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A Snapshot of Entrepreneurship in South Africa

The research and results arising out of the White Paper on the state of entrepreneurship reveals some of the challenges facing entrepreneurs – and debunks several commonly held myths.

Juliet Pitman

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Malik Fal

It’s no secret that entrepreneurs represent the engine of economic growth in emerging countries, and South Africa is no different. Government, corporates, the private sector and NGOs are involved at different levels in various initiatives intended to boost entrepreneurial activity throughout the country, and there is no shortage of programmes, organisations, competitions and initiatives targeting entrepreneurs at various stages.

“However, much of this activity takes place independently, and we realised there was a pressing need to create a platform that would gather together this common knowledge into a single repository,” says Malik Fal, MD of Endeavor South Africa which, together with FNB and the Gordon Institute of Business Science, published The Entrepreneurial Dialogues: State of Entrepreneurship in South Africa, in March this year.

“Our goal was to provide a broad-based view of the state of entrepreneurship in South Africa and pull together information on the myriad different issues that affect and drive this important sector of the economy.” The paper represents the culmination of broad-based research that began during Global Entrepreneurship Week in November 2009, when Endeavor and FNB facilitated discussions between stakeholders from government, entrepreneurial, corporate, academic and NGO sectors. It provides an in-depth view on issues such as access to capital; the culture of entrepreneurship in South Africa; enterprise development and broad-based black economic empowerment; incubator and SME support; and access to skills.

Some of the findings reflect what we already know. But the report also challenges a number of widely held misconceptions and in so doing, shines a spotlight on the real challenges.

Struggling to access capital?

One of the most interesting of these relates to the issue of access to capital. “Ask any entrepreneur what their biggest challenge is and they’ll tell you it’s access to capital. But, as Dr Mike Herrington, Global Entrepreneurship Monitor (GEM) South Africa Team Leader points out, South Africa has the same availability of capital when compared to other countries. In other words it’s a myth that there is somehow less money available in South Africa,” says Fal.

But entrepreneurs might argue that this doesn’t change the fact that they still struggle to get funding. And on this point, Fal agrees: “There are certainly challenges and hurdles to getting funding, even if they don’t relate to the amount of funding available,” he says.

Fal believes the issue needs to be grouped into two categories of challenge – those that relate to the providers of capital and those that relate to the seekers of capital. “Things need to change on both sides of the equation,” he says.

Providers of capital need to offer greater transparency and communication about what applicants need to do and the criteria they need to meet in order to access funding. But, more importantly, such communication needs to target specific categories of entrepreneurs. “Funding providers need to be clear about whom they are targeting, and then tailor their communication to specific groups. What we’re learning is that a shot-gun approach to such communication simply doesn’t work,” Fal explains.

Entrepreneurs who are looking for capital also need to make some changes. “Applying for funding is like going through boot camp so be prepared to pay your due. Entrepreneurs really need to do their homework – find out what information the funding organisation is looking for and don’t apply until you have all of it down perfectly,” says Fal. He adds that entrepreneurs who assume funding is due to them make a big mistake. “There is a culture of entitlement among some, who believe it is their right to get funding just because they need it,” he says. Simply put, the need for funding doesn’t make a compelling case for providing it.

Tapping into enterprise development fundingClosely related to the issue of access to capital are the White Paper’s findings about enterprise development (ED) and broad-based black economic empowerment (BBBEE). “Around R20 billion is earmarked for entrepreneurial development through ED, and the question on everyone’s lips is why this is not being deployed,” says Fal.

Part of the problem arises from an historic corporate mistrust of BBBEE. Fal explains that most organisations see ED as a social initiative instead of a commercial one. “Corporates need to be educated about the commercial value of enterprise development. Some companies are getting it right and are reaping the rewards of investing in their up- and down-stream industries, but much still remains to be done,” he adds.

There’s also a need for greater creativity when it comes to identifying suitable ED recipients. “Many ED applicants simply aren’t suitable candidates for funding because they lack the business skills and therefore the sustainability that companies are looking for.  Part of the problem is that many of the skilled and educated potential entrepreneurs are employed in the corporate environment, so companies need to find a way of identifying these people and investing in businesses which they can run,” Fal says. There is of course a downside to encouraging skilled entrepreneurs to leave your employ and venture out on their own but, as Fal points out, if they are running businesses in your up- or down-stream industries, your company can reap commercial rewards in addition to the points earned for its BBBEE scorecard.

