Discovery Ltd was started in the year 1992. Its turnover is R34 billion & market capitalisation is over. R57 billion.
Curro Holdings Ltd was started in the year 1998. Its turnover is R487 million & its market capitalisation is just over R9 billion.
Yet in the same time countless entrepreneurs have started their own small businesses and more fail than those that succeed. You’d be forgiven for thinking that the founders of companies like Discovery, Curro, First Rand, GijimaAST and BCX are all geniuses. They’re not. They just understand that if a business is not scalable and is built to inherently “stay small”, then it will die.
So why is South Africa so deeply focused on creating small businesses?
Why do we have a legislative framework that seems to encourage and even incentivise entrepreneurs to stay small and fly under the radar?
There are few fallacies about starting and running a large business that many entrepreneurs have that need some correcting:
1. Its harder to run a big business
I sit on the board of several very large businesses. I am a partner in a private equity outfit & often engage with business leaders when are looking for opportunities to buy into businesses. Not only that, I have run a R500 million a year business and today influence over R4 billion in capital.
The task of running larger business is more complex but is not of itself harder. The effort is the same. You often work the same hours, manage similar issues and have to answer the same burning questions around the future and you will get there.
What changes as you move from small to medium and then medium to large is the “complexity” of the business. There is a deeper interdependence of factors and the stakes are higher but the effort is the same.
2. I want to own everything. I am the boss of me.
Too many small business entrepreneurs actually think they are “free”. If you have to go to work and be at the office to make a living then you are not free, you simply have the illusion of freedom with higher responsibilities than corporate employees.
Sometime ago I realised that I needed a better pool of talent in my business. I needed deeper insight, better technical expertise and more proven track-records. But I couldn’t hire these people into the business.
Not only could I not afford them, but I would never be able to get the best out of them as conventional “employees”. So decided to create a floating shareholding structure through which “key people” could have equity in the business apportioned by the percentage contribution to the bottom-line.
This is hard because having other shareholders means you must ensure that corporate governance is in place and that apply the very same “corporate-rules” that you left employment for. However, this was the best decision I ever made.
I couldn’t have hoped for a better team and the business has grown 121% on average every year for the past 3 years. This year we are on track for a 208% growth in top-line revenues. This is not because I am smarter or working harder but rather I gave a portion of my business away to people that were best able to help me create wealth.
Caution: taking your time choosing these people. It is not a decision to betaken likely. Test the out first. Give them tasks. Give them an opportunity and see what they deliver. Too many people have learnt how to “interview” well.
3. Hire cheap. It’s just a job.
This is the Achilles of most entrepreneurs. Hiring the cheapest person in an effort to contain costs often leads to other “implicit and non-direct” costs like bad workmanship, poor quality of work, tardiness, laziness, disengagement and the myriad of HR issues that follow this type employee. These also happen to the hardest people to fire. They are bad at their jobs so as a survival tool, they have had to be good at labour relations.
When it comes to developing your business in the early days, then the laws are “first brains in seats then bums in seats”. Get the right people. Pay them correctly. Inspire them to believe in the future. Give them ownership of the future and watch them WOW you.
In the end, no small business ever changed the world by staying small.
Related: 3 Reasons Your Business is Dying
New Fund For Small Businesses To Be Developed
Government has allocated R2.1-billion toward the development of small- and medium-sized businesses.
Driven by the Departments of Small Business, Science and Technology and the National Treasury, it was announced during the 2018 budget speech that entrepreneurs could unlocking funding for their businesses through a new funding initiative.
What is the new Fund?
Minister of Small Business Development, Lindiwe Zulu, explains where the fund stands and how it will work:
“The Fund will be operational during 2018/19 financial year but the planned disbursement of the funding will be the beginning of 2019/2020 financial year.”
She says R1 billion has already been transferred to the Department of Small Business Development from the national fiscus.
“The Department of Small Business Development together with National Treasury and Department of Science and Technology are working with the Government Technical Advisory Centre (GTAC) to develop the architecture of the Fund where issues around the management of the Fund will be considered,” she explains.
Who will the Fund be for?
“The Fund is targeting high growth businesses as our research on the ecosystem shows that there is a lack of funding of enterprises that are at an ideation and early start-up phase,” Zulu explains.
Her department together with the other participating arms of government, will identify areas of collaboration across research, mentorship and training of enterprises on financial management.
