As societ y becomes more accepting of entrepreneurship, more people acknowledge that being just a trader buying and selling goods to make ends meet as a business is not enough. Many people are looking to run their own formal businesses, but unfortunately lack the know-how on turning their business ideas into sustainable enterprises.
In an effort to assist medium and micro enterprises (SMMEs), the past few years have seen business incubators being established to equip SMMEs with the required soft business skills.
This effort can also be seen in the public sector, for instance. Last month Minister of Trade & Industry, Rob Davies, announced that the next five years will see the department’s agency, the Small Enterprise Development Agency (Seda), launch 250 business incubators across the country, in eight provinces. Davies also added that in the last six years, 38 Seda incubators in various sectors were able to support 4 893 SMMEs and establish 1 210 enterprises.
But does this increase in business incubators, both in the public and private sector, mean they are effective in ensuring the sustainability of SMMEs that undergo the incubation programme?
Raizcorp founder and CEO, Allon Raiz, says it depends on how one defines a business incubator. His profitable entrepreneurial incubator currently has nine incubation centres and plans to open four more this year. Raiz says having office space and letting it out to a business or providing free Internet connectivity or having external mentorship coming in on an ad hoc basis may be considered as incubation by some, but he defines an incubator as a combination of both physical and non-physical support to selected entrepreneurs, who have a provable intervention methodology that creates results.
Shanduka Black Umbrellas (SBU) CEO, Mark Frankel, says it’s quite rare for businesses in their incubation programme to leave because their businesses failed. “The model is three years old, and statistics show that 70%-78% of start-up businesses in South Africa fail. Fifty percent of the businesses that graduated in the Shanduka Black Umbrellas incubator programmes succeeded.”
The SBU business incubator, a nonprofit organisation, focuses on assisting black businesses to formalise their enterprises. “There’s a science and skill to running a business. You need to have the right jockey driving the business. Ninety f ive percent of people behind business have drive and determination, but the business incubator provides infrastructure, training, networking and access to the market,” says Frankel.
The SBU incubator currently has four business incubation centres across the country, with three more incubators to be launched this year.
Raiz says Raizcorp uses both growth and sustainability to determine the success of the 900 businesses that attended its incubation programmes. “The way many incubators determine success is how many [businesses] still exist three years down the line. But that’s not our metric, our metric is how many have grown,” says Raiz. “What we deem as growth is turnover, profitability, net asset value and jobs. Across the four metrics we want to see 15% growth. Anything under 15% we don’t deem a success,” he explains.
Raizcorp measures the success of its programme post incubation by determining the sustainability of the enterprise through the number of businesses still in existence. Its CEO says overall 96% of Raizcorp alumni are still in business, while 4% closed shop and opted for employment.
Speaking at the inaugural Shanduka Black Umbrella National Enterprise Development Awards recently, Shanduka Group Chairman, Cyril Ramaphosa, said that in the last seven months the businesses in the SBU incubation programme were playing an active role in the economy, having created 92 jobs and paying R3.5m in salaries.
Raiz says that some of the enterprises Raizcorp had incubated and which closed down often did so because of an entrepreneur making bad technical moves. Frankel also lists a number of reasons why some of its Shanduka Black Umbrella graduates may have failed to graduate. These include relocation, non-compliance to programme requirements and not being able to pay the token rental fee.
Raiz says: “Business incubators are not the answer, they are part of the answer. In many instances they are deemed to be the silver bullet, but they are certainly not. They are part of the answer and they need to be designed properly in order to achieve the result and many don’t.”