Leader.co.za

What entrepreneurs really need

by Norma Young
After settling on an idea or interest to turn into an enterprise, a business owner must then determine which of the many functions, such as marketing, sales or recruitment, they must prioritise. This process can be overwhelming but it needn’t be crippling.

When York Zucchi’s mother passed away in 2015, he inherited a safari lodge she’d purchased a couple of years earlier. Zucchi had been managing the finances for the business, and so knew full well that it had been losing money consistently. To honour his mother’s memory and passion for hospitality, he decided to hold on to the property.

Having worked for companies such as Goldman Sachs, Merrill Lynch and Al Habtoor, Zucchi set out to turn the flailing lodge into a cost-effective enterprise. Strategies he employed ranged from gift incentives for written reviews, to substantially reduced prices, to bartering services for accommodation. There was even an aspect of a mental turnaround, he recalls. “We cleaned up our old stock room and garage and sold or gave away things we don’t use. This has more impact on the state of mind than anything else. Decluttering helps to focus.”

Within four years, Zebras Crossing was running efficiently and profitably, ranking on TripAdvisor as the 5th-best lodge in its region.

This is one of the positive entrepreneurial stories in Zucchi’s career. But he’s also had unsuccessful businesses, including a healthcare company that ended up being a case study used by many of the world's top universities and business schools.

Over the past two decades, Zucchi has started multiple businesses, most of which failed. Each one, however, imparted valuable lessons. These first-hand experiences led to him founding The Startup Tribe in August 2020.

Aimed at democratising access to knowledge, the venture provides free educational short courses on entrepreneurial matters. Zucchi felt that much of the content available online was too aspirational, and not practical enough. There wasn’t enough focus “on the foundations of business development knowledge that someone starting out requires”.

Learning and doing

The StartUp Tribe works with municipalities, governments and corporates to support individuals who want to start or grow small businesses. All courses are free and designed to be used on a mobile phone in low-bandwidth environments. The Startup Tribe receives a yearly grant from a foundation, and then uses modern technology to create micro-courses that are designed to be informative but affordable to develop.

The company currently operates in 27 countries and aims to reach 50 million people by the end of 2023.

Running more than 24 lessons with one hour of video content, its most popular course on offer is How To Start Your Own Farm Business. It's taught by Dr. Naudé Malan, who is also a senior lecturer in development studies at the University of Johannesburg. As convener of the multi-stakeholder engagement project Izindaba Zokudla, Malan has extensive experience in creating opportunities for urban agriculture. Other courses offered by The Startup Tribe include: How To Get Access To Funding: What To Do (And Not To Do); Understanding The Entrepreneurial Life Cycle; and How To Deal With Setbacks.

The South African presence of The StartUp Tribe, which is active in 400 cities, includes entrepreneurship academies for Cape Town, Mossel Bay and the Modimolle-Mookgophong municipality in Limpopo.

Designing courses for first-time entrepreneurs, and then soliciting feedback on both the course material and the business journey, has been fascinating for Zucci. It’s given him insight into the information gaps and most pressing logistical needs faced by small business owners.

Research conducted by The StartUp Tribe groups the data into four pillars of necessary access: education, resources, funding and markets. Entrepreneurial literacy is important because most people are not born entrepreneurs, says Zucchi. Secondly, the changing life cycle of a business means that the educational needs of a founder will also change.

“Information needs to be relevant to the phase an entrepreneur finds themselves in. Pricing, hiring, scaling, systems and processes can’t all be learnt at the same stage.”

When it comes to resources, most small business owners think of their future needs rather than determining the absolute bare minimum required to start. Tapping into what’s already available, such as co-working spaces and free software for accounting, can bring ease. “It can also reduce the business startup and operational costs,” notes Zucchi.

A similar willingness to bootstrap can also positively impact funding needs. Many entrepreneurs include negotiable costs such as vehicles, warehouse rental and full-time staff in their initial budgets. But, says York, “when people say they need funding, and you break it down, it turns out on average, they only need about 18 to 25% of the original funding”. Alternate options such as using the library for a desk and Wi-Fi, leasing vehicles, working with freelancers and renting computers can reduce the capital required.

Even with reduced operating budgets, many entrepreneurs struggle to find clients. Their network of potential customers may be limited or quickly exhausted. In these instances, SMEs can approach bigger companies and more prominent individuals to adopt them, and in this way, open access to their market and wider network.

