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Business Landscape

Why SA Needs an Entrepreneurial Ecosystem

Professor Mthuli Ncube, executive director of Wits Business School talks to us about the state of entrepreneurship in South Africa.

Monique Verduyn

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According to the Global Entrepreneurship Monitor, only 31% of South Africans believe they have the knowledge and skills to start a business. How important is education in driving entrepreneurship?

It’s critical. I believe a three-pronged approach is needed: re-educating current entrepreneurs who have owned their own businesses for two to three years and need to move to the next level by doing things like creating a marketing department, sorting out operations and putting more sophisticated budgeting processes in place; reaching the youth in general, and unemployed black graduates in particular; and fostering entrepreneurship within the universities in departments such as engineering, architecture and law to make students aware of the possibilities open to them – it’s an initiative that has worked really well at institutions like Stanford and Massachusetts Institute of Technology (MIT).

What are the biggest shortcomings in secondary and tertiary education in this country when it comes to preparing people to run their own businesses?

We need to bear in mind that it’s never too early to start educating entrepreneurs. In countries such as Malaysia, it starts at primary school. We have some private schools which incorporate entrepreneurial education into the curriculum at grade 7 level with simple assignments that teach children how to think about business at a really practical level and we need more of these to be put in place.

At tertiary level, the biggest problem is gaining access to support. At MIT, entrepreneurship is encouraged through education and research, business and technology partnerships, and a community spirit that brings together academia, government, business leaders and the entrepreneurial community. This creates an entrepreneurial ecosystem, which is something that is missing in South Africa. We need to create one-stop shops where entrepreneurs can access training, mentors, research, funding and investors. Overseas, these types of ecosystems are often built around universities.

Do organisations that provide funding to develop entrepreneurial businesses really offer enough training, mentorship and support?

There is definitely room for improvement. Again, there is no support network in place. These types of organisations need to focus on creating entrepreneurial ecosystems for their specific target markets – if you need a million to start your business, you’ll go to the IDC, whereas the newly formed National Youth Development Agency (NYDA) provides funding on a much smaller scale.

How do we develop an entrepreneurial ecosystem?

Business is already required to become involved in entrepreneurial development as part of the BEE Codes. The Anglo Zimele programme is a great example of what business can do to promote entrepreneurship. It’s an investment fund which provides loan and equity finance to support start-up or expansion businesses and it looks for investment opportunities at operating divisions.

South African Breweries is another; the company makes beer but it has recognised that it does not need to own the trucks that transport it, nor the taverns that sell it. As a result SAB has enabled the development of a number of small enterprises that take care of this side of the business.

Truck drivers and tavern owners in turn support entire families. This is how ecosystems are created – by empowering suppliers. Mid-size businesses may not have the same opportunities open to them, but they need to look at outsourcing models that empower their suppliers.

How important is financial knowledge for entrepreneurs?

There is a link between financial know-how and business success, but at start-up level passion, motivation, hard work and self-reliance are equally important – it’s a lonely journey. That said, growing a business requires you to constantly refine your business model – and what is a business model if it’s not about finance?

That’s why companies with a four- to ten-year history are generally headed by people who have sound financial know-ledge and have undergone some level of training.

Banks interrogate business owners and you have to show that you are knowledgeable about money. And while newer entrepreneurs are involved in every aspect of the business, more established ones need to remain so too. You can delegate functions to accountants and bookkeepers, but you must always remain part of the financial control mechanism.

What are some of the key fundamentals of a good budgeting process?

Understand who your customers are and stay close to them. Understand your financiers and love your banker. Understand your competitors and know where your business is positioned in relation to them.

In a downturn, what’s most important is to stay afloat.

Create a budget that will enable you to survive the slump by controlling your costs and defending your revenues.

I also believe that businesses need to be careful about cutting to the bone as far as employees are concerned because you will need to be ready for the rebound, which is not that far away. Now, companies are cutting back on things like marketing, advertising and training. It’s appropriate to retrench when you are trimming costs, but remember that it’s often difficult to re-capacitate a business that has been drastically downsized. Is it not better to look at options like the three-day week?

