SA has one of highest startup failure rates in world

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South Africa has one of the highest business failure rates in the world at 75 per cent, while there is a dropoff in the number of people entering the entrepreneurial field, according to a new report.

Disrupt Africa reported in April PwC, Silicon Cape and Microsoft BizSpark partnered to launch the “Emerging Companies Insights” survey, aimed at assessing and comparing emerging companies to understand the challenges and opportunities in the sector.

The results are now in, based on the answers of 743 respondents, with the report uncovering some negative aspects to South Africa’s entrepreneurial ecosystem. It notes South Africa has one of the highest business failure rates in the world at 75 per cent, attributed by respondents to an education legacy that lacks focus on maths and science, cultural and social challenges and a perceived tough regulatory environment.

On the positive side, the report did note South Africa has one of the two largest economies on the continent, a sound financial infrastructure and diversified industries.

“We make the mistake of comparing ourselves to developed markets, rather than other emerging markets. We perform better on certain defined indicators than other BRICS countries,” said Maija de Riijk-Uys, head of the PwC Accelerator.

“We have to focus on the positives, because the benefits of entrepreneurship include boosting economic growth and the country’s gross domestic product through creating jobs and uplifting society.”

Contrasting to the usual concerns over lack of funding, 22 per cent of the entrepreneurs surveyed said access to markets and customers – rather than funding – is their major concern.

Cash constraints are a worry, but the report said this is largely due to them being “reluctant and sceptical” about using experienced advisors to access government funding.

“In order to contribute to improving targeted outcomes, engaging the services of an expert that has ‘done it before and seen it before’ and who has relevant networks and contacts may be the right route to follow,” the survey said.

The report also found that although navigating the bureaucracy of business is a headache, it is not the biggest challenge. The main problem is when SMEs spend work hours on dealing with labour legislation and other regulatory matters, rather than focusing on developing their business.

Of the companies surveyed, 43 per cent said they will be looking for funding in the next 12 months. However, a problem is that many budding entrepreneurs do not know how to package their business to appeal to the right sort of funders.

In terms of what types of business are being established, the report found “the global trend of e-commerce is also the way forward”. 65 per cent of the entrepreneurs surveyed are embracing online channels to market their products or services, while 55 per cent expect to do more than half of their business online in the next five years.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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