Connect with us

Business Landscape

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

Published

on

007

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.

Business Landscape

Unlocking Optimism

South African entrepreneurs have one singular advantage that makes them stand out and succeed – optimism.

Howard Feldman

Published

on

optimism happy

Game drives. There is a remarkable similarity between the South African on a game drive and the South African entrepreneur. In both cases you’re driving through new territory on the lookout for that ultimate sighting or an opportunity. It’s the endless optimistic belief that around the next corner, after that last stretch of long, hot road, will be that crocodile eating that leopard that’s chasing a caracal. It’s an optimism that’s permeated the very fabric of our culture, our business personalities and the way we face adversity.

South Africans live with adversity every day. We face challenges and issues that our entrepreneurial counterparts in Europe or American don’t even realise exist. Adversity sits on every street corner, hangs out at every robot and reminds us of its presence whenever we stop and look around.

Yet the entrepreneur can take these complexities and harness them to be better at business and more positive in the face of failure. Here are five ways to re-examine what the world has on offer with the eye of the optimistic entrepreneur…

1. The tremendous challenges in our socio-economic and political landscape, from poor sanitation to the unemployment situation, can inspire us to do more and better the world we live in.

Today, many of the most impressive entrepreneurs on the African continent are those who stood up from within adversity and used it to create opportunity. From organisations that ensure children have sanitary pads so they can attend school to non-profit businesses that use the blind to detect breast cancer, optimistic belief in the future is the beating heart of entrepreneurial endeavour.

Related: 6 Of The Most Profitable Small Businesses In South Africa

2. Anyone can succeed

There are people standing at robots across South Africa who are using them as a shop corner, using the captive car audience to sell products and make enough money to get by. Some create works of art, some dance to an invisible beat, and some stand out in their ingenuity. There is a robot in South Africa today where a man stands selling life insurance. That’s the optimistic entrepreneur.

3. We are constantly surprising ourselves

South Africa’s transition from apartheid surprised the world. There wasn’t a bloody revolution, there was a peaceful shift. It was, and still is, imperfect, but it happened with far less brutality than many imagined. The same applied to the World Cup – the stories of doom were ready to be told, but the event was an incredible success. South Africans are capable of surprising themselves and this unexpected brilliance shines through in our ideas and our ventures.

4. Sometimes you just have to laugh

The corruption, the political manhandling, the rage, the insanity on the drive to work, the rising cost of living – the pressures of living in a volatile country take their toll, but South Africans manage to find the humour hidden in the hardness. The adverts that poke fun at the insanity, the ability to laugh at mistakes – this nation’s sense of humour is a very powerful quality that allows the South African entrepreneur to stand up and face each day with a fresh sense of purpose.

Related: 27 Of The Richest People In South Africa

5. We bounce back

The one quality that every entrepreneur needs is resilience. Businesses fail, ideas crash, customers leave and bad times arrive, but through it all self-belief and the ability to see something positive in what’s happened will ensure that lessons are learned and new paths taken. It is perhaps one of the hardest things that any entrepreneur has to learn and yet in South Africa, with its ongoing failure to provide that crocodile-leopard-caracal viewing, has imbued its entrepreneurs with the enviable qualities of patient resilience.

Continue Reading

Business Landscape

Depressed Economy Leading To Business Bust-ups

Palmer looks at the most common causes of business bust-ups and how to avoid them.

Published

on

business-problems

News that our GDP had shrunk by 2.2% in the first quarter of the year, coupled with downward revisions of growth forecasts, are casting a pall on the investment climate. Deals are not only drying up, but there has been an increase in business partnerships bearing the brunt of the economic pressure.

After the initial flush of economic goodwill post the inauguration of President Ramaphosa, we’ve seen a flurry of business owners looking for finance to buy out their business partners.

We have had a number of attorneys and accountants refer dissatisfied partners to us who are looking to exit partnerships. When the economy slows – as we have seen over the last few months – many partnerships begin to show signs of stress. All too often partnerships are seen as tools of necessity and those who rush into these deals without properly exploring the common values between parties will not fare well when things get tough.

What many don’t understand is that undoing a partnership is not as simple as they may think and will come with legal and other costs over and above the finance to buy a partner out.

Related: Government Funding And Grants For Small Businesses

The most common causes of business bust-ups (and how to avoid them) are the following:

1. Misaligned expectations

This occurs when potentials partners don’t share a common vision of where they want to go, how they want to get there and what each wants from the deal.

Misaligned expectations of a business venture will result in disagreements sooner rather than later as they impact every strategic (and even some operational) decisions. It is worth considering a mediated session between partners before the deal is even drafted.

2. Effort Resentment

Another problem creeps in when one partner feels like they are tasked with doing all the work. Resentment around how much effort is put into the success of a venture is not something to be taken lightly – irrespective of it being based on perception or fact. Most contracts will be clear on the value of the equity each partner has, but many ignore the value of sweat equity and how that will be measured and factored into the deal structure.

