The BIG reason why startups with business support do better than those without
Support for entrepreneurs is an imperative especially with SA's low success rates, writes Seapei Mafoyane
Founder and Chief Executive Officer of the Discovery Group, Adrian Gore once said,"becoming an entrepreneur is like jumping out of an airplane with silk worms instead of a parachute and hoping that they are over-achievers!"
The words shared by this remarkable business man, highlight the importance of adequate support and having the necessary resources to flourish.
Common sense will ensure that you never attempt a feat as courageous as jumping out of an aeroplane without a parachute, yet many entrepreneurs venture into the unknown with only a hope to succeed. Business support is to an entrepreneur what a parachute is to a sky diver and without these two vital tools; both entrepreneur and skydiver will most likely be met by an untimely demise.
Business support has a wide definition as it means different things in different business spheres. This essential tool can be broadly defined as any function that imparts knowledge or resources to a business for its development, survival and success.
Business support can commonly be found in, but is not limited to the following segments; broad financial support and non-financial support-in the form of mentorship, access to markets, access to networks and skills. It is an imperative, especially in a country whose entrepreneurial success rate ranks as one of the lowest on the continent.
"The incubation process improves the survival rate of startup companies by assisting them to become financially viable"
Entrepreneurship can be lonely and SME’s can derive incredible benefits from accessing the business support tools and skills required for their business to grow. Statistics reveal that 80% of start-ups in SA fail within the first three years of operation and this can largely be attributed to the lack of support.
Different businesses have different business support requirements. However, there are certain aspects of the business that present the most common challenges, these are:
Lack of access to markets: the inability to access potential markets can present a debilitating barrier to small and medium businesses. . There is enough scope in South Africa to make local procurement of goods and services feasible and both government and Corporate South Africa have an important part to play in enabling access to the vast opportunities available through their supply chains.
Lack of access to finance: the financial needs of any enterprise are often linked to its size as well as its it’s stage of development and the inability to access the right type of business finance is one of the biggest challenges SME’s face. For most small and medium enterprises, especially those from previously marginalised groups, the absence or limited access to collateral as well as their often negative credit records turn the task of securing finance an uphill battle.. The risk appetite framework used by most Financial institutions to govern access to Finance will therefore need to be reformed when dealing with small and medium enterprises.
Lack of access to mentoring: in the form of coaching and training.
Incubation programmes and enterprise development (ED) agencies need to create enabling environments for start-ups and SME’s. An enabling environment fosters growth and builds relationships that can benefit business owners in the long run.
According to The Gordon Institute of Business Science (GIBS) and FNB's Entrepreneurial Dialogues, State of Entrepreneurship in South Africa report, "business incubators assist emerging companies survive and grow during the start-up period, when they are most vulnerable. The incubation process improves the survival rate of start-up companies by assisting them to become financially viable, usually within two to three years."
"There is still a misguided belief that one becomes an entrepreneur after having exhausted all their options of finding "formal employment"
Business incubators and ED agencies offer start-ups support in the form of: office space, book keeping services, networking opportunities, mentorship, advice from venture capitalists and legal professionals and the opportunity to learn and share.
Business infrastructure is also often offered to SME’s. As an entrepreneur, there may be gaps in your knowledge which make it beneficial to have access to a business and or technical mentor and coach to fill the gaps and provide direction. A business mentor can provide advice on strategy, market linkages and shed light on how to make the business sustainable, which is essentially the end goal.
Entrepreneurship as a culture needs to become more entrenched in South Africa. There is still a misguided belief that one becomes an entrepreneur after having exhausted all their options of finding "formal employment". Lack of adequate knowledge also means that aspiring entrepreneurs are not exposed to the structures that are in place to foster their success.
Access to business support in South Africa is certainly not ubiquitous; however, through incubation programmes such as Shanduka Black Umbrellas and government institutions such as the Small Enterprise Development Agency,the country has experienced great activity in this space. The FNB/GIBSs report says that, "start-ups fail at a rate of about nine in ten in the first two years of operation." It goes on to say that, "within the 27 SEDA incubators (in operation), the survival rates are in the region of 84% to 97% in the first two years of operation.
Post-graduation from the incubator, the numbers come down but they are still in excess of 70%." The persisting failure rates of SME’s in the critical first three years of operation do tell us that much more can be done in this area. Business support mechanisms must be simple and accessible, even in the rural parts of the country.
About the author: Seapei Mafoyane, MBA, BSc serves is the Chief Operating Officer at Shanduka Black Umbrellas, which supports emerging black business through enterprise development.