The government can improve small businesses’ success by providing training in the specific entrepreneurial skills they need rather than training in general skills or technical management, according to research by the University of the Western Cape (UWC).
“This is the missing link. We have quite good skills training and some management training, but no entrepreneurial training,” said Christian Friedrich, the professor who heads the management department’s enterprise unit.
Between 70% and 80% of small businesses fail in their first five years, so a focus on personal skills was crucial. Small businesses often rely on relatives for finance and labour, so any failure was a loss for the economy and for the family.
Research over the past five years has shown that entrepreneurs, particularly in disadvantaged areas, seldom practise innovative techniques, are not proactive and cannot overcome obstacles.
The government should encourage agencies such as Ntsika and Khula, as well as Sectoral and Education Training Authorities (Setas) to provide these skills, Friedrich said.
The entrepreneur was the driving force behind small business, unlike larger enterprises where other managers could step in.
“Most entrepreneurs are unsuccessful in this country,” said Friedrich. “It is important to show personal initiative — to be innovative can pay off.”
Last year the management department assessed the performance of a group of trained entrepreneurs at 87 small businesses in Cape Town townships against untrained peers. The trained entrepreneurs recorded increased sales and profits, and most were able to cut their costs. Most of the untrained entrepreneurs’ businesses stagnated or incurred losses.
The department developed a three-day course that focuses on three key areas: innovation; proactiveness; and personal initiative, to help the entrepreneurs overcome obstacles.
Research on competitive aggressiveness, however, showed it could be influenced by cultural factors. For example, a community might ignore a business in rural areas that significantly undercut a competitor.
These findings come as the government considers changing its strategy on small business to bolster its role in generating employment and growth.
The Global Entrepreneurship Monitor last year ranked South Africa lowest in entrepreneurial activity among developing countries, after Brazil, Thailand, India and Mexico. South Africa was the only African country to participate in the survey.
Ranked 19th for overall entrepreneurial activity, South Africa ranked ninth for necessity, or people having to become entrepreneurs for lack of other job opportunities.
Only 12% of township entrepreneurs ran registered businesses, but these accounted for 56% of employment opportunities.
Access to finance was particularly problematic for entrepreneurs in the informal sector, but they were also hampered by inadequate transport, Internet access and entrepreneurial skills.