Many times we have heard the doctrine of starting and running small businesses. Vusi Thembekwayo, a thriving entrepreneur and venture capitalist in South Africa argues otherwise. Read on to find out why.
For how much longer will we as Africans continue to be happy with the status quo of the past hundred years which puts us as the recipients of all forces shaping the global world. What’s happened in the world over the past few years that we’ve done that shaped the rest of it?
The truth is that because of the narrative that we’ve had, we’ve settled for a conversation that makes it okay for Africans to just be okay. And a part of that dialogue we see in my environment where we finance businesses. There has been all this buzz about small businesses. Just start a business and just get in and it’s alright if it’s a small business. Well, I believe it’s not okay.
This is why. Here in South Africa, we have these great snacks called “kotas” (township slang for a quarter loaf of bread, mixed with all kinds of food items – fried chips, atchar, Viennas, Russians, eggs, polony and burger patties), which do something to our souls that a McDonalds burger will never do. This is perhaps one of our greatest exports, except we are not exporting it. Take Tibo for example who operates his kota business in Alexander township which he established in 2005. He turned over R 53,000 for the year in 2015. Yet interestingly, there is a listed South African company which started a franchise, called KOTA Joe in 2013, pumped in some capital and last year turned over R20 million. My point – we are big business.
So maybe this an anomaly, right? Let’s use another example. What is a bank? A bank is nothing more than a collective investment scheme. People come together and put their money in the central pot. We put it there usually as savings with the idea that when you unlock that money and you need it in the future you can get.
What the bank is doing is taking that money and saying to people – “if you are credit worthy we will lend you the money” and we will price it at a premium. Hence our ability to buy a car or a house. How different is that to the stokvels we have in South Africa? This is usually a group of black women who come together and put money in a pot and at the end of the year they have money and they go to the ShopRite and they buy stuff. And in the next year the cycle starts again right.
Stokvels come in different forms. One investment stokvel operating in the Eastern Cape started a year after we achieved democracy in 1995. Last year, their collective investment was R 300,000. Now imagine bundling together R 300,000 annually over the past 20 years, you can do the maths about the kind of numbers we are talking about. In 1991, four years before this, a bank was formed in South Africa known as ABSA, which does in essence the same thing. The stokvel last year R 300,000, ABSA is a R4.6 billion a year turnover business. My point – our models of doing business are big business.
We need to unlock our thinking and change the conversation – it’s not okay for us to start small businesses. It is not okay for us to be happy to be vendors on the side of the road anymore selling fruit and vegetables. What we need to do is own the farms that produce the fruit, own the road infrastructure that moves the fruit, own the retail infrastructure to sell the fruit and own the banking system the transacts the whole platform. And by the way why don’t we just take the taxes as well.
So the idea here is we need a radically new form of thinking. Now that we are clear on this, let me explain why we are not doing this. Because we can blame colonialism in my country apartheid as long as we want, but there is a deeper problem, and the deeper problem is our inability to understand the ecosystem and life-cycle of entrepreneurship. All entrepreneurs start out as start-ups. Whether you are Bill Gates or Steve jobs you start out as a one-man show with an idea. What makes the Americans and now more recently the Asians really good is that they have created a huge pool of venture capital money. Easy to access, cheap and you can have it as patient money. You can have it forever and never have to pay it back.
That’s why they are building large institutions so it is not a mistake that Jung Lee, a Chinese mobile company started five years ago and is now the third largest smartphone company in the world. Where do they sell their phones? Eighty-seven percent of their sales come from China. The remainder from this continent. We are big business.We all start out as start-ups. How do you know you are a start-up? It is easy. You are one guy. You go to the customer, you deal with him. You go back to make the cookies, you come back and you give him the cookies. And the month end you phone him and you say “can I please have my money” and then he pays you and if he doesn’t, you go to him and say please I am going to
We all start out as start-ups. How do you know you are a start-up? It is easy. You are one guy. You go to the customer, you deal with him. You go back to make the cookies, you come back and you give him the cookies. And the month end you phone him and you say “can I please have my money” and then he pays you and if he doesn’t, you go to him and say please I am going to klap you until I get my money. And usually you give him what I like to call an AAK, an Attitude Adjustment Klap.
But how do you know you are a startup? It is easy. If you are the value of the business, you are a start-up. If the customer wouldn’t trade with your business unless you are in it, you are a start-up. Move a level above that you become what I see a lot of happening now and on the rest of the continent. For a bit of context, I run a venture capital fund. In our VC fund we own an advisory business where we advise entrepreneurs on how to start a business and enterprise development business where we help them to get into the supply chains of large organisations and then a fund where we actually finance them, so the entire ecosystem they need to succeed.
