An investigation into the success factors amongst small

businesses in Gauteng

MARIA CLARA MAURICIO PEREIRA KEIL

Student number: 802045249

SHORT DISSERTATION

submitted in partial fulfilment of the requirements for the degree

MAGISTER

in

BUSINESS ADMINISTRATION

in the

FACULTY OF MANAGEMENT

at

THE UNIVERSITY OF JOHANNESBURG

STUDY LEADER: Mrs D Groenewald

ACKNOWLEDGEMENTS

I wish to thank Professor F Herbst and Mrs Groenewald for both the inspiration

they gave me as well as for the high standard of advice I received from them

regarding this dissertation. Without Mrs Groenewald’s patience and

commitment in seeing me through this effort I would have given up.

I cannot omit mentioning those teachers that stood out by the knowledge of

their subjects and ability to teach, Professor A Van der Merwe, Mr Roy

Ramphal, Rob Venter and Mr A C Terblanche.

I also wish to thank my husband and children and their unfailing support and

tolerance of the many hours spent away from them to complete this work.

Last but not least my MBA colleagues, in particular Niz, Neville, Lettie, Marinus,

and Nicki who taught me the meaning of group work and kept me going through

the tough years of studying after hours.

i
DECLARATION

I declare that this dissertation is an original work submitted by myself. Any work

of a similar nature has been appropriately referenced in this dissertation.

___________________

Clara Keil

Student No. : 802045249

ii
SUMMARY

Gauteng, the smallest of the nine South African provinces, but the largest in

terms of its contribution to national GDP (33.9%), generates 10% of Africa’s

GDP (Gauteng Enterprise Propeller Overview, 2007) and is therefore a very

important geo-economical zone.

As South Africa latest unemployment rate is 25.5% (StatsSA, 2006),

Government is geared towards promoting small businesses in an effort to grow

the economy and reduce unemployment. It is therefore very important to the

economy that small businesses succeed, grow and provide employment.

Due to the fact that at present, very little research into the success factors

amongst small businesses in South Africa has been conducted in South Africa,

it seems appropriate at this time to investigate the success factors of small

businesses in Gauteng.

The problem statement in this research is that there is insufficient knowledge

relating to the factors contributing to the failure or success of small businesses

in South Africa, Gauteng.

To conduct this research, a qualitative and exploratory approach was decided

upon. A literature survey on the subject was conducted in order to ground the

current research in existing theory and research. A questionnaire was sent out

iii
by e-mail to 3776 businesses in Gauteng, to which the response rate was

3.15% (119 questionnaires were returned). The questionnaire was divided into

sections and covered the definition of success, entrepreneurial personality

characteristics of owner/manager, use of management tools, resource

availability and the classification of respondents and their businesses.

Due to the small size of the sample this research is not able to conclusively

achieve the primary research objective of identifying the success factors of

small businesses in Gauteng, but it has nevertheless contributed to the body of

research on the matter, since it established that there is a correlation between:

• Entrepreneurial personality and the success of small businesses

• The use of management tools and the success of small businesses

• The availability of resources and the success of small businesses.

In addition the following can be reported:

• The owner/managers surveyed attributed their success to:

- persistence and determination

- experience

- entrepreneurial personality

- business knowledge

- a great team

- education

• The existence and or use of the business plan and its relationship to

success remains inconclusive

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 • Financial resources do not feature prominently as a success factor, but

business skills do seem to correlate with success.

Further research is necessary to pinpoint conclusively which traits and

behaviours are conducive to success, by comparing successful and

unsuccessful business owners.

Other recommendations that arose from this research were:

• Research should be conducted into the assumption that economic

growth is driven by the proliferation of small businesses

• Research into the weight of internal factors ((personality, experience,

attitude, knowledge) versus that of external factors (start-up capital,

business plans, skill availability, economic and legal conditions) would

contribute to the body of knowledge and could trigger a shift in approach.

v
CONTENTS

ACKNOWLEDGEMENTS I

DECLARATION II

SUMMARY III

CHAPTER 1 - INTRODUCTION 1

1.1 Background to the research 1

1.2 Problem statement 4

1.3 The research objectives 5

1.3.1 Primary research objective 6
1.3.2 Secondary research objectives 6

1.4 Importance and benefits of study 6

1.5 Literature Review 9

1.5.1 Defining success 9
1.5.2 Business success and sustainability 10
1.5.3 Entrepreneurial success factors 11
1.5.4 Managerial learning and small business growth 11
1.5.5 Entrepreneurship, small business and economic growth 12
1.5.6 The Strategic orientation of owner-managers of small businesses 13
1.5.7 The value of plans, planning and strategic awareness in the small business 14

1.6 Research proposition 15

1.7 Demarcation and scope of research 16

1.8 Research methodology 17

1.8.1 Research design 18
1.8.2 Sampling 20
1.8.3 Questionnaire design 21
1.8.4 Data collection 22

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 1.8.5 Data analysis 23

1.9 Clarification of key concepts 24

1.10 Nature and form of results 25

1.11 Chapter Outline 25

CHAPTER 2 – THEORETICAL OVERVIEW OF SUCCESS FACTORS

AMONGST SMALL BUSINESSES 27

2.1 Defining success 27

2.2 Business success and sustainability 29

2.3 Learning function and small business growth 31

2.3.1 The definition of small business growth 31

2.4 Entrepreneurial success factors 35

2.5 Entrepreneurship, small business and economic growth 36

2.6 The Strategic orientation of owner-managers of small businesses 38

2.7 The value of plans, planning and strategic awareness in the small business 42

2.8 Summary 44

CHAPTER 3 - THE SOUTH AFRICAN CONTEXT TO SMALL BUSINESS

SUCCESS 46

3.1 Political 48

3.2 Economical 49

3.3 Auto Immune Deficiency Syndrome (AIDS) 53

3.4 Crime 54

3.5 Entrepreneurial activity in South Africa 57

3.6 Broad-based Black Economic Empowerment 62

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3.7 Summary 62

CHAPTER 4 - RESEARCH DESIGN AND METHODOLOGY 63

4.1 Introduction 63

4.2 Research Design 63

4.3 Population and Sampling 64

4.4 Questionnaire design 66

4.5 Data Collection 69

4.6 Data Analysis 70

4.7 Summary 71

CHAPTER 5 - RESEARCH FINDINGS 73

5.1 Business Sectors 74

5.2 Size and age of businesses 76

5.3 Profile of owners/managers 77

5.4 Frequency tables of responses 81

SECTION A – Success 81
SECTION B - Entrepreneurial Personality characteristics of owner/manager 84
SECTION C - Use of management tools 88
SECTION D - Resource Availability 93

5.5 Limitations of this study 101

5.6 Summary 101

CHAPTER 6 – CONCLUSIONS AND RECCOMMENDATIONS 106

Conclusions 107

Recommendations 112

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LIST OF REFERENCES 115

APPENDIX I - NATIONAL SMALL BUSINESS ACT 119

Definition of small business 119

APPENDIX II – RESEARCH QUESTIONNAIRE 121

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List of Figures
FIGURE 2.2 - THE FOUR “TYPES” OF SMALL BUSINESS OWNER-MANAGERS ................40
FIGURE 2.3 - A TYPOLOGY OF THE EFFECTS OF PLANNING EFFECTIVENESS AND
STRATEGIC AWARENESS CAPABILITY ON BUSINESS MANAGEMENT AND

DEVELOPMENT .................................................................................44

FIGURE 3.1 – GAUTENG ECONOMIC SECTORS CONTRIBUTION TO GDP....................50

FIGURE 2.2 - BREAKDOWN OF SMALL BUSINESSES BY INDUSTRY SECTOR
PARTICIPATION .................................................................................52

List of Tables
TABLE 1.1 - CIPRO REGISTRATION STATISTICS 2
TABLE 2.1 - EDUCATION BACKGROUND OF CHINESE BUSINESS OWNERS IN % 34
TABLE 2.2 - EDUCATION LEVELS OF TOTAL EARLY-STAGE ENTREPRENEURIAL
ACTIVITIES IN SOUTH AFRICA 34
TABLE 3.1 - BREAKDOWN SMALL BUSINESSES IN GAUTENG, EMPLOYEES AND
TURNOVER 51
TABLE 3.2 - ROBBERIES WITH AGGRAVATING CIRCUMSTANCES 55
TABLE 3.3 - REPORTED CRIME IN SOUTH AFRICA 2001/2002 TO 2006/2007 56
TABLE 3.4 - RELATIVE RANKINGS FROM 2001 TO 2006 59
TABLE 3.5 - FACTORS THAT LIMIT ENTREPRENEURIAL ACTIVITY IN SOUTH AFRICA 59
TABLE 3.6 - SPECIFIC RECOMMENDATIONS TO ACHIEVE GROWTH IN ENTREPRENEURIAL
ACTIVITY IN SOUTH AFRICA 60
TABLE 5.1 – HOW SUCCESSFUL DO YOU CONSIDER YOURSELF? 74
TABLE 5.2 – RESPONDENTS PER BUSINESS SECTOR 75
TABLE 5.3 - SIZE OF BUSINESS ACCORDING TO TURNOVER 76
TABLE 5.4 - SIZE OF BUSINESS ACCORDING TO NUMBER OF EMPLOYEES 76
TABLE 5.5 - AGE OF BUSINESS 77
TABLE 5.6 - AGE OF OWNERS/MANAGER 78
TABLE 5.7 - GENDER OF OWNERS/MANAGERS 79
TABLE 5.8 - LEVEL OF EDUCATION OF OWNERS/MANAGERS 79
TABLE 5.9 - MOTIVES FOR STARTING BUSINESS 81
TABLE 5.10 - FACTORS THAT DESCRIBE YOUR DEFINITION OF SUCCESS 82

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TABLE 5.11 - STRENGTH OF FACTORS CONTRIBUTING TO SUCCESS 83
TABLE 5.12 - RANKED SUCCESS FACTORS ACCORDING TO OWNER/MANAGERS 84
TABLE 5.13 - ENTREPRENEURIAL PERSONALITY CHARACTERISTICS OF
OWNER/MANAGER 85
TABLE 5.14 – RANKED ENTREPRENEURIAL PERSONALITY CHARACTERISTICS OF
OWNER/MANAGER 87
TABLE 5.15 – LEAST RANKED ENTREPRENEURIAL PERSONALITY CHARACTERISTICS OF
OWNER/MANAGER 88
TABLE 5.16 – PERCENTAGE OF FORMALLY DEFINED MANAGEMENT TOOLS 89
TABLE 5.17 – HAVE A MENTAL IDEA OF MANAGEMENT TOOLS 90
TABLE 5.18 – USE OF MANAGEMENT TOOLS 91
TABLE 5.19 – STAY IN TOUCH WITH ENVIRONMENT IN TERMS OF: 92
TABLE 5.20 – RANKED RESULTS TO THE QUESTION “STAY IN TOUCH WITH
ENVIRONMENT IN TERMS OF” 92
TABLE 5.21 – W HEN YOU STARTED YOUR BUSINESS DID YOU… 93
TABLE 5.22 – RANKED RESULTS OF “W HEN YOU STARTED YOUR BUSINESS DID YOU…”
94
TABLE 5.24 - REVISED RESULTS OF REASONS FOR NEEDING MONEY 96
TABLE 5.25 – DIFFICULTY IN OBTAINING FINANCE 97
TABLE 5.26 – TIME TAKEN TO OBTAIN FINANCE 98
TABLE 5.27 – TIME TAKEN TO ACQUIRE BUSINESS SKILLS 99
TABLE 5.28 - IMPORTANCE OF BUSINESS SKILLS RELATIVE TO SUCCESS OF BUSINESS
100
TABLE 5.29 - IMPORTANCE OF BUSINESS SKILLS RELATIVE TO SUCCESS OF BUSINESS
(RANKED) 100

xi
CHAPTER 1 - INTRODUCTION

This chapter will outline the background to the research, the problem statement, the

research objectives, the literature review, research proposition, benefits of the study,

research methodology, the demarcation and scope of the research, clarification of

key concepts and the chapter outline.

1.1 Background to the research

The Republic of South Africa, situated on the southern tip of Africa has nine

provinces of which Gauteng is both the smallest, with 1.4% of the land and the

wealthiest, contributing 10% of the African continent’s Gross Domestic Product

(GDP). The Gauteng province is the most highly populated with a population density

of 560 people per square kilometre. Its people have the highest per capita income

level in the whole country making it highly attractive to those seeking to improve their

lives (Gauteng, n.d.).

Gauteng contributes more then 38% of South Africa’s gross domestic product and

has a population of 9,500,000 people (Anon, 2006). Of these, approximately

1,000,000 are involved in some kind of small business activity (Staff writer, 2006).

This number keeps increasing as is surmised from the increasing number of Close

Corporations being registered annually as reported by South African Companies and

Intellectual Property Register (CIPRO) shown in table 1.1:

1
Table 1.1 - CIPRO Registration Statistics

Product 2001 2002 2003 2004 2005 2006

New Companies 30186 32174 32174 36279 44495 21581
New CC's 86396 107300 110724 128751 186077 117555
Company Liquidations 2009 2093 1176 445 1659 720
CC Liquidations 2481 1683 3154 436 1472 632
Source: CIPRO (2007)

Government policies are strongly geared towards promoting the development of

small business enterprise as a solution to alleviating poverty and improving economic

growth as demonstrated by the White Paper on a National Strategy for the

Development and Promotion of Small Business in South Africa that was passed by

the government in March 1995 and the recently unveiled 10 economic priorities

identified by Government in order to meet the Accelerated and Shared Growth

Initiative of South Africa’s (Asgi-sa) target to reduce unemployment and poverty by

2014 (Benton, 2007).

Of the 10 priorities listed the following relate to small business development:

• Support and integrate small, medium and micro-sized enterprises by allowing

them to benefit from state procurement

• Increase provision of access to finance

• Reduce the regulatory burden on small business, including those imposed by

by-laws. (Benton, 2007).

2
The government demonstrates its commitments to small business development by

developing many programmes designed to assist the small business owner in

accessing finance and technology and changing legislation to reduce the burden on

small businesses. Below are listed a few of the current programmes established by

the Department of Trade and Industry (Small Business Development, n.d.) with this

purpose:

• Danida Business to Business Programme, Credit Guarantee Scheme

• Emerging Entrepreneur Scheme, Credit Guarantee Scheme

• Micro Credit Outlets (KhulaStart)

• Regional equity funds

• Small Enterprise Development Agency (SEDA) Technology Programme

• Standard Scheme, Credit Guarantee Scheme

Given all of the energy and resources being spent by Government and financial

institutions on the promotion and development of small business and considering that

the growth of small businesses is considered the best way to alleviate poverty and

unemployment one needs to ask the following questions:

• Does the growth of all small businesses actually alleviate poverty and grow the

economy in real terms? In which circumstances?

• Does promoting the development of survivalist micro businesses with no

growth potential contribute to the economy?

• Is the goal job creation or small business creation? Is the assumption that

stimulating small business creates employment correct?

• Is it known why one business grows and the other fails? Is there evidence of
3
 the generally accepted opinions in this regard?

• What about sustainability? If a start up business closes before it makes a profit

does is alleviate poverty or drain the resources of those that provided start up

capital?

• How can the success rate of start up businesses be improved?

It is not the purpose of this research to answer all of the above questions but it is

hoped that some answers to the last question will be found by looking for the factors

that contribute to the success of small businesses in Gauteng.

1.2 Problem statement

From the general background of Gauteng given above, and the fact that at present,

very little research into the success factors amongst small businesses in South Africa

seems to be available to the public, the problem statement that can be defined in this

research is that there is insufficient knowledge relating to the failure/success of small

businesses in South Africa, Gauteng.

The Researcher proposes therefore that it would be extremely helpful to conduct

exploratory research into the main or critical factors influencing the success of small

businesses.

4
Maas and Herrington (2006:9) in the Global Entrepreneurship Monitor (GEM) for

South Africa (2006), substantiate the scarcity of knowledge about small businesses

when they state that “due to a general lack of primary data on small businesses in

South Africa, this year’s GEM report is focusing on providing specific data to be used

by other researchers and policy formulators”.

1.3 The research objectives

Since there is a scarcity of research on small businesses and particularly on the

success factors of small businesses, this research will attempt to fill the large gap by

investigating the success factors of small businesses of the Gauteng province.

The research will attempt to find a correlation between entrepreneurial qualities, the

use of management tools, available resources (financial and human) and level of

education to the success of small businesses that have been in existence for at least

3 years.

In addition the researcher will identify further gaps in the research currently available

for further clarification of the factors that impact on the success of small businesses

in South Africa.

The research objectives can therefore be defined as follows:

5
1.3.1 Primary research objective

The primary research objective of this study is to investigate the success factors

amongst small businesses in Gauteng.

1.3.2 Secondary research objectives

The secondary research objectives of this study are:

• to provide government with information that can shape future policies

regarding small business development

• to provide relevant information for the design of entrepreneurial training and

mentorship programmes

• to offer prospective entrepreneurs guidelines on the necessary requirements

for success

1.4 Importance and benefits of study

This study is of interest to potential investors, entrepreneurs, banks and other

institutions that lend money to small enterprises as well as to the government when

allocating funds to the development of the economy by means of supporting small

business.

