The State of Entrepreneurship in South Africa the Key Archetypes of an Entrepreneurial Culture

THE STATE OF ENTREPRENEURSHIP IN SOUTH AFRICA THE KEY ARCHETYPES OF AN ENTREPRENEURIAL CULTURE 3rd Edition White Paper; Deliberations and Key Findings 1 FNB Business Banking is proud to once I believe that it is this culture that sets us apart again bring South Africa the third State of from our peers and allows us to move quicker Entrepreneurship Whitepaper. Our focus this and be more innovative. FNB is committed year was to better understand the potential to offering entrepreneurs “real support”. Our opportunities and obstacles to implementing a non-traditional approach to banking allows INTRO range of entrepreneurial archetypes. us to decrease the costs of starting and operating a business, and our entrepreneurial Entrepreneurship is a hot topic at the moment platform, BizNetwork, allows us to up-skill our as presidents, ministers and big business realise entrepreneurs in running better businesses. I that these heroes on the ground are the true am confident that this Whitepaper is another catalysts of global economic growth. As a bank great contribution to the local and international started by entrepreneurs, we pride ourselves entrepreneurial debate, and we are incredibly DUC in our own “owner manager culture”, where we proud to be a key part in this process. encourage our staff to run and manage their own functional units as their own businesses. Kirsty Davis TION CEO: FNB Business Banking 3 APPROACH AND 01 METHODOLOGY MAIN PANEL 03 PRESENTATION AND DISCUSSION THE SILICON VALLEY 09 MODEL IN SA THE MOTHERSHIP CON 15 MODEL IN SA THE EXTERNAL TRIGGER TEN 19 MODEL IN SA THE LOCAL HERO 23 MODEL IN SA TS 27 CONCLUSION 29 GALLERY 31 ACKNOWLEDGEMENTS 5 APPROACH AND METHODOLOGY This paper was a collective effort. It was written to reflect what was said in actual debates of the third State of Entrepreneurship in South Africa conference held on 16 November 2011; it is not a mouthpiece to broadcast the views of Endeavor or FNB. In addition to the main State of Entrepreneurship panel that kicked off the conference, four specialised breakout sessions were held on the models / archetypes of entrepreneurial communities: • The Silicon Valley Model • The Mothership Model • The External Trigger Model • The Local Hero Model Each session was duly recorded in audio and video, and in late December 2011, copies of the audio recordings were forwarded to Endeavor South Africa where staff members proceeded to create the first draft of this paper. The Endeavor team listened once more to the audio recordings of each session. Drawing from these materials, session by session, they integrated this content into the paper before you. Building on the previous two years during which this work has been compiled; it is our hope that the third edition of this paper will achieve its objective of creating a useful collaborative platform for South Africans who are interested in enhancing the level of entrepreneurial activity in the country. 2 MAIN PANEL PRESENTATION & DISCUSSION The third annual conference on the State of Entrepreneurship in South Africa was held on 16 November 2011 at the Gautrain Hotel in Johannesburg. This conference was part of a series of activities within Global Entrepreneurship Week (GEW), a global Kauffman Foundation initiative that strives to foster national debates on entrepreneurship around the world. In 2011, it is estimated that seven million people worldwide, from 24 000 organizations, participated in 37 000 activities across 115 countries. The headline panel of the SAP and FNB- Endeavor conference was preceded by a presentation from Pedro Arboleda to share the outcome of nearly 10 years of research conducted by Monitor Group on how communities, regions and countries can become hubs of high-impact entrepreneurship. The conference was attended by an assortment of policy makers, entrepreneurs, academics and funding providers. Their mandate was to drive a general discussion on entrepreneurship in South Africa with the underlying goal of setting the tone for the four subsequent breakout panels that were to follow later in the day. 4 ENTREPRENEURSHIP MONITOR GROUP AN INTRODUCTION AN INTRODUCTION IN THE SOUTH STUDY ON TO THE SILICON TO THE MOTHERSHIP AFRICAN CONTEXT ENTREPRENEURSHIP VALLEY MODEL OF MODEL OF ENTREPRENEURSHIP ENTREPRENEURSHIP REALITY AND ASPIRATIONS PREMISE AND QUESTIONS The Silicon Valley Model occurs when The Mothership Model can be a good alternative entrepreneur-scientists at high-quality universities to the Silicon Valley Model for decision makers South Africa’s performance on the most essential There are scores of data, reports and opinions or research centres create breakthrough who do not have a Stanford, Harvard or Bell lab, measure of entrepreneurship, the TEA index available that attempt to explain the world of Intellectual Property (IP) products and services, but may have an Intel, Anglo American or IBM in (Total Entrepreneurial Activity index; percent of entrepreneurship and reaffirm the link between and