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Circular Economy

Key Insights from the WCEF 2023

June 26, 2023

Introduction

Lumec intern, Semkelisiwe Ndlela, recently attended a number of virtual sessions at the World Circular Economy Forum 2023. The forum was held in Helsinki between the 30th May – 2 June 2023. She found the Forum, which was hosted and attended by circular forward thinkers and pioneers, an inspirational and educational experience. You can access the online recordings here.  

The sessions covered a range of issues ranging from ways of regenerating nature to reverse supply chains for the electronics sector, specifically looking at minerals in Africa. Acceleration sessions further discussed the transition for the built environment and circularity in cities. 

This blog provides Semke’s key takeaways from the sessions, and ideas around how South African cities can lead in the transition towards creating more circular economies.

Key Takeaways

The sessions highlighted various points that are important towards achieving a circular economy:

  1. Collaboration among stakeholders was a key sentiment that was repeatedly raised. All sectors must work together and drive collaboration to ensure a greater impact within the transition towards a circular economy. 
  2. Integrating the youth and harnessing their skills, innovative ideas and technologies can play a role in accelerating this transition. Their ideas and their innovative nature bring a much-needed, fresh perspective. 
  3. The importance of strong regulations to shift momentum towards the transition, and the role government and private sector can play in levelling the playing field while supported by these regulations. 
  4. Sharing information, capturing data and documenting metrics can help shape insights and influence future decisions. 
  5. Banks and the private sector are also crucial in providing support for small businesses and start-up projects through financial support and driving partnerships. The transition can be accelerated through supporting small projects and ideas to scale up and have more impact in this global fight. 
  6. Projects that address the root cause of current problems are important to drive progress – it is important to shift mindsets by raising awareness about the extent of environmental degradation currently occurring, and painting a picture of our bleak future if we do not make the much-needed transition.
  7. There should be a focus on innovative business models that view products and materials as a service (especially in the minerals sector) for efficient usage, and this needs planning from the onset.

Learnings for South African Cities

The sessions sparked conversations and insights into what we can enforce towards developing South African cities in line with sustainability and circularity, whilst also shifting away from linear economic practices across sectors. Cities are key towards this transition. Below are some of the points we must consider in driving the transition towards a circular economy in our cities:

  1. Capturing data, developing metrics and monitoring these are essential in creating a baseline to establish solutions for a circular economy and measure impact.
  2. Circular economy strategies, which are key to developing a clear transition path and are often developed at a national or provincial level, need to be regionalised and implemented at a city-level.
  3. Cities must invest in circular infrastructure to close material loops. Therefore, municipalities, government and the private sector must play a role in supporting capital-intensive infrastructure that drives circularity.
  4. Cities must ensure strong partnerships and collaborations with organisations and individuals that are leading the circular economy transition to leverage knowledge and advice.
  5. Cities must support establishment of productive recycling value chains and encourage design that eliminates waste. They should also promote reverse supply chains through public participation.
  6. Cities must make an effort for local food systems to be more regenerative through supporting community composting initiatives and sustainable agricultural practices.
  7. There needs to be a shift in mindset away from overproduction and unnecessary consumption, which requires solutions that address the root cause of such behaviour and influence systematic change.

Cities therefore should really focus on piloting small projects that all contribute to meeting circular economy strategy goals and United Nations Sustainable Development Goals (SDGs).

We are eager to support the transition to a more circular economy through collaborating, supporting research processes and sharing insights. If you are interested and would like to engage with us around the transition towards a circular economy, please click here to contact us.

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Circular EconomyRecycling

Determining the viability of business models for SMMEs in the recycling industry

October 3, 2022

Introduction

Lumec recently conducted a market and viability assessment for Green Corridors’ KwaMashu Beneficiation Centre (KMBC). The purpose of the study was to determine the market potential of 5 green products that have been prototyped at the KMBC and to assess the viability of each based on current alternatives in the market. 

Green Corridors is doing some amazing work at their KMBC, prototyping a range of products made from materials that are not easily or commonly recycled. Using materials such as Spanish Reed (an alien invasive plant) and spent grain from a local brewery (my personal favourite – That Brewing Co), they are making bokashi compost; they are also using non-recyclable plastic, crushed glass, street-swept sand and building waste to make green pavers.

Green Corridors have recently launched a Backabuddy campaign to raise funds to install 200 pavers at a school in KwaMashu, so please do support this great initiative! 

Goal 

The ultimate goal of the study was to determine if an SMME could viably produce any/all of the 5 products. This was done by comparing the market price of current alternatives to the cost at which these products can be manufactured and sold. To determine the latter, we developed a viability model that calculates the cost to produce each product using current KMBC processes as a baseline. Since they are testing a range of processes and using almost 30 materials as inputs into the 5 products, it was a really interesting process that required a unique approach. 

Viability Model

As a starting point, the value chain of each material was mapped to understand the unique process related to this, from source through to being in a state that can be input into the production process (i.e pre-processed). The model then calculated a cost per unit (either kilogram or litre) of each material based on sourcing costs, transport costs, and pre-processing costs. Pre-processing includes manual sorting processes (labour only) as well as machine-driven processes such as shredding, granulating, chipping, and crushing (labour and electricity). 

The cost of the specific processes that each material undergoes was calculated (e.g. R1 per kilogram to manually sort and then R0,5 to crush a single material). By adding the cost of each pre-processed material that goes into each product, this yielded a material input cost per product. For example, it costs R1.5 for one material and R2 for the second material, which results in a total material input cost of R3.5 for the product.