Building a skills-rich organisation

Contrary to popular belief lack of skills – not capital – is one of the biggest hindrances to entrepreneurial success. “We can learn a great deal from programmes launched in the US in the 1980s,” says Fal. Aimed at spurring entrepreneurship in minority communities, these programmes initially focused on increasing access to capital through subsidised grants. “However, people soon learned that it wasn’t lack of capital but rather lack of skills that was preventing entrepreneurs from growing and being profitable,” says Fal.

In fact, many of the subsidised grants became destroyers rather than creators of wealth because they created debt traps from which people, particularly those without the requisite financial skills, couldn’t escape. The skills of the entrepreneur are critical to success, and the White Paper reveals that entrepreneurs with a better education and experience in the corporate world of business have a greater chance of running sustainably profitable enterprises. “People might point to examples of successful entrepreneurs who dropped out of school, but these examples are by far the exception, not the rule,” says Fal.

The skills of the individual entrepreneur are not the only ones under the spotlight, however. Most entrepreneurs struggle to attract skilled staff to their companies, Fal points out, because they can’t compete with large organisations on salary. But there are ways of overcoming this, he adds. “Entrepreneurial companies need to focus on their broader employee value proposition. They need to sell the adventure that comes with being part of an entrepreneurial company and they shouldn’t shy away from approaching seasoned executives, many of whom are bored stiff in the corporate environment and would love to join an exciting, innovative company on the make,” he explains.

However, he adds that labour laws present a more challenging problem. “Current labour legislation is really onerous for small businesses and there is definitely a need for the Department of Labour to review it and possibly draft laws specific to small business needs,” he says.

How to build a robust entrepreneurial culture

“In many ways entrepreneurship is a deeply cultural thing; those countries that epitomise entrepreneurial success have it ingrained in the culture of their people and their society,” says Fal, pointing to the example of the US, a country built on the possibility of individuals getting ahead by starting their own small enterprises.

There are pockets of such entrepreneurial flair in certain communities in South Africa, but on the whole, our society does not value entrepreneurship highly enough. “There is no silver bullet but in order to foster a greater spirit of entrepreneurship, our society needs to integrate the issue into home life and the formal education system. What we are seeing is that a basic introduction to entrepreneurship is valuable even to people who are going into the professions or into corporate business. The education system has a much bigger role to play in teaching children and young people about the possibilities entrepreneurship opens up to them,” Fal says.

The broader South African society also needs to understand the value of entrepreneurship, he adds. “By and large, the South African community is still very conservative when it comes to the career options it presents to the younger generation. Youngsters are encouraged to do well in school, get a good degree and secure a well-paid and secure corporate or professional position,” he says. Of course a solid education is vitally important but there is equally a need to encourage and celebrate the entrepreneurial drive of those people who are inclined towards it.

“Unfortunately our society as it currently stands does not make room for those ‘outliers’. It  either chases them away and they emigrate, or it stifles them to such an extent that it’s difficult for them to survive,” Fal explains. Added to this is a low tolerance for entrepreneurial failure.

Offering incubation and support

In addition to general societal support, entrepreneurs need the assistance of a range of different organisations, including incubators such as Raizcorp and NGOs like Endeavor and Enablis  that offer SME-targeted support. “Again, we’re seeing that large-scale shot-gun approaches to support don’t work. Entrepreneurs require targeted, specific support.”

To this point, however, Fal adds an interesting caveat. “Many entrepreneurs are not well-positioned to make the best use of the services offered by the support organisations that exist, because they don’t have a clear sense of what it is they require. If support organisations and incubators work best by providing targeted help on a specific challenge, entrepreneurs need to have a sense of what that challenge is if they want to get the support on offer,” he explains.

