Analysis of factors that affect the long-term survival of small businesses in Pretoria

1. Analysis of factors that affect the long-term survival of small businesses in Pretoria Presentation by Paul Marivate

2. Contents • Introduction • Theoretical Frame work 2.1. Rationale for the Study 2.2. Objectives of the Study 2.3. Research Methodology 2.4. Data gathering and Administration 3. Focus Group Comments and Recommendations 4. Conclusion

3. Introduction • Definition of Small Business: “The National Small Business Act of 1996, defines a ‘small business’ as follows: ... A separate and distinct business entity, including co –operative enterprises and non-governmental organizations, managed by one owner or more which, including its branches or subsidiaries, if any, is predominantly carried on in sector or sub-sector of the economy mentioned in column I of the Schedule” • Defining “Long term Survival” for a Small Business used the following battery of concepts and statements: …Innovativeness, entrepreneurship, diversification and introduction of new products & services, vigilance for business opportunities, customer relations, adaptability, training and business skills of the manager - owner, financial resources' borrowing and repayment , interpretation and analysis of financial performance of the business, Business Strategy , Business Competitiveness, Financial Resources Management and Performance, Membership Affiliation, Networking, Organizing, Coping for Opportunity exploitation, Operation’s related problems, Government Support, frequency of closure, Crime, Staff Pilferage, Globalization effects, BBBEE Beneficiation; internal and external operations challenges; and the commitment of the owner that would assist him / her to develop some hands – on survival practices and tactics intuitively as cited by Wales (2004). • Operations and Management skills: Most of the Small Business owner - manager are multi -skilled[Fin Scope, GEM, DTI, etc]. • Small Business Failure rate (Seda:) reasons vs survival:- vulnerable to external factors e.g.:- Globalization, Legal & Regulatory, lack of “financial management skills, entrepreneurial spirit, strategy for customer relationship management including customer care; lack of written Business Plan, Marketing Plan, Financial Plan; written Budget, • Governments views, support and challenges for assisting Small Businesses (DTI, STATSSA) [Demand and Supply: Service Delivery on the Demand side and Lack of acceptance / mindset to make use of Government Opportunities] • Theoretical Concepts : Innovation, Adaptability,Vigilant for Business Opportunity, Entrepreneurial Spirit (Drive to accomplish & Survive) Bounce back spirit; diversification- introduction of new products and services, Business Strategy, Customer Relationship Management; Knowledge Management

4. Rationale for the Study • Analyze, compare and interprete theoretical constructs of survival and growth strategies for small businesses • Review theories and factors that support the concept of survival, namely: innovation, entrepreneurship, vigilant, adaptability, management skills, strategy, business processing, etc • Review factors & theories that explains the long term survival of small business: strategy, client retention, understanding the market demand and supply factors, training, Globalization effects, staff and client pilferage • Study the long term survival of small business through a research project using an Empirical Study approach that incorporates ethnographic design, participatory research, surveys as well secondary data analysis. Ontological and Epistemological assumptions will be used to clarify the research arguments. • Simulate Academic Debate and Bring fresh insights through empirical findings of the previously confirmed hypothesized phenomenon • Generate recommendations to the LED (Local Economic Development) unit of the Tshwane Municipality for Long Term Survival of Small Businesses in Pretoria

5. Objectives of the study • Generate knowledge about the Long Term Survival of Small Businesses • Review theories and factors that support the concept of small businesses’ long term survival • Write an article to be published in a reputable Small Business Journal (SBJ)

6. Research Methodology • Sample range of 300 participants for the study • Variables - Management Skills; Operations; Operations’ related problems; Business Competitiveness & Strategy; Financial Performance; Business Processing, Legal, ITC, Training, etc • 4 quadrant – North, East, West & South surburbs. • Quantitative data be collected through telephone, internet response, post, facsimile facilities and self – administered completion of hard copies; • Qualitative data to be collected from Focus Groups and through Face to Face (F2F) interview; • Primary Data Collection through Face to Face, Focus Group and Telephone • Secondary Data : - Desk top, Gov’t Publications, Research Engine Search, Tshwane Business Club Information, Nafcoc Youth • Limitations: Organizations to be operating for at least 3 years