“The work that is being undertaken now will assist government to decide on how the fund will operate, but the government is conscious of the economic environment and would not look at setting up a completely new structure that will add to operational costs,” she says.
Addressing parliament on the fund, the minister said the financial mandate of the fund will be informed by the exercise that is being conducted through GTAC.
“Government is looking at having this fund as a soft loan which will provide affordable finance to small businesses and the emphasis will be more on ensuring that the Fund is sustainable rather than profit maximisation,” she explains.
How to apply for funding
Contact the following departments if you would like to access a portion of R2.1 billion:
Department of Small Business Development
- Address: 77 Meintjies Street, Sunnyside, Pretoria
- Tel: (+27) 861 843 384
- Email: email@example.com for information on the department and its services.
Department of Science & Technology
- Address: DST Building (Building no. 53) (CSIR South Gate Entrance) Meiring Naude Road, Brummeria
- Tel: (+27) 12 843 6300
- Email: Isaac.Ramovha@dst.gov.za or firstname.lastname@example.org for information and brochures about the department’s scope and funding.
National Treasury (GTAC unit)
- Address: 40 Church Square, Pretoria
- Tel: (+27) 012 315 5944 or (+27) 012 315 5645
- Email: email@example.com for information from the Government Technical Advisory Centre who will manage the small business fund for National Treasury.
7 Ingredients Of Small Business Success Online
Building your future requires equal measures of passion and hard work.
Building a small business online is scary. Big businesses can easily outspend you with PPC, SEO, SMM and inbound marketing campaigns.
However, smart startup founders grimly pass around business battles on the blogosphere, charging low prices for quality product, reversing their vision, failing to voice their opinion on their podcasts, showing contempt for our product, and disrespect for our craft.
And yet, look around at the World Wide Web jungle. It’s watered by the services offered by small businesses. The technology to produce product and convert customers exists because we create codes, design services, and write web pages, blog posts, and marketing materials that generate leads and close sales. And every 350-pound gorilla company uses our products or services to thrive.
If you’re a small online business owner, you can chicken out and quit when you face your competitor in the marketing arena, or you can choose something better. Because there is something better.
In the time since I began building my content marketing business online, I’ve noticed some mindsets, traits, and abilities that make the difference between businesses that want to accelerate their sales, make a profit, and survive, and businesses that want to sell more and increase their ROI but don’t seem to have the ability to do so.
Based on my observations, here are the seven most important things small businesses need to succeed online.
This might sound too simple, but if you’re a small business owner, you know what I mean.
There’s no substitute for the love you have for your products or services. There’s no substitute for the commitment of showing up every day. There’s no substitute for the excitement of receiving an order or for the burning desire to work extra hours, to reach your prospect, to ship an order, and to make more money.
If you don’t love entrepreneurship, your product or service, and the process of getting things done, none of the rest of this really means anything.
I could have just as easily dreamed of building another Moz, Kissmetrics, or Shopify, but I chose what I loved most. Whichever business idea you dream of, it’s about refusing to do it just for the money. It’s not only about making money; it’s about changing your customer’s life for the better.
If you want to achieve that, you have to dominate your industry. You have to be the go-to person for your products or services. Be super professional at your offerings so that your customers won’t want to leave you for your competitor.
2. Attitude of service
Making money can be a tempting proposition, pursued for the sake of your own interest of becoming rich and dominating the headlines.
However, as soon as the customer clicks to order your product – the vitamin C pills, the Smartphone cover, the SEO or PR services you sell – the product becomes the focus.
Professional founders work with an attitude of serving their customers great value, yes, serving them with beautiful, durable, quality products. They also work to provide excellent customer experiences that exceed their expectations, that gratify rather than aggravate, and that are born out of the genuine attitude of serving the buyer.
Successful consultants, bloggers, and content marketers all live in service to our clients. No matter how stunning or super sexy we may find an idea, if it doesn’t serve our client, out it goes.
Why? Because we have deep love and obsession for our customers.
3. Obsession for the customer
It has always struck me as odd that many of the most serious startup founders pay more attention to selling than to their customers.
It shouldn’t be that way. Customer obsession comes first. It’s like the engine that pumps cash into your corporate account. It comes from your company’s culture, value proposition, mission, and overall vision to change your customer’s world with your product or service.
Serious visionaries are obsessed with their customers. “If you’re truly obsessed about your customers,” Jeff Bezos, Amazon founder and CEO says. “It will cover a lot of your other mistakes.”
