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Enterprise development – Money versus impact

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With the rise of enterprise development programmes, we take a look at who really benefits 

Enterprise development (ED) is fast gaining momentum both from government’s support through the introduction and enforcement of BB-BEE codes, and the new codes which have a more stringent focus small and medium enterprise (SME) development by corporate South Africa.

Enterprise development seeks to assist and accelerate the development, sustainability and ultimate financial and operational independence of SMEs through financial and non-financial contributions made by corporates. ED is also the highest scoring element under the revised BB-BEE codes with 40 points, which means companies have to think strategically about their approach to ED to score maximum points.

Established businesses such as big banks, state-owned enterprises like Transnet, retail companies and insurance companies and many others invest millions annually into ED programmes.

But do companies invest in ED to comply with BB-BEE or to help develop SMEs? And do these ED investments have a meaningful impact on SME development?

We asked industry experts for their views on how current ED programmes are structured, who they serve and how the system can be improved.

“It’s true that corporates are scoring high on BEE points and they don’t understand enterprise development”

The academic view
Director of The People Bottomline and former head of the Centre for Social Entrepreneurship at University of Johannesburg, Dr Susan Steinman, says it’s probably true that some corporates invest in enterprise development programmes only “to tick the boxes”.

“It’s true that corporates are scoring high on BEE points and they don’t understand enterprise development. For them it’s just an obligation,” she said. “However, there are good results but not widespread.”

Steinmann said ED is about mentoring and hand-holding, helping entrepreneurs to grow and mature. She commended government for taking a leading role in EDs and incubation programmes.

“Government incubator programmes are a black hole”

The incubator’s view
CEO of Grovest and non-executive chairman of Seed Academy, Jeff Miller, says EDs are necessary, but they need to be run by professional entrepreneurs who can train and mentor young ones.

“But in South Africa, to a large degree, many ED programmes are missing the point,” Miller said. “It is not any good for incubators to provide facilities with free internet and free coffee. And unfortunately, government incubator programmes are a black hole.”

Miller said government needs to give money to private accelerator companies with high impact results to do train young entrepreneurs. He said young entrepreneurs in ED programmes need to be helped develop a business concept, a business plan and how to get funding.

“The most important elements each ED programme must have are coaching, guidance, and mentoring in proper skills of running a business,” he said.

“Corporate South Africa must take responsibility in terms of meeting the jobs plan and not do EDs only to tick the box and score BEE points,” he said.

“We need to help them get funding from development funding institutions, venture capitalists and angel investors,” said Miller. “And more importantly they need to learn how to pitch their businesses to prospective investors.”

Research consensus
According to the first Enterprise Development report released in July 2013 by Impact Amplifier and the New York University Center for Global Affairs which polled 60 companies of the JSE Top 100, more than half of participants feel ED is already a key component of their overall business strategy although they also acknowledge that without BB-BEE, most would not engage in ED on their own accord. 

Even though there is no available research on how much is being spent on ED programmes annually, the report found that some companies do not capture ED impact data outside of the amount of money spent, and those that do, often only look at the simplest or readily accessible data, not national socio-economic indicators.

Industry experts like Miller and Steinman agree that both government is correct in taking a lead and enforcing corporate companies to comply with BEE codes because “it’s for the greater good”. But they caution against companies who only “tick boxes” without monitoring their ED programmes.

The Amplifier Impact report says the box ticking trend should change under the new BB-BEE codes which are pushing company ED programmes towards creating meaningful supply chain development.

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