Why business incubations often falter

IOL News

20 hours ago

Small Business Development Minister Stella Ndabeni addresses the Joint Neeve Centre media briefing on Spaza Shop and Food Outlet registration deadline. Micro, Small, and Medium-sized Enterprises contribute 34% to the GDP and 60% to employment, according to the Small Enterprise Development Agency, says the writer.
Image: GCIS
MICRO-, Small, and Medium-sized Enterprises (MSMEs) Day is observed on 27 June to recognise the important role of MSMEs in economic growth and development.
They represent 90% of businesses globally, while their contribution to employment is more than 50% and 40% to GDP according to the World Bank. In South Africa, MSMEs' contributions to GDP and employment are 34% and 60% respectively, according to the Small Enterprise Development Agency.
Given their substantial economic role, supporting MSMEs is a strategic public investment that can unlock inclusive and sustainable growth and development.
Since 1995, the South African government has implemented various policy measures to support the development and promotion of small businesses. Over time, these mechanisms have become more targeted and streamlined to enhance the impact and accessibility of support.
Current support instruments include mentorship and coaching, training programmes, access to finance (through loans or grants), general business advisory services, market and trade facilitation, and business incubation and acceleration programmes.
Business incubation, in particular, has gained prominence in both policy and academic discourse for its potential to accelerate the growth, innovation, and sustainability of MSMEs in South Africa.
Several success factors for business incubation have been identified, including access to appropriate technology and facilities, stringent selection criteria, the quality of entrepreneurs, stakeholder support, supportive policy frameworks, competent and motivated management, and sustainable financial support.
However, recent research highlights persistent performance disparities among South African business incubators. Many incubators fall short when benchmarked against best practices, pointing to ongoing challenges in service quality and effectiveness. Others struggle to survive due to chronic financial constraints. This has led to a pattern of decoupling, where organisational activities become disconnected from core developmental goals, often prioritising legitimacy over impact.
Furthermore, research reveals that incubators frequently suffer from limited resources, obsolete and dated machinery and technology, as well as a shortage of skilled practitioners, including gaps in critical areas such as marketing strategy. Compounding these issues, many incubatees admitted into programmes do not meet established selection criteria, indicating systemic weaknesses in the selection process.
Business incubation, as a specialised support mechanism for small business development, is clearly not delivering on its potential and not being used for its purpose. It serves clients that should not be selected for incubation; it is not well-resourced; business development skills are deficient; and strategic competence is lacking.
To address these shortcomings, we need to shift our focus from providing basic support to cultivating higher-order capabilities that equip incubatees for long-term adaptability, innovation, and competitiveness.
Improving the chances of small business success depends not just on acquiring basic resources, but also on developing higher-order capabilities that enable adaptability, innovation, and strategic renewal.
Studies have shown that firms with dynamic capabilities, such as marketing agility and integrated management approaches, tend to proactively respond to change, leveraging technology and organisational learning to build complex systems that drive sustained performance.
Unlike threshold-level resources that support daily operations and survival, higher-order resources empower firms to sense opportunities, seize them effectively, and transform continuously for long-term competitive advantage and sustainability.
Additionally, in the small business context, innovation capability rests with the owner as they are the primary decision makers. Their personal, behavioural and environmental contexts are key aspects to be considered, and they should therefore be the unit of analysis when developing small businesses.
To meaningfully enhance the role of MSMEs in South Africa, three strategic shifts are required with specific reference to business incubation: collaboration between academia, industry, and government for effective knowledge transfer and spillover towards sustainable development, innovation, entrepreneurship, and economic growth; utilising business incubation as a specialised MSME development mechanism; and moving from a survival mindset to one of higher-order capabilities— the ability to respond strategically to change or the ability to recognise, assimilate, and apply new knowledge.
These capabilities are what allow MSMEs to innovate, compete, and thrive sustainably—not just survive from grant to grant. As scholars have noted, it is not just resources but the ability to leverage them strategically that enables long-term success.
In the context of MSME development, the entrepreneur is the engine of innovation. Their individual characteristics, context, and decision-making approaches matter deeply. As such, we must build ecosystems that invest in the entrepreneur's capacity, not just their business infrastructure.
If we are serious about building a more inclusive and resilient economy, then enabling MSMEs with the right capabilities and support is not optional—it is essential. As we celebrate MSMEs Day, let us also reflect on business incubation—a key mechanism for developing and promoting small businesses in South Africa and around the world.
Solomon is a lecturer in the Department of Business Management at Stellenbosch University.