Thereafter, the cost of manufacturing each product was calculated by determining the cost of operating each machine required to produce the product (again, both labour and electricity costs), and adding this to the total material input cost to result in a total production cost. An average cost was calculated for overheads, as well as interest repayments and depreciation on equipment and machinery depending on each product, which resulted in an average cost per unit (e.g. R5 per product is overheads, R2.5 is interest repayment and R1.5 is depreciation).

Adding these all together, and then adding a profit margin, the retail cost of each product was calculated. This was then compared with the retail price of current market alternatives to answer the question of whether or not an SMME could viably produce these products. A few products were considered viable, while a few were not – this is mainly given that alternative products on the market, using virgin materials only, are significantly cheaper. In addition, products such as polystyrene are expensive to transport and process given their light weight, and push up the cost of each product. 

Conclusion

This process assisted Green Corridors (a) to understand the cost of producing recyclable materials as inputs into their various products, (b), to adjust the specific mix of recyclable materials to optimise viability, and (c) to determine which products have the greatest market potential. 

Learnings

From the process, the following learnings can be shared with other SMMEs in the recycling industry:

  1. It is very important to have a good understanding of the entire value chain of your business and the factors that influence the cost at each point of the value chain. This includes the cost of sourcing and transporting your materials and the cost of operating your machinery (especially labour and electricity costs). 
  2. Most recycling business models fall short due to the cost of transport, so sourcing materials as locally as possible is the key. Companies such as Ocean Plastic Technologies are looking at localised pre-processing solutions where plastic can be shredded on site to increase the viability of transporting plastic. 
  3. Developing a strong model based on a detailed value chain analysis will allow you to test the viability of different business models and approaches, which will support development of a rigorous financial model. Knowing the processes within a certain value chain where costs are too high, or which materials are pushing the price of your product out of the market, are essential in building a stronger business model.
  4. Doing some economic market research, even at a high level, will assist to build a robust business case for your business or product/s and boost your financial model. In our experience, most funders want to see a financial model that is supported by economic market research. Ultimately, if you can show that there is potential in your target market to sell X units per year and you can produce each product at Y rands, you can be fairly confident that your revenue projections are accurate and funders will be more likely to buy into your business model. 

If you are interested in finding out more, click here to contact us. 

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Business Planning

How to fund your feasibility study?

March 7, 2022

As a company who provides bankable business plans, market demand assessments and well researched feasibility studies, we often receive requests for quotations from small business owners. We have noticed that most small business owners require feasibility studies for them to be able to apply for funding for their business, but often do not have sufficient personal finances to pay for these studies nor do they know how to access funding to pay for these studies. As part of our efforts to assist these small businesses, we have written this blog to share the options that are available with small business owners to fund feasibility studies. We begin this conversation by defining what is a feasibility study.

What is a feasibility study?

Simply put, a feasibility study is a study that seeks to assess the viability of the proposed project or business idea. A feasibility study is usually undertaken after there is enough evidence, through some initial research, to support an idea or project and you can show you have a business case. Unlike a market demand assessment, a feasibility study includes an institutional and operational assessment and analysis of financial viability. As discussed in our previous blog about business cases, the institutional and operational assessment essentially represents the structure of the entity (legal, shareholding, etc), the HR structure, and business operations, while the financial analysis ties together projected revenue streams with capital and operational expenditure to show profit & loss and break-even. 

Why do I need a feasibility study?  

As a start-up or a small business owner with no proven track record or offtake agreements, funders require evidence of economic and financial viability of your concept.  They need to know if your business will be able to generate the necessary revenues that will enable you to meet your financial obligations. In a feasibility study, this is achieved through developing demand models (sales projections) and financial projections. Different scenarios are presented, including the worst case scenario (a summary of what will happen to the finances if the business fails to secure the required contracts).  All this information becomes the basis for a business plan.

How can I fund a feasibility study? 

Funding a feasibility study is always a challenge, especially for start-ups or small business owners. In reality, there are few options in which a feasibility study can be funded. These include utilizing personal savings, private sector funding (i.e funding from potential investors or industry associations), funding from institutions of higher learning (mostly for students), and government funding. 

In South Africa, there are a number of national and provincial support institutions that were established by the government to promote and support small and medium businesses. These institutions include the likes of Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA), providing financial support (funding) and non-financial support, such as business advice and information, marketing and branding and incubation services. 

What most business owners do not know is that, in addition to the above listed support institutions and the services they are offering, there are government agencies and/ departments that offer funding for feasibility studies, for example,  the Development Bank of South Africa (DBSA) and Department of Trade and Industry (DTI) “project preparation funds”. The DBSA has a Project Preparation Fund and the DTI has the Capital Projects Feasibility Programme (CPFP), a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and service (DTI, n.d.). Unfortunately, for small businesses, although these funds exist, these are generally for large projects/investment. 

Is there funding for small businesses?  

The long and short of it is that there is funding for small businesses to conduct feasibility studies. Institutions such as Trade and Investment KwaZulu Natal (TIKZN), National Youth Development Agency (NYDA), National Empowerment Fund (NEF), and SEDA do assist small businesses. At SEDA and NYDA there is a voucher programme specifically for feasibility studies and business plans. As a small business, your business advisor will take you through an assessment which will determine whether you qualify for the voucher or not. At TIKZN,  there is the Technical Assistance Fund (TAF) which pays up to R300 000 per applicant. 