6
Small and Micro Businesses have a vital role to play in the economy, for example to

(Stanworth, 1991; Hay and Kamshad, 1994: 49-68) generate employment, promote

innovation and create economic wealth. It is therefore worthwhile investigating how to

better support the growth and success of entrepreneurs.

In a country such as South Africa where job creation and economic growth are critical

to the health and wealth of the nation it becomes apparent that any research that

contributes to enlightening policy makers on the success factors of small businesses

is of vital importance.

There is already a drive from the banking sector to promote this growth by committing

funds to be invested in new small businesses or expansion of existing small

businesses. While this is helpful in and of itself, it will not contribute to the general

economic growth of the country if these businesses flounder after a few months. It is

of benefit to both the lender of funds and the entrepreneur to become aware of how

to increase its probability of success and to assess the entrepreneur’s profile when

lending the funds.

Nieuwenhuizen and Kroon (2002a:1) identified two entrepreneurial skills, innovation

and willingness to take risks as factors that contribute to the success of small

enterprises and that are not taken into consideration by financiers in their risk

assessment of lenders. This research proposes to confirm and extend the research

done by Nieuwenhuizen and Kroon (2002b:1-10) by investigating which factors in

three categories are positively correlated with the success of existing businesses.

7
Once these success factors are identified, a further benefit will be the possibility of

tailoring training and mentorship programmes for the entrepreneur. These programs

could be sponsored by a specially created Skills Education Training Authority (SETA)

for the training of entrepreneurs.

It is hoped that this research will contribute to:

• Identify factors that correlate with success of small businesses

• Identify what percentage of entrepreneurs are focused on growing their

businesses

• Offer guidelines to prospective entrepreneurs on the necessary requirements

for success

• Provide government with information that can shape future policies regarding

small business development in South Africa

• Provide information to assist in the design of entrepreneurial training and

mentorship programmes

• Give potential investors information that assists them in assessing the risk

profile of start up businesses

In order to find out the success factors of small businesses the researcher will first

examine existing research, both local and international to guide the investigation.

8
1.5 Literature Review

In this section the researcher examines current theory on small business success

and the factors that contribute towards it, by looking at various research papers on

the subject, written between 1993 and 2006. This review is by no means exhaustive

but does portray significant aspects of the proposed research.

1.5.1 Defining success

An issue that arose at the beginning of this research is the difficulty in defining the

“success” of the small business. While common sense indicates that most

businesses large or small are driven by the profit motive and infer the desire to grow,

other research (Poutziouris, 2003:19) indicates that small business creation may be

motivated by reasons other then profit and growth, which may exclude them from the

definition of a business if applying certain criteria.

“… the pattern of growth and motivation… provide for the evidence that many

businesses are driven by independence and other intrinsic motives and are strictly

speaking not businesses. Rather they are small organisations with non-business

objectives” (Gray, 1993:59-71).

According to the American Heritage® Dictionary of the English Language Dictionary

(2004), the definition of success is “the achievement of something desired, planned

9
or attempted”, but on the other hand, Nelson (n.d) tells us “that success is not a

condition. It is not a stabilized, permanent state of achievement. Success is the

accomplishment of goals and objectives necessary to achieve a particular task

realize a particular dream or satisfy a particular need or want, for a particular period

of time. This definition of success implies a state of constant motion”.

In this research therefore, the definition of success has been linked to the owner

manager’s reason for starting the business and his goals, whether they are explicit

(stated in a business plan), or implicit (in the owner/manager’s mind).

1.5.2 Business success and sustainability

The researcher proposes that success shouldn’t be called success unless it is

sustainable over a period of time. Making a profit in one year that leads to bankruptcy

the next is not an acceptable definition of success, leading the researcher to look

specifically at businesses that have existed for a period of at least three years and

have the prospect of continuing to exist in the foreseeable future. In this respect the

researcher refers to Dealfish’s (2004:2) research who linked level five leadership

qualities as defined by Collins (2001), to the sustainability of small businesses and

concludes that the high profile, success driven individual, while able to start a new

business, may not have the necessary attributes required to grow a sustainable

business.

10
1.5.3 Entrepreneurial success factors

Nieuwenhuizen and Kroon (2002b:1) researched the success factors of small and

medium enterprises in order to determine what should be taught in entrepreneurship

courses at university level and identified a strong relationship between business

success and the following factors:

• Creativity and innovation

• Financial management

• Financial understanding

• Bookkeeping for own advantage

• Involvement in the business

• Willingness to take risks

While the current research is following a different approach it will be interesting to

verify if the results are similar to those of Nieuwenhuizen and Kroon (2002b).

1.5.4 Managerial learning and small business growth

Zhang (2000:1) postulates that the growth of small business should be predicted

accurately and planned scientifically or risk harm to the sustainability of the business.

Zhang (2000:1) then links small business growth to the ability of the business to

maintain long-term survival and to the ability of the manager to remove management

obstacles. Based on the desirability of competitive advantage as advanced by Porter

11
(1985) in Zhang (2000:1), resource based competition by Collis and Montgomery

(1995) in Zhang (2000:1), core competence by Prahalad and Hamel (1990) in Zhang

(2000:1) and organisational learning (Senge, 1990) in Zhang (2000:1), Zhang

(2000:1) further states that the learning function or the ability of an organisation to

learn to influence the development of core competences and contribute to the

company’s competitive advantage. In the research conducted by Zhang (2000:4) it is

identified that small business owners in China are too busy to study and do not see

the value of time management, which results in an autocratic management style. It

was also found that most businesses do not have a business plan or a strategy for

running and growing the business and have not learnt to delegate authority as the

business grows. Zhang (2000:4) identifies the need for government to provide small

businesses with not only favourable policies, but also some form of management

consultation and managerial training, for without this small business will not be able

to grow and expand, thereby contributing more to the economy. The researcher

believes that South Africa may benefit from the same support, and this study may

reveal the need for the same approach to the promotion of small business in South

Africa.

1.5.5 Entrepreneurship, small business and economic growth

Thurik and Wennekers (2004:8) affirm that European governments are shifting from

controlling scale economies to enabling entrepreneurial economies in order to solve

the problems of stagnant growth and high unemployment. The South African

12
economy with its high unemployment levels of 25.5% (StatsSA, 2006) can benefit

from a similar shift by targeting education, increasing the skills and human capital of

workers and their ability to start new businesses, lowering administrative burdens for

small business and promoting knowledge transfer to innovative new enterprises.

Entrepreneurship in Europe (Thurik and Wennekers, 2004:9) is seen as a driver for

economic growth, job creation and indirectly resolving social issues. It could be

equally so for South Africa, but due to different environmental factors in South Africa

when compared to Europe it is therefore important to research which factors in South

Africa contribute the most to the success of the small business in order to correctly

identify the means of increasing the number and success of small business in South

Africa.

1.5.6 The Strategic orientation of owner-managers of small businesses

Poutziouris (2003:1) explores the strategic orientation of owner-managed small

business in the United Kingdom, in order to categorise such businesses. Poutziouris

(2003:1) also looked into the inter-relationship of strategic orientation with structure,

behaviour and performance. The empirical evidence from the research suggests that

it is possible to segment small businesses into four distinct strategic orientation

generic groups:

• growth oriented;

• survival oriented;

• control oriented and

13
 • exit oriented

Poutziouris’ (2003:20-21) research also mentions that the growth oriented

businesses are the main contributors to job generation and therefore to the economy,

which they fund out of their profits, thereby reducing them. While control oriented

businesses are the most profitable they tend to keep the status quo, in order to keep

control. The government needs to focus on encouraging the growth oriented

businesses as a good source of job creation. If this is found to be true in South Africa

as well as in the UK, it could be an invaluable tool to both Government policy makers

and financial institutions.

1.5.7 The value of plans, planning and strategic awareness in the small business

Hannon and Atherton (1997:13) suggest that there is a critical relationship between

planning in small businesses and the strategic awareness capability of owner-

managers. This proposition posits a positive relationship between high levels of

strategic awareness capability and likely small business “success”, because it may

lead to:

• a more considered and hence more effective positioning of the business in its

environment

• identification and management of opportunities and challenges; and

• an improved basis for initiating effective planning process.

14
Hannon and Atherton (1997:13) developed a framework to represent the relationship

between strategic awareness capability and the success of small business which

identifies four characteristic types of businesses based on their planning

effectiveness (PE) and level of strategic awareness capability (SAC).

1.6 Research proposition

Having conducted a literature review in the preceding section, it is now possible to

define the research proposition.

“A research proposition is a statement concerned with the relationship among

concepts; an assertion of a universal connection between events that have certain

properties (Zikmund, 2003:43).

From the above literature research the following propositions naturally follow:

P 1: Entrepreneurial personality cannot be correlated with the success and

sustainability of small business ventures in Gauteng.

P 2: The use of management tools cannot be correlated with the success and

sustainability of small business ventures in Gauteng.

P 3: Resource availability cannot be correlated with the success and sustainability

of small business ventures in Gauteng.

15
The above propositions relate to the research objectives in as much as the

verification of the propositions will or won’t define the success factors of small

businesses in Gauteng, enable the compilation of a success profile for prospective

entrepreneurs, contribute to the formulation of relevant coaching and mentoring

programmes for entrepreneurs and provide information to policy makers.

1.7 Demarcation and scope of research

Demarcating and defining the scope of the research is essential given the research

objective that identifies the province of Gauteng as the area in which the research is

to be done.

It is the intention to conduct small scale research that could be invaluable if it were

possible to take it to the level of national research by province or even by economic

sector. As it is not possible to do this research on a national scale due to time and

economical constraints, the province of Gauteng has been selected as being the

most convenient due to location. Furthermore within the province of Gauteng, the

Johannesburg and Tshwane metropolitan areas have been selected to focus on.

The research proposed is far-reaching and inexhaustible as evidenced in the

literature survey conducted and summarised above and each of the three themes

selected for this research and included in the research proposition could be the

subject of in depth research of their own. This particular research will be broad rather

16
then in depth to provide a stimulus for further and deeper research into the same

subject.

1.8 Research methodology

Methodology is defined as:

- “The analysis of the principles of methods, rules and postulates employed by a

discipline or

- the development of methods, to be applied within a discipline or

- a particular procedure or set of procedures”. (Wikipedia, n.d.)

In this instance, methodology, and research methodology in particular refers to the

set of procedures that will be followed in the subsequent chapters in order to

investigate the success factors among small businesses in Gauteng

The methodology followed in this research will encompass the following stages:

• Research design

• Data sampling

• Questionnaire design

• Data collection and

• Data analysis

17
1.8.1 Research design

“A research design is the blueprint or master plan, which indicates the methods and

procedures for the collection and analysis of data necessary to conduct the research”

(Zikmund, 2003:65).

In the research design the researcher must consider the three types of research

depending on the ambiguity of the research problem, as indicated below:

• Exploratory – ambiguous research problem

• Descriptive – partially defines research problem

• Causal – clearly defined problem

This research is of an exploratory nature, so the research design method chosen is a

cross-sectional survey of small businesses conducted via e-mail with the owner

manager of small businesses in Gauteng. An accessibility sample will be used, but

care will be taken in order to not prejudice the results of this survey. The data will be

analysed using reliable and tried methods and results will be reported on through the

use of tables and figures.

The limitations of time and cost have contributed to the choice of the survey as the

means of doing the research.

The independent variables being tested are the possible factors affecting the success

and sustainability of small businesses. Success and sustainability as defined by the

18
achievement of the owner-manager’s goal for a period of three or more years is the

dependent variable being measured.

International research as suggested by Stephen (2000:56,63,71,86), Hannon and

Atherton (1997:1-18) Dionco-Adetayo (2004:1), indicates that there are a variety of

approaches and criteria to be examined in assessing factors that contribute to the

success of small businesses, ranging from strategic and leadership issues to

resources and environmental issues.

In this study, the researcher has extracted the items to be used from the results of

the abovementioned research based on those criteria that were identified as being

the most strongly correlated with business success. The researcher is therefore

focusing the empirical research on a relatively narrow range of factors due to the

limitations of time and money available to conduct the study.

The following criteria were selected from the identified criteria of Stephen (2000:56,

63, 71, 86), Hannon and Atherton (1997:1-18) and Dionco-Adetayo (2004:6-14) and

are categorised into three themes:

• Entrepreneurial personality characteristics of owner/manager, specifically:

- Strong professional will (self confidence, independence and willingness to do

whatever it takes)

- Resourcefulness

- Initiative

- Enthusiasm

19
 - Innovation

• Use of management tools such as:

- Strategic orientation (goal and objectives)

- Business Plan creation and usage

- Marketing Plan

- Environmental awareness (legislation, competitors, customer, market)

• Resource availability

- Financial

- Human expertise

1.8.2 Sampling

Sampling is any procedure that uses a small number of items or a portion of the

population to derive a conclusion about the whole population (Zikmund, 2003:70).

The target population chosen for this research is the owner-manager of small

businesses in Gauteng. The definition of small business being used is the same as

that given by the National Small Business Act (see Appendix I). The sampling frame

that will be used is made up from the database purchased from Gaffney’s Publishers

who compile business addresses from the chambers of commerce as well as

addresses the web site easyinfo.co.za and others.

20
From this database, an accessibility sample was drawn by sending e-mails to all

businesses that did not specifically indicate that they were large businesses. This

does introduce a possible bias as certain type of business owners may be more likely

to reply then others, and because businesses who are not members of a chamber of

commerce were not included. Nevertheless the research will give some indication of

the success factors in small businesses. To overcome the possible bias introduced

by the convenience sampling method, the sample will include businesses from all

sectors, including manufacturing, retail and wholesale. Approximately 5000

questionnaires were sent out to business that have less then 70 employees, and

whose turnover was less then R20, 000,000.00. The questionnaire (appendix II) was

addressed to the owner or managing director of the business.

1.8.3 Questionnaire design

A questionnaire is the measuring instrument of research that utilises the survey

method (Herbst, 2004).

The researcher is aware that the personal interview method is the most suitable to

this research project, since the response rate using this method is greater then 80%

(Dillon, Madden and Firtle, 1993: 269-329), but due to time constraints an e-mail

questionnaire will be sent out.

21
In formulating the questionnaire the researcher will derive the questions from the

literature survey and follow the guidelines of a good questionnaire from Dillon

Madden and Firtle (1993: 269-329).

The questionnaire will be divided into logical subsections encompassing:

• an evaluative section where the success of business will be ascertained

according to the achievement of owner’s goals

• three sections determining the existence of success factors according to the

three themes of factors being considered

• and a classification section gathering data on owner-manager, such as age,

gender, education and motive to start own business

In the main the questions will be close ended and where appropriate will use the five

point Likert scale.

1.8.4 Data collection

Data collection refers to the process of gathering raw and unprocessed information

that can be processed into meaningful information, following the scientific process of

data analysis (Zikmund, 2003:72).

The researcher sent out the questionnaire to fellow MBA students hoping in order to

get some qualitative input regarding the research objectives and how they link up

22
with the research questionnaire. Unfortunately no feedback was received from this

source. The only input received was from Prof Herbst, the study leader at the time.

In order to collect the necessary data, a two-phase survey was conducted. In the first

phase the questionnaire to be used was pre-tested. This was done by e-mailing it to

a small number of owner-managers, in order to ascertain if there are any flaws in the

questionnaire. The questionnaire was then revised for the final phase of sending it

out to 5000 businesses. The work will be done by the researcher and the research

will be conducted in accordance with the South African Marketing and Research

Association’s (SAMRA) code of conduct and the World Association of Opinion and

Marketing Research Professionals (formerly European Society for Opinion and

Marketing Research or ESOMAR) ethical principles.

1.8.5 Data analysis

The data collected will be analysed by STATKON, the statistical analysis department

of the University of Johannesburg.

Data will be checked for omissions, legibility and consistency, before being coded for

analysis. Validity and reliability analysis will be done according to acceptable

research standards. The data will be analysed by a professional statistician, who will

use appropriate statistical tools to arrive at meaningful conclusions.

23
1.9 Clarification of key concepts

In this section the key concepts used in this research will be identified and clarified:

Small business -The researcher found that the definition of a small business that is

relevant to the South African context is the one given by the National Small Business

Act, which can be found in Appendix I. In the process of searching for this definition it

was also discovered that of the one million businesses in the South Africa, 90% are

small (Government Gazette No. 24628. Republic of South Africa).

Success factors - When considering the definition of success one has to take into

account the motivation of the owner-manager of the start up small business

(Poutziouris, 2003:7). Growth and increased profits and rewards are assumed to be

the primary drivers of every business (Bannock, 1981 and Barrow, 1988 in

Poutziouris, 2003:3), but research evidence indicates that the majority of small

privately owned businesses are not motivated to grow their businesses (Poutziouris,

2003:15). In Chapter 2 the researcher will elaborate on the definition of success.

Taking the above into consideration a generic definition of success in terms of

achieving the desired goal of the owner-manager at start up of the business, in order

to include all possibilities, will be used.

24
1.10 Nature and form of results

The results will be presented in figures and tables, from which conclusions and

recommendation will be drawn.

1.11 Chapter Outline

The following is the chapter outline:

Chapter 2 – Theoretical overview of success factors amongst small businesses

A comprehensive survey of literature and research on the subject of small business

success will be conducted and discussed in this chapter.

