Why do most entrepreneurs fold in the first few years?
The primary reason why businesses fail is because of a lack of Business Know-How, the inability of having the skills to run and effectively manage the business. Ironically, they don’t fail because of technical reasons – e.g. a plumber is excellent at their skill or trade, the problem comes in running the business. They have to be the Financial Director, HR Director, Quality Director and Marketing Director of their businesses. So, it is the skills to run and manage a business that comes short.
It has been said there is not enough of an entrepreneurial culture in SA, is this a fair judgement?
With the government’s primary objective to create 5 million jobs by 2020, SMEs and Entrepreneurship have been identified as the ideal job creators in the economy.
Historically, going into business has generally not been as a matter of choice, it was rather as a matter of consequences. Hence, we have seen what we term “reluctant entrepreneurs”. In the US, up to 50% of all the people that work would have started a business sometime in their career. Also entrepreneurship has not been promoted as a career choice even at school level – the recipe has been you go and find a job, instead of creating one. It needs to be part of the curriculum – we also need to crucially improve the maths literacy rate in the country, currently we now have the lowest maths literacy rate on the continent. This doesn’t bode well for the creation of businesses.
What, in your opinion, is a major hindrance to entrepreneurs getting assistance from financial institutions?
The majority of loan applications we receive are of a low standard, they are generic and do not display any form of innovation or differentiation. All businesses that exist effectively need to address a problem or a gap in the market. What may have worked previously may not necessarily mean it will work in future. A business that does not have a client or customers (access to markets) is not a business at all irrespective of how much funding it has (capitalised). So, the first hindrance is the quality or fundamentals of the business idea or concept.
Secondly, as a rule “Profit is the Reward for Risk” – you have to have something to lose so that the funders get comfort that there is a vested interest from the entrepreneur. The challenge then becomes what/how much that contribution becomes.
It would seem these businesses are doomed to fail before they have even started operating, how can it be rectified?
One of my favourite quotes is that “Money never starts an idea: it is the idea that starts the money” by Brahma Kumaris. In every crisis, there is opportunity - Most entrepreneurial ventures come from solving a problem. If you are faced with a problem, craft a solution and sell that solution to others.
South Africa has the lowest math literacy rate on the continent and if you can’t do arithmetic, how will you run a business in a knowledge economy? Financial literacy among South Africans is also very low. We need to look at the source of the problem and fix it. We cannot undermine the role of education.
Are there best successful examples that we as a country could learn from?
The best time to plant a tree was 20 years ago. The second best time is now. Aside from 20 years ago, the best time to start a business is now. The educations system is critical and has a direct impact on the quality of entrepreneurs the country produces. There is a positive correlation between the quality of a country’s education system and its prosperity.
Is there’s enough funding available for start-ups?
Ironically, there is no shortage of money/business funding in SA – there is a ‘tsunami’ of funding out there!! No one has ever been turned away because there is no money in the ‘vault’. You have the commercial banks, the national Developmental Agencies (NEF, IDC, Khula), the Provincial Agencies (GEP, ECDC, Ithala, Limdev, MEGA to name a few). In my view – funding is not the problem, it is the opportunities and the people (jockeys) identifying and driving those opportunities.
Do you believe development agencies are fulfilling their mandate?
There is generally confusion or lack of clarity about what developmental agencies should be doing – they are essentially addressing a market failure or gap but are however starting to look like banks with their lending criteria and requirements. It is also a mystery as to how their performance is evaluated or measured.
What would your advice be to aspiring entrepreneurs?
Most entrepreneurial ventures come from solving a problem. If you are faced with a problem, craft a solution and sell that solution to others. Offer something of value and you will be relevant. Be different and adjust to the changing market in order to stay in business; capitalise on what your competitors are not doing to win the market. You can either beat your competitors by service or an interpersonal approach that you give to customers and by so doing, they will always come back to you.
How are you at ABSA working to assist entrepreneurs?
ABSA has created a unit called Enterprise Development. This unit is dedicated to promoting and developing entrepreneurship. This is done through 3 key areas of focus by providing:-
· Access to Market – Procurement Portal, linking SME suppliers to Corporate Buyers
· Access to Funding – Providing Non-traditional lending solutions, such as Procurement Finance
· Access to Business Support – Enterprise Development Centres to provide Business Skills and advisory services
We have realised that we cannot be a ‘spectator’ anymore and have decided to be part of solutions by creating an ‘enabling environment’ for entrepreneurs. We go “Beyond Banking” to deliver market solutions that will assist to develop SMEs and ultimately assist to contribute towards job creation.