Small business owners in South Africa have no shortage of entrepreneurial spirit and grit, and most are building multiple businesses without help, but the two major challenges standing in the way of their growth in 2023 is lack of access to funding and the impact of ongoing loadshedding.
These are the findings of the 2023 State of Entrepreneurship in South Africa Survey by the Entrepreneurs’ Organisation (EO) South Africa chapter. EO is a global support network of close to 17 500 entrepreneurs in more than 75 countries who help each other to fulfil their potential. EO-SA polled its own members for the survey.
Key findings on venture building in South Africa: fortune favours the bold
|Quick take The makings of a South African entrepreneur Most entrepreneurs are self-starters who grabbed opportunities (26.6%), were born with an entrepreneurial spirit (26.1%) or turned a passion into a business (22.9%)Most entrepreneurs started between 3 to 5 businesses (39.9%), while 28.4% started just one business and 7% started more between six and 10 businesses in their life. Most (53.2%) had one successful business and 27.5% had two successful businesses. 89% of respondents started their own business and more than half had been in business for more than four years, 29.4% were in business for 15+ years, and 26.1% had been in operation for 4-8 years.|
The survey findings, which were released this week at the annual international EO conference, held for the first time in Cape Town, paint a picture of entrepreneurial courage and resilience. When asked why the respondents became entrepreneurs, most (26.6%) said, “there was an opportunity and I took it”, followed by being “born with an entrepreneurial spirit” (26.1%) and “turning a passion into a business” (22.9%).
Most entrepreneurs (53.2%) had one successful business but had in fact started between three and five businesses (39.9%). The vast majority of respondents (89%) had started their own businesses. Over a quarter (29.4%) of the businesses in the survey had been in operation for more than 15 years, while 26.1% had been in operation for four to eight years.
Most businesses (42.2%) were a combination of business-to-business (B2B) and business-to-customer (B2C) solutions, followed by pure B2B at 35.3% and pure B2C at 20.2%. Most of these South African entrepreneurs (46.3%) ran what could be classified as “small businesses” with less than 10 employees, but around a third (31.7%) ran scalable start-ups. Almost a third (27.5%) were still building or refining their product or service. Only about 20% ran bigger businesses that employed between 11-30 people.
The most common annual turnover for their main businesses was R10-million to R50-million (27.1%), followed by less than R500 000.00 (22.5%), but of all those, only 63.3% posted profit growth over the past 12 months.
Looking at industry distribution, the most common sector reported was information and communication (21.1%), followed by other service activities (14.2%) and manufacturing (10.6%).
Work location insights: Cape Town and work-from-home flexibility come out tops
The Western Cape was the most common location for head offices (59.2%), followed by Gauteng (31.2%), while no head offices were recorded for the Northern Cape, North West and the Free State.
Working from home was still a big trend with 33.5% working in a hybrid fashion with some days at home and some days in the office, and 31.2% working fully remotely, although 35.3% of businesses were already fully back in the office.
Key findings on challenges faced by entrepreneurs: we need support and security
|Quick takeGreatest challenges faced by SA entrepreneursNine out of 10 entrepreneurs (89.9%) had never received government support. A third (33.5%) of entrepreneurial businesses did not show profit growth in the past year. Crime affects 24% of entrepreneurial businesses annually and 11.9% both monthly and daily. Loadshedding is causing losses to six out of 10 businesses (58.7%). Half of entrepreneurs need more funding support, a quarter say lack of funding is their biggest constraint. Small business want reduced red tape, tax burdens and cumbersome labour legislation so they can grow.|
A third (33.5%) said their businesses did not record a growth in profits over the past 12 months.
The major hurdle to growth was the lack of funding support. Only 10.1% of respondents reported that their businesses had ever been supported by the government, while the majority (89.9%) said they had not received any government support. Half of entrepreneurs (49.1%) said they needed more public or private funding support to grow their businesses, and most (24.3%) said lack of funding was their biggest business constraint. Other challenges included energy security, physical security, access to resources, mentors and markets, struggling with red tape, and tax burdens. Compliance with BEE and labour regulations was also challenging for some businesses.
Crime affected 24% of entrepreneurial businesses annually and 11.9% of small businesses experienced crime both monthly and/or daily. One of the gravest concerns for business owners, however, was loadshedding, which caused financial losses for six out of 10 businesses (58.7%).
Policy support is required to boost entrepreneurship in South Africa
“This survey about the state of entrepreneurship in South Africa provides valuable insights into the experiences of entrepreneurs in the country today – as well as the policy and funding support our job creators need,” said EO Cape Town chapter chairman Richard Rayne, whose board initiated the survey.
“The findings reveal that most entrepreneurs start their businesses because they look for opportunities and have a passion for entrepreneurship, and they put everything in to make it work,” said Rayne. “Our business owners face the prevalent South African challenges with courage, and despite it all continue to create jobs and contribute significantly to the economy, without much external support. Most entrepreneurs feel that their business growth is stifled by a lack of support, funding and systemic stability and security – and this tells us that they need both policy support and capital to make an even greater positive impact on society. We appeal to our partners in local, regional and national government to listen to our entrepreneurs and to support them, for the benefit of the country.”
EO South Africa is calling on SA’s policymakers to do three things for local entrepreneurs:
- Develop policies that support small businesses and scalable start-ups, including tax incentives and easier access to financing, also outside of major urban hubs.
- Increase access to broadband and other technological infrastructure to support digital entrepreneurship across the country.
- Invest in education and training programs to help commercial and social entrepreneurs develop the skills they need to solve the economic and social challenges in the country. 00
EO also calls on employers to support the economy in the following ways:
- Support other businesses to scale, refine their products or services, and develop their minimum viable products (MVPs).
- Encourage and facilitate more work arrangements that are flexible and accommodate remote work.
- Increase efforts to diversify the economy and build entrepreneurship in regions outside of the Western Cape.