Overcoming the Challenges to Entrepreneurial Funding in SA

The truth is that within South Africa level of entrepreneurial activity needs to increase if we are going to avoid JOBLESS GROWTH in the current economic boom. As I interact with entrepreneurs and SMEs on a daily basis, the complaint I hear more than any other is "I can't seem to get any outside funding for my business therefore the growth of my business is restrained".

The development of efficient markets for funding entrepreneurs in SA is critically important. The development of entrepreneurial financing markets will require a concerted effort on the part of all contributors to the market: capital providers, entrepreneurs and government.

Check out a piece that I wrote on this topic for the GIBS website :
http://www.gibs.co.za/home.asp?pid=2166

You can also download the podcast relating to this topic from the same link.
I would love to hear your comments!!!!

To Be or Not To Be: More Entrepreneurial as a Nation (South Africa)

The latest Global Entrepreneurship Monitor (GEM) data shows that SA’s entrepreneurship ranking has dropped to 30th position (out of 42 countries) from 25th position (out of 35 countries) in 2005 from 20th (out of 34 countries) in 2004.

South Africa’s Total Early-stage Activity (TEA) was only 5.2 percent in 2006, compared with over 15% in countries such as New Zealand, Thailand and Venezuela

Why?

When I asked an MBA class to discuss and debate the reasons for this low level of entrepreneurial activity in SA, these were some of the themes that emerged:

Regulatory
Red Tape
The regulation and legislation in SA are impediments to the development of new business:
· Labour legislation makes it risky and difficult for new businesses to hire (and fire employees)
· Tax rates are high for a developing economy making it expensive to do business in SA.
The administration that for the registration and legalization of new businesses makes it a slow and painful process. There are many forms to be filled in, they take time to be processed and thus many entrepreneurs are put off or crippled by the bureaucracy.

BEE and Employment Equity
There are DIFFERING views on the impact of BEE and employment equity on entrepreneurship. Some people argue that the educated black business people are being trapped in high paying corporate jobs instead of looking for and going after entrepreneurial opportunities. The big monthly pay check for black professionals working in corporate is acting as an barrier to entrepreneurial activity. It is also argued that black professional setting up new BEE companies are just looking for deals instead of actually looking to build sustainable businesses that actually create and deliver valuable goods or services.

The opposing view is that employment equity legislation gives previously disadvantaged individuals the opportunity to gain skills in corporate jobs that they can ultimately use in starting new businesses and the BEE legislation creates good opportunities for black owned start ups to win contracts and get businesses. So there are two sides to the argument and the first argument (BEE and EE as having a negative impact) has more effect in the short term where as the second argument (the positive effect of BEE and EE) will more likely play out in the longer term.

Policy
There is no coherent policy for enterprise development and industry creation in SA. There are no real clusters of excellence in SA and where there is an attempt to develop such clusters, the incentives and opportunities are focused on big business (e.g. Coega amd the Motor Industry Development)

Funding
Venture Capital
There is no venture capital industry in South Africa to support and finance the development of new, high growth businesses. Government is trying to develop mechanisms to fund new businesses but government is less efficient than a market driven venture capital sector.
Entrepreneurial businesses in the USA and Israel are funded largely by a very vibrant and active venture capital industry. This has a major impact on high growth businesses with global appeal and these are the types of businesses that impact a countries competitiveness.

Education and Skills
There is a major concern that skilled people are leaving this country in droves. Some students argue that this is more of a “brain exchange” rather than a “brain drain” as South Africa is attracting skilled professionals from north of our boarders in Africa (Zimbabwe; Nigeria; Kenya)

There is view that many sectors of South African society are brough up with the cultural mindset of “go to school, get some tertiary education, get a job”. Children are brought up to believe that the ultimate is to have a job rather than create jobs. This is particularly pertinent in the Black and Afrikaner communities in SA and could be influencing people’s entrepreneurial orientation.

