By: Anke Schaffranek, York Zucchi and Marc Ashton
The SME ecosystem in Emerging Markets is broken and it is having a detrimental effect on economic growth in these regions.
While both the public and private sector in South Africa wax lyrical about the importance of small businesses, there is not even an agreement on how many registered small businesses there are in the country – yet we are expected to develop a sustainable ecosystem where these SMEs can flourish, employ people and fuel economic growth without having actionable data on hand.
There has been plenty of focus on the funding side of the equation, but this is not where the challenge lies. To highlight this, there has been an explosion in venture capital raised through Section12J and yet these funds can’t find suitable investments for this capital. Similarly, an initiative out of the European Union (EU) has made available funding to develop 20 000 SMEs in South Africa over the next 4 years – what they really want to know is that a reasonable percentage of those SMEs that they fund will be sustainable or survive in the long run. They want to know that the economy that they invest in is growing and the entrepreneurs they back will be able to find clients and opportunities both locally and abroad.
This is where the SME Movement believes in its mission to connect 1 million SMEs in 2019 with access to new markets and opportunities.
Over the past 18 months, we have been developing infrastructure and a series of inter-connected portals around the world that allow SMEs to register at no cost and post or access opportunities. With over 15 000 members in 83 countries, we have taken the first steps to democratize access to markets.
What have we learnt in that process?
Being a client is more than just about cash
While entrepreneurs might be dreamers (of big ideas), they’re also a practical bunch and actually very few of them post about needing funding. Many simply want the opportunity to pilot their product or service inside of potential customers and get market feedback.
There have been some good initiatives with internal accelerator or incubator programmes inside of corporates and good networks are built around these relationships. We have a technology entrepreneur who has developed a new locking / anti-hijack system for cars – he’s going to battle to get into an accelerator initiative but what he really needs is an introduction to an OEM in the automotive space.
SMEs can get better at defining “clients”
We run a series of workshops on how SMEs can get better at finding clients and many SMEs battle to crystalise what it is they aim to do or what connections they need to make to improve their access to clients.
Consider for a moment the statement: “We want more clients” – this is a statement that every SME makes daily. Very rarely do they unpack that statement to explain what type of client they want:
- Is it a pilot site for testing a concept?
- Is it a university that will provide you with validation or certification of technology?
- Is it a reference client that you are prepared to service at no charge to say you did work with so-and-so?
- Is it a distribution partner to help plug a gap in your business?
There’s a big world out there!
One of our most interesting opportunities posted in the SA marketplace involves “Insect Repellent Socks” – we have no idea whether it will take off or not but what is refreshing about this particular opportunity is that it is South African technology with export potential.
While there is a lot of focus on Foreign Direct Investment (FDI), the real opportunity comes from selling SA products into the global marketplace. We find it refreshing when we see South African products like African dolls or medical technology devices out of South Africa being positioned for export sales rather than just the local market.
Big businesses battle to deal with little business
One of the areas where we spend a lot of time, is encouraging bigger businesses to open up their supply chains and give SMEs the chance to participate in the procurement process. “But it’s so hard to educate new suppliers and I don’t want to be inundated with enquiries about our systems, we would rather just go with those we know” is the common refrain. Our counter would be that one has only to look to the most recent revelations at the “State Capture” hearings to understand the true cost of doing business with those you “know”…
Funders are interested in the “Access to market” challenge
We have always asserted that funding follows Access to Markets and it’s a trend we are starting to see play out. We field enquiries or opportunities posted by businesses in the Enterprise or Supplier Development space as well as venture capital professionals who ask us to keep our eyes open for businesses who are doing interesting things or markets that are under-serviced. These funders want to deploy capital where they see entrepreneurs carving out sustainable markets.
Our goal for 2019 is to connect 1 million SMEs with access to new opportunities and clients. As we roll out our portal infrastructure across the globe, we urge you to think about your role in helping to build the SME sector. What is the future you are creating for you, your kids, family or friends who want to launch small businesses in the coming years?