How to add R2.5 trillion to the South African economy – why in entrepreneurship quality matters more than quantity.

How to add R2.5 trillion to the South African economy – why in entrepreneurship quality matters more than quantity.

screen-shot-2016-11-29-at-8-32-56-amAs South Africa looks to harness the full economic potential of entrepreneurship, it is easy to fall into the seemingly logical thinking that more is better. We often hear the rallying cry: “We need more entrepreneurs!” But the answer is not as simple as it might appear, because when it comes to entrepreneurship quality matters more than quantity. If it was only about more being better, then the most entrepreneurial country in the world would be Senegal (with nearly 40% of the country involved in entrepreneurship).  Yet it is a country ranked 163rd on the Human Development Index.

Why is there a problem with focusing on quantity? The answer is given by Zoltan Acs, author of the Global Entrepreneurship Index (GEI) and one of the most widely published academics on entrepreneurship in the world, where he states “contrary to popular belief, the most entrepreneurial countries in the world are not those that have the most entrepreneurs. In entrepreneurship, quality matters more than quantity. To be entrepreneurial, a country needs to have the best entrepreneurs, not necessarily the most”

This differentiation between quantity and quantity explains why there are often such contrasting outcomes between two of the most established global measures of entrepreneurship, the GEI Report and the Global Entrepreneurship Monitor (GEM) Report.  In simplified terms GEM is more focused on quantity while GEI focusses on quality.

So it was interesting to note, in the midst of all the entrepreneurial activity recently during Global Entrepreneurship Week, the launch of the 2017 Global Entrepreneurship Index (GEI).  It again highlighted the difference for our understanding of South African entrepreneurship depending on whether we think in terms of quality or quantity.

In the 2017 GEI the picture of South African entrepreneurship is shown in a far more positive light (ranked 55 out of 137 globally) than suggested by the measures contained in the Global Entrepreneurship Monitor (GEM) – a report that suggests South Africa is one of the worst countries on the continent when it comes to entrepreneurship.

In the main GEM measure known as TEA (Total Entrepreneurship Activity rate), South Africa fluctuates between 7% to10% of the adult population involved in entrepreneurship, which is about two thirds of the efficiency driven economy (our country classification) average and about half of the African continent average.  And yet in the GEI report South Africa is placed second in Africa and is in the top 40% of the world’s economies.

These conflicting report outcomes are best explained by understanding the distinction between entrepreneurs that are necessity driven versus those that are opportunity driven.  Necessity driven entrepreneurs are those that pursue entrepreneurship out of necessity – they have no other option in the economy for making money. Opportunity driven entrepreneurs are those that are pursuing an opportunity. These are the entrepreneurs that generate productive economic success, that grow and create jobs. The GEM TEA rate in measuring quantity, captures an increasing proportion of necessity entrepreneurs with higher TEA rate levels. In effect it becomes a measure of self-employment rather than economically productive entrepreneurship.  This is evidenced by the fact that the TEA rate is negatively correlated with economic growth, economic freedom and global competitiveness. In contrast, the GEI focusses on innovative, growth orientated, opportunity entrepreneurs and is positively correlated with these measures – the fruits of pursuing quality rather than quantity.

There is a significant economic implication in better understanding the distinction between quantity and quality.  In the 2017 GEI Report, GEI is plotted against GDP as per the figure below.screen-shot-2016-11-29-at-9-13-49-am

This shows a clear positive relationship between GDP and GEI and a correlation of 0.62. The relationship suggests that improvements to GDP could be effected by changes that improve GEI scores. Specifically, if South Africa were to raise its GEI score by 10% it could add an incredible R2.5 trillion to our economy.  It is time to end the confusion, to focus on entrepreneurial quality, to ignite our best and brightest with entrepreneurial passion and achieve this 10% GEI shift. Now that is a target worthy of pursuit and importantly it would finally move us out from under the shadow of entrepreneurial negativity generated by too much focus on GEM reports.

