Description
The Impact Of Entrepreneurial Skills On The Viability And Longterm Survival Of Small Businesses A Case Of The City Of Tshwane, South Africa
European Journal of Business, Economics and Accountancy Vol. 2, No. 2, 2014
ISSN 2056-6018
Progressive Academic Publishing, UK Page 53 www.idpublications.org
THE IMPACT OF ENTREPRENEURIAL SKILLS ON THE VIABILITY AND LONG-
TERM SURVIVAL OF SMALL BUSINESSES: A CASE OF THE CITY OF TSHWANE,
SOUTH AFRICA
S. P. Marivate
Tshwane University of Technology Business School
Pretoria, SOUTH AFRICA
ABSTRACT
Small businesses operating in the City of Tshwane are characterized by shortage of
entrepreneurial skills. The purpose of the study was to highlight the impact of shortage of
entrepreneurial skills on the long-term survival and economic viability of small, micro and
medium-sized enterprises (SMMEs) that operate in and around the City of Tshwane in Gauteng
Province, South Africa. The research was based on a 5-year follow-up study (2007 to 2012) of a
random sample of 349 small and medium-sized business enterprises that operate in and around
the City of Tshwane in South Africa. Data was gathered from each of the businesses on
socioeconomic factors that are known to affect the long-term survival of small, micro and
medium-sized businesses. The objective of the study was to identify and quantify key predictors
of viability and long term survival. The design of the study was descriptive and longitudinal.
Econometric methods such as panel data analysis, Kaplan-Meier survival probability curves, life
tables, and logit regression analysis were used for data analyses. Hazard ratios estimated from
the Cox Proportional Hazards Model were used as an econometric measure of effect. The study
found that 188 of the 349 businesses that took part in the study (54%) were not viable. Based on
hazard ratios estimated from the Cox Proportional Hazards Model, the long-term survival and
viability of SMMEs was significantly and adversely affected by lack of entrepreneurial skills,
lack of supervisory support to newly established businesses, and inability of operators running
newly established businesses to acquire relevant vocational skills.
Keywords: SMMEs, Entrepreneurial skills, Vocational skills, Panel data analysis, Odds ratio,
Hazard ratio.
INTRODUCTION
SMMEs are regarded as the major GDP contributors and usually create more jobs quantified at
about 60% by Business Partners Limited (Bharadwaj, 2013: 169-196). Countries classified as
emerging economies, namely Brazil, Israel, India, Ireland and South Africa have realized that it
is essential to support and promote the development of SMMEs as a means of growing the
national economy and alleviating unemployment and poverty among the masses. Several studies
have pointed out the strategic importance of SMMEs to the national economy and GDP (Adams
& Mehran, 2003: 123-142). The growth of SMMEs is closely linked to the growth of national
economies and GDPs. Job creation in the formal sector frequently takes place at a far lower rate
than growth in the labour force (Ligthelm & Van Wyk, 2004:1-4). South African SMME
environment is not unique to this assertion. Many reasons are given for business failure, inter
alia with, lack of managerial planning skills, ineffective working capital management, inability
European Journal of Business, Economics and Accountancy Vol. 2, No. 2, 2014
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to manage the competitive environment and growth over-expansion(Rankhumise, 2009;
Netswera and Ladzani, 2009).
The South African Government strives to create a conducive environment for SMMEs to
participate in the mainstream of the economy and growth through job creation and introduction
of innovative products and services. They created DTI Agents to focus on SMME development.
Table 1 illustrates how the South African Government has prioritised the SMME development
through support programmes.
Table 1: Prioritisation of support programmes for SMMEs
Market segment
Support programme
Degree of
significance
Pre-formation Co-operatives Promotion and
Awareness Support Programme
Highest
significance
Survivalist co-operatives
(Revenue <R300 000)
Micro Finance (through
SAMAF) Start-Up Grant
(Through Co-operatives
Incentive Scheme by TEO)
Highest
significance
Micro co-operatives
(Revenue between
R300 000 and R5
million)
Micro Finance (through
SAMAF)
Start-Up Grant (Through Co-
operatives Incentive
Scheme by TEO)
Infrastructure Support
Programme (Through
Municipalities)
Higher
significance
Small co-operatives
(Revenue between R5
million and R35 million)
Start-Up Grant (Through Co-
operatives Incentive Scheme by
TEO)
Co-operatives Special Projects
Fund (through Khula)
Khula Direct Retail Funding
Enterprise Networks
Programme (through SEDA)
Infrastructure Support
Programme (Through
Municipalities)
High significance
European Journal of Business, Economics and Accountancy Vol. 2, No. 2, 2014
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SMMEs have their perception about the South African Government support systems. See the
table 2 below depicting the situation.
Table 2. Perception by SMMEs on Government programmes for supporting SMMEs
Government
programme
Degree of utilization of
programme
Perception about
programme
BBBEEE Low response Not aware. Do not see
value adding to their
businesses. Interpreted
to be for the wealthy or
educated
Training Low response Affect income
generating business
activities
Business registration
processing
High response Red – tape coupled with
administration
inefficiencies affect the
turnaround time
Business linkage Low response Tend to benefit a few.
Regulatory restrictions
make it impossible to be
accessible
Incentives Low response Not binding to comply
in Tax returns and VAT
Registration and see no
benefit to their business
operations
Tender Participation High response Positive hope to be
considered for job
opportunities
Data base registration High response Positive hope to be
considered for job
opportunities
Medium Co-operatives
(Revenue between R35
million and R50 million)
Co-operatives Special Projects
Fund (through Khula)
Start-Up Grant (Through Co-
operatives Incentive
Scheme by TEO)
Khula Direct Retail Funding
Enterprise Networks
Programme (through SEDA)
Lowest
significance
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Vulnerable High response Government does not
provide protection and
training
Stakeholder facilitation for
deregulating access to finance
Low response Government does not
assist to make the
private sector
understand the language
of SMME financing.
Financing model
suitable to Large
Corporate and SMEs
SMME Conditions Low response Government reluctant to
assist. Administration
corrupt and inefficient.
SMME operational needs are often misinterpreted by the important stakeholders in the SMME
sector. Hence a study was undertaken to review the factors that affect the survival and growth of
this sector, which to large extent is said to be informal. The study was based on a 5-year long
follow-up (2007 to 2012) of a random sample of 349 small, micro and medium-sized enterprises
(SMMEs) conducting business in and around the City of Tshwane in which factors responsible
for failure in small businesses were investigated by using panel data analysis. At the end of the
study, 188 of the 349 small businesses were not financially viable. The purpose of the study was
to identify and quantify key variables that were responsible for failure in the 188 businesses that
were not viable
THEORETICAL ISSUES ABOUT SMMEs in a South African Context
Several studies have been undertaken on SMMEs as they are said to be the biggest creators of
jobs with ease and contribute more to the GDP yet 75% fail within their 3yr of operation
(Ladzani, Ligthelm & Brilal, 2012: 43-46). Majority of survivalist businesses are said to be
necessity driven entities as well as lack the necessary basic business skills and entrepreneurship,
capacity and resources needed for business growth and expansion, access to markets amongst
others. Rankhumise (2010) also cited lessons and challenges faced by Small Business Owners in
running their Businesses linked to lack of skills, capacity constraint, access to finance amongst
others.
According to the South African Small Enterprise Development Agency (2013), 60% of South
African small businesses fail within their first year of operation. The agency has found that
although the South African Department of Trade and Industry provides incentives and support to
small and medium sized enterprises, the degree of support provided to newly established small
businesses is grossly inadequate. As a result, small and medium sized enterprises are seen failing
in a number of areas of specialization (South African Chamber of Commerce and Industry, 2013:
1-7; South African Department of Trade and Industry, 2013: 2-5; South African Small Enterprise
Development Agency, 2013: 2-5; Ladzani & Netswera, 2009: 11-13).
