South Africa 34|100 Fast Facts - Leading Indicators Report

THE SOUTH AFRICA 34 | 100 FAST FACTS – LEADING INDICATORS
6 May 2010

The South Africa 34 companies have created 1,500 jobs and expect to grow strongly in 2010. They are the Leading Indicators of South Africaʼs Next Economy

AllWorld released “The South Africa 34 | 100 Fast Facts” based on the first 34 qualified applicants for the South Africa 100. The South Africa 34 | 100 Fast Facts offer the first snapshot of how South Africa is creating new economic value and what the immediate constraints are faced by growth entrepreneurs. The South Africa 34 are very bullish, having performed strongly the last few years and anticipating growth to continue or accelerate in the next two years.

The South Africa 34 is an interim list, intended to give early economic indicators of South Africaʼs entrepreneurial growth potential. The objective is to create the South Africa 100 – a more broader and more representative group of growth companies building new value in South Africa. The mission of AllWorld Network and Endeavor South Africa, who have teamed up to create the South Africa 34 | 100, is to find and credential the fastest growing companies, put them on the global radar screen, and have market opportunities come to them. AllWorld calls this Visibility Economics^TM.

The South Africa 34 is divided into 15 Ranked Companies and 19 Companies to Watch. Each company competes for a spot on the list based on strenuous international criteria. The 15 Ranked Companies meet AllWorldʼs international criteria of size, age and performance, and are ranked based on their sales growth between 2006 and 2009 (verified with audited statements or audit letters). There are 19 Companies to Watch – companies that show all the characteristics of a fast growth company but are too small or too young. These are companies we believe will become future contenders.

The findings for the South Africa 34 suggest that South Africa is a strong location for growth entrepreneurs, particularly in High-Tech and Telecommunications, and in PR,

Media, and Marketing. The most stunning finding is their performance in 2009. Defying the sluggishness of the global economy, almost every South Africa 34 company grew by 50% to 100% in 2009 (based on a comparison of 2008 audited numbers and 2009 self-reported numbers).

The South Africa 34 as a group has created more than 1,500 jobs since company inception, and most of these jobs have been created in the last few years. Every one of the 34 companies expects to grow in 2010, with many expecting growth above 25%.

If the South Africa 34 continue growing at 30% a year, or more as they did in 2009, they will create 1,000 jobs in less than two years. However, the main constraint to growth most report is finding qualified managers and employees. This is a growth constraint experienced universally by growth companies, and there is an opportunity for job training programs, government and HR recruiting firms to serve the specific needs of these companies.

Against this backdrop of success, there are issues. The companies tend to be small relative to other AllWorld rankings of growth entrepreneurs, and offer less on the job training and profit sharing for managers and employees compared to their counterparts from other countries. Most striking is that as a group the founders are nearly all white. The good news is that there is a dynamic group of Black entrepreneurs on the Companies to Watch list that have the potential to grow locally, regionally and internationally.

The South Africa 34 Fast Facts

The South Africa 34 grew an average of 30% a year between 2006 and 2008, and most the companies grew 50-100% in 2009 beating global odds
They represent a diversified list of industries, with High Tech & Telecommunications and PR, Media and Marketing in first and second place. The top half of the Ranked Companies list and the top half of the Companies to Watch list are dominated by High-Tech & Telecommunications and the High-Tech & Telecommunications companies also tend to be the largest companies on each list.
The Ranked Companies average of 40 million ZAR in revenue in 2008, and 69 employees, with the smallest applicant having 5.5 million ZAR in revenue and the largest close to 118 million ZAR. The Companies to Watch are much smaller.
The average cost of starting a Ranked Company was 2.2 million ZAR and .5 million ZAR for a Company to Watch.
Nearly two thirds of the companies were started with co-founded

Compared to their American counterparts (the Inc. 500 – the platinum standard for American growth entrepreneurs):

They have received less capital from banks and investors at start up
They were an average of 29-32 years old when they founded the South Africa 34 winning company, almost the exact same as for the Inc. 500 founders.
They have a higher level of “entrepreneurial intensity” with each South Africa 34 entrepreneur having formed an average each of two other companies, most of which are still in existence.

Economic Outlook - The Next Six Months and Beyond

All the companies expect significant growth, with 36% predicting sales growth of 25-50% in the next six months. They expect to add significant jobs commensurate with their growth.

In the next two years,

45% of the South Africa 34 want to bring in outside investors
60% of the Ranked Companies and 47% of the Companies to Watch have plans to start another company in the next 2-3 years. Further, many of these companies have encouraged employees to spin off as entrepreneurs, and we should see this pattern continuing in the next two years.
In the next two years, the companies project their revenue growth coming from expansion in Sub-Saharan markets and international markets. As a group, they project international sales outside of Africa to present 25% or more of their revenues by 2012.

Real Time Policy Opportunities

INCUBATION. The South Africa 34 act as real time incubators, encouraging employees to spin off as entrepreneurs, and many of the South Africa 34 entrepreneurs have plans to launch another business in the next two years. The South Africa 34 represent a powerful engine for incubation, and government may want to look at policy to accelerate this critical country building feature.
TALENT. For the Ranked Companies, by far the largest constraint to their further growth is finding qualified managers and employees. This is an opportunity for talent service providers, and potentially an opportunity for government workforce policy to be designed around the needs of growth companies. We estimate that this group can create 500+ jobs a year with enabling conditions to source talent.
WORKING CAPITAL. For the Companies to Watch, by far the largest constraint to their further growth is the shortage/cost of working capital, and not being paid on time by customers. This is a universal problem for start up companies. However, there are banking and policy strategies to ease some of these constraints.
GOVERNMENT NOT AN IMPEDIMENT. Interestingly, very few of the companies report that government regulation/red tape is much of a concern. However, government needs to play a proactive role in finding and advancing its emerging growth companies. Government policies that advance growth companies will have a knock on effect for all companies.
INTERNATIONAL TRADE MISSION. The South Africa 34 may face stiff competition in international expansion as they are relatively small. Further, several of the companies report that they have to overcome perceptions of international customers and partners of doing business in Africa. The Government of South Africa may want to consider a Trade Mission to promote these companies internationally.
SUPPORTING BLACK GROWTH COMPANIES. The Companies to Watch are particularly small, with most at 3 million ZAR or below. Attention needs to be paid to these companies by South Africa to give them the best shot of becoming strong growth companies in the future. This is particularly important since most of the Black companies are in this smaller category.