Why conventional business support models are failing entrepreneurs, and what we must do differently
The Sobering Reality
South Africa’s small and medium enterprises (SMEs) represent a paradox that should concern every stakeholder in our economic ecosystem. SMEs across South Africa represent more than 98 percent of businesses, employ between 50 and 60 percent of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector. Yet, with an estimated turnover of over R5 trillion, the MSME sector accounts for 80% of the workforce, yet 15% of MSME owners remain financially excluded.
This disconnect between SME importance and SME support effectiveness reveals a fundamental flaw in how we approach business development in South Africa. As we navigate 2024’s economic growth trending towards 2%, with 2025 growth expected to be around 1.5%, the urgency for reimagining SME support has never been greater.
The Failure of One-Size-Fits-All Solutions
Traditional SME support programmes have operated under a dangerous assumption: that all small businesses face similar challenges and can benefit from standardised interventions. This approach has produced disappointing results across the continent, where about 40% of SMEs in developing countries grapple with access to finance and 32% of African firms cited limited access to financial tools as a major obstacle to growth in 2023.
The problem isn’t just financial access—it’s the fundamental misunderstanding of SME diversity. A manufacturing startup in Johannesburg faces vastly different challenges than a rural agricultural cooperative in Limpopo or a technology services company in Cape Town. Yet support programmes continue to offer generic solutions that fail to address these contextual realities.
The Capability Gap: Beyond Skills Training
Current SME support models focus heavily on skills transfer and training, often delivered through workshops and seminars. While well-intentioned, this approach misses a critical insight: knowledge without implementation capability is ineffective.
The future of SME support must centre on capability building—not just teaching entrepreneurs what to do, but ensuring they can actually do it within their specific contexts. This requires:
1. Embedded Support Systems
Rather than extracting entrepreneurs from their businesses for training, support must be delivered within their operational environments. This approach enables real-time problem-solving and ensures that solutions are contextually relevant.
2. Phased Intervention Models
Businesses at different maturity stages require fundamentally different support approaches. Early-stage enterprises need foundational systems and processes, while scaling businesses require sophisticated operational optimisation and strategic guidance.
3. Ecosystem Integration
Isolated interventions create temporary improvements at best. Sustainable growth requires connecting SMEs to broader ecosystems—suppliers, customers, financiers, and peers—that can provide ongoing support beyond programme completion.
The Digital Transformation Imperative
Africa’s e-commerce industry is envisaged to expand at a compound annual growth rate of 24.7% between 2017 and 2024, yet many SME support programmes remain analogue in their approach. This disconnect is creating a generation of businesses that are unprepared for the digital economy.
The future of SME support must integrate digital transformation not as an add-on, but as a core component of business development. This means:
- Digital-first business models that leverage technology for efficiency and scale
- Data-driven decision making that moves beyond intuition to evidence-based management
- Online market access that connects SMEs to national and international customers
- Financial technology adoption that improves cash flow management and access to capital
From Funding to Financing: Rethinking Capital Access
The persistent focus on grant funding as the primary solution to SME challenges has created a dependency culture that undermines sustainable business development. While most MSMEs continue to rely on self-financing, there is a notable shift towards formal financing, with bank loans nearly doubling from 14% in 2023 to 28.5% in 2024. Yet, 31.2% of MSMEs have experienced loan denials.
This data reveals both opportunity and challenge. SMEs are increasingly seeking formal financing, but traditional financial institutions remain hesitant to serve this market. The solution lies in developing sophisticated risk assessment models that can evaluate SME creditworthiness beyond traditional collateral requirements.
Support programmes must evolve from providing funding to facilitating access to appropriate financing. This includes:
- Financial readiness programmes that prepare SMEs for formal financing
- Alternative financing mechanisms such as revenue-based financing and supply chain finance
- Investor readiness support for high-growth potential enterprises
- Financial literacy integration that goes beyond basic bookkeeping to strategic financial management
The Stakeholder Collaboration Imperative
The most successful SME support initiatives in South Africa have one thing in common: they leverage multiple stakeholders working in coordinated ways. Government agencies, private sector partners, academic institutions, and civil society organisations each bring unique capabilities that, when properly orchestrated, create exponential impact.
However, collaboration for collaboration’s sake is insufficient. Effective stakeholder engagement requires:
Clear Role Definition
Each stakeholder must understand their specific contribution to SME success, avoiding duplication and ensuring complementary support.
Shared Measurement Systems
All parties must agree on what success looks like and how it will be measured, creating accountability and enabling continuous improvement.
Long-term Commitment
SME development is not a quick fix. Sustainable impact requires multi-year commitments from all stakeholders.
The Rural-Urban Integration Challenge
South Africa’s economic geography creates unique challenges for SME support. Urban centres offer market access and infrastructure advantages, while rural areas provide cost advantages and access to natural resources. Yet most support programmes treat these as separate ecosystems.
The future requires integrated approaches that:
- Connect rural producers to urban markets through digital platforms and logistics support
- Leverage urban expertise to support rural business development
- Create value chains that span geographic boundaries
- Build regional economic clusters that maximise comparative advantages
Measuring What Matters: Beyond Job Creation
Traditional SME support programmes measure success through job creation numbers, which, while important, tell an incomplete story. The Department had funded 776,129 SMMEs, which had resulted in about 96,589 new jobs. This represents roughly 0.12 jobs per supported enterprise—a ratio that suggests fundamental problems with current approaches.
Effective SME support must measure:
- Business sustainability rates beyond initial support periods
- Revenue growth trajectories that indicate genuine business development
- Capability development that enables independent problem-solving
- Ecosystem integration that creates ongoing support networks
- Innovation adoption that improves competitiveness
The Path Forward: Systemic Change
The future of SME support in South Africa requires systemic change, not incremental improvements. This means:
Redefining Success
Moving from quantity-based metrics (number of businesses supported) to quality-based metrics (sustainable growth achieved).
Embracing Complexity
Acknowledging that SME development is inherently complex and requires sophisticated, differentiated approaches.
Building Capacity
Investing in the capabilities of support organisations themselves, ensuring they can deliver world-class interventions.
Creating Accountability
Establishing clear performance standards and consequences for support programmes that fail to deliver impact.
Conclusion: The Moment of Truth
South Africa stands at a crossroads. We can continue with traditional SME support approaches that produce marginal results, or we can embrace the fundamental changes required to unlock genuine entrepreneurial potential.
The choice is clear, but the implementation will require courage, collaboration, and commitment from all stakeholders. The entrepreneurs we serve—and the economy we’re building—deserve nothing less than excellence in SME support.
The future of SME support isn’t about doing more of the same, better. It’s about doing something fundamentally different and doing it with the sophistication and commitment that South Africa’s economic transformation demands.
This insight reflects The Change Institute’s commitment to advancing the science and practice of SME development through evidence-based approaches and systemic thinking.