Chapter 3 –The South African Context to Small Business Success

A survey of the environmental conditions, political, economical, social and

technological, that small businesses are subject to in Gauteng.

Chapter 4 – Research design and methodology

In this chapter a detailed blueprint of the approach to be taken in the research and

the methods to be used will be given.

Chapter 5 – Research findings

This chapter will report on the findings of the research on a question by question

25
basis.

Chapter 6 – Summary and conclusions

The findings of the research will be considered in relation to the research objectives.

The researcher will report on these conclusions and give recommendations for future

research.

26
CHAPTER 2 – THEORETICAL OVERVIEW OF SUCCESS FACTORS AMONGST

SMALL BUSINESSES

A comprehensive survey of literature and research on the subject of small business

success will be conducted and discussed in this chapter giving the theoretical

foundation for the proposed research.

2.1 Defining success

Defining success is imperative before one can research the factors of success in

small businesses.

The word success comes from the Latin “succedere”, which means “to go on well”,

Holden (2005:102). The implication of this definition is that success is not so much

an arrival at a destination, but a journey, a process, or perhaps even the quality of

the journey and whether there is any progress or improvement. From this perspective

one could look at “Kaizen” or “continuous improvement” as the definition for success

in business.

According to the Free Dictionary (2007), the definition of success is “the achievement

of something desired, planned or attempted”, but on the other hand, Nelson (n.d.)

indicates “that success is not a condition. It is not a stabilized, permanent state of

achievement. Success is the accomplishment of goals and objectives necessary to

27
achieve a particular task realize a particular dream or satisfy a particular need or

want, for a particular period of time. This definition of success implies a state of

constant motion. You are always moving toward ‘that thing’ you want so badly and

success is not in the attainment of the ‘thing’ itself, but it is in the actual process you

go through in order to get it. It is in the sweat that you put out, the long hours you put

in and it is in the decision you make that you will stay in the fight. It is in the lessons

you learn as you strive to constantly reach higher levels. This is the reason you can

make bold statements about your success even in the absence of physical evidence.

You become able to visualize yourself as strong and successful regardless of the

environment you temporarily find yourself in”.

In Simpson, Tuck and Bellamy (2004: 481-484) it is found that success is often seen

in terms of growth, turnover or profitability, occasionally as continued trading and

sometimes as return on capital employed. The problem with defining success as

continued trading is that it is based on the assumption that the only reason to stop

trading is insufficient profits. For this reason Van Praag (2003) distinguishes between

compulsory exits from business as opposed to voluntary exits and only associates

the compulsory exits with the lack of success.

(Poutziouris, 2003:7) indicates that small business creation may be motivated by

reasons other then profit and growth, which may exclude them from the definition of a

business if applying certain criteria.

“… the pattern of growth and motivation… provide for the evidence that many

businesses are driven by independence and other intrinsic motives and are strictly

28
speaking not businesses. Rather they are small organisations with non-business

objectives” (Gray, 1993:59-71).

Given the above, it becomes clear that some owner-managers would define success

as survival, being in control or simply being independent.

Common sense indicates however, that most businesses large or small are driven by

the profit motive and infer the desire to grow. Success in small business could then

be defined by profit making, return on capital employed, increasing shareholder value

and/or growth.

Taking into account the possible variations in the definition of success given above,

but nevertheless taking into account that survival, independence or control is not

achieved through making a loss in business, in this research the definition of success

will be linked to the owner manager’s reason for starting the business and his goals,

whether they are explicit (stated in a business plan), or implicit (in the

owner/manager’s mind).

2.2 Business success and sustainability

The researcher proposes that success shouldn’t be called success unless it is

sustainable over a period of time. Making a profit in one year that leads to bankruptcy

the next is not an acceptable definition of success, leading the researcher to look

29
specifically at businesses that have existed for a period of at least three years and

have the prospect of continuing to exist in the foreseeable future. In this respect the

researcher refers to Dalgish’s (2004:2) research where level five leadership qualities,

i.e. strong professional will (“an unwavering resolve to do whatever must be done to

produce the best long term results – no matter how difficult, sets the standard and

looks in the mirror, not out of the window, to apportion responsibility for poor results”

Dalgish (2004:4)), self-effacement, reserve and humility, as defined by Collins (2001),

are linked to the sustainability of small ventures and concludes that the high profile,

success driven individual, while able to start a new business, may not have the

necessary attributes required to grow a sustainable business.

In addition to the leadership qualities, Collins (2001) also identified the following

conditions for sustained success:

• “Importance of having the right people;

• Importance of confronting the brutal facts –without losing faith;

• A culture of discipline;

• The use of technology to accelerate and support initiatives;

• A recognition that greatness takes time; and

• The hedgehog concept which identifies three intersecting factors:

- passion for what you do,

- the ability to become the best in the world at what you do

- and an awareness of what drives the economic engine.”

30
Sustainability in the broader context of “the ability of the earth to sustain the

development of new business and technology” also needs to be addressed when

considering success, as any success that brings about a long term threat to the

environment is one that is achieved at too high a cost. Willard (2004:11) suggests

that in order to achieve this, MBA core courses need to quantify the benefits of

corporate social responsibility, in order to begin to change the mindsets of business

leaders.

As this research is only directed toward the small business and small business are

not considered the main culprits of ecological challenges, this particular issue will not

be addressed.

2.3 Learning function and small business growth

Zhang (2000:1) postulates that the growth of small business should be predicted

accurately and planned scientifically or risk harm to the sustainability of the business.

2.3.1 The definition of small business growth

Zhang (1995:31) defines the six essential characteristics of small business as being:

• High dependence on the owner – usually the manager too, the owner

performs many functions until the business grows enough to sustain

employees, therefore the small business is highly dependant on the owner

31
 • Easy to start up – the small business is easy to start up because by definition

is it small and therefore requires less capital, less employees, less planning.

• Operating from owner’s self-collected capital – very often a small business is

started from the owner’s savings.

• Simple structure of management – small businesses are usually very flat and

simple in terms of levels of management as they cannot afford not to be

• Full of innovation – the small business owner is under pressure to adapt to the

environment and therefore to innovate

• Easily affected by environment – Changes in the political and economical

environment have a much stronger impact on a small business then on a large

business as it usually does not have the reserves to withstand changes.

Furthermore Zhang (1995:1) states that every business wants to grow and that to

grow, a business must maintain long term survival and the owner/manager must be

able to identify and remove obstacles. This is facilitated by the simple structure of the

small business, but threatened by it’s susceptibility to environmental changes, and

the dependence on the owner.

Based on the desirability of competitive advantage as advanced by Porter (1985) in

Zhang (2000:1), resource based competition by Collis and Montgomery (1995) in

Zhang (2000:1), core competence by Prahalad and Hamel (1990) in Zhang (2000:1)

and organisational learning (Senge, 1990) in Zhang (2000:1), Zhang (2000:1) further

states that the learning function and ability of an organisation to learn to influence the

development of core competences, contribute to the company’s competitive

32
advantage.

Unfortunately in the case of small businesses, organisational learning can only refer

to the owner’s learning ability and competence, until the business grows sufficiently

to be restructured and become less dependent on the owner. Until then the success

of the small business is therefore lined directly to the owner’s ability to learn, develop

core competencies and increase the competitiveness of the business.

Zhang (2000:2) defines individual learning as the process of getting knowledge and

skill to make individual activities more effective and divides this process into

operational learning (know how) and conceptual learning (know why). He further links

operational learning to observation and assessment and conceptual learning to

design and implementation.

The research conducted by Zhang (2000:2) identified that small business owners in

China generally have a low level of education (refer to Table 2.1), are too busy to

study and do not see the value of time management, which results in an autocratic

management style. It was also found that most businesses do not have a business

plan or a strategy for running and growing the business and have not learnt to

delegate authority as the business grows. This would point to a dearth in the ability

of the owner manager to conceptualise solutions to problems and implement them.

While the operational learning may be accessible on a day to day basis of running a

business the conceptual aspect requires other inputs and abilities.

33
Table 2.1 - Education Background of Chinese business owners in %

Illiterate 1.0%
Primary School 9.9%
Junior High 36.0%
High School 29.6%
Vocational School 6.9%
2-year college 11.7%
4-year college 4.9%
Graduate degree 0.6%
Total 100.0%
Source: China Private Economy Almanac (1994) in Zhang (2000:3)

Zhang (2000:4) identifies the need for government to provide small businesses with

not only favourable policies, but also some form of management consultation and

managerial training for without this small business will not be able to grow and

expand, thereby contributing more to the economy

The GEM report (Maas and Herrington, 2006:30-31) measured amongst other things

the level of education of total early-stage entrepreneurial activity respondents

between ages 18-64 to be as shown in table 2.2:

Table 2.2 - Education levels of total early-stage entrepreneurial activities in

South Africa

No school 0.7%
Some primary school 1.4%
Primary school completed 2.1%
Some high school 26.1%
High school completed 45.1%
Some university 4.9%
University completed 8.5%
Other post-graduate qualification 11.3%
Total 100.0%
Source: Maas and Herrington (2006:30-31)

34
Comparing tables 2.1 and 2.2 it can be verified that there is a small difference (0.5%),

in the number of entrepreneurs that have more then a high school education,

between the two countries.

The researcher believes that there are parallels between the Chinese and South

African economy in terms of small businesses and the levels of education of

entrepreneurs and will investigate in this research if the findings of both Maas and

Herrington (2006:1-80) and Zhang (2000:1-4) can be confirmed, if there is a similar

approach to learning and whether education and the knowledge of business

management is in fact at least partially responsible for success in small businesses in

South Africa.

2.4 Entrepreneurial success factors

Nieuwenhuizen and Kroon (2002b:1) researched the success factors of small and

medium businesses in order to determine what should be taught in entrepreneurship

courses at university level. 17 questions were asked and the responses from 116

small industrialists were statistically analysed Nieuwenhuizen and Kroon (2002b:2).

The results indicate a strong correlation between the success of the small business

and the following factors:

• Creativity and innovation

• Financial management

• Financial understanding

35
 • Bookkeeping for own advantage

• Involvement in the business

• Willingness to take risks

• Knowledge of competitors

• High quality work enjoys priority

• Planning of business

• Sound human relations

• Skills and Knowledge with regard to the enterprise

Nieuwenhuizen and Kroon (2000b:8) concludes that the primary success factors of

small and medium enterprises which are mentioned above are similar to the

characteristics of individuals with a high need for achievement which McClelland

(1986:219-233) identified. Furthermore Nieuwenhuizen and Kroon (2000b:8)

recommends that in order to establish an entrepreneurial culture these success

factors should be developed in existing and potential entrepreneurs through the

educational and training system.

The current research has similar objectives and the results will be compared.

2.5 Entrepreneurship, small business and economic growth

Thurik and Wennekers (2004:8) affirm that European governments are shifting from

controlling scale economies to enabling entrepreneurial economies in order to solve

36
the problems of stagnant growth and high unemployment. The South African

economy with its high unemployment levels of 25.5% (StatsSA, 2006) can benefit

from a similar shift by targeting education, increasing the skills and human capital of

workers and their ability to start new businesses, lowering administrative burdens for

small business and promoting knowledge transfer to innovative new enterprises.

Entrepreneurship in Europe is seen as a driver for economic growth, job creation and

indirectly resolving social issues. It could be equally so for South Africa, but due to

different environmental factors in South Africa when compared to Europe, it becomes

important to research which factors in South Africa mostly contribute to success of

the small enterprise in order to correctly identify the means of increasing the number

and success of small business in South Africa.

Naude and Krugell (2003:1) argue that while increasing small businesses and

entrepreneurship may be the solution to Europe’s stagnating economy, the same

cannot be said of African countries. In fact they claim that the predominance of small

businesses in Africa may be in part responsible for the poor economic growth.

Naude and Krugell (2003: 1-3) identify the following as factors affecting economic

growth in African countries:

• small and medium Enterprises (SME’s) dominate – in South Africa about 95%

of businesses (formal and informal) are SME’s

• failure of small businesses to export significantly

• small business cannot bear the high fixed cost of exporting

• small businesses are inefficient

37
 • adverse geography increases transaction costs

• high transaction costs affect small businesses more then large businesses

• low incidence of subcontracting between large and small businesses due to

low efficiency levels

• lack of division of labour in small businesses creates inefficiencies giving rise

to a lower rate of return on capital

• lack of adequately skilled human capital

• ethno linguistic fragmentation of which Africa has a very high degree

contributes to a lower social cohesion which impact on lower efficiencies in

SME’s

Naude and Krugell (2003: 8-9) conclude that it may be wiser to invest in larger

businesses that are more able to contribute to the economic growth and around

which smaller businesses can develop.

Van Praag (2003:1) reminds us that it is not enough to stimulate the number of new

small businesses if they don’t survive. It is also important to stimulate the longevity of

the new business if it is to truly contribute to the economy and the decrease of

unemployment levels.

2.6 The Strategic orientation of owner-managers of small businesses

Mainstream economic and management theories postulate that businesses pursue

38
growth, but the reality is that small businesses are characterised by many different

forms of ownership, entrepreneurial culture and strategic objectives (Poutziouris,

2003:2). Nevertheless the small business is credited with making a significant

contribution towards the economic growth of the country through managing limited

resources in innovative ways and thereby adding value.

Due to the abovementioned assumptions, banks and governments indiscriminately

promote the growth in numbers of small businesses without any attention to the

actual contribution they are likely to make to the economy if, for instance, the motive

of the owner-manager is to primarily have the freedom of control of his own time. It

therefore becomes necessary to look into the typology of entrepreneurs, as this will to

some extent determine whether the small business is growth oriented or not.

Glancey, Greig and Pettigrew (1998:5) looked at the difference in entrepreneurial

objectives between entrepreneurs that are pulled into business and those that are

pushed into business, in the field of small business service businesses. Pull factors

were found to be financial considerations, a desire for greater responsibility and

control of decision making and a desire for greater personal development. Push

factors identified in this research were all related to the undesired loss of their

previous employment, either through business closure or redundancy. They found

that neither group of entrepreneurs had an initial objective of business growth,

though those that were pulled by profitability did consider future growth as desirable.

Both groups changed their initial objectives to predominantly business growth, which

demonstrates the dynamic element of business. Glancey, Greig and Pettigrew

39
(1998:9-14), consider these results to be specific to the specific industry they

investigated, rather then the broader group of surviving small businesses.

Poutziouris (2003:1) explores the strategic orientation of owner-managed small

business in the UK, in order to categorise such businesses. For this purpose, the

inter-relationship of strategic orientation with structure, behaviour and performance

(growth and profitability) is investigated. The empirical evidence of the research

conducted by Poutziouris (2003:15-17) suggests that it is possible to segment small

businesses into four distinct generic groups as given in figure 2.2 below.

Figure 2.2 - The four “types” of small business owner-managers

Growth Exit oriented -

oriented - 25% 25%

Survival
oriented - 16% Control
oriented - 34%

Adapted from: Poutziouris (2003:17)

Growth businesses are less likely to be family owned and run, younger and smaller,

operating in the manufacturing industries and business services. The owners of these

businesses are oriented towards increasing the size of the business and being

recognised and being owners of a successful business.

40
Exit oriented businesses refers to those businesses whose owners are less

interested in controlling the business then they are in making a profit by selling it

whole or in parts. They were found to be mostly among the larger and more

established businesses in manufacturing and services.

Survival oriented businesses are often owned by partnerships, are family controlled

and operate in traditional sectors, such as construction, agro-farming and trade.

Their priority is to survive and maintain their autonomous lifestyle.

Control oriented businesses are those businesses that focus their efforts on

maintaining the status quo. They are to be found amongst the family owned ventures

in traditional occupations.

Poutziouris’ (2003:20-21) research also mentions that the growth oriented

businesses are the main contributors to job generation and therefore to the economy,

which they fund out of their profits, thereby reducing them. While control oriented

businesses are the most profitable they tend to keep the status quo, in order to keep

control. The government needs to focus on encouraging the growth oriented

businesses as a good source of job creation. If this is found to be true in South Africa

as well as in the UK, it could be an invaluable tool to both Government policy makers

and financial institutions.

41
2.7 The value of plans, planning and strategic awareness in the small business

Hannon and Atherton (1997:3-4) state that studies have shown that there is a

positive relationship between business planning and performance, but they also

found that other research indicates the opposite, that there is no evidence to support

that business plans are directly related to improved business performance. As there

seems to be a lack of consensus, Hannon and Atherton (1997:3-4) posit that perhaps

it is the process of planning rather than the business plan itself that benefits the

business and that research generally focuses on the output of the planning process

rather then on the process itself.

In addition Hannon and Atherton (1997:12) also found that in many instances a

business plan is prepared at the insistence of an outside source, such as a bank

rather then being a process in which the owner-manager engages voluntarily out of a

perceived value in the process. In the corporate world, this process may be more

valuable than in the owner-manager environment, since the owner manager is risking

his own resources and is in direct control of all aspects of the business, while in the

corporate world the shareholders need some reassurance that their interests are

being protected and this is achieved by providing them with a business plan. The

owner-manager often does his planning without formalising it on paper in a particular

structure or format, giving the impression that there is no plan when in fact the plan is

in his/her head.

