What differentiates an entrepreneur is their ability to spot an opportunity and make money from it. And it all starts with an idea.
Yet, in South Africa, too many entrepreneurs opt for tried and tested ideas such as Internet cafes, hair salons or cellphone shops, which leads to market saturation and inevitably contributes to the high failure rate of start-ups in the country. It’s a view strongly held by Mike Herrington, director of the University of Cape Town’s Centre for Innovation and Entrepreneurship, who believes South Africa’s poor schooling system is to blame for the high number of start-ups with copycat ideas.
The problem is spread across all the country’s race groups, he says, pointing out that the education system does nothing to encourage entrepreneurship and lateral thinking.
The danger of overtrading
The lack of original ideas leads to overtrading, and there’s already evidence of this in the construction sector, according to Charles Wyeth, chief operations officer of the government’s Small Enterprise Development Agency (Seda). Here, the high number of entry-level enterprises in the sector has ultimately led to these firms destroying one other, he says.
The agency recently decided that it would only assist enterprises which approached its construction incubator in KwaZulu-Natal, if they were registered by the Construction Industry Development Board as Grade 2 and above. To help entrepreneurs make informed decisions on what business to start, Seda is also planning to develop opportunity fact sheets, similar to those produced by Wesgro and Invest North West, where business people are informed of opportunities that exist within their regions.
Thinking things through
Yet an idea alone is not sufficient, it has to be tested – especially if you stumbled across it while out at a bar with friends in the early hours of the morning. This makes solid market research crucial.
But business consultant, David Brien of Retail Dimensions, confides that he was close to giving up on mentoring start-ups as scores of those that approached him, or were referred to him by a government support agency, simply hadn’t thought through their business idea properly. Brien points out that many entrepreneurs didn’t bother conducting the necessary market research, beyond talking to friends and family, who weren’t much use in any case as they often held biased opinions.
He believes too many young entrepreneurs have been “spoon fed” by government support agencies which hand out cheap business vouchers, dissuading them from having to plough in a lot of their own sweat equity. Brien’s advice is that entrepreneurs be “passionate, but not emotional”, and that they are able to make trade-offs because they understand an idea may not be as perfect as they believe it to be.
Banks not keen
Business consultant Alec Ncube of AN3 Consulting points out that another serious problem is that banks aren’t big on funding original ideas.
Even Sibongiseni Ngundze, managing executive of Nedbank’s Small Business Services, admits that the bank will only fund two out of every 10 new and innovative ideas presented to it. In contrast the bank funds about half of the run-of-the-mill ideas that came across its desk. Furthermore, he says, only about 5% to 10% of all the applications the bank receives for finance, are for innovative ideas.
Ngundze says the bank’s lending is driven by the nature of the market, and the reality in South Africa is that there is a lack of innovation.
Our flawed education system aside, South African entrepreneurs need to think more carefully about doing things “differently”. As Allon Raiz, chief executive of business incubator Raizcorp puts it, just by looking at your resources differently, you can begin to generate new ideas. No longer does a cellphone have to be just a device to talk or send a message, or your car just a mode of transport. The possibilities are endless. Even your friends can serve as a marketing channel for your business. It all starts with one bold idea.
The Three Ts of Creativity
US author Richard Florida’s Global Creativity Index ranks countries according to what he calls the three “Ts” of Creativity: The first 20 countries on his ranking of Talents have a population in which 20% of the people dedicate themselves to economic activities which are concerned with the generation or exploitation of knowledge and information.
Technology is measured by the investments in research and development and the number of patents per one million inhabitants. In relation to patents, the US ranks first by far.
Tolerance measures a society’s acceptance of ethnic and religious minorities.
The Global Creativity Index ranks these countries in the first 10 positions.
- United States