3. The Golden Rule

Many partnerships are based on one individual who puts in the lion’s share of the capital and another who is committed to doing the day-today work. Effort resentment extends beyond the deal negotiation. When a contract between partners is drafted it reflects a future which is not yet known. As the venture progresses, reality will set in and the division of labour agreed at the outset may not match day-to-day business in year three or four.

It is sometimes useful to draft partnership agreements as you would a lease. Give it a three- or five-year timeframe, with clear deliverables and then, at the end of the period, reassess the partnership and allow for renewals or re-negotiation. Having a sunset clause in your partnership agreement removes the soul-crushing feeling that you are trapped in an unhappy relationship with no chance of escape.

Related: How South African Small Business Owners Can Overcome Economic Uncertainty

4. Honour amongst thieves

Although seldom encountered, there are some partnerships which fall apart because someone is doing something blatantly untoward. Finding out your partner had their hand in the till can be devastating but in tough financial times, such as we are currently experiencing, some people will resort to desperate measures.

5. Absentee landlords

In many cases, a partner may have committed capital to a venture and even agreed to joint expectations. But other work commitments (or a lack of interest) means they disappear from operations for extended periods. No-one wants to work with people who are uninterested in the future of your company. However, the truth of the matter is any breakup has associated costs. Unwinding a partnership can cost more than setting it up and this should be considered before going down that road. Many investors are involved in multiple ventures with the same partners and exiting one deal may result in prejudicing the future of others.

While no-one can predict how long the economic slump may last, minimising the potential for partnerships falling apart requires a meeting of minds. This means agreeing to a common set of values and ethics which will govern how the business is run.

Partners need to agree on how they see the world if they hope to make a success of the business relationship. Thereafter, they should explicitly voice their expectations of how the venture will work, what they want out of it, and how they see their role in achieving that result. In some instances business partners have been together longer than they have been with their spouse. It makes sense to treat the relationship with the same care. More particularly, healthy partnerships will attract more investment and will be a key decision factor when it comes to raising future funding.

Continue Reading

Business Landscape

Giving Our Youths The Edge That The Need To Succeed

With youth month just past, LFP Training posed a challenge to corporates via its online platforms. Using a hashtag campaign, we looked to remind the private sector of its crucial role in educating and empowering the youth.

AJ Jordaan

Published

on

young-employees

The latest IMD report depicts a grim picture of youth unemployment in SA; we currently have approximately 3.3 million youths without employment and South Africa is ranked a poor 62 out of 63 in our global competitiveness ranking. With this in mind, LFP’s #YouthMonthChallenge was created. Our team challenged corporates to do even more: whatever you are doing now, double it!

Whilst many countries prioritise their youth, our country chose to overlook them. Those who get to lead our legacy and are responsible for moving the country forward, will inherit our baggage and are left to fight some of the toughest battles yet.

What can aptly be described as a ‘system in crisis’ has left very little hope for South Africans. AJ Jordaan, Sales Manager for LFP Training says that a weak foundation from pre-primary onwards has left us with my unemployed and uneducated people, with very little hope of a successful future. “At LFP, we provide learnerships to the unemployed and disabled thanks to the assistance of corporates. A key requirement is that the learner should have a Grade 10 qualification. We see learners of all ages – some fall into the youth category whilst others are still fighting unemployment at an old age,”

“Many lack confidence and are truly victims of a flawed system. Basic education at a public level has certainly failed many South Africans and as a result, us as private sector participants are left to pick up the pieces” says AJ.

Related: 10 Young Entrepreneurs Under 30 Share Their Start-Up Secrets

AJ explains that with all the odds stacked against the learners who come onto their courses, it might be surprising to hear that LFP Training’s pass rate well-surpasses the industry norm. “When you think about it, we receive unemployed, disabled and often very destitute learners”

“We believe that LFP’s pass rate signifies the benchmark for what our country could be. If we go the extra mile, employ quality educators and provide more opportunities in a growth conducive environment, our youths certainly will flourish. LFP Training’s formula once again proved itself in April when we hosted a graduation for more than 500 learners; a record-breaking ceremony” says AJ.

The formula takes all the wrongs of the system and rights them. “Beyond theory and winning methodology, we connect with our learners. Every single facilitator, moderator and employee at LFP Training is fair, compassionate, patient, stern when needed, knowledgeable and truly understands that more than just a learnership, this is actually an emotional journey for our learners too. We take the time to recognise and address weaknesses, ensure that our facilitators have a firm understanding of our course materials and can connect with the learners”

“We want to equip people for the workplace and ensure that they are hungry and able to take on opportunities. By giving people the tools to succeed, we have seen them do exactly this. Beyond circumstances, we know what it takes to create great leaders and we don’t let their pasts dictate their futures” AJ concludes.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending