The UCT Centre for Innovation and Entrepreneurship

December 2008

Prepared by : M.D. Herrington

The Graduate School of Business, University of Cape Town, Breakwater Campus, Portswood Road, Green Point 8001 Private Bag, Rondebosch, 7701 (t) +27 21 406 1177, (f) +27 21 406 1456, Cell: 082 2911 365 (e) [email protected],

1.

GENERAL OVERVIEW 1.1

Background The UCT Centre for Innovation and Entrepreneurship (CIE) at the Graduate School of Business (GSB) has been operating for eight years since its inception in February 2001. The focus of the Centre is organised around three distinct and mutually interrelated set of activities:   

Teaching and material development Research, and Business creation and development

However, the core focus of the Centre is on the delivery of quality entrepreneurship education to all levels of society encompassing both post-graduates and school leavers. The philosophy is that for entrepreneurship education to be effective, it must be practical. Students, therefore, have meaningful interactions with entrepreneurs, are involved in actual entrepreneurial projects, work in multi-disciplinary project teams and are evaluated by entrepreneurs and investors as well as by academic staff. The courses delivered by the Centre are closely integrated with business creation and development in the local business and investment communities. Why teach entrepreneurship? Entrepreneurship lies behind the development and start-up of SMMEs. It is a widely accepted phenomenon that SMMEs provide the majority of new jobs worldwide and are vital to the continuing growth and success of any economy. In South Africa, SMME development is of critical importance as it helps to create jobs thereby reducing unemployment and contributing significantly towards the reduction of abnormally high levels of crime. Entrepreneurs constantly revolutionise our economy and help make a better life for all those participating. In fact, entrepreneurship is the key driver and has become more important in recent years. Michael S. Malone, in a Wall Street journal article titled “The next American frontier” put it best. “Half of all new college graduates now believe that self-employment is more secure than a full-time job. Today, 80% of all colleges and universities in the US now offer courses on entrepreneurship…it waits out there for each of us. Being good entrepreneurs, its time to look ahead, develop a good plan and bet everything on ourselves”. The CIE has been particularly successful in this regard in that in 2006 and 2008 the Financial Mail Report showed that entrepreneurship at the UCT Business School was again one of the three subjects in which it was rated first against all other Institutions. The CIE is now regarded as the most effective institution in entrepreneurship in South Africa and is becoming increasingly important as one of the main authorities of SMME development in the country.

-2The activities of the Centre are illustrated in Figure 1. UCT Centre for Innovation and Entrepreneurship Teaching & material development • Postgraduate - Planning New Ventures - Project Planning - Technology Entrepreneurship to MBAs Management Studies & Corporate Learning • Undergraduate - New Venture Projects • School Leavers - Raymond Ackerman Academy

Research Establishing the GSB as the leading centre in South Africa for entrepreneurship research • Global Entrepreneurship Monitor (GEM) • Commissioned research • SMME research

Business Creation & development Increasing the number & quality of GSB-related startups • SSACI - Small business development • IFC - Social orientated companies & entrepreneurs • Hi-tech Business support

Other Faculties • Engineering • M & CB

“Our goal is to enhance innovative & entrepreneurial capacity in South African business”

1.2

Funding Funding support for the activities during 2008 was obtained from a number of generous and socially responsible donors many of whom have been involved with the progress of the Centre since its inception 8 years ago. 1.2.1

Global Entrepreneurship Monitor 2008 (GEM): The South African Breweries, Standard Bank of South Africa, the Swiss South Africa Co-operation Initiative (SSACI), Small Enterprise Development Agency (SEDA) and the Department of Trade and Industry.

1.2.2

Small Business Development Unit (SBD) The Swiss South African Co-operation Initiative (SSACI), and the Grassroots Business Initiative (GBI) of the International Finance Corporation.

1.2.3

The Raymond Ackerman Academy of Entrepreneurial Development: Funds were received from a generous grant from the Ackerman Foundation and personally from Mrs Wendy Ackerman and Mr Raymond Ackerman. Sponsorship was also obtained from the City of Cape Town.

