BUPE- 2012

Jill Mitchell

JILL MITCHELL

WHO AM I?

Jill Mitchell

BSc(Hons) Chemical Engineering

MBA

Currently studying for a PhD in Entrepreneurship at Pretoria

University

Chartered (Professional) Engineer

www.jillmitchell.net

2

ASSESSMENT

Assessment Weighting Due Date

Assignment

ICE 3 Tasks

Examination

3

NATIONAL SMALL BUSINESS ACT

4

Definition of a Small Business

“A separate and distinct business entity, including co-operative

enterprises and non-government organisations, managed by

one owner or more, including its branches and subsidiaries, if

any, is predominantly carried on in any sector or sub-sector of

the economy mentioned in column 1 of the Schedule and which

can be classified as a micro-, a very small, a small or a medium

enterprise by satisfying the criteria in columns 3,4 and 5 of the

Schedule opposite the smallest relevant size or class as

mentioned in column 2 of the Schedule”

NATIONAL SMALL BUSINESS ACT

DEFINITION – SMALL BUSINESS

Qualitative Criteria

Relate to ownership structure

Be a separate and distinct business entity

Cannot be part of a group of companies

If it does have subsidiaries and branches, they must be included

when measuring size

Should be managed by its owners

It can be a natural person, sole proprietorship, partnership, or a legal

person such as a close corporation or company

5

NATIONAL SMALL BUSINESS ACT

DEFINITION – SMALL BUSINESS

Quantitative Criteria

Classifies into micro, very small, small and medium, using the following

criteria for different sectors in economy

Total full-time paid employees

Total annual turnover; and

Total gross asset value (excluding fixed property)

6

NATIONAL SMALL BUSINESS AMENDMENT ACT 2003

Advisory Board to replace NSBC

Public Finance Management Act 1999 applies to Agency

Schedle revised (definition) to reflect current rand value

“other non-financial services” deleted in order to give more focus

Added: “expand, co-ordinate and monitor the provision of training,

advice and counselling to small business

Added: “to facilitate and co-ordinate research relating to support

programmes by the agency

7

Act 26 of 2003 : GG No 25763, 26 Nov. 2003)

DEFINITION FOR EXAM/TEST PURPOSES

SMALL BUSINESS – A small business is

one that is independently owned,

managed and controlled; is not dominant

in its field of operation; and employs

fewer than 50 people; with a turnover not

exceeding R5million per year.

8

EXAMPLES OF SMALL BUSINESSES

Spaza shops

Vendors

Franchises

Brokerages

Cleaning Services

Underwriting Agents

Photography business

9

ENTREPRENEURSHIP

Entrepreneurship is the process of conceptualising,

organising, launching and, through innovation,

nurturing a business opportunity into a potentially

high growth venture in a complex, unstable

environment

10

ENTREPRENEUR

A catalyst for economic change who uses

purposeful searching, careful planning and sound

judgement when carrying out the entrepreneurial

process by working creatively to establish new

resources or endow old ones with a new capacity,

all for the purpose of creating wealth

11

INTRAPRENEURSHIP

Intrapreneurship is the form of entrepreneurship

which takes place in existing businesses around

new products, services or markets

12

ENTREPRENEURSHIP VS INTRAPRENEURSHIP

See Table 1.1 page 14 module manual

13

SCHEDULE (SEE DEFINITION OF “SMALL BUSINESS”)

Sector or sub-sectors in

accordance with the standard

industrial classification

Size or

class

Total full-time

equivalent of

paid employees

Total annual

turnover

Total gross

asset value

(fixed property

excl)

Less than Less than Less than

Agriculture Medium

Small

Very small

Micro

100

50

10

5

R 4.00m

R 2.00m

R 0.40m

R 0.15m

R 4.00m

R 2.00m

R 0.40m

R 0.10m

Mining & quarrying Medium

Small

Very small

Micro

200

50

20

5

R30.00m

R7.50m

R3.00m

R0.15m

R18.00m

R4.50m

R1.80m

R0.10m

Manufacturing Medium

Small

Very small

Micro

200

50

20

5

R40.00m

R10.00m

R 4.00m

R 0.15m

R15.00m

R 3.75m

R 1.50m

R 0.10m 14

SCHEDULE (SEE DEFINITION OF “SMALL BUSINESS”)

Sector or sub-sectors in

accordance with the standard

industrial classification

Size or

class

Total full-time

equivalent of

paid employees

Total annual

turnover

Total gross

asset value

(fixed property

excl)

