How you achieve business success depends on your appetite for risk and your individual management style, say experts.
Whether you take a high-risk, fast-tracked approach or opt for solid organic growth, building a sustainable small business demands careful planning, hard work and inevitable failures. That’s according to business experts serving on the advisory board of the upcoming #BuyaBusiness Expo and Small Business Expo in Johannesburg.
While small business presents income opportunities for millions of South Africans and Government holds out hope for small business to help curb unemployment, a large proportion of small businesses launched in South Africa fail and many more may not grow to become significant employers. Brian Walsh, a leading authority on entrepreneurship and human behaviour, and founder of The REAL Entrepreneur™ Institute, says more attention should be paid to helping small businesses thrive: “One mistake we make is we spend too much time encouraging people to start businesses and not enough making sure small businesses survive, grow and employ more people,” he says.
According to a study carried out by the Bureau for Economic Research on behalf of the Small Enterprise Development Agency, South Africa has over 2.2 million small, medium and micro enterprises, with around 1.5 million of these informal micro enterprises. However, over the last seven years, the number of SMMEs in South Africa increased by only 3%, from 2.18 million in 2008Q1 to 2.25 million in 2015Q2.
Walsh notes that the global failure rate for startups is in the order of 50% in the first year and 80% in the first five years. This should not be a deterrent to business ownership, however, but might be seen as an inevitable part of the entrepreneurship learning curve. “Studies have found that most entrepreneurs fail before they succeed. We can consider these business failures as part of ‘paying your school fees’ on the road to success. The earlier you start trying, the better,” he says.
However, choosing an appropriate business model for your personality and management style goes a long way toward ensuring business success, he says. A young innovator with an appetite for risk and few family responsibilities is well placed to take a chance on launching a start-up; while an older person who has family responsibilities and is seeking a lower risk business might look to invest in a well-established franchise ownership instead, Walsh says. He cites the Contribution Compass psychometric tests as a good way to determine each individual’s natural energy type – whether they are intuitive innovators or accumulators, for example. Based on this, the would-be entrepreneur can identify his or her personality type and leadership style to determine the business model and support ecosystem offering the best chance of business success.
Focus on the ROI
Tshepo Phakathi, economist, banker and Group CEO of Phakathi Holdings, points out that the JSE consistently delivers returns in the order of 15% per annum. Any business delivering lower returns than this is effectively a waste of time, since better returns could be achieved by letting the capital work for itself, he notes.
There is no quick buck to be made in small business. The startup on a growth path ploughs all its earnings right back into the business, and aims for steady profits. There is never a good reason for the startup business owner to go out and buy a luxury car for fun, Phakathi cautions. As long as there are opportunities to grow the business, virtually all profits should be ploughed back into the business. “This notion of ridiculously high super profits is seldom possible and definitely not sustainable in business,” says Phakathi. “A short term super profit may be possible thanks to a misallocation of resources. But a super profit quickly attracts competition into that space.” After that, the business must return to savvy, sustainable business practices.
Phakathi says business success rests on clever financial management. “For example, if you can borrow money at prime, it makes good sense to run your business off borrowed funds. You also need a clear financial plan around how often you intend to double your money. If your plan says you will double it every three years, for example, and your investments are not on track to meet these goals, you need to invest elsewhere.”
Phakathi and Walsh will be among the expert speakers delivering business training and workshops at the #BuyaBusiness Expo and the Small Business Expo the Ticketpro Dome in Northriding Johannesburg from the 8th -10th September 2016.
Carol Weaving, award-winning businesswoman and MD of Thebe Reed Exhibitions, notes that #BuyaBusiness Expo and the Small Business Expo are designed to present viable business opportunities for everyone from aspirant entrepreneurs looking to start their first ventures, through to business executives aiming to expand their portfolios through investments in well-established franchises. “Because there can be no ‘one size fits all’ approach to business, the expos address a broad range of skills, sectors and investment levels, so that anyone from an entrepreneurially minded graduate to mid-size business owners and investors will find business and franchise opportunities, information, networking, business tools and more under one roof,” she says.