Today, Seed Academy reveals the State of Entrepreneurship in South Africa after surveying more than 1000 entrepreneurs across the county. The results indicate that entrepreneurs are not thriving and dramatically more needs to be done to improve SA’s entrepreneurial ecosystem.
Donna Rachelson, CEO of Seed Academy comments, “We’ve undertaken this survey for four years and it is SA’s largest and most referenced entrepreneur survey. We see small progress in terms of business survival rates, revenue increases and more women entrepreneurs but what we really need is for stakeholders in the ecosystem to pull together and make major trajectory changes that support all entrepreneurs from seed through to scale-up stages. We still don’t have the basics right: early stage funding and high impact business support throughout the entrepreneurial journey.”
On average SA entrepreneurs are employing between two and four people but the ecosystem remains difficult to navigate with several entrepreneurs reporting that they don’t know how to access available support. Key challenges for entrepreneurs include: inability to raise funds, finding customers, wearing too many hats followed by lack of guidance, slow sales, customers paying late and unpredictability of business conditions.
Typical entrepreneurs in South Africa are mostly educated; have prior work experience; vary in age (not just young people) and are driven to entrepreneurship through seizing opportunities rather than necessity. The number of women entrepreneurs continues to grow slowly but the opportunities are mostly for men and youth owned businesses.
The number of for-profit social enterprises has increased by 10% since 2017 demonstrating that businesses that address social and community issues are on the rise.
Of the businesses that are post revenue, only 5% have a turnover of greater than R5 million. Shockingly 22% of entrepreneurs have revenue of less than R10K per year and the majority of post revenue entrepreneurs (26%) have revenue between R50 – R100 000 per year.
Keys to success for entrepreneurs remain strong personal networks; proper business planning; access to business support services and the ability to present for new market opportunities. Business focus is necessary but 47% of businesses are engaged in business to business; business to consumer and business to government initiatives at the same time –making market focus difficult.
Enterprise and Supplier Development programmes
For the first time, Seed Academy’s State of Entrepreneurship research considered Enterprise and Supplier Development (ESD) programmes. It was established that these rarely lead to increased productivity and head count. Having a mentor aligned to the entrepreneur’s business is a key success factor. Few entrepreneurs have mentors through their ESD programmes yet overwhelmingly those who did believed that the mentors added significant value to their businesses.
Accessing funding remains the biggest concern and challenge for entrepreneurs. Entrepreneurs are largely self-funding and are not applying for funding because they don’t know where or how. While 73% of entrepreneurs require funds to grow their business, 28% require less than R10 000 and 30% needed less than R50 000.
The risk appetite for funding early stage and perceived ‘risky’ entrepreneurs is low. In addition, the angel network and banks as funding options remain ineffective.
Rachelson recommends real conversations of what we need to be doing dramatically differently to develop an ecosystem that develops sustainable businesses that create jobs. Funders need to play a far more active role in educating entrepreneurs about their processes and put in place interventions that assist entrepreneurs to become ‘funding ready’. They should also be allocating risk based funding to early stage entrepreneurs together with appropriate business development support.
The Enterprise and Supplier Development sector needs a refresh. These interventions need to be tailor made with appropriate mentorship and a core focus on business and growth strategy. The industry may need a framework to ensure quality of programmes.
She recommends creating a culture where it is okay to fail and grow at a steady rate without pressure of key metrics such as revenue growth and job creation over unrealistic time frames.
Rather, proactively identify entrepreneurial opportunities for massive job creation and developing innovative interventions to identify the ‘right’ entrepreneurs with teams to actively drive these. The industry should collaborate to focus on successful entrepreneurs who can create massive employment rather than focusing on many qualifying small enterprises and exempted micro enterprises.
Finally she says, “Align the support provided by Government and other role players as the current ecosystem is disjointed with very little cooperation and coordination. This results in misalignment to the sectors that are highlighted in key economic policy documents. We also need to design interventions that are appropriate for women.”
To enable better support of SMMEs, Old Mutual partnered with Seed Academy and sponsored the 2018 Real State of Entrepreneurship survey in recognition of the important role entrepreneurs play in creating jobs and contributing to economic growth and development.
Global Guide For Entrepreneurs, Innovators Launches In Johannesburg
Startup Guide partners with SAP Next-Gen, Tshimologong Precinct to bring global guidebook to Johannesburg innovation ecosystem; calls for nominations.
