Business incubators are part of South Africa’s exciting startup ecosystem which also includes key role players including startups, VC firms, corporates, co-working spaces, makerspaces and accelerators.
While still relatively small, South Africa’ startup ecosystem is maturing and is placed among Africa’s “big four’ along with Egypt, Kenya and Nigeria. This growth is apparent in the increase in entrepreneurial activity and the growth in the size of the VC industry, which includes angel investors and funders, as well as the growing strength of the local startup support ecosystem.
In an 2016 interview Jayshree Naidoo, former head of the Standard Bank incubator, based in Johannesburg, supports this view in the article ‘Accelerator Heads on What to Expect Next‘.
“The startup landscape has matured significantly with large corporates, including multi-nationals, the donor communities, and state organisations creating enabling mechanisms that support the startup community.”
She continues, “An exciting development has been the creation of sector-specific support structures for the startup community.”
Just recently, the South African Startup Ecosystem Report 2022 by Disrupt Africa puts the number of private and public incubator and accelerator programmes available to startups in South Africa at 200, with most of the programme based in Cape Town and Johannesburg.
The same report shows just over a quarter of the South African ventures tracked have undergone some form of acceleration or incubation at some point and that fintech startups get the bulk of support from accelerators and incubators.
Gaps and challenges
While increased activity has helped mature the entrepreneurship ecosystem in South Africa, many gaps and challenges persist in the local incubation industry.
The Fetola conference paper ‘Building Impactful Business Incubators: Reviewing Best Practise Incubator Models’, a high-level working paper from the 2018 Southern Africa Business Incubation Conference offers insight into some of the most pressing challenges.
Firstly, despite it being widely agreed that incubation is important for developing small businesses, there continues to be a lack of clarity on what ‘success’ looks like for incubators and other support programmes. Similarly, there is little clarity or consistency as to how incubation programmes should be structured to support business growth.
There seem to be some progress on this front. In 2018, Disrupt Africa reported that the Southern African Business and Technology Incubation Association (SABTIA) had been mandated by South Africa’s Department of Small Business Development to develop best practices within the region’s incubator community, including to “develop an accredited network of incubators, define a professional code of conduct, develop good practice standards, set benchmarking methodologies, serve as an entry point for international incubation into South Africa, and equip incubators and accelerators with the tools, knowledge and networks they need to provide quality services and support to SMMEs.” SABATIA is an independent association formed to promote and coordinate business incubation and acceleration in Southern Africa.
Entrepreneurs face a number of challenges such as a difficult economic climate with low growth and stagnant job creation, all of which make it difficult for entrepreneurs to launch and grow businesses. Despite this, small businesses are still expected to help create employment opportunities, combat poverty and grow the economy.
Business support programmes, including incubators, have an important part to play in helping to create a conducive environment for businesses to grow and contribute to the economy. In general, incubators give startups the skills, resources and opportunities to increase their chances of success. More specifically, they provide training and guidance in areas such as sales, marketing, business strategy and finance and even sometimes financing.
The ‘South Africa Business Incubator Establishment Handbook‘ by the Department of Trade, Industry and Competition, defines the role of incubator as follows: “(1) incubators focus on SMEs in the early stages of growth; (2) incubators offer services aimed at strengthening the capacity of SMEs to operate on their own; and (3) incubation is temporary.”
This focus on the early stages of growth is what differentiate incubators from accelerators. While they both support startups, they serve two different purposes and target startups at different phases. Accelerators work with startups with a proven business model in both the growth phase and stabilisation phase and are focused on growth. In comparison, incubators support less established startups so that they can operate independently once incubation ends.
Read the full article: Everything You Have Ever Wanted To Know About How SA Accelerators Work
A lack of business skills and network holds most small businesses back which is why the incubation experience is particularly valuable. And while the kinds of services offered by specific business incubation providers can differ, the core business support resources and services typically include the following:
Business Training
Participants get trained on some of the following core competencies – strategic planning, costing and pricing, sales and marketing, finance for business leaders, human resources, and labour law.
Office/production facilities
Provision of physical space for SME businesses and partner companies, can include office space, as well as manufacturing, training, commercial and retail environment.
Access to market
SMEs are provided with business opportunities through greater market access.
Access to finance
SMEs are supported to get funding ready and may receive grants which can be used to meet a business’s cash flow needs.
Find out more: How Joining An Incubator Programme Can Help You Secure Business Funding
Networking & mentorship
Incubators provide the opportunity for peer-to-peer learning and support and access to potential collaborators and funders. Additionally, entrepreneurs gain mentorship support in the form of mentors to receive ongoing feedback on their business and to receive guidance through the growth stages of the business.
