OPINION: Why is there such a spectacular failure rate in the SMME sector?
CREAMER MEDIA / / 10 APRIL 2018 - 11:30 / EUSTACE MASHIMBYE
JOHANNESBURG - According to figures cited by Minister Lindiwe Zulu when the Department of Small Business Development was created in 2014, only 37% of SMMEs survive to their fourth year.
By the 10-year mark, only 9percent are still hanging in there. A shocking 70 to 80percent of them never make it to celebrate one year in business.
Eustace Mashimbye is the chief executive of Proudly SA.
For a sector often lauded as being the engine for growth in our economy and for being a major creator of jobs, the entrepreneurial sector has a spectacular failure rate.
There are many studies, talks, and self-help books on why businesses fail, the two key contributing factors to which are access to funding and access to markets.
But it is the latter, and not financing, which is the main determinant of the success or failure of a small to medium-sized enterprise.
Access to market is itself a complex issue. There are many factors that prevent successful penetration into the broader supply chain by small businesses, many of which operate from our townships.
Overall, the kasi economy is worth billions of rand, but taken on a case-by-case basis, many companies that contribute to that turnover never grow or move up and out.
So what prevents these businesses gaining access to the mainstream economy? One problem is creating too niche a product.
They say necessity is the mother of invention, and townships are the masters of creating innovative solutions to very local problems, but with responses that might not translate into a commercially viable idea, it therefore pays to think beyond your immediate community needs.
Then there’s infrastructure challenges in the places where many small businesses are located - how to transport products in and out, to expand premises and establish a secure and safe operating environment.
Infrastructure challenges include, of course, the provision of essential services, such as reliable water and electricity supplies, which is not always the case in some locations.
In addition, where there are high levels of poverty, there is bound to be lower demand than in more affluent areas, and so building a market for a product or service can be long and arduous if there are few people that know about you and fewer that can afford to buy what you are selling.
And then there’s compliance with all the legislation that governs business. Tax compliance, SABS approvals, health and safety certification, operating licences all this can be overwhelming for any new business.
To address these challenges, there are a number of programmes that have been established to assist SMMEs stand a better chance in securing more business and diversity of clients. These include the Gauteng government’s Qondis’Ishishini Lakho programme in collaboration with the Gauteng Enterprise Propeller, with a mobile unit operating in the townships assisting literally in straightening out small businesses.
Only this week, the Department of Trade and Industry’s entity, Invest SA, is launching its own One Stop Shop which will be able to assist SMMEs in this regard.
Business incubation programmes are also essential in the education and training of entrepreneurs and in his February Budget speech, then-finance minister Malusi Gigaba announced that R1billion would be allocated to public and private sector incubators.
Once entrepreneurs come through these various incubation programmes, capacitated and ready to do business, they nevertheless still need assistance with accessing markets, and this is where Proudly South African helps its members.
Outside of our consumer targeted activities, we focus on sector specific trade shows and exhibitions, and are able to offer relevant member businesses space at these events at no additional cost.
At our own recent Buy Local Summit & Expo, more than 200 members exhibited and were identified through a business match-making service by procurement managers who set up scheduled meetings in their quest to find new, local suppliers.
In addition, around 2000 conference delegates passed through the Expo, looking for new business contacts. We are still getting feedback on the value of the deals done, and there are still many in the pipeline, but this exposure was of incalculable value to our members.
Our online database of local products, quality assured and vetted by Proudly SA, is another market platform for members, and we have positioned it well to be the preferred source for companies looking to procure locally manufactured and produced goods and services.
Proudly South African also plays its part to help entrepreneurs become viable and flourishing businesses by rolling out provincial road shows around the country and running our own One Stop Shop for SMMEs at some of these events. At our summit we had 14 entities on site to offer practical assistance to delegates who needed it.
All our member companies are compliant in their respective business sectors and this qualifies them to pitch for government tenders should they wish.
Proudly SA’s tender monitoring system opens up the government market to all our companies and gives them first-hand access to opportunities as they arise through our tender and RFQ tracking process.
So, my song for the week is Ishmael’s Avulekile Amasango - loosely translated as “The gates are now wide open” - and we sincerely hope that Proudly SA member companies can confidently proclaim that due in no small measure to our efforts to give them access to many different markets, the gates to business have been thrown open to them.
Eustace Mashimbye is the chief executive of Proudly South African.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER