Exploring small business owners’ perceptions of the factors required to achieve business success
By MBA student Henem van Staden (supervisor: Dr Marietjie Theron-Wepener)
What this study is about
What do small business owners, who have graduated from USB’s SBA Development Programme, regard as important to achieve business success? This study showed that for small business owners from lower-income areas it is not all about turnover, revenue growth and employee numbers.
This research focused on gaining a deeper understanding of the financial and non-financial factors that these small business owners regard as important to achieve business success.
Previous research identified various financial and non-financial factors contributing to business success. Many experts take an external view, looking at quantitative variables such as turnover, revenue growth and employee numbers to assess business success.
This study, however, revealed that small business owners who had attended a development programme have a wide variety of perceptions about the factors required to achieve business success. According to them, these include reliable and affordable employees, customer service, a unique business identity, ongoing mentoring combined with business support services, the effect of inflation, the relevance of a business plan and the need to have recognised business premises.
Globally and also in South Africa, small, medium and micro-enterprises (SMMEs) represent the majority of private businesses. Their success contributes to economic growth and the upliftment of society, addresses inequalities, and reduces unemployment and poverty. The 2030 South African National Development Plan (SANDP) aims to create 11 million new employment opportunities, 90% of which are expected to be created within the SMME economy.
In South Africa, various private and academic institutions have developed programmes to educate, train, mentor and coach SMME entrepreneurs. Yet, too many SMMEs still fail. These businesses do not bridge the divide between the existence-survival and success-maturity stage. Traditionally, business growth was measured by annual sales and number of employees, while “value added, number of locations, complexity of product line and rate of change in products or production technology” were ignored. However, these measures may not apply in the context of small businesses located in lower-income suburbs such as Khayelitsha and Mitchells Plain in Cape Town.
While the South African government seeks economic growth and increased employment through SMMEs, small business owners from lower-income communities face unique complexities combined with financial and human resource challenges. Many small businesses remain informal and unregistered with authorities such as CIPC and SARS.
UNDERTAKING A LITERATURE REVIEW TO GAIN A BETTER UNDERSTANDING OF BUSINESS SUCCESS FOR SMMES
Through the literature review, the characteristics and the contextual and relational factors required for business success among formal and informal small businesses in developed and developing countries were highlighted.
The literature review looked at measures of success in small businesses. These measures range from the traditional use of quantitative financial measures (turnover, profit, efficiency and business size, etc.) to business performance measures such as productivity, competitiveness, profitability, and increased sales, assets and employees.
Various global and local studies have found that education and training of small business owners was crucial for sustained business development and growth.
ABOUT USB’S SMALL BUSINESS ACADEMY AND ITS SBA DEVELOPMENT PROGRAMME
Launched in 2013, the USB Small Business Academy (SBA) offers a nine-month Development Programme which includes training, development, support and mentoring to aid small business owners from lower-income communities in the Western and Eastern Cape. After successful completion of the programme, small business owners graduate with an NQF level 5 certificate from Stellenbosch University. Programme fees are covered through corporate sponsorship.
There are specific admission requirements. Among others, the small business owners who apply to join the programme must be 25 years of age or older; hold a matric certificate; have a functioning business of at least two years old with no more than 15 employees and a maximum turnover of R1,500,000; show willingness to expand their business; and have computer access.
The programme includes five weeks of on-campus training, 12 hours of mentoring, and attendance of two practical workshops. During this period, each student submits a business essentials, marketing and finance assignment culminating in the submission of a business plan presented to the academic panel. The initiative develops small business owners’ skills and knowledge in the fields of marketing, finance, management and technology.
In this qualitative study, semi-structured interviews were conducted with a non-probability self-selected sample of seven small business owners from Khayelitsha and Mitchells Plain who graduated from the USB SBA Development Programme between 2014 and 2016, and whose businesses were still operational in 2017. The interviews were analysed using thematic content analysis to extract themes. The impact of the SBA Development Programme and a deeper understanding of perceptions about financial and non-financial factors required to achieve business success should ideally be measured after completion and graduation.
WHAT DID THE STUDY FIND?
