THE South African government says it sees small business as a critical sector of the economy in terms of job creation, but is enough actually being done to create sustainable enterprises?
Failure rates among most small- and medium-sized enterprises (SMEs) are high at the best of times. In South Africa we have an additional dynamic to deal with, namely the social responsibility aspect of righting historical imbalances created by apartheid.
In answer to this challenge and as part of government strategy, state-sponsored institutions have been established to throw money at the problem in the hope that this will bear fruit in a few years' time.
The sustainability of this approach has to be called into question, especially at a time when the economic crisis is putting immense pressure on small businesses.
The reality is that ill-constructed SMEs funded during boom times are going to find the going very tough in adverse market conditions.
Social enterprises can mean big bucks
The Industrial Development Corporation (IDC) says it has about R70bn available for investment in 2009-2010. That's a lot of money which could be put to good use - if placed in the right hands.
A couple of weeks back I spoke to Peter Shrimpton, who runs Heart Social Investments. Peter's business is an investment company which sources funds for the development of social responsibility projects. These can be turned into long-term sustainable small enterprises, which in many cases operate at a profit.
According to his data, the UK has about 55 000 social enterprises. In the US about 1.2 million non-profit corporations generated about $672bn last year; we're not talking chump change here.
One of the things Peter pointed out was that many of these ventures need some intellectual know-how to keep going. This is where corporate sponsors and investors can actually make a bigger difference by contributing skills rather than just cash.
Follow the franchisors' lead
For example, these small business owners need to know how to market themselves. They must also have the financial skills to keep records so that they can manage the money they have been allocated.
Money in unskilled entrepreneurial hands will be wasted if those hands are not guided properly.
Ask yourself why the franchising model in South Africa has been so successful with strong home-grown franchises. The answer is that the big name franchisors are used to mentoring and holding the hands of budding entrepreneurs, and making sure that their businesses are given the best chance to succeed.
This hand-holding and the slick way the private sector skills its franchisees is a big factor in achieving success.
Now, my question is: does an institution such as the IDC have the same ability to transfer and impart skills into the businesses it invests in? Is government tapping the private sector for money to fund SMEs, but not for the skills it can bring to the party?
If South Africans are serious about plans to build a sustainable small business enterprise, we must recognise that all the money in the world will not make this happen without a culture of mentorship and skills transfer.
Fin24.com