Active monitoring and evaluation for entrepreneurship development

It was encouraging to notice that the OECD included entrepreneurship as one of the key recommendations for improving South Africa's long term growth rate. Their 2010 Economic Survey of South Africa recommends lowering the barriers to entrepreneurship. In particular they recommend "improved access to credit" to small business and the development of entrepreneurship and in comparison to other OECD emerging economies such action could contribute an additional 0.5% to the annual rate of GDP per capita growth rate. In their recommendations they single out "product market regulation" or introducing a higher level of competition in the South African market, which will improve entrepreneurial dynamism and spark innovation where we were found to have more restrictive regulation than Chile and Brazil. In short the recommendation is to simplify regulation and ease compliance. They recognize the "disconnect" between a very well developed and sophisticated financial system and the need for entrepreneurial finance that can offer more widespread access to entrepreneurs from the majority of the population.

Many professionals in the financial industry will tell you that access to finance is not the problem, but rather the skills to manage these financial resources are in short supply. It is also encouraging to see that Khula Enterprise Finance recently asked for an additional R1.6bn from government to roll out Khula Direct which will offer financial and development support in all nine provinces closer to where the need for such assistance is located. So at least there are some action on the ground and if we look at the basket of financial programmes on offer through institutions such as the IDC, NEF and the legislative framework around procurement and enterprise development we should have no shortage of entrepreneurial opportunities. Why is it then that the latest Global Entrepreneurship Monitor list SA on a backward trend in terms of entrepreneurial activity?

At the South African Startup Index we make it our business to talk to start-ups to get a better understanding about what is happening. Just recently I had a conversation with several business owners who started a business within the last three years and have just survived the credit crunch of 2008-2009. They all confirmed one thing that over the last 18 months it has become more difficult to do business with BIG business. One example is of a retail supplier that do business with both government and other large retailers in SA and government has not paid for more than 6 months while the corporate client expects him to carry the cost of import, delivery and packaging. Others report about long negotiation periods where they are requested to work on prototypes, produce physical examples and demonstrate their ability to deliver in good faith and on risk with no commitment of an order in sight. You do not need to be a rocket scientist to conclude that BIG business is not really in support of enterprise development and SME growth beyond what is convenient and suitable to their own cashflow terms and conditions.

We believe that this scenario leaves lots of room for improvement and the only way to achieve this is through active monitoring and evaluation. Ongoing reporting on procurement and enterprise development can offer insights into bottlenecks and problem areas and solutions can be offered that provide immediate impact. Active reporting linked to development finance solutions that monitors financial resource application in small business can also offer a more efficient and effective intervention strategies to prevent wastage and unproductive spending.

Entrepreneurship development and access to entrepreneurial opportunities can be accelerated if we introduce active monitoring and evaluation to entrepreneurs and financiers.

Recovery and Reflection

This is my first blog for 2010 and there are many exciting things to report on. The South African economy expanded by 0.9% in the last quarter of 2009 and many saw this as the first signs of taking a journey on the road to recovery. In October last year the IMF forecasted 4.1% growth for Sub Saharan Africa and 5% overall for emerging markets. The title of their report was “Sustaining the Recovery” calling for the need to keep the momentum generated by a variety of stimulus instruments to restore and rebalance global demand. Locally the recovery story was somehow muted yesterday with a 2.3 points drop in the business confidence index, but I’m confident that the overall growth and recovery story will become a more permanent feature of our local dialogue.

Last night we had our first chat with Tony Blewitt from the Entrepreneurs’ Network on ClassicFM where we looked at making the transition into a recovery. Coming out of a period of economic decline without many battle scars is a cause for celebration. Entrepreneurs should take stock of the what and the how giving careful consideration to what facilitated such good fortune and how the business kept abreast. This reflection should provide a rich resource of internal lessons that can be employed to achieve long term efficiency gains.

In particular, businesses that manage to achieve some efficiencies should look at maintaining those gains and expanding it into organisational culture. Irrespective of how BIG or small these efficiencies are, if it has no negative impact on the customer or product or service quality there should be a concerted effort to keep these practices in place. In the case of productivity gains it is important to use such momentum and keep the workforce committed to perform at this level. In addition to this is gives a great opportunity to get your human capital invested through open consultation that provide clear guidelines on the company’s sustainability and performance and how their efforts influence this. People will appreciate the fact that they could keep their employment during tough times and ongoing engagement around these dynamics can facilitate a higher level of commitment from all employees. Structural changes such as downsizing can perhaps be more challenging, but it is important to immediately settle into a business frame of reference that is appropriate for your new size.

What does economic decline means for the VC industry? In 2008 we still saw R12bn of new investments in the South African VC & PE landscape and although this was slightly lower than the 2007 number it still represented 25% of the deals and 6% of value for the activity for that period. One would expect that the 2009 number will be perhaps even lower, but at least deal flow did not dry up. It only means that entrepreneurs must be able to produce BIG solutions, exciting products and services with globally significant market potential. This can be a tall order in any economic climate and it calls for carefully crafted plans, accurate projections and a lot of stamina to sell the story. The South African Private Equity Congress kicks off Thursday 11 February. I’m sure we will be able to get a comprehensive overview of what happened in our space in 2009 from the SAVCA PE & VC Annual Survey. The congress is hosted under the title “Seeking out success in South Africa’s time of opportunity” which hopefully reflects the sentiment of the industry. If this is indeed the case we should have a very interesting year ahead of us for entrepreneurs and fund managers alike.

Fredell

fredell@sastartupindex.co.za