Steps to getting an investor

StartUp Tribe suggests the following four actions:
  • Hold off getting an investor for as long as possible. This excludes seed capital (angel or early stage) as your business will go through a few permutations before it is ripe and clear enough for investors to consider. Investors who come in too early can often be a handbrake to the dynamic business models approach needed in the first few years.
  • Try to win business competitions, startup challenges and find grant funding to get attention, traction, feedback and a little cash injection/top-ups. These previous accomplishments may appeal to potential financiers.
  • Keep meticulous financial books, even if the situation is not good. Entrepreneurs with solid records stand a better chance of accessing funding channels as they signal the value you’re showing a potential funder/investor. 
  • Look for an investor who gives more than money but can also open doors, handle certain functions such as cash flow projections, HR or legal, and help the SME with access to market and any required resources.

Money matters

There are many important financials that need to be tracked, but entrepreneurs who ignore these three financials risk failure:
  • Guaranteed income: A surprising number of SMEs have a way too high cash burn rate compared to their company status. Anecdotal evidence suggests that this might be because of the understandingly optimistic character traits that entrepreneurs possess, hence the building of the company in anticipation of future revenue.
  • Apps and services: On average, SMEs pay for 11 different apps every month, such as Microsoft, an email system, Evernote, Antivirus, CRM systems, five of which are rarely used because of the mismatch between the apps’ promises and the lack of implementation in the business. Not included in this number are apps used for private use. These are direct costs only and don't include the other 20 apps that drain mental energy through half-hearted adoption/implementation.
  • Customer acquisition costs: Only a handful of SMEs really know how much it costs to land a client. Factors like the number of meetings and presentations required are important to include in an assessment.

Three ambitions to reconsider

Setting and achieving objectives is key to entrepreneurial success. But, according to The StartUp Tribe, some objectives can hinder rather than help.

1. Landing a major client

Desired goal: Many entrepreneurs believe that landing a huge contract with a major company is the key to business success. There is a desire to chase and sign the first big deal so that it can lead to more and bigger contracts.

Reality check: Our insights show that most SMEs are investing disproportionately on pursuing large contracts with a correspondingly high cost of sales, when what actually pays the bills are B2B2SME sales. These are the smaller deals that come through regularly. Small contracts are particularly beneficial to SMEs as they allow a business to deliver on an order and strengthen their processes without over-stretching their capabilities and usually limited resources.

2. Hiring the best talent

Desired goal: SMEs are inclined to hire the best they can afford. With their eye on certain growth, they recruit or outsource staff who can help the business achieve future goals.

Reality check: Skills should be matched to the business stage. Compared to effort invested in sales, most SMEs overspend time and money on product development and idea refinement. Yet sales skills and cash-flow management skills/experience are two of the most critical skills required to improve the likelihood of success. They are also the two least prevalent skills among SMEs. Too many people are hired on aspirations rather than current needs. This results in the substantial presence of cash-draining talent that isn’t fully utilised. An example of this is when an SME hires an accountant, auditor or CFO, when a bookkeeper would be an adequate and more affordable alternative. Additionally, different life stages of the company such as startup, growth, systems & processes, require different sets of skills. Too often, startup entrepreneurs are still CEOs when the company actually requires an experienced growth CEO or COO, which is usually a different person with vastly different knowledge and skills.

3. Drawing inspiration from unicorns and disruptors

Desired goal: Many of the entrepreneurs surveyed by The StartUp Tribe see themselves at the forefront of innovation. They’re inventing a whole new way in which to do things and consequently want to learn from others who’ve achieved similar ambitions.

Reality check: The commercial reality associated with paying the bills suggests that most entrepreneurs should focus on incremental innovation in their service offerings. Their offering should be similar enough to other products and solutions to reduce the business acceptance drag, yet new enough to evoke interest in that SME’s specific brand. Experienced entrepreneurs, on the other hand, were overwhelming in their responses that focus should be on generating revenue more than on being innovative. Their reasoning is that revenue allows for resources to be dedicated to innovation. The other way around does happen, but it is statistically insignificant, and an economic myth reserved for the few.

Useful resources:
Gordon Institute of Business Science
Making an impact to significantly improve the competitive performance of individuals and organisation through business education to build our national competitiveness. GIBS is a leading business school in the heart of Sandton’s business hub, offering a wide range of executive and academic programmes.
Share on Twitter Share on LinkedIn Share on Facebook
Share via Email

Resources

Follow Us
Follow us on Twitter
Follow us on LinkedIn
Follow us on Facebook
Get headlines via RSS

Newsletter
Receive the free Leader.co.za newsletter for the latest news and trends:
©2024 SURREAL. All rights reserved.
Follow us on Twitter Follow us on LinkedIn Join us on Facebook