The growth and development of small-enterprise development consultancies is key to ensuring the accelerated growth of emerging black-owned businesses in South Africa, says Transvelop MD Sean Krige.
Black economic empowerment (BEE) and socioeconomic development (SED) consultancy Transvelop uses a section 21, nonprofit company, called SED Alliance, to channel funds donated by established companies as part of their BEE scorecard obligations towards improving business creation and employment creation under the Broad-Based Black Economic-Empowerment Act, No 52 of 2003, and its Generic Codes of Good Practice, he explains.
Further, Transvelop is currently offering the use of SED Alliance to other enterprise development (ED) and SED consultancies as a vehicle to securely and transparently manage ED and SED funds to develop emerging black-owned businesses. This will improve the rate at which emerging businesses receive funding and consultation, which will improve the rate of small business development, Krige believes.
“There is not much collaboration, support or best practice sharing between the different role-players and entities dealing with BEE in the country. This is why we are opening SED Alliance to other small business developers who can then offer similar solutions to (Gauteng-based) Transvelop in their parts of the country. We can then collaborate with other companies and businesses and share knowledge and understanding,” he says.
The State can then use these small business development companies to reach a far greater number of emerging black-owned businesses to implement ED and SED policies and distribute funding.
Also, ED and SED interact closely and are mutually reinforcing because skills engendered in people through SED funding, as well as the skills gained through work experience, can be used to start a business – ED – in which the entrepreneur knows the industry or how a business should operate. Krige says that only five in 100 new businesses survive their first two years and only one in 100 make it to five years.
“Not everyone is an entrepreneur and there should be a stronger focus on education to ensure that more people work in the formal economy and gain skills through employment. The best time to start a business is after five to ten years of experience in industry,” he adds.
Transvelop focuses on education as its main SED measure in its aim to improve business practices before a business is started, reducing the risks and improving the chances of success.
Lack of Support Structures and Networks
A significant challenge faced by small businesses is the lack of support structures and networks in which an embryonic business grows. ED and SED, the two sections of the BEE codes that require a company to invest outside itself, enable companies to create a financial support structure for developing companies, he says.
However, the development of enterprises and business ventures in South Africa requires intensive face time between ED consultants and entrepreneurial business owners, as well as the creation of a network of information, funding and market access to support the entity, he says.
This consultation enables Transvelop to identify measurable impacts of funding on the emerging businesses, and also helps to identify business opportunities and growth potential. Linking entrepreneurs with established industries helps the emerging company to access the network of related businesses to which it often does not have a connection, says Krige.
From a business perspective, the ED and SED elements of the codes offer less return for a business because they are not directly linked to the development of the business, but rather to its support for other businesses. However, businesses often try to encourage the development of an enterprise that will boost their own business, such as investing in their own suppliers with favourable BEE credentials, meaning that BEE decisions must make business sense.
“Attaining BEE points on a scorecard to be able to do business means that BEE implementation is a business decision. Most of the companies that Transvelop works with implement the codes as a business necessity and, if they do not get the BEE points, they will not get government or parastatal contracts. We believe that this is the only way any empowerment model can be implemented, namely on a business-sense basis,” explains Krige.
This means that the ideal way to develop a small black-owned enterprise is to create a context in which emerging businesses can, either immediately or in the near future, supply a product to an established business in an industry with good growth prospects. The security of a larger business providing an emerging business with access to revenue streams, and the reciprocal benefit of a company outsourcing some of its functions to the small enterprise, enable sustainable development of the enterprise, Krige concludes.