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Sustained growth in the SMME sector resulted in employment opportunities in most of the
world’s developed economies. The growth of SMMEs is closely linked to the growth of national
economies and GDPs. South African SMME environment is not unique to this assertion.
SMMEs in South Africa are characterized by shortage of technical and entrepreneurial skills.
The study by Barney (2012: 99-120) has shown that the presence of an economically enabling
environment is a key requirement for the sustained growth of the SMME sector of the economy.
The industry environment in which a business operates has a strong influence on its economic
performance (Ghemawat, 1999:19). The growth of SMMEs depends on economic and
administrative policies of national governments. The South African Government has established
DTI Agents to support the growth of the SMME sector through financial and non-financial
programmes, amongst others - SEDA, Khula, Sefa,etc. Their mandate are categorized as financial
and non-financial support programmes, where SEDA focuses on no-financial programmes and
financial programmes are facilitated by Khula .
Definition of SMMEs
According to the National Small Business Act of South Africa (the South African Department of
Trade and Industry, 2013), small, micro and medium-sized enterprises are defined as follows:
? Micro enterprises: With growth potential that involves the owner and family members or
at the most four employees and whose turnover is below 150, 000 Rand, the threshold for
VAT registration;
? Small enterprises: With 5 to 100 employees and are owner-managed and fulfill all the
trappings associated with formality.
? Medium-sized enterprises: With 100 to 200 employees which are still owner-managed
and fulfill all the trappings associated with formality.
? Small, Micro, Medium-scale Enterprises (SMMEs) are also defined as enterprises with a
minimum asset base of 25 million Rand excluding the cost of land and working capital by
the South African Department of Trade and Industry (2013).
SMME Environmental challenges
In South Africa, a series of procedures need to be followed in order to set up a small business.
Government regulatory policies created an environment that hampers early- stage entrepreneurial
activity within the SMME sector. (Herrington & Kelley, 2012: 15). Newly established
businesses must be registered with the South African Department of Trade and Industry (DTI)
and the South African Receiver of Revenues (SARS, 2004). The registration of closed
corporations (CC companies) is governed by the Closed Corporations Act. The Act is
administered by the Companies and Intellectual Property Registration Office (CIPRO). The
establishment of private companies (PTY) or Limited Companies (Ltd) is also governed by an
Act in South Africa. Such companies need to be audited annually. For this reason, auditing skills
are essential in setting up PTY or Ltd companies.
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Predominantly there are three main types of businesses operating in a typical township in South
Africa, namely:- retail (+ 85%), services (+ 14%) , manufacturing and other (+ 1%). The
following figure 1 depicts the township environment of the City of Tshwane Townships.
Figure 1. Three main business types operating in the townships (n=349)
According to Herrington and Kelley (2012: 8-12), the following factors are well known obstacles
to the growth and development of SMMEs, namely:-
? Lack of Basic Business Skills including innovation, training and education
? Legal and Regulatory challenges
? Lack of conducive environment for Business Operations
? Challenges of access to financial services and Government Support Services
? Cash flow management
? Capacity for expansion,
? Crime and vulnerability, etc
According to Herrington and Kelley (2012), SMMEs operating in South Africa are confronted
with a myriad of socioeconomic and developmental factors that affect their survival.
Entrepreneurship
SMMEs are more innovative and entrepreneurial in nature. Ligthelm (2004) states that the South
Government approach should be supportive and create an enabling environment. This will lead
to growth and long term survival. Lack of formal entrepreneurship training hampers their
survival and growth. Entrepreneurial skills are the most important and essential Basic Business
Sills requirement for steering small businesses in a manner that leads to profitable and viability
of the organization. Table 3 shows a summary of such factors.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Major Business Types
Retail 85%
Services 14%
Manufacturing
and other 1%
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Table 3. Mean score of the entrepreneurial environment
Category Mean Score
Access to physical infrastructure and services 2.89
Access to professional and commercial infrastructure 2.95
Internal market dynamics 2.81
Concrete government policies, entrepreneurship priority and support 2.63
Cultural and social norms 2.57
Vocational, professional and tertiary level entrepreneurship education 2.53
Internal market openness 2.31
Financial environment and support 2.49
Government policies: taxes, bureaucracy 1.88
Government programmes 2.10
Research and development transfer 2.16
Primary and secondary level entrepreneurship education 1.81
Source: Herrington and Kelley (2012:24)
Entrepreneurial skills are needed for implementing strategic decisions in an effective manner,
leading to the long term survival of the small businesses. Hence, majority are profitable and
viable and even survive over a long term. A good entrepreneur has good leadership skills. Table
4 provides comparable definitions of entrepreneurship by different scholars.
Table 4. Definition of entrepreneurship
Author Definition
Schumpeter (1934) ? Entrepreneurship is seen as new
combinations, including the doing of new things that
are already being done in a new way. New
combinations include:
? Introduction of new goods
? New method of production
? Opening of new markets
? New source of supply
? New organizations
Kirzner (1973) Entrepreneurship is the ability to perceive new
opportunities. This recognition and seizing of the
opportunity will tend to “correct” the market and bring
back to equilibrium.
Drucker (1985) Entrepreneurship is the act of innovation that involves
endowing existing resources with new wealth capacity
Stevenson, Roberts &
Grousbeck (1985)
Entrepreneurship is the pursuit of an opportunity
without concern for current resources or capabilities
Rumelt (1987) Entrepreneurship is the creation of new business: a
new business meaning that they do not exactly
duplicate existing business but have some element of
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novelty
Low & MacMillan (1988) Entrepreneurship is the creation of new enterprise
Gartner (1988) Entrepreneurship is the creation of organisations: the
process by which new organisations come into
existence
Timmons (1997) Entrepreneurship is a way of thinking, reasoning and
acting that is opportunity obsessed, holistic in
approach, and leadership balanced
Venkataraman (1997) Entrepreneurship research seeks to understand how
opportunities bring into existence future goods and
services are discovered. Created, and exploited, by
whom and with what consequences
Morris (1998) Entrepreneurship is the process through which
individuals and teams create value by bringing
together unique packages of resource inputs to exploit
opportunities in the environment. It can occur in any
organizational context and can result in a variety of
possible outcomes, including new ventures, products,
services, processes, markets, and technologies.
Sharma & Chrisman (1999) Entrepreneurship encompasses acts of organizational
creation, renewal, or innovation that occur within or
outside an existing organization
Source: Herrington and Kelley (2012: 21-23)
Judge and Piccolo (2004:756 – 758) have found that good entrepreneurs have good business
leadership skills. Effective leadership provides the building block for organizational
performance. Such leadership skills and the ability to make the right choices enable small
businesses to thrive under difficult circumstances. Leadership skills are key attributes of
successful companies locally and globally (Tarabishy, Solomon, Fernald and Sashkin, 2005: 24).
Yuki (2002: 102). It was also found that superior leadership skills and entrepreneurial success
are inseparable internationally. This is also applicable to the South African SMME environment.
GEM (2004) report also highlighted the importance of entrepreneurship in the South African
environment.
Education
A skills labour force is more productive. A business owned and managed by a skilled owner is
likely to survive over a longer period. Educational Institutions Planners and Managers are aware
that SMME Development is critical for making a meaningful contribution to GDP. Hence,
SMME Development Programmes must enable SMMEs to grow and develop on a sustainable
basis. In a South Africa, the Government has established institutions such as SEDA, NTSIKA,
the National Youth Development Agency (NYDA) and KHULA Enterprises with a view to
promote the growth and development of SMMEs in all economic sectors. In addition to address
skills shortage the South African Government established the Sector of Education and Training
Authority (SETA).
