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Entrepreneurship in SA – It’s Better than you Think

Recent studies show a worrying and very steep decline in the number of new businesses being started in South Africa. However, if one looks a bit deeper there is cause for optimism.

Anton Ressel

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The recent Quarterly Labour Force Survey by Statistics SA reports that over the past decade there has been a staggering 76% decline in the number of new businesses  being registered, from 250 000 in 2001 to only 58 000 in 2011. However, as journalist Teigue Paine notes in a recent article, this is in all likelihood as much in response to increasingly onerous tax and labour laws in SA, as to the recession or any other global economic conditions.

Paine quotes Adcorp’s labour economist Loane Sharp as saying that indications are that many small businesses and start ups have simply been forced ‘underground’ in response to deteriorating conditions for starting a small business. In a nutshell, Sharp argues that the figures we are seeing are not a true reflection of entrepreneurial activity, but rather of an ‘informalisation’ of the SA economy in a bid to escape heavy tax and employment burdens placed by Government on the SMME sector, and business as a whole.

This is worrying on a number of levels, because it suggests that the intentions of Government to create an enabling climate for small business are in fact doing the opposite. If small business is squeezed too tight by excessive Government regulation, trade union domination of the labour market and a business climate that stacks the odds against start-up success, one of two things happen – either the business simply cannot survive, so it closes (or fails to start), or it goes underground.

The much-vaunted potential of the SMME sector to create meaningful jobs and contribute to the economy is largely negated if entrepreneurs feel forced to operate ‘below the radar’ as a means of survival. An unregistered business does not contribute to the tax pool, nor will it provide its employees with job security, contracts, PAYE, UIF and other benefits as laid out in the Basic Conditions of Employment Act.

Entrepreneurial Renaissance

Fortunately though, not all is doom and gloom. Many organisations and individuals engaged ‘in the trenches’ in enterprise development and support to emerging entrepreneurs report increasingly positive signs of a renaissance in entrepreneurial activity, in contrast to the bleak reports. While the numbers may be down on paper, they say, the quality and innovativeness of the emerging business sector is cause for optimism.

“This year was by far the most promising since 2007 in terms of the quality and viability of the organisations who applied to be a part of our programme, we were blown away by the potential,” says Catherine Wijnberg, founder of the Legends programme, a national SMME and non-profit business incubator sponsored by Old Mutual. Each year, Legends puts out a nationwide call to small businesses to apply to join the programme, which offers mentorship, business support, workshops, e-learning and other resources to support the growth of beneficiaries. “We had an inspiring pool of applicants this year, across a host of business sectors. A common theme was that people in all Provinces were determined to succeed, in spite of the difficult economic climate and restrictive legislation a new business is faced with in South Africa,” she adds.

Wijnberg cites the example of Legends beneficiary Molefinyana Seqhala, Founder of Seqhala Open Projects. This fast-growing electrical consulting and construction firm was started by Seqhala, a qualified electrician who identified a gap in the market for a multi-service provider of electrical, building, maintenance and security services, in response to what he saw as domination of the market by one or two established players. In the past four years, Seqhala has grown a promising business – he has purchased several work vehicles, increased his turnover by over 800% and currently employs 15 people, with plans in place for expansion into manufacturing of building and related materials. A little over five years ago, Seqhala was an employee working for one of his competitors.

Informal but Influential

Donald Kau, Head of Corporate Affairs at Santam, concurs with Wijnberg on the upsurge in entrepreneurship. “I have many peers who started out really small who are now well established entrepreneurs. Typically, they open an informal part-time business like a car wash or a hair salon, and the business expands organically over time to include complementary offerings such as a take-away or a spaza shop. Once they are properly established, which may take several years, many of them do indeed register their businesses – either because their suppliers or investors require them to do so, or because there may be licences and permits required to operate, such as with a tavern.”

These examples suggest that the informal or unregulated economy serves a purpose as an ‘incubator’ of potential, preparing businesses for the mainstream economy. Rather than being seen in a negative light there may be an opportunity for government and the informal sector to work together to create an acceleration of entrepreneurship from grassroots level upwards.

Some measures might include tax exemption for start-ups for a set period, tax incentives and rewards for registering employees for PAYE and UIF, easier access to loan finance and so on. The point is that informal businesses are an increasingly large part of the economy and many of them are thriving, with tremendous potential to become meaningful employers and contributors to the mainstream. One simply has to walk through a main road in Soweto, Khayelitsha or Diepsloot and see the plethora of grassroots enterprises on virtually every corner to recognise that entrepreneurship is not dead or dying in any way. Imagine how different the figures would look if every one of these businesses were registered?

Toby Chance, MD of Adele Lucas Promotions, has also noticed an increase in the calibre of entrepreneurship over the past few years. His company are the organisers of the Soweto Festival Expo, in which over 400 SMME’s participated last year. “2011 was the best Expo to date, and feedback was excellent. Some SMME’s have exhibited at every single event and their growth is clear, such as Molobi Enterprises who won the Radio 702 Small Business Competition, and Nqobile Nkosi, who has opened Soweto’s first jewellery manufacturing and retail shop in Vilakazi Street.”

While it would be foolhardy to ignore the statistics that point to an entrepreneurial sector in crisis, it is important to recognise that all is not doom and gloom, in fact it’s better than many think. There are new businesses being started by passionate, capable and determined entrepreneurs every day in SA, and while many of them will fly under the radar for some years, by necessity as much as by choice, hopefully the legislative and regulatory climate will shift sufficiently for them to emerge and take their rightful place as contributors to a country crying out for sustainable job creation through entrepreneurship.

Anton Ressel is a business strategist, social commentator and writer as well as the founder and Director of ARC Consulting, a small business specialist agency that offers mentorship, support and other services to entrepreneurs and emerging businesses nationally. See www.antonressel.co.za for more info.

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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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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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