“It’s been a challenge,” admits Manyowa Nong when talking about the 30 or so employees he’s hired in the two years since he set up a start-up that helps minibus taxi owners to track and monitor vehicles via a mobile device.
His app has helped taxi owners become more profitable by curbing the common practice of drivers taking unreported trips and pocketing earnings for themselves. Nong added jobs through a call centre he opened as well as with a number of installers and a sales team.
Yet his company MobifyTracker is likely one of the exceptions when it comes to tech start-ups. Most tech start-ups it seems create very few jobs. In addition a large number of tech companies are likely to destroy many jobs when they disrupt traditional sectors.
Three incubation or business acceleration programmes The Financial Mail sampled create at best between 2.5 and 5.5 jobs per firm a year (see graphic below). A 2015 survey by start-up news site Ventureburn of about 200 SA tech start-ups revealed that just 3% employ over 10 employees.
Tech firms might then be getting smaller. Instagram had just 13 employees when it was bought for $1 billion by Facebook in 2012.
Gideon Potgieter, head of business development at Resolution Circle, a University of Johannesburg technology hub, points out that one doesn’t need more than five or six people to build a multi-million dollar web company.
With more concentrated revenues and lower employment potential, digital companies risk therefore increasing inequality, he says.
It’s why the hub’s incubator doesn’t take on entrepreneurs who have pure web or app-based solutions, he says. The incubator instead favours those that develop or license a physical product which might then be supported by an app or web-based platform.
While the first company moved into the incubator 18 months ago job numbers are still low. Currently 18 companies are based at the incubator, employing 32 people – mostly the founders themselves.
To be fair there are some exceptions. Cape-based fintech company Jumo is only in its second year but employs 240 people, as it expands into the rest of the continent with its mobile app that helps assess unbanked customers who apply for finance.
Founder Andrew Watkins-Ball believes the employment opportunities in tech are expanding rapidly as businesses transition into an increasingly digital environment. “That being said however, the increase in efficiency probably also leads to a loss of manual jobs over time,” he concedes.
A jobs enabler
But Jens Herf, believes small tech entrepreneurs can add jobs – just not in their own company.
He admits that his three-year-old firm Shopster, a platform that offers online stores to small businesses, is not likely to make a substantial number of hires. But he says the company can help enable the small businesses it serves to grow and hire more people.
Brett Commaille, a partner at venture capital fund Angel Hub Ventures, agrees. He says while it’s true that investors look to scale firms with the fewest number of employees as possible, tech firms can enable the creation of new jobs by introducing certain efficiencies.
He singles out the legal sector which he says is ripe for disruption. New start-ups could reduce the fees charged to clients by using technology to strip out the cost of infrastructure such as expensive buildings.
Clients such as small businesses that previously couldn’t afford the high fees, can then afford to use legal services and in so doing perhaps expand.
Llew Claasen (pictured above), managing partner at angel investment and venture capital firm Newtown Partners, backs this up.
Though he was unable to provide job number for those companies his firm has invested in, he points out that on-demand services can help add new jobs in those sectors they serve.
He says one of the firm’s investee companies, SweepSouth, which provides domestic workers on demand, has created 2 500 jobs with 71% of these previously unemployed. Another, SA Florist provides a growing online customer base that enables 280 small florists to collectively employ 1 000 people.
Better education needed
While he agrees with the World Economic Forum’s argument that technology increases wage inequality and doesn’t increase employment, he says the economic impact of a lower number of better-paid jobs would still increase overall income, if not equally.
“We no longer live in a world where the goal can be full employment, if we don’t also invest heavily in education and create knowledge workers,” he adds.
Ian Merrington, the CE of the Cape Innovation and Technology Initiative (Citi), a government and private-sector partnership, believes that the government could intervene, by trying to understand the challenges that businesses are expected to face and by for instance insisting on coding being taught at all schools.
He suggests that perhaps the state should help companies to pay for staff to take three months off to reskills themselves. In addition he says companies need to consider more decentralised decision-making and look at more incentivised compensation for employees.
Business will also need to realign their recruitment and training priorities. “Where companies spent on a sales force, they now need to spend on someone who can write great algorithms that can help them to get to know what’s happening in their sales,” he says.
More specialised IT skills, such as data skills are in demand, as are those with a good understanding of maths and teamwork skills and the ability to be innovative. However he believes schools and universities are not preparing people in these areas.
Acceleration might help
Perhaps when it comes to upping job number at tech companies rigorous business support might help.
Grindstone, a 10-month acceleration programmes run by Knife Capital, has been slightly more successful in helping tech firms create jobs than other tech programmes.
The programme has helped 22 companies create 120 jobs over two years – mostly older companies – the average supported business had been running for six and a half years, employed 12 people and the founders were 36 years old.
Two rounds of the programmes have been concluded. A third is in progress and applications for a fourth are currently open.
Knife Capital partner Andrea Bohmert says the VC fund invested no funding in recipients, only knowledge, networking and time.
“We wanted to prove that you can engineer growth without investment and that investment is just an additional accelerator but not the main catalyst. We are subsequently looking at investing in some of the companies but these job numbers have been achieved without investment,” she says.
Bohmert says there’s a lot of emphasis on selecting the right candidates where the aim is to take on companies with the potential for growth. The cost per job at Grindstone last year was R40,000 per job, which she says is way below the government funded programmes.
“But to scale a Grindstone, funding is required and that’s where either corporate or government support would be required,” she says.
But more support will likely have to come from private investors. Claasen says the tech sector has struggled to convince the government of the importance to support it.
“Seeking to increase low-skill employment in primary industry is a fruitless exercise that is a race to the bottom – government money would be better spent on education, especially retooling via adult education programmes,” he reckons.
As new technologies begin disrupting more sectors, the role of tech companies in creating jobs is likely to remain a complex one.
A shorter version of this story originally appeared in The Financial Mail (go here for the original version). Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a