South African businesses need to believe in broad-based black economic empowerment (B-BBEE) again if they’re going to make the most of their investments and the biggest impact on the country’s economy, says the founder of local venture builder and business incubator Aions Creative Technology.
For most businesses, B-BBEE has become about saving as much money as possible while getting the maximum points. That’s not surprising, as enterprise and supplier development (ESD) can comprise up to 40% of the B-BBEE scorecard. But in the rush to get their points and be compliant, they’re missing opportunities to be both cost-effective and to make a broader impact, says CEO and founder of Aions Creative Technology Mitchan Adams.
Adams is no stranger to the worlds of VC and entrepreneurship, having previously co-founded instant EFT and online payments fintech Ozow with Lyle Eckstein and Thomas Pays. From start-up seven years ago, Ozow last year procured a $48m series B investment round led by Tencent.
At this point, Adams exited the day-to-day operations of the business to found Aions Creative Technology, with two major goals: to help corporate South Africa be better at B-BBEE, and to incubate and scale local start-ups to become scaleable, sustainable businesses.
It’s a virtuous circle, in which the company matches the small businesses it helps build directly with corporates looking for recipients of B-BBEE funding. Aions Creative Technology aims to announce investments in its first three incubator companies in the next 100 days.
“Many smaller companies, and even divisions of bigger corporates, simply don’t know what to do with their B-BBEE funds. They don’t have the time, or the skills, to fully understand the return on investment (ROI) of B-BBEE expenditure, or that there are various ways you can spend your funds. So, they end up missing opportunities,” says Adams.
“Implemented correctly, B-BBEE could shift the economy into a positive direction in as little as three to five years. But its potential is lost in implementation because companies see it as a compliance exercise.”
Currently, companies can get up to 40 points on their B-BBEE scorecards for ESD, 20 points for skills development and 5 points for socio-economic development; all three get a business to a level four compliance. They can also use B-BBEE initiatives to boost their corporate social investment credentials.
Adams believes there is ‘ample space’ for innovation in the existing approach to enterprise development, supplier development and preferential procurement that will benefit both corporates and small businesses. The key, he says, is to match corporates with the right suppliers that will add real value to their supply chains, while growing the small supplier.
The ultimate opportunity is to create sustainable businesses, which will then provide sustainable jobs, which will then create the future customers for South African businesses. It’s here that Adams believes his experience in winning several pitch dens and being accepted into various incubation programs will give start-ups an edge. It also helps that he’s prepared to put his own money into the businesses he’s backing.
“I’m the perfect target market to emigrate, but I love this country and what it offers. To make it work, though, the first big issue we need to solve is unemployment. If we get that right, there are huge opportunities for every one of us. By getting big businesses to help start small businesses, we’ll be taking a huge step towards a future we all want to be part of,” says Adams.