Starting and succeeding in small business is a huge gamble, but the risks can be hugely reduced with proper training. That – and not red tape or running interference – is what government should do to fire the booster rockets on our economic crisis.

“I boarded the BA jet for Johannesburg and discovered the airline had put Trevor Manuel and I next to each other again.  He groaned when he recognised me, but thankfully with a smile on his face.

The conversation over the next two hours ranged from why cabinet didn’t move MPs out of those cream-coloured plywood houses in the burbs into town, to how to grow the economy. I put it to Trevor that we need a vehicle in SA to turn those one-woman spaza “shops” or tomato-and-potato stores into “Greek style” corner cafés. I suggested government should support these mini-entrepreneurs by helping them up to the next level through training and perhaps micro-loans and so on. Each corner café could employ three or four people instead of one and cumulatively, across the country, if you do that with kerbstone hairdressers, backyard mechanics, and so on… it results in a small business revolution which unlocks a portion of our giant unemployment problem.

Trevor disagreed: “The skills needed for a small business are quite different to those employed by hawkers, shebeens and spaza owners.”  And therein lies the profound difference in approach to economics and the South African unemployment problem.

Of course Trevor is partially correct. Different skills are needed and going up a level means more than just more stuff. It involves a whole new way of managing. But the real difference between Trevor and I on this issue is the approach. I believe it can be done and that government is essential in creating the environment. He does not… at the moment.

I have run or helped run two small businesses. As a child I always wanted to and my dad was a bit nervous that I could go bankrupt, so I started when I was much older. I wasn’t always successful, but I have realised that I now no longer trust people who have never failed. They don’t know how to deal with those who struggle and you never know what they will do in a crisis. I did learn what the basics of business are all about. I remain quite convinced that the basics of small business can be taught to someone who has taken the first step and started a little something. I am not sure that you can teach the will to try, but you can certainly steer a moving ship in the right direction.

It’s rather like the one-day MBA or the one-volume MBA. You can essentially package the principles of an MBA like that because the basic principles are simple. In the same way you can develop a basic business kit for a one-man business to grow it into something bigger and more stable. South Africa has many great minds and developing such a kit is the easy part. In fact, most business schools already have the makings of such a kit – it’s essentially an MBA students varsity assignment.

Elements are simple: sales, managing cash, managing stock, bulk buying, managing credit, limiting expenses and finding improved premises.

The question is whether government should be involved in all or any of these – and that’s a question of policy. Generally I favour less government interference. The less regulation of small- and micro-business, the better. If we could cut red tape for small businesses, we will make it much easier for tiny spaza shops to become corner café’s without lots of documentation to fill in, taxation laws to abide by and the like. Government should, therefore, cut its involvement at that level. Let micro-enterprises simply comply with occupational health and safety requirements and register as a business – which could be one form and no more. This means no skills levy, no VAT registration at low levels and so on.

The area where I believe government should be more involved is with the education and micro-finance type of support, but in as direct a way as possible. We don’t need another wasteful Seta-style bureaucracy. We do need a quick way to obtain mini-courses on turning your spaza into a corner café or your kerbstone hairdresser into a small salon and quick, simple access to micro-finance to get it going. Perhaps the old style Small Business Development Corporation mini-office or mini-retail space could also be incentivised by the state in township areas.

Walking the streets of Alexandra, in Johannesburg, I see entrepreneurs all over the place. The last time I noticed a trailer with row upon row of wire cages with live chickens for sale. Standing rather like a bank of television sets in a hi-fi and appliance store, one can choose one’s live lunch and make a purchase or have it gutted. Imagine if we could help this type of businessman get a lift to the next level? Of course, many of these store owners currently illegally use electricity, water and so on.

But this is actually a global phenomenon as Stewart Brand says in his article on urban squatters:

“But the outlaw citizens find themselves in a cash economy at last, and it is vibrant. Every lane among the shacks teems with food stalls, cafés, hair salons, clothing racks, temples, health clubs, and mini-shops selling everything. Cell phones abound. Most of the economy is ‘informal’—no deeds, no licenses, no taxes. Everyone works, including the children, many of whom are also getting some education, often from private informal schools. Rupee by rupee, shilling by shilling, peso by peso, real by real, squatter families are working their way up in the world.”