7. Data gathering and Administration PRIMARY DATA COLLECTION CHALLENGES to date • Field work challenges: resistance, unavailable person to answer • Financial Statements not compiled in line with GAAP standards hence difficult to be used accurate for analysis of business survival; • Vague, inaccurate and lack of written operations documents on Financial Management, Business Plan, etc. Reflection of lack of Financial Management Skills SECONDARY DATA COLLECTION CHALLENGES to date • NYDA / Gov Department too slow to provide current hard copy information; • SEDA did not Provide information – delays despite several attempts • Stats SA reports – readily available up to June 2011 but preliminary info • CIPC [former CIPRO] operations challenges to get current information • Reserve Bank had little information of Small Businesses and referred me to NCR • Tshwane Business Club Data Base outdated

8. Data Analysis for current information collected • Lack of Business Strategy and Management Skills to address competition, etc • Lack of committing to paper or Formalization of Business Management and Operations principles and intelligentiaeg. Business Plan. One of the reasons cited is that this document is only to drafted when applying for finance. These important documents also needed for planning includes HRM Plan, Marketing and Operations Plan • Categories of Challenges obtained from the participants: 99% finance related; 0.01% Crime related; 40% staff and customer pilferage • Lack of continuous support on Training to enhance incremental skills required for Business Management. Unstructured support of Government Programmes to upgrade skills: majority of participants said they were self taught or self engaged on- the – job – trainingskills development. • Nil benefits from BBBEE scheme

9. Literature review and local knowledge generated by scholars supporting the debate on Long Term Survival • Finscope on Crime effect to Small Business Survey • GEMS on Small Businesses (Mike Herrington & Co) • Umsombombvu &NYDA, SEDA & Khula Enterprises • W & R Seta’s Drivers of change in the retail sector: IT (Transaction Processing, Cellphone, Legal, Decent Jobs, BBBEE, Entrepreneurship & Management skills) • Survival linked to entrepreneurship and business strategy; • Innovation & Diversification • Formalization of operations and business processing • DTI Annual Surveys, research, case studies, etc

10. TIME TABLE OF ACTIVITIES

11. Recommendations by the participants • Training should use Incubation and Mentorship programme based approach. The minimum duration for these programmes should be 12 months. • Tshwane Municipal LED unit should change the current SMME intervention strategy as it is lacking on support system. This is ground for IERI research unit for conducting Impact Studies on Innovation, Incubation and Mentorship for Small Business Survival • There is a need to stimulate an “entrepreneurial and innovative spirit” through a combination of fact finding research / action participatory research, workshops, training on advocacy, etc • There is a need to establish a Small Business Training Centre in Tshwane to be housed in the IERI. A business unit that will address Small Business’ Long Term Survival through Training and Research. [ This project will be a case study for IERI that can be used to benchmark against UP Business Unit]. Various sources of funding this unit will be from DOL, SETAS, Govt Research Funds, BBBEE / CSI funding from the Private Sector

12. Recommendations by the participants • Small Business Research activities to be done by TUT Senior students / Post Grads on all Research Projects that includes mentorship and incubation. This method can also use an action participatory research approach should support apprentice system of training • Assist Tshwane Municipality to engage in robust fund raising projects for this SMME Research and Training Programme. The sustainability of the Small Business Centre will be linked to the number of interdepartmental Programmes conducted within TUT strategic business units • DTI agents’ graduation system – support, tracking and programme alignment to be regarded as a case study for SMME Survival using a knowledge management system approach;

13. conclusion • Amongst other factors, Innovation, entrepreneurship, diversification, continuous training and good management practices will assist the Small Business to survive • This research project is inclined to generate knowledge to be published in a reputable Small Business Journals (SBJ), • Other topics that support concept of survival for knowledge generating and debate stimulation includes, amongst others: “Family Business; Innovation,Entrepreneurial Mentorship and Incubation, A review of Successes and Failures of SMME Support systems by the Government; • Write up to follow after the Data gathering process