Calling all entrepreneurs, accelerators, innovators, co-working spaces and experts in the City of Gold: Startup Guide, the leading global guide for start-ups in high-growth innovation hubs in Europe, the US and Middle East, is open to nominations in Johannesburg.
Founded in 2014, Startup Guide is a creative content and publishing company that produces guidebooks and tools to help entrepreneurs to connect to communities and resources in the leading start-up cities around the world. Its global footprint covers some of the most innovative and thriving start-up ecosystems in the US, Europe and the Middle East, including those of London, New York, Berlin, Tel Aviv, and Stockholm. After launching in Cape Town earlier in the year, Startup Guide now moves to Johannesburg.
According to Sissel Hansen, Founder and CEO of Startup Guide, South Africa’s largest city is emerging as a key innovation hub for start-ups.
“Johannesburg has recently emerged as a growing ecosystem for start-ups and entrepreneurs in Africa, particularly in the tech industry. We’re thrilled to have the opportunity to create a comprehensive guide of resources for aspiring founders wanting to do business in South Africa’s largest city.”
Startup Guide Johannesburg was launched at Wits University’s Tshimologong Precinct, one of Johannesburg’s newest high-tech addresses in the vibrant inner-city district of Braamfontein. Tshimologong, which means “new beginnings” in Setswana, focuses on the incubation of digital entrepreneurs, commercialisation of research and the development of high-level digital skills for students, working professionals and unemployed youth. Lesley Williams, CEO of Tshimologong Precinct, says: “South Africa is fast-becoming a go-to source for innovation, especially in the tech sector. We believe the introduction of a dedicated resource for the startup ecosystem in Johannesburg will unlock significant opportunities for innovation hubs such as ours to more easily connect with entrepreneurs, experts and other roleplayers, ultimately providing a more supportive environment for growth.”
Startup Guide has partnered with SAP Next-Gen, a purpose driven innovation university and community for the SAP ecosystem enabling companies, partners and universities to connect and innovate with purpose linked to the UN Sustainable Goals for Development. Ann Rosenberg, Senior Vice President and Head of Global SAP Next-Gen says:
“We strive to connect digital innovators in an open innovation community to drive the future success and growth of industries through the use of technology. As we have witnessed in other high-innovation cities around the world, the introduction of knowledge resources – supported by opportunities for collaboration and partnership in an open ecosystem – enhances the overall success of entire start-up communities. Johannesburg’s world-famous energy and business acumen will greatly benefit from the launch of Startup Guide Johannesburg and the support of industry partners, including SAP Next-Gen and the Tshimologong Precinct.”
Cathy Smith, Managing Director of SAP Africa, adds that the partnership with Startup Guide aligns well with the company’s commitment to the UN Sustainable Development Goals. “As an organisation we are committed to achieving the high ambitions set out by the SDGs. However, it is virtually impossible to do so alone: the concept of partnership with likeminded purpose-driven organisations and initiatives is vital not only to realising the SDGs but to foster a greater and more inclusive innovation ecosystem in Johannesburg and across the African continent.”
Nominations for the Johannesburg edition of Startup Guide are now open. If you know a start-up, entrepreneur, programme, space, accelerator, or experts and would like to see them featured in the book, please visit https://startupguide.com/shop/startup-guide-johannesburg and submit your nomination.
Aspirations For SMMEs In South Africa
Research released earlier this year, revealed that there are only 250 000 formal SMMEs in South Africa.
Entrepreneurs who have started up a business over the past 10 years have done so in an environment that has been largely negative, with slow economic growth and an unstable political landscape. “So, all in all, a very difficult setting to launch, grow or even maintain a business,” says Bizmod MD, Anne-Marie Pretorius.
Pretorius says that many entrepreneurs who operate in South Africa can be forgiven for often wondering if the slog is worth it. Yet they continue – despite economic uncertainty, strikes, retrenchments and downscaling. “It is this tenacity that sets entrepreneurs apart, and I often wonder how much more successful they would be in an easier and more supportive environment.”
Below, Pretorius shares her ideal pro-entrepreneur outlook for the future:
- Greater policy certainty on all key government policies from land reform to regulations surrounding labour broking.
- Being able to do away with bad policy faster. An example of where this did not happen was in the changes of visa requirements; leading to an unnecessary dent in our tourism industry, an industry that should be targeted for growth.