Now, imagine if the government brought them into the small-scale formal economy and provided some basic business training? I am sure we will convert Trevor eventually. Now where do I send that party membership form? “DM

BARRIE TERBLANCHE of Mail & Guardian Online writes

“Despite routine spending of millions of rands on training courses and other programmes to help the informal entrepreneur sector grow, municipalities, government agencies and corporate social investment (CSI) projects seem to be doing it all on blind faith.

No evidence of the effectiveness of such interventions seem to exist, not even a simple before-and-after measurement of the turnover of informal businesses that participate in such training.

The need for hard evidence is becoming increasingly urgent as surveys consistently prove that the jobs government is desperately pushing for come almost exclusively from a tiny subsection of the small business spectrum — higher-end, formal, sophisticated businesses.

Recent research shows 60% of small businesses provide work for the owner only. Abdulkadiz Hussein Mohamed stands in the doorway to his spaza shop in Masiphumelele, Cape Town. Photo: David Harrison

The recent Finscope research by the Finmark Trust shows that two-thirds of all small businesses provide work for the owner only and create no other jobs. Only 1% of all small businesses provide work for more than 10 employees. (See “Supporting small business“)
Against this background, the question of whether the scarce public resources spent on trying to turn informal businesses into formal, job-creating, viable ones is urgent. But no one seems to know and most seem to ignore the ominous signs that maybe this spending does not work at all.
One such indication is that business training courses devised and offered to informal traders by the local economic development departments of municipalities routinely find it extremely difficult to persuade participants to sign up, even if the course is heavily subsidised with public money.
One example is a programme offered by the City of Cape Town in response to a study that showed large differences in the business skills and practices between spaza shops owned by local entrepreneurs and those of foreign refugees, especially Somali traders.
Local spaza shop owners were losing market share because they lacked the skills to manage their shops through formal business practices, such as bookkeeping and stock control. This was thought to be a contributing factor to the waves of xenophobic violence in recent years.
In surveys and interactions with municipal officials local spaza shop owners showed interest in skills training, but when the municipality made available 100 seats in a training course designed for informal businesses, called Micro MBA, few pitched up.

Lavendra Naidoo, an experienced small business financier and now general manager of The Business Place, a small-business development NGO contracted by the city to run the course, agrees that the effectiveness of training courses on informal businesses needs to be questioned.

“In my time in the [small business finance] sector — and we’re talking close to two decades almost — I picked up the same challenge. When you look at all these certifications of people [for having attended training courses] and when you question ‘did you actually implement the learning?’ even at the most elementary level you’re finding a very small strike rate,” he says.
Naidoo says the Micro-MBA is too basic to “necessarily make somebody highly competent”, so he doubts whether research will show immediate improved business practice. The aim is rather to make informal businesses aware of their skills shortages so as to encourage them to invest further in business training.
He admits that the tracking of effectiveness is neglected by small-business development organisations, but that it is too soon to dismiss informal-business training completely without proper assessment.
Professor Andre Ligthelm of the University of South Africa’s Bureau of Market Research, which regularly studies small businesses, describes the lack of impact studies into informal-business training as “a huge void”. He is aware of one impact assessment of a European Union funded training course for informal traders in Swaziland.
“They went back a year later to see to what extent the business owners implemented the elements that were taught — cash-flow management, stock control and so on. It was a very small percentage [who practised what they learned]. “So I think there is a problem on the supply side and perhaps also the demand side. Inappropriate courses are offered and perhaps the educational levels of the informal businesses are such that it goes over their heads.”
A paper written by two researchers from the University of the Witwatersrand’s School of Economic and Business Sciences describes a 2009 study which found that traders in inner-city Johannesburg who had attended a training course earned about R1 600 more than those who did not.

It was a six-month training course called Grow Your Business offered by the school in partnership with the City of Johannesburg. But co-author Chris Callaghan says that when the study was replicated in 2010, the correlation was insignificant, as it was when the study was done in 2008.
Although the paper, which looks only at the 2009 research, argues that “that the effects of the state’s involvement in entrepreneurial upliftment projects are non-trivial”, Callaghan says that his research over all three years is too limited to draw any conclusions about the effectiveness of the training course. More research is needed.”