42
Hannon and Atherton (1997:13) suggest that there is a critical relationship between

planning in small businesses and the strategic awareness capability of owner-

managers. This proposition posits a positive relationship between high levels of

strategic awareness capability and likely small business “success”, because it may

lead to:

• A more considered and hence more effective positioning of the business in its

environment

• Identification and management of opportunities and challenges and

• Improved platform for initiating effective planning process.

Hannon and Atherton (1997:13) represent the relationship between strategic

awareness capability and the success of small business in figure 2.3. The framework

identifies four characteristic types of businesses based on their planning

effectiveness (PE) and level of strategic awareness capability (SAC).

Briefly each type can be described as follows:

• The Un-navigated Ship – low PE, low SAC - likely to be poor performers

• The Myopic Innovator – high PE, low SAC – has potential, but vulnerable to

fatal unforeseen events

• The Visionary Under-achiever – low PE, high SAC – more likely to succeed,

but difficulty in converting opportunities into realised objectives

• The Successful Orienteer – high PE and high SAC – this business can sustain

its competitiveness in dynamic contexts

43
Figure 2.3 - A typology of the effects of planning effectiveness and strategic

awareness capability on business management and development

Adapted from: Hannon and Atherton (1997:13)

2.8 Summary

A survey of the literature available on the subject of small business success factors
was conducted and some of the findings were reported in this chapter. The following
conclusions can be made:

• Success, in the business sense, is often defined in terms of growth, turnover

or profitability, continued trading and return on investment (Simpson et al,
2004). For many small businesses, the motive is one of independence
(Poutziouris, 2003) rather then profit and / or growth.
• Sustainability of a business depends on leadership qualities as well as on
having the right people, the ability to confront brutal facts and not lose faith, a
culture of discipline, use of technology, persistence, passion, awareness of
economic drivers and the ability to become the best at what one does (Collins,
44
 2001).
• The ability of a business to grow and maintain long term survival is facilitated
by the simple structures of a small business but threatened by it’s
susceptibility to environmental changes and dependence on the owner
(Zhang, 1995).
• Organisational learning can be renamed owner learning in a small business
and is strongly connected with the owners’ ability to develop core
competencies and increase competitiveness (Zhang, 1995).
• Nieuwenhuizen and Kroon (2002) identified success factors that correlate with
a high need for achievement and therefore recommend the development of
such characteristics in existing and potential entrepreneurs through the
educational and training system.
• Economic growth is driven by the proliferation of small businesses, and
according to Thurik and Wennekers (2004), but Naude and Krugell (2003)
claim that the proliferation of small businesses in Africa is at least part
responsible for the lack of economic development.
• The motivation for starting a business, will affect the level of contribution to the
economy, since owners that are “pushed” into business are geared towards
survival and maintaining their autonomy, rather then toward growth and job
creation (Poutziouris, 2003).
• Hannon and Atherton (1997) posit that the process of preparing the business
plan is more important then the output, as high levels of strategic awareness
are positively connected to small business success.

In this research, the definition of success, the entrepreneurial personality, the role
of the business plan, the availability of resources and the learning and motivation
of business owners, will be examined.

45
CHAPTER 3 - THE SOUTH AFRICAN CONTEXT TO SMALL BUSINESS

SUCCESS

Gauteng is the smallest of the nine South African provinces with only 17000 sq km -

1.4% of total land surface – but the largest in terms of its contribution to national GDP

– 33.9%. Gauteng generates 10% of Africa’s GDP (Gauteng Enterprise Propeller

Overview, 2007), which makes it a very important geo-economical zone.

With its high levels of education – the most highly educated populace in South Africa

– Gauteng also has a high growth rate, high labour productivity and innovation

(Gauteng Enterprise Propeller Overview, 2007).

In Gauteng one will find a highly developed transportation and communications

infrastructure that links it to all the major capitals of the world. The finest financial

institutions – more then 70 foreign banks as well as more then 100 embassies - are

found here (Gauteng Enterprise Propeller Overview, 2007).

Approximately 20% of the South African population, over 8 million people are living in

Gauteng. Of these 13% have a tertiary education and more then 41% have

completed high school (Gauteng Enterprise Propeller Overview, 2007). These

statistics give the impression that this is the best area for entrepreneurs to start a

business and indeed there are many small businesses in the province of Gauteng. A

survey commissioned by Gauteng Enterprise Propeller (GEP) and FinMark Trust

indicates that 1 in every 6 adults in Gauteng are engaged in some form of small

46
business activities (Finscope Small Business Survey, 2006).

186000 closed corporations (cc’s) were registered in 2005 and it was predicted that

in 2006 this could reach 235000 (Terblanche, 2006). In fact only 117555 were

registered in 2006. Compared to the 60000 that were registered in 2004, this is great,

but the question remains about how many of these new start-ups will still be around

in 5 years time. Will they succeed or will they fail? How can the government and

other institutions effectively contribute to the success of these new businesses?

Many programs exist to promote small businesses. Among them are the Sizanani

Business Advisory services, Umsobomvu, Khula enterprise, Small Enterprise

Development Agency (SEDA), Department of Trade and Industry (DTI), Gauteng

Enterprise Propeller, as well as the help that all the major banks offer to

entrepreneurs in terms of information and courses they offer. The main focus seems

to be in assisting prospective entrepreneurs in obtaining finance to start up. While

this is coupled in same cases with mentorship, unless the entrepreneur takes up the

opportunity of learning how to manage his business the money invested will most

likely be lost. Many business plans are drawn up for the sole purpose of obtaining

finance and seldom looked at thereafter (Hannon and Atherton; 1997:12).

It becomes critical to those wanting to promote success in the small business sector

to be more certain of which factors contribute to the success of small businesses.

47
In this chapter the environmental conditions in which small business currently

operates will be investigated.

The following areas will be addressed:

- Political

- Economical

- Auto Immnune Deficiency Syndrome (AIDS)

- Crime

- Entrepreneurial Activity

- Black Economic Empowerment

3.1 Political

South Africa is facing elections in 2009, when the African National Congress (ANC) is

expected to win as it continues to be the most popular choice for the majority of

voters. Nevertheless what remains uncertain is who the ANC will choose as its

President to succeed President Mbeki. The ANC party is divided on this issue which

is unfortunate as this will take their attention from bigger issues that need attention.

Some of the big issues facing the government at this point in time are the very high

crime rate, unemployment and AIDS.

Due to the stability and resolve of the South African democracy it has been possible

for the government to make substantial social and economical reforms in the last 10

48
years. This combined with a sound fiscal policy has led to solid credit ratings and the

classification of South Africa as the most competitive economy in sub Saharan Africa

and the most attractive in Africa for companies to invest in, by the World’s Economic

Forum’s 2004 Global competitive index.

The main aims of the government's economic policy are Black economic

empowerment (BEE), correcting social imbalances and job creation—within the

context of fiscal and monetary discipline, as well as specifically promoting growth and

job creation within the broader context of political and economic transformation and

the Africanisation of society. Combating HIV/AIDS is, in addition, South Africa's chief

social and economic challenge, as the disease is already having an impact on the

health, welfare and education systems, as well as on the economy.” (Economist

Intelligence Unit, 2006)

3.2 Economical

The main thrust of the government’s medium-term programme is to increase

economic growth and investment in order to create employment, while broadening

ownership of the post apartheid economy by encouraging BEE”. (Economist

Intelligence Unit, 2006)

The Gauteng economy is dominated by the Financial and business services,

Manufacturing and Trade sectors of the economy as portrayed in figure 3.1 below,

49
based on statistics given by Gauteng Economic Propeller (2007).

Figure 3.1 – Gauteng Economic Sectors contribution to GDP

Gauteng Economic Sectors contribution to GDP

14.00%
Other
40.80%
20.50% Financial
Manufacturing
Trade
24.70%

Source: Finscope Small Business Gauteng 2006.

The Gauteng Enterprise Propeller and the FinMark Trust commissioned African

Response to research the small business sector in Gauteng. In order to support

effective market analysis, the 2001 small businesses surveyed were segmented

according to their level of sophistication in terms of premises, ownership of facilities,

use of technology, education of owner, employees, turnover and use of banking

facilities. These segments were named BSM 1 to BSM 7, with BSM 1 being the least

sophisticated and BSM 7 being the most sophisticated. Some of the findings are

summarised in table 3.1 below:

50
Table 3.1 - Breakdown small businesses in Gauteng, employees and turnover

FINTRUST SURVEY 2006

% of Total Employees Annual Turnover R
BSM 1 12% 0.10 9113
BSM 2 9% 0.14 10723
BSM 3 26% 0.23 16793
BSM 4 23% 0.47 24710
BSM 5 10% 0.85 27841
BSM 6 10% 1.78 66597
BSM 7 9% 8.88 463747
Source: Finscope Small Business Gauteng 2006.

The survey estimates the number of small businesses in Gauteng to be around

1053818. This would indicate that small businesses in Gauteng employ

approximately 842211 persons of the more then 8 million inhabitants of Gauteng,

approximately 11%. The implication is that most of the burden in creating

employment is on the shoulders if medium and large businesses. It also indicates

efforts would be best spent on bringing BSM6 businesses to BSM7 levels of

sophistication since the contribution made by all but BSM7 businesses to

employment is insignificant by comparison.

The reason for the low levels of employment may be related to the industry sector in

which most businesses operate. One industry sector that is labour intensive and does

not require highly skilled staff is the manufacturing industry, yet only 2 % of these

businesses were in the manufacturing sector. The reason could be that

manufacturing has high barriers to entry due to the need for the high levels of start up

capital required for equipment.

Small businesses in Gauteng are found mainly in the Trade (selling of goods) sector

51
(68%), in service sector (17%) and construction (4%). (Finscope Small Business

Gauteng, 2006). Figure 3.2 gives a breakdown of small business by industry sector

participation.

Figure 2.2 - Breakdown of small businesses by industry sector participation

INDUSTRY SECTOR PARTICIPATION

Entities involved in the sale of goods, mostly fail to add value to

the items being sold. This impedes market differentiation and
increases their vulnerability

Source: Finscope Small Business Gauteng 2006.

52
3.3 Auto Immune Deficiency Syndrome (AIDS)

In 2006, there were 1.4 million (14.5%) HIV infected people in Gauteng and 86163

(0.89%) AIDS deaths, out of a population of 9.6 million people. It is estimated that by

2015 the population of Gauteng will be about 9.9 million and there will be 1.374

million (13.87%) HIV infected people and 98441 (0.99%) AIDS deaths (Dorrington,

Johnson, Bradshaw and Daniel, 2006:64).

The above statistics indicate that the rate of infection is expected to decrease in

comparison to the population growth, which incidentally is also estimated to decrease

from 2013. The death rate increases by only 0.1% and the number of sick increase

from 156328 in 2006 to 190161 in 2015.

Without question this epidemic has an impact on the economy as the burden to care

for the sick increases, the number of orphans increase and labour force begins to

decrease. Nevertheless, since small businesses employ relatively few people and

unemployment is still so high, there should be no shortage of labour.

The greater impact could be that money and time spent of transferring skills is laid to

waste by the death of skilled workers and more time and money must then be spent

in training new workers.

The lack of skilled workers in the market is likely to have a greater negative impact on

the success of small businesses as they do not have sufficient resources to keep
53
training staff either in terms of money or time.

3.4 Crime

It is an accepted fact that crime costs money, but no one knows exactly how much

money (Altbeker, 2001).

With the latest crimes statistics released on the 3rd of July 2007, the South African

public can stop wondering how bad it is. Myburg (2007) gives an overall view of the

report released by the South African Police Service (SAPS), pointing out that while

some categories of crime have decreased on the last year, the increase in armed

robberies to banks (118.6%), business premises (52.5%) and homes (24.4%) has

been dramatic (Table 3.2).

54
Table 3.2 - Robberies with aggravating circumstances

Category 2005/2006 2006/2007 Increase/ decrease

Street robbery 91070 92021 1.0%

Car hijacking 12825 13599 6.0%

Truck hijacking 829 892 7.6%

Cash-in-transit heists 383 467 21.9%

Bank robbery 59 129 118.6%

Home robbery 10173 12761 25.4%

Business robbery 4387 6689 52.5%

Total 119726 126558 5.7%

Source: Information Management SAPS

In Table 3.3 below, the decreases in crime that occurred are highlighted in yellow.

When looking at crime that affects business, it is noticeable that business is more

seriously affected by crime then before. This will no doubt cause an increase in

security and insurance costs for business. Small businesses with limited resources

will be more seriously affected than large or medium sized businesses, specially in

sectors such as tourism, because the perception of danger inhibits tourists intending

to travel to and in South Africa.

55
 Table 3.3 - Reported crime in South Africa 2001/2002 to 2006/2007

2001/ 2002/ 2003/ 2004/ 2005/ 2006/ Increase/

Crime category 2002 2003 2004 2005 2006 2007 decrease
Murder 21405 21553 19824 18793 18528 19202 3.6%

Rape 54293 52425 52733 55114 54926 52617 -4.2%

Attempted murder 31293 35861 30076 24516 20571 20142 -2.1%

Assault with the intent to inflict grievous 264012 266321 260082 249369 226942 218030 -3.9%
bodily harm
Common assault 261886 282526 280942 267857 227553 210057 -7.7%

Indecent assault 7683 8815 9302 10123 9805 9367 -4.5%

Robbery with aggravating 116736 126905 133658 126789 119726 126558 5.7%
circumstances
Common robbery 90205 101537 95551 90825 74723 71156 -4.8%

Arson 8739 9186 8806 8184 7622 7858 3.1%

Malicious damage to property 145451 157070 158247 150785 144265 143336 -0.6%

Residential burglaries 302657 319984 299290 276164 262535 249665 -4.9%

Business burglaries 87114 73975 64629 56048 54367 58438 7.5%

Vehicle theft 96859 93133 88144 83857 85964 86298 0.4%

Thefts from cars 199282 195896 171982 148512 139090 124029 -10.8%

Stock-theft 41635 46680 41273 32675 28742 28828 0.3%

Other theft 576 676 620 240 606460 536281 432629 415163 -4.0%

Commercial crime 58462 56232 55869 53931 54214 61690 13.8%

Shoplifting 68404 69005 71888 66525 64491 65489 1.5%

Illegal possession of firearms and 15 494 15839 16839 15497 13453 14354 6.7%
ammunition
Drug-related crime 52900 53810 62689 84001 95690 104689 9.4%

Drunk driving 24553 22144 24886 29927 33116 38261 15.5%

Culpable Homicide 10944 11202 11096 11995 12415 12871 3.7%

Kidnapping 4433 3071 3004 2618 2320 2345 1.1%

Abduction 3132 4219 4044 3880 3345 3217 -3.8%

Child neglect and abuse 2648 4798 6504 5568 4828 4258 -11.8%

Public violence 907 1049 979 974 1044 1023 -2.0%

Crimen injuria 60919 63717 59908 55929 44512 36747 -17.4%

Source: Information Management, SAPS 2007

56
To put some of the above results into perspective, the SAPS report on the crime

statistics notes that at least two thirds of all contact crimes are strongly linked to

social behaviour patterns, which involve alcohol and other substance abuse and are

associated with informal settlements in mega-townships. These crimes usually occur

among people known to each other – social contact crimes account for at least two

thirds of all contact crime (South African Police Service, 2007).

Government remains committed to reducing the crime level by between seven and

10 percent (South African Police Service, 2007) and the recent Primedia initiative,

introducing and anonymous SMS line for people to report crime indicates an equal

commitment from the business sector (Seale, 2007).

3.5 Entrepreneurial activity in South Africa

The South African Government is strongly promoting the development of

entrepreneurship in South Africa through policy changes. Among these changes are

the introduction of entrepreneurship courses at primary, secondary and tertiary

education levels, changes in the taxation of small businesses, the exemption of small

business compliance with Broad Based Black Economic Empowerment (BBBEE) and

the creation of institutions that support small business development through financial

assistance, such as Khula Enterprise Finance Ltd and the Small Enterprise

Development Agency (SEDA). These changes started in the 90’s with the White

Paper on a National Strategy for the Development and Promotion of Small Business

57
in South Africa that was passed by the government in March 1995 (Ladzani, 2001)

and have continued to the present, the most recent one being the exemption of small

businesses from BBBEE compliance.

In 2001, South Africa became involved in the research conducted by the Global

Entrepreneurship Monitor (GEM). The Global Entrepreneurship Monitor conducts

major international research into entrepreneurship and compares countries according

to their levels of total entrepreneurial activity (TEA) by measuring the countries’

adults involved in starting or running new businesses (Orford, Herrington and Wood,

2004:3).

According to the 2004 GEM Report (Orford, Herrington and Wood, 2004:3), South

Africa’s TEA was 5.4% compared to an average of 9.4% for all 34 countries

surveyed, and 21% for developing countries. South Africa was ranked 24th, a ranking

which has remained consistent since 2001.

The 2006 GEM report (Maas and Herrington, 2006), however, tells a different story.

