Social entrepreneurs deliver real enterprise development
South Africa's early stage entrepreneurial activities are insufficient for the country to sustain satisfactory growth rates.
So concludes the 2006 Global Entrepreneurship Monitor following its analysis of early stage businesses of up to three years' duration.
We highlight several contributing factors.
Firstly, statistics show that out of 100 start-up business plans, perhaps 10 are likely to get finance and of those maybe one or two will be successful. Some businesses will start and be sustainable for a while, but the reality is that most of them will close within a few years.
Self-evidently, a start-up business plan in isolation, no matter how effectively it is compiled, is highly unlikely to succeed if the individual behind the embryonic business is not an entrepreneur.
Businesses go through peaks and valleys and it is during the valley periods that the long-term successful entrepreneur survives and thrives. It follows therefore that greater emphasis needs to be placed on identifying true entrepreneurs and backing them with all the resources they need.
Secondly, we need to accept that that the South African economy is unique.
A 2004 ANC policy document draws a distinction between the first and “second” (survivalist) economies. The document details the principal differences between the two economies and the need for us as a country to work toward migrating people from the second economy into the first.
This demands unique solutions that do not rely solely on conventional principles and methods.
Big and established businesses must clearly play a role in helping to achieve this objective. In this context, they should recognise that with an investment of capital comes the need to put in good people to support the business in its early or growth stages. Contributing money alone is not enough.
Recognising this, the South African Institute of Chartered Accountants (SAICA) recently launched its Black Entrepreneurship Initiative (BEI) programme, which aims to grow businesses in the small, medium and micro enterprise (SMME) sector.
The initiative is in partnership with ABSA's Business Advantage programme and is aimed at black entrepreneurs who have an established businesses with an annual turnover of between R250 000 and R3 million. These entrepreneurs will receive mentoring from Chartered Accountants [CAs(SA)] on the operation of basic accounting systems and the financial procedures of a business.
It is an initiative that offers CAs(SA) the opportunity to empower entrepreneurs with the efficient business skills needed to contribute to South Africa's economic growth.
Social entrepreneurship is a third dimension. There needs to be greater recognition of and support for social entrepreneurs who combine a profit motive with a social objective.
Social entrepreneurship, because it is so critical to the development of the second economy, is gathering momentum as a separate concept. Evidence of such awareness is found in business schools such as GIBS, which has established a colloquium for social entrepreneurs as well as annual awards for social entrepreneurship.
Futhi Mtoba, the chairperson of Deloitte, has established the Social Entrepreneurship Foundation, which has the support of a number of prominent businesswomen. Internationally, the Schwab Foundation in partnership with Ernst & Young, presents an annual award at the World Economic Forum and there is also Ashoka, a global association of social entrepreneurs.
Fourthly, Government's role is to create an enabling environment for small businesses. Here it has done much good work, including the Small Business Act and establishing relevant structures within the Department of Trade of Industry (dti), including the Small Enterprise Development Agency (SEDA).
There will always be divided debate as to whether government is succeeding in its endeavours to encourage enterprise development. Clearly, though, the state cannot succeed without the involvement of the private sector.
Government is not run by business people and if its role is to create an enabling environment, then it is up to business to create the opportunities for entrepreneurs to thrive in that environment.
Finally, there is the vexed issue of funding, particularly at the lower end of the economic spectrum.
Understandably, venture capital and private equity funding seek financial returns commensurate with the level of risk. If we are to be successful in moving people from the second economy into the first, we need a type of “social” capital. Typically, such capital would include a “funding of business” plan and the cost of mentorship.
It would remain substantially intact over a given period with, perhaps, a small financial return but with a clear emphasis on the creation of jobs, development of sustainable businesses or a combination of both.
The Hope Factory, a project created by SAICA to develop aspiring women entrepreneurs, is an instructive example of how the abovementioned elements can be combined to achieve social objectives.
Specialising in the manufacturing of corporate gifts and conference materials, The Hope Factory is essentially a business model that is profit driven, but with a social objective that involves the training and development of people from rural communities who would not otherwise have been afforded such an opportunity.
The Hope Factory is not a charity and should not be confused with corporate social investment (CSI). Rather, it is best characterised as “enterprise development” and is a serious attempt to create skills and business opportunities for disadvantaged people.
The Hope Factory's key success factors include:
- SAICA's support, which includes start-up and working capital, strategic leadership, and efficient back office systems, as well as financial management and marketing support;
- The Department of Labour's support via funding for technical and business skills training;
- A holistic development programme with ongoing mentorship; and
- A well developed business model that combines deliverables such as social, developmental and economic outputs.
Critically, the Hope Factory's approach to training is holistic, focusing as it does on developing each person entering the programme.
The typical individual arrives from a poverty-stricken environment with a low self-esteem. Many are single mothers who need to provide for their families, but don't know where to start.
A significant benefit is the acquisition of integrated business skills. For example, in terms of technical skills they learn how to sew a cushion, while in the business context they learn how to cost that cushion and in life skills they learn how to sell that cushion. The training is therefore integrated, practical and about understanding business concepts.
Integral to the business skills training activity are practical small business training programmes that include setting up meetings with the trainees and fabric suppliers, and teaching them how to cost and buy the right quality fabric at the right price.
Throughout the programme there is a full-time mentor who works with the trainees from day one and examines their visions and goals.
The trainees meet with the mentor on a monthly basis to look at their future plans upon leaving the factory. The issues that arise include:
- Whether they are in immediate need of money;
- Whether they are looking for formal sector employment;
- Whether they intend pursuing a job creation opportunity; or
- Whether they desire to start their own business.
Many move into the Job Creation programme and work in the Hope Factory as a further step toward obtaining practical work experience with a view to earning an income, and allowing them time to start their own business, while putting bread on the table.
GEM found that women entrepreneurs' skills and mindsets were the two most important determinants influencing their accelerated entrance into the formal labour market.
There is little doubt that mindset is the most critical aspect of the programme, since it instils confidence for an interview, guidance on how to draft a CV and training on interview skills. The same applies to those choosing to start their own business.
Another fascinating innovation by The Hope Factory is the Black Entrepreneurship Initiative (BEI) programme, which aims to grow businesses in the SMME sector. It partners with ABSA's Business Advantage programme and is aimed at black entrepreneurs who have an established business with an annual turnover of between R250 000 and R3 million. The entrepreneurs receive mentoring from CAs(SA) on the operation of a business's basic accounting systems and financial procedures.
An important additional BEI dimension is that it offers CAs(SA) the opportunity to empower entrepreneurs with the efficient business skills needed to contribute to South Africa's economic growth.
We firmly believe that The Hope Factory is an enterprise development model that works and can be emulated in a number of different industries. To date The Hope Factory has trained 422 people (95% women), 60% of whom are either employed or have started their own business – a truly remarkable achievement.
Enterprise development and social entrepreneurship is about improving the quality of life for our communities by helping them break out of their cycle of poverty to participate meaningfully in our economy. The Hope Factory aims to do just that.
- Charles Godfrey is a retired partner of Deloitte and a board member of, The Hope Factory.
- Elizabeth Zambonini is SAICA's project director for The Hope Factory (Enterprise Development).