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The study found that 55.87% of the 349 businesses that took part in the study were run by
operators who possessed adequate formal education for the businesses they were operating.
44.13% had collapsed. Figure 2 shows a graphical depiction of this finding.
Figure 2. Owner – Manager Business with formal education Training
Distribution of operators with adequate formal education (n = 349)
Cashflow management
Newly established small businesses often do not have the skills to manage their cash flow and
perform auditing exercises. The study conducted by McGrath and Macmillan (2000: 43-44)
indicates that auditing and accounting skills are essential for viability in small and medium-sized
enterprises. According to the researchers, newly established firms are often characterized by
over-spending, wastage of scarce resources such as time, failure to take stock and inventory,
failure to order items that are needed in time and in good quantity, and lack of skills in
welcoming constructive suggestions from potential customers. Lynn (2003: 4-5) has reported
that failure to manage or control finances according to approved business plans is a differential
factor that adversely affects business processes in newly established firms globally, and that such
problems are rampant in the world’s poorly developed economies. Poor cash ?ow is one of the
major causes of failure in small businesses. Businesses may be profitable. However, if they fail
to manage cash flow issues efficiently, they could easily go bankrupt. The ability to manage cash
flow enables business owners and operators to forecast their cash flow. Cash flow problems are
abundant in South African small and medium-sized enterprises due to lack of formal education in
the preparation of business plans, forecasting, auditing and accounting among business owners
and operators. In this regard, the problem in the Tshwane region of Gauteng Province is not so
different from the problem in all South African metropolitan cities.
Access to information
Information empowers the Small Business owners to identify business opportunities needed for
business operations, strategic planning and manage their business effectively. Access to
55.87%
441.30%
Adeduate
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information also assists the SMMEs to compete on an informed footing hence effective resources
utilization for business growth, management and long term survival. All SMMEs interviewed
experienced limited access to business information as they have to belong to an association and
pay a nominal fee to access such information or participate in such organization to access
information. 89.61% stated that they cannot afford membership that requires annual subscription
for accessing business information. Figure 3. Depicts access to information.
Figure 3. Access to information
Access to information challenges of the sample size (n=349)
Free information is usually not valued and is often misinterpreted to be not useful for operations
and strategic planning by the SMMEs interviewed.
Vulnerability
97.83% of the 349 SMMEs interviewed said they are vulnerable to crime, exploitation due to
lack of knowledge and skills. Theft from staff comprise more that 77.29% as compared to
22.71% of customers.. Usually financial theft and losses arise due to lack of policies, systems
and controls. Optimal resources utilization and controls was lacking form the SMMEs
interviewed. Lack of formal training was contributory factor and majority of the 349 SMMEs
interviewed operated informally and never received training during the 5yr study.
10.39%
89.61%
Access
Limited or no Access
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Figure 4. Vulnerability
Vulnerability challenges of the sample size (n=349)
Access to finance
The study found that 54.15% of the 349 businesses that took part in the study were able to secure
loans needed for routine business operation. Figure 5 shows a graphical depiction of this finding.
54.15% of the 349 interviewed accessed finance that was used for business operations.
Figure 5. Access to finance
Access to finance challenges of the sample size (n=349)
27.82%
72.18%
Operated a Bank
Account
No Bank Account
45.85%
54.15%
No Access to
loans
Access to loans
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Commercial Bank Products usage
80.19% out of the 349 interviewed used a savings account to transact in business operations and
have operated this account over the period of 5yr study. Cheque account and Business credit card
was least used as they are cash based business transistors’. Figure 6 depicts the Commercial
Bank Usage
Figure 6. Commercial Bank Products usage
Commercial Bank Product usage challenges of the sample size (n=349)
Figure 7. Access to Market and Business Linkages
3.18%
96.82%
New Products,
Services &
Processes
73.18%
26.82%
No Business
Linkage
Business
Linkages
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Access to Market and Business Linkage challenges of the sample size (n=349)
Viable businesses
At the end of the study, 188 of the 349 small businesses were not financially viable. Hence
53.87% were viable and 46.13% were not viable. Figure 8 depicts the situation of the small
business viability.
Figure 8. Financial viability challenges of small businesses for the sample size (n=349)
RESEARCH DESIGN AND METHOD
A sample size of 349 SMMEs was selected at the beginning of the study in 2007. Variables for
understanding the longterm survival of the business entities were dichotomous, namely viable
and non – viable.
Dependent variable of study (Y)
The dependent variable of the study is viability. Viability of SMMEs is defined by Gmur, Bartlet
and Kisslling (2010). Viable businesses pay VAT bi-monthly to SARS on a regular basis. This
dichotomous variable has only 2 possible values (Viable, or not viable). The viability of the 349
SMMEs in the study was assessed regularly during the 5yr study period.
Independent variables of study
Independent variables of study are known to affect viability in SMMEs. Examples: Type of
business, Amount of start-up capital, monthly net income, monthly profit, ownership of assets,
cost of goods and services, monthly rent, ability to borrow money needed for business, ability to
acquire assistance from DTI or SEDA, level of education, level of entrepreneurial skills,
ownership of premises, level of entrepreneurial skills, level of managerial skills, training, access
53.87%
46.13%
Viable
Not Viable
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to finance, cost of labour, geographical location, ability to retain loyal customers, ability to draw
up business plan, competition from rivals, etc
Research Method
Two research methods were used for data collection namely quantitative and qualitative. The
quantitative data collection methods included survey – electronic, face to face interview,
telephone interview. The qualitative data collection method used a focus group in – depth
interviews with 4 groups of 8 members each totalling 32
Participants
A stratified sample of 349 were selected for the study. The selected area for the research study is
townships in and around the City of Tshwane (COT). The areas were divided into four quadrants
namely East, West, South, North and the CBD. The selected areas are depicted in the following
table 3 below. The stratified areas selected are Atteridgeville (West) , Mamelodi (East) ,
Olivenhoutbosch ( South) , Hammanskraal (North) and the CBD including Marabastad
Table 4. Selection of SMMEs from the City of Tshwane
Geographical
zone
Township Number of SMMEs
in sample (15.04%)
Number of
SMMEs in
population
West Atteridgeville 64 329
South Olivenhoutbosch 62 244
East Mamelodi 68 461
North Hammanskraal 66 427
Central CBD 89 859
Total n=349 N = 2, 320
ANALYSIS
A combination of quantitative and qualitative methods of data collection and analyses were used
for the study. Frequency tables for categorical variables of study and graphical depictions were
also used to analyze the collected data from the sample size of 349 SMMEs. This included cross-
tab analyses among pairs of categorical variables as well as binary logistic regression analysis
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(On last set of recorded data of 31 December 2012). A Cox Proportional Hazards Model was
used it is a longitudinal study design on data collected from all 5 years of study from 20 columns
of raw data. Qualitative focus group in-depth interviews with 4 groups of 8 members each
totaling 32 interviewees was used
RESULTS AND DISCUSSION
The study has found that 188 of the 349 businesses that took part in the study (54%) were not
viable, and that the long-term survival and viability of small businesses was adversely affected
by lack of entrepreneurial skills, lack of supervisory support to newly established businesses, and
inability to operators running newly established businesses to acquire relevant vocational skills.
The 188 non-viable businesses in the study (46%) were characterized by low level of
entrepreneurial skills, low level of supervisory support, lack of relevant vocational skills,
difficulty in securing loans, low level of formal education, and a past history of bankruptcy. The
study has shown that businesses that were run by operators with adequate entrepreneurial skills
have survived much better than those that were run by operators who did not possess adequate
entrepreneurial skills.
Formal education
The study found that 55.87% of the 349 businesses that took part in the study were run by
operators who possessed adequate formal education for the businesses they were operating.
44.13% had collapsed.