Less than Less than Less than

Electricity, gas & water Medium

Small

Very small

Micro

200

50

20

5

R40.00m

R10.00m

R 4.00m

R 0.15m

R15.00m

R 3.75m

R 1.50m

R 0.10m

Construction Medium

Small

Very small

Micro

200

50

20

5

R20.00m

R 5.00m

R 2.00m

R 0.15m

R 4.00m

R 1.00m

R 0.40m

R 0.10m

Retail and motor trade and repair

services

Medium

Small

Very small

Micro

100

50

10

5

R30.00m

R15.00m

R 3.00m

R 0.15m

R 5.00m

R 2.50m

R 0.50m

R 0.10m 15

SCHEDULE (SEE DEFINITION OF “SMALL BUSINESS”)

Sector or sub-sectors in

accordance with the standard

industrial classification

Size or

class

Total full-time

equivalent of

paid employees

Total annual

turnover

Total gross

asset value

(fixed property

excl)

Less than Less than Less than

Wholesale trade, commercial agents &

allied services

Medium

Small

Very small

Micro

100

50

10

5

R50.00m

R25.00m

R 5.00m

R 0.15m

R 8.00m

R 4.00m

R 0.50m

R 0.10m

Catering, accommodation & other trade Medium

Small

Very small

Micro

100

50

10

5

R10.00m

R 5.00m

R 1.00m

R 0.15m

R 2.00m

R 1.00m

R 0.20m

R 0.10m

Transport, storage & communications Medium

Small

Very small

Micro

100

50

10

5

R20.00m

R10.00m

R 2.00m

R 0.15m

R 5.00m

R 2.50m

R 0.50m

R 0.10m 16

SCHEDULE (SEE DEFINITION OF “SMALL BUSINESS”)

Sector or sub-sectors in

accordance with the standard

industrial classification

Size or

class

Total full-time

equivalent of

paid employees

Total annual

turnover

Total gross

asset value

(fixed property

excl)

Less than Less than Less than

Finance & business services Medium

Small

Very small

Micro

100

50

10

5

R20.00m

R10.00m

R 2.00m

R 0.15m

R 4.00m

R 2.00m

R 0.40m

R 0.10m

Community, social & personal services Medium

Small

Very small

Micro

100

50

10

5

R10.00m

R 5.00m

R 1.00m

R 0.15m

R 5.00m

R 2.50m

R 0.50m

R 0.10m

17

SMALL BUSINESS:

DEFINITIONS OF OTHER COUNTRIES

Country No. of

Employees

Annual

Turnover

Other

Australia Less than 20

employees

None but $ limits for taxes &

financial reporting

UK Less than 50

employees

Less than £5.6

million

Canada Less than 50

employees

France Less than 50

employees

Less than Є10

million

USA 500 Manufacturing

100 wholesale trade

$ 6million retail &

service

$ 0,75 for

agriculture

18

SME POLICY

19

To strengthen the existing base of small enterprises by

ensuring they can compete in the marketplace and that

they are not prejudiced because of their size , relative to

large firms.

(Lundström & Stevenson, 2001:37)

ENTREPRENEURSHIP POLICY

Measures to stimulate entrepreneurship

Aimed at pre-start, the start-up and post start-up phases

Designed and delivered to address areas of motivation, opportunity

and skills

Primary objective of encouraging more people to consider

entrepreneurship as an option

To encourage and develop entrepreneurial and growth ventures

20

SMALL BUSINESS VS ENTREPRENEURS

Not all small businesses are entrepreneurial

Example: lifestyle firm, elderly couple purchase a coffee

shop

Entrepreneurs usually aim for high potential return

ventures

Three factors distinguish entrepreneurial ventures:-

Innovation

Growth potential

Broad vision

21

SMALL BUSINESS VS ENTREPRENEURIAL VENTURE

SMALL BUSINESS ENTREPRENEURIAL VENTURE

Preferred funding source Owners own capital investment Other people’s capital investments

When the business is in trouble Cut costs Sell more

What’s more important Sales Marketing

Personal control preference Retain autonomy Involve other key personnel

Focus Efficiency Efffectiveness

Meta-strategy Imitation Novelty

External control preference Control business Control market

Grow When necessary When possible

Human resources Personalise Professionalise

What limits growth Fear of loss of control Market response

Delegation orientation Delegation is difficult Delegation is essential

22

SMME VERSUS ENTREPRENEURSHIP POLICY

Feature Small business policy Entrepreneurship policy

Objective Protection against big business Motivate more new entrepreneurs

Target Existing firms, Business(entities) Nascent entrepreneurs / new business

starters Individuals (people), growth

orientation

Targeting “Pick winners” (i.e.,

growth sectors, firms)