That way, you don’t lose valuable people who you need to bring back into the business. I would advise companies to beware of jumping on the retrenching bandwagon. It can, however, provide a great opportunity to clean out the closet and get rid of underperformers.

How regularly should budgets be re-visited and what are the key indicators to focus on?

In the current circumstances, it’s best to look at the budget quarterly – check and benchmark the business’s actual performance versus the budget. Identify your biggest revenue drivers. Are your biggest cost drivers salaries, travel or entertainment? Where can you cut back?

Check your cash flow. Are you liquid? If not, stay close to your bank. What is your acid test ratio? Do you have enough short-term assets to cover your immediate liabilities without selling inventory?

The acid test ratio is a tough test that basically looks at what you can pay tomorrow, given what you have today. This is a critical consideration.

What are some of the best ways to align budgeting, sales and operations?

You have to take an integrated approach that unites vision with strategy. Once the budget is in place, look at what operations you need to achieve that budget, and then look at your marketing. It’s never easy;

vision can often run ahead of operations, or operations can become an impediment to appropriate market response.

What lies ahead for our economy?

South Africa has done very well in not being directly impacted by the global recession, but we have been affected nonetheless. I do believe, however, that we are seeing the bottom of the recession and all leading indicators are beginning to turn. The economy itself has not yet shifted, but we can expect full recovery by 2012. I would have said 2011, but the oil price remains worrying and will delay the upturn.

Where do the opportunities lie?

There are many opportunities for business in this country. Entrepreneurship represents our future beyond BEE. Where BEE was and is necessary to shock and propel our society in a specific direction, we need to start looking at what’s next. The momentum has been created and many sustainable black-owned businesses have been developed. We now need to take what we have learnt and get people to move into sectors that do not require a lot of capital, such as retail and catering, for example.

Fortunately, South Africans are entrepreneurial by nature. It goes back to where our society comes from, which is a culture of self-reliance. That’s why South Africans succeed abroad – we have grit.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

Business Landscape

How Schindlers Attorneys Became Involved In The Landmark Cannabis Case

Everything you accomplish accumulates and eventually comes back to assist you further along in your career. This is how a final year LLB assignment became the basis for a Constitutional Court case.

Nicole Crampton

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Schindlers Attorneys are the law firm that were involved in the landmark Constitutional Court judgement on cannabis use within a private space. Paul-Michael Keichel, Partner at Schindlers Attorneys shares how they came to be the foremost legal experts on cannabis and how they became involved in the Constitutional Court case:

How the journey began

“In 2005, my first year at Rhodes University, whilst studying for Intro to Law, it occurred to me that there were strong constitutional points that could be raised to objectively justify the decriminalisation of cannabis in South Africa,” explains Paul-Michael Keichel.

“In my final year LLB, 2009, I took Constitutional Litigation as an elective (largely motivated by the creation of a timetable clash, which meant that I’d not have to sit another semester of lectures for a module that I had failed the previous year). This provided me with the opportunity to write an assignment titled “A Critical Analysis of Prince and an Objective Justification for the Decriminalisation of Marijuana in South Africa”, in which I composed my argument (based on the right to equality in our Constitution).”

Related: 7 Top Lessons You Can Learn From The US Cannabis Market

The start of the partnership

“Fast forward to 2013 and the Dagga Couple find themselves at Schindlers (where I am a first-year associate) to register their NPC, “Fields of Green for All”. The attorney handling the registration (who I’d also bored with my argument) suggests to the Dagga Couple that they speak to me. It turns out that they already knew of me, because my assignment had (unbeknownst to me) done the rounds on the underground cannabis networks. We get chatting and I rope-in my brother, Maurice Crespi, the managing partner of Schindlers,” explains Keichel.

