Are Early Stage Entrepreneurship Development Programmes Misaligned to South African Reality?
Avela Gronemeyer
One of the benefits of having done the kind of research that we’ve done to put together esdsa.com is that we’ve come across a lot of different entrepreneurship development programmes. We’ve got 260 on the website. What we’ve noticed is that a lot of early stage programmes focus on training and coaching with very few providing funding at the seed and early start-up stage. Said training can sometimes go on for months at a time. In a country like ours and one where entrepreneurship is being touted as the answer for young graduates and unemployed youth, we have to ask ourselves if this makes sense. I was recently at a forum with some young, bright entrepreneurs. I got to talking to an entrepreneur that’s part of a team that’s building an exciting learning game. When I showed him esdsa.com, he got excited and said, “I really like the platform and it really makes information for people like ourselves readily available and one does not have to spend money to catch a taxi to an incubation hub to get all this information”
What struck me, when I reflected on our conversation, was the consideration of saving taxi money as one of the benefits of using the website. We had thought about the time savings and improved ease of getting the entrepreneurship development support one needs when they need it, but here was a situation where transportation was reflected as a potential barrier. This got me thinking about the burn rate for early stage entrepreneurship ventures. Burn rate refers to the amount of cash that a company consumes each month in order to continue operations and helps start-up to understand how much time they have to continue building the venture before they will require new funds either through new investment or revenue generation. On a less formal note, this includes the money that entrepreneurs use to survive while pursuing their venture, any money used to develop prototypes or samples, any money used for transportation to and from meetings, courses, sales pitches etc. Some leading thinkers in entrepreneurship development suggest that it takes at least 6 months to determine the viability of a business idea or concept and even then, it does not mean that you will be seeing positive cash flow. Now consider the burn rate over that “concept testing” period. Now if we consider the backgrounds of the majority of the people that we are encouraging to take on entrepreneurship, we must ask ourselves if this is realistic.
Most programmes have been designed using best practice entrepreneurship development practice. Whilst this is wonderful, in that it brings with it wonderful methodologies that allow the quick testing of ideas, concepts and products as in lean start-up methodologies, it may also bring with it foreign assumptions that may not align with South Africa’s reality. In many start-up ecosystems, such as those in the USA and Europe, early stage funding typically comes from “friends, family and fools” – the entrepreneur invests in himself and / or obtains investment from someone close to them. Ours is a country where the overwhelming majority of young people don’t have friends and family with capital to spare – they have other priorities including surviving and sometimes being the only breadwinner for up to 9 people. Some programmes exclude entrepreneurs that cannot make an own-capital-contribution and if you add this contribution requirement to accumulated burn rate over the time that the entrepreneur strives to secure funding or revenue, then this can even be more exclusionary. Others still, seek out only those entrepreneurs that are pursuing their venture full time, which considering the financial constraints faced by many, creates obvious difficulties.
What then happens to the ideas and innovations of bright young South Africans who can’t afford to invest in themselves for months on end? They fall by the wayside and not because they are not viable but because they are the ideas of someone with insufficient capital and a social network that is composed of low income individuals.
Of course, we are not suggesting that funding should be thrown about without regard to assessing risk. What we are suggesting, however, is that the reality of South Africans with limited resources should be considered in how ESD and entrepreneurship development support programmes are designed. We are suggesting that more funding needs to directed at early stage entrepreneurs and innovative methodologies should be found or devised to quickly assess the viability of business ventures so as to invest much earlier in entrepreneurs and their ventures. At the moment, the entrepreneurship development ecosystem is reminiscent of how banks often only start to offer you money when you no longer need it. Similarly, there are a lot of programmes investing in the entrepreneurs that have already made it. Particularly those that have 7 different investment offers in front of them.
Of course there are those entrepreneurs who beat these odds and find a way to succeed in spite of these constraints, but these are the exceptions. Do we want every brilliant idea and viable business concept to jump through fire rings and conquer dangerous valleys? Probably not. We just want to know that it’s a viable idea and business concept. There are quicker, easier ways to determine this.
