Govt should invest in 10-man bands
MONEY: NOT ALWAYS CORRECT SOLUTION
Lumping micro- and medium-sized businesses under same definition does great disservice to both.
During his February budget speech, then finance minister Malusi Gigaba announced the development of a fund to benefit small-, medium- and micro-sized enterprises (SMMEs) in the early start-up phase, allocating R2.1 billion.
I believe, because of the 96% failure rate for small businesses, government should be very careful about how it allocates this funding and should look at the best return on its investment in terms of employment and future revenue.
It should also consider the vast differences in issues facing a microbusiness versus a medium-sized business. Lumping micro and medium businesses under the same SMME definition does great disservice to both.
Microbusinesses struggle with registrations, finding staff and cash flow; medium-sized businesses battle with BEE certification, staff retention, building systems, audits etc. A national fund/strategy that indiscriminately deals with micro- and medium-sized entities is bound to encounter issues.
I believe the allocated funds would be better spent on 10-person bands. This size of business has the entrepreneurial constructs that provide a higher statistical chance of success.
To develop a business into a 10-person band requires time, which provides a good source of information about the business and its leadership. 1. It offers perspective on the entrepreneur’s character; they must have a level of tenacity and persisted through a number of challenges to reach this point. 2. By the time your business has grown to 10 people, it has proved to some extent that there’s a market that can sustain, at least partly, those people. 3. It shows a level of business sophistication. A one-person band can run their business without any real systems; a 10-person band requires a minimum level of systems to operate, e.g. payroll, accounting software, a website etc. 4. The shift from a one- to a 10-person band over time implies the business has adapted from its original idea to a more commercial response. 5. In most cases, the 10-person band has financial records, offering a good source for predicting whether or not it’ll continue to be a success. 6. There’s a higher probability that a 10-person band will be operating from formal premises and not from home, thus incurring real costs. Many early start-ups that work from home and employ family and friends forget to include rent and market-related salaries in their financial modelling. When they’re forced to rent commercial space and hire professional staff, their business models collapse.
Also, money may not always be the correct solution in developing and growing small businesses. Applied wrongly, it can actually destroy it.
One hundred percent growth in employment in a one-person band is one person; 100% growth on a 10-person band is 10 people. Allon Raiz is CEO of Raizcorp