While start-up entrepreneurs face key challenges, the majority are positive and are motivated to grow and develop their businesses. These are among the findings of a survey of 900 start-up entrepreneurs by Seed Academy, aimed at getting a national snapshot of start-up entrepreneurs.
Donna Rachelson, director of Seed Academy, comments: “We have trained hundreds of entrepreneurs and have picked up common problems. This national survey gives us hard evidence to help create a more sustainable and successful start-up culture in South Africa. We hope it will create impetus for industry and government to align efforts.”
According to the findings, the main problems entrepreneurs face are finding customers, raising funds, a lack of guidance and entrepreneurs’ tendency to wear too many hats. “These challenges confirm that entrepreneurial
development should be aimed at providing business education, helping to create a network, offering tangible guidance to find customers and of course, preparation to raise funds at the most appropriate time for the business,” says Rachelson.
Funding emerged as a key issue. Only a small percentage of entrepreneurs fund their businesses from the vehicles formally established to support them. This raises questions regarding the accessibility and effectiveness of funding programmes.
The SA National Development Plan aims to have 90% of new employment created by small, medium and micro enterprises (SMMEs) by 2030, so it follows that job creation should be a key outcome of entrepreneurial activity. The results indicate, however, that the number of businesses which employ five or more employees are still in the minority.
The biggest motivator to start a business is the identification of an opportunity. Only 8% of respondents started a business as a result of not finding a job, which is a leading indicator in the development of successful entrepreneurs, according to Rachelson. Most entrepreneurs work from home.
Rachelson says that if South Africa is striving to create sustainable businesses and job creation, focus needs to centre on building an integrated entrepreneurial ecosystem. This means a focus on entrepreneurial development through programmes that are based on the needs of each phase of the development of the start-up, as they vary depending on the age of the business. The emphasis is primarily on the early stage but if South Africa wants to ensure sustainable businesses, entrepreneurs need longer term support, development and funding.
In addition, female entrepreneurship needs to grow. Rachelson says that initiatives for women entrepreneurs need to be integrated, strengthened and improved. She also believes that it is important to actively promote success stories of female entrepreneurs. “Female mentors should be encouraged to support other female entrepreneurs in the specific challenges they face,” she says.
Another recommendation is to promote a culture of entrepreneurship in South Africa by acknowledging the significant role played by education in equipping entrepreneurs and developing entrepreneurial mind sets. For this reason, education should start as early as primary school. When education – at all levels – is supplemented with practical, relevant exposure to the world of entrepreneurship, a strong culture of entrepreneurship can be built.
South Africa needs to identify ways of enhancing the angel network, she adds. Initiatives could include tax incentives to angels to encourage early stage investments and the establishment of more innovative solutions such as online angel investing platforms which connect investors and entrepreneurs.
Development Finance Institutions (DFIs) play a key role in the ecosystem. Although there are a number of DFIs, they need to better market their services so entrepreneurs have clarity about requirements and can experience a streamlined process to acquire funds. They also need to develop their capacity to mentor start-up businesses and offer post investment management. “DFIs should work with the private sector by allocating funds to organisations that have the necessary experience and capacity to work with entrepreneurs,” said Rachelson. Finally, their programmes need to provide access to finance for a broad range of entrepreneurs.
The creation of innovative funding mechanisms is important. “Pension and provident funds do not currently invest in early stage businesses, as their mandates prevent this and they are not incentivised to do so,” explains Rachelson.
“They should be mandated to spend a small component (even as little as 0,5%) of their allowable 10% (under regulation 28 of the Pension Funds Act) on venture capital funds. When invested, this will create significant momentum for the entrepreneur ecosystem.”
The growth of incubators and accelerators is becoming a powerful tool for entrepreneurial development and early-stage business growth in the ecosystem. The challenge is that these businesses need seed funding themselves to get their own businesses off the ground. Additional funds need to be allocated by Government to support incubators and accelerators which should be managed on behalf of government by these entities.
It is key that the incubators and accelerators be measured based on their success and performance as to the management of funds.
The start-up survey revealed the following findings:
* 42% of start-up entrepreneurs are very optimistic about their business outlook for the next 12 months and 29% said they were somewhat optimistic.
* Only 35% of respondents were female in a male dominated start-up culture.
* Respondents were primarily aged 25 – 44 (71%).
* Most entrepreneurs have both tertiary education and work experience – 25% of entrepreneurs have a post-matric diploma, 30% have a university degree and 35% have more than 10 years of work experience.
* The most needed areas of support are financial (41%), marketing (25%) and business planning (25%).
* 70% say they require funding to grow their businesses – 83% of start-ups are self-funded; and only 3% fund their businesses from the vehicles formally established to support them.
* Start-up entrepreneurs are employing people. Although 25% have no employees, 22% have one; 21% have two; 19% have three to four; 8% have five to 10; and 5% employ more than 10 people.