“We are the only firm out of many approached by the Couple who are willing to take on their trial action against 7 state departments and Doctors for Life to push for a declaration of constitutional invalidity of the laws prohibiting cannabis use/possession/dealing in South Africa. We decide to run the challenge for them pro bono.”

The Cape ruling that started it all

“Prince and Acton et al have their matter heard in the Cape, which resulted in the 2017 Judgment. We run a portion of our trial (including expert evidence from international scientists and doctors – the best in field), but it is rendered part-heard. We then heard that Prince and Acton et al’s matter will be heard by the Constitutional Court in November 2017 and we decide, with the Dagga Couple, to intervene in that matter, upon which it is confirmed that my 2009 assignment forms the on-record basis of a major chunk of Prince and Acton et al’s arguments in support of legalisation.”

“Our involvement in the Constitutional Court was such that we provided clear legal argument and authority to support and expand upon what Prince and Acton et al were trying to say to the Court. Ultimately, much of what we submitted has found its way into the judgment of the Constitutional Court.”

Related: 10 Cannabis Business Opportunities You Can Start From Home

How a final assignment became the foundation for a Constitutional Court case

“So, an idea (bolstered by wanting to create a timetable clash) resulted in an assignment, which provided certain credibility and impetus to cannabis activists. Two of these activists ended up being our clients, which, despite being handled pro bono, has brought Schindlers immeasurable positive publicity, and which, ultimately, contributed to the decriminalisation (and potential future legalisation and commercialisation) of cannabis in our country.”

“Schindlers now has a dedicated “Medicinal and Recreational Cannabis Law” department, through which we will continue to make submissions to parliament, apply for licenses on behalf of our clients, support those who have been arrested and charged.”

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Business Landscape

6 Ways To Win A Better Deal

Be proactive not reactive by working through these six critical elements of your strategy.

Andrew Bahlmann

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By far, the majority of our clients start the journey of selling their business by working on a very reactive basis. Most business owners going to market say they just want to ‘see what happens’.  But this means you are starting the process on the back foot.

This approach automatically takes the control of the business sale out of your hands and puts it into the hands of the market. Keeping control is a critical element in selling your business for maximum value.

Letting the market tell you what they think about your business and what they want from you means that straight away the acquirers set the hoops that you need to jump through.

They tell you what they want. Any engagement is on their terms.

You have not defined terms or standards to use as a yardstick for what the market is saying. So you are much more likely to find yourself boxed into a corner, forced into the role of price taker rather than price maker.

Taking the time to define your ‘go to market’ strategy is a critical factor in achieving success for yourself, what you want for your business and how the market aligns to this.

Be proactive not reactive by working through these six critical elements of your strategy:

1. Define your non-negotiables

We all have certain non-negotiables in our lives and you must think through those that you want to apply to the sale of your business.

Spend quality time working out what your personal and business non-negotiables are. Then make sure that they feature prominently in your deal strategy. Examples could be:

  • I am prepared to stay on for only 18 months after the sale conclusion.
  • My staff need to be looked after as they have been with me for 20 years and are like family.
  • I want to sell 100% of my shareholding on Day 1.
  • I am not prepared to warrant future profits.

When you start out on the selling journey, this list will probably be a lot longer. Usually, it will reduce as you travel further and further down this road but you may even add new non-negotiables once you climb into the trenches and take control of the process.

Don’t be shy about presenting your list of non-negotiables to prospective buyers. They will certainly be putting forward their own list as well.

Related: Savvy Business Sale Spells New Life

2. How ready and committed are you to sell your business?

Selling your business is one of the biggest decisions that you will take in your life. It is an emotional rollercoaster. You will face more questions than answers as you progress down this road. Nobody can ever be 100% ready but you can help yourself prepare as much as possible by asking yourself the following questions:

  • Do I know what my business is worth?
  • Is my business ready for acquirers to see?
  • Am I ready to let go of my business?
  • Can my business run without me?
  • What makes my business attractive and enticing to an acquirer?
  • Do I have the time and skills to embark on selling my business myself?

