According to the Global Entrepreneurship Monitor, only 31% of South Africans believe they have the knowledge and skills to start a business. How important is education in driving entrepreneurship?
It’s critical. I believe a three-pronged approach is needed: re-educating current entrepreneurs who have owned their own businesses for two to three years and need to move to the next level by doing things like creating a marketing department, sorting out operations and putting more sophisticated budgeting processes in place; reaching the youth in general, and unemployed black graduates in particular; and fostering entrepreneurship within the universities in departments such as engineering, architecture and law to make students aware of the possibilities open to them – it’s an initiative that has worked really well at institutions like Stanford and Massachusetts Institute of Technology (MIT).
What are the biggest shortcomings in secondary and tertiary education in this country when it comes to preparing people to run their own businesses?
We need to bear in mind that it’s never too early to start educating entrepreneurs. In countries such as Malaysia, it starts at primary school. We have some private schools which incorporate entrepreneurial education into the curriculum at grade 7 level with simple assignments that teach children how to think about business at a really practical level and we need more of these to be put in place.
At tertiary level, the biggest problem is gaining access to support. At MIT, entrepreneurship is encouraged through education and research, business and technology partnerships, and a community spirit that brings together academia, government, business leaders and the entrepreneurial community. This creates an entrepreneurial ecosystem, which is something that is missing in South Africa. We need to create one-stop shops where entrepreneurs can access training, mentors, research, funding and investors. Overseas, these types of ecosystems are often built around universities.
Do organisations that provide funding to develop entrepreneurial businesses really offer enough training, mentorship and support?
There is definitely room for improvement. Again, there is no support network in place. These types of organisations need to focus on creating entrepreneurial ecosystems for their specific target markets – if you need a million to start your business, you’ll go to the IDC, whereas the newly formed National Youth Development Agency (NYDA) provides funding on a much smaller scale.
How do we develop an entrepreneurial ecosystem?
Business is already required to become involved in entrepreneurial development as part of the BEE Codes. The Anglo Zimele programme is a great example of what business can do to promote entrepreneurship. It’s an investment fund which provides loan and equity finance to support start-up or expansion businesses and it looks for investment opportunities at operating divisions.
South African Breweries is another; the company makes beer but it has recognised that it does not need to own the trucks that transport it, nor the taverns that sell it. As a result SAB has enabled the development of a number of small enterprises that take care of this side of the business.
Truck drivers and tavern owners in turn support entire families. This is how ecosystems are created – by empowering suppliers. Mid-size businesses may not have the same opportunities open to them, but they need to look at outsourcing models that empower their suppliers.
How important is financial knowledge for entrepreneurs?
There is a link between financial know-how and business success, but at start-up level passion, motivation, hard work and self-reliance are equally important – it’s a lonely journey. That said, growing a business requires you to constantly refine your business model – and what is a business model if it’s not about finance?
That’s why companies with a four- to ten-year history are generally headed by people who have sound financial know-ledge and have undergone some level of training.
Banks interrogate business owners and you have to show that you are knowledgeable about money. And while newer entrepreneurs are involved in every aspect of the business, more established ones need to remain so too. You can delegate functions to accountants and bookkeepers, but you must always remain part of the financial control mechanism.
What are some of the key fundamentals of a good budgeting process?
Understand who your customers are and stay close to them. Understand your financiers and love your banker. Understand your competitors and know where your business is positioned in relation to them.
In a downturn, what’s most important is to stay afloat.
Create a budget that will enable you to survive the slump by controlling your costs and defending your revenues.
I also believe that businesses need to be careful about cutting to the bone as far as employees are concerned because you will need to be ready for the rebound, which is not that far away. Now, companies are cutting back on things like marketing, advertising and training. It’s appropriate to retrench when you are trimming costs, but remember that it’s often difficult to re-capacitate a business that has been drastically downsized. Is it not better to look at options like the three-day week?
That way, you don’t lose valuable people who you need to bring back into the business. I would advise companies to beware of jumping on the retrenching bandwagon. It can, however, provide a great opportunity to clean out the closet and get rid of underperformers.
How regularly should budgets be re-visited and what are the key indicators to focus on?
In the current circumstances, it’s best to look at the budget quarterly – check and benchmark the business’s actual performance versus the budget. Identify your biggest revenue drivers. Are your biggest cost drivers salaries, travel or entertainment? Where can you cut back?
Check your cash flow. Are you liquid? If not, stay close to your bank. What is your acid test ratio? Do you have enough short-term assets to cover your immediate liabilities without selling inventory?
The acid test ratio is a tough test that basically looks at what you can pay tomorrow, given what you have today. This is a critical consideration.
What are some of the best ways to align budgeting, sales and operations?
You have to take an integrated approach that unites vision with strategy. Once the budget is in place, look at what operations you need to achieve that budget, and then look at your marketing. It’s never easy;
vision can often run ahead of operations, or operations can become an impediment to appropriate market response.
What lies ahead for our economy?
South Africa has done very well in not being directly impacted by the global recession, but we have been affected nonetheless. I do believe, however, that we are seeing the bottom of the recession and all leading indicators are beginning to turn. The economy itself has not yet shifted, but we can expect full recovery by 2012. I would have said 2011, but the oil price remains worrying and will delay the upturn.
Where do the opportunities lie?
There are many opportunities for business in this country. Entrepreneurship represents our future beyond BEE. Where BEE was and is necessary to shock and propel our society in a specific direction, we need to start looking at what’s next. The momentum has been created and many sustainable black-owned businesses have been developed. We now need to take what we have learnt and get people to move into sectors that do not require a lot of capital, such as retail and catering, for example.
Fortunately, South Africans are entrepreneurial by nature. It goes back to where our society comes from, which is a culture of self-reliance. That’s why South Africans succeed abroad – we have grit.