Entrepreneurship
The study found that 44,99 % of the 349 businesses that took part in the study had
entrepreneurial skills that could run the business over a long term. 55.01% had no adequate
entrepreneurial skills that would enable the owner – manager to operate their business over a
long term.
Cashflow management
The study found that 73.14% of the 349 businesses that took part in the study had no controls,
policies, systems and tools to manage their cashflow. They were not trained on financial
management. 26.86% managed their cashflow efficiently and received various basic financial
management training for non-financial managers
Access to market & Business Linkages
The study found that 26.82 % of the 349 businesses that took part in the study had access to
market and business linkages. 73.18% had no access due to a range of challenges, amongst
others - capacity, management skills, ability to raise finance, operations’ readiness to service the
market requirements, resources capability to sustain the business and service the customer
efficiently, lack of control tools, poor record management system and a strategic plan.
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Vulnerability – crime related
The study found that 97.83% of the 349 businesses that took part in the study were vulnerable to
crime, mostly armed robbery. 2.17% were not vulnerable
Vulnerability – theft related
The study found that 77.29% of the 349 businesses that took part in the study experienced theft
from their staff members and 22.79% was from their customers.
Access to finance
The study found that 54.15% of the 349 businesses that took part in the study were able to access
business loans and 45.85% did not have bankable business plans that could assist them to access
loans needed for their business operations.
Commercial bank product usage
The study found that 19.81% of the 349 businesses that took part in the study used Cheques
account for transacting and 80.19% used savings account as well as were run by operators who
possessed adequate formal education for the businesses they were operating. 44.13% had
collapsed.
The key findings of this study are in agreement with results reported by Jiang & Peng (2011),
Globerman, Peng & Shapiro (2011), Zoogah, Vora, Richard & Peng (2011), Peng, Rabi & Sea-
Jin (2010) and Daley-Harris (2011).
RELIABILITY ANALYSIS
Results obtained from Pearson’s chi-square tests of associations (P < 0.05) showed that
businesses fail due to lack of initial capital, failure to utilize finance in accordance with business
plan, high labour cost, shortage of entrepreneurial skills that are needed for operating business,
adverse market conditions, difficulty in securing loans needed for business, inability to pay fees
that are required for renting business premises, inability to draw up business plans, inability to do
bookkeeping, the practice of selling on credit, the status of business being operated, and lack of
training opportunities that are relevant to the business being operated. Businesses that failed were
characterized by loss of money, inability to draw up business plans, inability to do book-keeping,
inability to acquire technical and vocational skills due to shortage of finance. This failure
constitutes a major obstacle to the growth and development in small and medium-sized
businesses and enterprises in South Africa
Underlying theories tested by study for the survival and long term survival
The main reason and motive for establishing an SMME is necessity linked to hunger, lack of
jobs, poverty, lack of skills as well as training and education among other factors (Smallbone,
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2010). This is also linked to Maslow’s hierarchy of needs. This is the case prevalent in the
developing countries.
Viability
The viability of SMMEs is not inherently linked to the external factors such as the Government
support programmes. Their innovativeness enables them to survive over a period with little
growth prospects. SMME viability was also not dependent on Government schemes such as
BBBEE, though the South African Government had already set up good Regulations, Policies,
Systems, Support Programmes and Incentives aimed at SMMEs Growth and Development
(Herrington, 2013). DTI’s Growth and Development Strategy (GDS) does not assist SMMEs to
grow and sustain their businesses over a long term (DTI, 2013).
Basic Business operating skills
SMMEs lack basic business skills and the required capacity to operate and manage their business
(SEDA, 2013). The study found that 55.87% of the 349 businesses that took part in the study
were run by operators who possessed adequate formal education for the businesses they were
operating. 44.13% had collapsed. This is depicted in figure 1 above. Management skills are
important in sustaining the business over a long term (Bureau of Market Research at UNISA,
2013).
Access to information
Access to information is important for strategic planning, entrepreneurship, innovation and
efficient business management especially if there are policies, systems, controls and procedures
for the long term survival of the business. SMMEs interviewd did not have the skills to identify
the right information needed for their strategic planning that enable them to survive over a long
term
Entrepreneurship
Entrepreneurship culture and skills is low due to the education system as well as the support
system that makes SMMEs to operate informally
Finance
Access to finance is still a challenge to SMMEs as they are still regarded to be high risk by the
commercial banks and financial institutions
INFERRAL ANALYSIS
Summary of key factors that affect viability based on results from in-depth interviews with 4
focus groups of 8 members each (n=32)
1. Lack of entrepreneurial skills
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2. Difficulty in obtaining loan from commercial banks and money-lending institutions
3. Lack of skills-based training opportunities
4. Too much bureaucracy
5. Lack of supervisory support by SEDA and DTI .
Table 5 summarizes the Cox regression (survival analysis)
Table 5 Summary of results from Cox regression (survival analysis)
Variable of the study affecting the
long-term viability of SMMEs
Hazard
Ratio
95% Confidence
Interval
P-Value
Lack of entrepreneurial skills 5.15 (2.98, 8.09) 0.0000
Lack of supervisory support to
newly established businesses
4.26 (2.46, 6.88) 0.0000
Inability of operators running newly
established businesses to acquire
relevant vocational skills
3.27 (1.78, 3.81) 0.0000
Table 6 below explains the group proportions with regards to the viability of small businesses
Table 6 Group proportions with regards to the viability of small businesses
Predictor variable Viable (n=161) Not viable (n=188)
Level of
entrepreneurial skills
Adequate: 68%
Inadequate: 32%
Adequate: 26%
Inadequate: 74%
Acquisition of
supervisory support
by newly established
small businesses
Adequate: 51%
Inadequate: 49%
Adequate: 27%
Inadequate: 73%
Level of relevant
vocational skills
acquired by business
operator
Adequate: 77%
Inadequate: 33%
Adequate: 38%
Inadequate: 62%
Ability to secure loan
needed for operation
Easy: 74%
Difficult: 26%
Easy: 37%
Difficult: 63%
Level of formal
education acquired by
business operator
College level or
above: 71%
Below college level:
29%
College level or above:
43%
Below college level:
57%
Past history of
bankruptcy
Yes: 11%
No: 89%
Yes: 58%
No: 42%
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LIMITATION OF THE STUDY
The study was geographically limited to the City of Tshwane (COT) area due to time and lack of
resources. The SMME environment is said to have similar physical and infrastructural business
characteristics locally, provincially and nationally in South Africa.
CONCLUSION AND RECOMMENDATION
Cashflow management: There is an acute need for training newly established businesses on
auditing, accounting, business plan preparation, report writing, policies and procedures &
financial control tools drafting, oral presentations, stock taking and inventory.
Education and training: The South African educational curriculum does not prepare potential
entrepreneurs adequately for the task of operating newly established businesses. The content of
the curriculum for vocational training at the high school and undergraduate level is vastly
inadequate and irrelevant to the specific needs of young graduates who aspire to thrive in
business. It is necessary to design relevant and tailor-made skills based training programmes on
vocational and entrepreneurial activities in which young matric graduates can be equipped with
the skills they need to run businesses successfully. It is vital to encourage academic and research
institutions to create academic programmes in which trainees can acquire experiential training by
working for businesses and industries as part of their academic training in South African
institutions of higher learning. Such programmes should be jointly coordinated and funded by the
South African Department of Higher Education and Training, the South African Department of
Trade and Industry, and the South African Chamber of Commerce. Doing so has the potential for
producing graduates who possess skills that are relevant to the actual needs of business, industry
and government.
Mentorship: It is necessary to provide mentorship and supervisory assistance to newly
established small and medium-sized enterprises for a period of at least three years or more.It is
necessary to monitor and evaluate the viability of newly established small businesses on a
monthly basis. This task falls under the ambit of the South African Department of Trade and
Industry. Such an intervention has the potential for minimizing the rate at which newly
established small businesses fail in and around the city of Pretoria.