 

 

Learning to Walk on Water

Learning to Walk on Water

screen-shot-2016-11-22-at-9-35-28-amMany Allan Gray Fellows view the Foundation as an individuality shaper, a paradigm shifter and a training ground for walking on water. They often speak of being trained to see solutions and are unlikely to ever make peace with problems or inefficiencies. A quintessential example of how this kind of thinking has lead to the start of a business and its pursuit in the face of wide open seas is Maurice Madiba and his venture, Cloud Atlas Investments.

Maurice hails from Randburg and joined the Foundation as a Candidate Allan Gray Fellow in 2005. He graduated in 2009 with an accounting degree from the University of the Witwatersrand and later on completed his Honours through UNISA. “I chose accounting because it was listed as one of the careers needed to be a stock broker and also be a board member,” explains Maurice. This long-cherished vision to deal with financial markets led him to trade on his own account and experience the thrill of stock trading.

When he realised that his ability to access the stock market and the products offered was not something that was available to everyone he started developing and executing trading models for the JSE. After some time, he started looking at the African markets, which offered a seemingly distant and sharply criticised investment opportunity. Maurice saw these criticisms as stemming from uninformed bias and dared to pursue the opportunity. There were still barriers to invest, without having large capital sums, but he seized his chance to allow Africans’ participation in Africa’s growth and so began the African Market Index series.

Cloud Atlas Investments creates and structures Index and Exchange-Traded Funds; products that they list on stock exchanges to provide investors with exposure to African markets. The ETFs allow an investor to get the performance of the emerging African market, while the diversification of the indices across 15 countries means one can invest in Africa’s combined investment potential, while reducing a lot of the country-specific risks. The business is still in its pre-product launch phase, but, explains Maurice, “We are driving the main objective of the business through the proper channels so that the investment product is not complicated but rather easier to understand.” Once there is solid distribution in the market place, he’ll know that the business is running well.

At the time of starting this venture Maurice was reminded of a scripture in the Bible where Jesus calls Peter to him and he, being in the middle of the ocean, chooses to step out of the boat and walk on water. “It was this verse that made me take such a bold move to leave corporate and start my business.” He was able to do this in six months but then needed to draw on that same courage or blind faith again to sustain him through what he calls “the dark days.” During those dark days, which ended in 2015, he experienced funding disappointments, made hard decisions, wondered how the business would survive and watched his dream team fall apart, leaving him to start as if from the beginning. On the 11th of July 2016 Maurice became the first Allan Gray Fellow business invested in by E2. E2 is a B-BBEE partner of Allan Gray (Pty) Ltd. Through provision of capital and non-financial support, E2 empower Allan Gray Fellows to become responsible and impactful entrepreneurs.

In the face of all these hardships, however, he remains hopeful: “the sky is blue and that is worth celebrating.” With hopes for his business “to be the biggest Pan Africa ex-SA investment product anywhere on God’s green earth,” it makes sense that this young man draws hope from blue, limitless skies.

A similar belief in the limitlessness of his potential and what the world has to offer fueled him from a young age. He describes himself as an adventurous boy who made the best of his surroundings. “We didn’t grow up with much … my friends and I used to build makeshift carts to race down the sloped road; we did music, took big walks and always went out to meet people.” He was also known for being a book worm. “Once my friend said my head would pop with all the books I read.” Fortunately, that jibe did not stop Maurice. He was a bursary recipient at school and at the time of learning about the Allan Gray Orbis Foundation’s Fellowship Opportunity, he was already the recipient of an Ernst & Young bursary. “At first I was reluctant to apply, but upon reading the pillars of the Foundation, I said to myself this describes me very well … It’s one decision I have never regretted.”

When asked if he would ever recommend the Fellowship Opportunity to others, Maurice describes how the Foundation zooms in on personal development. If one joins the Foundation, whatever talent one has is sure to be developed. “The Foundation gives you the tools to master your talent and use it to the best of your ability.” Beyond that, it helps you to explore your depths ­– you get to know yourself and how deep your courage runs. But be warned, an experience in the Fellowship might render you more likely to get out of the boat and walk on water.