It might seem an obvious point, but an anecdote related by one of the White Paper’s delegates reveals an alarming trend. Fal summarises: “The offices of Cipro and SEDA  are close together in Tshwane and one of our delegates from SEDA pointed out that you can watch individuals go into Cipro to register a company and then immediately approach SEDA to ask what line of business they should go into. That’s deeply worrying.” Would-be entrepreneurs tend to over-rely on support organisations, sometimes to the point of wanting to delegate the entire running of the company to someone else. The reason? “They usually lack the basic skills necessary to run their business, so they don’t really understand what it is they need help with.” The recipients who get the most out of support organisations are those who can say, “I need help accessing the corporate market” or “I need assistance managing cash flow” – not those who say “I need help running my business”.

Looking ahead

Fal is at pains to point out that the State of Entrepreneurship White Paper represents a beginning. “This is something we are going to research and publish each year, either taking a snapshot of the entire state of entrepreneurship in the country, or honing in on a particular issue,” he explains, adding that the intention is for the document to create a repository of information that can influence policy and action. “Our role is not to drive that action – that job falls to each stakeholder group, from Government and corporates, to funding institutions, NGOs, civil society and entrepreneurs.”

In closing Fal says, “It will take time but we want to see an improvement in the Total Entrepreneurial Activity Index, hopefully arising in some part out of the work and the research that we’re doing.”

Interesting facts & findings

  • In spite of their reputation, banks, which are the least positioned to take on the high risk of investing in start-ups, are the dominant providers of capital to entrepreneurs. SA needs a broader, more diverse private equity and venture capital community that is specifically suited to investing in the high-risk start-up market.
  • Around R20 billion is available through enterprise development funding, but little of this is finding its way to sustainable entrepreneurs.
  • SA’s male: female ratio of entrepreneurs is 1,6:1. If this improved to a ratio of 1:1, total entrepreneurial activity would improve significantly.
  • The ideal number of entrepreneurs in a successful incubator is between 40 and 60.
  • South Africa’s entrepreneurial activity (7,8 % in 2008) still lags behind its peer emerging countries – 11,5% in Brazil, 24,5% in Colombia and 13,1% in Mexico.

Guidance for entrepreneurs

  • Attracting skills: Tailor employee packages and incentives; appeal to young executives’ need for broader functional exposure; scout on an ongoing basis, not just when you need to fill a position; avoid unprofessional recruitment practices at all costs – being small is no excuse for being sloppy.
  • Retaining skills: Share the success of the business with the founding staff who took risks with you and helped you build the enterprise.
  • Accessing funding: Make it your job to find out exactly what information the funding institution requires, in what format and in what detail. Don’t submit your application until you have met all these requirements and are ready to answer difficult and searching questions about your entire business.
  • Accessing support: Have a clear sense of the particular support you require and be able to frame it in a specific way.
  • Differentiating: ‘Me too’ businesses clutter the space and compete in a saturated environment for limited funding and markets. Entrepreneurs with new offerings have a far greater chance of success.

Juliet Pitman is a features writer at Entrepreneur Magazine.

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1 Comment

1 Comment

  1. Carl Muller

    Aug 1, 2011 at 21:13

    We have the only achievement motivation programme accredited at Services Seta (or any Seta).
    Do you know how difficult it is to market it.
    People asked me, what is that. Do you do motivational training?
    There is a big difference between the two.
    Achievement is the biggest characteristic of an entrepreneur…

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Business Landscape

Micro-Entrepreneurs Making An Impact in Less Developed Communities

The study reinforces the fact that we are living in a global world where the power of management technology can be used across the world for the betterment of mankind.

John Roberts

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south-africa-micro-business

One might well ask, “What do micro-entrepreneurs in urban and slum neighborhoods across Cape Town, South Africa have to learn from the elite business schools of the world?  It turns out that the answer to this question is: “Plenty.”

I recently had the honour of being Chairman of Judges of the prestigious Gary Lilien Practice Prize given by the INFORMS Society for Marketing Science, in conjunction with the Marketing Science Institute and the European Marketing Academy. The award winning study proves that the tools of marketing science can make a major positive impact in helping to grow disadvantaged economies like the ones in Cape Town.

The award winner was a 2016 study of 850 Cape Town entrepreneurs led by Stephen Anderson-Macdonald of Stanford University, Rajesh Chandy of the London Business School and Bilal Zia of the World Bank.  They tested three interventions when trying to gauge the best way to help small retailers in the slums of South Africa grow their business: The first group was given training in marketing and sales, the second group was given training in finance and accounting, and the third control group was given no assistance, being told that they would receive training on the next round.