1.2.4

The Social Enterprise Development Unit: Funding was received from the Grassroots Business Initiative (GBI) of the International Finance Corporation (IFC) in the form of support money to enable the CIE to help socially-orientated businesses within the Cape metropole and one organisation in Swaziland.

-3-

1.3

Staffing The staffing structure of the CIE varies considerably depending upon the circumstances and funds available. During 2008 there were seven “contract” salaried members of staff with others being contracted in to complete specific and agreed tasks in more of a consultative capacity than as “full-time” staff members. This model has been adopted and used since the inception of the CIE in order to best utilise the limited financial resources available. The CIE makes use of a variety of entrepreneurs, consultants, financial investors and faculty to assist in the delivery of the various programmes so as to simulate as close as possible “real world” situations and scenario’s. All of these people contribute their time at no charge and make a significant difference to the increased quality of the various programmes.

-4-

2.

ACTIVITIES DURING 2008 2.1

Entrepreneurial Development Programmes In line with the overall strategy of the Graduate School of Business, the CIE focuses a large part of its activities in putting together programmes which will assist in the training and development of South African entrepreneurs. This is done through meaningful interactions with entrepreneurs and students involving them in actual entrepreneurial projects which provide a hands-on and experiential learning process. The purpose is to encourage people of all races and gender to start their own businesses thereby providing much needed employment in the new South Africa. The most unique aspect of the programme is the holistic approach it has to teaching. The curriculum covers all aspects of business critical to an entrepreneur, such as accounting, finance, law, management, sales and marketing to name just a few. Because many new ventures include, and are often started by non-business people, the approach is to create a collaborative classroom environment with students contributing different talents to the entrepreneurial table. They learn how to identify opportunities, make a plan, launch a venture, grow a business and harvest it. In 2001, the CIE started off directing its efforts towards post-graduate MBA programmes. However, it’s teachings have now been expanded to include five levels of academic endeavour: 2.1.1

MBA Programmes Elective courses are offered to both modular and full-time MBA students in Planning New Ventures. This programme, which is the most popular elective course on the MBA is very practical and experiential in approach and satisfies the changing needs of the South African business environment and the desire of many MBA students to move from the corporate world into starting their own business.

2.1.2

Corporate Learning Programmes A series of modular Project Planning courses with middle and senior management was conducted through the Corporate Learning Programme. The organisations involved during 2008 included;   

AngloGold Ashanti MDP Programme AngloGold Ashanti IMDP Programme Post-graduate Diploma in Retail Management

The AngloGold Ashanti projects revolved around either cost savings or efficiency improvement and in some cases socially orientated ventures closely linked with the operations and mission of AGA. In the case of retail management, the delegates were required to develop forward scenario plans for their organisations which they then presented to management.

-5-

2.1.3

Under-graduates The programme to introduce entrepreneurship to final year under-graduate and post-graduate students on the main campus of UCT continues. Planning New Venture courses were conducted for a number of Faculties and departments all based on the experiential approach in which students are required to work on specific ”live” projects and ultimately prepare a feasibility plan for presentation to members of faculty or outside observers.

2.1.4

SMME Development Programmes Since the inception of the CIE in February 2001 research, particularly the work done by the Global Entrepreneurship Monitor, has shown a number of common training requirements for small businesses. These are; 

Very low sales by small enterprises to government and large businesses owing to unfamiliarity with the tendering processes.



Low levels of expertise amongst small entrepreneurs in marketing, accounting, operational and human resources management, and



The inability of small businesses to enter the value chains of large corporations owing to their “invisibility” to procurement managers.

The CIE believes that it is vitally important to empower small business owners and managers with the tools necessary to run a successful business. To this end, the CIE offered a variety of short courses specifically designed to assist entrepreneurs in developing their basic business skills. These courses included topics such as basic administration and finance, operations, marketing and strategy. A further set of higher level master classes were also offered which included topics such as tendering, HR management, selling and marketing, strategy, accounting and differentiating your small business. All were exceptionally well attended and have proved to be immensely popular. A list of the courses offered, dates conducted and number of attendees is shown below in table 1.

