Small business owners’ practice of effectuation in townships in relation to business growth

Abstract

Background: With the high unemployment and increasing levels of poverty in South Africa, especially in the townships, the start-up and growth of township-owned small businesses have been proposed as the solution to address this phenomenon. The extant causation approach, which commences with a business plan followed by seeking the means or resources to start a business, has had its challenges to develop township-owned small businesses due to resource constraints. However, the emergent effectuation approach is worth investigating since it commences with the means or resources at hand to decide what business can be started. Aim: The study aimed to determine if the practise of effectuation and/or the effectuation constructs (experimentation, affordable loss, flexibility and pre-commitments), by a non-expert township small business owner (NTSBO) would result in business growth (assets, sales and employment growth) and if the industries the businesses are operating in are a moderating variable. Setting: Primary research was conducted in the three Gauteng townships of Alexandra, Honeydew and Soweto in South Africa because they contribute more than 38 % towards South Africa’s Gross Domestic Product (GDP). Methods: A quantitative study of 728 NTSBOs was conducted using an interview-administered structured questionnaire. Non-probability sampling methods were used and the data analysed using structural equation modelling (SEM). Results: A statistically significant relationship between effectuation and business growth (assets and sales) as well as statistically significant relationships between the effectuation constructs of experimentation and flexibility with business growth (assets and sales) were found. Industry did not moderate these relationships that were found. Experimentation and flexibility probably empowered the NTSBO to adapt to the ever changing and unpredictable township business environment they operate in. Affordable loss did not have a positive relationship with business growth probably because the NTSBO would have been too risk averse and prematurely stop seeking growth where returns were not quickly realised. Pre-commitments and business growth had no positive relationship possibly because the NTSBOs had low levels of education to draw up a detailed business plan to engage with potential interested partners. Conclusion: The findings of this study may inform policymakers that the effectuation approach can be incorporated for the training of township small business owners as an option for starting and/or growing their businesses when resources are limited. Support and funding by government and financial institutions can include effectuation by not requiring a business plan that predicts the future but is rather assessing if the township small business owner has the skills to control the future. The causation approach should not be the only theory that government utilises to support initiatives for small businesses. Keywords: Effectuation, Business growth, Township small business, Non-expert small business owner