Supporting skilled artisans to develop new enterprises

VISION

We at Black Umbrellas are working to create the only full support organisation for small enterprises in South Africa. We provide entrepreneurs from disadvantaged communities with a bookkeeping service, marketing support and credibility given through the project, basic running costs covered like rent and telephones and distribution through shared vehicle usage, over a three-year period while they are becoming established.

OVERVIEW

The Black Umbrellas enterprise development programme in the Western Cape is aimed at entry-level business development, where entrepreneurs with established skills in a specific service or manufacturing/production-oriented environment can receive support in the form of infrastructure, support services, access to capital, and continuous mentoring with regular on-the-job training. Through this project Black Umbrellas will provide support to up to 10 skilled artisans from disadvantaged backgrounds who are starting small businesses but need assistance with administration so that they can focus on winning and servicing new clients. This project covers the first year of a three-year period, in which Black Umbrellas will provide the entrepreneurs with a bookkeeping service, marketing support and credibility, basic running costs covered like rent and telephones, and shared vehicle usage. A fee of R1000 per month is charged to each SMME. Additionally, should SMMEs use the vehicle and driver and telephone more than the allocated amount that is covered by R1000 per month, they will be charged 50% of the additional cost. Entrepreneurs are also able to access credit through ABSA at a negotiated rate of prime plus two percent. The business owners are also able to receive support and mentorship from the Project Director, who has substantial experience in assisting entrepreneurs to establish SMMEs. The support is tailored to the needs of each SMME.

WHAT WE LIKE ABOUT THIS PROJECT

• This is a new model for social enterprise. It incorporates a number of tried-and-tested approaches put together in a new way. These are the use of an incubator approach, the use of mentoring and access to credit. Although the combination into a single model is as yet untested, it shows great promise as a way of providing the support needed in the critical first three years of a new small business’s life.
• One key difference between this and other small business development programmes is that Black Umbrellas does not require entrepreneurs to learn all aspects of the business themselves. Black Umbrellas believes that a carpenter does not need to learn how to do bookkeeping, he needs to outsource this and in the interim they provide this support.
• The way in which credit is offered is unique. No loans are made and no lump sums are given. Credit is given as an entrepreneur receives a guaranteed quote or tender. Loans can be accessed from ABSA with Black Umbrellas as a guarantor. The credit line is definitely based on a guaranteed quote or tender. Black Umbrella’s do their own due diligence before they accompany the SMME to the bank, ensuring the legitimacy of each job.
• Black Umbrellas’ focus on developing enterprise with people who already have a skill or have a history of doing a particular type of work is also unusual. Black Umbrellas do not evaluate business plans or credit records but only people’s skill levels and aptitude and commitment for starting their own business. This is different to other models which focus on an entrepreneur’s capital contribution and the collateral that they are able to provide. The focus is also very much on artisans whereas other SMME support organisations often focus on higher level sectors.

EXPECTED LIFE CHANGE

An investment of R69,350 will enable:

• 10 entrepreneurs from disadvantaged communities (8 men, 2 women) who have the skills and want to start their own small businesses to receive support for the first year of a three-year programme that helps them become established and successful
• Approximately 100 other people (10 per entrepreneur) to benefit directly – as new employees, subcontractors and suppliers, increasing their income through work done on the contracts taken on by the entrepreneurs
• Direct life change at R630 per person.

This project has breadth because it reaches a number of entrepreneurs across the greater Cape Town area. The intervention has depth because it assists the entrepreneurs at a number of different levels. It has intensity in that it will be carried out full-time over a three-year period. It will hopefully lead to a high success rate of businesses which will have a permanent positive effect on the lives of the households involved and the Western Cape economy.

NEED

South Africa has a 90% failure rate for small enterprises and has one of the lowest levels of entrepreneurial activity amongst the countries studied in the 2005 Global Entrepreneurship Monitor survey.

The problems being addressed by Black Umbrellas are that a skilled artisan often:

• is unable to run a business and do the financial bookkeeping
• is unable to run a business and do the marketing
• is unable to get access to credit
• is unable to fund running costs
• has a problem with distribution.

STRATEGY

Black Umbrellas has designed and piloted a new SMME (Small Micro Medium Enterprise) model that counters the common problems faced by SMMEs. This project applies the model by providing the 10 entrepreneurs for the first year with:

• a full free bookkeeping service and assistance with financial records
• invoicing of customers and collection of amounts due
• reduced cost of materials through bulk purchase agreements with suppliers
• marketing support and credibility given through the project
• a unique credit line on receipt of a guaranteed quote
• basic operational costs covered like rent, internet and telephones
• distribution through shared vehicle usage

The new SMME can concentrate on servicing and getting new clients and doing the job well and fast. Covering all operational costs means an SMME can survive even in lean times. Black Umbrellas works with each individual small business on financial targets and provides continuous mentoring. The relationship between Black Umbrellas and the small business will last no more than three years, after which the entrepreneur should have obtained the necessary skills and knowledge to run his / her own business operation and be generating sufficient profits to employ staff to perform the functions previously performed by Black Umbrellas.

