As the unemployment rate in South Africa continues to rise, more and more young people are turning to entrepreneurship in search of a better future. However, a new study by the Small Enterprise Development Agency (SEDA) has revealed that South Africa has one of the highest failure rates of new SMEs in the world, at an estimated 75%.
This shocking statistic is a sobering reminder of the challenges faced by young entrepreneurs in South Africa. However, it is also a testament to the resilience and determination of those who are willing to defy the odds and pursue their dreams.
One such example is Mbavhalelo Mabogo, the Limpopo born founder of Quickloc8, a South African technology company that is rolling out IoT (Internet of Things) and artificial intelligence technologies in the day-to-day management of public transport, most surprisingly the taxi industry. The Quickloc8 technology provides taxi owners mobility data, daily taxi loading capacity, auto revenue calculation, driver shift management and real time notifications of taxi GPS location, driving styles and overall travel experience of commuters using a subscription model.
Mbavhalelo Mabogo unpack his journey
Mabogo’s journey to entrepreneurship was not without its challenges. In 2012 Mbavhalelo Mabogo launched a first of its kind technology start-up, Tshedza(meaning light in Tshivenda), a platform with a career planning algorithm App that matches learners with careers, universities and bursaries schemes. Mbavhalelo says “It was our first attempt at rolling out technology and our initial focus of social impact overshadowed the clarity in our monetization strategy. This well-intentioned approach, although beneficial for the community, presented challenges in attracting investors and securing follow-on funding.” According to Mabogo, this was an important lesson that they took to the formation of Quickloc8, the new enterprise had to be generating clear revenue from day one.
Most startups fail because the entrepreneur has not invested enough time and effort to learn and master the art of raising funding, and subsequently follow-on funding. Most successful entrepreneurs do not start business from their own pocket, but through a well-orchestrated process of raising funding through various rounds (Series A to E and so forth) and in many instances bailouts and “stimulus packages’ ‘. Once you are in you are in.
This raising funding does not necessarily have to be from Venture Funds. South Africa is blessed with various institutional funding that can fund a business from ideation to commercialization, albeit difficult to manoeuvre. From National Youth Development Agency (NYDA), Small Enterprise Finance Agency (SEFA), National Empowerment Fund(NEF) to the Industrial Development Corporation(IDC), these entities are disbursing funds on a weekly basis to those that showed enough duty to make it to the proverbial approval committees, i.e. finish line.
It’s also important to note that by international standards, Western startup entrepreneurs raise about USD500,000(equivalent to approximately R9,500,000) to test out a new idea at seed stage. In South Africa you are lucky if you can get R500,000 for testing a similar idea, in the same market, competing for the same market and skill. Most startups that make it to raising the first rounds are doomed to fail due to this limited runway. It’s important for funding institutes to realise the need to close this gap and increase the runaway required through patient capital. Mabogo jokingly says “Some ideas are like macadamia nuts; they need time to “cook properly”.
At the end of the day raising funds is a difficult and draining process that requires transformation from both sides. It’s a rite of passage that requires grit and certain level headedness. Those who figure it out are able to do it over and over again. It’s important to remember that at the end of the day the process is about convincing human beings like you and me sitting on the other side of the table that “if you give me money, I will be able to pay you back”.
Another pitfall for startup entrepreneurs is creating products that nobody wants. Mabogo says “if you want to create a product that will get the most adoption go to the bottom of the pyramid and solve one of the problems there”. The bottom of the pyramid (Maslow’s hierarchy of needs) is a psychology theory that outlines a five-tier model of human needs such as physiological needs, safety, social belonging, resources, health, and property. In the South African context, this truly an uncontested market space full of problems to solve. He laments that “I still can’t get fresh fruits from Venda to Cape Town at an affordable price. Somebody needs to solve that and people will pay for it”. It is also an easier battle in South Africa for an entrepreneur to raise funding on projects that promotes social redress and inclusive innovation than an “App idea to fund the cheapest gourmet burger in town”.
Mabogo leads a full-fledged talented team of engineers, developers, and support staff at Quickloc8 conceptualising the next version of products for the taxi industry. They rolled out its first version of a taxi management App in 2018 and ever since then has won numerous awards, including 2018 Most Innovative business in the Western Cape. The company experienced difficult challenges during the covid-19 lockdown but showed resilience and bounced back to win the 2022 Employment Creator of the Year. “We learnt a lot during that period, and we innovated forward through the recent launch of TAXICAM, an AI Camera that is aimed at increasing revenue for taxi owners and improve safety for commuters and drivers”. The rollout of the TAXICAM has been capital intensive however it’s a necessary step for us to rollout the next 2-3 products we have in our road map. “Its important to always be 2-3 steps ahead” Mabogo says.
Government must create a Sandbox approach
The prevalent departmental delays, backlogs, and frequent system downtimes have become a familiar experience for most South Africans, affecting the timely delivery of services. Despite this acknowledged reality, the existing “no unsolicited projects” procurement process across various departments hinders startup entrepreneurs from presenting innovative solutions. There is a need for the government to initiate a sandbox approach, creating a space where startup individuals or teams can freely explore new ideas, products, or strategies in a controlled and risk-free environment before scaling them up, especially if they solve a societal need.
Punish indecisiveness and reward good decision making – It is imperative for the government to take decisive measures against individuals appointed to decision-making roles who exhibit indecisiveness. There is a significant issue of returning millions of unused and uncommitted funds to the National Treasury, even as entrepreneurs actively seek funding through various programs. Mabogo says “In the realm of indecision, the cost of inaction often outweighs the risks of making a wrong choice”.
Access to patient capital is one of the biggest challenges faced by young entrepreneurs. Corporate South Africa is sitting on Billions (Trillions for banks) and needs to be compelled to show patriotism and invest in the creation and new entrepreneurs to address the levels of unemployment, specifically among youth.
South African entrepreneurs exemplify inherent resilience and diligence, requiring no external motivation for hard work as the spectre of poverty already serves as a powerful driving force. What they truly deserve is an equitable opportunity comparable to their Western counterparts, both in terms of securing funding and time to discover the right product-market fit. A crucial element is injecting more capital into the startup ecosystem, marked by a departure from conventional venture fund greed. Additionally, government decision-makers ought to take pride in consistently making sound decisions aligned with their designated roles to reduce the annual unspent funds that should have gone to igniting entrepreneurship.
