Figuring out real entrepreneurial success rates is surprisingly tricky!

1. The Impact of an
Enterprise Development
Institution on
the Success
of High Tech SMEs

2. 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
& growth
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3. The Incubator’s Clients & Grads Did
Really Well, But How Would They
Have Done Without It?

4. 4 12-Aug-9 Ben Zaaiman

5. First Question: What was the Natural
Failure Rate of ICT SMMEs?
 What is an SMME?
 What constitutes a failure?
 Where is the data?
5 12-Aug-9 Ben Zaaiman

6. USA
South
Africa
Country
Nascent
4.8
5.1
Entrepreneurship Rate
6
New Business
2.8
3.9
Ownership Rate
12-Aug-9
Total Early Stage
7.6
8.9 Entrepreneur-ship Activity
Ben Zaaiman
Established Business
What is an SMME?
7.7
2.1
Ownership Rate
Discontinuation of
3.8
4.8
Business
Necessity-Driven TEA
28
36
Improvement –Driven
51
31
TEA
Source: GEM 2010

7. Not All Discontinuations Are Failures
Opportunity to Sell
100%
Exit Planned in Advance
Other Job or Bus. Opportunity
84%
Retirement
Personal Reasons
Incident
Problems Getting Finance
Not Profitable
Source: GEM 2010, Efficiency-Driven Economies 2010
0%
7 12-Aug-9 Ben Zaaiman

8. South Africa’s Failure Record is a Tale
of Two Economies
% of 18-64 year olds Discontinuing Entrepreneurial Activity
20
15
10
5
SA
10 20 30 40 50
GDP per Capita at PPP ($,000)
Source: GEM 2010
8 12-Aug-9 Ben Zaaiman

9. U.S. Longitudinal Failure / Exit Rates
90%
Scott A. Shane, "The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By," Yale University (2008)
81%
80%
76%
68%
70%
63% 60%
60%
55%
55%
51%
50% 48%
49% 46%
44%
45% 42% 41% 40% 40% 39%
40% 41%
37%
34%
30% 25.0%
30%
27%
20% 19.4%
14.7%
15.1% 12.5%
10.7% 10.0% 11.1%
11.8% 8.1% 8.8%
10% 9.3%
7.5% 6.5%
7.3%
5.8% 4.6% 3.8% 3.1% 2.6% 2.2% 1.9% 1.7%
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Still in Business Business Failure Rate Still Self-Employed Self-Employment Exit Rate
9 12-Aug-9 Ben Zaaiman

10. Survival & Hazard vs. Average Entrant Size
Canada
90%
83%
80%
75%
68%
70%
58%
60% 59%
50%
50% 48% 44%
39%
40% 40%
35%
32%
34% 30%
30% 29% 27%
25%
25% 26%
23%
22%
20% 18%
21%
18%
16% 17%
15% 14%
12% 11% 11%
10% 10% 10%
0%
1 2 3 4 5 6 7 8 9 10 11
Small Average Entrant Size Small ASE Failure Rate Medium ASE Survival
Medium ASE Failure Rate Large ASE Survival Large ASE Failure Rate
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11. Estimated ICT SMME Survival and Failure
Rates in Western Cape Over 11 Years
80%
70%
60%
50%
40%
30%
20%
10%
0%
1 2 3 4 5 6 7 8 9 10 11
Cumulative Survival 75% 59% 48% 40% 34% 30% 27% 24% 21% 19% 17%
Annual Failure Rate 25% 22% 19% 16% 14% 13% 12% 11% 11% 10% 10%
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13. Surviving Company Growth Model
Annual Growth Rate by Remaining Native Survivors
Assumed Growth Rate by Remaining Incubated Survivors
27% 27%
26% 26%
26% 26%
27% 26% 25%
25% 25%
24%
24%
23% 23%
22% 22%
22%
1 2 3 4 5 6 7 8 9 10
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14. Net Revenue Growth In Successive Years
Native Revenue Incubated Revenue
4.7
4.3
3.9
3.4
3.0
2.6
2.2
1.8
1.7
1.5 1.6
1.4
1.2 1.3
1.2
1.1
0.9 1.0 1.0
0.9
1 2 3 4 5 6 7 8 9 10
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15. Aggregate Jobs per Initial Job in All Start-
Ups
Native Jobs Incubated Jobs
3.5
3.4
3.3
3.1
2.9
2.7
2.4
2.1
1.8
1.5
1.3
1.2
1.1
1.0
0.9
0.8 0.8
0.7 0.7 0.7
1 2 3 4 5 6 7 8 9 10
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16. Annual Failure Rates Converge to a
Baseline
30%
25%
20%
15%
10%
5%
0%
1 2 3 4 5 6 7 8 9 10
Baseline Native Failure Rate Native Failures Due to Inexperience
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17. DISCUSSION
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18. Thank You!
Ben Zaaiman
www.dcisio.com
ben@dcisio.com
+27 83 448 4336
BZaaiman
18 12-Aug-9 Ben Zaaiman