While the TEA remains consistent at 5.29% the ranking dropped to number 30 out of

42 countries. Since the number of countries participating in the research varies from

year to years, one cannot directly compare the two rankings. To ascertain whether

there was an improvement the researchers of the GEM report calculated the median

of the distribution and compared South Africa’s position in relation to the median. The

results shown in table 3.4 indicate that South Africa’s total early-stage entrepreneurial

activity has deteriorated, moving from zero to nine below the median, from 2001 to

58
2006.

Table 3.4 - Relative Rankings from 2001 to 2006

Source: Gem Report 2006 (Maas and Herrington, 2006:26)

Maas and Herrington (2006) proceeded to investigate the possible reasons for the

deterioration and summarised their findings in table 3.5.

Table 3.5 - Factors that limit entrepreneurial activity in South Africa

The education system does not encourage entrepreneurship as a career - it is seen as something
you do when you cannot find a job or do not have a profession.
There is a lack or resources available to start one's own business - banks want too much security.

Regulations create a huge administrative burdens and high costs when starting a business.

South Africa is not highly entrepreneurial due to factors such as sanctions of the past and the
education system that does not encourage entrepreneurship.
The environment in which children grow up influences them to believe that it is better to find a job
and be safe.
Starting a business is a risky process that often involves cycles of failure. South Africa has a harsh
attitude towards failure, which inhibits entrepreneurs.
Infrastructure and the necessary skills required for the development of entrepreneurship are lacking.

59
 A Paradigm of entrepreneurship does not exist. The expectation is that big business, government
and others should create jobs, rather than that one can create one's own employment.
Competencies such as management and entrepreneurial skills are lacking amongst entrepreneurs.

Source: Gem Report 2006 (Maas and Herrington, 2006:18-19)

Maas and Herrington (2006:74-76) conclude that entrepreneurial activity is far from

ideal in South Africa and an integrated approach is necessary to improve the climate

of entrepreneurships. Table 3.6 details the specific recommendations made by Maas

and Herrington (2006:75:76) in order to achieve a growth in entrepreneurial activity in

South Africa.

Table 3.6 - Specific Recommendations to achieve growth in entrepreneurial

activity in South Africa

60
Source: Maas and Herrington (2006; 75-76)

61
3.6 Broad-based Black Economic Empowerment

Broad- based Black Economic Empowerment (BBBEE) has ceased to be a factor to

consider in the discussion of small business success, since the codes of good

practise, gazetted on 9 Feb 2007 exempted small business owners from

participating.

The new codes of code practise will be of benefit to the small business since larger

businesses will need to practise preferential procurement and they can achieve this

by using small businesses as suppliers, as they are automatically classified as level

4, which is an acceptable level of BBBEE.

3.7 Summary

In this chapter the South African context to small business success has been

examined, with particular attention to the political and economical background, the

Aids and Crime problems and the degree of entrepreneurial activity in the country.

From this examination, one can conclude that many factors collude to make it difficult

for the small business to succeed, but at the same time much energy and money is

being spent by government and the private sector to improve the situation.

62
CHAPTER 4 - RESEARCH DESIGN AND METHODOLOGY

4.1 Introduction

Chapter 4 gives a detailed description of the approach taken in the research, the

methods used as well as the problems that were encountered, keeping in mind the

research objectives as detailed below:

• The primary research objective of this study is to investigate the success

factors amongst small businesses in Gauteng.

• The secondary research objectives of this study are:

- To provide government with information that can shape future policies

regarding small business development

- To provide relevant information for the design of entrepreneurial training and

mentorship programmes

- To offer prospective entrepreneurs guidelines on the necessary requirements

for success

4.2 Research Design

This research is of a qualitative and exploratory nature, so the research design

method chosen is a cross-sectional survey of small businesses conducted via e-mail

with the owner manager of small businesses in Gauteng.

63
Since this research is based on the opinions of small business owner/managers and

not on objective and verifiable facts it is considered to be qualitative in nature.

Qualitative research is commonly used in exploratory research as it tends to give

some general information on the subject that can then lead to more definitive

research.

In the research design the researcher must consider the three types of research

depending on the ambiguity of the research problem, as indicated below (Zikmund,

2003:54-56):

• Exploratory – ambiguous research problem

• Descriptive – partially defines research problem

• Causal – clearly defined problem

As there has been very little research in this field, the research problem remains

ambiguous and it is therefore considered exploratory.

4.3 Population and Sampling

Sampling is any procedure that uses a small number of items or a portion of the

population to derive a conclusion about the whole population (Zikmund, 2003:741).

The target population chosen for this research is the owner-manager of small

businesses in Gauteng. The definition of small business being used is the same as
64
that given by the National Small Business Act (see Appendix I).

The sample is an accessibility sample due to the circumstances described in the

following paragraphs.

Initially it was assumed that the various chambers of commerce in Gauteng would

assist by sending out the questionnaire to their members. Unfortunately the opposite

turned out to be true, as they were no help at all. Eventually a database was

purchased from Gaffney’s Publishers with details on members of the various

chambers of commerce. Not all the businesses on the database indicated whether

they were big or small, so the questionnaire was sent out to 4853 businesses. This

number also included a few businesses whose e-mail addresses were sourced from

the “easyfind” database on the Internet. 770 of the e-mail addresses were not valid.

This left 4083 potential respondents to fit into the definition of small businesses. A

further 307 were disqualified either due to having more then 50 employees or more

then R20 million rand turnover, leaving 3776. It is unknown how many were in fact

small businesses, but only 119 replies were received after a 6 week period of

sending and receiving questionnaires. It is not possible to calculate the percentage

response as it is not known if all the 4083 qualified for the research. This makes the

sample used an accessibility sample.

The fact that most of the respondents are members of a chamber of commerce may

set a certain bias as it no doubt excludes those businesses that cannot afford the

membership fees, but responses did come from various sectors, and both genders

65
giving us a reasonable cross section of small businesses in Gauteng

4.4 Questionnaire design

A questionnaire is the measuring instrument of research that utilises the survey

method (Herbst, 2004).

The researcher is aware that the personal interview method is the most suitable to

this research project, since the response rate using this method is greater then 80%

(Dillon, Madden and Firtle, 1993), but due to time constraints, an e-mail questionnaire

will be sent out.

The independent variables being tested are the possible factors affecting the success

and sustainability of small businesses. Success and sustainability as defined by the

achievement of the owner-manager’s goal for a period of three or more years is the

dependent variable being measured.

In formulating the questionnaire the researcher will derive the questions from the

literature survey and follow the guidelines of a good questionnaire from Dillon

Madden and Firtle (1993: 269-329).

The questionnaire will be divided into logical subsections encompassing:

• an evaluative section where the success of business will be ascertained

according to the achievement of owner’s goals;

66
 • three sections determining the existence of success factors according to the

three themes of factors being considered ; and

• a classification section gathering data on owner-manager, such as age,

gender, education and motive to start own business.

The questionnaire (refer to Appendix II) has 26 questions in total, divided into the

following:

Section A – Success with 4 questions

Section B - Entrepreneurial Personality characteristics of owner/manager with

one question that has 32 entrepreneurial characteristics to rate

Section C - Use of management tools with 5 questions

Section D - Resource Availability with 6 questions

Section E – Classification of respondents with 10 questions

The questions will mainly be close ended and where appropriate will use the five

point Likert scale. In five instances the respondents were given the opportunity to

elaborate on their previous answer or add their own answer if excluded from the

options given. There were also five yes/no questions included in the questionnaire.

International research as suggested by Stephen (200056,63,71,86), Hannon and

Atherton (1997:1-18) Dionco-Adetayo (2004:1), indicates that there are a variety of

approaches and criteria to be examined in assessing factors that contribute to the

success of small business enterprises, ranging from strategic and leadership issues

to resources and environmental issues.

67
In this study, the researcher has extracted the items to be used from the results of

the abovementioned research based on those criteria that were identified as being

the most strongly correlated with business success. The researcher is therefore

focusing the empirical research on a relatively narrow range of factors due to the

limitations of time and money available to conduct the study.

The following criteria were selected from the identified criteria of Stephen (2000:56,

63, 71, 86), Hannon and Atherton (1997:1-18) and Dionco-Adetayo (2004:1-14) and

categorised into three themes:

• Entrepreneurial personality characteristics of owner/manager, specifically:

- Strong professional will (self confidence, independence and willingness to

do whatever it takes)

- Resourcefulness

- Initiative

- Enthusiasm

- Innovation

• Use of management tools such as

- Strategic orientation (goal and objectives)

- Business Plan creation and usage

- Marketing Plan

- Environmental awareness (legislation, competitors, customer, market)

• Resource availability

- Financial

- Human expertise
68
4.5 Data Collection

Data collection refers to the process of gathering raw and unprocessed information

that can be processed into meaningful information, following the scientific process of

data analysis (Zikmund, 2003:72).

The researcher sent out the questionnaire to fellow MBA students hoping in order to

get some qualitative input regarding the research objectives and how they link up

with the research questionnaire. Unfortunately no feedback was received from this

source. The only input received was from Prof Herbst, the study leader at the time.

In order to collect the necessary data, a two-phase survey was conducted. In the first

phase the questionnaire to be used was pre-tested. This was done by e-mailing it to

a small number of owner-managers, in order to ascertain if there were any flaws in

the questionnaire. The questionnaire was then revised for the final phase of sending

it out to 5000 businesses. The work will be done by the researcher and the research

will be conducted in accordance with the South African Marketing and Research

Association’s (SAMRA) code of conduct and the World Association of Opinion and

Marketing Research Professionals (formerly European Society for Opinion and

Marketing Research or ESOMAR) ethical principles.

The questionnaire was sent out to 4853 businesses. 770 of the e-mail addresses

used were not valid. This left 4083 potential respondents to fit into the definition of

small businesses. A further 307 were disqualified either due to having more then 50
69
employees or more then R20 million rand turnover, leaving 3776. It is unknown how

many were in fact small businesses, but only 119 replies were received after a 6

week period of sending and receiving questionnaires. It is not possible to calculate

the percentage response as it is not known if all the 3776 qualified for the research,

but one can conclude that the response rate is not less then 3.15%, and possibly

more, since 1558 did not indicate the number of employees and 1434 did not

indicate the turnover of the business. If all of the 1558 are disqualified the response

rate would be 5.37%.

4.6 Data Analysis

The data collected was handed to STATKON, the statistical analysis department of

the University of Johannesburg.

The data was analysed with the ANOVA system that uses reliable and tried methods

and results will be reported on through the use of tables and figures.

Data was checked for omissions, legibility and consistency, before being coded for

analysis. Validity and reliability analysis were done according to acceptable research

standards. The data was analysed by a professional statistician, who used

appropriate statistical tools to arrive at meaningful conclusions.

The following statistics were calculated:

• Mean

70
 • Median

• Mode

• Standard Deviation

• Skewness

• Kurtosis

• Range

• Percentiles

• The following tests were performed on the data:

• Normality test

• Cronbach’s Alpha test

• T-test

• Levine’s test

• Npar tests:

Mann Whitney test

Kruskal-Wallis test

• Chi-square test

4.7 Summary

The research methodology followed in this research has been described in this

chapter, giving the details of the research population and sampling, the questionnaire

design and the data collection and analysis.

71
Care has been taken to follow methods in accordance with South African Marketing

and Research Association’s (SAMRA) code of conduct and the World Association of

Opinion and Marketing Research Professionals (formerly European Society for

Opinion and Marketing Research or ESOMAR) ethical principles, in order to ensure

the integrity of the results.

72
CHAPTER 5 - RESEARCH FINDINGS

This chapter will report on the empirical findings of the research through the use of

figures and tables, with reference to the primary research objective of this study,

which was to investigate the success factors amongst small businesses in Gauteng.

The empirical findings will also be related to the theoretical literary research that was

conducted in chapter two.

The response rate of the survey was estimated between 3.15% and 5.37% of a

sample of 3776. It is not possible to be exact as it is unknown if all the businesses to

whom the questionnaire was sent actually qualified as small businesses.

As this research is about success factors, the answers to the question “How

successful do you consider yourself?” is the first one to be looked at in order to

establish whether the respondents were in fact successful.

Tabulated below in figure 5.1 are the answers given by the respondents on how

successful they considered themselves. It is apparent that only a total of 5.9% (7

respondents) considered themselves unsuccessful, with the rest indicating various

degrees of success. While these results are entirely subjective, when combined with

other information, such as the age of the business they do indicate that most of the

respondents were in fact successful.

73
Table 5.1 – How successful do you consider yourself?

Frequency Percent Valid Percent Cumulative Percent

Valid 1 very unsuccessful 1 .8 .8 .8
2 6 5.0 5.0 5.9
3 30 25.2 25.2 31.1
4 65 54.6 54.6 85.7
5 very successful 17 14.3 14.3 100.0
Total 119 100.0 100.0

This poses a problem for the researcher due to the fact that most respondents are

successful no comparison can be made from their responses to those that are

unsuccessful and therefore it is not possible to conclusively determine what the

success factors of small businesses in Gauteng are. Nevertheless, the data

collected will be analysed, and other conclusions will perhaps become evident.

The results will be presented, beginning with the profile of the business and of the

owner managers, and followed by an analysis on the research answers.

5.1 Business Sectors

Table 5.2 gives the number of respondents and percentage of total respondents per

business sector:

74
Table 5.2 – Respondents per business sector

Valid Cumulative
Frequency Percent Percent Percent
Agricultural 1 0.8 0.8 0.8
Manufacturing 17 14.3 14.4 15.3
Financial 11 9.2 9.3 24.6
Retail 8 6.7 6.8 31.4
Health 8 6.7 6.8 38.1
Technology 9 7.6 7.6 45.8
Engineering 9 7.6 7.6 53.4
Tourism &
Valid Hospitality 7 5.9 5.9 59.3
Professional
Services 29 24.4 24.6 83.9
Property 4 3.4 3.4 87.3
Logistics 1 0.8 0.8 88.1
Food & Beverage 4 3.4 3.4 91.5
Education 3 2.5 2.5 94.1
Other? 7 5.9 5.9 100
Total 118 99.2 100
Missing System 1 0.8
Total 119 100

As can be seen most respondents were from the professional services sector (29 out

of 119), which include consultants, attorneys and insurance brokers. The second

most group of respondents was the manufacturing sector with 14.4% or 17

respondents. The overall results show a good distribution across all sectors that were

defined.

75
5.2 Size and age of businesses

Tables 5.3 and 5.4 below, give the distribution of businesses by size according to

turnover and number of employees.

Table 5.3 - Size of business according to turnover

Valid Cumulative

Frequency Percent Percent Percent

0-1 million 38 31.9 32.8 32.8

2-5 million 30 25.2 25.9 58.6

6-10 million 18 15.1 15.5 74.1

11-15 million 6 5 5.2 79.3

16-20 million 24 20.2 20.7 100

Valid Total 116 97.5 100

Missing System 3 2.5

Total 119 100

Table 5.4 - Size of business according to number of employees

Valid Cumulative

Frequency Percent Percent Percent

0-5 47 39.5 40.2 40.2

06-10 13 10.9 11.1 51.3

11-20 19 16 16.2 67.5

21-30 13 10.9 11.1 78.6

Valid
31-40 7 5.9 6 84.6

41-50 4 3.4 3.4 88

more than 50 14 11.8 12 100

Total 117 98.3 100

Missing System 2 1.7

Total 119 100

76
As shown in tables 5.3 and 5.4, all respondents can be classified as small

businesses with the majority tending towards the very small – under 1 million rand

turnover and under 50 employees.

From table 5.5 it is apparent that most of the businesses that were surveyed have

reached sustainability status as the majority are older then 5 years. This is an

indicator of success, as most businesses fail in the first 5 years and confirms the

subjective self assessment of success mentioned above.

Table 5.5 - Age of business

Valid Cumulative
Frequency Percent Percent Percent

0-3 years 23 19.3 19.5 19.5

3-5 years 19 16 16.1 35.6

6-10 years 24 20.2 20.3 55.9

Valid
11-19 years 24 20.2 20.3 76.3

more than 20 years 28 23.5 23.7 100

Total 118 99.2 100

Missing System 1 0.8

Total 119 100

5.3 Profile of owners/managers

Table 5.6 shows that only 17.8% of the owner/managers were under 35 of age,

possibly implying a relationship between success and experience (age). This

conclusion is also consistent with the risk assessments done by Kreditinform, which

77
rate older business owners more positively then younger ones.

Table 5.6 - Age of owners/manager

Valid Cumulative
Frequency Percent Percent Percent

26-35 years 21.0 17.6 17.8 17.8

36-45 years 37.0 31.1 31.4 49.2

46-55 years 34.0 28.6 28.8 78.0

56-65 years 20.0 16.8 16.9 94.9

over 65 years 6.0 5.0 5.1 100.0

Valid Total 118.0 99.2 100.0

Missing System 1.0 0.8

Total 119.0 100.0

According to the 2004 GEM report (Orford, Herrington and Wood; 2004:16), men are

between 1.2 and 1.4 times more likely to be entrepreneurs then women in South

Africa. The differences in the gender of the respondents given in table 5.7 are

therefore expected, but higher then the norm given by the 2004 GEM Report (Orford,

Herrington and Wood; 2004:16), as in this research there are 2.54 more men then

women entrepreneurs, which is probably due to the smallness of the sample

surveyed.

