Small businesses need more than funding to grow and reach their potential

Small businesses and entrepreneurship are widely viewed, both locally and globally, as a key engine of economic growth and job creation, with their advantages of agility, capacity for innovation and potential for scalability.

However, the high failure rate of SMMEs is well-known, and SA ranks higher than the global average.

Supporting small business development as a means for inclusive economic growth has long been a central objective in our democratic era economic policy.

Yet, after three decades, government itself describes the SMME sector as characterised by low survival rates and growth “stagnant at best”, with ineffective support a key factor holding back its expansion potential (2023 National Integrated Small Enterprise Development framework).

In its Q1 2024 SMME update, the Small Enterprise Development Agency reported a significant decline in the number of SMMEs; and, more concerningly, declines in employment and real turnover at 4% each.

These lacklustre results are despite government spending an estimated R6bn annually on direct financial support to small enterprises in the form of loans and/or grants, according to calculations by the Centre for Development & Enterprise.

Despite the existence of a focused department of small business development and integrated Small Enterprise Development and Finance Agency, government initiatives to support small businesses remain fragmented across multiple departments and entities, with little coordination.

Add to this the many private sector initiatives in enterprise and supplier development by individual companies and by foundations, NGOs and so on.

The current state then, after 30 years of interventions and initiatives, is that there is a lot of activity and a lot of money being spent, but little in the way of tangible or measurable results.

Clearly, something must change. One cannot keep doing the same things and expect different results.

Much of the focus in small business development is on funding — either by government or the private sector seeking to offer funding as a solution, or in small enterprises believing that finance is all they need to succeed.

There is no shortage of funding, but our experience on the Entrepreneurship Desk at the Business Chamber has shown that money is not the “silver bullet” for small business success.

Government agencies are willing to fund the development of a business plan aimed at enabling a small business to apply to banks or other government agencies for funding.

Yet, bankers tell us they regularly find business owners unable to present and engage with a business plan that looks solid on paper.

The bank is interested, but the business owner is let down by a plan that was developed without incorporating their practical inputs and realistic commitments.

Up to 90% of SMMEs are rejected by government agencies for funding, despite having a business plan that was funded by government.

A further challenge is “training fatigue” — SMMEs often find themselves in a cycle of workshops, seminars, short courses, with generic content and no clear end goal or follow-up to assist them in implementing what they have learnt, and monitoring the results to identify further needs.

We recently celebrated the Chamber’s Entrepreneurship Desk’s third anniversary, having grown to about 350 active member businesses, with about 79% black owned and 54% female owned.

A key learning in this time has been that small businesses are held back not so much by lack of funds, but by lacking clarity on how to make a good idea or a special skill work in practice as a business.

What small businesses and entrepreneurs need most is to determine their market position and strategy, understand how to make their operations most efficient and cost-effective, manage their cash flow, how to target their marketing, drive sales, and access markets.

This needs training, mentoring, networking, access to information on opportunities; things that money to buy equipment or a business loan can’t provide.

The E-Desk’s starting point is a gap analysis to identify the needs of a specific business owner, and to address those through targeted training and practical support, so they can develop a business plan that is actionable and fundable.

Often the end result is that funding is not actually the need — by improving strategy and operations, the business performs better and finds they can succeed without the need for loans or grants.

We take a value chain approach — identify needs, implement training and capacity development, compile an actionable business plan, facilitate linkages to opportunities and markets. Funding comes last.

Seeing and hearing the success stories of E-Desk members at our anniversary event proved the success and impact of this approach.

Some spoke of having expanded premises, employed staff or moved from selling their product at markets to supplying major supermarket chains.

Others spoke of taking up opportunities to export, having learnt about the necessary documentation and processes; or the benefits of having access to a financial expert, gaining insights into costing and pricing, and how to leverage suppliers.

The overall message of growth from these small business owners was that they had gained in confidence and expanded their business visions and horizons.

If we can continue expanding practical and tactical actions that actually help small businesses to grow meaningfully, one step or one business at a time, then there is hope.

Lunga Mjodo is strategic initiatives ganager at the Nelson Mandela Bay Business Chamber.

The Herald