Only 15% of South African start-ups are successful, despite South Africa having the 2nd highest ranking on the continent according to the 2018 Global Entrepreneurship Index.
The reasons for this disparity, along with the state of entrepreneurship in South Africa, were discussed at an Entrepreneurship Ecosystem Forum held by the Allan Gray Orbis Foundation last week.
On the panel were Kizito Okechukwu, from Global Entrepreneurship Network (GEN) Africa, Venture Capital 4 Africa’s Thomas van Halen, and Dr Nontobeko Mabizela, Allan Gray Orbis Foundation Head of Impact Assurance.
The Entrepreneurship Ecosystem Forum creates a platform for strategic engagement between role players involved in entrepreneurial development. The engagements aim to facilitate the sharing of experiences, successes, and lessons learned, in pursuit of accelerating entrepreneurial development in South Africa.
Few start-ups translate into jobs
A report on the State of Entrepreneurship in South Africa, by the Gordon Institute of Business Science (GIBS) found although entrepreneurial activity is increasing, South Africa still lags behind other countries.
Mabizela says: “It appears as though our efforts and successes in the area of entrepreneurship exceed that of our peers in many instances. However our entrepreneurs seem doomed to fail. Yes, we record an impressive number of start-ups, but few of these translate into sustainable jobs.”
Discussions highlighted how there are 340 organisations providing entrepreneurial support in the country, but the entrepreneurial participation rate is still 40% lower than in comparable countries. Added to this is the challenge of building businesses that create jobs as the South African unemployment rate poses as a great challenge with unemployment at 38.3%, and youth unemployment at 27.5%.
Support is the key to success
Support for young businesses is vital to their success, as most start-ups will only start breaking even after around 19 months, according to research form Venture Capital 4 Africa.
To address this shortage, the Foundation offers support to programme participants throughout their entrepreneurial journey.
While a strong academic record is one of the selection criteria for the Foundation, they search for more intangible qualities when identifying potential high impact responsible entrepreneurs.
Last year, research into the key mindsets of an entrepreneur, commissioned by the Foundation, showed that entrepreneurs have set dimensions that characterise them. These include entrepreneurial desire, focus, confidence, diligence, innovation, leadership, motives, resilience and self-control.
In 2017, the Foundation had 43 of its Fellows who are active entrepreneurs; successfully establish 48 businesses that created 679 meaningful jobs. These businesses had a combined value of over R1.4 billion. Today, this has grown to 62 Fellow businesses run by Fellow entrepreneurs, valued at R1.6bn.
At the Forum, Van Halen shared research carried out by the organisation which indicated that start-ups who received support had a 50% higher chance of creating jobs, and these created an average of 5.8 jobs. They were also likely to create 60% more revenue and three times more likely to secure investments.
“Never in South Africa has there been such a crying need for entrepreneurs who not only succeed, but who have the ability to positively impact and transform their community. However, at the same time, it’s clear that these people are not receiving the support that would allow this to become a reality,” Mabizela adds.
Developing entrepreneurship skills
Another key challenge facing entrepreneurship in South Africa is a lack of entrepreneurial skills both at formal and informal levels. To address this skills shortage, the Foundation runs three programmes, explains Mabizela.
Through its Scholarship Programme, the Foundation offers high school scholarships to learners who are in financial need; have a curious, entrepreneurial mindset; and are high academic achievers. Fellowship recipients, known as Allan Gray Candidate Fellows, receive funding for university studies as well as access to support and development to cultivate an entrepreneurial mindset. As a follow-on programme, the Association of Allan Gray Fellows is made up of Fellows who have completed the Fellowship Programme and have either pursued further studies, entered the world of work or started a business.
“Although entrepreneurship may well be an inherent skill, it can also be taught, provided the individual receives appropriate inputs, including opportunities for collaboration, personal mastery, networking and lifelong learning,” Mabizela says.
The panel indicated that research has shown a key driver in the likelihood of a start-up’s success is the experience of the entrepreneur. This experience can be difficult to obtain, as many larger corporations show an unwillingness to work with start-ups.
The private sector is not open to working with start-up businesses, Okechukwu explains, and instead often sees them as competitors. “The mindset needs to change. We need to see that the partnership between start-ups and corporates is the future and something corporates that needs to embrace.”