SME & Government

SMME’s in townships ability to grow and prosper

Introduction

Minister Lindiwe Zulu’s presentation (15 May 2015) the development of small business in South Africa is inspiring. A healthy growing small business and co-operative sector in townships will not only change the face of townships, it will change the face of South Africa. In her message is the promise of townships no longer being synonymous to poverty and social ills, but proud areas where families and the economy grow and prosper.

It is common knowledge that SMMEs built on a solid business foundation with staff consistently delivering quality work to customers that pay on time, is one of the key solutions to employment in South Africa. This statement already indicates several of the problems inherent in SMMEs in general.

  • They lack a solid business foundation. For some grants it is a requirement to attend a two or three day business programme, which is an excellent principle. The problem is often that, in the same class, taught in English, there would be people who worked in a bank and people that is functionally literate and that can hardly speak English resulting in both groups being frustrated and the learning opportunity is not optimized.
  • Staff delivering quality work is the next challenge. Due to the fact that many of these entrepreneurs are young and inexperienced in business, they do not understand the critical importance of consistent quality and the training programmes do not stress this aspect sufficiently. Neither a business, nor government can tolerate inconsistent quality and have to pay for it, resulting in contracts being cancelled and job opportunities being lost.
  • The last and equally devastating problem is customers paying on time. To be paid by corporates or government in South Africa is a challenge for an established business, but at least an established business can manage accounts being paid on 60 or 90 days, but a township entrepreneur cannot. For the entrepreneur just to register on a vendor list, to ensure they get work and get paid, requires many hours on line – costing data, visits to a bank – costing time and transport, registering a business, more documents and trips to the city to name but a few.
  1. Do SMMEs have the skills to meet demand when it comes to the government’s mandate for procurement and the growth of the township entrepreneur?
    The answer is yes and no. The question to be asked is what are the skills required by government? Is it skills to clean offices, to provide IT services or to procure stationary? To provide a cleaning service might sound like an easy option, however the business and people skills that will be required will be significantly more demanding than procuring stationary but also more viable.

    The solution would be to ensure create entrepreneurial training programmes that provide continuous development opportunities as the entrepreneur grows and develops. The procurement process ought to be aligned with that, i.e. contracts for entrepreneurs just starting out, entrepreneurs that has been in business for one year and showed specific growth, etc.

  2. What are the biggest challenges in this arena and what are the solutions
    The biggest challenge is to manage expectations on both sides.
    Government needs to provide business opportunities but they must realize that the suppliers would be inexperienced, often young people, with no or very little background in running a business. They ought to provide mentors to guide these young people to deliver on the client’s SLA (Service Level Agreement) and grow their own business.

    The entrepreneurs need to understand that they have a responsibility to deliver on the client’s SLA, in this case the government. However, they also need to understand that they cannot depend on government only to keep them in business. They need to hustle and get other customers as well – and deliver on their expectations.

  3. What can be done to support the SME in this area?

    Determine the entrepreneurial personality of the person.

    We must realize that not everyone is an entrepreneur. For some young people it would be better to work together with a group in a co-operative – and co-operatives are also included in the government’s procurement mandate. So the first aspect to be dealt with is the personality of the person. The person ought to be guided to choose the correct business format and the person ought to be made aware of personality characteristics that might be a problem in business, e.g. being more family orientated than results orientated might cause the person to give away all the profits and not build a business.

    Provide training on the level of the person and the contract.

    It is imperative that the training programme needs to be on the level of the potential entrepreneur and that there are continuous development opportunities. When an entrepreneur proved that he/she can deliver on one level they ought to be allowed to “pitch” for a bigger and more difficult project – but only after the next level of entrepreneurial training was successfully completed.

    Provide a business coach

    Having a business coach has a significant impact on the survival rate and success of any business and more so in the case of a small business. The government ought to consider incentivizing successful business people to coach entrepreneurs. Not only will it enhance the survival of the business, it will also bring the entrepreneur into a network of successful business people – with business opportunities.

  4. What are the benefits of the SME in government supply?
    The most important benefit is that it will enable entrepreneurs to get going. It can be that one opportunity that will allow the township entrepreneur to break out of the poverty mindset and experience success. However, without training and coaching many potential successful entrepreneurs might not succeed.

  5. Can the SME truly cope with government procurement demand and payment delays, among other things?”
    The answer is simple – NO. Established businesses cannot even cope with that! If government is serious about establishing a sound entrepreneurial foundation in the economy, they need to attend to the way they procure and pay. But even if that is put in place and the entrepreneur is not prepared to run an effective business, the government will not deliver on the mandate.

Closing remarks

When you build a house you cannot decide that you do not need steel or you do not need stones in the foundation mix. If you want a sturdy house that would be able to withstand the weather and be a safe haven, you need everything that is required. The same principle counts for an SMEs. The skill set I would recommend is:

  • marketing, business management, customer service and financial management

embedded in

  • a personality that wants to succeed and leave a legacy

surrounded by

  • business coaches that give guidance and a government that facilitates these new entrepreneurs to start and grow a business.