What is driving SA’s drastic decrease in entrepreneurial activity?

Entrepreneurial intentions among South Africans has dropped by almost 30% in 2015 when compared to 2013, and almost halved when compared to 2010, yet the perceived entrepreneurial opportunities has increased over the same period, according to the recently release Global Entrepreneurship Monitor South African Report 2015/16.

According to Kobus Engelbrecht, spokesperson for the Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS – SA’s leading entrepreneurial platform, there are many aspects at play when analysing these figures. 

The report shows that the perceptions about entrepreneurship in South Africa has increased since 2009, with 40.9% of South African adults in 2015 perceiving good entrepreneurial opportunities (up from 37.8% and 25.4% in 2013 and 2009 respectively). Perceived entrepreneurial capabilities – those South Africans that believe they have the necessary skills, knowledge and experience to start a business – also increased to 45.4%, up from 42.7% in 2013 and 35.5% in 2009.

“Despite these positive indicators, these figures haven’t translated into higher entrepreneurial intention figures, which sharply declined from 19.6% in 2010 to just 10.9% in 2015. This ultimately means that 1 in 10 South African adults currently have entrepreneurial intentions.”

So what has changed in the past five years, since 2010, for South Africa to reach such entrepreneurial lows? Engelbrecht says the declining economy has played a role. The local economy has slowed its growth from 3.1% in 2010 to 1.3% in 2015, and recent reports suggest the economy will only grow by 0.4% in 2016. The prolonged fear of a ratings downgrade has also a negative impact on the economy.

“The 2010 FIFA World Cup, and the build-up to the event, created many business opportunities for both existing and aspiring entrepreneurs to capitalise on, from tourism to infrastructure development, thus stimulating entrepreneurial activity in the country. The ensuing years have failed to present a similar excitement around entrepreneurship despite public and private initiatives to support entrepreneurs, including black economic empowerment policies and enterprise development programmes,” adds Engelbrecht.

He adds: “While the 2010 FIFA World Cup may have cushioned the country against the 2008 global financial crisis, the effects post the financial crisis continue to cast an economic shadow. Banks and other financiers have seemingly become more cautious in their approval processes thus making access to business finance more difficult for aspiring entrepreneurs. However, the long-term effects created by the restructuring of institutions to stimulate youth entrepreneurial activity – such as the Umsobomvu Youth Fund which had been established to finance young entrepreneurs – cannot be underestimated.”

But Engelbrecht stresses that despite this sluggish growth, entrepreneurship should be promoted as an answer to revive the country’s current flagging economy.

Engelbrecht points to a case study in Brazil – an efficiency-driven economy, like South Africa, which was also measured in the report. “Despite entering a recession in 2015, Brazil implemented a small business tax bill called Simples Nacional which offered select small and micro firms a reduced tax rate, and under this bill, tax collected increased by almost 7% year-on-year in the first half of 2015. During the same period, the number of business registrations in the country also increased by 5% year-on-year. These small and micro businesses also created an additional 116 500 jobs between January and May in 2015, despite the economy shrinking during the same period.”

He continues, “Entrepreneurs and small business are widely recognised and praised for their contribution to the local economy and the country’s job creation, yet we aren’t fully supporting these individuals enough to truly maximise their potential.”

Engelbrecht points to the report again which states that the three main constraints limiting entrepreneurial activity is Government policy (61%), access to finance (44%), and education and training (42%). “South Africa’s established business rate is also lower than the average for efficiency-driven economics, which, at 8%, is more than double South Africa’s rate of 3.4%. The country also has the lowest established business rate of all economies that participated in GEM 2014, and was ranked 53 out of 60 economies.”

In terms of policy, he says that it is encouraging that the South African Government has set aside 30% of its procurement spend for SMEs. He adds that this, coupled with the introduction of a central procurement database and eTender system by the National Treasury, if implemented without any undue influence, should serve to stimulate entrepreneurship as it did in the Republic of South Korea (ROK). In the ROK, the government introduced an award-winning e-procurement portal which made government procurement more transparent and led to an increase in contracts awarded to SMEs from 55% to 75% between 2003 and 2012. This system has also reduced the time it takes to pay suppliers from 14 days to 4 hours which goes a long way in boosting the sustainability of SMEs. 

Engelbrecht says, “The public and private sectors need to pull together to improve our entrepreneurial ecosystem and ensure that the required support such as business advice, mentorship and access to finance is available to all entrepreneurs. We also need to make entrepreneurship part of the South African culture, and find ways of sharing knowledge between South African and immigrant entrepreneurs.

“These changes coupled with improvements in entrepreneurship education at school and a renewed commitment to review and eliminate policies that negatively impact entrepreneurs, will ensure that South Africa’s entrepreneurial activity begins an upward trajectory,” concludes Engelbrecht.

Ten ways to hook investors onto your big idea

A great many excellent business ideas never get past the spreadsheet stage and into the real world simply because entrepreneurs fail to connect to the people with enough money and risk appetite to help them implement them.

