This is according to a survey conducted by Seed Academy, a school for entrepreneurship. More that 900 startup entrepreneurs - who have been in business less than five years - took part in the survey.
"We have trained hundreds of entrepreneurs and have picked up common problems. This national survey gives us hard evidence to help create a more sustainable and successful startup culture in South Africa. We hope it will create impetus for industry and government to align efforts," says Donna Rachelson, director of Seed Academy.
According to the findings, the main problems entrepreneurs face are finding customers, raising funds, a lack of guidance and entrepreneurs' tendency to wear too many hats. "These challenges confirm that entrepreneurial development should be aimed at providing business education, helping to create a network, offering tangible guidance to find customers and of course, preparation to raise funds at the most appropriate time for the business," says Rachelson.
Only a small percentage of entrepreneurs fund their businesses from the vehicles formally established to support them. This raises questions regarding the accessibility and effectiveness of funding programmes.
The National Development Plan aims to have 90% of new employment created by small, medium and micro enterprises (SMMEs) by 2030, so it follows that job creation should be a key outcome of entrepreneurial activity. The results indicate, however, that the number of businesses which employ five or more employees are still in the minority.
The biggest motivator to start a business is the identification of an opportunity. Only 8% of respondents started a business as a result of not finding a job, which is a leading indicator in the development of successful entrepreneurs. Most entrepreneurs work from home.
Female entrepreneurship needs to grow. Rachelson says that initiatives for women entrepreneurs need to be integrated, strengthened and improved. She also believes that it is important to actively promote success stories of female entrepreneurs. "Female mentors should be encouraged to support other female entrepreneurs in the specific challenges they face," she says.
South Africa needs to identify ways of enhancing the angel network. Initiatives could include tax incentives to angels to encourage early stage investments and the establishment of more innovative solutions such as online angel investing platforms which connect investors and entrepreneurs.
Development finance institutions (DFIs) play a key role. DFIs need to better market their services so entrepreneurs have clarity about requirements and can experience a streamlined process to acquire funds. They also need to develop their capacity to mentor startup businesses and offer post investment management.
The creation of innovative funding mechanisms is important. "Pension and provident funds do not currently invest in early stage businesses, as their mandates prevent this and they are not incentivised to do so," explains Rachelson. "They should be mandated to spend a small component (even as little as 0,5%) of their allowable 10% (under regulation 28 of the Pension Funds Act) on venture capital funds. When invested, this will create significant momentum for the entrepreneur ecosystem."
