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How to raise a unicorn

Oct 30 2018 06:02
Mikael Samuelsson

Apart from being a mythical creature, a unicorn is also a privately owned startup valued at over a billion dollars. According to data-crunchers, CB Insights, fifty-three companies joined the unicorn menagerie this year.

One company, Meicai, was recently valued at $2.8bn. Founded in 2014, the company connects small and medium-sized restaurant owners across China with local farmers through an app. Owners can order speciality produce directly from farmers, cutting out the middleman and disrupting traditional supply chains.

Nubank, founded in 2013, offers a no-fee credit card on its app. MedMen started turning dingy cannabis dispensaries in Southern California into trendy retail outposts in 2010, and now operates eighteen of them.

The CB Insights report shows that 47% of the 266 or so unicorns in the world are in the US, 30%are  in China, 6% are in the UK, 4% are in India and 2% each are in Germany and Israel.

"No other country has four or more private companies valued at $1 billion," the report says.

The elusive African unicorn

Just three unicorns are in Africa – including Nigeria’s e-commerce giant Jumia and South Africa’s food and beverage Promasidor Holdings and Cell C.

This poor showing is not for a lack of trying. This September alone, Eskom has its Business Investment Competition. It hosted the awards ceremony at the Indaba Hotel in Fourways, Johannesburg, and gave away R1.3m in prizes.

Samsung South Africa mentored 19 local startups at a bootcamp in Cape Town as part of its employee volunteer programme. IBM South Africa launched a new startup accelerator in partnership with Tshimologong Digital Innovation Precinct to help growth stage tech and digital startups. It will run over six weeks starting in October.

For all this effort and support, the odds of these start-ups growing to become unicorns is at under 1%, according to CB Insights. So how can South Africa improve its chances of getting a mention on a CB Insight report in the future?

At the top of the list of priorities is the need to improve education, nurture a specific kind of culture and stabilise the environment in which business is to operate.

Start with education 

On average, education is the only thing that will increase the quality of entrepreneurial efforts in South Africa.

Specifically, we need an education system that focuses on creating generations of problem-solvers with an "I can do capacity", rather than job seekers.

Behind every successful enterprise there are nine failures. It’s difficult to start a company, and without the right education and experience, it’s almost impossible. Sadly, right now, the education system appears to be killing off rather than nurturing its future entrepreneurs.

A poor education greatly undermines success in any economic ecosystem. According to the Global Entrepreneurship Monitor, a longitudinal study of entrepreneurship that takes an annual snapshot of the state of entrepreneurship in participating countries around the world, there is a positive correlation between the level of education that an entrepreneur receives and their likelihood of starting and running a business.

More than that, the better educated an entrepreneur; the more likely they are to start high growth innovation businesses that also create jobs. And good education goes further than just creating entrepreneurs it creates better scientists and researchers too that can develop technology and innovation as the foundation for the future.

In the end, it also increases competition to perform, and if South Africa entrepreneurs are competitive on a global scale it will have an impact both in South Africa and beyond.

Filling the support gap

The environment in which entrepreneurs will be setting up shop is also crucial.

There is a reason that there are environments that generate more startups than others. And why do Prague and Oxford, for example, produce more Nobel prize winners than other cities?

These places share a few things in common: density of knowledge, competition, resources and an infrastructure that supports multidisciplinary meeting places.

Currently there is a dearth of such places in Africa. While a recent World Bank ease of doing business index ranks South Africa 82 out of roughly 190 economies, and the Doing Business in South Africa 2018 report shows cities in the country are making progress in improving the business environment for SMMEs, much more needs to be done to create a stable environment in which companies can operate, grow and compete without detrimental surprises.

More than that, business accelerators and incubators, and other support programmes, must offer relevant guidance and support – and this needs to be monitored and evaluated. This support also needs to be targeted, recognising that small to medium enterprises and innovation-driven enterprises operate in entirely different contexts and require different kinds of support.

Necessity entrepreneurship, survivalist entrepreneurship, has little to no impact on economic development. Small to medium-sized businesses can form the backbone of an economy; they do in many countries. But if you want decent economic growth and significant job creation, you really need high growth potential entrepreneurship.

These are fast-growing new firms, the unicorns.

Universities have an important role to play here. Besides offering entrepreneurship education programmes, tertiary education providers have started taking a keen interest in exploring models and support programmes that could facilitate successful entrepreneurial activities and start-up of new ventures, which is critical if they are to play an active and significant role in entrepreneurship promotion.

Mythical creatures vs. reality check

Without a healthy entrepreneurship ecosystem that specifically focuses on fast-growing new firms, South Africa will never achieve the ambitious targets that the president hopes for; job creation is not going to come from established firms or state-owned enterprises which are shrinking currently.

Think of it as a soccer team. If we really want to compete with the best, we need to have a little bit of talent, a big chunk of hard work, state-of-the-art knowledge and capacity, a system that supports and enhances both the individual and the team - and a culture of winning based on our own capacity and knowledge.

Mikael Samuelsson is a professor at the UCT Graduate School of Business. He hails from Sweden and his expertise is in entrepreneurship. 

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