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ECONOMY
Entrepreneurship for infrastructure
Our correspondent
Published: 23-JUN-06

One of Canada�s most successful and respected entrepreneurs, Leonard Brody, believes that South Africans have great entrepreneurial flair. Speaking at a forum at the University of Pretoria�s Gordon Institute of Business Science, Brody compared the South African work ethic to that of Canada, and added that he believes that there is a �heritage of hard work� in South Africa.

A vital element of entrepreneurship is building a community, says Brody. Commenting on the success stories of entrepreneurs who began their companies out of their garages, he points out that their focus was on �developing their community and real estate�, as opposed to revenue. Examples of these successes are MySpace and PayPal, both of whom have become bigger than any of their more traditional rivals. In just 5 years, PayPal has become larger than Amex in terms of the number of accounts it has, and the volume of dollars flowing through those accounts. After exiting from all of his Internet businesses five years ago, Rupert Murdoch bought MySpace in 2005 for $700mn.

Once an entrepreneur has established their community, they can begin growing their revenues. Google now makes a profit of $800mn per quarter in online advertising alone.

Recent research done by the Gordan Institute of Business Science (GIBS) confirms that social networks are a crucial element of entrepreneurship. They create social capital which gives access to resources, including information, opportunities, support, trust, leads and influence, and are also an important source for business ideas, knowledge and capital, which reduces risk.

In his book, Social Networks and Innovation, Moore describes a social network as a set of individuals who are members of diverse systems in various groups and categories, where there are as many networks as there are actors in the social system.

According to the Harvard Business Review, social networks can be described in three general categories; advice, trust and communication. Advice networks consist of people who others depend on to solve problems, trust networks share politically sensitive information and has individuals who can rely on each other in a crisis, and communication networks consist of individuals who talk about work-related matters on a regular basis.

Networking should be distinguished from marketing, selling and �schmoozing�. Marketing is a means of �educating a target audience�, says The Networking Survival Guide, as well as a way of creating awareness of your product or service in the first of these three steps. Networking is described as a tool to narrow the scope of marketing in an �efficient, people-driven manner.� Selling is the �exchange of currency for a product or service�, while �schmoozing� is �getting something from someone with no benefit to the other person�.

This confirms Brody�s message of the importance of building a community. Networking should not be seen by the entrepreneur simply as a means of compiling a list of the number of people they meet, but rather as the development of a list of people they can count on.

Four types of networkers have been identified by Cross and Parker in �The Hidden Power of Social Networks� as:

Central connectors � people with the most connections within a social network

Boundary spanners � provide critical links between two groups of people

Information brokers � connect people indirectly

Peripheral people � are disconnected from the main group, possibly because they are underutilised or just don�t fit within the network

Key people with whom an entrepreneur must develop a relationship include a real estate broker, a banker and a media contact. Other potential relationships to nurture are with business contacts, alumni, headhunters, suppliers, insurance agents, accountants, lawyers, venture capitalists, family and friends. Cumulatively, real estate transactions may account for the largest deal that most people will make, which is why a real estate broker can be vital.

Sociability is a key element of networking, with the characteristics of a successful entrepreneur being a person with drive, who has the ability to think, communicate, be innovative and interact with others. St Mary�s University in the USA examined the �Big-Five personality model�, using five factors (adjustment, sociability, conscientiousness, agreeableness and intellectual openness) to analyse the differences between female and male entrepreneurs. The study shows that while male entrepreneurs are significantly more conscientious than their female counterparts, women are more open than men, as well as slightly more adjusted, social and agreeable.

Self-employment is becoming an increasingly attractive option for women as they now have better access to funding and communication facilities. Flexibility is also an important element for many women who would like to manage both a career and a family life. Women now own 39 percent of every new business venture in the UK, while it is almost 50 percent in South Africa. This is due to the entrepreneurial nature of SA, as studies have shown that an entrepreneurial environment is linked to an increase in the number of women-owned business.

Entrepreneurs need to be responsive to customer demands and market changes, so it is important that they keep as many lines of communication open as possible. Creativity can also play an important role in building and maintaining networks, and entrepreneurs should be imaginative when it comes to communicating with others, remembering special occasions and important milestones.

The Global Entrepreneurship Monitor is a report that measures entrepreneurial activity in 29 countries, including South Africa. In 2001, South Africa was ranked 13th in new business start-ups, but only 25th in new firms. This shows a low survival rate of start-ups in comparison to the other countries analysed. A positive result from the survey however, is that approximately 156�000 new jobs will have been created between 2001 and 2006 from new firms in South Africa.

One of the side effects of globalisation has been an increase in economic volatility, which in turn has resulted in a rise in retrenchments due to cost-reduction policies. In South Africa, employee uncertainty has led to an increasing number of people turning to entrepreneurship as a way to mitigate the risk of cutbacks, and moonlighting is becoming increasingly popular as people explore the feasibility of entrepreneurial ventures while working in the corporate environment. Between January and May 2005, 18 381 companies were registered in South Africa, which is over half of the total figure for 2004. The 2004 figure in turn, was 22 percent higher than the previous year.

Obstacles to entrepreneurship in South Africa include a lack of access to finance, over-regulation, licensing requirements, and the complexity of the tax system.

Lack of capital is often the biggest barrier to starting a new business, and in South Africa families are the main source of financial aid for entrepreneurs. The research shows that the most valuable networks came from relationships that had existed for over 5 years, and that business contacts accounted for 42 percent of the value received from networks, followed by 35 percent from friends, and 23 percent from families. Families provide the most value in capital and loaning of equipment, but provide least value on providing information on new opportunities and advice on IT systems. Friends ranked the highest in terms of giving product development and IT systems advice, as well as emotional support, but the lowest on HR advice and capital. Lastly, business contacts provided value with HR and legal advice, but were lowest on providing emotional support and encouragement.

Duncan Watt�s definition of the small-world phenomenon, that �you are only ever six degrees of separation away from anyone else on the planet�, gives an indication of the potential power to be gained from harnessing social networks and building a community. If an entrepreneurial spirit is nurtured in South Africa, the benefits will be reaped across all walks of life.

This article, first published in Business in Africa Magazine, May 2006, was based on �The role of social networks in the transition from corporate to entrepreneurial life�, by Tristan Strever, and was the first instalment of an Entrepreneurship series by GIBS. To subscribe click here