ACTION PLAN

Preparation

The following activities have already been undertaken:

• Establish the board and finance committees
• Submission of funding proposals to potential investors
• Set-up the incubator office
• Implement project systems: telecommunications infrastructure, vehicles and drivers, bookkeepers, access to credit line, general logistics and mentoring systems
• Advertising for candidates
• Selection of new candidates / SMMEs

Implementation

During the implementation phase the systems and processes that were established during the preparation phase will be further developed to better meet the needs of the organisation and its beneficiaries. Further to this, new candidates / SMMEs will be selected to join Black Umbrellas and all SMMEs will be able to make use of the following facilities and systems:

• incubator office
• telecommunications infrastructure
• vehicles and drivers
• bookkeepers
• mentoring services
• access to credit

In order to ensure sustainability, Black Umbrellas will approach investors for continued funding and also aims to assist more entrepreneurs in setting-up manufacturing businesses during this grant period.

Monitoring

Monitoring of the following will be undertaken by Black Umbrellas over the period of project implementation:

• Number of SMMEs
• Progress of individual businesses
• Financial records of the organisation as well as the financial records of the SMME’s
• Mentoring of businesses and their knowledge of business practices
• Development and implementation of a 3-year plan for businesses to become sustainable and independent

ORGANISATIONAL EVALUATION

Black Umbrellas is still in a start-up phase, having been established in mid-2005. The organisation has a strong board selected on the basis of the skills they contribute. It has a clear understanding of its purpose and its target beneficiaries and has involved the beneficiaries throughout the establishment of the organisation. Black Umbrellas has strong fundraising abilities. The model which the organisation uses is potentially replicable on a wide scale.

On the other hand, the organisation is not strong in documenting its strategies and organisational information is currently not reflexive nor is it evaluated on a developmental level. Baseline research was not undertaken in establishing the model, and the organisations which leave the Black Umbrellas programme are currently not formally monitored. The organisation could benefit from a broader network of partners and a more clearly defined fundraising strategy, as well as formal long-term strategic planning.

RISK PROFILE

Key Strengths

• Concept: Black Umbrellas has already instigated incubation of 65 new SMMEs. Currently these organisations are at varying stages of development. Infrastructure support and access to services are clearly needed by entrepreneurs – so this project is addressing a real need in a practical way. The model provides SMMEs with critical support to get through the start-up phase successfully, strengthening businesses to the point where they have a client base, confidence and cash flow and are ready to go out on their own.
• Design: The design of the intervention over a three-year period aims to allow sufficient time for the businesses to become properly established. Three years is typically regarded as sufficient for a micro enterprise to reach a “new firm” stage of development.
• Capability: The leadership has much experience in establishing social enterprise projects. An operations manager has been employed to oversee the project.
• Control: Board members have great financial experience and expertise. Financial statements are externally audited.
• Sustainability: The fact that SMMEs contribute towards the cost means there is the possibility of becoming self-sustaining. The project aims to be independent of funding when the number of SMMEs reaches 100 and the jobs and income increase. There is potential to draw on BEE government funding.

Key Risks

• Concept: No research has been carried out to investigate similar models in other parts of the world. The model does not include formal training and rather emphasises experiential learning, but this is more difficult to plan for and to track and evaluate. They do however recommend training at other organisations which offer the appropriate courses. There is no weaning process whereby beneficiaries are encouraged to acquire their own systems, infrastructure and services towards the end of the three-year period. The concept is as yet unproven.
• Design: There is no clear strategy in place for ensuring that organisations become independent and move out from under the Black Umbrella, or for evaluating their readiness to move out, or for determining what happens if they are not ready to move out. There is little planning for follow-up, monitoring and mentoring of businesses after the three-year programme is completed. In addition, the absence of a baseline at commencement may provide some difficulty in understanding impact. The contribution to Black Umbrellas is not sufficient to cover the real costs of the services provided, and it is not clear how the participants will come to understand the real costs and how they can be covered independently.
• Capability: The organisation is not strong in implementing systems, procedures, documentation, etc. Black Umbrellas is currently dependent on two individual for strategic direction and fundraising.
• Control: The organisation is not yet registered with the NPO Directorate, although it is their registration is pending and they are registered as a PBO with SARS.
• Sustainability: There is a danger that organisations will become dependent on Black Umbrellas and will not want to leave the programme or will not survive once they leave the programme. If there is no evaluation of or contact with organisations that leave Black Umbrellas it will be difficult to monitor success.
• External: In an environment of increased interest rates, reduced consumer spending and the new national credit act, there could be a risk of reduced demand for the services of these businesses.