunately schemes such as these have lost much of their steam but it is only a matter of time before they are retooled for a new generation.

your money insights

by andre Burnett

W

the Psychology of Ponzi schemes Part 2

“At the height of his success in Boston in 1920, Charles A. Ponzi was hailed by those he was cheating as the greatest Italian who ever lived.”You’re wrong,” he said modestly, “there’s Columbus, who discovered America, and Marconi, who discovered radio.” “But, Charlie, you discovered money,” they told him.”