The researchers found significant improvements in profitability from both types of business skills training, relative to the control. Monthly profits increased by 30-40% on average for both. However, more interestingly, the way these gains were achieved differed substantially between the two groups.

The small business owners who received marketing training tended to improve and become more profitable through a focus on growth. They increased sales, purchased extra stock and materials, and added more part-time sales staff. These entrepreneurs also implemented more marketing related business practices (e.g., market research, marketing tactics, sales tactics). By contrast, the finance group achieved similar profit gains but through an “efficiency focus” on lower costs and the use of more finance and accounting practices.  While both led to more viable businesses, in terms of employment and business activity, it was marketing that grew the pie.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

The study shows that powerful 21st century tools are being used in the townships in South Africa and that they can be extremely effective. Anderson-MacDonald and Chandy’s suggested tools include:

  • Take time out from your day to day activities to think about your business. Don’t let your business be busyness.
  • Look at your business from the point of view of your customers and potential customers. Put yourself in their shoes so that you can feel the reaction that they have to your products and services.  That will help identify where you can meet their needs better and any unmet needs that they might have.
  • Look for leverage points in your business.  That is, where are the points where you can make the greatest change for the least amount of effort?
  • Think of the criteria of success for your business.  For any initiative to succeed, it has to satisfy four criteria.
    • Can I do this?  Understand your capabilities and how you are going to develop them.
    • Do I want to do this? Make sure you think about what you want to achieve and do those things which will get you to where you want to go.
    • Will customers value this? An analysis of the things that your customers value, need, want (such as consistency) and the things that they don’t (such as gold-plating) will help you.
    • Will the market let you do this?  Have a good feel for the size of the market, the competition, your supply and collaborators, the economic climate and other environmental factors.
  • Generate options creatively.  Take time to brain storm with your friends and family around new products and services, new customers and markets, opportunities to grow the value and frequency of purchase of your existing products, etc.  Successful businesses recognise opportunities that others fail to see.
  • When you have done your analysis, generated your options for growth, work out a migration path.  You have your vision, now you need that first step on the path to achieving it.  Undertake little pilot projects, start by picking the low hanging fruit (the easiest opportunity), and don’t be discouraged by early failures but learn from them as much as you can.

The study reinforces the fact that we are living in a global world where the power of management technology can be used across the world for the betterment of mankind.

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Business Landscape

We Need To Unite For A Better Entrepreneurial Future!

Here are my key entrepreneurial tips from The Passport Showcase.

Godfrey Madanhire

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entrepreneurship

In our modern world, where nationalists walk the street and xenophobic beliefs are on the rise, as a Zimbabwean serial entrepreneur and motivational speaker, I’ve identified that we need to bridge this division and unite us all through celebrating our diversity.

We need to come together not because it’s the right thing to do, but because united, we can work towards a profitable future.  However, before this can happen, we need to change the global mindset. That’s why I transformed my book The Passport into a showcase in which performers from across the continent took part and showed off their talents.

While preparing for the show I noted some important lessons that I learnt along the way. Here are my key entrepreneurial tips from The Passport Showcase.

Success can’t happen in a vacuum!

Setting up The Passport Showcase took a lot of collaboration. As an entrepreneur and a believer in a united Africa, I’ve learned you can’t operate a successful business if you’re not willing to work and deliver services to everyone. It’s for this reason I invited fashion designers, artists, and dancers, to come together and educate us about the dangers of xenophobic beliefs through their art forms.

We need to be able to blend skills and overcome our preconceived notions, in business and the arts, so that we can achieve great things.

Related: As An Entrepreneur, Be A Motivational Leader To Your Staff

Education is the key to every problem

It’s a part of starting any business; educating the public about your company and quickly converting them into consumers. Arguably the same was true of the showcase, creating a truly unique experience to inform the public about celebrating diversity.

Helping individuals understand that acceptance is key for a better future is critical for business expansion. If any of us want to expand our businesses, we need to be able to engage with different markets – who won’t chase away the unknown.

Be different

Identifying a new opportunity is one of the fundamental building blocks for a new business. Finding unique solutions is a truth that echoes across corporate industries and the arts. But change can cause concern and adverse reactions.