78
Table 5.7 - Gender of owners/managers

Valid Cumulative
Frequency Percent Percent Percent

male 84 70.6 71.8 71.8

female 33 27.7 28.2 100

Valid Total 117 98.3 100

Missing System 2 1.7

Total 119 100

A total of 84.6% of the respondents have tertiary education as described in Table 5.8.

Higher levels of education are associated with business survival rates (Orford,

Herrington and Wood, 2004:17), confirmed in this research, since most of the

businesses surveyed had survived for more than five years.

Table 5.8 - Level of education of owners/managers

Valid Cumulative

Frequency Percent Percent Percent

Grade 12 13 10.9 11.1 11.1

Diploma/Certificate 35 29.4 29.9 41

Bachelor degree 24 20.2 20.5 61.5

Post graduate
degree 40 33.6 34.2 95.7

Self educated

through reading 4 3.4 3.4 99.1

Short courses 1 0.8 0.9 100

Valid Total 117 98.3 100

Missing System 2 1.7

Total 119 100

79
Entrepreneurial motives for starting a business can also be divided according to

necessity or opportunity (Orford, Herrington and Wood, 2004:11). Of the motives

described in table 5.9, retrenchment is the only one that can be classified as a

necessity motive. 14.4% of respondents gave retrenchment as a reason compared to

71.2% that have opportunity as a motive for their entrepreneurial activities. Since the

latter are more likely to succeed and employ more people this measure is of

significance (Orford, Herrington and Wood, 2004:15). Opportunity motive is also

linked to higher levels of education and metropolitan areas, suggesting that

investment in tertiary education is likely to increase the probability of creating new

businesses and that these businesses will in turn be more likely to succeed and

generate employment. The fact that the current research was conducted in Gauteng,

a metropolitan area, and that 84.6% have a tertiary education, 85.6% are opportunity

motivated and 68.9% report being successful shows a correspondence to the

findings of the South African GEM Report 2004 (Orford, Herrington and Wood,

2004:18).

80
Table 5.9 - Motives for starting business

Valid Cumulative
Frequency Percent Percent Percent

A good idea 16 13.4 13.6 13.6

Retrenchment 17 14.3 14.4 28

Wanting to be in charge 9 7.6 7.6 35.6

The need for independence 54 45.4 45.8 81.4

Valid
Inherited the business 5 4.2 4.2 85.6

Government Policy (BBBEE) 5 4.2 4.2 89.8

Other 12 10.1 10.2 100

Total 118 99.2 100

Missing System 1 0.8

Total 119 100

5.4 Frequency tables of responses

The actual questions asked in the questionnaire have been detailed followed by the

table of responses given:

SECTION A – Success

Q1. Please indicate in the table below how accurately the factors listed below

describe your definition of success (rate each and every one of the factors).

81
Table 5.10 - Factors that describe your definition of success

Factors that describe your definition of success

Your definition 1 does not 5 best
2 3 4 Total
of success: describe describes
Count % Count % Count % Count % Count % Count %
Survival 27 23.1% 18 15.4% 26 22.2% 22 18.8% 24 20.5% 117 100.0%
Being independent 3 2.5% 10 8.4% 23 19.3% 36 30.3% 47 39.5% 119 100.0%
Creating
13 11.0% 19 16.1% 36 30.5% 27 22.9% 23 19.5% 118 100.0%
employment
Making a good
3 2.5% 2 1.7% 18 15.3% 41 34.7% 54 45.8% 118 100.0%
profit
Growth of business
(market share,
3 2.5 % 12 10.2% 23 19.5% 39 33.1% 41 34.7% 118 100.0%
branches,
employees)
Status in the
18 15.4% 31 26.5% 37 31.6% 19 16.2% 12 10.3% 117 100.0%
community
Meeting set targets 6 5.1% 9 7.6% 24 20.3% 41 34.7% 38 32.2% 118 100.0%
Return on
2 1.7% 10 8.5% 27 23.1% 36 30.8% 42 35.9% 117 100.0%
investment
Establishing the
9 7.6% 8 6.7% 19 16.0% 41 34.5% 42 35.3% 119 100.0%
brand
Personal benefits
(owning property, 7 5.9% 13 11.0% 23 19.5% 38 32.2% 37 31.4% 118 100.0%
holidays etc.)
Other 1 6.3% 2 12.5% 13 81.3% 16 100.0%

If response categories 4 and 5 are added together in table 5.10 above, the definition

of success according to the respondents is best described by the following

• Making a good profit 80.5%

• Establishing the brand 69.8%

• Being independent 69.8%

• Growth of business 67.8%

These results did not offer any surprises. What is encouraging is the 67.8% response

in the “growth of business: as a descriptor of success, as this is precisely what

contributes to a healthy and growing economy.

82
Q4. In your opinion, to what do you attribute your success? (Indicate the strength of

the factor, mentioned in table 5.11 below, as a contributor to your success).

Table 5.11 - Strength of factors contributing to success

5 very 6 don't
Factors of 1 very weak 2 3 4 Total
strong know
success:
Count % Count % Count % Count % Count % Count % Count %
Business
3 2.5% 6 5.0% 30 25.2% 42 35.3% 38 31.9% 119 100.0%
knowledge
Education 2 1.7% 15 12.6% 35 29.4% 37 31.1% 30 25.2% 119 100.0%
Experience 1 .8% 5 4.2% 14 11.8% 40 33.6% 59 49.6% 119 100.0%
Luck 29 24.8% 35 29.9% 28 23.9% 17 14.5% 7 6.0% 1 .9% 117 100.0%
Timing 8 6.9% 22 19.0% 39 33.6% 37 31.9% 9 7.8% 1 .9% 116 100.0%
Government
93 79.5% 14 12.0% 5 4.3% 1 .9% 3 2.6% 1 .9% 117 100.0%
assistance
Capital to start
54 46.2% 26 22.2% 25 21.4% 9 7.7% 3 2.6% 117 100.0%
up
Family support 18 15.4% 13 11.1% 26 22.2% 30 25.6% 29 24.8% 1 .9% 117 100.0%
Entrepreneurial
6 5.1% 5 4.3% 20 17.1% 37 31.6% 49 41.9% 117 100.0%
personality
A great team 8 6.8% 13 11.0% 26 22.0% 38 32.2% 30 25.4% 3 2.5% 118 100.0%
A great product
2 1.7% 5 4.2% 19 16.1% 40 33.9% 51 43.2% 1 .8% 118 100.0%
/ service
Persistence
and 2 1.7% 5 4.3% 27 23.1% 82 70.1% 1 .9% 117 100.0%
determination
Other 1 5.6% 1 5.6% 1 5.6% 15 83.3% 18 100.0%
Other 1 14.3% 2 28.6% 4 57.1% 7 100.0%

For greater clarity the results of the above have been ranked after adding category 4

and 5 of the above answers. Table 5.12 below gives details of this ranking in respect

of what the owner/managers consider the factors that contribute to the success of

their enterprises.

83
Table 5.12 - Ranked success factors according to owner/managers

Total 4 & % of
SUCCESS FACTORS 5 respondents Rank

Persistence and determination 109 93.2% 1

Experience 99 83.2% 2

A great product / service 91 77.1% 3

Entrepreneurial personality 86 73.5% 4

Business knowledge 80 67.2% 5

A great team 68 57.6% 6

Education 67 56.3% 7

Family support 59 50.4% 8

Timing 46 39.7% 9

Luck 24 20.5% 10

Capital to start up 12 10.3%

Government assistance 4 3.5%

Of interest are the low rankings given to “Capital to start up” and “Government

assistance”.

SECTION B - Entrepreneurial Personality characteristics of owner/manager

This section is designed to identify the behaviour patterns of successful

entrepreneurs, by asking the respondents to report on the frequency of particular

actions, thoughts and feelings.

Q5. From the perspective of the last 2 -10 years please characterise yourself in terms

of the frequency you have exhibited the following types of behaviour:

84
Table 5.13 - Entrepreneurial personality characteristics of owner/manager

Entrepreneurial personality characteristics of owner/manager

3
1 never 2 rarely 4 often 5 always Total
occasionally
Count % Count % Count % Count % Count % Count %
Went on a business related
23 19.3% 31 26.1% 35 29.4% 25 21.0% 5 4.2% 119 100.0%
course
Went on a soft skills course
(communication, conflict 44 37.0% 37 31.1% 27 22.7% 10 8.4% 1 .8% 119 100.0%
management, etc)
Attended a networking
20 17.1% 25 21.4% 25 21.4% 31 26.5% 16 13.7% 117 100.0%
function
Attended business
18 15.3% 36 30.5% 31 26.3% 24 20.3% 9 7.6% 118 100.0%
conferences and seminars
Read business related
6 5.1% 15 12.7% 38 32.2% 41 34.7% 18 15.3% 118 100.0%
books
Felt enthusiastic
14 12.0% 55 47.0% 48 41.0% 117 100.0%

Laughed
7 6.0% 24 20.5% 46 39.3% 40 34.2% 117 100.0%

Felt stressed
2 1.7% 16 13.4% 27 22.7% 56 47.1% 18 15.1% 119 100.0%

Went on holiday
7 5.9% 26 22.0% 55 46.6% 25 21.2% 5 4.2% 118 100.0%

Practiced some form of de-

10 8.5% 32 27.4% 31 26.5% 32 27.4% 12 10.3% 117 100.0%
stressing
Been coached
66 56.4% 28 23.9% 17 14.5% 5 4.3% 1 .9% 117 100.0%
professionally
Sought inspiration and/or
24 20.3% 23 19.5% 32 27.1% 28 23.7% 11 9.3% 118 100.0%
motivation
Prayed or meditated
29 24.8% 18 15.4% 21 17.9% 17 14.5% 32 27.4% 117 100.0%

Visualised your state of

success 4 3.4% 12 10.1% 28 23.5% 39 32.8% 36 30.3% 119 100.0%

Remained positive of your

ultimate success in the face 1 .8% 16 13.4% 49 41.2% 53 44.5% 119 100.0%
of obstacles
Made a decision against the
2 1.7% 8 6.8% 31 26.3% 53 44.9% 24 20.3% 118 100.0%
majority
Broke the rules (any rules) 17 14.5% 17 14.5% 34 29.1% 35 29.9% 14 12.0% 117 100.0%
Overspent (business or
18 15.1% 35 29.4% 36 30.3% 23 19.3% 7 5.9% 119 100.0%
private)
Had to cut back on personal
9 7.6% 31 26.1% 39 32.8% 28 23.5% 12 10.1% 119 100.0%
expenses
Began the process before
11 9.4% 16 13.7% 34 29.1% 46 39.3% 10 8.5% 117 100.0%
the plan is complete
Followed a process
3 2.5% 22 18.6% 39 33.1% 37 31.4% 17 14.4% 118 100.0%
methodically
Planned your day
4 3.4% 12 10.3% 30 25.6% 48 41.0% 23 19.7% 117 100.0%

Changed personal plans to 1 .8% 5 4.2% 20 16.8% 62 52.1% 31 26.1% 119 100.0%

85
accommodate business
necessities
Acted intuitively
9 7.6% 20 16.8% 66 55.5% 24 20.2% 119 100.0%

Acted impulsively
7 5.9% 27 22.7% 48 40.3% 34 28.6% 3 2.5% 119 100.0%

Followed a gut feeling 2 1.7% 8 6.8% 24 20.3% 61 51.7% 23 19.5% 118 100.0%
Innovated a process or
8 6.8% 11 9.3% 38 32.2% 45 38.1% 16 13.6% 118 100.0%
technology
Took risks
1 .8% 16 13.4% 30 25.2% 54 45.4% 18 15.1% 119 100.0%

Demanded perfection
3 2.5% 4 3.4% 26 21.8% 35 29.4% 51 42.9% 119 100.0%

Avoided confrontation 14 11.9% 36 30.5% 39 33.1% 26 22.0% 3 2.5% 118 100.0%

Thought of giving it all up 46 38.7% 33 27.7% 27 22.7% 9 7.6% 4 3.4% 119 100.0%
Worked more then 8 hours
7 5.9% 4 3.4% 42 35.3% 66 55.5% 119 100.0%
per day

The responses in table 5.13 above have been ranked below after adding together

categories 4 and 5 (often and always), up to rank 15, in order to gain more clarity.

The results are listed in the table 5.14 below:

86
Table 5.14 – Ranked Entrepreneurial personality characteristics of

owner/manager

Entrepreneurial personality characteristics of owner/manager

4 often 5 always
Total

Count % Count % 4&5 % Rank

Worked more then 8 hours per day 42 35.30% 66 55.50% 108 91% 1

Felt enthusiastic 55 47.00% 48 41.00% 103 88% 2

Remained positive of your ultimate

49 41.20% 53 44.50% 102 86% 3
success in the face of obstacles

Changed personal plans to

62 52.10% 31 26.10% 93 78% 4
accommodate business necessities

Acted intuitively 66 55.50% 24 20.20% 90 76% 5

Laughed 46 39.30% 40 34.20% 86 74% 6

Demanded perfection 35 29.40% 51 42.90% 86 72% 7

Followed a gut feeling 61 51.70% 23 19.50% 84 71% 8

Made a decision against the majority 53 44.90% 24 20.30% 77 65% 9

Visualised your state of success 39 32.80% 36 30.30% 75 63% 10

Felt stressed 56 47.10% 18 15.10% 74 62% 11

Took risks 54 45.40% 18 15.10% 72 61% 12

Planned your day 48 41.00% 23 19.70% 71 61% 13

Innovated a process or technology 45 38.10% 16 13.60% 61 52% 14

Read business related books 41 34.70% 18 15.30% 59 50% 15

From the above what can be observed is that successful people prioritise their

business (rank 1 and 4), are generally very positive (ranks 2, 3, 6 and 10), approach

business in an intuitive manner (rank 5 and 8), demand perfection (rank 7), are

independent thinking (rank 9), risk takers (rank 12), planners (rank 13) and

innovators (rank 14). Only 50% read business related books, so it seems that

keeping up to date with business knowledge is not a great priority for this sample of

87
owner/managers.

It may also be interesting to note what these successful people rarely practise;

therefore in table 5.15 below the 3 least practised activities have been detailed:

Table 5.15 – Least ranked entrepreneurial personality characteristics of

owner/manager

1 never 2 rarely Total

Count % Count % 4&5 % Rank

Been coached professionally 66 56.40% 28 23.90% 94 80% 1

Went on a soft skills course

(communication, conflict
management, etc) 44 37.00% 37 31.10% 81 68% 2

Thought of giving it all up 46 38.70% 33 27.70% 79 66% 3

This does not imply that coaching does not contribute to success. It may simply mean

that it is not yet frequently practised in South Africa

SECTION C - Use of management tools

In this section, three questions were asked. Has the owner/manager formally defined

any of the following strategic tools, does the owner/manager have a mental idea of

any of the following strategic tools and does he make regular use of the strategic

tools.

88
The reason for the triple question is that the owner/manager may have prepared a

business plan at the request of a financial institution, but never actually used it in

which case in cannot impact much on his success. Some people that do not have a

written business plan have a pretty good idea of where they want to be in the future

and how they plan to get there. Of real importance is how many of the previously

mentioned actually make use of strategic business tools on a regular basis. The

results are listed below:

Q6. Have you formally defined (in writing) any of the following management tools?

In table 5.16, it is noted that the majority of business owners do have a formal

business plan (64.7%) and a vision (64.7%) and that and even higher percentage

(70.6%) have formally defined the company’s objectives.

Table 5.16 – Percentage of formally defined management tools

0 no 1 yes Total

Count % Count % Count %

Company vision 42 35.30% 77 64.70% 119 100.00%

Company values 50 42.40% 68 57.60% 118 100.00%

Company Objectives/Goals 35 29.40% 84 70.60% 119 100.00%

Business plan 42 35.30% 77 64.70% 119 100.00%

Marketing plan 54 45.40% 65 54.60% 119 100.00%

89
Q7. Do you have a mental idea of any of the following management tools?

A very high percentage of respondents have a mental idea of their business plan

(95.8%) as well as the various components of the business plan (between 92.4% and

93.3%), given in Table 5.17. Given that most of the respondents can be considered

successful, this could indicate that the mental idea of the business plan is a critical

success factor.

Table 5.17 – Have a mental idea of management tools

0 no 1 yes Total

Count % Count % Count %

Company vision 9 7.60% 110 92.40% 119 100.00%

Company values 8 6.70% 111 93.30% 119 100.00%

Company Objectives/Goals 5 4.20% 114 95.80% 119 100.00%

Business plan 9 7.60% 110 92.40% 119 100.00%

Marketing plan 8 6.70% 111 93.30% 119 100.00%

Q8. Do you make regular use of any of the following management tools?

The reason to research specific sections of the full business plan is justified by the

responses in table 5.18. Owner/managers do not equally use all aspects of a

business plan. Company Vision seems to lag behind in usage which contradicts the

63% response in the entrepreneurial personality section to the question of how often

“do you visualise your state of success”. The most frequently used strategic tool is

the Company Objectives, with 68.9% of owner/managers saying that they regularly

use this tool. Perhaps using the management tools is not as important as having a

mental idea of them.

