Johannesburg Enterprise and Supplier Development expert and internationally-recognised thought leader on entrepreneurship, Hepsy Mkungo, spells out the commonalities and differences between small businesses and entrepreneurs that procurement specialists should know about.
While both entrepreneurs and small business owners devote a huge amount of commitment and effort into their operations, there is a fundamental distinction between them – from the personality of the business owner to the type of enterprise they run. For procurement and buyers, knowing this difference can aid decision making when it comes to priorities about who to onboard on an ESD programme.
Most start-ups are born out of an individual’s desire to be able to manage their time and attain some degree of personal and creative independence. But unlike entrepreneurs, not all small business owners are necessarily pioneers who are driven by the need to make a great deal of money. When procurement teams are selecting businesses to develop on their ESD programmes, would you then go for an entrepreneurial approach or just a business owner? Let’s understand the dynamics to start off.
Small companies tend to focus on refining an existing and established product or service, rather than offering something unique. These types of companies are not necessarily innovative by nature and focus on perfecting/improving existing processes to address the needs of the local networks or environment.
Entrepreneurs, on the other hand, are typically trailblazers who set out to change the world by being innovative, scaling quickly and making a huge social and financial impact. Their ultimate goal is to eventually sell the business for a lot of money and move onto another venture.
Thus, it is clear that from the onset, your approach would be vastly different depending on whether you are an entrepreneur or a small business owner. Small business owners tend to be conservative and risk averse in their approach to business, tending to limit their exposure. This is why most small businesses tend to turn to family, friends or financial institutions for a line of credit to launch their companies.
Appetite for risk
An entrepreneur’s appetite for risk tends to be based on the idea that the higher the risk, the greater the reward. The venture capital market complements entrepreneurship and provides the right space for an entrepreneur to seek funding to build their own wealth. While many entrepreneurs fail, those who succeed often do so on a large scale.
By contrast, small businesses tend to be steady and often grow gradually over generations. These small enterprises grow organically from new client acquisitions and by reinvesting funds from sales back into the business.
Due to their conservative nature, small businesses can succeed without venture capital, yet entrepreneurial endeavours – always aiming to be the next big thing – require a huge amount of investment and skills to support the entrepreneur’s vision. Yet financial institutions are not geared to support entrepreneurs’ risky and untested ventures. Their best option is venture capital, crowdfunding or equity partners.
Another potential lifeline for small business owners comes in the form of large corporates that can support their companies through procurement opportunities. As most small business owners would generally prefer to avoid banks to obtain funding, corporates could also be a source of “friendly capital”.
Unfortunately, the criteria for obtaining funding from corporates is uniformly strict across the board, so this can be a daunting exercise. This means that there is a ‘missing middle’, a part of the small business circle that nobody caters for. What’s more, the market favors male-dominated ventures, with women generally falling just outside the circle.
This is becoming an increasingly common problem for female small business owners or entrepreneurs who seek funding. The excuse that often crops up is that the disproportion is due to there simply not being many female small business owners or entrepreneurs. But that is simply not true.
The problem perhaps lies in the many intersectional challenges faced by women versus their male counterparts. It may be that women just have to change the type of business networks that they rely on – but many may be reluctant to do this. At the same time, the qualifying criterion for corporate funding also seems to be at the core of this issue, so there is some work to be done around how corporates could accommodate different types of businesses and how they can provide support. A wider discussion is needed to tackle this problem.
While entrepreneurs and small business owners are very different beasts, both are purpose-driven and goal-oriented. They also share crucial characteristics such as initiative, collaboration, passion, positivism and self-confidence. Both tend to be quick learners and are willing to take risks in order to propel their companies forward. Most importantly, both should be supported as their success underpins economic growth and inclusivity.
By Hepsy Mkhungo, CEO and Co-Founder at One Linkage