5 Of The Most Common Challenges Faced By South African Entrepreneurs

By Jana Jansen van Vuuren 1 month ago

Like in many new businesses around the world, most South African startups aren’t able to last past the three-year mark. However, there are specific contextual constraints unique to the region. Below we have listed some of the main challenges faced by South African businesses according to a report commissioned in 2016 by SEDA, the Small Enterprise Development Agency.

1) Access To Finance

Many first-time entrepreneurs in South Africa and around the world will often never have pitched their business idea to a group of funders, never conducted market research, and never have produced a business plan. They often don’t have the capital to fund their efforts and don’t have an awareness of the importance of credit. This means that their ability to access funding is limited because financiers see that they don’t have a credit history. These issues are compounded by a culture of conservatism among many banks in South Africa. Banks and other lenders are resistant to lending to younger start-ups because this is perceived as a risky investment. Emerging economies are more high-risk environments, which means that it makes sense for them to be cautious. However, small businesses need to be more careful about ensuring their documentation is in order and that they can show their projected value using widely accepted methods. 

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2) Minimal Innovation

Many researchers agree that businesses that innovate grow more quickly than those that don’t. However, in South Africa, most small businesses are set up by people looking to find an alternative to unemployment, not as a way to access more opportunities while they already gainfully employed. Small South African businesses aren’t set up to innovate and owners always have an awareness of the importance of research and development. This means that it can be difficult for entrepreneurs to determine whether new or existing ideas might work in the real world.

3) Infrastructure Issues

Having reliable access to electricity, water, communication services, roads, and affordable, safe public transport is incredibly important for fostering business growth. Many small business owners start their work in their homes and if they don’t have adequate utilities they cannot produce goods, conduct services, or communicate with potential clients and business partners. They might also find it difficult to meet up with clients or business partners because cannot find transport within their budget. Some researchers also point out that for small businesses infrastructure extends to business services such as accounting and legal services which is also not always readily available to South African entrepreneurs.

4) Human Resource Challenges

Many South African small businesses find it difficult to find and afford skilled workers, especially in the fields of finance, accounting, and sales. Small businesses are also particularly volatile which means that sometimes they cannot afford to keep workers around. However, many of these business owners are inexperienced in putting together an employment contract that protects the business in the event that their business is doing through a difficult period and they are not able to afford paying workers.

5) Limited Professional Network Access

New entrepreneurs also don’t usually have access to the professional networks of more experienced business owners or business graduates. This means they aren’t able to mentorship, funding, access more prosperous markets, and the many other benefits that connecting to leaders in the industry can bring about.  

How To Overcome These Obstacles

GVI partners with Solution Space, a business incubator and innovation accelerator, set in one of Cape Town’s less privileged communities. The facility is a satellite campus of the triple-crowned GSB Graduate School of Business and provides new business owners with a space to work as well as access to business students, lecturers, and thought leaders from around the world.

If you are are a business student looking to join the internship program, simply send us an application. You could work together with entrepreneurs to get funding by helping them set up a business plan and prepare their pitch to potential investors. You could also help with conducting market research or setting up a human resource policy. Accommodation, transport, food, and training are all included and opportunities are available for students specializing in management and administration, accounting and finance, marketing and sales, as well as human resources. You’ll walk away being able to prove to future employers that you’ve worked on solving some truly challenging business problems. 

Resource:

‘The Small, Medium And Micro Enterprise Sector Of South Africa’ Commissioned By SEDA, the Small Enterprise Development Agency