What makes or breaks entrepreneurial success in SA?

What makes or breaks entrepreneurial success in SA?

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Venture capital companies traditionally invest capital in businesses they believe have the potential for growth. It can be a high-risk occupation that at first sight doesn’t seem to have much in common with SMEs.  Do they, in fact, share some characteristics?

Investing in SME’s is almost as risky as investing in start-up tech ventures. What makes venture capital more risky is that besides investing in companies that have potential, you are invariably investing in new and untested technologies.

Where do the worlds of venture capital and SMEs intersect in South Africa?

As an industry we at SiMODiSA are trying to find ways of enhancing entrepreneurship and supporting start-ups. There are two pillars we focus on.  We work with government looking at advocacy, to remove some of the challenges that small businesses face. On the second front, we are looking for ways to actively help entrepreneurs get started and become sustainable – as funders we need a pipeline of small businesses that we can support.

The failure rate in private equity investments into larger companies is about 15%, but the failure rate of SMEs and tech start-ups can be as high as 70%.

Because of this there is very little funding available for either SME or venture capital investment, which is very unfortunate because jobs are created by small business not by big business.

Plus there is a shortage of skills in South Africa. Again this applies to the world of venture capital, private equity and small business.

 

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But most importantly, the country suffers from a shortage of entrepreneurs. South Africa lags behind the rest of the continent when it comes to entrepreneurship and the creation of successful small businesses.

What makes or breaks the successful development of entrepreneurs. Are there ways of creating successful entrepreneurs?

Yes, there are different models to help develop successful entrepreneurs. You could use the ‘Silicon Valley’ model.  In this model you have great universities, remarkable research, venture capital funders, angel investors and access to markets.

This has worked successfully in the USA, and we should use it here in South Africa because we do have great universities and good research, but now we need the venture capitalists and angel investors to help entrepreneurs start up their businesses and, very importantly, access markets.

One can also look at the ‘Mother Ship’ model.  This tried and tested model involves major corporate companies either spinning off small businesses or proactively supporting small businesses by providing them with financial and non-financial business support and access to their supply chains.

Of these two models, it sounds as if the ‘Mother Ship’ model is more applicable to South Africa than the first model? Is this perception correct?

Yes and no. In South Africa, the best example of the ‘Mother Ship’ model has been the mining industry. Many small businesses presently supplying the industry were created by people who left big mining companies to start their own enterprises.

More recently, we have seen how the BBBEE preferential procurement and enterprise development codes are encouraging the development of new entrepreneurs. However, the fastest growing economies are using government-backed venture capital programmes to get high technology businesses off the ground, and we in South Africa need to do that too.

Are there other ways of creating entrepreneurs?

Yes, there is the ‘Trigger’ model. For example, the introduction of new legislation such as BEE triggers the creation of a new generation of entrepreneurs. Interestingly, in South Africa not only have we created BEE entrepreneurs buying into existing businesses but also through necessity people who have been displaced by BEE have left and become entrepreneurs.

Then there is the ‘Local Hero’ model which is very powerful and underpins all of the other models because when people see someone they know successfully starting their own business they think ‘If he can do it, then I can do it’ – and so they are encouraged to take the plunge to start their own small business.

Hence, we need to celebrate our entrepreneurs and make them our heroes – we need to foster a culture of entrepreneurship which is why ‘Think Big’ was such a wonderful intervention.  We owe a lot to Standard Bank and the producers of the show.

What type of business start-ups does South Africa need the most?

South Africa needs ‘Gazelles.’ These are companies which grow quickly, but as they grow they create lots of new jobs. These companies include well-known brand names such as MTN and Vodacom and even Nandos. They begin small but they quickly grow into major businesses that employ large numbers of people.

While the ‘Think Big’ series has concluded on TV screens, episodes can still be viewed online by visiting www.standardbank.co.za/thinkbig. For an array of additional tips and tools on how to start, manage or grow a business, visit bizconnect.standardbank.co.za.

 

Claire Busetti
Claire Busetti, who is on the Board of the South African Venture Capital and Private Equity Association as well as SiMODiSA, which is a new “start up business” association, has spent many years in the world of finance, involved in areas such as listed investments, private equity, venture capital and the world of SMEs. Claire holds a B.Sc. from the University of Natal and an MBA from Wits.