Is this funding accessible? 

The truth of the matter is that accessing any funding, especially in SA, is daunting but accessible. There are qualifying criteria that small business owners need to be aware of and ensure that they meet these requirements before sending off an application.

Is there anything Lumec can help me with?

In addition to conducting feasibility studies and market demand assessments, Lumec plays a pivotal role in the small business development space. Currently there are a number of programmes, aimed at capacitating and supporting small businesses, that we are part of. We do this because we are passionate about small businesses.

At Lumec, there is a team dedicated to assisting small businesses with all their business needs. We can assist you explore all your options, including applying for feasibility study funding. We can also assist you with business plans and market demand assessments. 

References 

  1. Investopedia. (2021). Feasibility Study. Investopedia. Retrieved 01 06, 2022, from https://www.investopedia.com/terms/f/feasibility-study.asp#:~:text=A%20feasibility%20study%20is%20an,of%20completing%20the%20project%20successfully.
  2. Jones, P. (2020, July 29). Understanding a ‘market demand assessment’ and ‘feasibility study’. Lumec. Retrieved January 6, 2022, from http://www.lumec.co.za/understanding-economic-market-research/

 

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Business Planning

How to become a leading and supportive start-up ecosystem? Lessons from leading start-up ecosystems

November 4, 2021

As a consulting company, with a special focus on economic research and the production of feasibility studies, we often engage and discuss the country’s policy landscape, the direction we should or are taking regarding small businesses and possible interventions that can be delivered by our government to assist small and emerging businesses. Recently, we have seen first-hand the negative impact of Covid-19 on small and emerging businesses, which prompted internal discussions including the importance of having a supportive ecosystem, and what the prominent ecosystems in South Africa (SA) should do to not only support small businesses, but also improve their international rating on being a start-up ecosystem. 

Curious and excited, we set out to investigate this phenomenon and in this blog we share our key findings on the subject. Lessons learnt from leading ecosystems, including policy reforms (and other efforts) implemented in support of small businesses, are documented in this blog with a view to start a discussion amongst economists and policy makers on what needs to be done to make our ecosystems more supportive and globally competitive. We start this blog by defining an ecosystem. 

What is a start-up ecosystem? 

By definition, a start-up ecosystem is a clustering of interconnected individuals, organisations and bodies that facilitates and supports entrepreneurial activity (Mason & Hruskova, n.d.). It is defined as a cluster of start-ups and related entities that draw from a shared pool of resources and generally reside within a 100 kilometre radius of a central point in a particular region (Global Entrepreneurship Network, 2021). The main goal of an ecosystem is to launch and grow start-up companies. 

What makes up a supportive start-up ecosystem? 

In a quest to answer this question, we visited a number of academic and non-academic articles. In a non-academic article published by Hubbub Labs, there are a number of “key ingredients” listed that an ecosystem must possess in order to strive and be supportive to start-ups. These include the availability of funding, the willingness of funders to invest in start-ups, co-working space, mentorship, willingness of service providers to provide services such as bookkeeping to start-ups, and supportive government agencies. It is argued that the combination of these factors make it easier for start-ups to strive and ultimately scale. In another article entitled “How Startups Can Build Sustainable Ecosystems”, Yann Lechelle argues that it is not just the availability of mentorship, as suggested by Hubbub Labs, that makes up an ecosystem to be supportive and compel start-ups to strive, but also the experience of mentors and willingness of corporate leaders to be part of ecosystem. 

He points out that in some ecosystems, entrepreneurs are mentored by inexperienced officials, and as a result, they do not scale. He then suggests that for any ecosystem to be sustainable or supportive, it is crucial to ensure there is profusion of knowledge, experience, capital, a bit of luck and strong business relations with other regions and international markets “access to markets outside your region”.  

Don’t we have all these enablers in place as South Africa to be ranked #81 in the 100 emerging ecosystems?

As we investigated this phenomenon, we discovered that a number of strides have been made in SA to create an enabling environment for small and emerging businesses. We noted that the ease of doing business in SA has improved significantly over the years and that the prominent ecosystems such as the Silicon Cape in Cape Town have attracted millions worth of investments from both government and venture capitalists. Funds have been made available for skills development, enterprise development and supplier development. We have even seen investment to support small business from corporations through accelerators and incubators. 

What is it that other ecosystems are doing better to be ranked in the top 30 globally and in the top 100 emerging ecosystems? Lesson from leading ecosystems