We are in six countries in the continent, so Southern Africa, Eastern Africa and Western Africa. I like to call us what we are – the best-kept secret in this continent. Nobody knows about us and I like it that way, because then they can’t see us coming. So we see a lot of start-up as start-ups and then they become these survivalist entrepreneurs.
The problem is a lot of them die at the instance in which they become survivalists. What are survivalists? I really need money month end to pay my bills. How do you know you are one? It is usually one person with three, maybe four people in his team. He is operating in a small office and is just barely making it. Every month you must make money to pay for that month’s bills. A level above that is that you then become a success. As a success, you are one guy and you have a core group of people who manage people in the core group of people who deliver the work. And then where we should be at growth level. Here is the question: how do we move from start-up to growth in as fast a time as possible, minimise the risk and develop our own industries. The mindset has to change.
Perhaps the deepest thing about this is this…so complex. Entrepreneurs need six things to succeed just six. You need an infrastructure. And what is the challenge we have on our continent? If I manufacture something in Joburg, South Africa, how do I get it to Nigeria? How do I get it to Luanda in Angola? It still persists in our own continent that I can’t put it on a single rail track and move it to their part of the world.
So we need an infrastructure that opens up our markets. We need capital, money, funding. And dear governments, here is the point. The money doesn’t have to be cheap, but it does have to be patient. It’s not okay anymore if our entrepreneurs fail on our continent. We bank them and after that we then put them on these things called blacklists and the can’t access credit anymore. Because what you’ve done is – you have taken somebody who has failed and learned from failing and you have now made him that he can’t operate economically for the next five years. So they need assets, they need access to markets, strong administration and then people.
And here is the thing about the people challenge. What is the first thing top talent does in Africa? It leaves! Think about it. If you think about the top Africans shaping the rest of the world today, they are not likely doing it in our own continent. They are somewhere else doing it. And a part of the narrative we need to reshape is how do we bring them back here to build what is jointly ours? There is a huge mass of knowledge in the African Diaspora. We need to bring them back in here and this is how we reshape it. So as really four reasons people start businesses; to live well, to leave something for your kids, to sell it, or to change the world.
So what does Google say? Google says we exist to do no harm. Apple says because the people who are brave enough to think they can change the world – are the ones who do. So they live on a philosophy space where it really is about changing the world and the reward is much much higher. Here we live lifestyles. We get access to public sector opportunities we call them tenders. And here is the thing about tenders – people must know. So the first paycheck goes to getting you that Ferrari and because we don’t have Ferrari dealerships, what we do, we import them in. and not only that we must be seen to live in a certain suburb, so what we do is we encumber our ability and opportunity purely by wanting to a fancy lifestyle.
The Asian people are different, specifically Indians. We see a lot of this in my country. They build legacy businesses. The great-grandfather gets a corner shop and he opens up a dry cleaning business. The father opens up a fast food joint. His son opens up a hardware store. And your son will then open up something else. But here’s the thing – generation on generational on generation, they don’t close these shops down. They keep them running in the family as legacy businesses.
The environment I work in is where we sell business. We build them purely for the purpose of selling them. Why? Because if you build to sell, you build for value. It means you are going to live scrappy. You are going to keep costs low. You are going to take a long-term view because you’re building this thing generally to create enough push pressure in the market that you can sell it.
I was on Dragons Den in South Africa, so invested in myself and the other dragons actually, invested in a business that is fundamentally shaping the entire floral market in the world, not just here but in the world. They created an Uber but for flowers. So imagine a situation where you would go on your phone and you want to give flowers for your loved one. When you pull up the application on your screen it will show you the local florist and what that local florist has available right now and the price. You would then buy from the local florist. He would receive the order and deliver the goods in a split second of a time – why? Because he is closer to you. Does it work? Of course it does. The local forest wants access to the market. You want to get the goods to the customer and here is a business that’s reshaping it.
Why we do it? Because we know it will disrupt not only here by globally and a huge opportunity to sell. So the question really for us is why are we building our businesses? I would argue that we don’t build them for the right reasons. If this is true and I would argue that it is, how do we fix it?
We need to do four things.
- We need to change the conversation. The conversation needs to be how do we build a business with a philosophy in mind? It has got to be greater than you. It has got be about changing the very way our very own continent works. It has got to be about bettering other people’s lives and making sure that in the innovations that we bring to market we have something that nobody else has and the rest of the world and they can only get it here. It must be based on a philosophy. Anything else is too weak.
