The Impact of an Enterprise DevelopmentInstitution on the Success

of High Tech SMEs

8 Apr 2023

The Research Project

What is the economic impact of one of the oldest and largest business incubators in Africa?

Interviewed ±100 clients, graduates, stakeholders

Analysed their survival & growthBen Zaaiman2

The Incubator’s Clients & Grads Did Really Well, But How Would They Have Done Without It?

8 Apr 2023 Ben Zaaiman4

8 Apr 2023

First Question: What was the Natural Failure Rate of ICT SMMEs?What is an SMME?What constitutes a failure?Where is the data?

Ben Zaaiman5

8 Apr 2023

What is an SMME?

Ben Zaaiman6

Country

Nascent

Entrepr

eneursh

ip Rate

New

Busines

s

Owners

hip

Rate

Total

Early

Stage

Entrepr

eneur-

ship

Activity

Establis

hed

Busines

s

Owners

hip

Rate

Disconti

nuation

of

Busines

s

Necessi

ty-

Driven

TEA

Improv

ement –

Driven

TEA

South

Africa5.1 3.9 8.9 2.1 4.8 36 31

USA 4.8 2.8 7.6 7.7 3.8 28 51

Source: GEM 2010

8 Apr 2023

Not All Discontinuations Are Failures

Ben Zaaiman7

Not Profitable

Problems Getting Finance

Incident

Personal ReasonsRetirement

Other Job or Bus. OpportunityExit Planned in Advance

Opportunity to Sell100%

84%

0%Source: GEM 2010, Efficiency-Driven Economies 2010

8 Apr 2023

South Africa’s Failure Record is a Tale of Two Economies

Ben Zaaiman8

10 20 30 40 50

GDP per Capita at PPP ($,000)

5

10

15

20

% o

f 1

8-6

4 y

ear

old

s D

isco

nti

nuin

g E

ntr

epre

neuri

al A

ctiv

ity

SA

Source: GEM 2010

8 Apr 2023 Ben Zaaiman9

1 2 3 4 5 6 7 8 9 100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

76%

63%

55%

49%

45%41%

37%34%

30%27%25.0%

14.7%12.5%

10.7% 10.0% 11.1%7.5% 8.1% 8.8% 6.5%

81%

68%

60%

55%51%

48%46%

44% 42% 41% 40% 40% 39%

19.4%

15.1%11.8%

9.3%7.3% 5.8% 4.6% 3.8% 3.1% 2.6% 2.2% 1.9% 1.7%

U.S. Longitudinal Failure / Exit Rates

Still in Business Business Failure RateStill Self-Employed Self-Employment Exit Rate

Scott A. Shane, "The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By," Yale University (2008)

8 Apr 2023 Ben Zaaiman10

1 2 3 4 5 6 7 8 9 10 110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

75%

59%

48%

40%

34%

29%26%

23%21%

18% 17%

25%22%

18%16% 15% 14%

12% 11% 11% 10% 10%

83%

68%

58%

50%

44%

39%35%

32%30%

27%25%

Survival & Hazard vs. Average Entrant SizeCanada

Small Average Entrant Size Small ASE Failure RateMedium ASE Survival Medium ASE Failure RateLarge ASE Survival Large ASE Failure Rate

8 Apr 2023 Ben Zaaiman11

1 2 3 4 5 6 7 8 9 10 11

Cumulative Survival

0.7500000000000

03

0.585 0.476775

0.400491

0.3444222600000

02

0.3013694775000

02

0.2667119875875

0.2373736689528

75

0.2124494337128

25

0.1912044903415

41

0.1720840413073

87

Annual Fail-ure Rate

0.25 0.22 0.185 0.16 0.14 0.125 0.115 0.11 0.105 0.1 0.1

5%

25%

45%

65%

Estimated ICT SMME Survival and Failure Rates in Western Cape Over

11 Years

1 2 3 4 5 6 7 8 9 10

75%

59%

48%

40%

34%30%

27%24%

21%19%

97%93%

90%85%

81%

75%

69%

63%

58%

52%

25%22%

19%16%

14% 13% 12% 11% 11% 10%

3% 3% 4% 5% 6% 7% 8% 9% 9% 10%

Company Survival & Failure Rate ModelNative Cumulative Survival Rate

Assumed Incubated Cumulative Survival RateNative Failure Rate in YearAssumed Incubator Failure Rate in Year

8 Apr 2023 Ben Zaaiman13

1 2 3 4 5 6 7 8 9 10

27%26% 26% 26%

25%24%

24%23% 22% 22%

27% 27% 26% 26%25%

25%24%

23% 23%

22%

Surviving Company Growth ModelAnnual Growth Rate by Remaining Native SurvivorsAssumed Growth Rate by Remaining Incubated Survivors

8 Apr 2023 Ben Zaaiman14

1 2 3 4 5 6 7 8 9 10

0.9 0.9 1.0 1.0 1.1 1.2

1.3 1.4

1.6 1.7

1.2

1.5

1.8

2.2

2.6

3.0

3.4

3.9

4.3

4.7

Net Revenue Growth In Successive Years

Native Revenue Incubated Revenue

8 Apr 2023 Ben Zaaiman15

1 2 3 4 5 6 7 8 9 10

0.7 0.7 0.7 0.8 0.8 0.9 1.0

1.1 1.2

1.3

1.5

1.8

2.1

2.4

2.7

2.9 3.1

3.3 3.4

3.5

Aggregate Jobs per Initial Job in All Start-Ups

Native Jobs Incubated Jobs

8 Apr 2023 Ben Zaaiman16

1 2 3 4 5 6 7 8 9 100%

5%

10%

15%

20%

25%

30%

Annual Failure Rates Converge to a Baseline

Baseline Native Failure Rate Native Failures Due to Inexperience

8 Apr 2023

DISCUSSION

Ben Zaaiman17

8 Apr 2023

Thank You!

Ben Zaaiman18

Ben Zaaimanwww.dcisio.comben@dcisio.com+27 83 448 4336

BZaaiman