Like any business, South Africa has a “critical success imperative” — to make the poor productive. The second proposition, also derived from business writer, teacher and consultant Peter Drucker, is that managers — not nature, economic laws or governments — make resources productive.
To address these issues, Sasol sponsored a pilot project in Zamdela township, Free State, aimed at fostering entrepreneurs. It has taught many management lessons.
The mortality rate of “start-ups” is high everywhere, let alone among the poor. The project undertook a careful selection process in which 20 men and women were chosen, eight to undertake street trading, with the rest trading in the community.
Six businesses already existed, while the others were new. They included selling cellphone airtime, cabinetmaking, dressmaking, catering, signwriting, and photographic and electrical services.
The programme was designed for on-the-job practise, rather than theory. A four-day classroom session — the only “training” in a nine-month programme — ended with a 10-day “breakthrough” project where that coaching was immediately applied.
Important lessons were learned in the 10 days, including the fact that nothing drives performance better than a clear, measurable task. The entry ticket for each participant was R100 in cash — not easy for many of them to raise. Organised into small teams, their goal was at least to double the money per person in the 10 days. The winning team would have most “sales-in-cash banked”, with progress measured by the minute.
None failed, and many discovered elements of “lean thinking”. As it was winter, one team decided to sell woollen beanies, gloves and scarves door-to-door, together with five other products. Schoolchildren became the main customers.
Next, they found inventory is “waste”. The stock was sourced in Johannesburg — a costly journey. Rather than holding products and offering them for sale, they took orders first, negotiated for the requirements and then bought cash-on-delivery.
They also learned the truth of Drucker’s idea that one gets economic results by exploiting opportunities, not problems. After a primary school principal banned them from selling directly to pupils, they changed tack and took bulk orders from the school with a volume discount. They “turned” their cash 20 times in 10 days.
Each team finished with more than they started with. Those who made most “profit” but generated less cash learned about debtors and the “cash-to-cash” cycle. To increase sales of signboards, they gave credit. Instead of having their cash in the bank, customers were still holding it at the end of 10 days.
All experimented with different sales strategies and learned to become flexible. A team started selling ties. The response, “Why sell us ties when we barely have enough money for food?” got them into fresh produce. That is the most cut-throat game, with stalls on every corner.
Discovering Michael Porter’s “differentiation” strategy, they “packaged” fruit, sweets and soft drinks with cellophane and paper plates to sell at a small premium to visitors entering Chris Hani Baragwanath hospital. Township people may live on the breadline, but are proud and discerning. They will pay for quality if they can get it.
Standard Bank came to the launch and played a key part. Each team had a stock controller and book-keeper who had to show bank statements to verify the numbers. They were helped by Standard’s Sasolburg bank manager.
Most participants had never had a bank account. Also, in African culture, people talk — they don’t send memos. It was a challenge to apply the business disciplines of writing up records and producing bank statements.
The first 10 days were like learning to sail in the safety of a harbour, the next two projects took participants to the open sea.
Today all the businesses are profitable and growing. They are into the second three-month project and four have expanded to create jobs for six more people.
Through coaching, one of the existing entrepreneurs discovered that less is more. She applied the 80:20 focus rule to her business. Three items out of 50 — bread, milk and maize — made 70% of her sales. Maize alone made 30% of her profit.
Changing her marketing and stocking strategy generated the cash to add cement to her product range. Improved sales and profitability enabled her to open a second store and create work for two others.
Numbers tell the story. These entrepreneurs have generated R5 sales so far for every R1 Sasol put in.
Gerard van Hoek and Ted Black (author of Who Moved My Share Price?), develop skills through results-driven projects