THE BUSINESS INCUBATOR BLUEPRINT FOR SOUTH AFRICA

THE BUSINESS INCUBATOR BLUEPRINT FOR SOUTH AFRICA

THE BUSINESS INCUBATOR BLUEPRINT FOR SOUTH AFRICA Proven SME Solutions for Scaling Accelerated Growth Incorporating lessons from the Legends Programme, the Embassy of Finland ETU Programme and others.

Contents Page i Executive Summary 7-8 1. Why Small Business? 9 2. Overview What is a Business Incubator? 10 3. Overview The South African Economic Environment 11 4. Introduction The Legends Programme 13 4.1 History & Target Groups 13 4.2 Programme Purpose 13 4.3 Culture of Excellence 13 4.4 Programme Impact 14 4.5 Selection Criteria 14 4.6 Innovation, Benchmarks and the Blueprint 15 4.7 Overview: Learning from Others 15 Part 1- General Guidelines for a Successful Incubator 16 5.1 Introduction 16 5.2 The Borderless Incubator Model 16 5.3 Managing the Diversity 17-18 5.4 The Business of Business 19 5.5 Managing the Growth Curve 19-21 5.6 The 360 Degree Incubator Plan 22-23 5.7 Maintain Mentor Distance and Business Independence 24 5.8 Success potential - Leadership 25 5.9 Record-keeping and Performance Management 25 5.9.1 Key Indicators 26 5.10 Incubator Staff 27 5.11 Pitfalls and Risks in Running an Incubator Programme 28 5.12 Sector-Specific Incubators 29 5.13 Overview General Guidelines for a Successful Incubator 30 Part 2 - Choosing Winning Participants - The SMME Selection Process 31 6.1 Introduction 31 6.2 Guidelines for SME Selection 31-32 6.3 Critical Components of the Selection Phase 32-33 6.4 The SME Selection Flow Process 33 6.4.1 Call for Applications 33-34 6.4.2 Application Forms 34-35 6.4.3 Desktop Analysis & Sorting 35-36 6.4.4 Shortlisting 36-37 6.4.5 Selection Interview 37 6.4.6 Assessment Tools 38 6.4.7 Candidate Acceptance and Probation 38-39 6.4.8 On-boarding Workshop 39 6.4.9 Cost-Sharing 40 6.4.10 Final Acceptance 40 6.4.11 Annual Review 41

Part 3 - The Tools for SME Growth 42 Introduction Growing the SME 42 7. Training 42-43 7.1 Business Training Classroom & Workshop Modules 43 7.2 Training Curriculum 43 7.2.1 Essential Training Modules 45-46 7.3 E-learning Modules 47-48 8. Accelerating Success Marketing, Media & Market Access 49 8.1 Market Access 49 8.1.1 Order Facilitation and Marketing 49-50 8.2 Media and PR 51 8.2.1 Media Profiles 51 9. Access to Resources 52-54 9.1 Access to Finance 54-56 9.1.1 Partnerships with Finance Sources 57 9.2 BEE Accreditation 57-58 10. Networking & Peer to Peer Support 59 11. Mentorship 60 11.1 What is Mentorship? 60-61 11.2 What Makes a Good Mentor? 61 11.3 How to Select Good Mentors 61 11.4 How to Manage Mentors 62-63 11.5 Individual vs Group Mentoring Pros & Cons 63-64 11.6 Remote vs Face-to-Face Mentoring 64-65 11.7 Mentor Management Tools 65-66 11.8 Conclusion Mentor Support 66-67 12. Consulting and direct interventions 68 12.1 Consulting 68 13. SME Tools and Templates 69-72 13.1 Conclusion Tools to Accelerate SMEs 73

Part 4 - Guidelines for Performance Management 74 14. Performance Management 74 14.1 Performance Management Setting the Scene 74 14.1.1 Recording Performance 74-75 14.1.2 Choosing Key Indicators - Participants 75-77 14.2 Monitoring Staff Performance 77 14.3 Conclusion Performance Management 77 Part 5 - Incubator Operating Essentials 78 15. Achieving Cost-effective Results 78-79 15.1 Cost-contribution and Participant Engagement 79 16. Introduction - Budgets 79-80 16.1 Benchmarking Costs 80 16.2 Expense Categories 81 16.3 Staff Costs Salaried and Service Providers 81 16.3.1 Mentors, Consultants and Trainers 82 16.3.2 Timesheets for Staff Management 82 16.3.3 How to Create a Timesheet 82-83 16.4 SME Contribution to Budget 83-84 16.5 Cutting Costs Further 84 16.6 Conclusion The Budget 84 16.7 Budget Notes 85