-6Table 1: Short Courses offered by the CIE during 2008 Course

Dates

Accounting I Accounting II Marketing Operations Accounting I Accounting II Marketing Operations Accounting I Accounting II Marketing Operations Accounting Masterclass Human Resources Masterclass Super Selling Masterclass Strategy Masterclass Differentiate your Business Accounting Masterclass Human Resources Masterclass Super Selling Masterclass Strategy Masterclass Differentiate your Business Tendering Workshop Tendering Workshop Small Business Linkages Event

2.1.5

11 February 25 February 1 April 13 June 14 April 5 May 9 June 16 July 4 August 18 August 8 September 5 September 17-18 June 12 March 9 May 2 June 28 May 18-19 November 13 October 31 October 27 October 13 August 7-9 April 16-18 September 15 May

Lectures Jacqui Kew Jacqui Kew Tonia Overmeyer Mike Herrington Jacqui Kew Jacqui Kew Tonia Overmeyer Mike Herrington Jacqui Kew Jacqui Kew Tonia Overmeyer Mike Herrington Jacqui Kew Heike Evans Mike Herrington Len Deacon Tonia Overmeyer Jacqui Kew Heike Evans Mike Herrington Len Deacon Tonia Overmeyer Ricardo Persens Ricardo Persens Sithembiso Ntombela

No of Attendees 29 28 29 29 46 30 39 38 50 45 42 Cancelled 11 46 51 28 41 45 39 48 46 32 31 60 35

The Raymond Ackerman Academy of Entrepreneurial Development (RAA) The RAA in the Western Cape was started in February 2005 funded by a generous grant from the Ackerman Foundation. The goal of the Academy is to take school leavers primarily, but not necessarily, from previously disadvantaged communities and to encourage a spirit of entrepreneurship as a means to personal development and job creation in the South African context. Graduated students have a variety of opportunities open to them when they leave the Academy. They are assisted by members of staff of the Academy and generally seek the following alternatives:    

To find gainful employment To enter into an internship with a local company To carry on for further studies, or To start their own business

The graduated students are surveyed every six months via telephone interviews and are asked to indicated their current status. Table 2 below reflects the results of this survey. Many graduates perform more than one activity (such as work and study at the same time) and this the total may exceed the number of graduates. To date the results of the Academy have been remarkable in that over 66% of all students enrolled and who graduated have either started their own businesses or found full-time employment.

-7Table 2: Survey study of the activities of RAA graduates Class

January ‘05 June ‘05 January ‘06 January ‘07 January ‘08 June ‘08 TOTAL

Student s

25 32 44 48 23 32 204

Worki ng

Furthe r study

Further study

20 18 14 20 15

3 1 6 7 2

(prepari ng) 0 0 0 1 8

87

19

9

Own Busines s

Own Business (Preparing)

1 5 4 0 2

0 1 2 3 8 Still to Graduate 12 14

Job Hunti ng

Non Contactable

Nothi ng

0 0 1 7 6

1 7 4 4 2

1 0 1 1 0

14

18

3

The Academy is closely integrated with other activities within the CIE which all compliment and support one another. For example, the RAA students are able to benefit from; 

loan finance for starting their own business available via the Small Business Development Programme.



Internships obtained via MBA Alumni, and



Additional short courses offered by the CIE.

A newsletter for the Academy is shown in Appendix 1.

