Spotting an opportunity that sparks an entrepreneurial idea is a dominant driver of start-up businesses in South Africa, but they are not creating jobs at the scale and rate South Africa so urgently needs.
This is just one of the findings of South Africa’s largest startup survey announced last night by chief executive officer of Seed Academy, Donna Rachelson. The survey was conducted this year by Seed Academy when the views of almost 1500 start-up entrepreneurs in South Africa were gauged.
Nearly 50% of the entrepreneurs surveyed said creating a business out of an idea that came to them from the environment in which they live, work and play was their main motivating factor. Only 4% of respondents started a business because they were unable to find a job.
Rachelson says this is a positive sign for South Africa’s entrepreneurial ecosystem as most entrepreneurs are starting businesses for the right reason.
“But only 4% of entrepreneurs surveyed employ more than 10 staff. As many as 38% of start-up entrepreneurs do not employ anyone at all. Job creation should be a key outcome of entrepreneurial activity, yet a large portion of our entrepreneurs have no employees.”
The 2016 start-up survey built on the benchmarks established in 2015 when Seed Academy conducted the first start up survey to get a picture of the challenges startups face and the support they need to increase success rates.
“This year we sought an understanding of grassroots entrepreneurs, focused in on youth and women entrepreneurs and looked at the challenges faced by entrepreneurs in key sectors. We also gauged the progress made in funding for entrepreneurs,” says Rachelson.
The survey revealed that entrepreneurs are taking long periods to gain traction. Rachelson says it is concerning that there are businesses five years and older that are not making sales.
The survey found that business survival rates are on the increase, female entrepreneurs remain in the minority and that the ethnic footprint of entrepreneurs does not mirror SA’s demographics – black start-up entrepreneurs are underrepresented.
Says Rachelson: “While the percentage increase in the age of the businesses is small, the fact it is increasing is a step in the right direction. Our entrepreneurs are resilient. They are primarily working from home and funding themselves with small amounts of capital while facing the well-known challenges of finding customers and raising finance.
“The majority of entrepreneurs (59%) are the sole founders of their business. But they are optimistic, especially women business owners.”
The majority of entrepreneurs reported starting businesses in the Information Technology (22%), Creative (12%), Wholesale and Retail (9%) or Social and Community Services (9%) sectors. Mining and Automotive were amongst the least popular sectors for aspiring entrepreneurs.
Related: Incentives to Promote Job Creation
A significant outcome was the fact that prior work experience is a major contributing factor in business survival. Business owners that have been in existence for more than 2.5 years reported having more than 10 years prior work experience.
Rachelson recommends that entrepreneurs starting a new business may wish to do so in parallel with full time employment.
“Furthermore, with 50% of SA’s youth (aged 15-24) currently unemployed, there is a dire shortage of opportunities for them to gain work experience. Innovative ways to provide our young people with work experience need to be found. To develop skills and business acumen, we should be considering interventions such as entrepreneur shadowing or on-the-job training at an SME,” says Rachelson.
Rachelson outlines recommendations that all players in the small business ecosystem need to consider:
- Enhancing the funding ecosystem by improving the effectiveness of Development Finance Institutions (DFIs), developing and incentivising the angel network, working with banks and using seed funds
- Preparing entrepreneurs to be funding-ready
- Elevating marketing, access to markets and soft skills development for entrepreneurs
- Fast-tracking and deepening the development of women and youth entrepreneurs
- Facilitating stronger public/private sector collaborations
- More aggressively embedding a culture of entrepreneurship across the country.
Be 1 Of 3 High Growth Scale Ups Sponsored By FNB & Vumela To Participate For FREE In 10X Accelerator Program (Value Of R650 000)
FNB and Vumela are sponsoring 3 high growth Scale Ups on the 10X Accelerator Program, kicking off in February 2018.
