There are many concerns about the current state of the local economy. The rate of joblessness is problematic, the rise in petrol prices is ubiquitous, the supply of electricity is a real tragedy and stagnant economic growth is lingering – in which order they flow, is up for debate.
Yet, one of the biggest threats to our economy is the number of entrepreneurs who have bowed out following the aftermath of the Covid-19 pandemic and the subsequent economic fallout ensuing from the Ukraine-Russia war. These entrepreneurs have shut their doors and are firmly in defence mode as they contemplate the weight of uncertainty.
Despite this, there is a segment of entrepreneurial businesses that are flourishing and are riding a wave of digital innovation and disruption, despite the uncertainty that exists.
Indeed, the term “economy agnostic entrepreneur” has been coined by Adrian Gore, the chief executive of Discovery and chair of the SA SME Fund, in an effort to define this phenomenon. This entrepreneur runs a business where revenue grows even in times when the economy is shrinking. Often their businesses are tech or tech-enabled. This allows them to flourish with the growing demand for tech solutions, disrupting existing models with their own business models, which are seemingly more dependent on idiosyncratic risk than market risk. Idiosyncratic risk refers to a risk that is specific to a particular individual asset.
More importantly, the economy agnostic entrepreneur is able to grow revenue, attract capital and create jobs at a far higher rate than other segments because growth is largely self-determined.
Difficult times foster growth
It’s important to note that difficult economic times often contribute to the growth of the economy agnostic entrepreneur. It might seem counterintuitive, but their tech-enabled solutions often appeal to corporate clients who are keen to invest in cost-saving solutions and are also more open to change in times of market pressure.
In a thriving economic environment, corporations are focused on driving top-line growth and often frown on new solutions due to the added effort and time to implement — there is just no incentive to change when things are good. It is often only in a crisis that the cost of an old solution is most exposed as being too expensive, thus creating opportunities for innovation to replace and disrupt.
Job creation in tough times
At Endeavor South Africa, we have seen the impact of the economy agnostic entrepreneur on job creation. As an NGO, we are actively working with 100 local businesses to support them with access to talent, capital and markets. The majority of these have an annual revenue of R20-million or more; the largest 30% of these have grown at an average of 63% per year and this rose to 70% during 2021, contributing R6.8-billion in revenue in 2021.
In regard to job creation, these 30 companies are growing their headcounts at 21% a year on average, with the past year seeing that number increase to 31%. They created an additional 2 000 jobs in 2021, of which 80% are filled by young black South Africans. The added growth is attributed to an increase in demand from local and international corporates for solutions that accelerate their sales and help reduce costs.
Importantly, when looking at the economy agnostic entrepreneur’s contribution to job creation, the multiplier effect cannot be understated. Entrepreneurs have a tendency to support other entrepreneurs and impact the overall entrepreneurial ecosystem. In fact, Endeavor has research that shows that high growth entrepreneurs have a 20 times multiplier in their ecosystems.
In this regard one can point to Melvyn Lubega, co-founder of tech unicorn Go1, a corporate e-learning provider. Lubega is an angel investor and actively involved in mentoring entrepreneurs who are at an earlier stage in their business growth. He also serves on the board of Endeavor and as advisor to the national department of science and innovation. In the six years since its founding, Go1 has raised $345-million in venture capital. There is no doubt that Lubega has raised the profile of entrepreneurship, and this is exactly what our economy needs.
Encouraging more economy agnostic entrepreneurs
How then, can this type of high-growth entrepreneur be nurtured? The biggest step, we believe, is for our government to address a very specific problem encountered by entrepreneurs on their path to scale up and global expansion.
To play on a global level, entrepreneurs require international scale and venture capital funding. While the local venture capital market is growing, it’s still only 0.15% of the 2021 global venture capital market of $643-billion. The biggest impediments for a South African entrepreneur to scale up are the red tape and costs associated with moving their business’s intellectual property and business headquarters overseas. These costs are extremely prohibitive and put South African entrepreneurs at a disadvantage compared with other African and emerging markets. In addition, it both discourages international investment and, more worryingly, encourages South African entrepreneurs to set up shop elsewhere.
In order to enable these high-growth businesses to play on a global scale, our government must address these policies and ensure we create not just a level playing field, but a welcoming environment for budding entrepreneurs.
Being headquartered overseas does not mean job opportunities are now lost locally. The company’s main offices typically remain in South Africa, with further job opportunities now fuelled by the company’s international expansion and subsequent injection of venture capital funding. In 2021, the 30 companies referred to above attracted R5.8-billion in venture capital, creating thousands of incremental jobs for local youth.
There is no doubt that the South African economy benefits massively from the rise of more economy agnostic entrepreneurs. These high-growth entrepreneurs, and the jobs they are creating for our youth, are examples of pure determination, a will to never give up and a passion to succeed by forging paths that others are scared to tread. Let’s help our entrepreneurs forge a future that is brighter for themselves and in turn for South Africa and our youth.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.