The first group of 40 high-growth companies in South Africa’s National Gazelles programme grew the value of their businesses by an average of seven percent in the first year of the three-year initiative, claim programme organisers.
The programme, which is administered by the Small Enterprise Development Agency (Seda) aims is to grow the value of each of the 40 participating small businesses by 20% over the next three years.
Mtiya Dynamics managing director Zukile Nomafu (who runs the programme together with Traction managing director Martin Feinstein) said the 40 were able to increase the value of their business’s net assets by seven percent on average in the year to June.
It means were they to sell their business they would be able to get seven percent more for it this time this year than last year.
Despite the increase being only marginally above the inflation rate for this period (which for ranged between a high of 6.8% and 5.1%, Feinstein believes that this kind of growth over this period “is not bad” for the average business.
In addition Nomafu stressed that the programme is still in its first year and that subsequent years could see higher growth.
The increase in value, he underlined, is based on eight elements, with growth in revenue but one. Other elements include assets and liabilities, goodwill and customer risk.
Second cohort underway
The second cohort of the programme got under way in June, but the names of the 40 participating firms must still be announced by the Minister of Small Business Development Lindiwe Zulu.
The call for the second cohort went out in October last year. It follows the announcement by Zulu in July last year of the names of those selected for the first cohort. (see this story that appeared in Ventureburn).
Feinstein says the 40 firms chosen for the second cohort are not “your typical, highly scalable, low employee and tech” orientated business and that participants are drawn from a number of sectors in both rural and urban areas.
He says it means that initially one is not likely to see high growth from participants.
“So if you’re looking at the type of Silicon Cape (Cape Town initiative that backs tech start-ups) firm, there are plenty of programmes around for these firms,” added Feinstein.
Feinstein added that one challenge is that some participants at times don't provide timely reporting to the programme. He said this points to management being a “real issue” as many of the participants don’t keep up to date financial records.
He and his team deal with this by sending management specialists to help these firms to put in place better reporting and accounting systems.
He said those firms that have performed well so far have all been businesses that have – a clear differentiation in the market from competitors, are driven by a quality entrepreneur who is willing to work hard and invest money back into their firm and that have a competitive edge with their product or service.
In addition those participating companies that are committed and use the programme's value-builder diagnostic system to track growth are usually among the programme’s star performers, noted Feinstein.
These include companies such as: Grid (involved in electrical and infrastructure projects), Flatfoot (heading, ventilation, air-conditioning and mechanical engineering) and Comessa Food Services (Food manufacturing) – which are all black-owned firms.
In addition they also include Roses4U (Landscaping), Eco Furniture (Furniture store and suppliers) and Lakeshore Trading (Roads building and construction) – which are all woman-run businesses.
See this post here for the full list of participants in the first cohort.
Feinstein said the response to the value-builder tool from participants has so far been “extremely positive”.
While on the programme, each participant also has the chance to apply for grant funding of R1 million ($77,000) each – R800,000 of which can be utilised to fund productive equipment and R200,000 for training and support services.
Feinstein explained that while some participants automatically expected to get access to grant funding, applicants are not guaranteed of getting funding necessarily approved.
He said it was quite a process before grants are approved. Applicants must first gather quotes, which can lapse if the committee which approves grants and meets only once a month has not viewed the application yet. However Feinstein said his team is doing all it can to assist participants in the application process.
He added that an independent grants committee has to approve whether to give out grants to meet the requirements of the Public Finance Management Act (PFMA).
From the first cohort 31 applications have been submitted for grants, with 22 approved to the value of R16m (with R9.3m paid out so far).
While the first cohort of the programme has aimed to support 200 gazelles - with 40 chosen as the national gazelles for more specialised support, the programme will no longer offer mentoring or support to the 160 runner-ups.
Nomafu said the reason for the change is that the selection of two tracks in the past had created some confusion and unmet expectations that those among the group of 160 would get access to a similar level of support, when much of the support went to the group of 40 gazelles. “No one wants to be a second-class citizen,” he added.
Another change is the scrapping of the system where participants were chosen on a proportionate basis per their respective province’s representivity in the overall population.
The majority of firms (about two thirds) selected for the second cohort – like the first cohort – are black-owned companies. But Feinstein said his was rather because most of the over 350 applications came from such firms, rather than down to any selection bias.
The programme has still included firm from each of 10 sectors that it focuses on. Feinstein noted that interestingly that there are now more participant firms from manufacturing (many of them black-owned firms) than ICT.
The programme managers next want to introduce industry-specific mentors. Feinstein said he and Nomafu have worked “really hard” in the last three months to recruit more technical expertise that can complement the value-builder process.
The programme is ultimately too small to make a real impact on the SME sector. Yet it could help policymakers to determine whether what the country indeed needs is more help to go to small firms that are able to scale and create the jobs the country badly needs.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a