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Enterprise development: proceed with caution
Wed, 30 Jan 2013 10:18
One of the things that South Africans are unanimous about is how critical it is that we grow the small business sector. We are not short of data and case studies that demonstrate how building small businesses will have a lasting impact on our economy, and provide long term solutions for the unemployment crisis the country currently faces. But the consensus stops here.
Opinion is vastly divided on how to actually generate the right set of circumstances to quickly catalyse this sector, and where to put resources in order to generate the most leverage.
Interestingly, for once, the problem is not necessarily a lack of resources. The government strategy of including Enterprise Development spend in the BEE codes has created a giant pot of money to the tune of 3% of national net profit! And that’s before government spending comes into play, not to mention international donors who are also focussed on adding value to the sector.
What concerns me most about Enterprise Development in South Africa now, is the incredible waste of resources going into half-baked schemes that not only add no sustainable value to small businesses, but actually do them harm, and possibly, cause them to fail.
There are hundreds of very well-meaning initiatives out there who seem to be helping small business to sink, rather than swim, handing out misinformation and advice that can kill small businesses before they even begin. It feels to me a bit like the ‘HIV doesn’t cause AIDS’ debacle we are all so relieved is behind us.
Some of the myths and misinformation propagated by well-meaning but misinformed small business building initiatives are as follows:
A Bankable Business Plan is the First Step.
Rubbish! Absolute hogwash! Small businesses do NOT need to be encumbered with theoretical baggage. If you were planning a day hike through the local nature reserve, people would laugh at you if you went to your nearest Cape Union Mart and kitted yourself up with boots, jackets, thermal underwear and arctic sleeping bags. The same goes for small businesses.
They need to be nimble, lightfooted and unencumbered when they begin, and making everyone believe that the business plan is step one is enough to dissuade a prospective small business startup from even beginning the process. It’s a bamboozling non-starter.
But there are so many institutions either training people on how to write their own business plan ( a terrifying prospect for people with limited education), or handing out vouchers to enable prospective business owners time with a ‘consultant’ who does it on their behalf.
In fact, in a recent survey conducted by one of the Government agencies tasked with enabling small business by sponsoring ‘business plan consultations’ found, after a few years of implementation, that less than 5% of people who made use of the service actually started their business at all after that!
As for the ‘bankable” part: banks are not venture capitalists. They do not lend money based on business plans. Period.
Small businesses do need a plan, though: they need a product, a customer, and know how to get that product to the customer. But all of that can live in their head, or on a cigarette box.
Getting Funding for your Idea is Step 2
Nope. Wrong again.
I have to (loosely) quote my friend, Allon Raiz for this one: small businesses need customers. Customers fund the business. If you have no customers, you probably don’t have a good enough product yet.
Small business owners spend far too much time and energy pounding pavements in search of that elusive ‘funding’ thing. Far better for them would be pounding the same pavements to find themselves some customers.
Great ideas are a dime a dozen. Those who get people to buy their ideas and products will, in due course, be able to meet the requirements for growth funding.
But it doesn’t help that these guys are getting the wrong advice out there. Some are even being handed grants left right and centre. Doesn’t help. Grants will soon disappear when applied to mediocre ideas that have no real economic value.
But the danger is that the word is out there – you need funding to start a business. And while that myth exists, many people who might have just put their shoulders to the grindstone just don’t.
The circulation and perpetuation of these and other small business myths seems to live in programmes that are cooked up by well-meaning people in various institutions who have, themselves, never run small businesses.
It sounds like it makes sense, so they write it into training programmes, incubator blueprints, startup funding programmes and the like. Advisors and mentors are engaged who themselves have no experience in starting and running small business, but are paid to advise small business owners.
The risk in all of this well-meaning deployment of resource, input and mentoring, is that small businesses get led completely astray and fail BECAUSE of the weak input.
They stop relying on their own instincts, and instead, follow the well meaning advice (not all of it bad, of course)
It also grows an alarming culture of paternalistic co-dependency where small business owners rely too heavily on external ‘support’, at the expense of building their own business experience and muscle.
To a fault, successful business owners (the 4% who actually run long term sustainable businesses) have developed great instincts, a self reliance and resilience that gets them out of tough spots, an ability to attract customers, and an insight about when its time to seek advice (and where to find it).
Over-indulgent, paternalistic small business development programmes developed and run by people who don’t really understand small business well can do more harm than good.
Small business owners need capacity building. Spend your Enterprise development money on that, please. Just know we need to figure out what good capacity building looks like.
There are some fantastic programmes out there run by people who themselves have wrestled with running business and figured out the essential ingredients. Look to them for answers. Let’s stop this practice of disempowering small business owners with bad advice, and start enabling them properly.
What do you think?
Is the government implementing the correct guidelines and support to future entrepreneurs?