General population/subsets

(i.e., women, youth)

Client group Easy to identify “existing” Difficult to identify “nascent”

Levers Direct financial incentives (tax-

credits, loans, guarantees)

Non-financial, business support

(networks, education, counseling)

Focus Favourable business environment

(i.e., tax regime, reduce red-tape)

Entrepreneurial culture/climate

(i.e., promote entrepreneurship)

Delivery system Well-established Lots of new players

(need orientation)

Approach Generally passive Pro-active outreach

Results orientation More immediate (Results

in less than 4 yrs)

More long-term

(Results can take longer)

Consultation SME associations Forums do not generally exist

23

PARAMETERS OF ENTREPRENEURSHIP POLICY

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Favourable business climate e.g., tax regime, competitive environment, savings, flexible labour market, competitive banking system, low inflation, low interest rates, etc.

Make it easier to go through the steps Reduce entry/exit barriers. Improve access to advice, information, networks mentoring, incubators. Provide access to micro-loans and seed capital

Make it easier to gain know-how Put entrepreneurship education in schools. Tailor entrepreneurship training programs. Support student venture programs. Establish peer learning

Increase awareness and legitimacy of entrepreneurship Provide information about its role in society. Profile role-models. Promote entrepreneurial role as feasible option

Make it easier to survive and grow Improve access to resources – financing, networks, expertise. Improve access to markets, employees, technology. Reduce regulatory and labour market obstacles

Make it easier to gain management know-how Access to counselling, technical assistance, management skills, peer networks, “best-practice” management tools, performance benchmarks

Influence “will to grow”

motivation Promote new

business possibilities.

Promote growth possibilities.

Promote role-models

Opportunity

Skills

Motivation

For start-up Create entrepreneurial climate For growth

General population “A want-to-be” Nascent Start-Up Survival Growth

tn t T-42 months

A MODEL FOR ENTREPRENEURSHIP

25

Economic growth occurs

Incomes increase

Living standards improve

Investment opportunities arise

Entrepreneurial orientation

Culture Role models Education Work experience Personal orientation

Supportive Environment

Infrastructure Finance Laws Training

Development services

Co-operative Environment

Institutions which are actively involved and assist with new

firms

Entry of entrepreneurs

Acquired abilities Inherent abilities

Products / Services

Results of entrepreneurship

+

Tax base is enlarged by a greater number of new firms

Technological development occurs

Job opportunities arise

BUSINESS MANAGEMENT PROCESS AND ACHIEVING

GOALS

Management made up of 4 basic

functions:-

Planning

Organising

Leading (activating)

Controlling

26

BUSINESS MANAGEMENT PROCESS AND ACHIEVING

GOALS

Six additional management functions can be

added to form the management process:-

Decision making

Communicating

Motivating

Co-ordinating

Delegating

Discipline

27

SEDA

Small Enterprise Development Agency

Never under estimate the challenges of

running a small business: - “ it requires you

to be disciplined, organised and well

informed……to learn as much and as

quickly as you can – and then practice the

craft of managing yourself and others”

28

EXPERIENCE

As a minimum small business owners

require expertise in marketing and

management if they are going to be

successful

29

PERSONAL ORIENTATION

Creativity and innovation (experimentation

Autonomy (independence)

Risk taking

Pro-activeness (taking initiative, Pursuing opportunities)

Competitive aggressiveness (achievement oriented)

30

WORK EXPERIENCE

Contributes to individuals entrepreneurial

orientation

Research required on youth entrepreneurship vs

work experience before start-up

31

FAMILY & ROLE MODELS

Exposure to entrepreneurial activities increases

propensity towards entrepreneurship

Entrepreneurial “heroes” e.g. Rupert, mapanya

32

EDUCATION

Entrepreneurship can be developed through

education

High-potential (ICT, gazelles) entrepreneurs =

positive linkage

Van Vuuren & Nieman

E/P = M (E/S X M/S)

Model for curricula development

33

CULTURE

Culture

= norms, beliefs, symbols, attitudes, behaviour, and artefacts that members of society use to cope with their world and one another