Exposure
Media coverage and PR services can help startups gain brand awareness among customers and potentially get the attention of a funder.
A lot of work and consideration goes into successfully applying for an incubation programme. To increase their chances of success Rick Ed, mentor and business advisor, recommends entrepreneurs to do their research and to consider key important points such as: what the incubator has to offer; if there is business goals alignment; and the programmes pros and cons. Lastly, it’s important to evaluate the credibility of the incubator, advises Ed.
“How reputable is the business development organisation? When accreditation is introduced, will they meet the criteria to qualify? Are participants evaluated to see that they are suitable for the programme and vice versa? How competent are the people who deliver the programme? Do they or have they run their own businesses or are they highly qualified management consultants?”
It is as important to evaluate your business and whether it is ready for incubation, says Mags Ponnan, Head of the Business Incubator and Customer Value Propositions at FNB.
“In reality, not every business is ready or ideal for incubation.
“We have a lot of businesses that want to get into incubators long before they have tested their products in the market, but the reality is that incubators are not a classroom.”
Ponnan recommends businesses conduct the following 3 stress tests before applying for a programme.
1. Define the identity, vision and strategy of the business.
2. Validate your business model.
3. Implement the tested business model and start selling product/service to the market.
Know what to expect
While business owners can expect a lot of valuable guidance and investment during their incubation process, it’s equally important that SME owners know their obligations ahead of time to avoid any surprises.
“Ultimately, they must know what they are signing up for, determine if it matches their needs and if they are able and willing to commit to the programme requirements,” says Chantal de Kock, General Manager at Fetola Business Development Professionals
De Kock shares 5 financial and time commitments that entrepreneurs can expect during their incubation experience:
1. Monthly reporting on key performance indicators.
2. Time out office to attend workshops and networking events.
3. Some incubators charge for certain services, for example consultant interventions and workshop registration fees.
4. Time out of office to attend mentorship sessions.
5. Any costs which may not be covered by the programme.
Read the full article: 5 Financial And Time Commitments To Expect When You Join A Business Incubator
Ultimately the success of any incubator programme comes down to the entrepreneur and whether they make the most of the opportunities provided. Entrepreneur and MD of BlackNation Video Network Andrew Simelani, offers the following advice.
‘Be the driving force of every element of your business. Take responsibility for all your actions. Take advantage of all the opportunities that are presented to you, i.e. networking events, seminars on business needs such as accounting, legal, HR and more.”
Incubation mistakes to avoid
Some of the most common issues that are likely to crop up that can derail a business’s progress, according to Chantal de Kock, general manager at Fetola Business Development Professionals are:
1. Mismatch of expectations, entrepreneurs mistakenly believing the programme is going to “fix everything that’s not working in their business”.
2. Participants not communicating important details with relevant staff.
3. Entrepreneurs cherry picking parts of the incubation programme.
Access the full article: What Entrepreneurs Can Expect From A South African Business Incubator
Below is a guide of some of the best known business incubators in the country.
– Awethu Project‘s social entrepreneurship programme focused on developing high-impact entrepreneurs that can grow SMEs, create jobs and act as role models in their communities. Read more
– Black Umbrellas is an enterprise and supplier development incubation organisation that helps develop small black-owned businesses.
– The Fetola Model creates programmes for clients such as SAB, Old Mutual, J.P.Morgan and the European Union. They support the long-term success of small and medium sized enterprises across a range of sectors in South Africa.
See also: The Best Startup Talent In SA’s Hubs, Incubators And Accelerators
– Raizcorp provides full service business support programmes that guide entrepreneurs to profitability. Over 900 companies have graduated through the Raizcorp programme.
– Seed Engine supports entrepreneurs to become leaders and run their businesses successfully and efficiently. They offer coaching and mentoring.
– Founders Factory Africa targets ambitious African entrepreneurs to design and build solutions to high-impact problems and scale.
– Riversands Incubation Hub is a large-scale business incubator established in 2015 that empowers entrepreneurs through business development programmes and support services.
– TuksNovation is a technology business incubator that provides specialised product and business development support to startups.
– The Enterprise Room delivers impact focussed support and ESD Programmes. Their solutions help SMEs with access to markets and funding programmes.
– eKasiLabs Programme is an incubation facility at the Vaal University of Technology Southern Gauteng Science Park, in Sebokeng. It’s aimed at providing business development support to startups within various sectors such as information and communications technology, (ICT) advanced manufacturing, green economy and bio-economy.
See also: New Business Incubators In South Africa
SEDA – The government also offers incubation programmes for SMEs which are administered by the Small Enterprise Development agency.
SEDA supports 99 technology incubation centres across the country including the following: