Business hubs: finding the right fit for growth
FIN24 / 01 OCTOBER 2019 - 14.44 / AMANDA VISSER
Local business accelerators, co-creative spaces and incubator hubs, offering support for entrepreneurs and fledgling companies, have been sprouting over the past few years.
This is not only because of the realisation that small- and medium-sized enterprises (SMEs) are critical to the economy and job creation, but also because of an important change in the broad-based black economic empowerment codes. Companies can get up to 40 points on the B-BBEE scorecard if they invest in the enterprise and supplier development of qualifying small businesses.
What do business incubators offer? All businesses go through different stages – getting the idea (ideation), starting up, settling, growing, stabilising and growing further. There seems to be a support programme for every stage. However, finding the right fit is critical for success.
Many entrepreneurs find it quite daunting to embark on their business journey, because it becomes quite lonely, says Jenny Retief, CEO of the Riversands Incubation Hub.
Riversands was launched in 2015 through a private-public partnership between Century Property Developments and National Treasury’s Jobs Fund.
Established and start-up small businesses are accommodated at Riversands for a period of up to three years in subsidised premises with access to business support services. The Riversands hub offers mini-factories, workshops and offices at subsidised rates.
Another model is that of the co-creative hub, such as Jozihub, where entrepreneurs can rent a desk with connectivity, or get assistance with the organising of events, workshops, meetings or conferences. It provides a “hang-out” for like-minded people, sometimes for free, but mostly at an hourly, daily or monthly fee.
Raizcorp, founded by Allon Raiz, offers services such as access to training, financing, mentoring, markets and infrastructure and describes itself as a “prosperator” rather than an incubator. It takes a minority stake in the businesses that qualify for their support programmes, which can be up to 50%.
However, it doesn’t mean that they take over the day-to-day running of the business. They do offer backroom support that many small businesses struggle to afford when they are on their own.
Finding the right fit
In a working paper presented by experts from Fetola – an SME specialist firm – it is noted that one of the key ingredients for a robust incubator model is the selection of the right candidates.
“Successful business incubation and enterprise development is firstly dependent on the quality and commitment of the entrepreneurs themselves,” the authors say. “Successful results are, more often than not, only achievable if participants are appropriately matched to the incubation programme itself.”
Retief agrees that the “pre-selection process” is critical. Entrepreneurs must carefully consider where their businesses are, what their needs are and if they comply, or want to comply, with the rules and conditions to become part of an incubator programme.
“Being part of a high-energy community of entrepreneurs is a big reason why start-ups or early stage businesses want to move into an incubator hub. They love being around other entrepreneurs, sharing, learning and encouraging each other. It can be a very lonely journey otherwise.”
According to Fetola, the biggest challenge for business support programmes is to create a “conducive environment” for sustainable growth and the creation of lifetime jobs.
Therefore, the role of incubation is particularly important.
At Riversands entrepreneurs are allocated to a service coordinator, similar to a relationship manager at a bank. The coordinator puts them in contact with experts who can assist with financial and operational services as well as strategy and leadership guidance.
The concept is to offer the services initially for free or for a small co-payment, but eventually the company will be charged for the service. The expectation is for the business to grow in order to function without the aid of the incubator.
“Our role in creating jobs is by growing large numbers of small businesses. If these businesses, and especially black-owned businesses, grow successfully, it will make a huge difference to the inclusiveness, growth and productive capacity of our economy. That is our return on investment,” says Retief.
They require the businesses to submit monthly statistics to determine whether, as an incubator, they are achieving their goal.
Most incubators offer training and resources that would otherwise not be available to an SME. Support services can make a significant difference in an SME’s success. Many entrepreneurs tend to struggle with issues such as strategic planning, costing and pricing, sales and marketing, finance for business leaders and labour law.
However, Fetola warns against the role the incubator plays in facilitating opportunities for greater access to markets as it may create a dependence on the incubator’s involvement in the business.
Time to go
Many non-profit incubators allow for a support period of three years for a company to grow from a fledgling, early stage business to becoming an independent, sustainable business.
Retief says they see themselves as a stepping stone and springboard. In principle, the subsidised lease agreement is not renewed beyond the initial three years, or at times it is not renewed after one year.
“We have the duty to make sure that when we invest in our subsidised square meters it is truly unlocking growth and movement towards independent viability. If we do not do that we are failing in our moral and stated mission and obligations,” says Retief.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER