Start-up support shows mixed success
Business development support is supposed to help entrepreneurs get their enterprises off the ground. It’s had mixed success
"Don’t be egotistical about owning 100% of your business," says Candice Thurston, CEO and founder of Candi & Co. It was through a partnership with beauty franchise Sorbet — not discounting her experience in marketing and branding at companies such as MTN and Unilever — that she was able to give life to her vision of running an ethnic hair and beauty salon. Four years on, Candi & Co operates seven stores in Gauteng and has served thousands of customers.
Digital payments company SnapScan presents a similar picture of the payoff that can come from solid corporate backing. When mobile payments firm Firepay launched SnapScan in 2013, Standard Bank provided support, processing payments for the platform.
The partnership gave the start-up much-needed visibility, as well as access to Standard Bank’s substantial client base. It proved so successful that the bank bought a controlling stake in Firepay in 2016, and SnapScan now operates as an in-house Standard Bank product.
For years, the government has sought solutions to the issue of how to grow SMEs. It’s something that seems to have been passed on to the private sector in recent years, with BEE legislation mandating large corporate entities to support small businesses.
Partly as a result, business development support (BDS) — interventions to help start-ups structure, scale and fund their operations — has become a R20bn industry, says Sifiso Ndwandwe, executive director of Catalyst for Growth (C4G), a nonprofit organisation conceptualised by JPMorgan and advisory firm Dalberg that has developed an analytics platform for BDS providers serving SMEs. Even so, the money spent on BDS reaches just 5% of local start-ups, C4G’s research has found, leaving the vast majority unsupported.
The problem is that business development support is a cost centre item and not a profit centre itemSelebogo Molefe
The business case for corporates investing in SMEs would seem simple: start-ups offer innovation, leading to opportunities for market disruption or increased market share. They also create jobs, which corporates are not able to do fast enough in the face of SA’s unemployment crisis.
"Small-business owners want to gain access to markets and networks, and integrate into value chains," says Bulelani Balabala, founder of the Township Entrepreneurs Alliance (TEA), an initiative aimed at developing township entrepreneurs.
An effective BDS programme strikes a balance between these needs, ensuring enterprise development, where businesses are built from the ground up, and creating opportunities for SMEs to access markets. And the value they offer can be substantial in terms of material inputs and business guidance. Thurston, for example, says Sorbet CEO Ian Fuhr told her that she would not fail with Candi & Co, as Sorbet had already done the "failing" for her.
Balabala’s printing business found similar success through BDS. It was incubated through Raizcorp from 2011 to 2013, which "really did help me to get my business to the next level and think out of the box", he says. As a result, his business grew from being a broker of printing services to running its own machines and offering an in-house service.
But BDS doesn’t necessarily work in everyone’s favour.
"Some entrepreneurs move from one BDS or incubation programme to another," says Selebogo "DrLifesGud" Molefe, founder of The Hookup Dinner, a networking community of entrepreneurs that hosts monthly business events.
He believes entrepreneurs need to manage their expectations about BDS programmes, as these are often treated as a tick-box exercise for corporate social investment spend in large organisations.
"The problem is that BDS is a cost centre item and not a profit centre item," says Molefe. To be successful, companies need to rethink their approach to SME support: if they go into their SME investment not expecting to make a return, they will not work to ensure that the supported business thrives, he says.
What it means
Corporates need to see the financial value SMEs can offer rather than consider them a corporate social investment write-off
Balabala shares Molefe’s scepticism about BDS. He says there are operators in the BDS market that should not be allowed to assist SMEs, as they don’t know what they are doing and often don’t have the interests of the SMEs they are supposed to support at heart.
Matsi Modise, a small business development and policy expert, and vice-chair of entrepreneur association SiMODiSA, says the same problems that plagued the government in the SME sector have carried forward into private sector support. She believes a significant number of corporate executives and public sector administrators providing development services have never started their own businesses. This makes it hard to relate to and understand the needs of SMEs, which can lead to ineffective interventions.
While many of the plans in place for BDS programmes tend to be sound, Modise says the sector "faces a problem of implementation", something best solved through collaboration between start-ups and corporates.
Through the TEA, Balabala is doing just that, working with a number of BDS providers to create more robust and inclusive programmes for SMEs.
For Thurston, it was such collaboration that ensured success. She credits her partnership with Sorbet for Candi & Co’s growth. "I could not have done it any other way," she says.