While South African start-ups have the talent and drive to operate and compete in the global market, the failure rate of start-ups within their first year is truly staggering. The fundamental question therefore remains, what does it actually take to make it, asks DANIEL SCHWARTZKOPFF of DataProphet.
Daniel Schwartzkopff – Commercial Director and Co-Founder of Cape Town-based start-up and machine learning specialists, DataProphet – refers to the 2016 report, ‘The Small, Medium and Micro Enterprise Sector of South Africa’. Commissioned by the Small Enterprise Development Agency, the report highlights the growing concern related to risks that threaten the existence of SMMEs.
“This threat is supported by multiple reports and statements by leadership such as that of South African Minister of Trade and Industry, Rob Davies, who in 2013 noted that five out of seven new small businesses started in South Africa fail within their first year.”
“The Global Entrepreneurship Monitor (GEM) also found that the survival rate for start-ups is low and that opportunities for entrepreneurial activity appear to be at their lowest in developing countries.”
Schwartzkopff, who was just 19 years old when he first became involved in the establishing successful start-ups, notes there are a number of local and international hurdles entrepreneurs need to be prepared for on their journey.
His biggest piece of advice is to have a defined goal and a revenue strategy from day one.
“While selling the potential of your dream may open a door or two, having solid figures and a realistic plan to back it up will get you far further.”
He says, “Luckily, age is not as much of a barrier as it once was. There were times when young founders and directors would be quickly overlooked for their more experienced counterparts.”
“There has been a really positive shift in this regard, especially in the international start-up environment, where successful young business owners and entrepreneurs are recognised as being on top of their game and able to hold their own in a room full of clients or investors – sometimes double their age.”
If you have your sights set on entering the international playing field, Schwartzkopff – who spends part of his time in the US working with DataProphet’s Silicon Valley-based clientele – emphasises that the most difficult thing really is to get your foot in the door.
“Taking your start-up to a global level means that you have to make connections and get new clients from a region which may be completely new to you.”
“This is one of the hardest things you can do considering that this requires a permanent presence and a clear strategy of how to compete with existing competition who have already made a name for themselves – this takes time and can definitely not be rushed.”
“In addition, you need strong planning and networking skills as well as the ability to sell yourself, your business and the innovation which you are able to offer,” he says.
DataProphet, which was founded in 2013, recently entered into an investment partnership with one of the country’s top global investment and private equity groups – Yellowwoods Capital Holdings.
Schwartzkopff notes that, “Not only is this investment testament to the team’s hard work but it still allows us the freedom to do what we do best.”
He explains that while local tech start-ups are “up there” with the best in the world, it is difficult to find a potential investor and even more difficult to find the right one. “Spending a bit more time and effort to ensure the right fit however, is definitely worth it.”
“A priority for many upcoming start-ups, securing investment is often a source of frustration and worry. The landscape is limited in South Africa and it is easy to be tempted to accept your first offer,” Schwartzkopff explains.
He advises that entrepreneurs spend some time talking to others who have been in the same position and set out a clear vision of what is needed from an investor including their level of involvement in the day-to-day running of the business and their cultural fit with the organisation.
“Do your investors share your vision? Do they understand your business and your brand? Cultural fit should be a major deciding factor when considering an investor,” he says.