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doc_157169994.pdf
The Impact Of Entrepreneurial Skills On The Viability And Longterm Survival Of Small Businesses A Case Of The City Of Tshwane, South Africa
European Journal of Business, Economics and Accountancy Vol. 2, No. 2, 2014
ISSN 2056-6018
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THE IMPACT OF ENTREPRENEURIAL SKILLS ON THE VIABILITY AND LONG-
TERM SURVIVAL OF SMALL BUSINESSES: A CASE OF THE CITY OF TSHWANE,
SOUTH AFRICA
S. P. Marivate
Tshwane University of Technology Business School
Pretoria, SOUTH AFRICA
ABSTRACT
Small businesses operating in the City of Tshwane are characterized by shortage of
entrepreneurial skills. The purpose of the study was to highlight the impact of shortage of
entrepreneurial skills on the long-term survival and economic viability of small, micro and
medium-sized enterprises (SMMEs) that operate in and around the City of Tshwane in Gauteng
Province, South Africa. The research was based on a 5-year follow-up study (2007 to 2012) of a
random sample of 349 small and medium-sized business enterprises that operate in and around
the City of Tshwane in South Africa. Data was gathered from each of the businesses on
socioeconomic factors that are known to affect the long-term survival of small, micro and
medium-sized businesses. The objective of the study was to identify and quantify key predictors
of viability and long term survival. The design of the study was descriptive and longitudinal.
Econometric methods such as panel data analysis, Kaplan-Meier survival probability curves, life
tables, and logit regression analysis were used for data analyses. Hazard ratios estimated from
the Cox Proportional Hazards Model were used as an econometric measure of effect. The study
found that 188 of the 349 businesses that took part in the study (54%) were not viable. Based on
hazard ratios estimated from the Cox Proportional Hazards Model, the long-term survival and
viability of SMMEs was significantly and adversely affected by lack of entrepreneurial skills,
lack of supervisory support to newly established businesses, and inability of operators running
newly established businesses to acquire relevant vocational skills.
Keywords: SMMEs, Entrepreneurial skills, Vocational skills, Panel data analysis, Odds ratio,
Hazard ratio.
INTRODUCTION
SMMEs are regarded as the major GDP contributors and usually create more jobs quantified at
about 60% by Business Partners Limited (Bharadwaj, 2013: 169-196). Countries classified as
emerging economies, namely Brazil, Israel, India, Ireland and South Africa have realized that it
is essential to support and promote the development of SMMEs as a means of growing the
national economy and alleviating unemployment and poverty among the masses. Several studies
have pointed out the strategic importance of SMMEs to the national economy and GDP (Adams
& Mehran, 2003: 123-142). The growth of SMMEs is closely linked to the growth of national
economies and GDPs. Job creation in the formal sector frequently takes place at a far lower rate
than growth in the labour force (Ligthelm & Van Wyk, 2004:1-4). South African SMME
environment is not unique to this assertion. Many reasons are given for business failure, inter
alia with, lack of managerial planning skills, ineffective working capital management, inability
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to manage the competitive environment and growth over-expansion(Rankhumise, 2009;
Netswera and Ladzani, 2009).
The South African Government strives to create a conducive environment for SMMEs to
participate in the mainstream of the economy and growth through job creation and introduction
of innovative products and services. They created DTI Agents to focus on SMME development.
Table 1 illustrates how the South African Government has prioritised the SMME development
through support programmes.
Table 1: Prioritisation of support programmes for SMMEs
Market segment
Support programme
Degree of
significance
Pre-formation Co-operatives Promotion and
Awareness Support Programme
Highest
significance
Survivalist co-operatives
(Revenue <R300 000)
Micro Finance (through
SAMAF) Start-Up Grant
(Through Co-operatives
Incentive Scheme by TEO)
Highest
significance
Micro co-operatives
(Revenue between
R300 000 and R5
million)
Micro Finance (through
SAMAF)
Start-Up Grant (Through Co-
operatives Incentive
Scheme by TEO)
Infrastructure Support
Programme (Through
Municipalities)
Higher
significance
Small co-operatives
(Revenue between R5
million and R35 million)
Start-Up Grant (Through Co-
operatives Incentive Scheme by
TEO)
Co-operatives Special Projects
Fund (through Khula)
Khula Direct Retail Funding
Enterprise Networks
Programme (through SEDA)
Infrastructure Support
Programme (Through
Municipalities)
High significance
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SMMEs have their perception about the South African Government support systems. See the
table 2 below depicting the situation.
Table 2. Perception by SMMEs on Government programmes for supporting SMMEs
Government
programme
Degree of utilization of
programme
Perception about
programme
BBBEEE Low response Not aware. Do not see
value adding to their
businesses. Interpreted
to be for the wealthy or
educated
Training Low response Affect income
generating business
activities
Business registration
processing
High response Red – tape coupled with
administration
inefficiencies affect the
turnaround time
Business linkage Low response Tend to benefit a few.
Regulatory restrictions
make it impossible to be
accessible
Incentives Low response Not binding to comply
in Tax returns and VAT
Registration and see no
benefit to their business
operations
Tender Participation High response Positive hope to be
considered for job
opportunities
Data base registration High response Positive hope to be
considered for job
opportunities
Medium Co-operatives
(Revenue between R35
million and R50 million)
Co-operatives Special Projects
Fund (through Khula)
Start-Up Grant (Through Co-
operatives Incentive
Scheme by TEO)
Khula Direct Retail Funding
Enterprise Networks
Programme (through SEDA)
Lowest
significance
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Vulnerable High response Government does not
provide protection and
training
Stakeholder facilitation for
deregulating access to finance
Low response Government does not
assist to make the
private sector
understand the language
of SMME financing.
Financing model
suitable to Large
Corporate and SMEs
SMME Conditions Low response Government reluctant to
assist. Administration
corrupt and inefficient.
SMME operational needs are often misinterpreted by the important stakeholders in the SMME
sector. Hence a study was undertaken to review the factors that affect the survival and growth of
this sector, which to large extent is said to be informal. The study was based on a 5-year long
follow-up (2007 to 2012) of a random sample of 349 small, micro and medium-sized enterprises
(SMMEs) conducting business in and around the City of Tshwane in which factors responsible
for failure in small businesses were investigated by using panel data analysis. At the end of the
study, 188 of the 349 small businesses were not financially viable. The purpose of the study was
to identify and quantify key variables that were responsible for failure in the 188 businesses that
were not viable
THEORETICAL ISSUES ABOUT SMMEs in a South African Context
Several studies have been undertaken on SMMEs as they are said to be the biggest creators of
jobs with ease and contribute more to the GDP yet 75% fail within their 3yr of operation
(Ladzani, Ligthelm & Brilal, 2012: 43-46). Majority of survivalist businesses are said to be
necessity driven entities as well as lack the necessary basic business skills and entrepreneurship,
capacity and resources needed for business growth and expansion, access to markets amongst
others. Rankhumise (2010) also cited lessons and challenges faced by Small Business Owners in
running their Businesses linked to lack of skills, capacity constraint, access to finance amongst
others.
According to the South African Small Enterprise Development Agency (2013), 60% of South
African small businesses fail within their first year of operation. The agency has found that
although the South African Department of Trade and Industry provides incentives and support to
small and medium sized enterprises, the degree of support provided to newly established small
businesses is grossly inadequate. As a result, small and medium sized enterprises are seen failing
in a number of areas of specialization (South African Chamber of Commerce and Industry, 2013:
1-7; South African Department of Trade and Industry, 2013: 2-5; South African Small Enterprise
Development Agency, 2013: 2-5; Ladzani & Netswera, 2009: 11-13).