Finding the right investors and pitching your idea effectively is a business skill that can be worked on, says David Morobe, BUSINESS/PARTNERS regional general manager. He offers the following ten tips to get you started:

  1. Get yourself connected and network. Investors are out there, and they are usually only one or two people away from those with whom you do business with anyway. Your accountant or suppliers, for example, can put you in touch with potential investors, or at least someone who knows a potential investor. Emphasize the “work” in “network” – investigate and ask for referrals.
  2. Prepare and sharpen a concise story around your idea that contains no waffle, but only the essential elements that will interest an investor – marketability, sustainability and your own passion for the project. Your value proposition should come through succinctly – what are you offering to whom, and why will they be prepared to buy it.
  3. Make sure that you know all the aspects of your idea, its market and industry. Investors want to know that you are experienced in the industry in which you want them to invest their money. Therefore, the more you have worked on your plan, even to the point of taking your idea to the market on a small scale, the better.
  4. Have a detailed business plan ready. Not only will it help to give you the knowledge mentioned in the previous point, but the fact that you will immediately be able to send or present your plan if someone wants to have a closer look will help to convince potential investors of your readiness. Besides, knowing that you can back up your pitch with a plan will give you confidence.
  5. It helps if your plan has a powerful executive summary, the written equivalent of your verbal pitch mentioned in point 2. It must encapsulate your business plan precisely, without waffle or exaggeration. Chances are that the investors whom you will be targeting have seen many business plans in their lives, and they will not bother to read further if the executive summary does not whet their appetite.
  6. Be prepared for a face-to-face presentation, more detailed than the one in point 2, for when an investor calls you in for a follow-up meeting.
  7. It is almost guaranteed nowadays that an investor who becomes interested in your idea will check up on you on the internet. It helps to have a good website around your idea and a strong presence on social media in which your successes are highlighted, not only in your current business but in previous ventures and jobs. Most astute investors investigate the strength of both the business idea and the prowess of the entrepreneur.
  8. Once you’ve made contact with a potential investor, stay in touch, even if it is just by asking for advice, for example on how an investment of the kind you are looking for can best be structured.
  9. Be open to feedback from potential investors, who would want to see that you are open-minded and adaptable. Besides, chances are that the investors you are pitching to are experienced business people themselves, and can enhance your ideas with their advice whether they decide to invest in your idea or not.
  10. Have a realistic exit strategy for the investor, who unlike you does not necessarily want to remain in the business in the long term. The investor’s thinking is likely to be: “How do I make the best return possible on this investment?” The time frames that most investors work with are between three and seven years.

Your business is your economy

When I looked at the typical “hassle map” of a business owner, it dawned on me that we tend to focus on the things that we cannot control or have little control over.

Here is a list of things we do have control over:

  • My attitude: Do I see the proverbial glass as half full or half empty? This is a purposeful choice I can make.
  • To keep my promises: delivering on my value proposition.
  • My business expenses: Do I have a 12-18 month cash flow forecast which will highlight times of sales abundance or shortfall?
  • Contracting with my suppliers (credit terms) and clients (payment terms if credit is granted).
  • Do I actively manage my creditworthiness and that of my business? A sterling credit record comes into play when the going gets tough, as will happen from time to time.
  • I appoint people to fulfil a specific role in my business. Are their responsibilities clearly defined and contracted? People sometimes do what you ask them to do – but they mostly do what you pay them to do.
  • Marketing of my business: I can decide which marketing mix works best for my business and how much I want to spend on promoting my business and product/service offer.
  • The sales process is 100% under my control. I can decide to whom I want to sell something and how much I am willing to spend on my sales capacity. I can calculate how many sales I need per year, month and day to meet my sales objectives.
  • Asking for referrals from satisfied clients.
  • Service delivery (pre- and post-sales) and meeting of client expectations.
  • My own and my staff’s professional conduct.

Here are a couple of things we have limited or no control over:

  • Government policies, legislation and requirements: It is best to comply with these.
  • Tax: Pay what is due and continue with your life!
  • Exchange rates: Take note and adjust your finances, costing and pricing as required.
  • Competitors: Keep close tabs on your competitors’s activities (use their website, advertising, PR and mystery shopping as sources of information).
  • Interest rate: Ensure the best possible credit rating for negotiating leverage with financiers.

In the end we should all “mind our business”, single-mindedly focus on our business targets and apply daily deliberate actions that will deliver results.

To support business owners with the important task of business planning, Sanlam gives you free access to the book Your Annual Business Game Plan for Success, which provides an easy and straightforward framework needed to draft a well-crafted game plan that will create the positive change and growth necessary for business success. Go to www.sanlam.co.za/gameplan to download your free copy

When entrepreneurship runs in the genes

With a family history of entrepreneurship running through his veins, it is no wonder that 24-year-old Taahir Isaacs is taking his own company to new heights, and aims to create job opportunities for more and more South Africans. Today, Isaacs’ group of companies – the Breadcumb Group – consists of: Breadcrumb Tech, Made in Salt River, Basic® and Breadcrumb Investments, with a further brand, Capsule, on the horizon.

