Governance and startups: moving beyond the red tape

For the South African government to achieve its goal of creating five million jobs over ten years, the SME sector would need to grow by a staggering 40%. Pravin Gordhan, the Minister of Finance, emphasised the importance of SMEs in achieving this goal by stating that “about 70% of private employment is in firms with fewer than 50 workers”. This supports what we have always known about the SME sector: it has a critical role in supporting economic and social development.

The ground-breaking SME Growth Index launched in 2011 by SPB, an independent research company, aims to generate insight and dialogue on just what it takes for SMEs to deliver on their contribution to South Africa’s economy and social goals.

One of the key findings is that South African SMEs are surviving not thriving. One of the main obstacles to success cited by participants in the research survey is the regulatory environment. Labour legislation, BBBEE, sector-specific regulation and SARS inefficiencies were quoted as the main regulatory issues facing SMEs, which are more vulnerable to regulatory costs than larger companies.

While significant improvements have been made, government needs to work even harder to remove red tape and unnecessary regulatory barriers, thereby reducing the cost of compliance. Given that South Africa’s regulatory environment is seen as more expensive when compared to other similar countries, there is a lot for government to do. Yet there is also a lot that business owners can do to overcome these challenges.

Governance is often erroneously thought of as one of those red tape barriers better left to the large corporate. Yet governance is an important key, which in its practical application, unlocks the true value of a business, shifting it from being a craft, which cannot grow beyond the abilities of its founders, to an enterprise, which delivers real and sustainable growth.

For SMEs, a board of directors plays a significant role in identifying and seizing the opportunities inherent in any limitation, especially that of the regulatory environment. The focused attention of skilled and experienced directors, intent on delivering the vision of the business, is a fundamental and strategic advantage that turns chaos into creative opportunity. It is therefore the board’s responsibility to ensure a strategic plan is developed that enables growth, while taking into account the opportunities and threats inherent in the regulatory landscape.

This clear strategic plan supports management to develop and implement a well-thought out business plan that focuses the business on the steps required to navigate beyond the red tape. In the process, on-going governance activities aim to ensure the business complies with its responsibilities, while reducing the cost of non-compliance.

If SMEs are really going to impact the economy in the way that is needed, a fundamental change in perspective is required from both business owners and government. While government has its own challenges to face, business owners need to take the step from ‘business as usual’, to an approach that is enterprise-minded, focused on sustainable growth, and directed to seize opportunities wherever they may lie.

Image: Daniel Spils via Flickr.