are able to commercialise these products their neighbourhood. The idea here is to unlock the active population who are entrepreneurs) entrepreneurship and prosperity. It has thus and services quickly and efficiently through the executive and entrepreneurial talent that may has improved from 5.9% to 8.9% between 2009 become quite difficult for decision makers to make the investment and support of competent be resident in anchor firms by allowing them to go and 2010, but is still lagging compared to other sense of all of the information available to them. local Venture Capitalists (VCs). The output of out and create highly successful new businesses. emerging economies. Since the mid-1990s, this formula stems from processes of active South Africa’s TEA has fluctuated between 4% There are definite opportunities for middle-income engagement between local academics and One of the critical success factors for this and 6%, whereas countries like Brazil or Mexico countries like Chile, India and South Africa to experienced VCs. model concerns mindsets; more specifically, (15% in 2010) have had TEAs thrice as large as leapfrog their economies into more and better the cultural norms and attitudes in a community South Africa’s. The average TEA for low-to-middle entrepreneurship. However, the following has been This model first emerged in the 1980s and 1990s regarding business failure. In most high-impact income countries has been between 10% and an elusive endeavour for most decision makers: on Sandhill Road, that legendary piece of real entrepreneurship communities, business failure 12% for the past three years. estate at the heart of Stanford University where a is often seen as positive and a way to learn • Understanding which policy levers are number of now world-renowned VC firms power invaluable business lessons the hard way. In the words of Ebrahim Patel, Minister of appropriate for each specific region. the likes of Yahoo, LinkedIn and Google. This attitude makes it easier for experienced Economic Development, “we have not created • Identifying which idiosyncrasies exist in one’s executives at an anchor firm to say, “I am going to an environment where entrepreneurs can flourish, environment. Because the Silicon Valley Model has created leave my secure job and start my own company. and at the same time, jobs are being lost on a • “Cracking the code” on what it takes to a number of breakthrough companies over I will start by providing this product / service to daily basis!” In fact, despite the myriad news- become a high-impact entrepreneurial region the years, many policymakers rapidly become the anchor firm, and I will succeed after x amount catching ‘announcements’ on how government or country. enamoured with this model and want to replicate of years because I will intimately understand intends to create 500 000 new jobs in the next it in their own communities and cities. What many the type of advanced / specialised product the five years, the reality is that 700 000 jobs have Monitor Group’s journey into the world of the do not realise is that this model also involves a anchor firm needs.” actually been lost since the Zuma administration entrepreneur began through an inquiry from measure of risk, as it requires significant levels of came into office 28 months ago. policy officials in Denmark who posed the investment with very uncertain returns, especially One of the most successful examples of an question: “What leads certain types of high- when the pre-requisites for the model to work are anchor firm entrepreneurship community is known Thus, the question of how to drive impact entrepreneurs to settle in specific not correct. as Research Triangle Park, which encompasses entrepreneurship and job creation is very much at entrepreneurial ‘hot spots’?” From there, Monitor IBM in the cities of Durham, Raleigh and Chapel the top of the national agenda in South Africa, as consultants proceeded to ask this question to a Furthermore, regardless of whether the region or Hill in North Carolina, USA. Between 1992 and in many other emerging economies. Aspirations number of entrepreneurs in Singapore, Silicon community has the right IP-assets for this model, 2000, about 20 new businesses emerged out are quite ambitious, but a set of nagging Valley and Korea, among others, so as to learn the ability to connect these universities / research of IBM’s operations in this region, including questions remain; namely: directly from their stories and experiences. centres to an efficient local VC community is entrepreneurial successes such as Red Hat often difficult because of the ‘chicken-and-egg’ and SAS, which went on to become worldwide • What is South Africa’s main entrepreneurship Monitor found that entrepreneurial success can issue of deal flow; meaning that VCs do not powerhouses in their own right. problem? be divided into four models / archetypes, which originate before there is substantial deal flow, • What issues are preventing South Africa from will now be discussed in detail.

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