  1. They excel in providing funding. Governments of the leading ecosystems have continuously made radical policy reforms when it came to supporting start-ups. Because of these radical reforms, leading ecosystems are, and continue to attract large sums of investment. We learnt that governments in the leading ecosystems have stepped in to establish tax incentives for venture capitalists and angel investors, increasing access to finance for start-ups. In the Silicon Valley ecosystem, #1 globally, access to finance is not an impediment because there are about 1000 venture capitalists firms, thriving because of the incentives provided. The government provides tax rebates for venture capitalists or angel investors investing in start-ups with high potential for growth. In Seoul, an ecosystem in South Korea, they host a venture capitalist summit, a platform for start-ups to engage directly with funders (Global Entrepreneurship Network, 2021). 
  2. Universities and colleges are not only providing talent but also leading the revolution. A second lesson we learnt was that institutions of higher learning, such as universities, located within the leading ecosystems, are not only providing talent but are an integral part of the ecosystems. We learnt that universities in these ecosystems, through their human resources and labs, are assisting small businesses conduct market research and test their innovative ideas. The university’s staff form part of the mentors in the leading ecosystems and entrepreneurship is embedded in the curriculum. As a consequence, it is interesting to note that in a number of cities, including Philadelphia, university alumni are the founders of the supported start-ups. Alumni from Philadelphia University launched more than 600 companies funded by venture capitalists in the past 10 years. Universities in these leading ecosystems are also pledging funds to support start-ups (Global Entrepreneurship Network, 2021). In February 2021, Drexel University and the Science Center announced the $500,000 to support local underrepresented founders (Global Entrepreneurship Network, 2021). 
  3. There is profusion of knowledge. A third lesson, tying to what has been articulated by the serial entrepreneur Yann Lechelle, is that there is abundance of information in the leading ecosystems. The universities and the private sector are playing a leading role in providing knowledge. CEOs and directors of successful companies are mentoring small businesses. For example, in Tokyo, they run a 60 days start-up challenge and a 6 week start-up boot camp featuring intensive workshops and mentorships (Global Entrepreneurship Network, 2021).
  4. There are programmes designed to assist small businesses access international markets and customers outside their regions. One of the key challenges faced by small businesses is access to markets. In these leading ecosystems, small businesses are not only assisted to access local markets but also access international markets and customers outside their regions, hence the high rating on connectedness.  
  5. Have opened up to international talent. As we were researching these ecosystems, we also discovered that what makes these leading ecosystems be where they are is the abundance of talent, especially international talent. It is an undeniable fact that, as individual countries, we sometimes lack certain skills or talent, crucial to the success of small businesses or needed to build new industries. In addressing those shortcomings, cities such as Seoul  supported entrepreneurs’ move to Seoul and Tokyo, a city in Japan which previously had a policy stance of no foreign talent, also made interesting reforms. In Tokyo, a start-up visa was introduced in National Strategic Special Zones, granting successful applicants a 6-month or 1-year temporary residence permit (Global Entrepreneurship Network, 2021). In 2021, because of these reforms, coupled with others relating to access to finance and markets, Tokyo moved up the ladder and is now ranked as #8 globally with a score of 9 out 10 in talent.

What progress has been registered by the South African ecosystems in relation to the above discussed factors?  

As we took a closer look at the prominent South African ecosystems, Silicon Cape in Cape Town, Johannesburg and Durban ecosystems, we noted that although these ecosystems are amongst the top in the African continent, not much progress has been made to address challenges pertaining to start-ups accessing foregin customers, the availability of experienced software engineers (talent), attracting immigrant founders (visa success rate) and the availability of funding. 

In 2017, only 14% compared to the global average of 23% were able to access foreign customers in the Cape Town ecosystem, visa success rate sat at 36%, lower than the global average of 60%, and the ecosystem was valued at $172 million, lower than the global median of $4,1 billion (Global Entrepreneurship Network, 2017). In 2021, four years later, Cape Town’s ecosystem has not caught up to the global average of $10,5 billion and it’s only valued at $1,2 billion. Its ranking on access to funding is amongst the lowest in the world (2 out of 10), access to foreign customers has declined since 2017 (rated 1 out 10), and foreign talent rated 5 out 10 (Global Entrepreneurship Network, 2021). 

What can be done differently to improve the conditions of the South African ecosystems?  

As correctly pointed out by Yann Lechelle, building a healthy ecosystem takes time “Just as soil is enriched by the lifecycle of the many organisms that grow in it, a startup ecosystem is nurtured by the lifecycle of companies within it”. Although this might be true, there are few lessons we can draw from the above discussion that the national and local governments might consider to improve the existing ecosystems. 

  • Provide incentives for venture capitalists investing in small businesses with high growth potential. A section 12J venture capital company (VCC) tax incentive was introduced in South Africa with a sole purpose of incentivising investors. Evidence however, as tabled by the National Treasury during the 2021 budgetary statement, have suggested that the tax incentive was being abused by investors and the objectives were not being achieved. As a result, the National Treasury killed the Section 12J tax breaks for venture capital (Wasserman, 2021). Perhaps instead of abolishing the VCC tax incentive completely, the South African government should consider drawing lessons from the implementation of Section 12J and introduce a refined proposal to incentivise venture capitalists to invest in small businesses with potential. Evidence from leading ecosystems is suggesting that there is a crucial role that venture capitalists can play in this regard. Also, there are initiatives such as the Green Outcome Fund that lessons can be drawn from https://www.greencape.co.za/. 
  • Intensify international and regional market linkage efforts. It is common knowledge that accessing international markets is a process and a half. There is red tape and compliance issues to deal with before accessing international markets. In South Africa, obtaining compliance certificates (such as the SABS approval) is very costly, a cost that small businesses cannot easily bear. Perhaps there is a need for the South African government, through its development agencies, to intensify its efforts to increase access to international markets. Development agencies such as Trade and Investment KwaZulu-Natal (TIKZN) can become more accessible and visible to small businesses.  
  • Fast track and ease the approval of visa applications. For start-ups located in the South African ecosystem to access international talent they desperately need to grow their small businesses, the South African government needs to put some thought into how it can improve its visa application process. The suggestion is not for the complete ease of the process, but rather to identify areas for improvement. The issue of accessing international talent remains a challenge. 
  • Make institutions of higher learning an integral part of ecosystems. The lesson from leading ecosystems is that universities need to play a key role in local ecosystems. Instead of universities and colleges only supplying ecosystems with local talent, perhaps they need to be persuaded to become key players in the ecosystem. 
  • Capitalise on learning from leading ecosystems. One thing the leading ecosystem does well is capitalising on learnings from other ecosystems. They learn what the leading ecosystem does and improve on it. 

