Busi­ness in­cu­ba­tors

Finweek English Edition - - BUSINESS - Buhle Nd­weni

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.”

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