 

GEW 2016 momentum lights the path to GEC 2017 in Johannesburg

GEW 2016 momentum lights the path to GEC 2017 in Johannesburg

screen-shot-2016-11-15-at-8-10-22-am
Cyril Ramaphosa

We are now well and truly into the swing of Global Entrepreneurship Week (“GEW”) 2016. There were some powerful words from our Deputy President, Cyril Ramaphosa on the importance of entrepreneurship to South Africa at the official launch of the South African 2016 GEW in Johannesburg last Friday, with no less than the President of the Global Entrepreneurship Network, Jonathan Ortmans in attendance. Of particular interest was the Deputy President’s commitment to entrepreneurial skills development being initiated at a young age where he commented: “An education of an entrepreneurial nature where even at school, you have a course of entrepreneurship, that we should reconfigure the curriculum of our education system so that we can imbue young people with entrepreneurial knowledge from a very young age.”  This direction is wholeheartedly supported by the Foundation.

This followed a very successful Cape Town launch of the South African Business Angels Network (SABAN) in Cape Town on the Thursday. The event featured a world class line up of speakers including the key driver of the Turkish Angel Investing community, Baybars Altuntas. Turkey’s angel investing has moved from being almost nonexistent five years ago to now being regarded as one of the most vibrant in the world where angel investors are registered with the local stock exchange and investors are eligible for a tax deduction of up to 75% on their investments.

Just as we were recovering from all this activity, yesterday brought the launch of the 2017 Global Entrepreneurship Index (GEI), a much more holistic measure of entrepreneurial activity including both individual and institutional measures. Unsurprisingly USA was top of the index. Again South Africa is scored as one of the top countries across Africa – a very different result to other entrepreneurial measures. (We will cover the GEI 2017 in more detail in a post later this year.) The Foundation has been involved in research to be released next year that will take a deeper look at the results of this index over the last 10 years to give a much fuller indication of the possibilities and challenges of the South African entrepreneurship ecosystem.

All of this is taking place against a growing sense of momentum for entrepreneurship in South Africa with the explosion of new accelerators and the launch by the CEO’s Initiative SME workstream of the SA SME Fund, with an initial commitment of R1.5 billion to list just two developments. This momentum can be fast tracked even further by taking full advantage of the once in a generation opportunity next year for the South African entrepreneurial ecosystem, when it hosts the Global Entrepreneurship Congress (“GEC”) in Johannesburg from March 13th to 16th, 2017. 

Every year, the GEC gathers together thousands of entrepreneurs, investors, researchers, policymakers and other startup champions from more than 160 countries to identify new ways of helping founders start and scale new ventures around the world. A unique group that will now be coming to our country!  The theme that has been chosen for the GEC 2017 is “digital disruption” opens many possibilities.  The world in which we live has become increasingly virtual as concepts such as “digital disruption” and technology disrupt the traditional ways of doing business and simplifying life. The digital disruption concept aims to explore how technology and digitization are revolutionising industries such as agriculture, manufacturing, education and healthcare.

And finally in amongst your excitement for the GEC next year, please don’t forget to be an active participant in the remainder of GEW 2016. The Foundation has made it easy for you to find the GEW buzz as Allan Gray Fellows have developed a platform, Imbizo Junction where you can find the listing of all events taking place during that week, 14 – 20 November 2016.

We would love to hear your thoughts on the state of the South African entrepreneurial ecosystem.

GEW is upon us

GEW is upon us

The Foundation is excited to be part of Global Entrepreneurship Week (GEW). The Association of Allan Gray Fellows developed a platform, Imbizo Junction where you can find the listing of all events taking place during that week, 14 – 20 November 2016.

screen-shot-2016-11-08-at-9-24-33-am

 

During this week 165 countries will celebrate GEW with nearly 10 million people expected to participate in 35,000 events and competitions across the world. The local, national and global efforts connect entrepreneurs at all stages to potential collaborators, mentors and investors to aid them start and scale innovative new businesses.