90
Table 5.18 – Use of management tools

Usage of management tools:

0 - No 1 - Yes Total

Use of: Count % Count % Count %

Company vision 60 50.40% 59 49.60% 119 100.00%

Company values 43 36.10% 76 63.90% 119 100.00%

Company

Objectives/Goals 37 31.10% 82 68.90% 119 100.00%

Business plan 52 43.70% 67 56.30% 119 100.00%

Marketing plan 49 41.20% 70 58.80% 119 100.00%

Q9. How often do you stay in touch with your environment in terms of?

The results in table 5.19 have been ranked in table 5.20 after combining the often

and always answers. Clearly from the results given in table 5.20 we can see that this

sample of owner/managers is mainly in touch with their customers, economic

conditions and with changes in the market place.

91
Table 5.19 – Stay in touch with environment in terms of:

Stay in touch with environment in terms of:

3
1 never 2 rarely 4 often 5 always Total
occasionally

Count % Count % Count % Count % Count % Count %

Changes in legislation that

1 .9% 9 7.9% 22 19.3% 49 43.0% 33 28.9% 114 100.0%
may affect your business

Changes in economic

conditions, such as 3 2.6% 7 6.0% 18 15.5% 45 38.8% 43 37.1% 116 100.0%

inflation and interest rate

Changes in social and

5 4.3% 18 15.7% 22 19.1% 44 38.3% 26 22.6% 115 100.0%
political conditions

Changes in the marketing

3 2.6% 5 4.3% 20 17.4% 49 42.6% 38 33.0% 115 100.0%
place

Suppliers 3 2.6% 7 6.1% 18 15.8% 41 36.0% 45 39.5% 114 100.0%

Customers 4 3.4% 1 .9% 8 6.9% 41 35.3% 62 53.4% 116 100.0%

Table 5.20 – Ranked results to the question “Stay in touch with environment in
terms of”

Stay in touch with environment in terms of:

4 often 5 always Total

Count % Count % 4&5 % Rank

Customers 41 35.30% 62 53.40% 103 89% 1

Changes in economic conditions, i.e.

inflation and interest rate 45 38.80% 43 37.10% 88 76% 2

Changes in the marketing place 49 42.60% 38 33.00% 87 76% 3

Suppliers 41 36.00% 45 39.50% 86 76% 4

Changes in legislation that may affect

your business 49 43.00% 33 28.90% 82 72% 5

Changes in social and political

conditions 44 38.30% 26 22.60% 70 61% 6

92
SECTION D - Resource Availability

In this section the availability of capital and business skills was investigated in order

to find out if capital or business skills are critical to the success of small businesses.

In addition, where respondents indicated a shortage of capital, the researcher also

investigated the reason for the shortage, the source of funds obtained and the length

of time it took to obtain the funds

Q10. When you started your business did you…

Table 5.21 – When you started your business did you…

0 no 1 yes Total

When you started your business did you:

Count % Count % Count %

Have all the necessary capital? 94 79.0% 25 21.0% 119 100.0%

Borrow some of the capital required? 60 50.4% 59 49.6% 119 100.0%

Borrow all the capital required? 103 86.6% 16 13.4% 119 100.0%

Have a family member that helped support the household until your
73 61.3% 46 38.7% 119 100.0%
business became established?

Have financial assistance from another business? 99 83.2% 20 16.8% 119 100.0%

Have financial assistance from a bank or government institution? 88 73.9% 31 26.1% 119 100.0%

Reordering table 5.21, it can be seen in 5.22, that only 21% of respondents had all

the capital they required to start the business, but 49.6% borrowed at least some

money. In spite of this the majority reports being successful (68.9%), which points to

start-up capital not being as critical to success as one tends to believe.

93
Of note is the fact that 38.7% received assistance from a family member compared to

the 26.1 % that received assistance from a bank or government institution and 16.6%

that received assistance from another business as indicated in table 5.22.

Table 5.22 – Ranked results of “When you started your business did you…”

When you started your business did you...

When you started your 0 no 1 yes Total

business did you: Count % Count % Count % Rank

Borrow some of the capital

required? 60 50.40% 59 49.60% 119 100.00% 1

Have a family member that

helped support the household

until your business became

established? 73 61.30% 46 38.70% 119 100.00% 2

Have financial assistance from

a bank or government

institution? 88 73.90% 31 26.10% 119 100.00% 3

Have all the necessary capital? 94 79.00% 25 21.00% 119 100.00% 4

Have financial assistance from

another business? 99 83.20% 20 16.80% 119 100.00% 5

Borrow all the capital required? 103 86.60% 16 13.40% 119 100.00% 6

Q11. If you have borrowed money to finance your business, what in your opinion was

the reason for needing to borrow money? (Mark as many answers as you feel are

true).

94
The three most common reasons for borrowing money given in table 5.23 in this

research were:

• Other 24.4%

• Overheads too high 14.3%

• Insufficient sales 14.3%

Table 5.23 – Reasons for needing to borrow money

Reason for needing to borrow 0 no 1 yes Total

money: Count % Count % Count %

Insufficient knowledge of

business 117 98.30% 2 1.70% 119 100.00%

None or wrong marketing

strategy 115 96.60% 4 3.40% 119 100.00%

Change in legislation 116 97.50% 3 2.50% 119 100.00%

Unforeseen change in

economic conditions 107 89.90% 12 10.10% 119 100.00%

Overestimating the market size

and / or demand 109 91.60% 10 8.40% 119 100.00%

Wrong pricing 115 96.60% 4 3.40% 119 100.00%

Insufficient sales 102 85.70% 17 14.30% 119 100.00%

Personal expenses drained the

business 110 92.40% 9 7.60% 119 100.00%

Overheads too high 102 85.70% 17 14.30% 119 100.00%

Other 90 75.60% 29 24.40% 119 100.00%

From analysing the “other” category and reclassifying the results the revised table

5.24 follows:

95
Table 5.24 - Revised results of reasons for needing money

Total

Reason for needing to borrow money: Count % Count % Rank

Insufficient sales; Overestimating the market size

and / or demand 29 24.37% 119 100.00% 1

Insufficient capital to start or buy business,

finance purchase of initial stock, vehicles,
equipment 19 15.97% 119 100.00%

Overheads too high 18 15.13% 119 100.00% 2

Unforeseen change in economic conditions 12 10.08% 119 100.00% 3

Personal expenses drained the business 9 7.56% 119 100.00% 4

Growth of Business 4 3.36% 119 100.00% 5

None or wrong marketing strategy 4 3.40% 119 100.00% 6

Wrong pricing 4 3.40% 119 100.00% 7

Other 3 2.52% 119 100.00% 8

Change in legislation 3 2.50% 119 100.00% 9

No business plan 2 1.70% 119 100.00% 10

Insufficient knowledge of business 2 1.70% 119 100.00% 11

It could also be said that a good business plan with a strong marketing plan would

have prevented the situation of insufficient sales and too high overheads, though the

business owners questioned were not specifically asked this question. That would

mean that 33% of the reasons for needing to borrow money are due to unrealistic or

insufficient planning.

Q12. How difficult was it for your business to obtain finance?

The results in table 5.25 detailing the difficulty in obtaining finance are unexpected

since only 32.4% experienced some or great difficulty in obtaining finance, which is

contradictory to the perception of the general public (as obtained from causal
96
conversations with business owners) that it is generally very difficult to finance. When

comparing this result to the education level of the participants (84.6% of the

respondents have some kind of tertiary education) it may not be so surprising

anymore.

Table 5.25 – Difficulty in obtaining finance

Valid Cumulative
Frequency Percent
Percent Percent

1 very difficult 14 11.8 20.6 20.6

2 8 6.7 11.8 32.4

3 20 16.8 29.4 61.8

Valid
4 15 12.6 22.1 83.8

5 very easy 11 9.2 16.2 100.0

Total 68 57.1 100.0

Missing System 51 42.9

Total 119 100.0

Q14. How long did it take you to obtain the financial assistance you received?

Again table 5.26 gives surprising results. Two thirds of this group obtained finance

within 3 months. Nedbank informed Sizanani business advisors at a meeting held in

2005 not to expect the money to be in the account of the lender before six months

had passed since the application for a business loan. A possible explanation is that in

recent times there are so many more applications and more stringent requirements

that processing of these is slower then in the past.

97
Table 5.26 – Time taken to obtain finance

Cumulative
Frequency Percent Valid Percent
Percent

Valid 0-3 months 42 35.3 66.7 66.7

4-6 months 12 10.1 19.0 85.7

7-9 months 3 2.5 4.8 90.5

10-12 months 1 .8 1.6 92.1

more than 12 months 5 4.2 7.9 100.0

Total 63 52.9 100.0

Missing System 56 47.1

Total 119 100.0

Q15. How soon after you started your business did you or the business acquire the

following business skills? (You may have employed someone with the skill or used an

outsider to give you the benefit of their expertise)

From table 5.27, it becomes apparent that the majority of the owner managers

surveyed possessed most of the business skill that were audited from day one or

acquired them within the first year of business. These results posit whether there is a

relationship between them and success and they could be a strong indicator. The

results agree with Zhang (2000:1) when he states that the success of the small

business depends on the ability of the owner to learn and develop core

competencies, which the business skills surveyed and detailed in table 5.27 certainly

are.

98
Table 5.27 – Time taken to acquire business skills

1 2 3 4 5

Acquired had skill from more than 24 don't have the

business day one 0-12 months 12-24 months months skill Total

skills: Count % Count % Count % Count % Count % Count %

Technical 77 68.1 20 17.7 9 8.0 6 5.3 1 0.9 113 100.0

Financial

management 63 55.3 27 23.7 10 8.8 8 7.0 6 5.3 114 100.0

Sales 59 51.3 29 25.2 8 7.0 8 7.0 11 9.6 115 100.0

People

management 59 53.2 15 13.5 14 12.6 14 12.6 9 8.1 111 100.0

Marketing

management 51 44.7 28 24.6 11 9.6 12 10.5 12 10.5 114 100.0

Strategic

management 51 45.1 26 23.0 12 10.6 14 12.4 10 8.8 113 100.0

Q16. Please rate the following skills in order of importance relative to the success of

your business. (1 is the least important and 5 the most important) (Please rate all of

the skills)

Taking the results from table 5.28, adding columns four and five, and ranking the

results we get the results in table 5.29, from which we can see that these owner /

managers do not consider strategic management and people management as

important a skill as technical, sales, financial and marketing.

99
 Table 5.28 - Importance of business skills relative to success of business

1 not 5 very
Business skills: 2 3 4 6 don't know Total
important important

Count % Count % Count % Count % Count % Count % Count %

Financial 100.0
3 2.6% 6 5.1% 17 14.5% 24 20.5% 65 55.6% 2 1.7% 117
management %

Marketing 100.0
3 2.6% 5 4.3% 19 16.4% 38 32.8% 49 42.2% 2 1.7% 116
management %

100.0
Sales 2 1.7% 4 3.4% 11 9.5% 28 24.1% 69 59.5% 2 1.7% 116
%

Strategic 100.0
5 4.3% 5 4.3% 28 23.9% 36 30.8% 37 31.6% 6 5.1% 117
management %

Technical /core 100.0

1 .9% 2 1.7% 13 11.1% 32 27.4% 66 56.4% 3 2.6% 117
business %

People 100.0
6 5.1% 7 6.0% 22 18.8% 27 23.1% 54 46.2% 1 .9% 117
management %

Table 5.29 - Importance of business skills relative to success of business

(ranked)

important 5 very important Total

Business skills: Count % Count % Count %

Technical /core 32 27.4% 66 56.4% 98 84%

Sales 28 24.1% 69 59.5% 97 84%

Financial management 24 20.5% 65 55.6% 89 76%

Marketing management 38 32.8% 49 42.2% 87 75%

People management 27 23.1% 54 46.2% 81 69%

Strategic management 36 30.8% 37 31.6% 73 62%

100
5.5 Limitations of this study

While a correlation was found between the three sections of questions and the

success of business owners, the main limitation of this study was the insufficient

number of respondents which made it difficult to arrive at statistically significant

conclusions in respect of specific entrepreneurial traits and success factors. Since

most of the respondents were successful, their responses could not be compared to

those of unsuccessful small business owners and therefore the research remains

descriptive.

In addition, the funds available for the research limited the scope of the research and

the sampling of the respondents to those that are affluent enough to either belong to

a chamber of commerce or sophisticated enough to advertise on internet data bases.

The researcher believes nevertheless that the results are valuable from a descriptive

point of view even if not conclusive and they confirm results obtained from other

researchers, particularly in respect of the value of education and experience as a

contributing factor to the success of small businesses.

5.6 Summary

In conclusion, we can summarise the major results by noting the relevant findings

about the respondents:

101
• 68.9% of respondents were either successful or very successful according to

own opinion.

• The respondents’ definition of success was rather conventional:

o Making a good profit 80.5%

o Establishing the brand 69.8%

o Being independent 69.8%

o Growth of business 67.8%

o While spread across all sectors, there was a dominance of respondents

from the professional services sector 24.6%, followed by the

manufacturing sector 14.4%.

o All businesses surveyed were small with a preponderance of the very

small in terms of turnover (< 1 million - 32.8% and between 1 million

and 5 million -25.9%).

o In terms of employees, the majority of respondents (67.5%) had less

than 20 employees with 40.2% employing less than 5 people.

o 64.3% of businesses were older than five years, confirming the rating of

success given by respondents.

o The age of the owners was predominantly in the 36-55 years old range

– 60.2%, indicating that maturity, experience and persistence may be a

strong indicator of success.

o The gender distribution was male – 71.8%; female – 28.2%.

o Most of the respondents (84.6%) had some form of formal tertiary

education, indicating that success may be strongly linked to the level of

102
 education of the business owner.

o Regarding their motives for starting the business, 71.2% had an

opportunity motive and 14.4% started the business out of necessity.

This figure confirms previous research that indicates a link between

opportunity motive and success.

Regarding the research propositions,

P 1: Entrepreneurial personality cannot be correlated with the success and

sustainability of small businesses in Gauteng.

P 2: Use of Management Tools cannot be correlated with the success and

sustainability of small businesses in Gauteng.

P 3: Resource Availability cannot be correlated with the success and sustainability

of small businesses in Gauteng,

the statistical tests done on the research data, using Cronbach’s Alpha test, indicate

that there is a strong correlation between entrepreneurial personality, use of

management tools and resource availability and the success and sustainability of

small businesses, therefore the research propositions were found to be false.

The specific success factors are not statistically proven, but do seem to confirm the

findings of other researchers. Summarised below are the findings in respect of the

specific success factors examined in this research.

Factors to which respondents attributed their success were, in order of importance:

103
 • Persistence and determination 93.2%

• Experience 83.2%

• A great product/service 77.1%

• Entrepreneurial personality 73.5%

• Business knowledge 67.2%

• A great team 57.6%

• Education 56.3%

• Family support 50.4%

Entrepreneurial behaviour and traits that featured frequently in this sample of

business owners were:

• Prioritising business above personal interest

• Positive attitude

• Intuitive approach

• Independent thinking

• Risk taking

• Planning

• Innovating

Management Tools refer to the strategic use of a company vision, company values,

company objectives, marketing plan, awareness of the external environment of the

business and a full business plan.

104
The most frequently used strategic management tool is the Company Objectives,

with 68.9% of owner/managers saying that they regularly use this tool. In addition

owner/managers are mainly in touch with their customers, economic conditions and

with changes in the market place.

When referring to resource availability, the researcher is considering the availability

of finance as wells as the availability of the necessary business skill either in the

owner or in an employee or consultant.

The research identified the following about resource availability:

• In spite of the fact the only 21% of respondents had sufficient capital, only

49.6% of the respondents borrowed some money in the start up phase of the

business and only 26.1% borrowed the money from a bank.

• Reasons for borrowing money were

o Insufficient sales; Overestimating the market size and / or demand

(24.4%)

o Insufficient capital to start or buy business, finance purchase of initial

stock, vehicles, equipment (16%)

o Overheads too high (15%)

• Only 32.4% of respondents experienced some difficulty in obtaining finance

• The majority of the owner managers surveyed possessed most of the

business skill that were audited from day one or acquired them within the first

year of business. These results posit whether there is a relationship between

having business knowledge and being successful.

105
CHAPTER 6 – CONCLUSIONS AND RECCOMMENDATIONS

The findings of the research will be considered in relation to the research objectives.

The researcher will report on these conclusions and give recommendations for future

research.

To restate, the research objectives were:

• Primary objective

To investigate the success factors amongst small businesses in Gauteng.

• Secondary objectives

- To provide government with information that can shape future policies

regarding small business development

- To provide relevant information for the design of entrepreneurial training and

mentorship programmes

- To offer prospective entrepreneurs guidelines on the necessary requirements

for success.

Due to the small size of the sample this research is not able to completely achieve

the research objectives, but it has nevertheless contributed to the body of research

on the matter, since it established that there is a correlation between:

- Entrepreneurial personality and the success of small businesses

- The use of management tools and the success of small businesses

- The availability of resources and the success of small businesses.

106
6.1 Conclusions

In respect of the primary research objective – to investigate the success factors

amongst small businesses in Gauteng, the literary and empirical research provides

us with the following conclusions:

• Success is defined as continuous improvement or as progress towards

achieving ones goals (Nelson, n.d.). In the business sense, success is often

defined in terms of growth, turnover or profitability, continued trading and

return on investment (Simpson et al, 2004). In the empirical research

conducted here, profit, establishing the brand, being independent and growth,

were the predominant criteria given for the self measurement of success.