You can’t just sell your products. You can’t just sell your services. You can’t just advertise your brand.
You need to appeal to your customers first, because they are your buyers. And you can’t see a spike in your revenue unless you’re obsessive about charming them with your brand and building quality products that will ease their lives.
4. Obsession for quality
Many small-business owners imagine that if you have a great business idea and a great vision, you’re qualified to be called an entrepreneur.
Not so fast.
Successful CEOs and entrepreneurs are not just creative; they’re producers of quality products. They understand what type of products to create in the first place, based on the feedback they get from their customers.
They also understand that their products must solve their customers’ pain points. Their products must add value to their customers’ lives and must provide great experiences for them. You can learn more about how to build a solid product by looking at how great companies like Apple, Amazon, and Starbucks did it.
If you are obsessed with quality, you can incorporate what you learn from these companies into your business culture. Beyond your product or service, you can internalise quality packaging, simple usability, prompt responsiveness to customer queries, and even quality, compelling content on your company blog.
Because in today’s digitally driven marketing world, quality blog content is king. It’s crucial for your traffic, sales, and revenue.
5. Compelling content
You may have a brilliant idea. You may have gotten the perfect product/market fit. But, if you don’t devote yourself to the butt-in-chair time needed to produce a significant quantity of compelling content on your company blog, you won’t get where you want to go.
To a great degree, writing compelling content is a skill that can be cultivated. As a small business owner, you can devote some time to practice the art, ingrain writing into your schedule, and write every day to master the craft, or dig deep into freelance marketplaces to find a superb content creator.
Compelling content does more than just amuse your clients. Compelling content can change your life. After writing this viral post on this amazing platform, I received a dozen praises from readers across the globe. I also got a couple of writing gigs.
The blog post went viral not only because the story appealed to its intended audience, but also because the conversational tone and writing style are so engaging and entertaining … the reader feels compelled to share it.
Writing compelling posts has nothing to do with your degree, your experience, or whether or not you’re a native English speaker. It’s about how you make readers feel. That’s why every writer – just like every entrepreneur – must be creative, imaginative, and innovative.
Innovation is critical for your business growth for a number of reasons.
First, innovation develops customer value. Your customers are always in need of a product that will ease their lives, and once they get it, they move on to something else – something easier, newer, or simpler. As Steve Jobs put it, “You can’t just ask customers what they want and then try to give that to them,” the Apple founder opined. “By the time you get it built, they’ll want something new.”
Second, innovation is vital for your traffic, sales, and revenue. New ideas, new products, and new stories are what always get the most attention. “The arrogance of success,” according to William Pollard, “is to think that what you did yesterday will be sufficient for tomorrow.”
Third, innovation-active businesses are more productive and generate more jobs than non-innovation-active businesses, according to a recent data by Australian Bureau of Statistics (ABS).
But, building new products from your new ideas is risky. There’s a good chance that you’ll fail. Still, you must do it. You must double up on your experimentation. Bezos says, “If you double the number of experiments you do per year, you’re going to double your inventiveness.”
You’ll see wonders if you consistently innovate.
One of the tough things about growing a startup is that the path you walk is one you make yourself.
There’s no one to tell you how you should work, no one to tell you which direction to go, no one to tell you when to go for a break, no one to tell you when to work extra hours, and no one to tell you when to say no and when you need to be where.
That’s one of the fantastic things about running your own business. But, sometimes Fantastic is also Difficult. You might open your e-commerce shop today, work for an hour, check your email, and retreat for the day.
But, can you come back to do exactly the same thing tomorrow? Can you do it again the day after tomorrow, and again the day after that, and again, and again? Consistently?
That’s the difficult part. And that’s where many entrepreneurs are getting it all wrong. Building a thriving business is not about working for extra hours today and not working the next day.
It’s about doing the work that matters consistently. It’s about showing up every day. It’s about minimalism, not complexity.
So roll up your sleeves and keep working. “For the future,” as Paul Wellstone puts it, “belongs to those who are passionate and work hard.”
This article was originally posted here on Entrepreneur.com.
Capitalising On (Ad)venture – A Look At Section 12J
Due to a multitude of factors, such as slow economic growth coupled with a some-what uncertain political climate, small and medium-sized enterprises (“SMEs”) often face challenges with regard to obtaining equity funding.
In an attempt to encourage investment of equity into SMEs and junior mining companies, the Venture Capital Company (“VCC”) tax regime was introduced into the Income Tax Act 58 of 1962 (“Act”) in 2009.