- We need a strong system of mentorship. Let me take a moment to pause here. So here is the thing about the mentorship. In my family and in South Africa specifically, we come from a deep past of subjugation of the majority of the population, black people, my people. Because of that black people are never allowed to own businesses. So in my family and I imagine is the case of most of us in the room, when I started my business everybody thought I was crazy because you are raising a system when you grow up went to school, got good grades, went to varsity, got the grades, got a job and got married. And when you want to disrupt the system, society doesn’t understand it. What it then meant was when I did start my business, I had nobody to whom I could go and seek mentorship. Why? Because they themselves didn’t know what they didn’t know. And so incumbent upon us is to create a system in our social spaces where we can access mentorship to think differently. This I would imagine is our deepest challenge socially.
- We need to start creating a culture of delayed gratification. Fast money was fast in, but it is also really fast out. And here’s the other problem with fast money and this culture of delayed gratification. Let’s be honest here this and this is not political. We also live in a continent where in truth we have two economies. The connected economy and everything else. Everything else is where most of us who live. The connected economies where the Uber elite in the politically connected live. So it is not by mistake for instance that the wealthiest woman on the continent also happens to be the daughter of the president of Angola. I am not by means trying to put any sparages on her qualifications and abilities but I would argue differently – would she have the same opportunities if you were not the daughter of the president.
In my country South Africa we have seen a huge accumulation of wealth – of family members linked to our own president. Why? – because we created that narrative and we’ve made it okay – the connected economy where if you are ion you are in and if you’re not, well that’s just tough.
So it is about creating a culture of delayed gratification. That says build it. Build it for the next 10 years, next 15 years. Send young people through to varsity. Create innovation, structures and platforms and processes that we allow ourselves to build a different continent. Whatever you do, delay your own gratification. And finally, this is the trick right, how you know somebody is a good entrepreneur? It is very simple – they are very bad at writing business plans. It is true. We see a lot of it in our environment. If somebody has an NBA, odds are they are going to suck at entrepreneurship. If they can write a really well-written business plan, odds are they are going to be really poor at this entrepreneur thing. And in the context of this conversation about the lie of small business, is a part of the conversation we need to have, which is how we take people who are naturally not inclined to writing 60 page business plans and attach an addendum of a 20 page Excel spreadsheet of projections, and by the way, eight years in finance as a venture capitalist, I have never seen an Excel spreadsheet that says the business won’t make money.
The business always makes money. The revenue line is always up, cost is always down and profit is a perpetual quest of cream and water. People who are really good at writing the document are usually very bad in the real world at making the adaptations they need to make. So we need to create a culture that says start, start badly, start scrappy, make mistakes, fail, and start again, but whatever you do just start.
Before I close, let me tell you a personal story. So the year is 2014. I have just been kicked out of Wits University for something called financial exclusion. It is like Apartheid but for money. It basically means you don’t have enough money to pay your fees.
So I thought what am I going to do and I thought well I have got this thing called public speaking. It is a gift. I have won the world championship, maybe I could do that. So I started a public speaking business. I get a small office. It is a nice little office. I get a secretary and here’s the thing my business plan said that I was going to make money from month one. The financial model says month three I was cash flow positive. Six months in I have not received a single booking. Not a cent in my bank account. I have used up all the little savings I had up to that point. My secretary then says “listen I am willing to come to work for another month, but after that if you can’t pay me I really can’t come to work anymore”.
The bank is chasing because I have not paid off my car and, if you don’t pay off your car, the bank does the thing – I love the term – it is called repossession. Which means when you signed the contract you thought you owned it you didn’t really. We always owned, we just didn’t tell you. We are re-taking it back.
As for the bank they called to say that if you do not pay we are taking it back so I absconded and went to live in my office. Because the other thing about signing a bank contract is that it has that thing called a Domicilium citadel ET executant which is Latin for where do we find you when we need?
So they had my home address right and I absconded and I went to live in my office and for seven months, I lived in the basement of my office. The only meal I used to have often was driving to my then girlfriend, now wife’s house. Her father hated me so I always went there during lunch when he was at work and I would come back and continue to run my business.
Was it tough? – Yes. Have I been bankrupt? – Absolutely. But ladies and gentleman, I am privileged enough to stand here and say to you I have made more money than I never thought imaginable and I have not done it because I’m particularly more able than other people. I have done it purely because I’ve been afforded the opportunity to start. Yours and my task is the next generation of this continent – is to have a bit of faith and here is what faith is in my eyes. Faith is the ability to see the invisible. To believe in the impossible and to trust in the unknown. You and I today need to have a bit of faith in our own continent.
Source: 'Big Lie' of Small Business