Many of South Africa’s most prominent entrepreneurs also happen to be CAs(SA). They spoke to Monique Verduyn about what it takes to run a successful business in a tough economy.
Entrepreneurial endeavours have had a large-scale impact on economic conditions, business environment and job generation in South Africa. Entrepreneurs help drive change through innovation, where new and improved products enable new markets to be developed.
Entrepreneurship goes hand in hand with innovation − the ability to produce new ideas, provide better solutions, and pioneer new products. The most successful entrepreneurs are not simply the hardest working, they’re also the most innovative.
Seed Academy released its ‘State of Entrepreneurship in South Africa’ report in December 2019 after surveying more than 1 000 entrepreneurs across the country. The findings showed that entrepreneurs are optimistic and resourceful even as the sector is enduring one of the most difficult economic periods. The report underscored that the entrepreneurial ecosystem is tough to navigate.
In South Africa, and elsewhere, Fintech is one of the fastest-growing start-up sectors, attracting millions in investment. These are firms that are changing the face of financial services.
Insurtech is big business
Insurance technology is big money in South Africa, with several local insurtechs having together raised tens of millions of rand in investment, developing new models that aim to disrupt the traditional insurance industry.
Pineapple, founded in 2017 by Matthew Elan Smith, Ndabenhle Junior Ngulube and Marnus van Heerden, allows customers to use an app to insure anything from cell phones to bicycles in the snap of a picture.
Pineapple is underwritten by Compass Insure. In 2019, the start-up won first prize and $1,5 million (R22 million) in VentureClash, a $5-million global venture challenge for early-stage companies run by US-based Connecticut Innovations. It also carried out a funding round of more than R5 million that year.
‘The venture capital market in developed economies is extremely strong at the moment,’ says co-founder Marnus van Heerden. ‘This poses a challenge for tech entrepreneurs in South Africa as they are going up against companies in foreign markets that are funded a lot better than local businesses may eventually be able to eat their lunch when entering the South African market.’
Van Heerden notes that much of the online content and services we consume is developed by other countries. This means that a lot of the revenue that is generated results in value leaving SA. ‘I do not believe the answer is to change that dynamic, but rather to start building some online products and services that are used in other countries,’ he says. ‘This will result in value being generated for South Africa in terms of revenue and job creation.’
His formula? Find a need first, figure out distribution and get the right team.
An industry ripe for innovation
South Africa has one of the most developed financial services industries in the world. This means that a lot of incumbents have made great strides in servicing the needs of customers, Van Heerden says. This is especially true in the banking, payments and loans space. ‘The insurance industry is lagging slightly behind, however. The digital nature of insurtech products will open up the ability to service lower LSM markets with products catering for their needs over and above funeral, the main product that is currently being sold into the lower LSM market. This product often has to be a lower value for money product due to the high cost of distribution and servicing. Introducing technology should theoretically bring down these costs, which will allow companies to distribute a wide variety of higher value for money products.’
He’s hoping that government will focus on creating an environment where foreign investors feel comfortable to invest in South African start-ups. This includes favourable tax incentives, freedom of transfer of intellectual property (IP), favourable exchange controls and strong IP protection.
Mahlako A Phahla Investment, known as Mahlako, is a South African advisory and investment holding company established and owned by CAs(SA) Makole Mupita and Meta Mhlari Maponya, who have accumulated a wealth of diverse, in-depth and complementary skills through experiences in varied sectors. Mahlako has successfully invested in projects in excess of R5 billion and advised on mandates in excess of R10 billion.
Maponya sees the lack of decision-making by government on key projects as the biggest challenge facing entrepreneurs.
From ideas to solutions
‘Entrepreneurs have the ability to turn ideas into solutions, products and services, and to turn investments into opportunities and jobs, but they must be supported by the ecosystem,’ she says. ‘When you are thinking of launching a business, ask what problem you are solving. What is your value proposition? How do you differentiate yourself? Who is your targeted customer? What type of customer are they? How do you reach your customer? What are the resources you require – financial and human. What are the activities required? Do you need partners? Why do you need them? Are people willing to pay for your product or service? What are the costs involved? Is the business model viable? These are critical questions.’
She believes it is important for entrepreneurs to understand their value proposition, be clear on how they differentiate themselves in the market, and to work with mentors and network with like-minded people.
