EARLIER this week I read an interesting piece of research written by Professor André Ligthelm at the Bureau of Market Research on the viability and survival rate of small businesses in a Soweto study group.
In 2007, there were 300 firms established and monitored by a panel. By 2008, 38.3% of these had closed down and in 2009 the failure rate had risen to just shy of 48%. During the same period, another 21 businesses were started in the study area.
Ligthelm's brief was to look at the impact of Soweto's new shopping centre on small firms in the sector. I don't want to delve too much into numbers, but would rather discuss the concept of sustainability.
When I first read these findings, my immediate response was: but if they had created a sustainable environment for small firms, the failure rate would have been much lower.
I let this thought roll around in my head for a bit, and then it occurred to me - nobody starts out trying to create an unsustainable business. Yes, there are bad business plans, but at the end of the day no one goes out there to build something that won't last.
"Sustainability" is a pretty grandiose concept which, if you listen to the consultants, involves everything from tree-hugging to looking after the environment to supporting others in your area. But at the very core of it, it comes down to sustaining one person - and that is the business owner.
Good PR, great chance of failure
We read fantastic press releases from the banks and other financing organisations about sustainable projects, but statistically these businesses are being killed with failure rates of between 48% and 98%. If you drill down, they are being treated as little more than charity cases wheeled out for a bit of PR.
Don't get me wrong, this is not a bank-bashing exercise.
What these statistics show is that there is a problem with the whole concept of sustainability - and it's not access to money.
At this point, I suspect you are quickly scrolling to the bottom of the page to write some feisty comment about your mentoring programme and how any small firm owner can tap into this network or that market expert if they so choose.
Fantastic - but it still doesn't address the issue of sustainable small business, which requires a more comprehensive plan than simply saying: "Here's some money, and here is a mentor or two to help you along."
Sustainable small business is not about throwing a bit of money at an arts and crafts business in Soweto, hoping it will create some employment and turn into a long-term investment. Nor is it real empowerment.
Take the longer view
Rather, it is a case of adopting a longer-term view and identifying economically feasible areas for sustainable small- and medium-sized enterprises (SMEs) before making investments. Then you can collaborate with partners to make it viable for other firms to be established.
It's great for PR purposes to say you are investing in a township and helping previously disadvantaged individuals or enterprises. However, you are doing them no favours by investing in something which on its own is not sustainable, with near-guaranteed failure.
In conclusion - step back from the noise that is supposed to be sustainable small business, and assess whether your resources are being applied in the right way.
Engage other businesses in the area rather than having lots of little, individual SME projects on the go. Everybody scores if the failure rate drops.
If you get that right, you might just be on the path to sustainable small business.
- Fin24.com