Now in its ninth year, GEW is many multiples bigger in size since it was launched in 2008. The widespread effort unleashes an estimated $140 million through members and partners of the Global Entrepreneurship Network (GEN). For interest hereby the 2016 GEN Impact report.

Eight new countries have joined the GEW initiative this year thanks to the following national host organizations:

While every event is unique, several GEW themes will spotlight common topics and important focal points throughout the week, including: Startup Cities (Monday), Youth (Tuesday), Women (Wednesday), Investors (Thursday) and Scale-ups (Friday).

  • Investors: Provides an opportunity for early stage investors to build and strengthen their entrepreneurial ecosystems, helping to enhance connections with startup communities and policymakers alike
  • Women: Celebrates female entrepreneurs and others in the space while offering opportunities to expand their networks, identify resources and share knowledge with women around the world
  • Youth: Celebrates and shapes the next generation of entrepreneurs through activities and competitions to help them sharpen their skills and connect them to potential cofounders, mentors and even investors
  • Cities: Explores widespread efforts by policymakers and startup communities alike to support the development of local entrepreneurs, ensuring they have access to the connection and resources necessary to help them launch new startups that provide jobs and generate wealth.
  • Scale-ups: Explores what it takes for these high-potential businesses to thrive and what strong entrepreneurial ecosystems can do to help them to maximize their growth potential.

Other highlights for #GEW2016 include:

  • The Global Entrepreneurship Index, scheduled for release on the opening day of GEW (November 14), measures the health of the entrepreneurship ecosystems in each of 155 countries and ranks them from top to bottom.
  • The official opening of GEW is being held in Johannesburg, South Africa, to begin the road to the 2017 Global Entrepreneurship Congress which will bring 5,000 entrepreneurs, investors, policymakers, researchers and startup champions to the city next March.
  • Ten promising new startups will be named as finalists in the Startup Open – with the winner getting a free trip to Johannesburg, South Africa and a spot on stage at the Global Entrepreneurship Congress in March 2017.
  • Richard Branson, founder of the Virgin Group, will take the stage at INCmty in Monterrey, Mexico.
  • The launch of Startup Huddle series of events to strengthen local startup ecosystems by connecting emerging entrepreneurs with other entrepreneurs, mentors and investors.

The official finale of GEW is being held in Cork, Ireland, at the Startup Nations Summit. The summit will unveil a new tool to help policymakers and advisors share and explore innovative policy approaches and public sector-driven programs that help entrepreneurs start and scale new high-impact companies around the world.

Will Vuyokazi become the next Patrice Motsepe?

Will Vuyokazi become the next Patrice Motsepe?

Back view of businesswoman standing on crossroads and making choMeet Vuyokazi, our fictional big big dreamer. Vuyokazi is a 26-year-old entrepreneur that hails from Soweto. When Vuyokazi was in high-school, she used to sell roasted popcorn on school grounds to make extra money – she often got in trouble for this. At University, she started marketing and distributing Kwaito classics to Americans in cities like Miami who are fascinated by this South African blend of dance and a hip-hop like narrative. That is how Vuyo made her first R1 million.

Everyone who ever met Vuyokazi asked, ‘what is her special ingredient?’, how is she so smart, charming, intuitive and creative? The answer to Vuyo’s secret source for success is a combination of her talent, a developing economy that is more open to supporting black founders, and globalization.

Another question that Vuyo’s followers ask is: South Africa has 53 ecosystem players, 71 direct finance providers1, and the potential to create 3.4 million new jobs by 20302. Why is Vuyo’s business not flourishing and scaling up to at least R1 billion in annual revenue?

There are no easy answers to the question, but some systematic observations can be made to help us understand what Vuyo’s options are depending on her circumstances and luck.

