By Glenn Gillis
JOHANNESBURG - Lockdown has hit South Africa hard and our main goal now should be to get back on our feet as fast as possible.
Funding is an essential component of this and it’s certainly been available, albeit dramatically reduced from the second quarter onwards due to the global pandemic.
In the first quarter of this year alone, South African start-ups received $112 million (R1.8 billion) in funding according to a Briter Bridges survey. The problem is where this money is being allocated.
We have unique challenges in this country, many of which come from our chequered history. The youth employment crisis is just one of these. However, trying to solve these issues with ineffective solutions, like giving away millions to young start-ups, is not the answer. Regrettably, hackathons and incubators often seem to be little more than corporates paying lip service to the real challenges that growing businesses face.
Disruptive, groundbreaking ideas often do come from younger people who haven’t yet bought into the established paradigms. Coming up with an innovative idea is only one part of the equation though. Even if the timing is perfect, the bigger challenge lies in taking a business to market and scaling it.
Mark Zuckerberg, Steve Jobs and Bill Gates founded their businesses at very young ages, but they are the exceptions rather than the rule. Global research tells us that the average age of entrepreneurs who start a successful small business is 42, with the number rising to 45 for the highest-growth new ventures.
There are a number of reasons for this. Launching a new business requires life and industry experience, an established network, and very often a capital base. Taking the capital base out of the equation by giving away seed money doesn’t address the other requirements. Essentially, our fixation on funding young start-ups means we’re literally throwing away money in pursuit of unicorns.
The reality is that start-ups create almost no immediate value, and the overwhelming majority fail. South Africa desperately needs to recover fast and to do that, we need to take cognisance of the global data around successful businesses, and be far more measured and realistic about how we allocate funding.
Why not rather start in the middle and fund established “camels”? Camels are hardy and adaptable creatures which can survive in the harshest environments. In the world of business, these are companies whose products and business models are driven by customer needs, even as they try to revolutionise their industries. They charge fair value from day one and closely manage their costs. They may start out slowly but they build strong foundations, plan for uncertainty, grow responsibly and in the long run are inherently far more sustainable and resilient. This is especially important in emerging markets like South Africa, where businesses need to be able to withstand any storm, from lockdown to load shedding.
There are plenty of camels out there that have been around for a while and proved their worth, yet for whatever reason haven’t yet managed to scale up. Giving them access to funding and markets, and helping them build capacity, perhaps through partnerships with corporates, will make a very real difference. Done well, they can create whole ecosystems of partners and suppliers, many of which can in fact be young start-ups, but with many of the risks radically reduced.
Clearly this doesn’t take away from the critical need to create real business opportunities for young people too, and to drive true transformation in this country. However, there really is little evidence to support that funding early-stage startups delivers the returns we need to unlock opportunities at scale.
Let’s support our camels so they can break into a lumbering trot and potentially service not only local but also global markets. This will create many more jobs and also open up opportunities for future entrepreneurs to gather the experience and networks they will need one day to successfully start their own businesses. That’s truly the way to stimulate our economy, drive transformation and create decent jobs and opportunities for our young people.
Glenn Gillis is the chief executive of Sea Monster.
BUSINESS REPORT