SMALL BUSINESS: Where have all the entrepreneurs gone in the startup age?

Not all business founders are looking for an exit or to give up equity to the venture capitalists, and that’s fine.

To understand the plight of the modern South African small business founder/owner, you first need to know what makes them different from startup founders – because there is a big difference.

It begins with the core intent, where small business owners are looking for organic profitability, have defined a local market that they are servicing and achieve steady cash generation.

Startup founders are usually chasing rapid, exponential scalability via technology-driven (read: software) innovation and with an eye on global market capture.

Shoprite’s latest SME report shows that 32% of small businesses have operated for more than 20 years, but 39% of those businesses employ fewer than five people over their lifetime.

Thato Ntseare, head of venture investments at E Squared Investments, says that it is a hard contrast to the startup ethos of high risk, high velocity; that is structured for venture backing, rapid team expansion and liquidity events/exits.

Fresh venture capital deployed in South Africa stands at around R3.3-billion annually across 525 startups, meaning more than 90% of tech startups remain self-funded or informally capitalised. Over 65% of VC investments are concentrated in ICT/Fintech, leaving other tech sectors underfunded.

Tanya du Bois started Naturals Beauty 18 years ago following a personal family crisis when her son was diagnosed with autism. Advised by a paediatric neurologist to eliminate environmental toxins, Du Bois discovered a severe shortage of natural, organic personal care products in South Africa.

It started in her kitchen using a 1960s recipe book passed down by her grandmother, initially supplying mothers in local autism support groups at cost. Once the orders outgrew the kitchen, she hired a professional cosmetic chemist to develop natural active formulations, transitioning from basic soaps to a 53-product range spanning baby, kids, teen, adult and advanced peptide copper serums.

She then ran the business as a sole proprietorship for its first decade, reinvesting all revenue back into the business. “I’m not a big risk taker and I just felt like once we built a bit, we could grow a bit; and once we built a bit more we could grow a bit more...”

Rather than selling equity or taking high-interest commercial bank debt, Du Bois used non-dilutive support from government agencies such as Seda (Small Enterprise Development Agency) for packaging upgrades and the Western Cape Agri-Processing Fund.

“I’ll always look at those options first because... the percentage that you pay back or the percentage that you contribute towards the project is a lot smaller than what you’re doing when you’re taking out a loan.”

Scaling the business has meant embracing e-commerce, which provides direct customer relationships, but older South African demographic segments (aged 60+) still prefer physical stores.

However, physical distribution via specialised chains (read: Wellness Warehouse) introduces high storage, handling, and distribution fee burdens for small businesses.