References 

  1. Global Entrepreneurship Network. (2017). Global Startup Ecosystem Report 2017.
  2. Global Entrepreneurship Network. (2021). The Global Startup Ecosystem Report GSER 2021. 2017(2017), 21.
  3. Hubbub Labs. (n.d.). What is a startup ecosystem and how can you build one? https://hubbublabs.com/the-insider/startup-ecosystem/.
  4. Wasserman, H. (2021, 02 24). In a shock move, govt just killed Section 12J tax breaks for venture capital. Retrieved 11 03, 2021, from https://www.businessinsider.co.za/budget-2021-govt-kills-section-12j-that-gave-tax-breaks-for-venture-capital-investments-2021-2

Further Reading:

For indicators on measuring the startup ecosystem in SA and KZN, with particular emphasis on innovation, see our work with Innovate Durban here.

If you are looking for a feasibility study or market demand assessment for your start business, please contact us

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Business Planning

Understanding economic market research

July 29, 2020

We are regularly approached by start-ups requesting to undertake feasibility studies. This is largely due to the fact that, where start-ups don’t have a proven track record or offtake agreements, funders require evidence of economic and financial viability. In our last blog post, we focussed on understanding what it means to develop a ‘business case’. In this blog, we unpack the different types of economic market research that can be completed to determine economic and financial viability. We have recently developed a package of market research offerings which can be found here – this forms the basis of our discussion below. Essentially, we distinguish economic market research into two types, namely, (a) market demand assessments and (b) feasibility studies, with market demand assessments being one component of a full feasibility study.

What is a market demand assessment?

Market demand assessments are done to provide a detailed understanding of the economic viability of a business idea (i.e. product or service offering). This can be done more simply via a desktop assessment or in slightly more detail through including primary research such as surveys. In a generic market demand assessment, we usually start by undertaking a lean canvas analysis to further define the business model and provide a solid starting point for the market research. Thereafter, the research will define the target market, undertake a demographic and socio-economic profile of the target market, assess current market and industry trends, and do a competitor analysis. Once the market is well understood, these key findings are used to develop a demand model which will quantify current and projected demand for your business idea, such as the potential number of customers or units that could be absorbed by the market. 

For example, if you want to start a local manufacturing business, we’d first need to understand what it is exactly that you want to do, then understand the market which you could potentially penetrate, and then quantify the market (i.e. population as an indication of potential customers, income as an indication of spending power, etc). Once this has been done, we’d look at the specific sector and industry in which you intend to operate and assess trends and patterns which will have an impact on your businesses success, and then analyse your competitors, their products, and pricing. Using all this information, we’d then develop a model which utilises assumptions based on the market and industry analysis, and provides projections to say, for example, “in 2022, should you be able to penetrate 5% of the market, there is potential for you to sell 100,000 units per annum”.

What is a feasibility study?

A feasibility study builds on the steps undertaken in a market demand assessment but also includes an institutional and operational assessment and analysis of financial viability. The institutional and operational assessment essentially represents the structure of the entity (legal, shareholding, etc), the HR structure, and business operations, while the financial analysis ties together projected revenue streams with capital and operational expenditure to show profit & loss and break-even. The results of the feasibility study can then be pulled through into a business plan, which will provide funders with strong evidence that the proposed project or business has the potential to succeed. Including off-take agreements can help to build an even stronger case. 

What do funders want to see?

A market demand assessment is a great starting point in understanding market potential. However, most funders want to see how this translates into financial viability. We have been told by numerous development financing institutions that the most critical element of any feasibility study is ensuring financial projections are informed by and developed off anticipated demand calculations. So in the example above, showing that you have the potential to sell 100,000 units per annum might not be enough. However, if you can show that this can generate R25,000,000 in sales per annum at a competitive market rate of R25 per unit, and after developing your financial model you can show a reasonable profit margin, you’re likely to catch the attention of funders. 

So, why do market research?

In summary, undertaking market research is an important tool in gaining a better understanding of a potential business product, service or even a concept or idea. In the case where you can prove viability through offtake agreements and a solid business plan, you most likely can raise funding without doing any market research. However, in many cases, offtake agreements are difficult or impossible to secure (i.e. when your product is service is targeting customers directly), so market research is important in building a case for funders. A market demand assessment will provide you with solid evidence as to whether or not your business venture has the potential to succeed, giving you an indication of potential customers or sales. However, taking this further into a feasibility study by including the institutional and operational structure and detailed financial analysis (tied to the market demand assessment) can go a long way in securing funding. 

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Business Planning

Do you have a business case?

