Teaching business step-by-step in informal sectors
The programme aims to ‘graduate people with a business, rather than a degree’, writes Sarah Wild
Most investment in SA goes into the mainstream economy in places such as Johannesburg, says Hasan Darwish, team leader at Modular Innobox, a start-up which aims to stimulate business in poorer areas. "In reality very little of that is seen by bottom-of-pyramid communities and economies."
It is difficult to quantify the size of the informal economy, but estimates gauge that it contributes 10%-25% of GDP. These businesses are a lifeline for many of the poorest citizens but they are challenging to develop, which is where Modular’s ModulaRISE programme comes in.
The programme, launched in July at the Innovation Hub in Pretoria, is a four-tiered turnkey leadership growth model, "better defining a growth path for young entrepreneurs", the firm says.
"This programme builds on what already exists in these economies and will hopefully help the problems of SA," Darwish says. "We aim to graduate people with a business, rather than a degree, which is particularly relevant at this segment of the economy."
There are four tiers — R, I, S, and E — which stand for "rookie entrepreneur", "intermediate support business", "servitisation centre" and "economic hub", each catering to a different stage in business development.
The rookie entrepreneurs receive a single tool — such as a camera, sewing machine or artisanal handyman tool — and are trained for a month to use it, along with financial and marketing training.
They are then monitored for six months, with data on their progress stored to create a profile and professional development history.
The capital requirement for this tier is R10,000-R50,000 and the options for entrepreneurs include a 3D printer kit, jewellery manufacture, barber toolkit and cloud networking. After they have successfully completed their first tier, a rookie entrepreneur can graduate to the "intermediate support tier", which involves grouping together entrepreneurs offering compatible services and training them to function as a business.
After two to three months of training in financial management and human resources, among other skills, they have a year of running their small business, and as with tier one, ModulaRISE collects information on their progress and abilities throughout the year. The capital requirement for this tier is R50,000-R150,000. These businesses include hairdressing, entertainment, prototyping, health and baking, among others.
Only after entrepreneurs graduate through these first two tiers do they qualify for the "servitisation centre", which is a turnkey business in a shipping container.
At the Innovation Hub, two shipping containers are arranged in parallel with an awning between them. Each is divided into sections: one contains a small movie theatre, a doctors rooms with blue-tooth diagnostic equipment and an office; the other has a hole in the wall coffee shop, a bespoke electronics company and a courier service replete with post pigeon holes and bicycles for transporting packages.
This tier is costed at R150,000-R450,000.
The final tier is a collection of these centres forming an "economic hub", offering various services and interacting with each other. This tier, which caters for a community, has a price tag of R450,000-R2m, which Darwish says is where the government should step in.
The servitisation centre was Modular Innobox’s first offering — a completely self-contained business unit that could provide business infrastructure in areas that had historically lacked it. But this came with problems, says Darwish.
"There was a culture of entitlement and a feeling that you just get something instead of earning it. This initiative needed a responsibility linked to the thing you’re getting. The project is not just giving [assets] to any person, any school, any place, but rather people who show dedication and vision. Those people should be selected to lead."
This is why the data collected on individuals’ performance is so important: it shows trends in behaviour and allows entrepreneurs to "level up", as well as showing a track record of ability when they approach banks for finance.
The first tier is funded from corporate social investment, Darwish says, "simply because there are existing programmes that do this kind of training. But the I-tier is funded by the entrepreneur’s own initiative, his saving from working as an R-tier entrepreneur.
"S-tier, that’s where the banks would come. This is the point at which it is financially viable. And the person or organisation [financing the servitisation centre] can log into a system and have full info on the entrepreneur’s progress."
The entrepreneurs can take a loan to pay for their centre.
A common problem for small business owners — particularly those in the informal economy — is that they do not have a track record and a credit history. But the S-tier is a formal, registered business that banks can fund, he says.
Darwish, who is also an academic at North West University, says that the programme has interest from several organisations, individuals and banks.
The ideal would be to "fully launch it in a community of choice and to show how, within a year, we can grow the community out of poverty," Darwish says.
"We want to connect that community economically to the mainstream economy, which creates more opportunities and access to jobs, so that people are not stuck in a poverty-trap job, where they earn between R3,000 and R5,000 a month and spend most of that on transport," he says.
Eugene Preis, an adviser to the project, says: "If you’re in the city, it wouldn’t be surprising to find a movie theatre. Take that same theatre and put it in a rural community. It’s completely out of place.
"There’s a reason for that: in rural communities, there’s a lack of electricity, connectivity, skills, capital investment. Would someone invest in a business in Sandton or a business in a
Darwish says because of the data collected along the way, investors can see where their money goes. "I understand the concerns of investors and banks: how can you secure that your money will be safe? ModulaRISE provides a mechanism to invest in a business and social infrastructure without putting that investment at risk."