BUSINESS PLAN - JSE MAGAZINE

BUSINESS PLAN

A dedicated focus from both public and private sectors is required to ensure the success of SMEs and allow them to flourish

BUSINESS PLAN

The country requires a societal mind shift to stimulate enterprise development and entrepreneurial thinking as a means to create employment, especially among unemployed youth. ‘Ask how you can make a difference rather than how to make a lot of money, and you’ll increase your chances of becoming a successful entrepreneur,’ says Azim Omar, Africa strategic growth markets leader at EY Enterprise Development. Across the globe, entrepreneurship has proved to accelerate economic growth.

For this reason, the government, private sector and NPOs are investing heavily into encouraging and supporting entrepreneurial activity.

Omar argues that these efforts will bear fruit only if South Africans change their mindset. ‘As a society we should work towards finding solutions and becoming a knowledge-based economy,’ he says. ‘Every business, first and foremost, needs to have a purpose – a reason why it exists – not merely want to create a financial reward.’

The world’s top entrepreneurs generally set out with a problem to solve and happen to become rich along the way, he adds, citing the story of Steve Jobs who came up with the iPod after watching his daughter walking around listening to music on a personal stereo.

Local examples with similar clarity of purpose include the founders of start-up Jonga, who developed their low-cost home security business as a response to having been burgled – and won the 2017 Santam Safety Ideas campaign.

Another example is the Hello Group, a Centurion-based fintech firm that was started by two brothers who were tackling the disproportionately high cost of phone calls to the UK. Today their thriving, multi-award-winning enterprise provides migrant workers and low-income communicates with innovative, affordable services beyond cheap international and local calls, such as cash remittance and travel services. The Hello Group now employs more than 200 people and, in 2013, started its own entrepreneur programme that trains, funds and mentors aspiring business people.

This is what the country needs, especially as national entrepreneurial activity has effectively been going backwards. ‘Since 2014, TEA [total early-stage entrepreneurial activity] in South Africa has demonstrated a persistent downward trend that is cause for considerable concern,’ according to the 2016/17 Global Entrepreneurship Monitor (GEM). ‘A disappointing sign is that the rates of all levels of early-stage entrepreneurial activity have dropped considerably, compared to 2015. The nascent entrepreneurial rate is down by 30%, while the TEA rate has dropped by 25%. There is a wide gap between South Africans and their African counterparts – TEA rates in the Africa region as a whole are 2.5 times higher than for South Africa.’

The report further reveals that entrepreneurial intentions (those wanting to start their own business) are significantly lower in SA than in the Africa region as a whole – the regional average being four times higher than in SA. There’s also an alarmingly high SME failure rate, as well as an overall lack of entrepreneurial confidence in SA. The GEM indicates that confidence, skills and entrepreneurial success go hand-in-hand.

‘Our research shows a strong correlation between perceived capabilities (skills) and TEA, reinforcing that all forms of education (formal, informal and non-formal) are important in developing entrepreneurial competencies.’

Education was one of the topics discussed at the 2017 Global Entrepreneurship Congress in Johannesburg earlier this year. ‘Young people must, from an early age, be encouraged to innovate and be problem-solvers. They must be given the skills to turn ideas into viable businesses,’ said SA Deputy President Cyril Ramaphosa.

‘Most importantly, they must leave school appreciating that entrepreneurship can be a viable career option. While many people have the aptitude to be successful entrepreneurs, our experience in South Africa is that many struggle to fulfil their potential without effective support.’

Ramaphosa repeated his call to include entrepreneurship in the national school curriculum. This may happen sooner rather than later. According to CSI consultancy Trialogue, the Department of Basic Education formalised (in May 2017) the blueprint to embed practical and social entrepreneurship into the curriculum from Grades R to 11. The department reportedly intends to roll out this plan with the help of NPOs.

This basic education blueprint is part of the broader national entrepreneurship strategy and closely linked to corresponding programmes in universities and the SME sector. The aim is a co-ordinated investment strategy in which business actively engages with schools, thereby facilitating practical learning experiences.

‘How we develop the mindset of our youth will determine everything about the future of our country – it will determine how much employment there is, how much wealth, stability and healthcare, as well as the levels of crime and violence,’ says prominent educationalist Taddy Blecher, who played a crucial role in developing the blueprint. ‘Companies will benefit [from entrepreneurship in the school curriculum] by creating a pipeline of strong, future employees with relevant skills and, most importantly, by having a country that actually works.’

The private sector is already significantly involved in enterprise development – for instance Old Mutual (Masisizane Fund), Anglo American (Zimele Fund and – in partnership with Transnet – Godisa Fund), as well as initiatives by Eskom, Sanlam, Pick n Pay and many more.

September 2016 saw the launch of the SA SME Fund as part of the CEO Initiative. More than 70% of the Top 40 JSE companies (as well as other listed and unlisted companies) announced they would contribute R1.5 billion to the fund. Government pledged to match the amount but National Treasury has since withdrawn the offer.

By mid-2017, the SA SME Fund was about to accredit fund managers and disburse the first funds. The focus is on high-potential SMEs that are already profitable and have the ability to scale, rather than on start-ups.

With the right strategy, corporates are set to benefit from their enterprise and supplier development efforts as they generate a return on investment and create shared value by growing the number of empowered SMEs within their supply chain.

However, it’s a long road from incubation and start-up to running a successful SME and, where possible, becoming a supplier in a retail or manufacturing supply chain. Each entrepreneur ideally requires personalised support and mentorship on this journey, depending on the specific business and size, their industry and developmental stage.

A common challenge is access to finance. The SA SME Fund has, for example, identified an early-stage funding gap, which is a result of the ‘strong risk aversion’ of traditional market players to finance SMEs in the scale-up phase. Working capital constraints are also a challenge for SMEs across all sizes and sectors – often a result of late payments.

Other areas in which SMEs require support include business skills training, access to market and compliance with legislation. A frequently lamented problem is red tape from government.

South African Breweries (SAB) intends to address those challenges through a holistic package of entrepreneurship support that will develop small businesses from ideation to growth, transforming the supply chain, as well as investing in the potential of entrepreneurs in the broader community. ‘From rural entrepreneurs to big business, SAB has laid the foundation to create a total of 10 000 jobs in South Africa by 2021 using its entrepreneurship programmes – SAB KickStart, SAB Foundation, SAB Thrive and SAB Accelerator, as well as its agriculture programmes to grow emerging farmers,’ it says. SAB KickStart focuses on youth and has invested around R100 million since 1995, supporting more than 24 500 entrepreneurs and creating nearly 3 500 youth-owned businesses, which have each created an average of 6.7 jobs.

‘Many banks won’t take the risk but we believe our programme creates future business leaders,’ says Nirishi Trikamjee, corporate affairs director of SAB. ‘The comprehensive support has ensured the survival of many start-ups that ordinarily have short lifespans. According to an independent study done in 2013, at least 84% of all participating businesses were still in operation after three years.’

Allon Raiz, CEO of business incubator Raizcorp, which supports more than 500 businesses, argues that failure and success are both just a point in time. Like Omar, he encourages entrepreneurs to be motivated by value creation rather than money.

‘I believe all sectors and industries provide an opportunity for growth, provided you find a value proposition that differentiates your product in the market, and you provide a product or service that people are prepared to pay for,’ he says.

Raiz advises that business owners not panic but rather focus on what they can control and where they can add value. His recent tweet on keeping an open mind applies not only to entrepreneurs: ‘Start your sentence with “yes”. Then work out the “how”. Too many of us start our sentences with the opportunity-ending word “no”.’ 

By Silke Colquhoun
Image: Gareth van Nelson/HMimages