The 10X Program has received amazing reviews and huge interest, because of its unique approach:
- Focused on businesses that are Scaling Up (past the start-up / typical Accelerator phase)
- Business Scale Up focus, not capital raising / exit focused
- Broad company-building focus, not a narrow technology commercialisation focus
- Addressing the gnarly and complex issues that come with growth, like hiring, firing, performance managing, management systems, Boards, etc
- 18 months of intensive, hands on support
- Working with seasoned Scale Up leaders
Here’s what delegates are saying:
“We’ve grown really fast, but without the 10X Program we probably wouldn’t exist anymore because things were starting to break… It’s a game changer… Unlike most other workshops like this I have experienced, 10X-e combines theoretical concepts with real world applications so that I can make immediate changes to my business. The tools are easy to execute throughout my organisation and get the needed buy in from my management team. We now have every staff member fully aligned to the company’s strategy… we’re now scaling much faster and with less resources than we would have normally required without the 10x process…. – James Wilkinson, Founder, Sonic Telecoms
“Within 1 month I doubled sales revenue, because it became so clear I had 2 people in the wrong roles. We swapped their roles and doubled revenue immediately.” – Richard Rayne, Founder, iLearn
“I used to feel like I was sprinting up a sand-dune. If I stopped sprinting for a moment, the business would slide downhill. But since the program, we have much more momentum and its not all up to me because the entire team is pulling together in the same direction. Things won’t grind to a halt if I am away for 2 weeks” – Andrew Cook, Founder, Smoke Customer Intelligence
‘The [10X Strategy Workshop] process gave us the framework to focus and say no to distractions … [key] part of our journey to drive relentless focus. The Workshop catalysed us working on our business and not just in it… [and] supported a period of advancement… and scale’. – Brad McGrath, co-Founder, Zoona
‘The upfront Path To Scale Boot Camp… got us all thinking the same way and on the same page about how to Scale. It is something we have carried with us and that has guided us ever since.’. – Aisha Pandor, co-Founder, SweepSouth
The Program is worth R650k. FNB & Vumela are sponsoring 3 qualifying Companies. Seats will be awarded to businesses with the greatest Scale Up potential.
- Application deadline:12th Jan.
- More info on the Program & the Application Form: https://goo.gl/forms/dobVI6N2FY7tKiJK2
R33 Million Boost For Job Creation And Innovation In SA
The Craft + Design Institute (CDI) has launched R33 Million in funding to boost SME growth, job creation and innovation.
The CDI has raised the R33m to establish three funds – a Growth Fund, an Innovation Fund and a Loan Book – these funds will be managed by its investment arm, CDI Capital.
The funding will be for developing 60 growth oriented SME’s and 20 innovative technological solutions – and to create 600 permanent jobs in the process over three years.
This funding has been enabled by the National Treasury’s Jobs Fund through the Government Technical Advisory Centre (GTAC), the Technology Innovation Agency (TIA), and the Western Cape Department of Economic Development and Tourism (DEDAT).
CDI Capital was specifically incorporated as a CDI subsidiary in 2016 to catalyse funding for SMEs. A level 1 B-BBEE company, it aims to combine government grants with corporate Enterprise Development spend and private funds to de-risk investments in SME’s to stimulate growth and returns.
The Growth Fund is open to businesses with turnover or assets of more than R1m with the ability to create permanent jobs. Applications open on the 27th of November and close on the 31st of December 2017. For specific criteria and more information on the grant please visit www.cdicapital.co.za/GrowthFund
The Design Innovation Seed Fund (DISF) is open to inventors who believe they have protectable innovative technological solutions that could impact on specific sectors and could create permanent jobs. This is the third round of this fund. Applications open on the 27th of November and close on the 31st of December 2017. For specific criteria and more information on the grant please visit www.cdicapital.co.za/DISF
In addition to the grant funding products, CDI Capital will also launch a R3.5m working capital and term loan facility at reduced rates for the duration of the three-year project to provide access to cash flow during the growth stage of these, and other qualifying SME’s.
The CDI has 16 years of experience in SME development and started supporting development in the craft and design sectors nationally in 2015. Signaling this change, the organisation changed its name in September from the Cape Craft + Design Institute to The Craft + Design Institute.
According to Erica Elk, Executive Director of the CDI, it was a landmark moment in the organisation’s history.
“Over the past few years our team has successfully taken our services across the country – we have conducted a business and product development workshop series in every single province and received incredibly positive feedback. The message clearly is ‘more please’.”
Elk said that there is a consensus in South Africa today that SMEs hold the solution to our intractable problems of a sluggish economy and high unemployment rates.
“In most countries, SMEs play a vital role as drivers of economic growth, innovation and job creation, but, in South Africa, this value is yet to be properly realised. To achieve this, the challenges experienced by SMEs need to be addressed. Namely access to markets, finance and credit, infrastructure, resources for R&D, and access to adequately skilled and work ready labour.”
She added that the CDI, through its specialised investment arm CDI Capital, is gearing up to provide solutions to some of these challenges, particularly in the craft and design sector and related sectors where design and innovation can catalyse growth.
