In 2016, 27% of the adult population in South Africa was unemployed. According to The National Development Plan, 90% of the approximately 11 million jobs that need to be created by 2020 will be through small businesses. However, according to The Gordon Institute of Business Science, 80-90% of new businesses fail in the first two years, with some of the reasons for failure being lack of access to markets, capital and business skills. A panel discussion held at Trialogue’s 2017 Business in Society Conference unpacked some of the key elements needed to support enterprise development in South Africa.
Allon Raiz, founder of Raizcorp – a successful business start-up incubator – contextualised the discussion by highlighting that successful enterprise development means sustainable enterprise development. This means looking beyond individuals with the right qualifications, to those who will survive in the real world – people with resilience, flexibility, and grit, among other traits.
In South Africa, he explained, in addition to the traditional reasons for failure of start-ups, we have a culture of viewing failure as shameful, which explains why our entrepreneurial economy shows very low rates of re-entry after failure. We need to distinguish fear from shame. “We need to change the way that society views failure – it is a teacher, it is the thing that provides you with the knowledge to move forward.”
The expert panel went on to discuss what makes businesses work, and how entrepreneurs can avoid failure.
According to Daniel Hatfield of Edge Growth, access to markets is the biggest challenge for the average entrepreneur. It is often easier to get access to skills training, capability building, and even funding. Hatfield noted that, despite recent changes to the supplier development aspects of the B-BBEE Codes, corporate supply chains are not usually influenced by their own internal corporate social investment (CSI) or enterprise development (ED) programmes. As a result, he said, in supporting ED, “corporates must be careful of setting expectations. Companies must be careful of telling entrepreneurs that if they go through the training, they’ll be fine.”
Entrepreneurs need to understand the risks inherent in going to market and hunting for business.” Jo Nel, Associate Professor of the University of Limpopo and CEO of Edupark, agreed. “In the Eskom Contractor Academy training, we make it clear to students upfront that they cannot expect contracts from Eskom. And, in fact, they should not aim for Eskom contracts, because that will hugely limit their businesses.” As a result, he noted, the Academy experiences amazing tenacity amongst its students – although a significant number of contractors are awarded Eskom contracts.
Panellists agreed that, in their experience, most entrepreneurs do not actually need money. Rather, they need a compelling economic reason to exist. “There is more money chasing good business than there is good business chasing money” noted Raiz. Hatfield added: “we advise entrepreneurs to go as far as possible without raising funding. It creates a good discipline around cash flow management and ensures that you put the funding – when you do get it – in the place where you will most explode the growth of your business.”
On raising funding, Thato Kgatlhanye, founder of Rethaka Repurpose Schoolbags, commented that for her, the question was always how to raise capital most effectively while not losing equity. And to do this, she noted “you need innovative ideas”. She found that for her, the most effective way to raise capital was through business competitions, which killed two birds with one stone. The competitions gave her access to capital, but they also provided networks, visibility, and access to public relations.
For funders, emphasis must be placed on how they fund. Rather than funding an enterprise in one large tranche, it should be ‘dripped in’ said Raiz. “You must ensure that the structure of the business is right for scaling before you fund it.” Hatfield agreed, adding that the quickest way to break a business with a broken business model is to give it funding. “Funding at the right time is key.”
The panel addressed a question regarding the success of people with disabilities in the ED space. Nel noted that at the Eskom Contractor Academy the approach is that “if a student can enter the classroom, we can accommodate them.” He also confirmed that all of the Eskom students – those who are disabled included – perform well and are still in business. All the panellists agreed that often, a disability can offer a competitive advantage – particularly because, having had to overcome a number of obstacles, disabled people often possess qualities that make an excellent entrepreneur: mental dexterity and flexibility, and perseverance.
Kgatlhanye shared that, for her, the conversation has never been about her gender. “The issue is whether you can put value on the table. Yes – we do get preferential treatment as young black women because of B-BBEE, but it is far more important to build for success.” She expanded on this, commenting that in its recruitment process, Rethaka consciously looks to empower black women. However, she noted: “We need to balance sociability and scalability of the business. It’s not difficult to measure how many women you employ – what is hard is measuring how productive your people are, and what impact your business is having on people’s lives. We have found that you need to treat the blue collar environmental as if it is a white collar environment. For example, we ask all of our future employees for CVs – regardless of how basic the role.”
Talking similarly to the importance of competence and value-add, Raiz addressed a question from the floor regarding the opportunities for white people in the South African entrepreneurial space. “There has been a shift from colour to competence. Most funding now will look at whether a business can deliver value. Will people buy your product? If so, the money will come.”
Hatfield also suggested that entrepreneurs must define their expectation of an ‘opportunity’. “There are so many gaps in underdeveloped economies…so many services are imported and there are so many opportunities. It comes down to hunger and determination. If you have an economic right to exist, and add value, and are here to fight, you will find an opportunity.”