On Fintech, Maponya comments that it has made accessing capital and starting up businesses easier. ‘You can pay and collect payments online. It has removed the need for upfront infrastructure spent and other costs. I recently attended a conference in Ghana where Strive Masiyiwa, founder of Econet Global, commented on the fact that there are more 500 million Africans using smartphones today. The question is what are we doing with them.’
Ask her what she would like to see government doing to support entrepreneurs, and she says policy certainty is important. ‘I’d also like to see development finance institutions capacitated with people who understand the business world and the challenges faced by entrepreneurs. We also need to see government fight corruption and pay people on time.’
Trevor Gosling, the co-founder and CEO of Cape Town-based Lulalend, an online lending platform for small businesses, has spoken to thousands of entrepreneurs over the past few months. ‘They tell us their biggest challenges are access to credit, cash flow management, and marketing their businesses. Over 80% say they’ll need funding this year, according to data from our countrywide survey,’ he says.
Entrepreneurs have also been affected by load shedding, with more than 60% of businesses saying the power outages have impacted operations. This, coupled with a recessionary economy and the coronavirus (COVID-19), has negatively impacted a number of businesses, most notably those with exposure to China.
‘The National Development Plan’s target for SMEs is to create 90% of all new jobs by 2030, so there is a lot of pressure on entrepreneurs,’ Gosling says. ‘On a philosophical level, and while we do see a number of challenges facing our country, entrepreneurs have the opportunity to be a beacon of hope to help build future generations through uplifting testimonies of success through struggle.’
Less thinking, more doing
If you want to launch a business, he says, you should probably do a little less thinking and a little more doing. ‘Everyone has ideas or hopes to build a business, but few go out there and execute – which is all that matters. If you believe in what you have to offer and have some validation that you have a market for your product or service, go out there and make it happen.’
He cautions that there must be a market for what you’re doing. It sounds obvious, but you can’t thrive if there is no market for your product or service. ‘Find this out earlier rather than later and don’t fool yourself into thinking that customers will come when you have money to market yourself. Money is an enabler to scale rather than prove your business model,’ Gosling adds.
Technology has opened the doors to do business better and faster as well as creating an inclusionary environment where people who were previously excluded from the financial eco-system can now be serviced. In 2019, investment worth $1 billion poured into African tech companies. The bulk of that funding went into fintech companies to expand access to financial services.
The SME funding gap – the difference between the amount of funding SMEs request and what funders award – is estimated at around $23 billion, according to a study by the World Bank’s International Finance Corporation (IFC). ‘Research from the IFC shows more and more SMEs are turning to alternative funders like Lulalend,’ he says. ‘That’s a step in the right direction for SME funding and for the South African economy.’
Commenting on government, Gosling would like it to see itself as a facilitator to do business more easily. ‘There are enough challenges facing entrepreneurs and bureaucracy only makes a difficult job harder. The government needs to consider where digital solutions can help reduce the burden and, having said that, they do deserve credit for Biz Portal, an online platform where SMEs can register their businesses and open bank accounts. For entrepreneurs, it’s important to understand the limitations of government and, where possible, create solutions that are not reliant on the performance of government for your success.’
Peter Magner, founder of cloud accounting services business Iridium Business Solutions, urges entrepreneurs to plan their finances. ‘We constantly deal with business owners who overspend and do not set aside money for their VAT bills, for example, which means they constantly incur penalties and even run out of money, crippling the business.’
Know what you are getting into
He advises entrepreneurs to read the companies act and be aware of their responsibilities as directors, some of which are rather onerous. ‘If you are going to starts a company, put in the research and understand what you are getting into. Knowledge is critical.’
He says entrepreneurs have a more important role to play in the economy than ever before. ‘We have seen many large companies shut down in recent months, with hundreds of job losses. In these uncertain times, small businesses have an advantage because they can be agile and adaptive in ways that large corporates cannot. I believe we will see lots of exciting growth in the sector.’
He advises business owners to network and talk to people as a way to gain insights and learn more about their industries.
‘Being based in Cape Town, I am really excited about fintech developments,’ he says. ‘Technology is enabling people to do things faster and to run business better. There are many tech innovations to get excited about.’
AUTHOS | Monique Verduyn