As you work through these questions, a whole host of other questions will probably occur to you. Be decisive, objective and critical in asking and answering all these questions.

3. Put a plan together

Like any other business or strategy implementation, selling your business is a project. All projects need a plan of the objectives, timing, resources and risks required to succeed.

Selling your business is by far one of the most important projects that you will ever drive and also one with the least room for error. Your planning cannot control the biggest variable of all – how the market will react to your business. But being as well prepared as possible will help you cope with this.

4.  The market wants a serious seller

The way that your business and personal brands show up in the exit process is critical. Buying or selling a business is a very time-consuming process, with both seller and acquirer committing quantities of effort, energy and resources.

The market therefore wants to deal with a committed and serious seller. Any business owner just dipping his/her toe into the water to see what happens will frustrate them and potentially damage future transactions if that toe is removed from that water.

Related: When Is The Right Time To Sell Your Business?

5. Be ready for the experts

You are brilliant at running your own business, which is why you are considering selling it for maximum value. The acquirers on the other side of the table are, of course, also experts at what they do and how they do it.

Expect them to speak a different corporate language, exude negotiation and transaction skills and have mastered the ability to control the transaction. If you do not have a strategy or blueprint to default to when the heat gets too high, you will lose your way and could be blindsided into the wrong transaction.

6. Bring it all together

Work through the various steps identified above and craft your deal strategy. Let this framework be your compass during the transaction.

Always lean on it when there are too many variables being thrown at you. Having your strategy is the first step. Sticking to it will be your biggest test when the pressure is on.

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Business Landscape

Hooked On Ethics

The business that puts ethics at the forefront of its culture is the one that will shine in a landscape littered with dishonest behaviour.

Howard Feldman

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There is significant research into how the work environment influences ethical behaviour. Study after study has shown how the ethical values upheld by management filter down to all employees, affecting behaviour and business practice. The biggest influence on a person’s ethics is their environment. In South Africa, the after effects of the recent political regime continue to shake both country and citizen. Corruption has seeped into almost every part of the government and in some of the country’s most prominent private organisations.

The old saying that the ‘fish rots from the head’ has never been truer, nor more obvious.

The ethical dilemma

The reality is that the government’s flagrant disregard for ethics saw corruption become a part of everyday life. This makes almost everyone ask themselves questions like – why should I pay X utility bill? Why should I pay my TV license? The money is being clearly used fraudulently. Sure, it is the law, but leadership has proven that ethical behaviour isn’t rewarded or recognised.

But it is. The value of building an ethical business and upholding a culture that promotes honesty and integrity cannot be understated.

Related: Developing Your Business’s Ethics Policy

Here are five reasons why…

  1. Those who skirt the edges of ethics almost always get caught.  There has been a steady shift in the country’s moral compass as leadership has taken a far stronger stance on rooting out corruption and already some of the country’s biggest names have been found guilty. KPMG, McKinsey, Bell Pottinger and SAP have all had their names tarnished by the scandals that have rocked the country.
  2. Employees are more engaged and better behaved. A weak ethical culture filters down from the top, influencing behaviour and attitudes. If employees feel that they can get away with bad behaviour that benefits them, or if they feel that their environment encourages this, then they will.
  3. A strong ethical influence will dictate how employees treat customers and one another. If your company enforces and rewards honesty and integrity, then these will be the qualities that clients will perceive. Their lack may also see you lose market share and your reputation.
  4. Like attracts like. If you create a culture that rewards employees that work all hours, deliver the goods and commit themselves then you will attract more people with these qualities. The same applies in reverse – reward bad behaviour and the results will rapidly speak for themselves.
  5. Your business reputation. Trust can’t be bought. It is hard won and easily lost. If you lose your reputation then it is very unlikely you will win it back and it will follow you for the rest of your life. The same applies to your staff. If their behaviour is questionable it could damage your company. Make sure you set the rules of what is or is not tolerated by your company culture and consider investing into ethics courses that allow your teams to stay ahead of the curve.

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