The findings of the content analysis were used to compile demographic profiles and identify characteristics of small business owners. These findings revealed perceived concepts related to the financial and non-financial factors required to achieve business success. Based on the participants’ feedback, they regarded the following factors as important to achieve business success:
- Perceived financial factors required for business success: the impact of inflation on input costs and disposable income, business plan, access to finance
- Perceived non-financial factors required for business success: human capital and staff recruitment, time management, business support services (specifically mentoring), customer services, a unique business identity.
THE DEMOGRAPHIC PROFILES OF THE SMALL BUSINESS OWNERS
The researcher compiled a basic profile of small business owners participating in this study:
- Gender: 71% female and 29% male
- Key age groups: 43% in age group 35-40; 43% in age group 40-45; 4% in age group 45-50
- Education: 71% have matric; 71% have complete studies after school
- Online capabilities: 100% owned a PC or laptop and cell phone; 86% had basic computer literacy; 86% had internet access; 29% had websites for the businesses
- Formally registered businesses: 86%
- Home-based businesses: 57%
- Rented business premises: 43%
The SME sectors represented were personal services (43%), manufacturing (29%), business services (14%), wholesale and retail trade (14%).
SMALL BUSINESS OWNER CHARACTERISTICS
The key characteristics identified included passion for what they do and believe in, a need for independence, community concern, dedication, determination, integrity, entrepreneurial spirit, the ability to identify an opportunity and the need for work-life balance.
Significantly, none of the participants interviewed explicitly mentioned that they perceived age, gender, owner education levels, business experience or years in business as factors required to achieve business success. Although not implicitly stated by the participants, it can be argued that their enrolment in the SBA programme indicates an awareness of the value of further learning.
All the participants reported how personal life incidents combined with a specific interest or passion encouraged them to become small business owners, although none had tested the viability of their business concept before starting their ventures.
PERCEPTIONS: FINANCIAL FACTORS
Key findings of perceived financial factors required to achieve business success included concepts related to inflation, the business plan and access to finance. These findings are discussed below.
- Inflation: All the participants (100%) said they needed lower inflation to achieve business success. They noted with concern that the rising inflation rate negatively affected input costs such as fuel, electricity and raw materials. They also noted that inflation affected the disposable income of customers. In turn, this made customers more price conscious, leading to declining sales. This suggests that small business owners need to be conscious of the alternative product, price and customer offerings of competitors so that they can implement differentiating strategies to remain competitive and retain market share.
- Business plan: Of the participants interviewed, 71% regarded their business plan as an important factor for business success. Although participants revisited their business plans at different time intervals, they admitted that it was an important tool to guide their businesses. The findings suggest that small business owners who revisit their business plans on a weekly basis remained more focused, agile and motivated.
- Access to finance: All the participants (100%) indicated that access to finance for expansion and growth was a factor required to achieve business success while 57% indicated that they required funding to relocate their home-based businesses to business premises. These participants recognised that visible business premises in high-traffic areas represented business growth, increased brand awareness and work-life balance opportunities. Although this study did not aim to explore if and why small business owners struggled to get finance, the findings implied that small business owners had inadequate collateral or insufficient cash flow to fund a complete business relocation project. Findings in the present study suggest that small business owners have not integrated their funding needs as milestone targets in their business plans. It can be argued that they need guidance on how to become investment ready, as well as to make decisions regarding medium and long-term business objectives.
PERCEPTIONS: NON-FINANCIAL FACTORS
The key findings of the perceived non-financial factors required to achieve business success included concepts related to human capital, time management, business support services, customer service and business identity. These findings are discussed below.
- Human capital: All seven participants (100%) stated that human capital was important for business success. The participants reported that they struggled to find reliable, committed, mature, experienced and affordable employees. According to the participants, younger generations lacked perseverance. Absenteeism, late arrivals due to transport problems, a sense of self-entitlement and an unwillingness by staff to learn more of the business negatively affected trust levels between small business owners and their employees. Although this study did not explore the reasons behind these factors, this may imply that staff are not committed because they do not know what the business strategy is or that small business owners are reluctant to share their business strategy because they fear reprisal in the form of start-ups by over-ambitious staff.
