CAPE TOWN - The importance of small businesses is known to many as they are expected to generate approximately 90% of jobs by 2030, says Proudly South African CEO, Eustace Mashimbye. However, between 70-80% of these businesses do not survive their first year and this is why.
According to Mashimbye, small businesses are a critical cog in the economy. However, they, unfortunately, do not survive their first year. In addition, only 9% of these businesses make it to the 10-year mark.
The executive says that given the potential of the entrepreneurial sector and its contribution toward job growth, it has a spectacular failure rate.
Mashimbye says that small businesses fail due to two common reasons: A lack of funding and access to markets. “These are the 2 most common reasons, without a doubt. We hear this all the time from our members and it is common cause that without funding businesses fold, but if they receive funding but have no access to markets, they will in any case fail”, says Mashimbye.
So what prevents these businesses from gaining access to the mainstream market? Mashimbye says that one problem is creating to niche of a market.
“If the market for your product is too narrow and even sometimes too temporary there is no longevity in the company. Companies may, however, exploit a niche and become extremely successful, but most will need to remain alert to change and be agile enough to evolve as market needs change”, says Mashimbye.
At times, it may be beneficial to think beyond your community needs. This enables you to essentially tap into a more diverse market.
When asked whether thinking too local can cripple a business, Mashimbye said that this is not true and cited some businesses who in fact succeed.
“Some SMEs have no export aspirations or indeed capacity so the right kind of local thinking can create good, solid companies, but being too parochial or narrow in your thinking can cripple the growth of a business”, said Mashimbye.
On the failure of most businesses, the executive said that SME’s can turn the cycle around and achieve market access. He said that it all comes down to a sound business idea and a solid foundation. “Businesses need to have a solid foundation. The next great idea needs to be supported by a sound business plan which includes good market research on which and where the right markets are for your product. Businesses need to be capacitated to produce for their markets and then go out and look for business”.
He adds that brand affiliation with business organisations, chambers of commerce and movements such as Proudly SA can benefit SME’s. Mashimbye says that the recently launched One Stop Shop by the Department of Trade and Industry to assist SME’s, Invest SA is one such initiative. Business incubation programs as outlined by then Finance Minister Malusi Gigaba in his maiden budget speech is another form of assistance for SME’s.
“At our own recent Buy Local Summit & Expo, over 200 members exhibited and were identified through a business matchmaking service by procurement managers who set up scheduled meetings in their quest to find new, local suppliers”, adds Mashimbye.
So how are businesses missing the mark?
It lies in access to information. Mashimbye says it is crucial for businesses to access information before they access funding or markets.
“SMEs are sometimes missing information. Explore every avenue for business support, including becoming a member of an organisation such as Proudly SA. The dti and Dept Small Business Development have many programmes also that help SMEs, they just need to know that they can go to those departments’ websites and find them”, says Mashimbye.
“There is help out there for more companies to flourish, and government has just committed R1billion to public and private incubators which help enormously. The challenges are many and varied but if SMEs can find the answers to their specific challenges then failure can be averted”, adds Mashimbye.
When asked how businesses can think beyond their community but still benefit their country, Mashimbye said that adaptation is key. “Most products and services can translate outside a single community and if it serves one environment it’s likely to work elsewhere. Providing a local product and service is already benefiting the country in some way”.
- BUSINESS REPORT ONLINE