The Big Trap of Small Business

The Big Trap of Small Business

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Discovery Ltd was started in the year 1992. Its turnover is R34 billion & market capitalisation is over. R57 billion.

Curro Holdings Ltd was started in the year 1998. Its turnover is R487 million & its market capitalisation is just over R9 billion.

Yet in the same time countless entrepreneurs have started their own small businesses and more fail than those that succeed. You’d be forgiven for thinking that the founders of companies like Discovery, Curro, First Rand, GijimaAST and BCX are all geniuses. They’re not. They just understand that if a business is not scalable and is built to inherently “stay small”, then it will die.

Related: Want to Start a Business but Questioning Your Passion? Try This

So why is South Africa so deeply focused on creating small businesses?

Why do we have a legislative framework that seems to encourage and even incentivise entrepreneurs to stay small and fly under the radar?

There are few fallacies about starting and running a large business that many entrepreneurs have that need some correcting:

 

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1. Its harder to run a big business

I sit on the board of several very large businesses. I am a partner in a private equity outfit & often engage with business leaders when are looking for opportunities to buy into businesses. Not only that, I have run a R500 million a year business and today influence over R4 billion in capital.

The task of running larger business is more complex but is not of itself harder. The effort is the same. You often work the same hours, manage similar issues and have to answer the same burning questions around the future and you will get there.

What changes as you move from small to medium and then medium to large is the “complexity” of the business. There is a deeper interdependence of factors and the stakes are higher but the effort is the same.

2. I want to own everything. I am the boss of me.

Too many small business entrepreneurs actually think they are “free”. If you have to go to work and be at the office to make a living then you are not free, you simply have the illusion of freedom with higher responsibilities than corporate employees.

Sometime ago I realised that I needed a better pool of talent in my business. I needed deeper insight, better technical expertise and more proven track-records. But I couldn’t hire these people into the business.

 

Related: 10 Ways Entrepreneurs Think Differently

Not only could I not afford them, but I would never be able to get the best out of them as conventional “employees”. So decided to create a floating shareholding structure through which “key people” could have equity in the business apportioned by the percentage contribution to the bottom-line.

This is hard because having other shareholders means you must ensure that corporate governance is in place and that apply the very same “corporate-rules” that you left employment for. However, this was the best decision I ever made.

I couldn’t have hoped for a better team and the business has grown 121% on average every year for the past 3 years. This year we are on track for a 208% growth in top-line revenues. This is not because I am smarter or working harder but rather I gave a portion of my business away to people that were best able to help me create wealth.

Caution: taking your time choosing these people. It is not a decision to betaken likely. Test the out first. Give them tasks. Give them an opportunity and see what they deliver. Too many people have learnt how to “interview” well.

3. Hire cheap. It’s just a job.

This is the Achilles of most entrepreneurs. Hiring the cheapest person in an effort to contain costs often leads to other “implicit and non-direct” costs like bad workmanship, poor quality of work, tardiness, laziness, disengagement and the myriad of HR issues that follow this type employee. These also happen to the hardest people to fire. They are bad at their jobs so as a survival tool, they have had to be good at labour relations.

When it comes to developing your business in the early days, then the laws are “first brains in seats then bums in seats”.  Get the right people. Pay them correctly. Inspire them to believe in the future. Give them ownership of the future and watch them WOW you.

In the end, no small business ever changed the world by staying small.

Related: 3 Reasons Your Business is Dying

Vusi Thembekwayo
Mr. Vusi Thembekwayo has been an Independent Non-Executive Director of at RBA Holdings Ltd. since May 14, 2013. Mr. Thembekwayo has already collected numerous accolades and awards as businessperson, entrepreneur and international public speaker. Mr. Thembekwayo completed a PDBA and a course on advanced valuation techniques with the Gordon Institute of Business Science and completed a Management Acceleration Programme (Cum Laude) with the Wits Business School. His speaking achievements include the international hit talk “The Black Sheep” which he delivered to the Top 40 CEOs in Southern Africa, addressing the Australian Houses of Parliament and speaking at the British House of Commons. To add to this, Vusi speaks in 4 of the 7 continents over 350 000 people each year.