-8-

2.2

Research In line with the mission of the CIE, research has mainly revolved around start-ups, new venture creation and SMME development within South Africa. 2.2.1

GEM 2008 South African study During 2008, the CIE took a “gap” year with the traditional GEM cycle and did not participate in the Adult Population Survey (APS) or the Key Informant study. A decision was taken to still publish a GEM report, but to rather use the money required for the APS to conduct a comprehensive study into the youth of South Africa. The purpose of the study was to ascertain why the youth in this country are less entrepreneurial than their equivalent counterparts in other developing countries. A comprehensive questionnaire was developed in conjunction with a number of role-players and was piloted in the Western Cape. This was followed by an intensive face-to-face interview process in which 1000 interviews were conducted in the Western Cape, 500 in Gauteng and 500 in KwaZulu Natal. The reason why these three provinces were chosen is that according to past GEM reports these provinces are the most entrepreneurial and hence are probably the best ones to initially look at. In 2008 the CIE returned to the GEM cycle in which the Adult Population Survey (APS) was conducted by Nielsen and Company involving face-to-face interviews with over 3000 people of all races aged between 18 and 65 years in both rural and urban areas. Thirty-six Key Informant interviews were conducted representing nine different areas in South Africa. In addition to the standard GEM information the 2008 South African report will be based upon ICT usage amongst SMMEs in four sectors of the South African economy namely construction, manufacturing, services and trade. This survey was done in close co-operation with the Small Enterprise Development Agency (SEDA) and Systems Application Products (Africa) (Pty) Ltd (SAP), both organisations of which assisted in the preparation and design of the questionnaire. The initial questionnaire was piloted in December 2007 with 41 SMMEs obtained from the database of SEDA in the Western Cape. The questionnaire was modified and re-designed and interviews were conducted by trained interviewers in all nine provinces during the period from April to July 2008. 2063 were completed and submitted to the CIE of which 1964 were accepted and 99 rejected. The interviews were conducted by 74 trained interviewers and involved face-to-face discussions in which 61 questions were asked. It is anticipated that the first draft of the GEM 2008 South African report will be completed by the end of December 2008 in order to meet the deadline for the launch by mid/end February 2009.

2.2.2

Status of Youth Report A comprehensive study was conducted on the status of youth in the Western Cape. This report was commissioned by the Western Cape Youth Commission and involved and intensive fact finding study to provide an overview of existing literature on research and data conducted on youth

-9-

within the Western Cape. The emphasis was to scan all existing data and it was not the intention to critically discuss the data, but rather to show the richness of existing data and sources in the field of youth. Work was conducted in the following topics;     

Youth and well-being Youth economic participation and empowerment Youth mobilisations, capacity building and advocacy Youth education and training, and Youth justice and safety

The second part of the report involved a comprehensive survey involving a piloted questionnaire on over 2000 young people in three provinces of South Africa to ascertain why they are less entrepreneurial than their equivalent counterparts in other developing countries. A copy of this report can be found on the CIE website www.gsb.uct.ac.za/cie/ 2.2.3

BRICS report on the of ICT by SMMEs A pilot study was conducted to get a snap-shot understanding of the use of ICT by SMMEs in Brazil, Russia, India, China and South Africa (BRICS countries). As mentioned previously, a questionnaire was developed by the CIE in collaboration with SAP and piloted in December 2007 with 41 SMMEs in the Western Cape. A copy of the report can be obtained from the CIE website and a paper entitled “The extent of ICT usage by SMMEs in emerging economies – results from a pilot study from SMMEs in Brazil, Russia, India, China and South Africa” has been submitted to the journal of Information Technology for Development.

-10-

2.3 Business Development Central to the activities of the CIE and closely linked to both teaching and research, are the various business creation and development support programmes which have included; 

The Small Business Development (SBD) Programme, and



The International Finance Corporation (IFC) Social Enterprise Development Programme of the Grassroots Business Initiative (GBI).

The various initiatives have been very successful and proved to be popular with the entrepreneurs concerned. 2.3.1

The Small Business Development Programme 2.3.1.1

Small business linkages: The second business linkages event for SMME entrepreneurs was held on Thursday 15th May 2008 and was extremely well attended by 35 business entrepreneurs who displayed their products and services. A variety of 7 service providers also attended which enabled them to communicate directly with the different entrepreneurs. Many of the entrepreneurs got together to exchange ideas and talk about joint marketing initiatives. Guest speakers at the event included:  John Peters – SEDA  Anthony Daniels – CEO Western Cape Youth Commission  Nicky Petersen – Small Business Week  Mr Raymond Ackerman – Pick n Pay A newsletter of the event is attached (Appendix 2).