May 25, 2020

Over the past year and a half, we have been regularly engaging with start-up businesses and entrepreneurs from a wide variety of sectors, as well as organisations providing both funding and development support to start-ups. A common challenge faced by most start-ups is access to funding. This is often due to the fact that they do not have a proven track record and are unable to demonstrate that their business idea is viable, and are therefore viewed as ‘high risk’ by funders. This essentially creates a mismatch between funders and start-ups at the critical ‘seed stage’ of development. Understanding this, we specifically engaged with funders to gain some insight into how start-ups can access the funding that is available. What it essentially comes down to is both (a) having a solid business case and (b) being able to prove economic and financial viability. 

In this blog we’ll address part a, essentially, understanding the term ‘business case’ and suggestions on how you can build a solid business case. In our next blog post, we’ll focus on part b, which unpacks how to determine market viability and how to leverage this to guide financial projections. 

So what is a business case?

Simply put, do you have evidence to back up your idea? We all have ideas, but not all of us know how to step back and objectively assess our ideas to determine whether these will survive in a very competitive start-up environment. A business case is the first step at truly understanding whether an idea is worth pursuing or not, which is critical because it is going to require a lot of time and effort to take your idea through to implementation. A business case can be as simple as a one-page document that presents a clear and concise overview of your project idea and backs this up with some factual data and information. This will provide you with some evidence to start to test initial interest for your project idea. 

The difference between a business case, feasibility study and business plan

A business case must not be confused with a feasibility study or a business plan. A feasibility study is usually undertaken after there is enough evidence, through some initial research, to support an idea or project and you can show you have a business case. It digs deeper to understand and assess the market and industry, analyse competitors, and measure potential market demand (i.e. economic viability), which then assists to determine financial viability. A business plan then draws from these critical findings and includes more administrative, institutional and operational requirements, and more accurate financial calculations. We are often contracted to just undertake the economic viability component of a feasibility study (i.e to determine potential market demand) for clients who have an idea and want to both be able to test their business case and have some additional evidence to support launching into a full-scale, and often multi-disciplinary feasibility study. Such specialist studies can be very costly (upwards of R50,000 for a market demand assessment and R100,000 for an economic feasibility study) and as such, start-ups often end up hitting a wall at this point. However, before spending a cent on such studies, you can do some basic research to first determine if you have an idea worth investing in by building a business case. 

How to develop a business case

So, what can you do to show that you have a business case? We are huge fans of the lean canvas model and the first thing we do when approached with an idea is put it to the lean canvas test. The approach is to unpack your idea into a one-page template by providing information on the problem, customers, value proposition, solution, channels to customers, revenues and costs, key metrics and the unfair advantage, in that order. The lean canvas will quickly show you if what you have is just an idea or a good idea that has the potential to succeed. Once completed, the outputs can easily be translated into concept/proposal documents and/or a simple pitch deck.

It’s just the start!

Unfortunately, most public sector development finance institutions such as NEF and SEFA will require more detailed market research, and a business case document most likely won’t suffice in leveraging funds. It can, however, be used to leverage initial interest and develop support in undertaking specialist studies. Essentially, it will generate some level of confidence and buy-in and funders might be more likely to recommend you to other small enterprise support agencies, such as SEDA, who will assist you to undertake market research. However, the business case could go a long way to securing private sector investors.

So in summary, if you have a new idea, we would suggest that you take some time to unpack and test your idea and prepare a solid business case before approaching potential partners, investors or funding agencies. This will save you time and money, allow you to stand out above other start-ups, and put you in a better position to leverage support for additional market research.

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Business Planning

Startup advice: 4 things we wish we knew 4 years ago

January 10, 2020

As a startup, it is hard to know how to prioritise your limited time and funds. Furthermore, while you know your core business inside-out, you are often tripped up by all the other things that come along with business ownership. Lumec is coming up to 4 years in business so we did some reflecting, and came up with 4 things we wish we had known when we started. We thought we would share them here, so those taking the plunge into small business ownership can make good decisions from the start.

1. Take time to develop your brand

One of the first things every startup needs is a name, which is integral to your brand. We came up with a name after a few days of bouncing ideas around with friends – ‘Resource Research and Strategy Consultants’. It was a mouthful, no one could remember it, there was a competing business in our space that had almost the same name, and the ‘resource’ was confusing us with human resources and environmental resources businesses. Bad, bad, bad.

Our advice: if you don’t come from a marketing background (like us) we strongly recommend budgeting for a professional to assist with brand development. Take time when choosing a company name and ask everyone you see what they think of your potential name. You are going to be saying your company name A LOT – you need to feel confident and proud of it. But developing a brand is much more than just a name and a logo. Our brand consultants took us through the essentials of who we are as a business, what makes us different and what drives us. It was a highly beneficial process. If you want to read more about our brand and journey check out our about section on our website.

Don’t forget to check that your name has an available URL for your website and to reserve the name on the CIPC (Companies and Intellectual Property Commission) website/portal. 

2. Outsource support services

Similar to branding, we wish we had outsourced support services sooner, particularly, website development and accounting. We spent a lot of time learning WordPress and doing creative accounting and payroll in Excel in year one. This is a tricky one for a startup because whatever money is in the business is needed to keep the founders housed and fed for as long as possible while work becomes consistent. Furthermore, blindly handing over all bookkeeping in the beginning is not recommended – learning the basics is critical. 

