Innovative African model for business incubation attracts interest of international community

A uniquely African approach to the challenge of reversing the region`s poor entrepreneurial record is steadily gaining momentum and even starting to attract serious interest from around the world.

Contrary to what many of us might believe, South Africa is not good at encouraging or supporting entrepreneurs.

The Global Entrepreneurship Monitor (GEM) study, an international research project that annually benchmarks the level of entrepreneurial activity across countries, continues to show that, despite improving macro-economic conditions, South Africa`s GEM ranking is steadily deteriorating.

South Africa has participated in the GEM study since 2001 and managed to achieve one of the lowest new business success rates during this period. South African start-up businesses are currently the least likely among those of all the developing countries surveyed to mature to the `new firm` stage.

Yet, arguably, the need to stimulate entrepreneurship and small business development in South Africa has never been greater. Most experts agree that the long-term solution to the intractable economic problems we face, like massive unemployment and comparatively low GDP growth, is to develop entrepreneurs and improve the success of start-up businesses.

"Total early-stage entrepreneurial activities (ie from 0 months up to 3.5 years) are not up to standard if South Africa wants to sustain economic growth rates that will create wealth for everybody," concludes the sombre GEM South African Report 2006.

"With a young population, more pressure will be exerted on existing businesses to create enough wealth for all [and if these activities] are not improved quickly enough, the danger exists that the dependency on existing businesses will become too much."

"There is no doubt that the entrepreneurial sector is very poorly developed," confirms Leon Lourens, CEO of local business and technology incubator, SoftstartBTI. "The situation is often obscured by including itinerant hawkers in the official statistics, but, while certainly enterprising, are these individuals really `entrepreneurs` in the sense of employing people and contributing to the country`s economy?"

Entrepreneurial incubation is an important part of the solution. According to the US-based National Business Incubation Association (NBIA), eight out of 10 new businesses fail within their first five years, but an impressive 87% of incubator `graduates` are still in business today.

"Based on statistics released by the SEDA Technology Programme, which funds 17 out of the 20 incubators in South Africa, the situation is very similar here," suggests Lourens, "and we are currently achieving graduate success rates of 83%."

In many respects, however, the similarities between the US and SA end there and Lourens is quick to point out that South Africa faces many unique and specific challenges. "A lot of international incubation theory has been developed to tackle the conditions in developed industrial countries and we`ve found it isn`t that applicable in developing countries and environments like ours," he asserts. The first factor Lourens cites as indicative of the particular challenges faced here in southern Africa are the large geographical areas that need to be supported. "Distance is critical," he contends. "Incubators are expensive to establish and manage and we simply don`t have the resources to set one up in every town, let alone to reach all the people needing support in more rural and remote areas."

Severe funding shortages are another feature of the incubation landscape. "There is only one operational venture capitalist organisation in the country," clarifies Lourens, "and none of the 20 incubators have in-house seed funds - despite the fact that most start-ups need R500 000 not R5 million, so that`s where you want the money."

Capital is obviously critical, but Lourens is quick to point out that access to expertise and experience is just as important. "Another anomaly is the lack of links between incubators and tertiary institutions," he observes. "The majority of incubators around the world are closely linked with universities and even based on their campuses, but not here in South Africa."

It is a variance that he believes is an expression of our more self-centred society. "There just isn`t the same level of community-focus or philanthropic character here as there is in countries like the States," he maintains. "We don`t have the equivalent of organisations like the US-based SCORE, through which retired executives can share their time and invest their knowledge in young entrepreneurs."

This particular combination of challenges prompted SoftstartBTI to look at `satellite` or remote incubation. "We discovered was that there was no model for the kind of wide-ranging approach to incubation we needed anywhere else in the world," recalls Lourens. "Yet covering the distances and meeting the funding and infrastructure inadequacies of the region requires us to be able to reach and support large numbers of entrepreneurs who will not be able to physically be in the incubator."

It was an obstacle that started the incubator off on a three-year journey that would involve the creation of pioneering software and communication tools, a merger with a like-minded organisation and culminate in the official launch of the SoftstartBTI satellite incubator at the Durban University of Technology (DUT) last month.

"We still have a long way to go to fully realise our vision, but the DUT is an important milestone for us," Lourens confirms.

What SoftstartBTI has done is to create an electronic incubation model that enables entrepreneurs to receive coaching and mentoring remotely via the internet. Using funds donated by infoDev, a global grant programme managed by the World Bank, a system has been developed that can manage the whole incubation process.

At its core is the Business Building Model, which leads the start-up business through the six stages of development - from concept through to maturity - and encompasses four pillars of a business: marketing, technology, finance and operations. "Using remote management tools and technologies like video conferencing we are able to mentor, monitor and guide entrepreneurs wherever they are located," enthuses Lourens. "We can also plug them into a wide network of coaches and investors outside the incubator, spreading the costs and exposing them to wide variety of expertise and experience."

Lourens is keen to emphasise that the model is not just an innovative theory and that it has been thoroughly tried and tested. "The model has been successfully piloted, tested and refined," he affirms. "The tertiary institutions seemed an obvious place to start and so we set the pilot up at the Vaal University. That was about two years ago and many important lessons were learnt."

This initial emphasis on tertiary institutions is also reflected in the initiative`s name: the Tertiary Education Satellite Incubation Programme (TESIP), but SoftstartBTI has since found just as big a need for such services in the local authorities and is close to signing an agreement with Ekhuruleni municipality to set up satellite incubators within their local offices for the public to access and use.

"Our goal from the outset was to develop the TESIP model for general use," explains Lourens. "This is exciting because it brings us a step closer to our goal of having an incubator in every town so that the man in the street can access every university in the country."

While the Midrand-based incubator has been the driving force behind the model and responsible for most of its development and testing to date, Lourens is adamant that this is not just a SoftstartBTI initiative. "The TESIP model will only really come to fruition by including all the other incubators," he maintains. "The goal is to roll the TESIP programme out nationally so promising entrepreneurs can link into incubators and tertiary institutions from anywhere in the country. This is the only way to really tackle the resource constraints we face."

In fact, Lourens has even more ambitious plans for the programme and would like to see it spreading throughout Africa and to other developing countries. "We would like to see it dovetail with other initiatives, like the African Incubators Network (AIN) and similar projects being run by infoDev in places like South America," he enthuses. It`s a development that seems highly likely given that they are already working in close partnership with incubators in India and Brazil.

It is a grand vision, but also a very probable one given the huge amount of interest the model has already generated around the world. "Interest has been shown by various countries, including New Zealand, Mauritius, Morocco and the Ukraine," confirms Lourens, "as well as places much closer to home like Botswana."

Lourens is not surprised by the attention TESIP has generated because it is genuinely innovative and unique, but is quick to reiterate that the priority right now is simply to share the model as widely as possible so that everyone can join in and make it work.

"We developed the underlying system with the expressed idea of giving it away to any non-profit organisation in any developing country that is stimulating incubation and entrepreneurial activity," he concludes. "So, if that`s you, please get in touch."

To find out more about the TESIP model, contact Abby Naicker (abby@sbti.co.za), Projects Officer at SoftstartBTI or Leon Lourens on (011) 695 4800.