South Africa’s entrepreneurs not thriving - entrepreneurship survey
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.