Why would any investor want to put their money at risk investing in the South African small business ecosystem? The numbers are undisputed.
According to Fundera.com 20% of small businesses fail in their first year, 30% in their second year. 50% businesses will fail after 5 years and 70% within 10 years. The majority of businesses are going to fail. Read this article which discusses all the types of risks involved in small business investment.
A case for taking the risk?
Despite all the risk and probability for failure, we as a nation need a thriving small business ecosystem. Small businesses create more jobs than large corporations, they are crucial to the growth of an economy. A successful small businesses will become a large businesses, creating wealth and growing the economy along the way.
Angel Investors are defined as wealthy individuals who invest in early days of a start-up or small business, in exchange for some equity in the business.
If you are an entrepreneur, especially a black one – you would have no access to any angel investor. You likely would have had a business idea stolen from these “online” angel investor networks.
The need for Small Business Investing
Therefore is is widely accepted that the Small Business ecosystem should be supported. If only 20% of new businesses will succeed, we must invest in 100 small businesses to harvest 20 successful businesses.
This should be an intentional move or calculated plan. As a small business in South Africa – you will be lucky to even get VC funding without consistent profit generation.
Talk with Rebone
I sat with Rebone Seolwana, an entrepreneur in the SME Development space in South Africa.
Rebone has been an entrepreneur since 2014. She has a lot of experience in the industry and has come up with a proposal. The proposal is aimed at addressing the issue of small business risk funding.
So Rebone, don’t you think we have enough business incubators? Why do we need another type of support structure for small businesses?
Entrepreneurs have had enough mentoring, conferences and workshops. It is now the time that we start thinking of building spaces where entrepreneurs can come and play. I mean – we need to let entrepreneurs take chances and be innovative, test out ideas and take risk. We have enough incubation programmes, as a professional, why do I need another 2 day HR, QMS training? Incubation programmes are focusing on all the wrong things. As a result, they are ineffective in actually helping small businesses succeed.
I respond – we recently had an article written by my colleague titled “Incubation programmes not working in South Africa“. This exact point was under discussion. and Rebone responded:
When you approach companies to be included in their supplier database, you will receive a list of “training” programmes. I think to myself, “I need business, not another HR training”. In reality organisations are doing these programmes for all the wrong reasons. Some of them are doing it to secure BEE points. Organisations can submit that attendance register as evidence of how much training they are supplying to small businesses. You tick the BEE box but are not actually helping anyone.
At this point, I am curious to hear about her solution. What needs to happen, what are you proposing?
House of Game Changers: Investing in South African Small Business
House of game changers is a concept we are developing. We would like to secure portions of Enterprise Supplier Development (ESD) budgets. These amounts would be invested in a fund or programme that will have the main focus of entrepreneur risk investment.
We want to create a safe place where entrepreneurs can come with just their business ideas and concepts. This will be a place where they can pursue their business ideas.
We are not talking about giving entrepreneurs money to sail in to the sunset. Instead we want to help them along in their journey with resources and time.
Investors should move away from risk adversity and embrace real small business development. Yes we are going to lose some money but you have to mine 2-90 tons of rock just to recover an ounce of gold. But no one wants to do the mining – we want to find ready-made gold bars to buy.
You have to mine 2-90 tons of rock to find an ounce of gold.
I thank you Rebone for your time, when can we expect this programme to hit off the ground.
We are ready and in discussions with our partners, there is a lot that must fall in to place. We need more people who are willing to be the change that they want to see.
Follow Rebone’s Company
Neema Communications Group – twitter handle @Neemacomms