There are many people in the country who want to start businesses but just don’t have the business skill to do so effectively. There needs to be a major skills development drive in the area of basic businesses skills if entrepreneurial activity is to be increased.

The Power of Ideas

I recently watched an interview with Bono, the lead singer of U2. During the interview he said that one of the ways of being remarkable is to conceive and sell ideas. He described compelling ideas as “currency” and said that “there is nothing as powerful as an idea whose time has come”. Great businesses have compelling ideas at their core.
Apple computers = beautiful design.
Discovery Health = reward healthy lifestyle.
Kulula.com = anyone can fly.
Nokia = reliable simplicity.

TIME magazine’s “Manager of the 20th Century”, was a master at defining and selling ideas. In my opinion the key to his leadership success was that he chose and stuck to a few big ideas in his 20 year reign as CEO of General Electric. Some of Jacks big ideas included:
‘Be one or two in your market or get out’;
‘Act as a boundaryless organisation’;
‘Drive high quality and super efficiency through six sigma’;
‘Create value through services’ and
‘Streamline operations using e-business’.
When he got stuck on an idea he was like a bulldog. He would sell, push, describe, measure and reinforce that idea at every possible opportunity. Most of his ideas lasted for at least 3 years, creating a clear set of priorities for the tens of thousands of people employed by GE at the time.

Great IDEAS are:
· Simple
· Understandable
· Translate into action

Questions to consider:
Are you selling a clearly defined idea from within your business?
Is your idea simple?
Do you have a story, analogy or metaphor around your idea?
Can your idea translate into action?
Do you stick with an idea for long enough for it to take effect and permeate the hearts and minds of your clients and employees?

Entrepreneurs who are successful over the long term are the ones who embrace, expose and give life to an idea whose time has come.

If you wish to get a deeper insight into making an idea stick – this is a BRILLIANT book (my best book of 2007 thus far).

Visit the books website:
http://www.madetostick.com/

Made to Stick related articles:
» Read the Time Magazine article.
» Read the U.S. News & World Report article.
» See the authors on The Today Show.
» Listen to the Morning Edition interview.

Top 10 Basic Business Principles

One of my favorite authors – Guy Kawaski – often shares his ideas in groups of 10: Top 10 Lies of Entrepreneurs; Top 10 Lies of Venture Capitalists. When I was recently asked to speak to a group of entrepreneurs and business owners in Soweto, I decided to try out this practice. The purpose of the presentation was to get back to the basics of business, to examine what sits at the foundation of a successful business. Here are my ideas – my Top 10 Basic Business Principles (BBP's as I call them):
1. Decide what you do (and what you don’t do)
Broaden your vision but narrow your focus - being effective in business is about knowing what you do and don’t do. Making a conscious choice in this regard can help you focus and enable you to avoid getting pulled in too many different directions. Being strategic is as much about knowing what it is that you don’t do as it is about deciding what it is that you do do.
TO DO:
Make a list of what you do do
Make a list of what you choose not to do
2. Decide who you serve (and focus on them intensely)
You can’t be everything to everyone so at least be something to someone – knowing who falls into your target market will assist you in meeting their needs. By meeting peoples needs you offer value but if you don’t know who it is that you intend to serve it becomes a lot more difficult to offer them value and you end up being useless to everybody. Be specific about your target market – age; gender; preferences; class; geographic region etc.
TO DO:
Define your target market (now) – be specific
3. Decide what makes you different (and do it)
Howard Schultz, CEO of Starbucks said “Whatever you do, don't play it safe. Don't do things the way they've always been done. Don't try to fit the system. If you do what's expected of you, you'll never accomplish more than others expect.” Being successful is about being different. There are so many offerings in the market place that if you are not clear how you are different you will just get lost in the crowd. People are attracted by difference, so stand out. One of my favorite pieces of writing focuses on the value of being different:
“Here's to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They're not fond of rules. And they have no respect for the status quo. You can praise them, disagree with them, quote them, glorify or vilify them. About the only thing you can't do is ignore them. Because they change things. They push the human race forward. While some see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.” - Apple Computer Advert, 1997.
TO DO:
Make a list of things that make your business different. Review this list – do these things truly make you stand out.
4. Manage cash flow (very closely)
Your bank balance is your truth – monitor it; know it; respond to it. To many business owners and entrepreneurs are afraid of knowing what is in the bank. By not checking on your bank balance you are not going to change it. The reason most business shut down is not because they are not making profit, but because they run out of cash. You can be making loads of profit but if you can’t pay employees and creditors you will ultimately be put out of business. Not monitoring what is in your bank account is akin to driving your dream car along a winding farm road at night with no lights on. You can see where you are going and adjust for obstacles in your path so you land up crashing and destroying your dream. Entrepreneurial happiness is a positive cash flow.
TO DO:
Check your bank balance
Build a process to monitor your bank balance daily
Put things in place to keep the bank balance positive:
o Get invoices out timeously
o Incentivise customers for early payment
o Follow up on outstanding payments weekly
o Don’t pay expenses until they are due
5. Manage employees (incentivise them for success)
Andrew Carnegie said: “Take away my people, but leave my factories, and soon grass will grow on the factory floors. Take away my factories, but leave my people, and soon we will have a new and better factory.” Without able and willing employees your business can’t grow. Employees offer you the largest amount of leverage for creating success in your business. Focus on them intently, understand their values and what drives them, invest in their development and care for them intensely and over the long term, when all is added up you will be handsomely rewarded. Employees are what really make a business; an entrepreneur just creates an environment in which they can flourish.
TO DO:
Plan a one-on-one discussion with employees. Find out their perceptions; show them you care, tape into their source of motivation.
6. Manage customer expectations (under promise and over deliver)
The most powerful marketing tool for any business is “word of mouth”. If you promise and don’t deliver. Word of mouth turns into a negative spiral. If you are conservative in terms of what you promise and then surprise customers they talk about it. Make customers talk about your business for the right reasons.
TO DO:
Think before you promise
Keep a promises made list with dates – try deliver well before each date.
7. Set goals (and go after them)
“The future you see is the future you get.” - Robert G Allen. The power of commiting yourself to something will pull you and your people in a direction. If you commit to nothing you will go nowhere but if you commit to something challenging but attainable it will mobilize you and your team to achieve great things. Write your goals down and share them with others, with passion.
TO DO:
Write down you business goals for the next:
o 30 days
o 1 year
o 3 years
Put the company goals up in place where people can see them.
8. Expose yourself (tell the market what you do)
Get out there and make the services of your business known. Create a website; exhibit at a trade show; sponsor a local sports team; write an article for the press; send out an email news letter – do what ever it takes to get people to associate your company with your product or service. This need not be expensive if you work hard and be clever.
TO DO:
Plan a different promotional activity each week for the next 5 weeks.
9. Persevere (through the tough times)
“There is a very, very, very fine line between success and failure …. it is about being constantly hammered and coming back from the hard times and low moments.” - Robbie Brozin, Nandos. Successful business people are defined not by how they react when things go well, but rather how they react when things go badly. Great businesses are built in the tough times and low moments when the business manager buckles down and decides to do what needs to be done to get through. All businesses go through tough times but the good ones persevere through them to come out the other side and enjoy the success that follows.
TO DO:
Think about what could go wrong in your business in the next 12 months. Decide now how you will react if and when this happens.
10. Always maintain your integrity (in everything you do)
This is the glue of a successful business and a successful business person. Integrity builds trust and trust is the foundation of any successful enterprise – trust with employees, customers, suppliers and shareholders. Do what ever it takes to maintain trust and operate according to a set of values that have a moral grounding.
TO DO:
Look at yourself in the mirror and ask: “Is everything I do ethical and right - would I be willing to share all my business dealings with my mom?”