- Time management: All seven participants (100%) said time management was important for business success. The small business owners thought the lack of skilled and reliable staff to take over certain daily functions negatively impacted their ability to attend to marketing and business growth, network pro-actively, research new opportunities, develop alternative business plans, and acquire further education and training through workshops and other initiatives. It is often difficult for owner-managers to attend development programmes and workshops since they have to attend to business and personal obligations. The participants in this study were aware that they should work on the business and not in it, but time management combined with a small staff complement were challenges they struggled to overcome. This suggests a need for business support services to address those areas that require time and specific skill sets.
- Business support services: All the participants (100%) stated that ongoing business support services were required to achieve business success. In particular, they needed business mentoring and assistance with strategic management decisions related to marketing, finance and human capital. Other needs included IT infrastructure and digital technology set-up, and assistance with final preparation and sign-off of annual financial statements and tax returns. Some participants reported that despite attempts made to acquire accounting services, the response rate from service providers was disappointingly low. This suggests that service providers may be deterred by the location and distance to travel to provide services, or they perceive small business owners in lower-income areas as non-lucrative business propositions. All the participants said they were reluctant to contact SBA mentors after graduation because they did not want to impose on them. This suggests that the viability of business mentoring after graduation as a paid-for service could be investigated.
- Customer service: All the participants (100%) regarded customer service as key to achieving business success. Participants associated the following with customer service: integrity, creating a unique and memorable customer experience, genuine connecting and communicating with clients, building and maintaining relationships, product knowledge, prompt response to enquiries and resolving issues raised by dissatisfied customers.
- Business identity: An unexpected finding, not explicitly found in literature, was that 57% of the participants regarded a unique business name as a factor required to achieve business success. According to the participants, a unique business name aided the formal registration process. A unique business name that was representative of the business vision, mission and strategy also provided differentiation in their communities where first or last names are traditionally used. This suggests that small business owners are well aware of brand identity.
PERCEPTIONS: SBA DEVELOPMENT PROGRAMME
Originally, the participants wanted to attend the SBA Development Programme to acquire managerial and business knowledge and skills, while mentoring and networking were perceived to be additional advantages that would contribute towards self-empowerment and personal development. The participants also believed that marketing, finance, HR and computer skills, as well as an understanding of business trends, structuring and systems were needed to attain vision, growth and sustainable wealth. The association with Stellenbosch University and USB provided credibility and a great sense of pride among participants.
The participants (100%) agreed that participation in the SBA Development Programme had positively contributed towards their business and personal development. All the participants (100%) said that their levels of self-confidence and self-empowerment had increased and that they had become more open to challenges. They had become more involved with their businesses. In total, 71% acknowledged the value of their business plans, which they continued to revisit. All the participants valued the increased awareness and positive effects of marketing, branding, and exposure to traditional media and social media. Their financial management competency and the skill to calculate costs and price products had improved, while combining cost efficiency and excellent customer service resulted in profit and revenue growth. After attending the programme, 43% of the participants identified opportunities outside their immediate area where changing consumer demands created new spaces for their businesses to expand.
All the participants (100%) found the mentoring component extremely valuable in terms of achieving business success. Of concern was the perception of mentees that they felt they may be imposing on their mentor’s time when they needed help. All the small business owners said that they still needed mentoring to support them while they were implementing their new skills.
All the small business owners said that personal circumstances led them to seek alternative opportunities. This made them consider their local area to see what they could do. In many instances, life-style circumstances initiated this decision and, combined with passion, resulted in them starting their businesses.
Research has identified various financial and non-financial factors contributing to business success, typically turnover, revenue growth or employee numbers. This study, however, revealed that small business owners who attended a development programme have different perceptions about the factors required to achieve business success, such as reliable and affordable employees, customer service, unique business identity, ongoing mentoring combined with business support services, the effect of inflation, relevance of a business plan and the need to have recognised business premises.
All the participants mentioned the benefits of the business plan and specifically the business model canvas However, funding needs should be integrated in the form of milestones into the business model canvas to ensure that small business owners can adequately meet funding requirements when growth demands it.
This study found that small business owners need further mentoring after completing the SBA Development Programme. To improve the impact and benefits from concepts and theory taught on the SBA Development Programme it is suggested that the USB SBA and sponsors investigate ways to provide ongoing mentoring to these owners for at least one year.
Arguably, in future, the ability of SMMEs to achieve sustainable business success will require corporate social investment, incubators, and private and public development programmes combined with reliable data representative of the majority of SMMEs in South Africa.
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