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Sustained growth in the SMME sector resulted in employment opportunities in most of the
world’s developed economies. The growth of SMMEs is closely linked to the growth of national
economies and GDPs. South African SMME environment is not unique to this assertion.
SMMEs in South Africa are characterized by shortage of technical and entrepreneurial skills.
The study by Barney (2012: 99-120) has shown that the presence of an economically enabling
environment is a key requirement for the sustained growth of the SMME sector of the economy.
The industry environment in which a business operates has a strong influence on its economic
performance (Ghemawat, 1999:19). The growth of SMMEs depends on economic and
administrative policies of national governments. The South African Government has established
DTI Agents to support the growth of the SMME sector through financial and non-financial
programmes, amongst others - SEDA, Khula, Sefa,etc. Their mandate are categorized as financial
and non-financial support programmes, where SEDA focuses on no-financial programmes and
financial programmes are facilitated by Khula .
Definition of SMMEs
According to the National Small Business Act of South Africa (the South African Department of
Trade and Industry, 2013), small, micro and medium-sized enterprises are defined as follows:
? Micro enterprises: With growth potential that involves the owner and family members or
at the most four employees and whose turnover is below 150, 000 Rand, the threshold for
VAT registration;
? Small enterprises: With 5 to 100 employees and are owner-managed and fulfill all the
trappings associated with formality.
? Medium-sized enterprises: With 100 to 200 employees which are still owner-managed
and fulfill all the trappings associated with formality.
? Small, Micro, Medium-scale Enterprises (SMMEs) are also defined as enterprises with a
minimum asset base of 25 million Rand excluding the cost of land and working capital by
the South African Department of Trade and Industry (2013).
SMME Environmental challenges
In South Africa, a series of procedures need to be followed in order to set up a small business.
Government regulatory policies created an environment that hampers early- stage entrepreneurial
activity within the SMME sector. (Herrington & Kelley, 2012: 15). Newly established
businesses must be registered with the South African Department of Trade and Industry (DTI)
and the South African Receiver of Revenues (SARS, 2004). The registration of closed
corporations (CC companies) is governed by the Closed Corporations Act. The Act is
administered by the Companies and Intellectual Property Registration Office (CIPRO). The
establishment of private companies (PTY) or Limited Companies (Ltd) is also governed by an
Act in South Africa. Such companies need to be audited annually. For this reason, auditing skills
are essential in setting up PTY or Ltd companies.
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Predominantly there are three main types of businesses operating in a typical township in South
Africa, namely:- retail (+ 85%), services (+ 14%) , manufacturing and other (+ 1%). The
following figure 1 depicts the township environment of the City of Tshwane Townships.
Figure 1. Three main business types operating in the townships (n=349)
According to Herrington and Kelley (2012: 8-12), the following factors are well known obstacles
to the growth and development of SMMEs, namely:-
? Lack of Basic Business Skills including innovation, training and education
? Legal and Regulatory challenges
? Lack of conducive environment for Business Operations
? Challenges of access to financial services and Government Support Services
? Cash flow management
? Capacity for expansion,
? Crime and vulnerability, etc
According to Herrington and Kelley (2012), SMMEs operating in South Africa are confronted
with a myriad of socioeconomic and developmental factors that affect their survival.
Entrepreneurship
SMMEs are more innovative and entrepreneurial in nature. Ligthelm (2004) states that the South
Government approach should be supportive and create an enabling environment. This will lead
to growth and long term survival. Lack of formal entrepreneurship training hampers their
survival and growth. Entrepreneurial skills are the most important and essential Basic Business
Sills requirement for steering small businesses in a manner that leads to profitable and viability
of the organization. Table 3 shows a summary of such factors.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Major Business Types
Retail 85%
Services 14%
Manufacturing
and other 1%
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Table 3. Mean score of the entrepreneurial environment
Category Mean Score
Access to physical infrastructure and services 2.89
Access to professional and commercial infrastructure 2.95
Internal market dynamics 2.81
Concrete government policies, entrepreneurship priority and support 2.63
Cultural and social norms 2.57
Vocational, professional and tertiary level entrepreneurship education 2.53
Internal market openness 2.31
Financial environment and support 2.49
Government policies: taxes, bureaucracy 1.88
Government programmes 2.10
Research and development transfer 2.16
Primary and secondary level entrepreneurship education 1.81
Source: Herrington and Kelley (2012:24)
Entrepreneurial skills are needed for implementing strategic decisions in an effective manner,
leading to the long term survival of the small businesses. Hence, majority are profitable and
viable and even survive over a long term. A good entrepreneur has good leadership skills. Table
4 provides comparable definitions of entrepreneurship by different scholars.
Table 4. Definition of entrepreneurship
Author Definition
Schumpeter (1934) ? Entrepreneurship is seen as new
combinations, including the doing of new things that
are already being done in a new way. New
combinations include:
? Introduction of new goods
? New method of production
? Opening of new markets
? New source of supply
? New organizations
Kirzner (1973) Entrepreneurship is the ability to perceive new
opportunities. This recognition and seizing of the
opportunity will tend to “correct” the market and bring
back to equilibrium.
Drucker (1985) Entrepreneurship is the act of innovation that involves
endowing existing resources with new wealth capacity
Stevenson, Roberts &
Grousbeck (1985)
Entrepreneurship is the pursuit of an opportunity
without concern for current resources or capabilities
Rumelt (1987) Entrepreneurship is the creation of new business: a
new business meaning that they do not exactly
duplicate existing business but have some element of
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novelty
Low & MacMillan (1988) Entrepreneurship is the creation of new enterprise
Gartner (1988) Entrepreneurship is the creation of organisations: the
process by which new organisations come into
existence
Timmons (1997) Entrepreneurship is a way of thinking, reasoning and
acting that is opportunity obsessed, holistic in
approach, and leadership balanced
Venkataraman (1997) Entrepreneurship research seeks to understand how
opportunities bring into existence future goods and
services are discovered. Created, and exploited, by
whom and with what consequences
Morris (1998) Entrepreneurship is the process through which
individuals and teams create value by bringing
together unique packages of resource inputs to exploit
opportunities in the environment. It can occur in any
organizational context and can result in a variety of
possible outcomes, including new ventures, products,
services, processes, markets, and technologies.
Sharma & Chrisman (1999) Entrepreneurship encompasses acts of organizational
creation, renewal, or innovation that occur within or
outside an existing organization
Source: Herrington and Kelley (2012: 21-23)
Judge and Piccolo (2004:756 – 758) have found that good entrepreneurs have good business
leadership skills. Effective leadership provides the building block for organizational
performance. Such leadership skills and the ability to make the right choices enable small
businesses to thrive under difficult circumstances. Leadership skills are key attributes of
successful companies locally and globally (Tarabishy, Solomon, Fernald and Sashkin, 2005: 24).
Yuki (2002: 102). It was also found that superior leadership skills and entrepreneurial success
are inseparable internationally. This is also applicable to the South African SMME environment.
GEM (2004) report also highlighted the importance of entrepreneurship in the South African
environment.
Education
A skills labour force is more productive. A business owned and managed by a skilled owner is
likely to survive over a longer period. Educational Institutions Planners and Managers are aware
that SMME Development is critical for making a meaningful contribution to GDP. Hence,
SMME Development Programmes must enable SMMEs to grow and develop on a sustainable
basis. In a South Africa, the Government has established institutions such as SEDA, NTSIKA,
the National Youth Development Agency (NYDA) and KHULA Enterprises with a view to
promote the growth and development of SMMEs in all economic sectors. In addition to address
skills shortage the South African Government established the Sector of Education and Training
Authority (SETA).
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The study found that 55.87% of the 349 businesses that took part in the study were run by
operators who possessed adequate formal education for the businesses they were operating.
