South African start-ups that ply their trade in North America and Europe make more money than those that conduct business exclusively in Africa.
This is according to the findings of a year-long Ventureburn survey of 260 South African tech-based start-ups that generate revenue of R20 million or less, and have a staff complement of less than a hundred people.
Alex Nelson, survey statistician at data analytics company Qurio, which conducted the survey for the second year in a row, says the focus on geographical reach beyond Africa appears to be paying off.
"Thirty-two percent of the start-ups have credible BEE statuses. It is about twenty-eight percent on Level 1 and three percent on Level 2. It (BEE) is quite useful but when we look at the figures, the businesses that are making good revenue and that are making profits are actually not using BEE as a 'ticket to the game' if we can call it that. It is guys that are going into the private sector and actually focusing their businesses in North America, Europe and less so in South Africa and Africa," said Nelson.
The survey also found that these successful start-ups are more likely to be focused on B2B rather than directly to the end-user consumer.
40% of businesses that participated in the survey said they operate in all of Africa, while 39% percent trade in South Africa alone, with 5% in Europe only and 3% in North America. Only 8% operate globally, 3% in Australasia and 1% in South America and other parts respectively.
Nelson added, "Just fewer than eighty percent of the start-ups are focused on Africa and South Africa as the target markets for their products or services, but the irony is that the most successful start-ups we've seen in the data are getting their revenue in North America and Europe. When it comes to market size, sixty two percent of these start-ups believe the market they are trading in is worth more than R100 million.
"In fact, it is quite bullish that twenty eight percent believe it is more than a billion rands. They are not taking that much of the market share, but there is a lot of optimism around the size of the market. Annual revenue for the start-ups stands at a million rand for nineteen percent of them, which is not a lot but there are some turning over twenty million or between five and ten million. Eighty one percent of the sample is basically making less than a million rands. What is a little bit disheartening is that only twenty three percent are targeting doubling their revenue. It is such a low base and for me it is disconnect that you cannot double that."
Prioritising job creation
Pavlo Phitidis, CEO of Aurik Business Incubator, said SMEs should receive the bulk of support from government as they create jobs.
"Sixty-eight percent of private sector employment comes out of companies employing fifty or fewer people. The greatest growth of tax revenues over the decade comes from companies with taxable income of over a million rand but below nine million rand - and yet there are no workable government policies supporting the constituency that we are talking about. Until we understand how to work with SMEs our future remains tenuous."
Michelle Atagana, Head of Communications and Public Affairs, South Africa at Google said, "It is really important to understand that companies like Telkom or Google will not create the jobs of the future. It is small businesses and entrepreneurs that will create those jobs. South Africa has the highest unemployment rate in Africa and it is pretty sad if you think of it. We need to challenge corporate South Africa to make sure that it grows that entrepreneurial base and we that we don't just start companies, but that we also scale companies. It is great when a company hires two people, but if an African company can hire ten thousand people - that would be incredible."
The Ventureburn tech start-up survey also looked at demographics, start-up funding, information about founders and employees including their motivations as well as start-up revenue challenges.
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