Section 12J of the Act encompasses the relevant legislation governing VCCs and provides for the formation of an investment holding company, described as a VCC, through which investors can provide equity funding to a portfolio of SMEs. More specifically, investors subscribe for shares in the VCC and claim an income tax deduction for the subscription price incurred. The VCC, in turn, invests in “qualifying companies”.
Various legislative amendments to section 12J have given rise to an increased participation in the asset class, evidenced by the increasing number of approved VCCs. As at 24 January 2018, the South African Revenue Service (“SARS”) website indicates that 90 companies have been approved as VCCs, while 2 have had their VCC status withdrawn.
Related: Is Venture Capital Right For You?
This article provides a high-level overview of specific aspects of section 12J. It is advisable for SMEs and investors to obtain independent tax advice when considering utilising this investment vehicle.
Requirements for qualifying companies
The sole object of an approved VCC must be the management of investments in “qualifying companies”. The question of whether a potential investee company constitutes a “qualifying company” is a factual one and must be considered in light of the specific circumstances of that entity.
A “qualifying company” must comply with several requirements, some of which include:
- the company must not be a “controlled group company” in relation to a group of companies; and
- the company must not carry on an “impermissible trade”.
A “controlled group company” is a company that has a corporate shareholder that holds, directly or indirectly, at least 70% of the shares in that company. Accordingly, this requirement limits the share investment that a VCC can make in a “qualifying company” to a maximum of 69%. This means that at least 31% of the shares in a “qualifying company” must be held by persons other than the VCC.
The definition of “impermissible trade” encompasses a number of trades, such as trades in respect of immovable property (other than hotel keeping), financial or advisory services, gambling and trades carried on mainly outside of South Africa. It must be noted that a number of these trades are defined with reference to other pieces of legislation and due consideration should be given to those Acts. Again, the question of whether a “qualifying company” conducts an “impermissible trade” is a factual one which should be determined on a case-by-case basis.
Tax benefit for investors
The upfront income tax deduction, which lessens some of the investment risk for investors, is available for share subscriptions only. The deduction is only available in the year of assessment during which it is incurred and no deduction will be allowed in respect of shares acquired after 30 June 2021.
Any South African taxpayer (i.e. natural persons, companies, trusts and partnerships) can benefit from the tax deduction, however, the deduction is subject to anti-avoidance provisions, such as:
- where an investor has used any loan or credit to finance the expenditure incurred to acquire shares in the VCC, the amount of the deduction is limited to the amount for which the investor is deemed to be at risk on the last day of the year of assessment; and
- no investor can be a “connected person”  in relation to the VCC after the expiry of a period of 36 months commencing on the first date of the issue of the venture capital shares.
In addition to the above anti-avoidance provisions, investors need to be aware of the restrictive framework offered by section 12J. For example, to the extent that the investment is realised (i.e. disposal of shares in the VCC or a return of capital) before the end of a five-year period, the deduction previously allowed must be included in the income of the investor in the year of assessment during which the investment was realised.
In addition, there are some shortcomings in the VCC regime, which National Treasury will hopefully address in due course. For example, it is more tax efficient for a natural person to subscribe for shares directly in a “qualifying company” rather than the VCC, for the following reasons:
- capital gains tax (“CGT”), at the effective rate of 22.4%, is paid by a VCC on gains realised upon the sale of shares in a “qualifying company”. In addition, dividends tax at the rate of 20% is incurred when the VCC declares a dividend to a shareholder who is a natural person.
- should the natural person
- subscribe for the shares in the qualifying company directly, the natural person will only incur CGT at the rate of 18%. The benefit of the upfront deduction may therefore be ‘tainted’ by this ‘double tax’.
National Treasury has acknowledged the need to make further changes to section 12J which will assist SMEs in achieving profitable growth.
 Please note that there are other requirements which have not been addressed in this article.
 As a rule, natural persons are “connected persons” in relation to a company to the extent that they individually or together with any “connected person” in relation to themselves, hold at least 20% of the equity shares or voting rights in the company. A corporate investor will be a “connected person” to the extent that –
- it holds at least 50% of the equity shares or voting rights in the VCC;
- it holds at least 20% of the equity shares or voting rights and no other person holds the majority of the voting rights; or
- any other company is managed or controlled by any person who is a “connected person” to the corporate investor.
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