However, website development can be outsourced fairly cheaply and even one accounting consult can get you up to speed quickly on what accounting programme is recommended and what the basic legislated requirements are for a registered business (hint: they are significant and can have hefty fines attached). It is also worth meeting with an accountant even before registering the startup to figure out what type of entity to register and what this may mean for taxes down the line. Several accounting and web development firms specialise in small businesses, are understanding and have good rates. SARS also have some good resources that are free. As you grow, you should meet more regularly with the accountant and hand over more responsibilities to avoid stress meltdowns (of which we had many). 

Note on points 1 and 2 above: Although registering your business is a hard-to-resist psychological step to small business ownership, it may be worth holding off until you actually have revenue. Part of us rushing the naming exercise was so that we could register the business and part of the accounting headache we experienced was because of registering the business too early. We see many startups falling into this trap. Registering a business does not mean you have a business, paying customers means you have a business. You can develop your brand and website, advertise yourself and get paying customers often all without being registered, especially as a consultant. As soon as you have income you can register and open a bank account within days. 

3. Set up sound internal processes from the start

Only 2.5 years into Lumec did we start to collect meaningful data on how we were spending our time. We now use this data, amongst other things, to see exactly: 

  • When we have exceeded our billable hours on a project and why, 
  • If we are working enough billable hours to cover our monthly expenses, 
  • If we are doing enough business development and staff development, and 
  • If we are spending too much time on admin. 

We use Clockify to measure our time, but there are other equally useful tools such as Toggl. There are several other monitoring tools that we have put in place from client queries to social media – the point is to determine your key metrics early and start tracking them from the start.

Another useful process was implementing Monday morning meetings where we discuss, divide and prioritise our tasks for the week, as well as provide feedback from the week before. Some businesses use Trello or Asana to manage tasks, but as a small business of just three, we find old fashioned to-do-lists work just fine for us. 

4. Be smart about your recruitment

In our first couple of years we required ad hoc work to be done. We reached out to our own networks and to the local university for recommendations and we temporarily employed several people but no one had the particular skills we were after. This cost us time and money. Based on this experience, when we decided to recruit a full time staff member, we knew we needed to conduct a rigorous recruitment process.

Our processes included a job advert on employment sites leading to a google form which was used to shortlist candidates. We then asked for CVs from the shortlist which were used to further refine the list. We did personality tests, interviews and writing tests for the top 10 candidates and our final choice we interviewed a second time. This process took at least 2 months but it is one of the best ways we have spent our time in our four years. We wish we had used a more rigorous process for hiring even temporary staff right from year 1.

This blog is the first of a series of posts we will be sharing to assist the startup business. Look out for future posts on funding, business planning and others here and follow us on Facebook and LinkedIn (@lumecsa) to get other related updates and information.

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Technology & Innovation

Innovation: Key Insights from KwaZulu-Natal Innovators

December 2, 2019

Lumec recently undertook research for Innovate Durban in order to develop an Innovation Publication for the Province, a first in KZN. The publication included a profile of 5 successful innovators, which provides a very useful resource for innovators and potential innovators. Parallels among the 5 innovators who were profiled were most evident in the following areas:

1. The toughest challenges to overcome;

2. Lessons learnt; and

3. Valuable insights on what they wish they knew at the start of their innovation journey

 

 

Challenges

Regardless of the innovators’ stage of development, each faced the same challenge when it came to accessing funding. The argument here is that funding is difficult to access, which increases the amount of time required for your project to move through the innovation pipeline. Therefore, whether you require seed funding, capital to develop your prototype or have a new product ready for commercialisation, having the skills to source funding is crucial. Furthermore, most of the innovators cited the same institutions as a critical source of funding for their innovations, namely Invotech and the Technology Innovation Agency. The majority of innovators profiled used competitions as a means to generate capital. Limited access to funding and limited funding in general suggests that it is important for innovators to diversify their funding options. 

Lessons

All the innovators noted that the innovation journey is a long one, as evidenced in the fact that they began the process several years ago. This is why most identified consistency as the key to achieving results. In other words, it is crucial to be consistent in the pursuit of your innovation because it is a journey that comes with many hurdles, detours and slow progress. One innovator mentioned that he was able to achieve what seemed to be impossible by breaking down big tasks into smaller achievable actions. Furthermore, commitment to the journey may also involve going months and even years without a stable source of income.

What innovators wish they knew when they started

The innovators we spoke to are now all business owners. A few of them emphasised that they had to learn new skill sets in order to succeed in business. These were hard skills that improve business acumen and soft skills including knowing how to manage people (within and outside of your immediate team) and their different personalities. Many innovators seek commercialisation as the ultimate goal for innovations, therefore, an important consideration outlined by one of the innovators was to ensure that commercial aspects are incorporated from early on in your product design such as certification and industry standards. Other innovators pointed out that pursuing your innovation is not a task taken in isolation; the process requires collaboration, partnerships and the right team in your business.

You can see the full interviews here.

To read more about the Innovation Publication project, follow the link here.

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Technology & Innovation

The Fourth Industrial Revolution – Part Two (Jobs)

November 11, 2019

In part 1 of this blog, we briefly introduced the fourth industrial revolution within the context of the preceding revolutions, unpacked exactly what the 4IR is and touched on some of the challenges faced by South Africa with regard to the changes that the 4IR will bring. In part 2, we focus specifically on jobs and skills in light of the technological changes we are experiencing. The information in this blog is largely sourced from the Accenture Consulting report titled ‘Creating South Africa’s Future Workforce’. 