• Sustainability of a business depends on leadership qualities as well as on

having the right people, the ability to confront brutal facts and not lose faith, a

culture of discipline, use of technology, persistence, passion, awareness of

economic drivers and the ability to become the best at what one does (Collins,

2001). As most of the respondents were in business for longer then 5 years

they have achieved sustainability and they attribute their success to the

following:

- persistence and determination

- experience

- entrepreneurial personality

- business knowledge
107
 - a great team

- education

• The ability of a business to grow and maintain long term survival is facilitated

by the simple structures of a small business but threatened by it’s

susceptibility to environmental changes and dependence on the owner

(Zhang, 1995). The empirical research looked at the strategic awareness of

the business owner to environmental changes and confirmed that between

61% and 76% were in touch with their environment in terms of changes in

economic, market, legal, social and political conditions, either often or very

often.

• Organisational learning can be renamed owner learning in a small business

and is strongly connected with the owners’ ability to develop core

competencies and increase competitiveness (Zhang, 1995). Since education

was verified empirically to be a contributor to success (84.6% of the

respondents have a tertiary education and 68.9% consider themselves

successful), the empirical research seems to confirm the literary research

conclusion.

• Nieuwenhuizen and Kroon (2002), identified in their research, success factors

that correlate with McClelland’s (1986) characteristics of individuals with a high

need for achievement and therefore recommend the development of such

characteristics in existing and potential entrepreneurs through the educational

108
 and training system. In the empirical research, entrepreneurial personality

correlated with success of the small business, confirming the above stated

need to develop the necessary characteristics for success in the potential and

existing entrepreneur.

• Hannon and Atherton (1997) posit that the process of preparing the business

plan is more important then the output, as high levels of strategic awareness

are positively connected to small business success. While the use of business

tools in general was correlated with the success of small businesses, it

remains unclear whether the business plan is critical to the success of the

small business and which aspect of it is the important one. 68.9% of the

sample of business owners surveyed considered themselves either successful

or very successful and 56.3% make regular use of the plan, while 64.7% had a

formal business plan and 92.4% had a mental idea of a business plan.

Regarding the secondary objective of providing government with information that can

shape future policies regarding small business development the conclusions from the

research conducted are:

• Economic growth is driven by the proliferation of small businesses, according

to Thurik and Wennekers (2004), but Naude and Krugell (2003) claim that the

proliferation of small businesses in Africa is at least part responsible for the

lack of economic development. No empirical research was done on this

particular aspect as it is beyond the scope of this research.

109
• The motivation for starting a business, will affect the level of contribution to the

economy, since owners that are “pushed” into business are geared towards

survival and maintaining their autonomy, rather then toward growth and job

creation (Poutziouris, 2003). The empirical research in this respect is that it is

indeed confirmed that there are different motives in starting a business with

14.4% having started the business out of necessity and 71.2% out of

opportunity, but it was beyond the scope of the research to investigate the

impact of these motives on the economy.

• Government can also derive information from the conclusions in respect of the

primary objective, in particular the link between higher education and success,

the susceptibility of small businesses to environmental conditions and the link

between entrepreneurial behaviour and success

• Perhaps the biggest surprise from this research is that financial resources are

not critical to the success of small businesses, since only 21% of respondents

had all the capital they required to start the business but only 49.6% borrowed

money. Given that the reasons for needing to borrow money can be attributed

in a major part to lack of proper planning, the emphasis of government efforts

to promote small business should be focused on transmitting business skills

more than on providing finance for projects that are likely to fail.

110
Regarding the secondary objective of providing relevant information for the design of

entrepreneurial training and mentorship programmes attention is drawn to the factors

that the respondents are indicators of their success:

- persistence and determination

- experience

- entrepreneurial personality

- business knowledge

- a great team

- education

From the above one can infer that training programmes should therefore be focused

on developing the necessary entrepreneurial behaviours, such as hard work,

remaining positive and being persistent, transferring business knowledge, such as

selling techniques and understanding finance and picking the right team.

As far as giving prospective entrepreneurs guidelines on the necessary requirements

for success (the third secondary objective), all of the research conducted, both

theoretical and empirical serves as a guideline to the prospective entrepreneur in

respect of what is a contributing factor towards his or her potential success is.

Perhaps of particular importance to note is the indication that most of the success

factors identified are related mostly to the business owner’s personality, attitude and

skills and not so much to extraneous factors such as capital or economic, social and

political conditions.

111
6.2 Recommendations

The scope of this research has perforce been limited, leaving room for much more

research to be done on the subject. Certain recommendations for additional research

follow.

While entrepreneurial personality was correlated to success, further research is

necessary to pinpoint conclusively which traits and behaviours are conducive to

success, by comparing both successful and unsuccessful business owners that have

the same specific traits.

As the level of education seems to correlate with the success of the respondents, it is

recommended that more attention be given to investigating the true impact of

education on success as well as whether it is simply education in general that

contributes to success or specific types of education.

Since the value of the business plan in relation to the success of the small business

remains unclear it is therefore recommended that more research is done on this

particular aspect. Banks and mentorship programmes, such as Sizanani Business

Advisory Services rely heavily on the business plan as the key factor in determining

risk and therefore success probability. This may be misguided given that this

research tends to indicate that personality, level of education, business knowledge

and skills are strong success factors and indicators.

112
Given the assumption that economic growth is driven by the proliferation of small

businesses, according to Thurik and Wennekers (2004), and that Naude and Krugell

(2003) claim that the proliferation of small businesses in Africa is at least part

responsible for the lack of economic development, it is recommended that further

research should be conducted to clarify this question, in particular because so much

energy and resources is being spent by government in developing small businesses.

For the same reason and given that Potziouris (2003) states that the level of

contribution made by a small business to the economy is dependant on the whether

the owner was pushed or pulled into business, it is suggested that further research

be done in South Africa to ascertain whether these finding are true and if so, to

promote the “pull” of more individuals into business.

More research is required to conclusively ascertain the relationship between having

the necessary capital and business success, since one can infer the belief that start

up capital is critical to success from the numerous programs geared towards

financing small businesses, and this research seems to indicate that it is not critical.

An interesting afterthought is that this research examined factors that could be

divided into internal (personality, experience, attitude, knowledge) and external (start-

up capital, business plans and skill availability). One could add to the external factors

which were not researched here, but were considered in chapter three, the legal and

political environment in which the small business operates. The question to ask

would be which are more critical to the success of small businesses, the internal

113
factors or the external ones. In a culture that tends to blame the external factors, as

demonstrated by protests and strikes that are reported frequently in the news, finding

the answer to this question could imply a need for a shift in attitude by the general

population.

114
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APPENDIX I - NATIONAL SMALL BUSINESS ACT

Definition of small business

The definitions of small business according to industry sector given in the table below

are based on the National Small Business Act No. 102. 27 November 1996. See also

National Small Business Amendment Bill published in the Government Gazette on 27

March 2003.

Sector or sub sectors in accordance with Size or Total full-time Total Total gross asset
the class equivalent of annual value (fixed
Standard Industrial paid turnover property
Classification employees Less than excluded)
Less than Less than

Agriculture Medium 120 R 4.00 m R 4.00 m

Small 50 R 2.00 m R 2.00 m
Very 10 R 0.40 m R 0.40 m
small 5 R 0.15 m R 0.10 m
Micro

Mining and Quarrying Medium 200 R30.00 m R18.00 m

Small 50 R 7.50 m R 4.50 m
Very 20 R 3.00 m R 1.80 m
small 5 R 0.15 m R 0.10 m
Micro

Manufacturing Medium 200 R40.00 m R15.00 m

Small 50 R10.00 m R 3.75 m
Very 20 R 4.00 m R 1.50 m
small 5 R 0.15 m R 0.10 m
Micro

Electricity, Gas and Water Medium 200 R40.00 m R15.00 m

Small 50 R10.00 m R 3.75 m
Very 20 R 4.00 m R 1.50 m
small 5 R 0.15 m R 0.10 m
Micro

Construction Medium 200 R20.00 m R 4.00 m

Small 50 R 5.00 m R 1.00 m
Very 20 R 2.00 m R 0.40 m
small 5 R 0.15 m R 0.10 m
Micro

Retail and Motor Trade Medium 120 R30.00 m R 5.00 m

and Repair Services Small 50 R15.00 m R 2.50 m
Very 10 R 3.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Wholesale Trade Medium 120 R50.00 m R 8.00 m

Small 50 R25.00 m R 4.00 m
Very 10 R 5.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

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Commercial Agents and Medium 120 R50.00 m R 8.00 m
Allied Services Small 50 R25.00 m R 4.00 m
Very 10 R 5.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Catering Medium 120 R10.00 m R 2.00 m

Small 50 R 5.00 m R 1.00 m
Very 10 R 1.00 m R 0.20 m
small 5 R 0.15 m R 0.10 m
Micro

Transport Medium 120 R20.00 m R 5.00 m

Small 50 R10.00 m R 2.50 m
Very 10 R 2.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Storage Medium 120 R20.00 m R 5.00 m

Small 50 R10.00 m R 2.50 m
Very 10 R 2.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Communications Medium 120 R20.00 m R 5.00 m

Small 50 R10.00 m R 2.50 m
Very 10 R 2.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Finance Medium 120 R20.00 m R 4.00 m

Small 50 R10.00 m R 2.00 m
Very 10 R 2.00 m R 0.40 m
small 5 R 0.15 m R 0.10 m
Micro

Business Services Medium 120 R20.00 m R 4.00 m

Small 50 R10.00 m R 2.00 m
Very 10 R 2.00 m R 0.40 m
small 5 R 0.15 m R 0.10 m
Micro

Community Medium 120 R10.00 m R 5.00 m

Small 50 R 5.00 m R 2.50 m
Very 10 R 1.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

Social and Medium 120 R10.00 m R 5.00 m

Personal Services Small 50 R 5.00 m R 2.50 m
Very 10 R 1.00 m R 0.50 m
small 5 R 0.15 m R 0.10 m
Micro

www.brain.org.za/START/small_business.html

120
APPENDIX II – RESEARCH QUESTIONNAIRE

An investigation into the success factors amongst small businesses in

Gauteng

The intention of this research is to identify which of the pre-selected factors are found

to be common determinants to the success of small businesses in South Africa. The

completion of this questionnaire should not take longer then 20 minutes and your

answers will remain completely anonymous. When you have completed it, please

return it to the sender via email or fax.

The information will be used for the completion of my dissertation for my MBA degree

through the University of Johannesburg (student no. 802045249). Should you wish to

receive a copy of the results please let me know when you return the questionnaire.

Please mark an X in the appropriate block(s)

and answer all questions

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SECTION A – Success

1. Please indicate in the table below how accurately the factors listed below describe

your definition of success (rate each and everyone of the factors)

Does not describe Best Describes

1 2 3 4 5
Survival

Being independent

Creating employment

Making a good profit

Growth of business (market share, branches,
employees)
Status in the community

Meeting set targets

Return on Investment (ROI)

Establishing the Brand

Personal benefits (owning property, holidays, etc.)

Other (specify)
_______________________________

2. How successful do you consider yourself?

Very unsuccessful 1 2 3 4 5 Very successful

3. Please elaborate on the answer you gave above.

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4. In your opinion, to what do you attribute your success? (indicate the strength of

the factor, mentioned in the table below, as a contributor to your success)

Very weak Very strong

1 2 3 4 5 Don’t know

Business Knowledge

Education

Experience

Luck

Timing

Government assistance

Capital to start up

Family support

Entrepreneurial personality

A great team

A great product / service

Persistence and determination

Other (specify)
____________________________

Other (specify)

_____________________________

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SECTION B - Entrepreneurial Personality characteristics of owner/manager

5. From the perspective of the last 2 -10 years please characterise yourself in terms

of the frequency you have exhibited the following types of behaviour:

occasion
never rarely often always
ally
Went on a business related
course

Went on a soft skills course

(communication, conflict
management, etc)
Attended a networking
function
Attended business
conferences and seminars
Read business related books

Felt enthusiastic

Laughed

Felt stressed

Went on holiday

Practised some form of de-

stressing
Been coached professionally

Sought inspiration and/or

motivation

Prayed or meditated

Visualised your state of

success
Remained positive of your
ultimate success in the face
of obstacles
Made a decision against the
majority
Broke the rules (any rules)

Overspent (business or
private)
Had to cut back on personal
expenses
Began the process before the
plan is complete
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Followed a process
methodically
Planned your day

Changed personal plans to

accommodate business
necessities
Acted intuitively

Acted impulsively

Followed a gut feeling

Innovated a process or
technology
Took risks

Demanded perfection

Avoided confrontation

Thought of giving it all up

Worked more then 8 hours

Per day

________________________________________________________________

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SECTION C - Use of management tools

6. Have you formally defined (in writing) any of the following?

Yes No
Company Vision
Company Values
Company Objectives/Goals
Business plan
Marketing Plan

7. Do you have a mental idea of any of the following?

Yes No
Company Vision
Company Values
Company Objectives/Goals
Business plan
Marketing Plan

8. Do you make regular use of any of the following strategic tools?

Yes No
Company Vision
Company Values
Company Objectives/Goals
Business plan
Marketing Plan

9. How often do you stay in touch with your environment in terms of

never rarely occasi often always

onally
Changes in legislation that may affect
your business
Changes in economic conditions, such
as inflation and interest rate
Changes in social and political
conditions
Changes in the marketing place
Suppliers
Customers

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SECTION D - Resource Availability

10. When you started your business did you…

Yes No
Have the all the necessary capital?
Borrow some of the capital required?
Borrow all of the capital required?
Have a family member that helped support the household until your
business became established?
Have financial assistance from another business
Have financial assistance from a bank or government institution?

If you have not borrowed money to finance your business please proceed to

question no. 15.

11. If you have borrowed money to finance your business, what in your opinion was

the reason for needing to borrow money? (mark as many answers as you feel are

true)

Yes No
No business plan
Insufficient knowledge of business
None or wrong marketing strategy
Change in legislation
Unforeseen change in economic conditions
Overestimating the market size and/or demand
Wrong pricing
Insufficient sales
Personal expenses drained the business
Overheads too high
Other

If other (please indicate)

_______________________________________________________________

127
12. How difficult was it for your business to obtain finance?

Very difficult 1 2 3 4 5 Very easy

13. In your view, describe what factors made it difficult or easy for you to obtain

finance?

14. How long did it take you to obtain the financial assistance you received?

0 to 3 months 4 to 6 months 7 to 9 months 10 to 12 months > 12 months

15. How soon after you started your business did you or the business acquire the

following business skills? (you may have employed someone with the skill or used

an outsider to give you the benefit of their expertise)

Had skill 0 to 12 12 to 24 More then Don’t have

from day months months 24 months the skill
one
Financial management
Marketing
management
Sales

Strategic management
Technical (your core
business)
People management

128
16. Please rate the following skills in order of importance relative to the success of

your business. (1 is the least important and 5 the most important) (please

rate all of the skills)

Not important Very Important

1 2 3 4 5 Don’t know
Financial management
Marketing Management

Sales

Strategic Management

Technical / core business

People Management

SECTION E – Classification

The following section will gather some personal details for statistical purposes only.

Be assured that your answers will be held in the strictest confidence and please

answer all the questions to the best of your ability.

17. Please indicate below the annual turnover/sales of your business in millions of

rands:

0-1 Million 2-5 Million 6-10 Million 11-15 Million 16-20 Million

129
18. How many employees do you have?

0-5 6-10 11-20 21-30 31-40 41-50 > 50

19. In which sector is your business?

Agricultural Manufacturing Financial Retail Health Technology Engineering

Tourism & Professional Food &

Property Logistics Education Automotive
Hospitality Services Beverage

Other (please indicate)

_________________________________________________

20. How old are you?

16-25 years 26-35 years 36-45 years 46-55 years 56-65 years Over 65
old old old old old years old

21. How long have you been an entrepreneur/business owner/business manager?

Over 25
0 – 5 years 6-10 years 11-15 years 16-20 years 21-25 years
years

22. How old is the business you currently manage?

0 – 3 years 3 – 5 years 6 – 10 years 11 – 19 years > 20 years

130
23. Please indicate which of the following applies to you:

Male Female

In
Single Married Widowed Divorced
relationship

24. In which bracket does you monthly household income fall? (include the income

of all adults living under the same roof)

0 – R10,000 R11,000 – R21,000- R31,000- R41,000- More then

R20,000 R30,000 R40,000 R50,000 R50,000

25. Please indicate your education level from the choices below:

Grade 12 Diploma / Bachelor Post Self Short

Certificate Degree Graduate Educated courses
Degree through
reading

26. Which of the following led to the establishment of your business?

A good idea A windfall Retrenchme Wanting to The need Inherited Govern- Other
of money nt be in for the mint Policy (indicate)
charge independen business (BBBEE)
ce

Thank you for taking the time to complete this questionnaire. Please mail it to

ck.research@hotmail.com or ksbs@goggaconnect.co.za or

Fax to 0866 584 759

Clara Keil

131