The importance of ESD

Donna Rachelson, CEO of Seed Academy, gives her comments on the importance and role of ESD.

The annual State of Entrepreneurship research carried out by Seed Academy in South Africa surveyed more than 1 000 entrepreneurs across the county. The results indicate that more needs to be done to improve the entrepreneurial ecosystem.

“We’ve undertaken this survey for four years and it is South Africa’s largest and most referenced entrepreneur survey. We see small progress in terms of business survival rates, revenue increases and more women entrepreneurs but what we really need is for stakeholders in the ecosystem to pull together and make major trajectory changes that support all entrepreneurs from seed through to scale-up stages. We still don’t have the basics right: early stage funding and high impact business support throughout the entrepreneurial journey.”

On average, South African entrepreneurs are employing between two and four people but the ecosystem remains difficult to navigate, with several entrepreneurs reporting that they don’t know how to access available support. Key challenges for entrepreneurs include: inability to raise funds, finding customers, wearing too many hats followed by lack of guidance, slow sales, customers paying late and unpredictability of business conditions.

Typical entrepreneurs in South Africa are mostly educated; have prior work experience; vary in age (not just young people) and are driven to entrepreneurship through seizing opportunities rather than necessity. The number of women entrepreneurs continues to grow slowly and currently the opportunities available are mostly for men and youth-owned businesses.

The number of for-profit social enterprises has increased by 10% since 2017 demonstrating that businesses which address social and community issues are on the rise.

Of the businesses that are post revenue, only 5% have a turnover of greater than R5-million. Shockingly 22% of entrepreneurs have revenue of less than R10 000 per year and the majority of post-revenue entrepreneurs (26%) have revenue between R50 000 and R100 000 per year.

Enterprise and Supplier Development programmes
For the first time, the research in the survey considered ESD programmes. A game changer is having a mentor aligned to the entrepreneur’s business – this is a key success factor. Few entrepreneurs have mentors through their ESD programmes yet overwhelmingly believe that the mentors added significant value to their businesses.

Funding
Accessing funding remains the biggest concern and challenge. Entrepreneurs are largely self-funding and are not applying for funding because they don’t know where or how. While 73% of entrepreneurs require funds to grow their business, 28% require less than R10 000 and 30% needed less than R50 000.

The risk appetite for funding early stage and perceived ‘risky’ entrepreneurs is low.

Recommendations
Funders need to play a far more active role in educating entrepreneurs about their processes and put in place interventions that assist entrepreneurs to become ‘funding ready’. They should also be allocating risk-based funding to early stage entrepreneurs together with appropriate business development support.

The ESD sector as a whole needs a refresh. These interventions need to be tailor made with appropriate mentorship and a core focus on business and growth strategy. The industry may need a framework to ensure quality of programmes.

Further we need a culture where it is okay to fail and grow at a steady rate without pressure of key metrics such as revenue growth and job creation over unrealistic time frames.

Rather, proactively identify entrepreneurial opportunities for massive job creation and developing innovative interventions to identify the ‘right’ entrepreneurs with teams to actively drive these. The industry should collaborate to focus on successful entrepreneurs who can create massive employment rather than focusing on many qualifying small enterprises and exempted micro enterprises.

In addition, we need to “align the support provided by government and other role players as the current ecosystem is disjointed with very little cooperation and coordination. This results in misalignment to the sectors that are highlighted in key economic policy documents.”

Order your copy of the 19th edition of Top Empowerment to read the full six-page spread on the importance of Enterprise Supplier Development.