Is it riskier than ever to start a business?

Gugu Mjadu

As 2016 nears an end many begin to re-evaluate the year that was, both personally and professionally. As a result this is typically the time of the year new life and professional goals are developed. This is also characteristically a time when hopeful entrepreneurs consider whether the approaching year is the correct time to pursue their business idea.

This is according to Gugu Mjadu, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, who says that many aspiring entrepreneurs spend the festive season break considering possible business ventures, and questioning whether the risk of leaving their steady nine-to-five job to start an entrepreneurial business will be worth it.

Mjadu says that this is a valid contemplation given the current economic and market landscape, which may create more hesitation than inspiration where entrepreneurship is concerned. “In an economy awash with threats of investment ratings downgrades and political instability, small businesses have struggled this year.”

She also points to the recently released Statistics SA unemployment rate for South Africa, which has now risen to 27.1% of the labour force – the highest rate in 13 years. She says that this sharp decline is a clear indication that big businesses are struggling to survive, and are therefore shedding jobs to stay afloat in a tough market. “If big businesses are struggling to expand and create jobs, the conditions are that much more strenuous for smaller businesses,” says Mjadu.

In addition, various local business confidence surveys highlight that business owners are influenced by economic conditions. Mjadu points to the results of the third quarter 2016 Business Partners SME Index, which revealed that 75% of respondents believe that the current landscape is impacting their business’ profit margins. “The reality is that entrepreneurship is no easy ride, and the economic environment in which a business has to operate directly impacts the success of a business,” says Mjadu.

She adds however that a bumpy economic setting isn’t reason to put off a business venture, as these challenging conditions may actually bring about business opportunities. However, Mjadu stresses that there should always be a balance between risk evaluation and opportunities when making the decision to start a business. “While starting a business might always be considered a leap of faith in your own ability, most times the difference between a successful venture and a failed one is having a thorough knowledge of the industry in which you want to operate and being passionate about the business opportunity you have identified.

Mjadu adds: “Also important is for entrepreneurs to be extra vigilant in their due diligence processes, seek the guidance of a business expert to assist with the process as this will inform their decision on the level of risk that can safely be taken for their business.”

While there will never be a ‘perfect time’ to start a business, Mjadu says that 2017 is likely to paint a slightly better economic picture. “The recent decision by Standard & Poor’s to not drop South Africa’s investment rating to junk status is a positive indication of imminent change. The country is working hard to put measures in place to recover economic growth and meet growth objectives in the New Year, and these are positive signs for aspirant entrepreneurs.”

Regardless of macro-conditions, Mjadu reiterates that risk will always be involved when making the decision to start a business, and should remain top of mind. “Entrepreneurs should expect the business environment to constantly fluctuate in terms of the risk it presents to small businesses. However, if entrepreneurs focus on strategically analysing this risk and ideas to mitigate the risk involved, paying extra attention to their business plan and cash flow forecast, there is no better time than the present to take the leap into entrepreneurship,” concludes Mjadu.