For observers of small business development it is desperately predictable. A government agency, corporation, municipality, academic institution or local entrepreneur stands up and declares the end of joblessness in South Africa. The solution is small business development, it says and, specifically, this pilot project — always a pilot — on which it is about to embark.
A year later the project lies in tatters, its champions angrily pointing fingers, its intended beneficiaries miserable at best, blacklisted and indebted at worst.
Or sometimes a project limps on for years on the strength of a single success story, an unfortunate business owner who happened to have received some help from it way back and is paraded relentlessly in front of a succession of development funders brought in to keep the project going.
Mobri Gigaba is in danger of becoming such a front. He has been featured on national TV as the thriving owner of a Chop-Chop trolley, a mobile fried-chicken franchise, and as a successful student in a New Venture Creations (NVC) Learnership, a business training programme.
What the TV programme fails to mention is that he is the only one of 67 trainees who managed to maintain some semblance of a business during the training project, which has all but collapsed.
The trainers, trainees and franchisor blame one another and the department of labour’s learnership system. The sponsor, Unilever, utters a terse “no comment” when it realises no positive spin is left in the project.
Just how typical this is of small business start-up projects in South Africa is not widely known because the damage is limited to R1-million or R2-million at a time — they are always pilot projects. The sponsors almost never follow up on the success or failure of their would-be entrepreneurs and when they do become aware of the waste of their money, they turn to other causes — schools, HIV/Aids, the environment — and leave small business development to those who have not burnt their fingers yet.
Even where there is awareness of mistakes made, the memory is not retained, which explains why they are repeated endlessly.
But what is it that makes small business start-up projects so prone to failure? What is so difficult about taking a few people, desperate for jobs, showing them how business works, setting them up and mentoring them into sustainable businesses? The Chop-Chop franchise is as good a case study as any.
It started, as usual, with the best of enlightened self-interest. Guy Johnson, the franchisor, saw a gap and designed a sort of mobile KFC to meet the clear need serviced thus far only by informal pavement chicken grillers. He also saw a gap in the economic empowerment market and the skills development system.
He made the charcoal braai stands and got Unilever to pay for them in return for branding them with their Robertson spice range and for scoring enterprise development BEE points. The Food and Beverages Sectoral Education and Training Authority (Foodbev Seta) paid for the training of the franchisees.
Johnson would make his money by supplying the raw material to the franchisees.
The Setas, agencies set up to administer skills development levies, have been set a target by the labour department to put more than 1 600 young learners through the NVC learnership annually.
To recruit and train the learner franchisees, the Foodbev Seta appointed Jobworx, a training business steeped in the labour department’s learnership methodology, which combines practical workplace training with a bit of classroom teaching — the modern version of a traditional apprenticeship.
Each of the 67 learners would receive a braai stand, R500 a month travel allowance and, after initial training in operating the trolley, would spend Monday in the classroom and the rest of the week trading under the mentorship of Jobworx.
Good on paper, but in practice the problems started almost immediately. Street trading permits were difficult to come by from the Durban municipality. Jobworx wanted more classroom time to ensure the learners got through the curriculum. The franchisor wanted more trading time because sales were way below break-even. The trainees complained of erratic supplies. Halfway through the training the braai-stands were recalled for conversion from charcoal to gas.
Learners’ interest and motivation dwindled, especially in the practical side of the course. Asked what they’re doing now, most say “nothing” or “looking for a job”.
This points to probably the single-biggest mistake made by most small business start-up projects: recruiting the wrong candidates.
Small business developers in South Africa habitually look towards the unemployed saying: “If you can’t find a job, start your own business.” It is cruel advice, because it is several times more difficult to run a business than to get a job. Furthermore, work experience is crucial for building a business beyond survivalist trading, which itself is very hard.
Ivor Blumenthal, chief executive of the Services Seta, the custodian of the NVC learnership, says: “This national, absolute captivation with the notion that it is the youth that are best placed to be entrepreneurs and emerging businesses is what has created this high, high, high failure.
“The reality is that the wrong people are being given New Venture Creation grants, because [the question of] who gets them is driven by the National Skills Authority, which says they have to be the youth [while] the experience is that the more successful new businesses are those created by older people who understand cash flow crises, who’ve hit the big wall before,” he says.
“Unfortunately, those people who are being given NVC grants are people who’ve never had to go looking, who don’t understand cash flow crises, who don’t understand the banking system or the cash flow cycle. And what happens when they do manage to get funding for their businesses, the first thing they do is run off and buy a car, quite frankly.”
Terry Davies of Jobworx, who was responsible for the Chop-Chop recruitment, insists that applicants were screened carefully, but she couldn’t say how many had previous work experience.
It seems hard for development workers to grasp the counter-intuitive notion that the best candidates for small business development are not to be found among the job-seekers. The best candidates have jobs already, where they gain experience and skills, while looking for the right opportunity to leave and start their own businesses. Many already run self-started businesses on the side.
Trainers and development workers, who often lack hard business experience and knowledge, seem to feel more comfortable teaching job-seekers than real entrepreneurial types.
Davies, who describes herself as a business person, says she has learned “that service providers in the [skills development] industry are less important …What we have to get in is proper businessmen as the mentors”.
On the face of it the organisers of the Chop-Chop franchise have certainly made some fundamental business mistakes which could suggest a lack of proper business skills on their part.
A basic principle of franchising, for example, is that a business model must be tested thoroughly before inflicting it on someone else. Even where franchisors use their first franchisees as guinea pigs, they tend to do it one at a time. Rolling out an untested model to dozens of untrained franchisees looks like a serious lack of business judgement.
Johnson maintains that the Chop-Chop model has been tested rigorously, but concedes that the trolleys had to be recalled to adapt them for gas after the training started.
Davies says the financial model of the franchise was wrong and had to be adapted.
The Chop-Chop experience also shows that external trading conditions are hard for South African start-ups.
Walter Kathi, one of the trainees, says he stopped trading when he suffered police harassment because he didn’t have a trading licence from the municipality.
Several attempts by the organisers to gain licences for the trainees failed because of bureaucratic bungling, which was solved only when the city manager was approached, says Davies.
But real entrepreneurs tend to scheme their way around external obstacles such as these — witness the millions who trade on the high streets every day. It’s when bad advice and inappropriate training are given to the wrong candidates that the problems become insurmountable.