Lessons From South Africa – Solving the Entrepreneurial Bottleneck in Developing Communities
Over the last few years we have seen how valuable Lean tools have become in the entrepreneurial development process. Eric Rees has provided us with an understanding relating to minimum viable product based on creating value rather than waste, Alexander Osterwalder has shown us the importance of visualising your business model and Ash Maurya has provided us with a process in the development of business models.
These tools have shown to be very effective, but they have been mostly tested in developing countries. In our work with entrepreneurs from poorer communities we have discovered how process improvement and the theory of constraints (TOC) provides a valuable mentoring and coaching tool to increase early stage entrepreneurial growth.
We have found the relevance of process modelling and TOC as tools to be specifically relevant to entrepreneurs who are growing their business organically. In developing entrepreneurs from poorer communities, the development process of entrepreneurs who are looking to organically grow their businesses are different from those of entrepreneurs in developed communities who are looking for external funding to grow their businesses. In these businesses, the bottleneck that inhibits growth is highly dependent on the entrepreneur’s time and energy in the business.
The Process Map
During our work with developing entrepreneurs we have started the mentoring process by allowing the entrepreneurs to visualise their business process through a process map. This step has been highly valuable with both start-up entrepreneurs as well as established entrepreneurs as it provides valuable insight into the different interdependencies in their business model. When mentoring around the business process we find it advantageous to always start with the customer segment that the entrepreneur is seeking to sell to. Although in the case of a platform type business model the initial focus is just as much on establishing a large enough user base.
Walking through the process in each micro step allows the entrepreneur to understand what resources need to be allocated to each step. For instance, an electrician from the township that would like to do solar installations in estates across Johannesburg needs to consider how they will access that market. The business could be there in theory, but access to the market is not as simple as “getting out of the building” (A term coined by Steve Blank). In many cases the privileged population groups, with money, will not interact with those less privileged than themselves.
The reason for this engagement across social groups could be due to the inability of the poorer entrepreneur to fund a large project upfront and wait for payment or in many cases it could also be based on unsubstantiated fear in dealing with those from a different social population group. Both in the case of the entrepreneur as well as in the case of the more privileged customer.
This is even more true for the B2B market where the barriers to entry when interacting with the end users on site, is even higher. By walking through each step of the process the entrepreneur can understand what barriers they face and problem solve those specific barriers. For instance, how does an entrepreneur from a poorer community, wanting to sell safety equipment on a mine, get through the entrance to the safety representative on the other side. In many cases the sale does not take place on site, but takes place in the informal engagements of the social spheres that the end-user engages in off site.
The Entrepreneurial Bottleneck
With entrepreneurs who have been running their businesses, the major processes have already been established. In their case, much of the development work is around scaling the existing processes. In doing so natural bottle necks soon emerge. Normally the bottleneck is the place where the entrepreneur spends a disproportionate amount of time in comparison to sales and marketing.
Consider the case of Thabiso (name changed to protect identity) who is living in Diepsloot, one of the largest post-apartheid townships in South Africa with an estimated population of between 500,000 to 800,000 people. Thabiso previously sold life insurance policies through one of the large insurance companies in South Africa. Having discovered that the sales skills she had developed when selling insurance policies are the same sales skills that she can apply selling other products Thabiso soon found herself selling spices by approaching strangers in the local shopping malls.
Thabiso had been going at it for some time before she sought the assistance of the Wot-If? Trust, an NPO developing township entrepreneurs in the Diepsloot township. The Wot-If? Trust asked for our assistance and we started our first coaching session a week after Thabiso was robbed at gunpoint in her small shack. Her cellphone and the small sealing machine she used to repackage the spices that she bought from the factory were stolen. The Wot-If Trust immediately stepped in assisting Thabiso with the basics she needed to get started again, including the necessary phycological support that she required.
During our first session with Thabiso we sought to focus all our questioning on allowing us and her to visualise her business process. It is important to note that to an entrepreneur from a poorer community each step in the process comes with opportunity costs that are lost. For example, where a trip into town to see a customer might be considered a small sacrifice to an entrepreneur from a developed community that same trip would mean that the entrepreneur from the township would give up the opportunity to have airtime for the week.
When we first met Thabiso, she had two other sales staff that showed varying commitment in assisting her. Thabiso woke up early each morning; she started her day by packaging her spices and then heading out to start selling the spices across the township. She noticed that the market demand for her spices was good and that she had started to develop some regular customers with repeat sales. An obstacle that she faced was finding sales personnel that were committed to selling her product to the same level that she was committed. Despite the lack of commitment from sales employees and a possibly high staff turnover, we helped Thabiso to see that doubling the number of staff would be beneficial to her sales.
When we again met with Thabiso she had indeed doubled her sales staff and had added a weekly recruitment slot in her diary for hiring new sales staff. As a result of the increase in sales, Thabiso found that she was now consistently running short of inventory. Through the following month of December, she ran out of inventory five times. To meet the demand Thabiso got up early every morning before most others in Diepsloot and took a taxi to and from the factory to collect the spices, resulting in her being on the road one and a half hours per day or seven and a half hours per week.
The sales bottleneck in the company had now shifted to her delivery process and since Thabiso can only carry a limited number of units on the taxi she is unable to free up her time in order to work on many of the other things that that will grow her business. Thabiso now set about problem solving this bottleneck, considering renting warehousing space in an adjacent shack right through to negotiating delivery based on increased sales volumes.
Problem Solving Around the Bottleneck
In the mentoring and coaching process with the entrepreneur, as a default, it is important for the coach not to provide the solution to the problem, but to guide the thinking process in order for the entrepreneur to establish the required thinking skills. The balance between the coaching and mentoring process is vital as, in some cases, good business development tools can be provided as a mentor. Before applying a tool in the business however it is important for the entrepreneur to understand the relevance and resource efficiency of the tool to the specific constraint they are addressing.
Over time Thabiso must go about creatively problem solving each of the bottlenecks that her business will face, organically growing her business with the extra profit that the increased volumes will bring. By very simply applying the theory of constraints (TOC) Thabiso is gaining understanding as to where in her process she is currently facing the highest level of constraint and solving that very specific bottleneck.
In many cases, entrepreneurs from developing countries are having to problem solve at a higher rate than entrepreneurs from developed countries, consistently weighing opportunity costs against each other. Allowing the entrepreneurs to understand their process map and their bottleneck to growth provides them with insight into where they need to focus their problem-solving efforts, which can free up extra time and grow their business.
About the Authors
GCASE Fellow – Global Entrepreneurship Institute
Wybrand is the Managing Director of Collective Value Creation, a company that develops Entrepreneurs in the Southern African Region and has a specific emphasis on Enterprise and Supplier Development. Wybrand is a regular columnist and speaker on Supply chain diversity and has a passion for aligning strategy and execution within Small and Medium-Sized Enterprise (SME) companies.
GCASE Fellow: http://gcase.org/fellows/wybrand-ganzevoort/
Also known as “Sister G” by the people of Diepsloot, Gail is the Managing Director of the Wot-If Trust, a special purpose vehicle for Socio-Economic and Enterprise Development funding that implements sustainable and meaningful development programmes in South Africa. Gail takes a strategic and systemic approach to the work she does, speaks at conferences on real Corporate Social Responsibility and is known by her peers as the “Networking Queen” for her abilities to collaborate and create connections.
PHOTO: The Wot-if? Trust, Gallo Images/Lefty Shivambu