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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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Business Landscape

5 Thoughts To Give You The Courage To Make Change

The only constant is change. If you can’t learn to embrace it, you’ll be left behind.

Allon Raiz

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In my experience, change is harder for those who perceive themselves to be succeeding than those who perceive themselves to be failing. Failure produces an irresistible motivation to reflect and to seek changes that will eliminate the pain you are feeling. It is those who perceive themselves to be successful who are most likely to stick to the status quo in a sea of change.

Change always happens: Contexts change, markets change, competitors change and so on. So, reinforcing a strategy and recipe for success seems the logical thing to do, right? If it ain’t broke, don’t fix it, goes the mantra. Why on earth would you mess with a winning formula?

The problem is that these winds of change are numerous and subtle, moving slowly and in different directions, making them invisible to the ‘successful’ eye. Business books are filled with case studies like Kodak who, despite acknowledging the threat of digital, were so entrenched in their current thinking that they sailed their ship right off the end of their flat earth.

Related: Successful SA Entreps Share Their Most Valuable Business Advice Ever Received

Here are five thoughts to provoke you and guide you in finding the courage to change.

1. This too will pass

Live by the law of impermanence that says that nothing remains permanent; neither failure nor success. This should create a level of healthy paranoia in successful entrepreneurs that drives them to anticipate what will change and when it will change, and to constantly live in a start-up mindset. Being aware, self-reflective and conscious of your bias is the best remedy for the allure of a permanent reality mindset.

2. Use what you have

One of the most common reasons that we do not want to change is having to admit that the resources we have so painstakingly and expensively built and maintained are not as useful anymore. The now popular and commonly-used terms of ‘radical’ and ‘disruptive’ conjure up scenarios of throwing away everything we have.

In most instances where change is required, the most successful way to change is to use the resources currently available in your business in a reconfigured manner. My rule of thumb is that any new strategic direction should incorporate no more than 20% of new resources, know-how or processes. This approach might not be radical or disruptive, but it ensures that there is a higher appetite for change in the organisation and a higher probability of it succeeding.

Related: Raizcorp: Business ‘Think’ has to come before the Business ‘Plan’

3. Focus on the positive energy change creates

Change is terrifying for many, but it creates a positive energy in a business. We often spend too much time trying to pacify employees who are fearful of change. In my opinion, you should rather be weeding these people out of your business as it grows.

They slow down progress and redirect valuable time and energy from focusing on the future and building towards that. It is important to focus your energy on the positive energy that is being released when change happens, such as excitement, new possibilities, and new growth opportunities for people and the business.

4. Plan your change, but also expect the unplanned

Effective change is ideally planned. Thought-through, documented and communicated phases are always better than a chaotic laissez-faire approach. But as Mike Tyson once said,

“Everybody has a plan until they get punched in the face.”

Life happens, the unexpected is ever-present in our lives, and we need to plan for this. Allowing a 10% to 20% tolerance for the unknown is a wise thing to do to ensure your expectations are catered for. Accepting the potential of random change in your planning will make it easier to accept and manage.

5. Expect Magic

After the dust has settled following a recent change or upheaval, and nerves and emotions have normalised, there will inevitably be an unforeseen positive outcome from the change. When you expect to find this outcome and appreciate the chemistry of time, resources and random events that created it, you will see change as the unavoidable path to these magical events.

It makes going through the change so much more tolerable when you know that when this phase of change is completed, there will be an outcome that will make it worthwhile. This expectation has never failed to deliver for me.

Entrepreneurs do not have the luxury of remaining still and constant, even for a short while. Mighty corporates are also  susceptible to the devastation of the law of impermanence. But, there is a different lens on this that I prefer; every day and every moment brings the gift of change to us which is always a door to a better, more fulfilled future.

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Business Landscape

5 Steps To Cutting The Fraud Of A Cash-Driven Society In Africa

African consumers still prefer cash transactions – here’s how to stop this from impacting on your business bottom line.

Chris Ogden

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cash-business

There is an issue when it comes to transactions in Africa. That issue is cash. There are plenty of reports that point to the percentage of people who remain unbanked on the continent – it’s high. There are also reports that talk about how those who are banked use their accounts as little more than cash repositories – money in on payday, money out on payday. Why?

The African consumer doesn’t trust the system. They also face significant difficulties in rural areas that have limited card-based services and access to cashless transactions. And bank charges are hefty, eating into their pockets.

Pay attention: Cash is king

Your consumer isn’t banking savvy. They have a bank account because their employer wants to pay via EFT or because a sales rep got them enrolled, but didn’t explain exactly how the banking system could work to their benefit. They don’t trust banks, they don’t like the transaction fees and cash remains the currency of choice. In this world, cash is king. For the entrepreneur this cash-based society has both challenges and opportunities.

Related: Strong Company Culture Fattens The Bottom Line

The challenge: Cash is easy to lose

If the majority of your business transactions are carried out with cash, you run a big risk. Cash is easy to steal as transactions are rarely audited and accounted for. Unethical employees can put half in their pocket and half on the books, directly impacting on your income.  Paper money is hard to audit and track, it is expensive to bank, and often undeclared.

