Although township businesses face numerous challenges, a study has shown that their chances of survival and success increase when they are flexible, experiment and have an affordable loss. The study is titled “The relationship between small business owners’ practice of effectuation and business growth in Gauteng townships” and was published by the Southern African Journal of Entrepreneurship and Small Business Management (SAJESBM) this week.
It focused on township businesses operating in Alexandra, Soweto and Honeydew. Most of them were youth-owned, and a significant number of the respondents did not have matric or formal education. The aim of the study was to determine if a non-expert township small business owner’s enterprise would grow if the business implemented the practice of effectuation. Effectuation relates to how resource-poor expert entrepreneurs behave to create a market using their limited means.
The principles of effectuation are experimentation, affordable loss, flexibility and pre-commitments. The study surveyed 728 businesses and found that there was a relationship between effectuation and its principles and the financial business growth of a township enterprise. It revealed that a township business may display growth when the owner used experimentation, which was defined as an enterprise attempting different business models until a suitable one was found to cope with the changes in a market.
This was especially relevant if it was difficult for the business to predict the future. “Experimentation by the township small business owner may create new products and services and allows the business to cope with changes in the market,” the authors noted. The study also showed that flexibility created competitiveness because of the ability to assess and adapt to market changes, and that their flexible nature empowered them to adapt to the unpredictable nature of the township business environment.
Flexibility happened when a business accepted surprises and leveraged contingencies in its business venture. Another obstacle to a successful venture was businesses stocking the same products as other stores, which they sold to the same customers. The study concluded that the “effectual approach” for township-based businesses in an emerging economy such as South Africa with scarce resources, would benefit entrepreneurs.
“With the use of effectuation, township small business owners would stop focusing on the challenge of not having resources they need for the chosen business venture, but would rather pay attention to what business venture to start and grow based on the resources at hand,” it pointed out.