Having dropped out of high school and completing a course in Business Administration from False Bay College, the Athlone-born Isaacs, now CEO of Breadcrumb Group, started a ‘one-man’ web design and development company from his bedroom in 2014. With just R100 to his name and an out-dated laptop, he taught himself everything he needed to know about website coding and design. After a short time working for a digital agency to gain some experience in the field, Isaacs realised that there was no time like the present to take after his father and grandfather – both entrepreneurs – and start his own venture.

Isaacs left the agency and rented a small studio space in Woodstock from which to work. His life savings, which amounted to only two months’ cash flow, were all he had to start Breadcrumb Tech. Five days into the new business, Isaacs secured his first London-based client on a one-year contract – boosting his confidence in his ability and business’ potential. After two months, Isaacs had employed his first full-time staff member and landed a further four clients.

With Breadcrumb Tech successfully earning profits, Isaacs re-invested these to start a new company in garment-manufacturing, called Made-in-Salt-River. The textile company provides a CMT (cut, make and trim) service to local fashion designers. Naturally, with a successful, local textile company in the group, adding his own fashion label, Basic® was an obvious progression.
With the future in mind, and an ever-increasing passion for developing a culture of entrepreneurship in South Africa, Isaacs started Breadcrumb Investments – to trade equities and forex and offer other aspiring entrepreneurs financial assistance.

Isaacs puts his success down to a mixture of his management style and the hard work of his team. “I try to inspire the people who work with me by actively pushing my own limits,” says Isaacs. “I am always looking for opportunities in growth markets, creating businesses out of services that would initially be rendered to our businesses and taking maximum risk.”
Isaacs notes his greatest achievement so far as simply being successful and having the business grow to its current size after such a short time-span, adding that overcoming his greatest fear – money – was a leading contributing factor to his success. He stresses the importance of doing one’s own accounting and keeping a tight hand on your own books, before employing the skills of an accountant in the business: “Do your own accounting. Watch everything. Be frugal in the way that you spend your money, so that when you do hire an accountant you understand all the processes.”

Isaacs has big goals for his business and believes that with hard work, he will attain these in no time.
This Youth Month, Isaacs urges other like-minded young entrepreneurs to take risks. “Put yourself on the line and be courageous. But, always try to remain analytical and picky about the direction in which you foresee your business heading.”

How business owners can drive SA’s youth entrepreneurship levels

The 2015/2016 Global Entrepreneurship Monitor (GEM) report for South Africa shows an upsettingly low entrepreneurial involvement level among 18-to-24-year-olds, when compared to the average figure for Africa in the same age group. This is particularly alarming when considering the majority of South African school-leavers do not enter into tertiary education and therefore enter the work force during this period of their life .

With an unemployment rate that has just reached a 10-year high – at a time when almost half the population is under 25 – this low prevalence of youth entrepreneurial activity represents a gross waste of human resources and will most certainly have a negative impact on the country’s future growth prospects. Furthermore, the social implications of long-term unemployment among the youth is significant and could potentially lead to an increased incidence of crime and political disruption.

While the challenge of unemployment among the South African youth is a complex issue, to which there is no one simple solution, increasing the involvement of young individuals in business could contribute to the development of entrepreneurial skills and allow young people an opportunity to participate in the economy in a meaningful way. Whether or not they decide to pursue entrepreneurship in the long run, the experience will also help in developing non-cognitive skills, such as opportunity recognition, innovation and critical thinking.

Here are three simple ways that business owners can help to drive youth entrepreneurship levels:

1. Create an enterprise culture that encourages entrepreneurial activity

In order to encourage entrepreneurial behaviour amongst the youth, South African business owners need to develop and encourage an enterprise culture that positively promotes entrepreneurship. Whether this is done by way of public addresses and seminars, or simply writing a monthly newsletter or blog, business owners should proactively share their entrepreneurial stories and encourage the cultural traits that foster entrepreneurship. These include the notion of acknowledging failure as an opportunity to learn and encouraging creativity and innovation.

2. Become a mentor

This can be done through a formally implemented internal mentorship programme or a more casual invitation to job-shadow for the day and experience the working environment. Either way, allowing a young person to experience the dignity of working, contributing and developing skills may give them the motivation necessary to start a business in the future. In return, a business owner will benefit from the talents, energy and ideas that young people generally bring to the labour force and may even learn something themselves.

3. Open up access to business facilities

One of the easiest and most beneficial ways that business owners can support young and budding entrepreneurs is by allowing them use of their office’s infrastructure, whether this be a desk to work at, access to electronic equipment after hours or use of a boardroom to present ideas to potential investors. While not requiring any effort or time on the part of the business owner, like a mentorship programme would, this inclusive initiative will still allow young people the opportunity to observe a thriving business environment and may spark an idea or passion to create something similar for themselves.

While entrepreneurship is not the sole solution to South Africa’s problem of youth unemployment, it can contribute in unleashing the economic potential of the country’s youth and improve their economic independence, possibly providing an avenue to new job opportunities and career growth.