The challenges lie in the land where you are the entrepreneur receiving the cash, but the opportunities lie in helping other people to manage their cash.

The solution: find ways of tracking cash

The business has to be smart. Allow cash transactions to remain a part of the process, but use services that facilitate some of the collections and ease those headaches. Companies often use cash management companies, but their price tag makes handling of cash even more expensive.  Fraud is rife in the cash market. There are many ways to skin a cat, but handling cash in without technology to track it can be dangerous. Any mismatch of manual records and payments needs to be carefully analysed to pick up any discrepancies.

An alternative is to employ a service provider who can manage the cash transactions for you, but this will also be a cost to the business, Retail stores can collect on your behalf, but they want you to pay a service fee.  Understandable costs, but ultimately each one impacts on the bottom line.

The technology opportunity

One opportunity which has already started to edge into the mainstream is the use of eWallets and digital cryptocurrencies. Cash carrying individuals can swap these out for virtual monies that they can use to manage their payments. M-PESA in Kenya is a superb example, even if it never really got a foothold in South Africa.  For the entrepreneur that wants to engage with the cash empowered customer, these solutions could potentially help overcome the hurdles of trust and cost and ensure security on both sides of the fence.

Related: Your To-Do List Can Boost Your Bottom Line

The final countdown

What it boils down to is this – cash exists and cash-based transactions and attitudes are unlikely to change overnight so the entrepreneur needs to invest in solutions and systems that manage and audit transactions carefully. Ensure there are various control measures that can pick up anomalies, give people the opportunity to unpack these anomalies and then identify any issues.

Ultimately, if your business is to successfully avoid the multiple opportunities for fraud in the cash transaction society, then you have to invest in tools that will ensure your cash is properly managed and that you’ve chosen a well-known service provider to do so. Otherwise you’re just swapping cash fraud for technical fraud…

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Business Landscape

Are You Forgetting To Think About Your Business Strategy?

If you want to make money, save money and improve your efficiencies in 2018, you need to keep reviewing your strategy.

Ed Hatton

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It’s hard to keep upwith the pace of change. Economic uncertainty, disruptive technologies, fast-changing consumer needs and complex digital marketing means entrepreneurs have to move fast just to stand still. While managing constant change this is easy, but dangerous to forget about strategy. A couple of pertinent questions: What are your business and marketing strategies? Who owns them? How many people in your organisation understand them? When last did you review them to see if they are appropriate now, and likely to be appropriate in the next year or two?

Every organisation, from tiny businesses, clubs, NGOs and start-ups to much larger companies would benefit by taking time out to review key strategy issues. I suggest you examine whether your target markets are the right ones, and are still buying enough to meet your sales targets. You should ask if your sales channels, pricing policies, promotional messages and the media used are right for the times.

  • Do you really know what your target market needs and how those needs are changing?
  • Are your products and services providing solutions to those changing needs?
  • Does everyone in your organisation know what differentiates you from your competitors?
  • Do you have the right people?
  • Is your financial strategy still sound?
  • What about purchasing or manufacturing — is it still as cost-effective as it could be?
  • What are your competitors doing now?
  • What are they likely to be doing in future?

Related: Guru Ed Hatton on Marketing On A Tiny Budget

Get out of your comfort zone

These are tough questions, but if you ignore them, your organisation may drift along in its comfort zone in the hope that everything will work out. A company that continues to try to sell familiar products to anyone who will buy, and does not know what its competitors are doing is taking very high risks in a changing environment.

The risk increases if your prices reflect your efficiency or otherwise at product procurement rather than the value they deliver to customers. Risk rises to danger levels if few people actually know and understand the strategy, because they will usually keep their heads down and do the same old things.

Start the journey

Strategy development is like a journey. You know the starting point, you decide on your destination (your goals) and then you map out how to get there, which is your strategy. You have to consider the time it will take, the resources you will need, especially money and skills, and how you will know you are still on track (your milestones). Start at the beginning; ‘we know where we are’.

Do not assume everyone has the same idea of where you are, especially your management team; you may be surprised at the distance between perceptions of where you are now. Then set the goals and recognise that the future may not be what you envisage. You will have to be flexible to cater for change in a different economy.

Using questions like those in this article, map out the strategy of how to get there. An outside facilitator is a good idea for a strategy session but if you choose to run it yourself be careful that your management team does not only tell you what you want to hear.

Related: What Should You Cut First When Times Are Tough?

What great strategies are made of

Keys to good strategy in these turbulent times are to really understand your target market needs and provide solutions at a price that the customer regards as fair value. Two other ideals are to provide the products or services in a manner convenient to the customer rather than to you, and to inform the customer of the advantages of your solution in a manner and in media that the customer trusts. You may recognise the venerable 4Ps of marketing in a new guise; outwardly focused, concentrating on the customer.

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