44.13% had collapsed. Figure 2 shows a graphical depiction of this finding.
Figure 2. Owner – Manager Business with formal education Training
Distribution of operators with adequate formal education (n = 349)
Cashflow management
Newly established small businesses often do not have the skills to manage their cash flow and
perform auditing exercises. The study conducted by McGrath and Macmillan (2000: 43-44)
indicates that auditing and accounting skills are essential for viability in small and medium-sized
enterprises. According to the researchers, newly established firms are often characterized by
over-spending, wastage of scarce resources such as time, failure to take stock and inventory,
failure to order items that are needed in time and in good quantity, and lack of skills in
welcoming constructive suggestions from potential customers. Lynn (2003: 4-5) has reported
that failure to manage or control finances according to approved business plans is a differential
factor that adversely affects business processes in newly established firms globally, and that such
problems are rampant in the world’s poorly developed economies. Poor cash ?ow is one of the
major causes of failure in small businesses. Businesses may be profitable. However, if they fail
to manage cash flow issues efficiently, they could easily go bankrupt. The ability to manage cash
flow enables business owners and operators to forecast their cash flow. Cash flow problems are
abundant in South African small and medium-sized enterprises due to lack of formal education in
the preparation of business plans, forecasting, auditing and accounting among business owners
and operators. In this regard, the problem in the Tshwane region of Gauteng Province is not so
different from the problem in all South African metropolitan cities.
Access to information
Information empowers the Small Business owners to identify business opportunities needed for
business operations, strategic planning and manage their business effectively. Access to
55.87%
441.30%
Adeduate
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information also assists the SMMEs to compete on an informed footing hence effective resources
utilization for business growth, management and long term survival. All SMMEs interviewed
experienced limited access to business information as they have to belong to an association and
pay a nominal fee to access such information or participate in such organization to access
information. 89.61% stated that they cannot afford membership that requires annual subscription
for accessing business information. Figure 3. Depicts access to information.
Figure 3. Access to information
Access to information challenges of the sample size (n=349)
Free information is usually not valued and is often misinterpreted to be not useful for operations
and strategic planning by the SMMEs interviewed.
Vulnerability
97.83% of the 349 SMMEs interviewed said they are vulnerable to crime, exploitation due to
lack of knowledge and skills. Theft from staff comprise more that 77.29% as compared to
22.71% of customers.. Usually financial theft and losses arise due to lack of policies, systems
and controls. Optimal resources utilization and controls was lacking form the SMMEs
interviewed. Lack of formal training was contributory factor and majority of the 349 SMMEs
interviewed operated informally and never received training during the 5yr study.
10.39%
89.61%
Access
Limited or no Access
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Figure 4. Vulnerability
Vulnerability challenges of the sample size (n=349)
Access to finance
The study found that 54.15% of the 349 businesses that took part in the study were able to secure
loans needed for routine business operation. Figure 5 shows a graphical depiction of this finding.
54.15% of the 349 interviewed accessed finance that was used for business operations.
Figure 5. Access to finance
Access to finance challenges of the sample size (n=349)
27.82%
72.18%
Operated a Bank
Account
No Bank Account
45.85%
54.15%
No Access to
loans
Access to loans
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Commercial Bank Products usage
80.19% out of the 349 interviewed used a savings account to transact in business operations and
have operated this account over the period of 5yr study. Cheque account and Business credit card
was least used as they are cash based business transistors’. Figure 6 depicts the Commercial
Bank Usage
Figure 6. Commercial Bank Products usage
Commercial Bank Product usage challenges of the sample size (n=349)
Figure 7. Access to Market and Business Linkages
3.18%
96.82%
New Products,
Services &
Processes
73.18%
26.82%
No Business
Linkage
Business
Linkages
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Access to Market and Business Linkage challenges of the sample size (n=349)
Viable businesses
At the end of the study, 188 of the 349 small businesses were not financially viable. Hence
53.87% were viable and 46.13% were not viable. Figure 8 depicts the situation of the small
business viability.
Figure 8. Financial viability challenges of small businesses for the sample size (n=349)
RESEARCH DESIGN AND METHOD
A sample size of 349 SMMEs was selected at the beginning of the study in 2007. Variables for
understanding the longterm survival of the business entities were dichotomous, namely viable
and non – viable.
Dependent variable of study (Y)
The dependent variable of the study is viability. Viability of SMMEs is defined by Gmur, Bartlet
and Kisslling (2010). Viable businesses pay VAT bi-monthly to SARS on a regular basis. This
dichotomous variable has only 2 possible values (Viable, or not viable). The viability of the 349
SMMEs in the study was assessed regularly during the 5yr study period.
Independent variables of study
Independent variables of study are known to affect viability in SMMEs. Examples: Type of
business, Amount of start-up capital, monthly net income, monthly profit, ownership of assets,
cost of goods and services, monthly rent, ability to borrow money needed for business, ability to
acquire assistance from DTI or SEDA, level of education, level of entrepreneurial skills,
ownership of premises, level of entrepreneurial skills, level of managerial skills, training, access
53.87%
46.13%
Viable
Not Viable
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to finance, cost of labour, geographical location, ability to retain loyal customers, ability to draw
up business plan, competition from rivals, etc
Research Method
Two research methods were used for data collection namely quantitative and qualitative. The
quantitative data collection methods included survey – electronic, face to face interview,
telephone interview. The qualitative data collection method used a focus group in – depth
interviews with 4 groups of 8 members each totalling 32
Participants
A stratified sample of 349 were selected for the study. The selected area for the research study is
townships in and around the City of Tshwane (COT). The areas were divided into four quadrants
namely East, West, South, North and the CBD. The selected areas are depicted in the following
table 3 below. The stratified areas selected are Atteridgeville (West) , Mamelodi (East) ,
Olivenhoutbosch ( South) , Hammanskraal (North) and the CBD including Marabastad
Table 4. Selection of SMMEs from the City of Tshwane
Geographical
zone
Township Number of SMMEs
in sample (15.04%)
Number of
SMMEs in
population
West Atteridgeville 64 329
South Olivenhoutbosch 62 244
East Mamelodi 68 461
North Hammanskraal 66 427
Central CBD 89 859
Total n=349 N = 2, 320
ANALYSIS
A combination of quantitative and qualitative methods of data collection and analyses were used
for the study. Frequency tables for categorical variables of study and graphical depictions were
also used to analyze the collected data from the sample size of 349 SMMEs. This included cross-
tab analyses among pairs of categorical variables as well as binary logistic regression analysis
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(On last set of recorded data of 31 December 2012). A Cox Proportional Hazards Model was
used it is a longitudinal study design on data collected from all 5 years of study from 20 columns
of raw data. Qualitative focus group in-depth interviews with 4 groups of 8 members each
totaling 32 interviewees was used
RESULTS AND DISCUSSION
The study has found that 188 of the 349 businesses that took part in the study (54%) were not
viable, and that the long-term survival and viability of small businesses was adversely affected
by lack of entrepreneurial skills, lack of supervisory support to newly established businesses, and
inability to operators running newly established businesses to acquire relevant vocational skills.
The 188 non-viable businesses in the study (46%) were characterized by low level of
entrepreneurial skills, low level of supervisory support, lack of relevant vocational skills,
difficulty in securing loans, low level of formal education, and a past history of bankruptcy. The
study has shown that businesses that were run by operators with adequate entrepreneurial skills
have survived much better than those that were run by operators who did not possess adequate
entrepreneurial skills.
Formal education
The study found that 55.87% of the 349 businesses that took part in the study were run by
operators who possessed adequate formal education for the businesses they were operating.
44.13% had collapsed.
Entrepreneurship
The study found that 44,99 % of the 349 businesses that took part in the study had
entrepreneurial skills that could run the business over a long term. 55.01% had no adequate
entrepreneurial skills that would enable the owner – manager to operate their business over a
long term.