Suppose Vuyokazi wanted to develop a mobile software application that would allow users to stream Kwaito classics for a R5 per month subscription? At the surface, this may seem like a feasible B2C play since many believe that creating an app is simple. Major barriers to success would be lack of access to software development talent and the right funding networks that would invest in her iterating on her idea. It might just be that Vuyo is still a little too early for a very nascent technology ecosystem. Players such as The Joburg Centre For Software Engineering (JCSE) are changing this by providing software skills development to people of various experience levels, and by building infrastructure that will incubate black technology enterprises3. In the next 5-10 years, there will be a surge in black owned technology businesses that aim do address very deep and complex problems in African communities.

Let’s assume that Vuyo managed to build her software, license streaming rights from a few independent Kwaito artists, acquire 200 000 users and hire a team of top developers. She also still has 9 months of runway after getting funding from investors who heard her pitch at The Hook Up Dinner, Simodisa and Venture Networks4. A business like hers is also a B2B play because she would need market access to licensing deals from major record companies. A major challenge in South Africa is that institutions are often not willing to take procurement risks on inexperienced funders. Equipping founders to penetrate corporate supply chains and to scale up to in order to meet the needs of big business is another obstacle to creating black industrialists. Organisations such as Edge Growth and Awethu Project specialize in Enterprise Supplier Development to manage supply chain transformation programmes on behalf of corporates while also equipping the entrepreneurs to meaningfully participate in the supply chains of corporate5.

Awethu Project recently started a R25 million fund, that aims to accelerate supply chain transformation by buying out white owned businesses and equipping black founders to run them and serve existing customer relationships. In the coming decade, this will go a long way in moving the needle on corporate supply chain transformation.

Maybe Vuyo figured out a way to land some non-exclusive music streaming rights after a successful pitch with 2 local major label heads. The other 18 pitches did not go so well after facing issues of discrimination based on her gender. While organisations such as Wiphold and Mbewu Movement 5 have created meaningful spaces for women entrepreneurs to flourish, the gender gap is still an obstacle to creating a diverse ecosystem that supports top talent regardless of race, gender, ethnicity or religion. Women only represent 14% of board members in companies in Africa on average, many of these institutions also exist in the entrepreneurship ecosystem and perpetuate prejudice that hold women founders back.

Vuyo’s journey is a small part of a bigger story. We told the story from the perspective of observers witnessing the rise of a technology entrepreneur, only because much emphasis has been placed the role of tech in transforming societies. Our list of different type of entrepreneurs, environments and barriers/opportunities was also not meant to be collectively exhaustive either. Regardless of global trends and in some cases even fads, there is a much more diverse group of founders like Vuyo in the education, agriculture, retail, social sector and other spaces. While we highlighted all the successes and pitfalls of Vuyo’s journey, it would be better for you to get the information from the horse’s mouth. Global Entrepreneurship Week is the world’s largest celebration of the innovators and job-creators who launch startups that bring ideas to life, drive economic growth, and expand human welfare.

We estimate that 20 + events will be hosted during GEW in Johannesburg alone. Event hosts range from institutions such as Raizcorp, networking platforms such as Simodisa, to entrepreneurs who will be discussing specific topics such as pitching and funding.

We have a curated list of some of the best events for you to attend this week on Imbizo Junction. Meet the Vuyo’s in your city who are building the next job-creators and share the information with your friends. An ecosystem is made more vibrant by the amount of cross pollination and collaboration among different actors in the system.

While South Africa has its entrepreneurship challenges, we at the Allan Gray Orbis Foundation are very optimistic about the potential for positive social change that business can create. To date we have provided University funding and entrepreneurship development opportunities to over 560 big dreamers of which 289 form part of our Alumni.

Do you know a way that Vuyokazi could help Durban House, Skhanda and Motswako go global? Let us know what you think by Tweeting us @AllanGrayOrbis using the #GEWdreamBIG#  hashtag.

References