Successful entrepreneurship cannot be taught, it must come from the heart, Brian Joffe, Bidvest founder and CEO told the Anglo American Enterprise Development Conference in Midrand on Thursday.
He also rejected profit as the measure of business success.
He said he was privileged as a child to hear his parents discuss business and investment around the dining table. “That is the tragedy for many emerging black entrepreneurs – it has to come from home and they start off at a disadvantage,” he said.
One of the shortcomings in South Africa is its educational system. While he stands by his belief that entrepreneurship as such cannot be taught, he insists that would-be entrepreneurs need a good educational basis. It’s critical to be able to read and write, and do arithmetic, “before one can really get the skills needed to be a successful entrepreneur.”
Survival of the fittest
He said few corporate businesses survive longer than 15 years. “The cycle of change is rapid.” They have to deal with technology that changes faster than ever before and instantaneous flow of information and communication. “Now it takes 60 seconds or less for me to communicate with Warren Buffet in the United States – instantaneous.”
He believes the rate of failure will increase.
The competitive environment has changed and “everybody knows what everybody does,” he said.
Joffe criticised enterprise development and BEE programmes that provide risk-free capital. He said they fail to create as many entrepreneurs as they should, because very little risk is allocated together with the capital. Alternatively, South Africa should find a way for the money created through BEE programmes to be invested back into risk programmes, rather than passive investments.
Also, most people know how to manage a household budget, but don’t believe they know how to manage a business. They have “naughts panic”. “It is the same if there are more naughts.”
Profit is not success
He rejected the notion that profitability is a measure of business success. “In my opinion, that is only an accounting evaluation. What is more relevant is the effort that goes in and the return that comes out.” That is the return on shareholders money and interest bearing loans.
He suggests that before investing in a business one should ask these three questions:
- Do you have the skills to manage the business that you are getting involved in?
- Can you make a return?
- Can you motivate the people that you require to make that return?
In Bidvest, with 2 500 self-accounting and self-reporting business units, a target is set for return of fund employed (ROFE), rather than profit. It is determined also by how much effort is being put in, how efficient purchases are done and how long one can hang on to creditor payments, which is in effect interest-free financing.
He encouraged entrepreneurs to utilise creditor financing to the fullest and collect debtors as fast as possible. Suppliers should support developing enterprises in this regard. Although he warns this could bring about tension.
He added that entrepreneurship and management should not overlap. Entrepreneurs generally do not pay the necessary attention to detail. “They are messy, broad thinkers” who often need managers to clean after them.
Retired business people should also mentor entrepreneurs, even if it means such a mentor should be allocated equity and even if they are white. He believes that will help to reduce the rate of business failure, since business skills comes through experience, rather than universities. He also advocated that accountants during their articles should assist in enterprise development.
In his experience there is no shortage of capital for good ideas, but rather of people confident enough to come forward with their ideas. He said applicants should be encouraged to come forward not only because they are logical recipients of enterprise development programmes, but on merit, because they believe in themselves and in their ideas.
“We should not be promoting South Africa’s transformation purely on the basis of handouts,” he said. “There is a need for it, no doubt, but there are entrepreneurs in South Africa who don’t know that they are as good as they actually are.”
He says the emerging business community of South Africa underestimates its capability of its entrepreneurship. “Its history has bred entrepreneurship in it.”