Cashflow management
The study found that 73.14% of the 349 businesses that took part in the study had no controls,
policies, systems and tools to manage their cashflow. They were not trained on financial
management. 26.86% managed their cashflow efficiently and received various basic financial
management training for non-financial managers
Access to market & Business Linkages
The study found that 26.82 % of the 349 businesses that took part in the study had access to
market and business linkages. 73.18% had no access due to a range of challenges, amongst
others - capacity, management skills, ability to raise finance, operations’ readiness to service the
market requirements, resources capability to sustain the business and service the customer
efficiently, lack of control tools, poor record management system and a strategic plan.
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Vulnerability – crime related
The study found that 97.83% of the 349 businesses that took part in the study were vulnerable to
crime, mostly armed robbery. 2.17% were not vulnerable
Vulnerability – theft related
The study found that 77.29% of the 349 businesses that took part in the study experienced theft
from their staff members and 22.79% was from their customers.
Access to finance
The study found that 54.15% of the 349 businesses that took part in the study were able to access
business loans and 45.85% did not have bankable business plans that could assist them to access
loans needed for their business operations.
Commercial bank product usage
The study found that 19.81% of the 349 businesses that took part in the study used Cheques
account for transacting and 80.19% used savings account as well as were run by operators who
possessed adequate formal education for the businesses they were operating. 44.13% had
collapsed.
The key findings of this study are in agreement with results reported by Jiang & Peng (2011),
Globerman, Peng & Shapiro (2011), Zoogah, Vora, Richard & Peng (2011), Peng, Rabi & Sea-
Jin (2010) and Daley-Harris (2011).
RELIABILITY ANALYSIS
Results obtained from Pearson’s chi-square tests of associations (P < 0.05) showed that
businesses fail due to lack of initial capital, failure to utilize finance in accordance with business
plan, high labour cost, shortage of entrepreneurial skills that are needed for operating business,
adverse market conditions, difficulty in securing loans needed for business, inability to pay fees
that are required for renting business premises, inability to draw up business plans, inability to do
bookkeeping, the practice of selling on credit, the status of business being operated, and lack of
training opportunities that are relevant to the business being operated. Businesses that failed were
characterized by loss of money, inability to draw up business plans, inability to do book-keeping,
inability to acquire technical and vocational skills due to shortage of finance. This failure
constitutes a major obstacle to the growth and development in small and medium-sized
businesses and enterprises in South Africa
Underlying theories tested by study for the survival and long term survival
The main reason and motive for establishing an SMME is necessity linked to hunger, lack of
jobs, poverty, lack of skills as well as training and education among other factors (Smallbone,
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2010). This is also linked to Maslow’s hierarchy of needs. This is the case prevalent in the
developing countries.
Viability
The viability of SMMEs is not inherently linked to the external factors such as the Government
support programmes. Their innovativeness enables them to survive over a period with little
growth prospects. SMME viability was also not dependent on Government schemes such as
BBBEE, though the South African Government had already set up good Regulations, Policies,
Systems, Support Programmes and Incentives aimed at SMMEs Growth and Development
(Herrington, 2013). DTI’s Growth and Development Strategy (GDS) does not assist SMMEs to
grow and sustain their businesses over a long term (DTI, 2013).
Basic Business operating skills
SMMEs lack basic business skills and the required capacity to operate and manage their business
(SEDA, 2013). The study found that 55.87% of the 349 businesses that took part in the study
were run by operators who possessed adequate formal education for the businesses they were
operating. 44.13% had collapsed. This is depicted in figure 1 above. Management skills are
important in sustaining the business over a long term (Bureau of Market Research at UNISA,
2013).
Access to information
Access to information is important for strategic planning, entrepreneurship, innovation and
efficient business management especially if there are policies, systems, controls and procedures
for the long term survival of the business. SMMEs interviewd did not have the skills to identify
the right information needed for their strategic planning that enable them to survive over a long
term
Entrepreneurship
Entrepreneurship culture and skills is low due to the education system as well as the support
system that makes SMMEs to operate informally
Finance
Access to finance is still a challenge to SMMEs as they are still regarded to be high risk by the
commercial banks and financial institutions
INFERRAL ANALYSIS
Summary of key factors that affect viability based on results from in-depth interviews with 4
focus groups of 8 members each (n=32)
1. Lack of entrepreneurial skills
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2. Difficulty in obtaining loan from commercial banks and money-lending institutions
3. Lack of skills-based training opportunities
4. Too much bureaucracy
5. Lack of supervisory support by SEDA and DTI .
Table 5 summarizes the Cox regression (survival analysis)
Table 5 Summary of results from Cox regression (survival analysis)
Variable of the study affecting the
long-term viability of SMMEs
Hazard
Ratio
95% Confidence
Interval
P-Value
Lack of entrepreneurial skills 5.15 (2.98, 8.09) 0.0000
Lack of supervisory support to
newly established businesses
4.26 (2.46, 6.88) 0.0000
Inability of operators running newly
established businesses to acquire
relevant vocational skills
3.27 (1.78, 3.81) 0.0000
Table 6 below explains the group proportions with regards to the viability of small businesses
Table 6 Group proportions with regards to the viability of small businesses
Predictor variable Viable (n=161) Not viable (n=188)
Level of
entrepreneurial skills
Adequate: 68%
Inadequate: 32%
Adequate: 26%
Inadequate: 74%
Acquisition of
supervisory support
by newly established
small businesses
Adequate: 51%
Inadequate: 49%
Adequate: 27%
Inadequate: 73%
Level of relevant
vocational skills
acquired by business
operator
Adequate: 77%
Inadequate: 33%
Adequate: 38%
Inadequate: 62%
Ability to secure loan
needed for operation
Easy: 74%
Difficult: 26%
Easy: 37%
Difficult: 63%
Level of formal
education acquired by
business operator
College level or
above: 71%
Below college level:
29%
College level or above:
43%
Below college level:
57%
Past history of
bankruptcy
Yes: 11%
No: 89%
Yes: 58%
No: 42%
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LIMITATION OF THE STUDY
The study was geographically limited to the City of Tshwane (COT) area due to time and lack of
resources. The SMME environment is said to have similar physical and infrastructural business
characteristics locally, provincially and nationally in South Africa.
CONCLUSION AND RECOMMENDATION
Cashflow management: There is an acute need for training newly established businesses on
auditing, accounting, business plan preparation, report writing, policies and procedures &
financial control tools drafting, oral presentations, stock taking and inventory.
Education and training: The South African educational curriculum does not prepare potential
entrepreneurs adequately for the task of operating newly established businesses. The content of
the curriculum for vocational training at the high school and undergraduate level is vastly
inadequate and irrelevant to the specific needs of young graduates who aspire to thrive in
business. It is necessary to design relevant and tailor-made skills based training programmes on
vocational and entrepreneurial activities in which young matric graduates can be equipped with
the skills they need to run businesses successfully. It is vital to encourage academic and research
institutions to create academic programmes in which trainees can acquire experiential training by
working for businesses and industries as part of their academic training in South African
institutions of higher learning. Such programmes should be jointly coordinated and funded by the
South African Department of Higher Education and Training, the South African Department of
Trade and Industry, and the South African Chamber of Commerce. Doing so has the potential for
producing graduates who possess skills that are relevant to the actual needs of business, industry
and government.
Mentorship: It is necessary to provide mentorship and supervisory assistance to newly
established small and medium-sized enterprises for a period of at least three years or more.It is
necessary to monitor and evaluate the viability of newly established small businesses on a
monthly basis. This task falls under the ambit of the South African Department of Trade and
Industry. Such an intervention has the potential for minimizing the rate at which newly
established small businesses fail in and around the city of Pretoria.
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