South Africa’s small business sector is often described as the solution to our unemployment crisis and the engine of inclusive growth. From government policy to donor programmes and corporate supply chain development, the prevailing idea is clear: support SMEs, and the economy will thrive.
And while there’s truth to that, as I explored in my last article on structural traps like market concentration and capital exclusion, see here…, there’s another side to the SME conversation that’s rarely addressed. One that’s more difficult to say out loud.
Many small businesses don’t fail because of the system — they fail because of how they operate.
Until we start having honest conversations about this internal reality, no amount of policy support or financial inclusion will be enough to unlock SME growth at scale.
In South Africa’s formal sector, the numbers are staggering. Over 70% of SMEs fail within their first five years of operation.¹ These are registered businesses with at least some exposure to legal structures, banking, and taxation.
But what about the informal economy — which, by Stats SA’s latest numbers, employs nearly 17% of the country’s total workforce?² In this space, there is no data on business closure rates, because most aren’t even officially tracked. Still, anyone familiar with South Africa’s townships, inner cities, or rural trading centres can see it: the failed salons, the half-built shops, the ghost kitchens that disappear after a few months, or the delivery services that stop taking calls.
We often point to external reasons for this: funding is hard to access, compliance is too complicated, and market competition is cutthroat. But these explanations don’t tell the full story.
There are deeper patterns of failure — patterns that show up in how businesses are run, how customers are treated, and how owners make decisions.
Poor service delivery is not a sector-specific problem — it’s a cross-industry epidemic. Whether you’re dealing with a plumber in Soweto, an accountant in Sandton, or a courier business in Durban, the same complaints keep surfacing: missed appointments, sloppy work, unreturned calls, unclear pricing, and broken promises.
In many cases, the product or service itself isn’t even the main issue. It’s the inconsistency, the lack of professionalism, and the absence of accountability that destroys trust and repeat business.
And this isn’t confined to informal traders. The digital freelancer who vanishes after receiving a deposit, the gas installation company that doesn’t adhere to safety standards, the beauty therapist who runs late and uses sub-par products — these are all symptoms of the same deeper problem: a failure to treat business as a system of value exchange, not just a hustle.
Just as pervasive is poor financial management. Many small business owners don’t separate personal and business funds. Profits are taken as soon as they’re earned. Cash flow is unpredictable, and there’s often no real record-keeping or planning. Even businesses with stable turnover collapse under the weight of uncontrolled spending or unmanageable debt — sometimes to loan sharks, sometimes to informal credit lines with impossible repayment terms.
Compliance is another area where businesses hurt themselves. From unlicensed operations and tax evasion to the use of counterfeit parts or bribery of local officials, many SMEs cut corners that end up undermining their legitimacy and long-term viability. In some cases, the motivation is survival. But in most, it stems from a lack of understanding of the long-term cost of non-compliance — not just in legal terms, but in lost trust, limited market access, and a ceiling on growth.
These behaviours aren’t usually malicious. They’re the result of a widespread skills deficit in basic business administration and thinking. And that most horrible core human trait, that of doing “stupid” things to overcome a problem, comes to the fore. It’s justified, by the individual, in order to survive. But that has consequences, always…short term gain and long term pain.
Entrepreneurs often start businesses based on what they can do — not what they know about running a business. Whether it’s a graphic designer, a welder, a marketing consultant, or a spaza shop owner, the pattern is the same: people may know their trade, but they lack the tools to manage pricing, expenses, margins, inventory, tax, or customer communication effectively.
In truth, what most small businesses need isn’t just access to capital or markets — they need a working understanding of how business works, and the skills to overcome the urge to take “the easy” route.
This includes simple but essential concepts like:
Without these skills, most entrepreneurs are essentially guessing their way through every decision. And that’s a recipe for burnout and failure, and bad decisions, no matter how hard they work.
The encouraging reality is that we don’t need to imagine what good looks like — we see it all the time. High-performing SMEs exist in every sector.
Consider the small courier business that provides real-time tracking, communicates proactively, and takes responsibility when things go wrong. Or the freelance tax practitioner who submits returns on time, explains complex requirements in plain language, and follows up before the client even has to ask. Think of the IT support technician who arrives on time, resolves issues thoroughly, and leaves documentation behind — or the custom furniture maker whose deliveries are punctual, packaging immaculate, and customer feedback actively sought.
Even in crowded markets, these businesses stand out. They are not necessarily the cheapest, but they are trusted — and trust is what builds a loyal customer base.
What makes them different is not access to massive capital or advanced education. It’s their mindset: a focus on reliability, professionalism, communication, and value.
This is as true for a rural event caterer as it is for a suburban mechanic, a township coffee shop, a home gas installer, or a solo marketing consultant.
These businesses don’t win because the system is perfect — they win because they’ve mastered the basics of building and delivering value consistently.
At some point, we have to move beyond romanticising the entrepreneur as a heroic figure. What the sector needs is a culture of practical excellence — and one of the fastest ways to spread that is through structured mentorship.
Just as doctors are required to serve in public hospitals after graduation, and lawyers are expected to provide pro bono work, we should start expecting South Africa’s experienced entrepreneurs to actively mentor new or struggling business owners.
Imagine if successful SMEs in any industry — from logistics and catering to digital services or construction — spent part of their year guiding a newer business in their field. Not in theory, but in the practical, gritty detail of quoting, costing, project management, staff management, and customer service.
Mentorship doesn’t require huge resources. It could be:
This kind of hands-on, sector-specific support could do more to improve SME performance than any one-size-fits-all training programme or compliance seminar ever could.
It would also cultivate a sense of business citizenship — a recognition that successful entrepreneurs have a role to play not just in making money, but in shaping the economy around them.
If we want to see South Africa’s small business sector become a true engine of growth, we need to stop treating failure as inevitable or purely systemic. Yes, structural barriers matter — but so do individual choices, behaviours, and skill gaps.
The path forward requires two commitments:
First, we must raise the standard — by helping small businesses understand what quality looks like, how trust is built, and why professional discipline matters more than clever marketing or shortcuts.
Second, we must dismantle the traps — from red tape to funding exclusion — that make it harder for SMEs to grow.
We need both justice and discipline. Both reform and responsibility.
Because the hard truth is this:
Customers doesn’t reward intention. They rewards execution.
The best businesses — in any sector, at any size — win because they deliver.
Let’s start teaching that. Let’s start mentoring that. And let’s start expecting it — not just hoping for it.
Sources:
The Banking Association South Africa: SME Failure Rate — https://www.banking.org.za/what-we-do/sme/
Stats SA: Informal Employment 2024 — https://www.statssa.gov.za/?p=18255
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