SMALL BUSINESS: Where have all the entrepreneurs gone in the startup age?

To understand the plight of the modern South African small business founder/owner, you first need to know what makes them different from startup founders – because there is a big difference.

It begins with the core intent, where small business owners are looking for organic profitability, have defined a local market that they are servicing and achieve steady cash generation.

Startup founders are usually chasing rapid, exponential scalability via technology-driven (read: software) innovation and with an eye on global market capture.

Shoprite’s latest SME report shows that 32% of small businesses have operated for more than 20 years, but 39% of those businesses employ fewer than five people over their lifetime.

Thato Ntseare, head of venture investments at E Squared Investments, says that it is a hard contrast to the startup ethos of high risk, high velocity; that is structured for venture backing, rapid team expansion and liquidity events/exits.

Fresh venture capital deployed in South Africa stands at around R3.3-billion annually across 525 startups, meaning more than 90% of tech startups remain self-funded or informally capitalised. Over 65% of VC investments are concentrated in ICT/Fintech, leaving other tech sectors underfunded.

Hard lessons learnt

Tanya du Bois started Naturals Beauty 18 years ago following a personal family crisis when her son was diagnosed with autism. Advised by a paediatric neurologist to eliminate environmental toxins, Du Bois discovered a severe shortage of natural, organic personal care products in South Africa.

It started in her kitchen using a 1960s recipe book passed down by her grandmother, initially supplying mothers in local autism support groups at cost. Once the orders outgrew the kitchen, she hired a professional cosmetic chemist to develop natural active formulations, transitioning from basic soaps to a 53-product range spanning baby, kids, teen, adult and advanced peptide copper serums.

She then ran the business as a sole proprietorship for its first decade, reinvesting all revenue back into the business. “I’m not a big risk taker and I just felt like once we built a bit, we could grow a bit; and once we built a bit more we could grow a bit more...”

Rather than selling equity or taking high-interest commercial bank debt, Du Bois used non-dilutive support from government agencies such as Seda (Small Enterprise Development Agency) for packaging upgrades and the Western Cape Agri-Processing Fund.

“I’ll always look at those options first because... the percentage that you pay back or the percentage that you contribute towards the project is a lot smaller than what you’re doing when you’re taking out a loan.”

Scaling the business has meant embracing e-commerce, which provides direct customer relationships, but older South African demographic segments (aged 60+) still prefer physical stores.

However, physical distribution via specialised chains (read: Wellness Warehouse) introduces high storage, handling, and distribution fee burdens for small businesses.

Embracing the distribution model

Jake Axelrod launched Metalab in 2020 as a direct-to-consumer (D2C) high-protein functional food brand after a previous business venture failed and wiped out his personal savings. Axelrod re-established capital by working as a personal trainer, health coach and gym operator.

Axelrod ploughed his own R250,000 seed into the supplements business. For the first three years of operation (2020-2023), he took no salary, channelling all cash flow back into inventory, R&D, and team expansion while continuing to coach to cover his personal living costs.

“Slow incremental gains,” he told Daily Maverick. “That’s the way to do it in life, business, in training; that principle remains.”

Rather than seeking early external investors or accepting rapid retail distribution, Axelrod deliberately protected Metalab’s equity and brand position – even going as far as rejecting listing offers from major retail chains during the fledgling first five years.

“In the early days of founding the brand, we had interest from all the big guys. We had Dis-Chem wanting us, we had Clicks wanting us, we had the Sorbet Group wanting to list us. So we could have been in 700 plus retail stores early on, but we turned them all down because we were hard and fast on what we were building... I couldn’t build the brand and disrupt the industry how I wanted to with retail because you start to lose touch of who you are as a brand.”

Why did he resist the retail siren song? Because he adopted a top-down formulation model without price constraints, handpicking grass-fed whey isolate suppliers in California and Northern Ireland, and conducting quarterly independent third-party lab testing on every finished batch.

This is why the brand operates at a 30% to 40% price premium above traditional competitors. After establishing a dominant D2C brand persona, Metalab expanded into more than 300 Checkers stores nationwide, partnering strategically with a supermarket format that fits its household positioning (Axelrod is pitching his powders as a nutritional supplement and targeting women who make the pantry purchase decisions).

But many of the early bets are beginning to pay off. Global demand spikes for protein – fuelled by GLP-1 (read: Ozempic) weight-loss medication adoption in the US – created severe global supply constraints and drove raw material costs to record highs, forcing price adjustments on to consumers.

Differentiating on price and pivoting away from gym performance supplementation to a more holistic nutrition option has brought the market to Metalab. “It’s a bit embarrassing that everyone’s just chasing trends,” Axelrod says. “There are no brands that are saying like ‘this is who we are and this is who we going to be’...”

Local startups not growing so lekker

SA’s startup ecosystem growth rate (19.5%) trails regional peers such as Kenya (33.5%) and Egypt (22%) due to slow policy execution and fragmented government support mechanisms.

Our current and proposed exchange control regulations also severely restrict cross-border IP transfers and foreign capital flows. And the lack of a dedicated startup visa limits international technical talent acquisition.

In the current economic moment, there seem to be several key advantages of retaining equity and choosing a self-funded or bootstrapped path:

• Uncompromising strategic autonomy: founders retain full control over product development, pricing and distribution without pressure to hit artificial 10x fund returns or adhere to a 10-year VC fund liquidation lifecycle.

• Enforced financial discipline: Without speculative equity cash burn, the business must achieve real unit profitability, customer demand and tight cost control early.

• Option of a partial exit: Bootstrapped or equity-preserved businesses allow founders to execute partial liquidity events, revenue share partnerships, or strategic distribution buy-outs while retaining ultimate control.

• Full equity value retention: Founders capture 100% of the enterprise value created over time rather than suffering dilution from successive funding rounds.

While the local startup market remains very active, the rise of AI has sucked all the hype out of the room and caused rapid disruption among the previous market disruptors.

South Africa’s business climate requires a clear policy and operational distinction between SMEs focused on steady, local, organic sustainability, and high-growth startups focused on tech-enabled, globally scalable innovation.

Entrepreneurs are supposed to be building the next phase of the country’s business future, but once again there is little policy incentive to light a fire under either route to building a business. DM