A common concern raised when one talks about the 4IR is “the machines are going to take our jobs”. And yes, this is true for a number of professions. Accenture Consulting notes that 35% of South African jobs are at risk of total automation as machines can perform 75% of the required activities. As technology progresses through advancements in areas such as artificial intelligence and machine learning, jobs that comprise of more machine-like activities (routine work, transactions and manual work) are at greater risk than those with greater human-like activities (analytical, leadership, social intelligence and creativity). Essentially, the more repetitive and predictable tasks that a job requires, the more the tasks can be replicated by machines. As such, occupations at highest risk of automation are “production, office administration, farming, food preparation, construction, mining, transportation, installation and maintenance”. Jobs that are harder to automate include tasks such as “influencing people, teaching people, programming, real-time discussions, advising people, negotiating and cooperating with co-workers”. 

Essentially, we need to reduce the potential threat of jobs being replaced by machines and leverage opportunities that are presented to create new jobs via machine-human collaboration. In order to achieve this, we need to learn new skills to better collaborate with technology in order to enhance their productivity and ingenuity. As Accenture puts it, “we need to learn to run with the machine”. This statement, as futuristic as it sounds, is based on research that shows that artificial intelligence does, in fact, have the potential to boost labour productivity by 40% by 2035. Essentially, we need to focus on a shift towards more human-centred skills and increase the pace at which we embrace digital technologies. However, the same research indicates that South Africa, at our current pace of learning, will transition towards the required skills at a slower pace than the rest of the developing world. Ultimately, we need to double the pace at which we acquire skills or face the imminent threat of losing 5.7 million jobs to automation.

“By embedding AI and making it a factor of production, this research indicates that South Africa could potentially double the size of its economy five years earlier”

So, what can government, industry, organised labour and educational institutions do to ensure that we start to rapidly increase the pace of learning and avoid the massive job losses that are predicated? The role of government is primarily around the creation of a conducive policy and regulatory environment while also providing access to infrastructure, connectivity, skills and incentives. Industry, on the other hand, needs to invest in technology to enhance efficiencies and drive re-skilling initiatives, while industry associations need to continue to drive research and discussions around digital advancements. Educational institutions need to pioneer new systems to allow for learning across the various stakeholders (between industry, government, NGOs, research institutions, etc) while organised labour needs to accept the potential that digital technologies provide and assist prepare the next generation.

So, next time someone says “the machines are going to take our jobs”, we suggest responding by saying “not if we learn to run with the machine”.

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Technology & Innovation

The Fourth Industrial Revolution – Part One (Defining 4IR)

October 3, 2019

These days, you cannot avoid hearing the term ‘fourth industrial revolution (4IR)’. In almost every project we do, we are told to make sure we incorporate the 4th industrial revolution and its impact. We’ve been doing a lot of team training on the 4IR and have become quite familiar with what it is all about, the potential opportunities that are presented, and the major threats, especially in relation to jobs. In this 2-part blog, we briefly unpack what exactly the 4IR is, highlight some examples of how the 4IR has already been embraced globally, and some risks that we face in South Africa. 

Before understanding the 4IR, it’s important to provide some context to the preceding industrial revolutions. The First Industrial Revolution occurred in the late-1700s until the mid-1800s and saw a shift from an agrarian to an industrial economy, mainly thanks to the invention of steam power. This introduced industrial mechanisation and steam-engines, which stimulated manufacturing (particularly textiles and steel) and transport via railways and steam-powered ships. At the end of the 19th century, electricity brought about the beginning of the Second Industrial Revolution which saw the introduction of the assembly line and mass production. In the mid-90s, just less than a century after mass production started, the Third Industrial Revolution began, fueled by electronics, computers and automated manufacturing processes. This is often referred to as the ‘digital revolution’. So what then, is the Fourth Industrial Revolution?

The 4IR can be described as a merging of the digital, physical, and biological worlds through the emergence of “extraordinary technological advancements”. Essentially, it includes disruptions caused by advancements in robotics, artificial intelligence (AI), virtual reality (VR), automation, machine learning, 3D printing, big data, and the internet of things (IoT). These technological advancements have and will continue to change the world around us, especially when used in conjunction with each other. Globally, industry has already started to transform processes and adapt to opportunities presented by these advancements. The most evident examples exist within transportation (e.g. automated vehicles), logistics (e.g. warehouses operated by robots), manufacturing (e.g. additive manufacturing/3D printing), and the services sector (e.g. augmented reality to view properties and holiday destinations via estate and travel agents respectively).

Within South Africa, the 4IR presents significantly more challenges than opportunities, particularly in relation to the provision of enabling infrastructure (i.e. broadband and communications technology) and education and skills development. Should we not be able to provide enabling infrastructure and develop a sufficiently skilled workforce, we face the risk of technology-driven employment losses. A recent report by Accenture Consulting titled “Creating South Africa’s Future Workforce” highlights that although digital technologies bring about efficiencies, for countries that are less prepared, such disruptions may cause greater job losses than gains. The report indicates that 35% of all jobs in South Africa (equal to almost 5.7 million jobs) are currently at risk of total automation. This can, however, be reduced to 20% of all jobs (or 3.4 million jobs) should we double the rate at which we currently provide skills to the workforce.

Part 2 of this blog provides an overview of the key findings of the Accenture research, focussing specifically on the professions most at risk, new skills required to unlock the potential advantages presented by the digital economy, and the actions required by government and industry to ensure that the workforce is sufficiently prepared.

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