5 Dimensions of innovative supplier development partnerships

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RobLeBlanc.jpgWith significant changes to B-BBEE legislation fast approaching, there are simply not enough small, black-owned suppliers that can perform to corporate standards. This scarcity is a headache for procurement professionals looking to achieve under increasingly stringent enterprise development (ED) and supplier development (SD) categories without compromising service levels.


Considering that there is world-class talent in South Africa’s under-resourced communities, it is apparent that liberating entrepreneurial supply chain potential in the informal sector is a route to creating small, black-owned suppliers. However, this requires rethinking five critical dimensions of the way talent is identified, developed and invested in, says Rob LeBlanc, Chief Investment Officer at incubation and community investment organisation Awethu Project, in this month’s SmartProcurement.


ONE – Investment structure
The incubator must be a long-term equity partner as this ties its future to the success of each venture that it backs.


However, selected entrepreneurs would not immediately become partners in such ventures; rather employees with performance- and time-based vesting milestones, with their equity held in trust until they succeed. After their first two years, entrepreneurs can become significant minority partners, and over the next three to five years, they stand to earn up to 50% of their venture, with a right of first refusal to own up to 100%.


Structuring investments in this way aligns incentives and increases the incubator’s capacity to manage entrepreneur performance without sacrificing B-BBEE benefits for its corporate partners or clients.


TWO – Investment support through general management oversight
The incubator’s venture managers must come from corporate and/or entrepreneurial backgrounds and would act as general managers of new ventures for the first two years.


THREE - Investment support through functional expertise
While the incubator’s venture managers would be responsible for operations, they must also groom entrepreneurs to replace them after the second year. Staffing ventures in this way allows the incubator to deliver according to formal sector standards while ensuring the tacit knowledge transfer necessary to prepare entrepreneurs for future growth and success.


Furthermore, the incubator must centralise all non-core functions – like finance, legal, recruitment, marketing, business development and HR – in a shared service centre, run by expert managers. Supporting ventures in this way would increase focus, reduce risk and drive cost savings through economies of scale.


FOUR - Where entrepreneurs come from
Drop all traditional barriers to entry. Entrepreneurs should not need formal education, work experience, business track record or collateral; nor should they even need a business idea.


Rather, what they need is raw talent (which Awethu defines using proprietary screening techniques) a sense of deferred gratification, and a willingness to work hard enough to compete with anyone in the world.


Lowering barriers in this way allows the incubator to work with the majority of South Africans, many of whom are stuck in the informal sector and looking for this potentially life- and economy-changing opportunity.


FIVE - Where business ideas come from
Traditional early-stage investors or incubators often wait for a strong entrepreneur to approach them with a viable idea. While an incubator must remain open to such a pairing, it must separate entrepreneurs from ideas, independently sourcing investment opportunities – often in corporate supply chains – to match with appropriate entrepreneurs-to-be.


Decoupling “horse” from “jockey” in this way gives the incubator unparalleled flexibility to accelerate growth and effects – it does not have to wait for a great entrepreneur with a great idea, it can match a high-potential entrepreneur with a promising investment opportunity.


The result of these design features is a business model that can scalably produce black- and typically youth-owned small enterprises, properly capitalised and professionally supported, with aligned incentives to excel in South Africa’s corporate supply chains or market at large. The incubator and its entrepreneurs cannot create value for themselves unless its customers are satisfied.


Awethu is already putting this model into practice, running its first commercial investment fund in partnership with the Small Enterprise Finance Agency (sefa). The sefa Awethu Youth Fund (sAYF) already has 27 active portfolio companies in a multitude of sectors.


If you are interested in collaborating with any existing sAYF portfolio company, exploring an investment opportunity in your supply chain, or learning more about the Awethu incubation and investment model, please contact Tinashe Ruzane, Manager: Business Development, tinashe@awethuproject.co.za.
 

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