Delayed Capital: How Business Incubators and the ED environment is slowing down African start-ups.

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In the recent years, from 2002, up until now there has been a need to accelerate black owned companies. With the rapid success in some sectors, especially construction, the need has never been more important. In fact, in North America, since 1998, the number of incubators has doubled its numbers to close to 1500.

In developing countries, due to lack of greater confidence by the private sector, the number is slower.

In South Africa alone, there has been other problems with regards to up scaling black owned businesses. Today, I would like to discuss and highlight some of the flaws involved in ED (enterprise development) and also highlight how it has an impact on the growth of these companies.

Channels; BEE Scores

Allow me to first and far most enlighten you on another element, which almost triggers the problems. That’s the BEE score, probably something you have heard of but don’t really take for granted.

In the BEE code, the way a BEE certificate is set out, especially from the big companies (Listed on the JSE), is divided into clusters which a business gets scored for, say for ’empowering blacks’ or ‘black owned business’ be it in supply chain, women involvement and my favourite business development.

Business development is my favourite because when I first heard about it, at 23 as a co-founder of MIT (motion In Time) – I thought we were going to be alright.

The code, prioritized the importance of incubating black owned businesses, and that means allocating resources, funding and a bit of skills transfer. They then get rewarded based on their expenditure. The failure to do so, spend money – means that they will be penalised.

(How this is done, it’s still not as clear)

This meant that companies were panicking and were looking for ‘us’ – business owners in order to be scored well.

But no. That was just a dream.

I was wrong.

The alchemist, disguised as business messiahs, stealers of real progress, the development and emancipation of black people, were already cooking up ways to make a killing out of this. They found a way to back channel finances and convinced cooperates that they willwaste money if they give it straight to‘us’ – and ‘they’ are fit to handle it on their behalf, and monitor everything.

This is good, and bad. It’s good in a sense that corporates won’t waste money, or so to say. It is also bad because capital isn’t flowing into businesses but the services used, to render ‘Enterprise Development”.

So what happened?

Little incubators popped up here and there. Promising this and that.

The business development spend?

Companies are still contributing heavily through incubators and the money lands elsewhere except not the businesses.

This defeats the whole purpose of Enterprise Development on a bigger picture level. There is little room for play in this space, discouraging businesses to be innovative, prototype or launch new products or services.

So, having been a part of business development programs myself I have come to a realisation.

Money needs to flow into businesses, one way or another instead of maintaining the incubation structures. There is no way around this.

Think about NYDA, the DTI, or any other business incubators existing out there. The amount of money spend on running these agencies could benefit a 100 businesses in one financial year. This will make a greater impact as opposed to a structured program which is rigid and has little room for failure.

Cash injection is important in business, and this often gets diluted into a simple narrative that we blacks have not found a way to defeat; black people don’t have the necessary skills to run a business. So let’s educate them.

Be that as it may, the moment you finish a program, the cash injection problem still hangs in the air, and you have all the skills, so what?

Money Needs to Flow Into Businesses!

Why?

  1. Firstly, no amount of lessons can equip an entrepreneur on how to handle a business if you don’trun the business hands on, yourself.

Imagine having someone teach you how to drive a car while you watch. You can’t learn this way, you won’t know what half clutch is or the importance of checking the blind spot, and sure you can see it all, then what happens?

You still don’t have the car i.e. the capital.

This is a problem, a classical one. Having seen it all, the only way to learn is to be behind the wheel.

  1. Secondly, there is no room for failure in enterprise development programs.

This is a problem in incubation. Failure is not permitted. From recruitment, if the managers see red flags, they cut you off, no matter how much of a great idea you have.

What about solutions companies?

Some start-ups need a bit of time ‘to find themselves’ – which requires a lean approach, with, of course some considerations into making businesses fail less.

  1. Lastly, there is too much pressure on impressing the ‘sponsors’ and not building clients

How do we know this?

There is not clear tracking system checking on all assisted enterprises but there is a clear indication on how much money has been spent on “ED” which puts the companies sponsoring the programs in good place.

What purpose does it serve if all the companies die two years later?

None, all of these, amongst many, slows down the need to accelerate the success of black owned businesses.

Time is everything, and so is money.

It is important that we challenge the narrative around capital, by prioritizing capital injection or a ‘cash flow system’ that successfully puts start-ups in the position of success than failure.