BUSINESS LIVE PREMIUM / 24 OCTOBER 2019 - 05:00 / ADRIAN GORE
You can point to the policy obstacles to entrepreneurship all you like, but it’s about stoking the right kind of mindset of empire builders
There is much debate about why SA’s level of entrepreneurial activity is so low. Often policy issues are flagged: the red tape involved in starting businesses; rigid labour laws; and insufficient access to funding.
SA SUCCESS STORIESPaul Harris, GT Ferreira and Laurie Dippenaar started Rand Merchant Bank in 1977, the beginning of what became the FirstRand group. Former CEO Sizwe Nxasana led FirstRand from 2010 to 2015, growing the bank from a market cap of R102bn to around R300bn. Its present market cap sits at R380bn. Picture: Business Day/Martin Rhodes
Obviously, these are important. But entrepreneurship is as much a behavioural activity as an economic one. You need to understand the animal spirits involved. So, as a starting point, let me raise a few myths around SA entrepreneurship today.
The myth of timing — the view that given the poor state of the economy, now is not the time to invest.
Well, consider this scenario: the economy has stagnated, crime is rising, there is policy uncertainty, health-care costs are way above inflation with significant change on the horizon, and skills are emigrating. Is this today? Well, no — actually, it’s 1992, the year we started Discovery.
The experience left me with a deep conviction that cycles come and go, but it is during difficult times that you should build. It is precisely when others are distracted and ambivalent that opportunities are underpriced.
The myth of place — this one goes: why start a business in a country that seems to be in decline?
This emotion of decline is pervasive and toxic to the animal spirit needed for entrepreneurship.
Is SA in decline? Of course not — and it’s important to understand this. Take GDP: most people don’t know it, but it’s actually 2½ times the size it was in 1994 in dollar terms. There’s been similar progress in life expectancy, growth of the black middle class and the JSE, and access to formal housing, among other metrics.
SA’s scale and relevance are impressive. Our provinces stack up against other countries (Gauteng’s GDP is bigger than Kenya’s and Ethiopia’s). In terms of stocks traded on the JSE in 2018, SA is close to that of the entire Arab world, and trumps Saudi Arabia, Singapore and Norway. SA’s pension funds hold 82% of all the pension fund assets in Africa, and our banking sector makes more profit than the rest of Sub-Saharan Africa combined.
So why is there this misconception? Research shows that we suffer from a pervasive pessimism about what the future holds, and that relative to global peers, South Africans suffer this acutely. We are uniquely gloomy about our environment, and particularly inaccurate in our views on global and national development. We aren’t just negative, we are ignorant — and the latter fuels the former.
Sure, we are experiencing dramatic change, but that brings opportunity. Again, considering the start of Discovery, our opportunity emerged due to the inevitable change in the health-care system as SA moved from apartheid to democracy. It’s the same today.
The most important way to stoke an entrepreneurial spirit, I believe, is to change the narrative from decline to transition, from pessimism to opportunity. Smart entrepreneurs will discern fact from emotion and find the opportunity. But our unique level of declinism needs to be remedied to stoke entrepreneurship.
The myth of accountability — that it is big business which creates jobs.
There is a deeply held view that it is big business that creates jobs and that entrepreneurial activity, while positive, is largely marginal. The truth is the opposite — big businesses look for ways to destroy jobs. They must do so: at scale, businesses can only sustainably increase their top lines at GDP growth levels, so to achieve the earnings growth that shareholders require, they have to focus on efficiency and cutting expenses. Inevitably, this means a constant focus on head count squeeze.
The fact is, entrepreneurial activity is the only real sustainable job creator. But here’s the paradox: while policymakers should laud entrepreneurs for creating jobs, this cannot be the preoccupation of the entrepreneur. Rather, they should focus on one thing only: building their businesses. They mustn’t worry about creating jobs or policy issues. However, if done well, jobs and prosperity is an inevitable byproduct of entrepreneurship.
Many entrepreneurs I come across have one thing in mind: to make money. While I respect this, I’ve never seen a great business built purely on the pursuit of wealth. Great businesses need to have a value proposition and they need to have purpose; they must have something that consumers want and which is good for society.
Both these factors are necessary. Today, there is considerable pressure for businesses to have purpose and I strongly support this, but this could as easily confuse entrepreneurs. Just as a singular focus on making money is hard to achieve, a singular focus on purpose is soft: only doing good for society will not pay the bills.
Entrepreneurs need an obsession with product — what they are selling must be brilliant, excellent and needed. That is what matters most and every bit of energy must be focused on this. Money will follow. Ideally, if a product can be framed as having a purpose from the outset, all the better. I’m convinced that Discovery’s success came from an obsession with product, wrapped in the core purpose of "making people healthier". Our new behavioural bank, Discovery Bank, is a manifestation of our purpose, but applied to managing money.
Our country has remarkable potential, but we need to deliver economic growth and job creation to address our tragic levels of inequality.
Of course, addressing the policy fundamentals is necessary, but so too is understanding the attitude of entrepreneurs and addressing the myths about what it takes to succeed. This includes challenging our innate coding for negativity, so we don’t misprice risk and miss opportunities.
• Gore is CEO of Discovery
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER