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You are an employee of Growing Futures Foundation (GFF), an organisation that aids small businesses and invests in the development of young entrepreneurs. You have recently been nominated to head up a new South African small business development initiative within the company. Many small businesses fail within three years of starting out. Your first task is to investigate why this is the case, and find ways to mitigate this risk in new GFF-assisted start-ups. Your team has gathered the following information for you to review when conducting your analysis.

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In industrialised countries, SMEs provide and create many jobs, and do so at growing rates. SMEs additionally tend to train young people and foster entrepreneurship and innovation, which has positive effects on economic growth and competitiveness. As a result of these findings in developed countries, SME creation has been seen as a key avenue for increasing employment and reducing poverty in developing countries. Heavily-resourced programmes have been built to achieve this (De Kok, Deijl, & Veldhuis-Van Essen, 2013).

However, developing countries face different constraints and often have different economic structures. A literature review commissioned by the International Labour Organization and the Deutsche Gesellschaft für Internationale Zusammenarbeit set out to examine the evidence from almost 50 studies about the role of SMEs in creating employment in developing countries. The findings of this study illustrate that although there is great variation across countries, SMEs and micro enterprises generally do provide the greatest share of employment. In developing countries, SMEs provide around two-thirds of employment, while this may be up to 80% in lower-income countries (De Kok, Deijl, & Veldhuis-Van Essen, 2013).

Most of this employment comes from the smallest businesses, with between 5 and 99 employees. One identified source of the SME employment benefit is that they grow quickly and produce additional jobs and entrepreneurs. Still, the quality of jobs available in SMEs is slightly lower, with lower wages and levels of job security on average (De Kok, Deijl, & Veldhuis-Van Essen, 2013).

Despite their contribution to the economy, SMEs face several constraints in comparison to large enterprises. The biggest constraint is access to finance, with other substantial constraints including competition from the informal sector and taxation (Kumar, 2017). Operational costs therefore pose a significant challenge to SME survival.

SMEs are also less able to benefit from economies of scale or increase their return on investments in production and operations. They may also lack capacity to produce and access information relating to their performance and possible market opportunities (Kumar, 2017). In countries with restrictive regulatory environments, SMEs may struggle to overcome regulative barriers to registration and operation (World Bank Group, 2020).

A 2016 study by the International Labour Organization analysed the economic, social, political, and environmental factors affecting SME development in South Africa. The study found a number of factors, in addition to those already mentioned, that impact SME development in South Africa:

• Uncertainty and low economic growth: High unemployment, low productivity, infrastructure disruptions such as electricity shortages, rating agency downgrades, market fluctuations, high crime and a lack of trust in police, and bureaucratic regulations pose barriers to SMEs starting and operating in this context.

• A low ease of doing business: South Africa’s regulations and procedures may impede small businesses by posing challenges, such as long business registration times.

• Government support: Government programmes to support SMEs are generally inadequate and poorly communicated to the public.

• Education system: South Africa’s education system does not generally teach or encourage entrepreneurship. Due to the difficulties faced by SMEs and entrepreneurs, there is also a low rate of interest in entrepreneurship among South Africans.

• Access to finance: When start-ups access finance, it is usually provided by friends and family rather than formal organisations.

• Access to information: It is difficult for South Africans to access information about entrepreneurship and business development.

(International Labour Organization, 2016)

Question 1

The board is interested in understanding the core problem it has identified behind the failure of start-ups. Explain how you would go about identifying the core problem and developing a core question. In your answer:

• Provide an example of what a core question might look like in this context.
• Explain what tool you would use to identify key stakeholders and how they will be involved. Include example questions you would ask in this process.

(Max. 180 words)

Start writing here:

Question 2

Management has asked you to visualise the identified problem. Drawing on the information provided in the scenario on the core problem, create a fishbone diagram. Include at least four root causes, and at least two sub-root causes for each root cause.