On our continent, ideas that disrupt the norm are needed to catapult our brothers and sisters to a brighter future. But this can only be achieved when we celebrate our diversities and collaborate.

Related: 8 Books Every Manager Should Read To Become A Better Leader

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Business Landscape

9 Ways To Elevate Your Small Business To The Next Level

The South African economy is strongly supported by the nation’s entrepreneurial spirit, which encourages a culture of growth and development in communities.

FedEx

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With the unemployment rate currently at 27.71%, people of all ages and backgrounds are looking for an opportunity to work.

Although many entrepreneurs have enjoyed great success on their small business journeys, choosing to start your own business comes with many risks. One of these risks is the financial burden it can bring. While there are various challenges faced by small businesses, it is possible to overcome these and jumpstart your business with these useful tips from FedEx Express, the world’s largest express transportation company.

1. Connect with customers

As a small business owner, it is important to know who your customers are, where they spend their time, what they are looking for and how your business can meet their needs. Times have changed and waiting for customers to come to you is no longer a feasible business strategy. In today’s evolving business environment, entrepreneurs need to be approaching their customers and building strong relationships with them to form a lasting impression. If your small business cannot grow its customer base, it cannot grow profits.

2. Network

Attending networking events will allow you to find professionals and other small business owners who offer services your business may require. Many small business owners get this critical aspect of starting a new business wrong by networking purely to gain customers, not realising that networking with other business can assist you in acquiring the services you need to continue the growth of your business. Small businesses have a lot to gain through networking at the right time and at relevant events.

Related: Licensed To Thrill: Meeting The Global Demand For Merchandised Products

3. Use social media

There are a number of social media networks and social networking platforms that can drastically grow your business, however, it is important to understand your customers and identify the channels they prefer to communicate on. By implementing a comprehensive social media strategy, you can ensure social media works as a driver of new business that positively promotes your service offerings.

4. Build customer loyalty

Building customer loyalty begins with great customer service. Great customer service starts with a positive customer experience and first impressions are vital in this regard. If a customer has an enjoyable experience when using your services, it is likely they will return and use your services on an ongoing basis. By ensuring your business has a user friendly website and informative brand collateral, new business prospects will increase and those who have experienced quality customer service from your business are likely to refer you to friends and colleagues.

5. Ask for help

All small businesses face challenges, particularly in the early operational stage. This is why asking for help from your peers/mentor who may be more experienced than you is critical. Tapping into the mind of someone with more experience and a broader knowledge base will ensure you learn and acquire the skills needed to make a success of your business. The FedEx Small Business portal offers business owners useful advice that will assist you on your small business journey. Visit www.smallbusiness.fedex.com for tips and success stories that will inspire and help you to grow your small business.

6. Hire the right people

Each person that forms part of your business needs to share the same vision with you that will drive growth. Your workforce will be responsible for the success of your business therefore, ensuring your staff remains motivated is important. When hiring a new employee, implement a check list that includes traits that you feel are imperative to the culture of your business.

Asking out-of-the-box questions in the interview will also assist you in determining if the potential employee is a suitable candidate to fill the open position.

7. Manage cash flow well

Many small businesses close due to cash flow problems. Managing money spent versus money earned is critical as it provides you with a clear indication of whether your business is running at a loss or whether you are excelling. If your small business is losing money, you can implement a strategy to iron out the issues that are contributing to this and identify ways that will ensure your business generates profits.

Related: How Online Embroidery Shop Trish Burr Found Business Success With Support From FedEx Express

8. Work to build success

Work to make a success out of your business with your employees by being involved in the everyday activities that are critical to your businesses success. Being involved will ensure employee morale remains high while allowing you to identify areas that need improvement.

9. Find inspiration

There will always be someone who has been in your current position, even if it is a different business to yours. Learning how they made a success of their business during hard times will provide you with the knowledge you need to succeed as a business owner. Starting your own business is a learning experience made easier by speaking to others who inspire you.

A business can safeguard its success if it continues to innovate. For example, e-commerce has changed the way the world conducts business, and the rise in technology has made it easier to interact with customers quickly and across borders. With economies becoming more interconnected, companies large and small are now able to access markets that were previously unattainable. E-commerce will assist small businesses in establishing their territory in the market and as a result, guarantee growth and longevity,” concludes Higley.

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