We believe that if we are to see the socio-economic transformation that we desire and is intended by the Enterprise and Supplier Development code within the codes of good practice, we need to start designing and / or adjusting our ESD and entrepreneurship development programmes to speak to our reality. There is an incredible amount of talent and tenacity out there that is not being leveraged. If we look at the size of the unemployment challenge that we face, we need everything we've got.
What struck me, when I reflected on our conversation, was the consideration of saving taxi money as one of the benefits of using the website. We had thought about the time savings and improved ease of getting the entrepreneurship development support one needs when they need it, but here was a situation where transportation was reflected as a potential barrier. This got me thinking about the burn rate for early stage entrepreneurship ventures. Burn rate refers to the amount of cash that a company consumes each month in order to continue operations and helps start-up to understand how much time they have to continue building the venture before they will require new funds either through new investment or revenue generation. On a less formal note, this includes the money that entrepreneurs use to survive while pursuing their venture, any money used to develop prototypes or samples, any money used for transportation to and from meetings, courses, sales pitches etc. Some leading thinkers in entrepreneurship development suggest that it takes at least 6 months to determine the viability of a business idea or concept and even then, it does not mean that you will be seeing positive cash flow. Now consider the burn rate over that “concept testing” period. Now if we consider the backgrounds of the majority of the people that we are encouraging to take on entrepreneurship, we must ask ourselves if this is realistic.
Most programmes have been designed using best practice entrepreneurship development practice. Whilst this is wonderful, in that it brings with it wonderful methodologies that allow the quick testing of ideas, concepts and products as in lean start-up methodologies, it may also bring with it foreign assumptions that may not align with South Africa’s reality. In many start-up ecosystems, such as those in the USA and Europe, early stage funding typically comes from “friends, family and fools” – the entrepreneur invests in himself and / or obtains investment from someone close to them. Ours is a country where the overwhelming majority of young people don’t have friends and family with capital to spare – they have other priorities including surviving and sometimes being the only breadwinner for up to 9 people. Some programmes exclude entrepreneurs that cannot make an own-capital-contribution and if you add this contribution requirement to accumulated burn rate over the time that the entrepreneur strives to secure funding or revenue, then this can even be more exclusionary. Others still, seek out only those entrepreneurs that are pursuing their venture full time, which considering the financial constraints faced by many, creates obvious difficulties.
What then happens to the ideas and innovations of bright young South Africans who can’t afford to invest in themselves for months on end? They fall by the wayside and not because they are not viable but because they are the ideas of someone with insufficient capital and a social network that is composed of low income individuals.
Of course, we are not suggesting that funding should be thrown about without regard to assessing risk. What we are suggesting, however, is that the reality of South Africans with limited resources should be considered in how ESD and entrepreneurship development support programmes are designed. We are suggesting that more funding needs to directed at early stage entrepreneurs and innovative methodologies should be found or devised to quickly assess the viability of business ventures so as to invest much earlier in entrepreneurs and their ventures. At the moment, the entrepreneurship development ecosystem is reminiscent of how banks often only start to offer you money when you no longer need it. Similarly, there are a lot of programmes investing in the entrepreneurs that have already made it. Particularly those that have 7 different investment offers in front of them.
Of course there are those entrepreneurs who beat these odds and find a way to succeed in spite of these constraints, but these are the exceptions. Do we want every brilliant idea and viable business concept to jump through fire rings and conquer dangerous valleys? Probably not. We just want to know that it’s a viable idea and business concept. There are quicker, easier ways to determine this.
We believe that if we are to see the socio-economic transformation that we desire and is intended by the Enterprise and Supplier Development code within the codes of good practice, we need to start designing and / or adjusting our ESD and entrepreneurship development programmes to speak to our reality. There is an incredible amount of talent and tenacity out there that is not being leveraged. If we look at the size of the unemployment challenge that we face, we need everything we've got.