2.3.1.2

Small business initiatives: The CIE has been operating a Small Business Development initiative since April 2001 which has been supported over the years by the Western Cape Provincial Administration and the Swiss South African Co-operation Initiative. Both organisations have provided loan funding for entrepreneurs who have come from previously disadvantaged communities and who, for a variety of reasons, would not be eligible for funding from conventional financial institutions. Since inception, the CIE has identified approximately 90 micro and small businesses owned and operated by young entrepreneurs within the greater Cape Town Metropole who have the potential for development and expansion. Loans of up to R50 000 have been granted following due diligence by an experienced mentor. The participating businesses have been assisted, where possible, through the CIE’s network of alumni and business contacts. The businesses funded during the period 2006 to 2008 are detailed below.

-11-

Company

Entrepreneur

Date Joined

Initial Sales

October 08 Sales

%Change

Bulumko Cosmetics

Vivian Stuurman

May 2004

R

30 110

R

44 300

47%

Alex IT Solutions

Jerry Igwilo

Jun 2004

R

11 000

Not Trading

0%

Dakile Telecommunications

Nolubabalo Rubela

Feb 2005

R

42 000

R

78 000

86%

Active Chicks

Bella Jama

May 2005

R

15 000

R

22 000

47%

Delightful Chickens

Teddy Naidoo

Aug 2005

R 186 000

Not Trading

0%

All for Trading

Andre Daniels

Sept 2008

R

31 000

R

28 000

-10%

Ntsikelelo Mngnt Services

Sibongile Mahlangu

Apr 2007

R

23 000

R

75 600

229%

Tiger Design

Kurt Camphor

May 2006

Federal Bins Inc

Fuaad Rehman

Jun 2006

R

10 900

R

92 000

744%

Ntsikelelo African Gardens

Ntsikelelo Gum

July 2007

R

1 250

R

4 500

260%

Doggie Tail Parlour

Chantel Fourie

Dec 2006

R

450

R

870

93%

Silulo Ulutho Communications

Luvuyo Rani

Aug 2006

R

29 000

R 120 000

314%

StopNonsense cc

Loyiso Ndabeni

Dec 2006

R

7 000

R

10 500

50%

The Letter Press Co

Anton Visser

Jan 2008

R

46 907

R

89 367

91%

Ezulwini Chocolat

Nontwenhle Mchunu

Nov 2007

R

4 800

R

9 600

100%

Val-u- Flavours

Rurik McKenzie

Jun 2008

R1 284 390

R1 443 176

12%

DHM Hair & Beauty

Denver Mally

Jan 2008

R

R

11%

2.3.2

Nil

28 000

Not Trading

31 000

Social Enterprise Development The Grassroots Business Initiative (GBI) of the IFC has financially supported the CIE to enable it to provide a comprehensive package of training, intensive mentoring and business development services to social enterprises in marginalised communities in the Cape Metropole area and in Swaziland. This programme started in May 2005 and continued to the end of March 2008 when it was thought that no further value could be obtained by the various businesses and it was agreed with the GBI that the programme would be phased out. In addition, the GBI initiative at the IFC was also being terminated and new organisation independent of the World Bank to be started by Mr Harold Rosen funded partially by the World Bank, but also by other independent donors. Every month, a report on the activities of each organisation was prepared by the mentor and forwarded to the GBI. The information reported included detailing sales, number of employees, salaries and wages paid per month per organisation. An internal assessment was done on the success of the programme by analysing the average sales over a two month period when the company joined the programme and comparing this with their average two months sales when they left or the February and March sales of 2008.

-12-

Organisation Wola Nani Streetwires African Art Factory FreeCom Community Creations Kunye InTuition Gone Rural Mielie Fashions Black Umbrellas H&L Mailing People’s Network MonkeyBiz BEN

Date joined May ‘05 July ‘05 July ‘05 Jan ‘06 March ‘06 May ‘06 Aug ‘06 Nov ‘06 Jan ‘07 March ‘07 May ‘07 May ‘07 Sept ‘07 Sept ‘07

Date Left

Months

n/a n/a Feb ‘07 July ‘06 Oct ‘06 n/a Feb ‘07 n/a n/a June ‘07 Nov ‘07 n/a n/a n/a

36 33 14 7 7 23 20 17 15 4 7 11 7 7

Starting

Average Sales Current Change %

R133 641 R 62 376 (53,3%) R260 251 R371 780 42.9% R 31 500 R 98 100 211.4% R579 500 R650 938 12.3% R 31 544 R 32 432 2,8% R 21 606 R 57 768 167,4% R267 694 R443 324 65,6% R210 963 R292 367 38,6% R137 502 R216 410 57,4% Insufficient information R634 561 R812 165 28,0% R 46 268 R155 642 236,4% R423 946 R294 706 (30,5%) R395 949 R271 344 (31,5%)

Almost 80% of the companies participating showed a significant growth in sales. Three companies showed a decrease which could be due to seasonality in sales during the first few months of the year. 2.3.3

Inter-relationships The CIE has been structured and planned in such a way that no single unit stands in isolation. There is an interlinked relationship between training and teaching, funding, research and mentoring between MBA students and the Raymond Ackerman Academy of Entrepreneurial Development, the Small Business Development Programme and the Grassroots Business Initiative. This inter-relationship is illustrated in the figure below: SMALL BUSINESS MODEL

Training

Raymond Ackerman Academy

RAA training

Small Business Development

Short courses Basic business Master class Tendering

Grassroots Business Initiative

Short courses Basic business Master class Tendering

Funding

Loan finance Equity finance UYF

Loan finance

Loan finance

Mentoring

MBA graduates Legal aid

MBA graduates Exp mentors

Experienced mentors

-13-

2.4 Collaboration Initiatives During 2008 the CIE concentrated on establishing a number of collaborative initiatives with various universities and organisations to help improve its standing both in the local and international entrepreneurship communities. 2.4.1

Emory University and the NRF In September 2008 the Graduate School of Business hosted a workshop sponsored by the National Research Foundation and run by members of faculty from the Goizueta Business School of Emory University in Atlanta to assist 41 finalists in the bio-technology field to write a business plan for potential funding.

2.4.2

UCT Innovations A three day workshop was held for UCT Innovations in July which was attended by approximately 50 post-graduate students and members of faculty from a number of departments at the University of Cape Town including delegates from Molecular & Cell Biology, Computer Science, Engineering, Life Sciences and the Arts. The purpose of the workshop was to assist delegates to prepare a business plan for submission to the Innovation Competition run by the National Research Foundation.

2.4.3

Collaboration with Brown University & North Carolina State University A collaborative programme was started with Brown University and North Carolina State University with funding obtained from the Goldman Sachs 10 000 Women Programme. An introductory programme was conducted in May and three modules of the pilot 1 programme conducted with 9 groups of scientists from the University of Cape Town and the University of Stellenbosch in October and November.

2.4.4

Small Enterprise Development Agency A series of seminars were held with consultants from the Western Cape offices of SEDA to assist in their training for assessing business plans submitted by their clients.

-14-

2.5

Other activities 2.5.1.

Publicity Considerable media publicity was obtained for all activities of the CIE. Copies of articles are shown in Appendix 3.

2.5.2

Research supervision Mike Herrington is currently supervising Mr Colin Reddy who is a PhD candidate in his thesis entitled “Using and individual-opportunity nexus framework to investigate the influence of preferential policy on African entrepreneurship in post-apartheid South Africa”.