What we can learn from how these 6 SMEs would spend R1 million

Posted on March 3rd, 2016
Funding

What we can learn from how these 6 SMEs would spend R1 million

 

The 6 entrepreneurs who participated- Nisha Maharaj of Niche Integrated Solutions (NIS), Josef Schmid of MadMead Brewing, Thatoyaona Marumo of  DomestlyJeandre Leslie of MIR Public Relations and Events, Jens Herf of Shopstar, Doug Hoernle of Rethink Education.

The needs of entrepreneurs differ from country to country. In an effort to find out what  entrepreneurs in South Africa feel is holding them back, we put the question to 6 South African entrepreneurs – If you were to receive R1 million in funding for your business, what are the top 5 areas you would spend it on?

Their answers gave us insight into what they consider to be their most important priorities.

We also compare their responses to recent research to find out if their responses reflect general entrepreneurship trends.

Arthur Goldstuck, MD of World Wide Worx, a South African technology market research firm that conducts the SME Survey, shares with us what we can learn from the six entrepreneurs’ responses in terms of the areas South African entrepreneurs feel they need the most help in.

He adds that the big takeway from the responses by the startup founders is that each business is different and there is no one-size-fits-all in serving the SME market.

“Every business has different and sometimes very specific needs that do not fit into the cookie-cutter models we often see from agencies intended to assist SMEs,” he says.

Here are their insights:

  • THE BUDGET ALLOCATION

Where they would actually spend money 

Marketing tops the list for most of the businesses with all of the founders SME South Africa spoke to listing marketing and marketing related activity, such as PR, advertising, events and search engine marketing (SEM), among the top 5 areas they would spend their money on if they were to receive a R1 million cash injection.

The majority of the startups put marketing in first or second place on their top 5 list with the rest putting it in third place. This makes marketing not only the highest ranking business concern overall but also the highest rated compared to the others.

Explaining the importance of marketing in relation to her business, Jeandre Leslie – co-founder and owner of MIR Public Relations and Events, a public relations and events agency told SME South Africa that an effective overall marketing is important for creating credibility and initial trust from customers.

Staff was rated the second most important consideration with five of the SMEs listing it in their top 5 most important considerations. Their responses included hiring more staff, training and development and paying their teams better to perks such as taking the team on a trip to Tel Aviv.

Four of the startups listed product development as another important area to invest in, making it the third highest rated business concern. The business owners included brand development, improving packaging and investing in technology as well as hiring tech consultants to improve their applications.

Infrastructure came in fourth with Josef Schmid, co-founder and managing director of MadMead Brewing, which owns and operates the Ubuntu Kraal Brewery which produces Soweto Gold beer saying they would put money towards growing tap installations around the country to ensure that their craft beer brand is available in more locations – more often.

Rounding off the list was systems and support and sales which were mentioned by three of the startups in their lists.

Where they wouldn’t spend money

Office space was rated by the six startups as the area they would spend the least amount on. Thatoyaona Marumo, co-founder and COO of  Domestly, a find-a-cleaner app that allows users to connect with cleaning professionals via a web and mobile platform, says while the office has got to be quite conducive and feel like a place you would enjoy spending the bulk of your day, it is not important in the bigger scheme of things.

“If one really had to be particular and have to draw the line somewhere it would have to be the office. So maybe you don’t need that extra pot plant. But also not cutting it too much because it is important to have a really good look in the office.”

Nisha Maharaj whose business Niche Integrated Solutions, provides specialised software solutions to the banking and financial services industry, said she would be careful not to invest in unnecessary technology. “People start business thinking that they have to buy expensive systems for the mere sake of having it. It is not necessary,” she said.

What the research says

The responses are in line with research by The National Small Business Chamber (NSBC) released in the 2015 National Small Business Survey which showed marketing as the most significant concern for most SMEs.

According to the survey 37% of respondents stated that if their business was to receive a R100 000 cash injection, it would be used towards marketing efforts. Not only did 43% of small businesses rate sales and marketing as a key area in which they require the most assistance, 32% believe that failure to market their business has been their biggest mistake thus far.

Arthur Goldstuck’s views

Marketing is critical to the growth of most SMEs, but they tend not to spend on it because it doesn’t tend to have a direct return in terms of instant return on investment or instant sales. Of course, this is often a function of not having the tools or processes in place to measure that return, or to ensure a return path from marketing to sales.

  • APPLYING FOR FUNDING 

This is where they would go

The responses from the six SMEs we spoke to ranged from angel investors, venture capital to state-owned agencies such as  Gauteng Growth and Development Agency and Small Enterprise Development Agency all the way to The World Bank.

Two entrepreneurs mentioned approaching a bank for funding, with Nisha Maharaj saying that banks were approaching funding for entrepreneurs in a different light and that entrepreneurs should look at the banks’ options for enterprise and supplier development programmes.

What the research says

According to the results of the SME Survey 2015 by World Wide WorxSMEs are not obtaining the services they need most from banks. MD of World Wide Worx and principal researcher for the survey, Arthur Goldstuck, at the time the survey was released, said that the results from the survey show that banks need to implement some changes and be more lenient with regards to their rules and regulations governing providing SMEs with funding.

Arthur Goldstuck’s views

The responses do reflect the findings of SME Survey with regard to funding availability, in that very few would approach a bank for funding, and most rely on angel investors of one kind or another, or pulling themselves up by their own bootstraps.