The rapid increase in the number of business incubators in South Africa in recent years points to a thriving small, medium and micro enterprises (SMME) sector. Business incubation has been identified as a priority area in helping transform the economy and promoting industrial development, investment, competitiveness and employment creation.
Business incubators provide a range of business inception facilities including providing brick-and-mortar facilities, connectivity, training, advice on site, access to finance, and general networking opportunities. However, the high failure rate of new SMMEs and the slow or lack of growth among existing SMMEs portray a negative outlook of the sector’s potential to contribute meaningfully to job creation economic growth and poverty reduction.
A recent survey by Born Global Technologies on perceptions of service delivery among those incubated participating in local business and or technology incubators in Gauteng revealed exhilarating levels of dissatisfaction with the service offered by the incubators, exposing a huge disconnect between what is promised and what’s on offer. Some entrepreneurs even pronounced that the main benefit they derived from their incubator is the high-speed WIFI access. Others simply leave the programs prematurely, or hop around various programmes, resulting in high drop-out rate.
What Is Wrong With The Current Incubator Models In South Africa?
Firstly, most incubators in South Africa are too focused on concepts and processes rather than on delivering the actual incubation program. Within the incubation space, concepts like ‘access to market’, ‘networks’, ‘commercialization’ are being thrown around. But what is this so-called access to markets – what exactly is going to be delivered to the enterprise in measurable terms?
Entrepreneurs are promised access to ‘investment opportunities’ and ‘industry experts’, but actually, this jargon contribute nothing in practical terms to the development of their enterprises. The majority of the entrepreneurs remain in early stage and are not commercial, and the few that have commercialised are not integrated to supply chains of large companies and remain marginalised.
Another illustration is based on natural observation of proceedings at a number of pitching events, whereby the carrot being flashed to attract participants was the presence of investor, the halls were largely filled by fellow entrepreneurs and administrators and there were hardly any serious investors present in the room.
The second delinquency among the South Africa incubators is that they are trying to be everything, to everyone, everywhere. Successful incubators choose a market segment which they want to serve and select a suite of service offering they want to excel at offering. Industries today are fragmented so much that the efficacy of any advice will depend on industry knowledge and connections within the value chain. That is why incubators often have to specialise. Most incubators in South Africa lack focus on the profiles of enterprises and entrepreneurs they work with. The incubators want to operate in all sectors, offering training and mentorship, drafting business plans, even offer certificates – a domain of academic institutions.
Thirdly, in most cases, the only place where the quality of the incubation program looks good is on the brochure or on the company’s website. These hubs have merely become information centres rather than incubators in a true sense.
This poses a question on what services should incubators focus on. While the incubator may report that they have assisted so many entrepreneurs to put up business plans, what proportion of those plans end up being successfully funded? Another example is the unfortunate blanket assumption that all entrepreneurs require training. The fact is that entrepreneurs are a heterogeneous group with different levels of skills, knowledge and experience. One of the reasons why training seems to be wrongfully emphasised is that the incubators look ‘good’ in terms of reporting on the number of entrepreneurs reached and therefore it’s a low hanging fruit in terms of reaching their targets.
Fourthly, the staffing practices among the incubators leave much to be desired. While experience in running own business may be a necessity, business and entrepreneurial education should be the minimum requirement. The reality is that most incubation programmes are staffed by administrators rather than ex-entrepreneurs or enterprise development specialists. In my experience, solving entrepreneurial problems does not come naturally to administrative-focused practitioners, who are predominantly inclined to processes and compliance, and they tend to lack the empathy, urgency, and the flexibility required to exploit available options.
In order to safeguard the proper functioning of business incubators in South Africa, there should be an effective and efficient monitoring of the elements, outputs and outcomes. This monitoring should provide early warning signals about bottlenecks in the system and provide guidelines to policy makers and other stakeholders for how to optimise the system. There should be more emphasis on specialisation, selection, programme elements and its offerings, human resources, as well as robust monitoring and evaluation. The programs should focus on the practical business-building activities that impact the enterprises tactically or strategically. Ultimately, it is the quality of entrepreneurship rather the quantity that will result in a material impact to redress the unemployment and poverty crisis.
This article is published by Ujuh