Appendices 17.1 Appendix: Legends 2013 Application Form 17.2 Appendix: E-Learning Template 2012 17.3 Appendix: Order Form Template 17.4 Appendix: Quote Template 17.5 Appendix: Invoice Template 17.6 Appendix: Sales Tools Intervention- Notification Mailer AR 17.7 Appendix: Monthly Participant Performance Management Template- Summary 17.8 Appendix: Annual Participant Performance Management Summary 17.9 Appendix: Legends Recon 2011 17.10 Appendix: Legends Recon 2012 Graphs Graph 1: The Business Growth Curve 19 Graph 4: Benchmark: Cost per Participant 80 Figures Figure 2: Four Pillars of Activity 22 Figure 5: Example of Call for Application Advert 34 Figure 7: Example of an Invitation to a Legends Networking Session 59 Figure 11: Example of Media Profile 51 Figure 14: Order Form Template 70 Figure 15: Quote Template 71 Figure 16: Invoice Template 72 Figure 18: Performance Management - Feedback Loop is Essential 74 Tables Table 1: SME Selection Scoresheet 35-37 Table 5: Example of Media AVE report 52 Table 7: Managing the Relationship 62 Table 8: Mentor/Mentee Ratios No one-size Fits all 64 Table 5: Advantages and Disadvantages of using Mentorship from the Same/Different Geographical Location as the Mentee 65 Table 9: Benchmarking 80 Table 13: Timesheet Example 83 Table 15: Annual Budget 2011, 2012, 2013 85

Fetola Business Incubator Blueprint 1 Executive ----- Summary Why Business Incubation? It is widely accepted that in order to grow our economy and tackle rising unemployment, we a thriving and healthy small business sector in South Africa. Changes to the BB-BEE Scorecard, an increased focus on skills and enterprise development, diversification of corporate supply chains and the creation of a small business Ministry are just some of the ways that both the Public and Private sector are working to About the Blueprint This Business Incubator Blueprint is the result of almost a decade of design, development and implementation of effective business support programmes, across multiple sectors and in all nine Provinces. It is designed to assist both new and established providers of BDS, business skills training and other small business support to be more effective, cost-efficient and successful, by sharing bestpractice models and field-tested 7 try and boost the development of SMEs in our economy. This increased focus on supporting SMMEs and SMEs has seen a burgeoning industry develop in the Business Development Services (BDS) and business incubator space, with players offering anything from onceoff training workshops to fullyfledged, integrated business support programmes that run tools, templates and case studies that help demystify the business of business development. An effective business incubator is one that can address multiple fields and different dimensions of business-support simultaneously in a cost-effective manner. One needs to find a balance between an offering of pre-packaged components, such as the standard training curriculum, and flexible or customized support, like for over many years. This increase in offerings is good for our country, but it is important that as a nation we remain focused on delivering the most important outcome of all the sustainable growth of the small business sector. example one-on-one mentoring. The key to any successful incubator lies in the delicate balancing act of cost versus benefit in the successful outcomes that you achieve through the participants. Laid out in a clear and logical series of sections and covering areas such as Candidate Selection, Workshop Content, Mentorship, Budgets, Access to Finance, Remote vs Onsite Support, Managing Stakeholders and Funders, Performance Management, Monitoring

and Evaluation and much more, this Blueprint is the definitive roadmap to establishing a successful business incubator or BDS programme in SA. Written by experts with over 20 years experience in the space, and including a purpose-built set of tools and templates developed especially for local conditions, this Blueprint is designed to increase success, save time and money and help BDS providers deliver the kind of results our country needs. About the Business Incubator Blueprint Originators Catherine Wijnberg is a recognised thought-leader and strategic thinker in the field of small business growth and development. She is Director and Founder of Fetola (www.fetola.co.za), an SME specialist consultancy and Enterprise Development agency as well as the Fetola Foundation, a not-for-profit entity dedicated to the economic empowerment of communities and individuals across sub-saharan Africa. Catherine has owned and operated businesses in three countries across five different sectors, and has successfully conceptualized, designed and implemented several award-winning community and Enterprise Development programmes, including the Old Mutual-funded Legends programme which delivered a 94% business survival rate and 65% yearon-year growth for participants over five years results unmatched in SA by any other ED programme. Her most recent initiative, the Graduate Asset Placement (GAP) Programme, places unemployed graduates into internships in SMEs, boosting organizational success and providing much-needed work experience for graduates. Anton Ressel is an experienced business development consultant with a special focus on the SMME and SME sector, communitybased businesses, emerging entrepreneurs, small-scale manufacture and the creative industries. As one of the original founders of craft icon Streetwires (www.streetwires.co.za), Anton guided the growth of the company from a team of 4 people into a thriving organization employing over 120 formerly unemployed men and women and exporting to 26 countries. Anton is a mentor for the SAB KIckstart programme, a Senior Consultant at Fetola, as well as an SME expert mentor for entrepreneur.co.za and fin24. com. His passion is helping small businesses become bigger and more sustainable ones. Contact Us For More Information, or to purchase the full Fetola Business Incubator Blueprint, contact us at: Tel: +27 21 701 7466 Cell: +27 82 909 7234 Email: info@fetola.co.za Post: PO Box 30759 Tokai 7946 Address: Suite 4 Milton s Way House 11 Bell Crescent Westlake Business Park 7066 8