- Lower compliance requirements for companies with a turnover under R50 million. The cost of compliance for smaller enterprises is significantly higher in comparison to their income and the cash they have available. Smaller companies need simpler frameworks where compliance is required. A portal similar to SARS e-filing, which makes compliance across various pieces of legislation clear and simple, would be ideal.
- The Labour Relations Act is a key piece of legislation that has done a lot to protect the rights of the employee. It has attempted to balance the power relationship between employee and employer. Some innovation is however required in labour practices, allowing for mutually beneficial flexible working relationships that keep pace with the changing work environment.
- Buy small, buy South African! A framework whereby large corporations and government would have to allocate a certain minimum percentage to buying from smaller local companies. There are encouraging signs that this is happening more, however this is still not an ingrained practice. In addition, consumers should be more informed on what items are South African produced, in order for them to be encouraged to purchase locally.
- Easier access to funds enabling entrepreneurs to grow their businesses. There are currently a few options available, but all of the options require significant governance and red tape. Whilst this is understandable from the lenders perspective, it does hamper the agility and growth of companies.
- Make good financial governance aspirational, attractive and easily accessible.
- The process for tenders to be corruption free and fair, enabling more companies to add value.
- Pay SMME’s on 30 days or less. Enormous pressure exists on smaller companies when not paid on time. They simply do not have the cash flow to carry a debtor’s book of 90 days and this inevitably hampers their growth.
- Tax SMME’s at a lower tax rate. Profit tax should be lowered in order to drive entrepreneurship.
- Creating a platform that makes it simpler to employ young individuals with potential and create support programmes for SMMEs to upskill them. There is a significant financial and time investment required to train a young person, which can make SMME’s sometimes wary to do so.
“If we are able to make only some of these ideals a reality, there is no doubt that we would see economic growth, entrepreneurial growth, and more employment opportunities,” concludes Pretorius.
Related: A – Z Easy Small Business Ideas
South African Students Win R50 000 In The Universities Business Challenge
Students from Mangosuthu University of Technology beat 500 students from 13 different universities across South Africa.
The Overlings from Mangosuthu University of Technology are the 2018 winners of Cognity Advisory’s Universities Business Challenge (UBC), sponsored by General Electric (GE). The winning team of four students are walking away with R50,000 to turn their business idea into reality.
Launched in July this year, the UBC has seen 500 students from 13 different universities across South Africa participate in a business simulation competition designed to develop entrepreneurship skills.
When the competition launched, all teams were challenged to form virtual companies and to virtually manufacture and sell bicycles.
The final 10 teams were from the University of Limpopo, Mangosuthu University of Technology, Vaal University of Technology, University of KwaZulu-Natal and North-West University.
During the two-day final, the teams played six rounds of simulations. Each simulation gave the teams a chance to re-evaluate their progress and better certain areas that needed improving. The winning team realised during one of their simulations that in order to maximise profits they would need to introduce two new products and market it differently from their initial product. They paid special attention to their customer’s needs.
The aim of the UBC was designed to tackle South Africa’s high level of youth unemployment. Statistics South Africa (Stats SA) that South Africa’s official unemployment rate increased by 0.3 of a percentage point to 27.5% in the third quarter of 2018.
Nkosinathi Sokhulu from the winning team said, “Even though we didn’t have a great presentation we made the most profit. This experience taught us a lot about ourselves and business. Most of the decisions that we made came from serious debates. We learnt that market research is crucial when starting a business. We learnt that marketing starts and ends with the customer.”
“Based on this market research information we realised that it was important for us to introduce two new products and this, in addition to the main product we were selling, helped us to maximise profits. We saw an opportunity to add more products and it paid off” said Mbali Tshozi.
Tope Toogun, development advisor and CEO of Cognity Advisory said, “All the teams showed tremendous promise and I was very impressed by their levels of engagement with one another and their tenacity.”
“We really want to ensure that students are equipped with the necessary skills to not only start a business but to run it effectively. While we have selected one winner, our hope is that each team has benefitted by having learned the skills needed in the workplace.”
“The competition is designed to develop the ‘soft skills’ that are important for those wanting to set up their own business or simply be successful at work. With rising unemployment and ongoing talent shortages, having these skills is crucial for those wanting to get a job.”
The UBC, now in its second year in South Africa, will continue into its third year in 2019 and will run as the Africa Enterprise Challenge (AEC).
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