= Transmitted from one generation to another

Hofstede’s cultural dimensions

Power distance index

Individualism

Masculinity

Uncertainty avoidance index

Long-term orientation

Hofstede’s research help us to be more effective when interacting with people

34

INFLUENCE OF CULTURE IN SA

Africa nations have strong cultural environments that differ

significantly from other nations particularly Western industialised

countries

Cultural attributes (as identified by Hofstede and Kanungo) and their

influence on African entrepreneurship needs to be tested empirically

Therefore different interventions need to be developed for different

cultural groups

35

CULTURAL INFLUENCES ON ENTREPRENEURIAL

BEHAVIOUR

Kanungo (1994) based on Hofstede’s work (1980) found

developing countries;

High power distance

High uncertainty avoidance

Low individualism

Low masculinity

36

HIGH POWER DISTANCE

Family, schools & work organisations believe in hierarchy of authority

Authority and control based on age and kinship

Denies people opportunity to participate in decision making and self-

confidence

Rural areas these values still very intact

37

HIGH UNCERTAINTY AVOIDANCE

Shun away from uncertain situations or an inherent

unwillingness to take risks

Career aspirations toward self-employment very low

Fear of failure

In SS Africa failure seen as symbol of weakness and

dereliction of duty

Limits initiative and creativity 38

LOW INDIVIDUALISM

Greater predisposition towards family or group interests than individual

interests

Collectivism and ubuntu

Extended family

Collective interests does not promote spirit of independence and self

reliance

Diminishes capacity for individuals to make meaningful savings

39

LOW MASCULINITY

Equals a low drive for achievement

Low predisposition towards success (McClelland)

Do not derive personal satisfaction from accomplishing a task

Result = heavily dependent on government to provide for their needs

High nAch = stimulates growth and prosperity

40

SKILLS REQUIRED FOR RUNNING AN SMME

Strategy skills

Planning skills

Marketing skills

Financial skills

Project management skills

Human relation skills

41

MANAGERIAL SUCCESS FACTORS

Planning

Knowledge of competitors and a market orientation

Client orientation

High quality work

Financial insight and management

Specific knowledge and skills relevant to the

business context

Making use of experts

42

SUPPORTIVE ENVIRONMENT

Government should help to create a supportive environment

Legislation

Policies

Environment should create a climate favourable to the entry of

entrepreneurs

Financing by ordinary financial institutions such as banks

Venture capital access

Training and development programmes should encourage entrepreneurship

(job providers vs. job seekers)

Infrastructural development prerequisite for any economic activity at an

advanced level

Deregulation i.r.o. of economic activities as well as legal regulations 43

INFRASTRUCTURE

Roads

Water supply

Sewerage

Power supply

Telecommunications network

Industrial zones and clusters

Facilitates the production of goods and services

44

The basic physical and organisational structure needed for

the operation of a society

LAWS

Deregulation = creates opportunities

Over regulation = restricts free trade

45

FINANCE

Important resource

Access important

46

BUSINESS DEVELOPMENT SERVICES

Training

Advice

Counseling

Mentoring

Networking

Finance

Incubators

Clusters

47

CO-OPERATIVE ENVIRONMENT

There must also be other institutions that actively promote

entrepreneurship

Tertiary institutions i.r.o. education and research

Institutions giving business support, finance and / or training

Involvement through SMME development units

NGO’s and CBO’s

International aid agencies

48

ROLE OF ENTREPRENEURIAL EDUCATION

49

N. Ach

N. Independence

Risk taking

Role model performance

Work experience

Expected unemployment

Opportunity perception

Entrepreneurial

education:

reflective modes

(lectures)

Entrepreneurial education: active modes (Business plan, case studies, field work)

Entrepreneurial

programmes:

(overcoming

resource

constraints)

Industry support

(partners)

Entrepreneurial

Intention

Individual

factors

Source: Walter, C. et al IECER 2009 Conference

SCOPE FOR SMALL BUSINESSES

Exists almost everywhere in South Africa

8 factors that lead to higher business formation in a given

geographical area:-

Population growth

Unemployment

Wealth

Workforce qualifications

Business size

Housing

Local government

Government policy

50

CHALLENGES FOR SMALL BUSINESS

Finding and retaining qualified workers

Legislation and regulation

Economic uncertainty

Keeping up with technology

Access to capital

Lack of time to plan

Lack of knowledge

Working hours

51