Fetola Business Incubator Blueprint 2 Why ----- Small Business? Small businesses are vital to the success of any economy, and the principal provider of jobs worldwide. (Blueprint Strategy & Policy (Pty) Ltd, 2005) This trend is clearly visible in South Africa, where annually almost 70% of new jobs are created through SMEs, and where this sector contributes around 40% to South Africa s gross domestic product. (Carls, B, 2014) (Isaacs, G, 2008) One could say that the more small businesses an economy has, the healthier that economy, as SMEs clearly boost job creation and thus economic growth. One of the key benefits of a small business is that one is able to build and develop personal relationships with clients, as most time is spent on activities that are directly clientrelated. Where big companies try to please the majority, small businesses can have a sharper focus and thus provide the consumers with their exact needs. Flexibility is another area in which a small business distinguishes itself from a larger company: when faced with problems or challenges, the response and decision-making 9 process is usually much quicker, as there is little hierarchy. Flexibility can be seen as the driving force for innovation, which is another feature that comes into its own with SME s - inventiveness is inherent in many SMEs, and they are well positioned to introduce and develop new ideas. Moreover, small businesses usually have much leaner structures and lower overhead costs, which can result in lower prices for consumers. Lastly, many SME owners and entrepreneurs are by nature risk takers and go-getters. (NFTE-UK, 2014) (Small businesses have greater flexibility, lower overhead costs, are more personal, usually more inventive and greater risk-takers, which leads to innovative ideas and results.) Research has shown that SMEs have greater impact in developing than in developed countries. There is a strong correlation between the growth of SMEs and increased employment. Adding weight to this is the fact that around 50% of the SME firms in South Africa experienced turnover growth when an increase in employment took place. SMEs tend to be labour rather than capital intensive. (SBP, 2013)

3 Fetola Business Incubator Blueprint ----- Overview: What is a Business Incubator? Business incubation is the term given to the business support process designed to accelerate the successful growth and development of start-up and fledgling companies, by providing entrepreneurs/business owners with an array of targeted resources and services. Incubation is global phenomenon and there are many thousands of incubators world wide. As far back as 2005, North American incubation programs were already assisting more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion! (Linda Knopp, 2006 State of the Business Incubation Industry. Athens, Ohio: National Business Incubation Association, 2007.) Business incubation can be provided in a specific fixed location, where space, desks, computers and other basic services are available, but incubators can also be virtual - providing support to businesses at a distance rather than at one fixed site. Incubators differ from research and technology parks in their ded ication to supporting startup and early-stage companies. Research and technology parks in contrast often tend to be larger-scale projects that house everything from corporate, government or university labs to very small companies. Incubators also differ from the more general business support initiatives such as the Small Enterprise Development Agency SEDA (and similar business support programs), in that they serve only a selection of handpicked clients and tend to offer a more holistic suite of support services. 10

4 Fetola Business Incubator Blueprint ----- Overview: The South African Economic Environment Classified by the World Bank as an upper middleincome country, South Africa has the second largest and most developed economy in Africa. The South African economy is dominated by the services sector, which is responsible for 73% of GDP (Trading Economics, 2014). Within this focus area, the automotive sector is very successful; South Africa has become a global supplier of components for this industry, and this particular sector counts for more than 6% of GDP and 12% of our manufacturing exports. SA s financial services are the best-developed on the continent, and have a significant presence within the country, with assets worth over ZAR 6 trillion that contribute 10.5% of GDP. Consequently, the Johannesburg Stock Exchange is one of the twenty largest stock exchanges in the world, and the banking sector is amongst the international top ten. Historically, the economy has been quite reliant on the mining 11 industry, which contributes 19% to GDP. With our large base of mineral resources, South Africa is one of the leading countries worldwide in this sector, although industrial action and a challenging economic climate have curtailed this sector somehat. The biggest social challenge that South Africa is facing is the high unemployment rate of almost 25% of the population. Young people in particular seem to be having difficulties entering the employment market - between the ages of 15 and 24, 65% of South Africans find themselves unemployed. The government is trying to solve this problem with a newly launched employment tax incentive; other initiatives include the Graduate Asset Programme (www.gogap.co.za ), a platform that helps place unemployed graduates into internships to gain valuable work experience as a means to try and combat the extremely high rate of youth unemployment (Fetola, 2013). Since 2010, South Africa has been a member of the BRICS-association. BRICS is an abbreviation for the five major emerging economies in the world: Brazil, Russia, India, China and South Africa. The five member nations are characterized by their growing influence on global affairs and their fast growing economies. Together they represent 40% of the world s population, and 25% of global GDP (SAinfo reporter, 2013). In The National Development Plan the government describes challenging, but exciting plans of how South Africa should be developed in the future. The main objectives are to eliminate poverty and reduce inequality by 2030. Two of the objectives are to Increase employment from 13 million in 2010 to 24 million in 2030 and to Play a leading role in continental development, economic integration and human rights. (Manuel, T, 2012)