In-Depth Analysis
NOT ENOUGH: (Left) Patricia Dlamini, Maxum Business Incubator, which graduates a slow five companies a year, and tenant Veruscha Hunter, BJ-Avenue Consulting Services.
Incubators supporting start-ups with infrastructure and networking rather than cash are claiming success at every turn. But how much success are they really having?
A couple of years ago, Andrea Boehmert, now co-managing partner of Hasso Plattner Ventures Africa, asked tenants at the Bandwidth Barn what they needed most: start-up capital or business support? Almost all of them said that they needed business support. “If you gave them money, most of them wouldn’t know what to do with it,” she says. “Particularly in the IT industry where very few understand business.”
In an environment where 80 percent of all start-ups fail, business incubators are being proclaimed as the start-up entrepreneur’s saviour. Designed to accelerate start-ups during their early years, incubators generally provide business support and services, rather than cash, in the first two to three years of a company’s growth. The real success, says Boehmert, is when you see businesses graduating out of the incubators and going out on their own.
Location, location, location
Ismail Dhorat is just the kind of young entrepreneur that the Maxum Business Incubator at the Innovation Hub was made for. Young, enthusiastic and just back from a stint in the UAE working with a start-up, Dhorat is a perfect candidate for Maxum’s focus on developing the ‘business leaders of tomorrow’.
But after winning a competition to host his new startup at Maxum earlier this year, he still hasn’t relocated there. “It’s way too far from Johannesburg so I find myself going in very rarely,” he says.
Web strategy consultant Eve Dmochowska agrees that “one of Maxum’s biggest problems is that it’s based in Pretoria, and is thus essentially precluded from incubating Johannesburg entrepreneurs.”
But insiders say that business mentors are mostly university lecturers who teach business, rather than experienced entrepreneurs, so much of the advice is theoretical.
According to Maxum manager Patricia Dlamini, 41 out of 73 companies that have gone through the programme have graduated since 2001 when the project started as a pilot at the CSIR. Twenty-five companies are still in the programme, either at pre-incubation or incubation stage.
As the main driver of ICT innovation in the province, subsidised by the Gauteng provincial government through Blue IQ, one has to wonder whether graduating five businesses a year is enough to make a significant impact.
Making the .za ‘net better
The site uses a Digg-like platform to get the community to suggest and rate ideas that are submitted via the ‘public’ submission forms, but “almost all active projects have come through the ‘private’ button on the site,” says co-founder, Justin Spratt.
Asked what IS expects from projects, Spratt says: “In the first round, we ask for nothing except commitment. “Once the prototype starts developing, we then push the entrepreneur to either go their own way, in which case we take nothing, or give IS equity of between five and 25 percent, depending on our involvement, or to bring the product into one of IS’ business units and take it to market via that channel.”
In the 18 months that IS Labs has been running, 11 projects have been accepted, out of the 50 that were put forward. “Uptake is about one in five, which is very high for the private equity world,” says Spratt.
Selected projects get hosting, connectivity, security, software, desk space, phones and mentoring from IS alumni, but according to Spratt, there isn’t a formal mentorship programme.
“Ideally we want the entrepreneur to run with it as much as possible because we can’t devote our full-time efforts to this (yet). This is usually the best, most efficient way to yield the business. Otherwise we are a phone call away, or two calls if we need to connect someone with specific skills,” he states.
Barbara Mallinson, founder and director of Obami, one of IS Labs’ incubated businesses, says that one of the reasons she chose to work with IS Labs was because she feels that it’s ‘good to be associated with a well-recognised company like IS’. Spratt agrees that brand association is an important part of the incubator offering, especially in the early prototyping stage. “It opens almost all doors to the entrepreneur,” says Spratt.
The organic nature of the BWB emerged right from inception. “In 2000, there was no way to get broadband other than with an expensive diginet line. We thought that it would be useful to share the costs – not just of the diginet line – but for all the other fixed expenses of running a business.”
Levin says that entrepreneurs want to go out and make money – they don’t want to spend time thinking about making money.
“The BWB emerged out of a very practical question of how we could bring down the costs of doing business by working together. The model is light as far as entrepreneur commitment goes. It doesn’t make them jump through a bunch of hoops to get into the programme. The only criteria are that you’re an IT business and that you can pay the rent.”
The focus on cooperation seems a powerful one. When asked what the best thing about being in the Barn is, Levin says that it’s great “being able to find any skill or service that you’re looking for within a 50-metre walk. There is always someone with whom to collaborate.” And the worst thing? “The cost of parking,” says Levin. “It’s a bit expensive.”
Bigger and better
From a government-subsidised incubator in the middle of a vast offi ce park, to a corporate initiative hoping to build South African internet business, to a cooperative initiative that is seeding IT businesses that are going large, South African incubators all seem to be enjoying different degrees of success. The question still seems to be how to scale up these initiatives so that we can start to see the emerging ICT sector have a positive impact on the economic growth of the country.
