Increasing need for big business to consult to entrepreneurs
With economic growth remaining a priority for South Africa, corporate involvement in enterprise development (ED) is proving a critical means of scaling-up SMEs and setting them on a path towards becoming potential private equity candidates, says Shawn Theunissen, head of CSR at Growthpoint Properties and Property Point (Growthpoint Properties’ enterprise development programme), in this month’s SmartProcurement.
As more South Africans consider entrepreneurship as a means to support themselves, the role of big business in enabling SMEs to go to market and actively compete in the economy is becoming imperative. “In order to address the socio-economic challenges our country is facing, the private and public sectors must find tangible means of empowering entrepreneurs with the skills to build sustainable businesses,” says Theunissen.
“This is particularly important in terms of scaling these businesses for long-term growth – and the point at which they will be able to access new funding options such as private equity (PE).”
With PE funding typically requiring an SME to be turning over in excess of R30-million PBT per annum, the starting point for many “next generation” entrepreneurial businesses will be approaching an incubator for assistance.
Although various corporates have already established business incubators within their organisations or invested in ED programmes, Theunissen maintains that the market is still not seeing the benefits of a high number of these interventions, especially with regard to making SMEs both “bankable” and sustainable.
“Because bankability and financial viability are directly related to sustainability, it is critical that incubators partner with SMEs to enable this, and subsequently create a platform for them to become potential PE candidates going forward.”
In considering trends among local PE applicants it is interesting to note that many are well-established family-owned businesses. “As such, you often have at least two generations of staff coming from within the family – having been groomed in terms of investing in the SME from the outset.”
However, this will not necessarily be the case in 10 to 15 years’ time when the current generation of entrepreneurs “graduate” and approach this level of profitability. “Many of these entrepreneurs do not come from family backgrounds where they were exposed to this type of thinking and way of doing business; they often do not have the requisite reference points or experience needed to make their SMEs sustainable in many instances,” says Theunissen.
“In these cases big business has a real opportunity to act as a ‘big brother’ in the true sense of the word, gearing SMEs towards financially responsible thinking and behaviour from the outset.”
This starts with their very first funding application – and understanding that, before this is even submitted, the business must have developed an appropriate business model that can support and make use of the very funding they are trying to access.
“By embracing the opportunity to add real value to SMEs and setting them on a path to one day turn over the likes of R30-million PBT, big business will simultaneously add value to their own supply chains, whilst having a meaningful economic impact,” concludes Theunissen.
If you are looking for answers about how to start your journey towards financial viability and make your business more bankable, we invite you to join us for a To The Point session during Global Entrepreneurship Week. Representatives from the four major banks will be present and will deal with exactly this issue. Visit Property Point for more details on how to apply.