In a country that celebrates SMEs’ role in economic success, South African start-ups still face a litany of challenges that cripple the ambitions of countless entrepreneurs.A study by the Small Business Institute revealed that only around 30% of small businesses in South Africa survive beyond their first year. Additionally, research by the University of the Western Cape found that South Africa has the highest start-up failure rate in the world.
Chris Govender, co-founder and COO of start-up turned successful medium-sized business, Rentoza, believes most of these challenges can be overcome. Started by four friends with a vision, Rentoza grew from four friends to 112 employees in only three years. Today the business has already received funding worth R120m, with every year outshining the last.
“The start-up landscape may be tough, but it is crucial to our country’s economic success. Take it from someone who has been down that road. There is always a way to overcome,” says Govender.
Speaking to the challenges start-ups face, Govender says funding is always an issue. “Funding is hard to access when you’re growing, and stringent vetting criteria from financial institutions certainly don’t help. Often, start-ups have to graduate to larger funding pools with good rates, consistent cash flow, and financial management,” says Govender.
Economic challenges
As South Africa faces numerous economic challenges, Govender warns that start-ups will be the first to feel their pinch. “As our country relies heavily on direct foreign investments, negative economic factors shrink funding pools. It is difficult to find the right partners that align to your ambitions, and specifically for us, partners that share our risk appetite. In general the adversity to risk is where a lot of tension comes in when needing to back a start-up. Businesses are expected to have a proven working business model with solid traction before you can access the funds you need to take your business to the next level.”
Additionally, he says skills are an issue as talent in South Africa are all too comfortable to put their roots down in a corporate. “The start-up journey is challenging and isn’t for everyone. There is an element of risk that can be scary, but the reward can be more than anything most corporates can give you,” says Govender.
Despite the challenges, Govender says the start-up landscape in South Africa is diverse and promising. He says most start-ups focus on fintech solutions, ranging from financial data extraction to payment ecosystems. Agritech is also experiencing tremendous growth, with companies addressing agricultural challenges through innovative technologies for scaled farming and crop management. He says edtech has also seen a surge in growth since the pandemic, while logistics and last-mile solutions are steadily developing to meet consumer needs.
To overcome the challenges faced by start-ups in South Africa, Govender advises entrepreneurs to adopt several strategies. Firstly, identifying limited resources and setting clear objectives is crucial. Prioritising the top three initiatives and relentlessly driving efforts toward them helps maintain focus and optimise resources. Speed is essential, as iterating and learning from solutions can only happen once an initial version is in place.
“To mitigate the challenges start-ups face, building a strong team with a clear vision and unwavering determination is vital. By fostering a collaborative and driven culture, entrepreneurs can create an environment where innovation overcomes obstacles. A proactive approach to problem-solving and a willingness to adapt and evolve will help start-ups overcome the hurdles,” he says.
While the start-up landscape in South Africa poses significant challenges, he says it is not an insurmountable barrier to success. By recognising the common obstacles and implementing effective strategies, entrepreneurs can break the cycle of failure and achieve sustainable growth.
“The journey may be tough, but with the right approach, perseverance, and adaptation, start-ups in South Africa can thrive and contribute to the country’s economic success,” says Govender.