“Our first Jobs Fund project, completed successfully in December 2015, had 45 participating companies creating 464 jobs off an investment of R14.5m. This was 105% of the target of jobs to be created. Participating SMEs grew their combined annual revenue by 73% over three years – from R60m to R104m. Funds were used to improve their products, processes and competitiveness through the acquisition of new machinery or specialist staff, and to expand local and international market reach.”
“We also completed a first round of DISF grants in 2016, and are currently working with seven innovative SMEs in round two – round one attracted private funding of over R10m in equity funding into some of the high-potential innovators. The DISF gives innovators and entrepreneurs in the Western Cape an opportunity to get the finance and support needed to get their ideas to the next stages.”
“We have put a significant amount of work into developing these offerings, not only ensuring good governance and appropriate monitoring and evaluation measures, but realising real and sustainable impact with the businesses we support. We are excited to have raised R33m to launch this new funding for SMEs, and we thank our funders and supporters – we look forward to making meaningful investments.”
“Now – having led the way with investment from the public sector – we would like to partner with the private sector to support and strengthen this initiative. We believe this project – which aims to catalyse innovation, support growth orientated SME’s and create 600 jobs – would be an ideal Enterprise Development spend opportunity. CDI would gladly partner with corporate growth orientated accelerators and mentorship programmes to further strengthen the support offered to the participating SMEs.”
Najwah Allie-Edries, Deputy Director General: Employment Facilitation within the Jobs Fund:
“The Jobs Fund supports this initiative in recognition of the critical role that SMEs play in creating a more inclusive economy and job creation and also because it will contribute toward CDI becoming a more self-sustaining entity. The aim of this initiative is to provide appropriate financing options to SMEs in the craft and design sector in order to catalyse sustainable growth which will result in attracting further investment into a sector that has often been neglected. The introduction of a revolving loan facility will not only ensure that over time more SMEs can benefit from access to finance, the enhanced revenue streams will also contribute to the CDI’s goal of becoming a sustainable entity in its own right.”
Mr Vusi Skosana, Head: Technology Stations & IATs (TSP) at TIA, said that the Technology Innovation Agency (TIA), an agency of the Department of Science and Technology, was established with an objective to support the State in stimulating and intensifying technological innovation in order to improve economic growth and the quality of life of all South Africans by developing and exploiting technological innovations.
Solly Fourie, Head of Department, Department of Economic Development and Tourism, Western Cape Government:
“We know that there is a strong need to develop and improve the socio-economic conditions of the citizens in our region. To this end, the creation of a healthy and vibrant regional innovation system can be a catalytic driver of sustainable economic growth and development. But neither DEDAT, nor the WCG, are able to tackle this alone. The partnerships created through the Seed Fund and Jobs Fund; and initiatives like it, go a long way to creating an enabling regional innovation system in which we collectively draw on the Quad helix’s expertise and resources; promote local industry and attract and grow innovative businesses. By doing this, we are crafting the best possible conditions for businesses to develop in this region.”
Start-ups Require A Strong Legal Foundation Webber Wentzel Ignite
Entrepreneurs, start-ups and scale-ups are a lifeline to South Africa’s economy.
Entrepreneurs, start-ups and scale-ups are a lifeline to South Africa’s economy. It is however a harsh environment and many entrepreneurs find themselves in a situation where they are wearing many hats and navigating potential pitfalls without the knowledge that many professionals have from years of experience.
This is especially true from a legal point of view where entrepreneurs are faced with real world regulatory challenges that could have far-reaching consequences on their fledgling business, such as financial regulatory, tax, exchange control and intellectual property.
A common example is that start-ups often forget to secure the rights and licenses they need to operate. For example, would you invest or partner with a company that:
- doesn’t have a legal right to use their brand
- doesn’t have proprietary technology; and/or
- is reliant on a third party agreement that doesn’t permit commercial use?
Related: How To Raise Working Capital Finance
These avoidable shortcomings often result in failures at critical junctures. The specialist legal services needed to avoid these problems are typically not easily accessible to start-ups.
With this in mind, Webber Wentzel has launched a project called ‘Webber Wentzel Ignite’ – a legal incubation programme that will provide selected entrepreneurs and innovators from any sector with:
- tailored legal services valued at up to ZAR 100,000;
- bespoke mentoring and training support – focused on legal knowledge and developing key legal skills relevant to start-up businesses; and
- targeted networking and profile-raising opportunities.
Video about Ignite
Webber Wentzel is not asking for equity or exclusivity; only an opportunity to connect and make a difference as a trusted advisor over the long-term. It is a wonderful opportunity that will set the selected entrepreneurs apart in the marketplace. Applications close on 15 January 2018
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