In assessing ProfitShare Partners’ experience with small businesses being given an opportunity to become part of a corporate’s supply chain, PSP Founder and CEO Andrew Maren shares a bird’s eye view of the massive impact he’s seen it have on SMEs.

“Long before I started ProfitShare Partners, I held the firm conviction that entrepreneurs and emerging businesses are the drivers of any economy.  This has been borne out time and again, in surveys and studies, one of the most recent being published by McKinsey in July 2020,” says Maren.

He notes the McKinsey study1 asserts that SMEs represent more than 98% of businesses, employ between 50% and 60% of the country’s workforce across all sectors, and are responsible for around 25% of job growth in the private sector across South Africa.

“It was numbers like this – seen in the light of humans who need jobs and others who need workers – that set me to thinking about the great divide between an SME and a large corporate and how huge blue chip companies can help grow small businesses into large ones,” Maren says.

Noting too the difficulties SMEs and entrepreneurs have when dealing with traditional financial institutions concerning banking requirements, it was clear to Maren that no matter how hard the founders of these small players worked, they were never really going to tick a financial institution’s boxes for loans or other forms of funding.

“I’d come across entrepreneurs with exceptional ideas and business plans, and ideas for growth that would see them reach goals and create more jobs fairly quickly. He says, “they usually didn’t meet the criteria for funding. Most of our fellow countrymen don’t have access to generational wealth to access capital or put up the equity required by traditional banks. Even those willing to put their own homes up as surety didn’t meet one or another hurdle posed by traditional funders.

“There had to be a solution, and a way we could at least give SMEs that initial leg-up that could set them on the road to success.”

How ProfitShare Partners facilitates SME growth

In many cases, Maren saw small companies trying to participate in the supply chain of a larger company. Whether it was providing manufactured goods, IT equipment or services, or even basic office supplies, most SMEs faced serious difficulties in accessing funds to enable immediate transacting to deliver on purchase orders and contracts.

“So even if they were given the opportunity, the finances were out of reach, and the corporate ended up having to buy from a larger entity just to meet its operational requirements, which effectively meant this small business was kicked out of the supply chain for non-delivery,” says Maren. “However, looking deeper into the problem for a solution, it seemed to me that we could bridge the gap and offer SMEs the ability to partner with us on deals by delivering a business finance solution that will assist them in helping their businesses grow.”

Corporate supply chains, therefore, can make or destroy small businesses. If implemented correctly, these supply chains can empower and transform small businesses and communities.

“I know of a case where a large FMCG multinational used this transformational process to switch billions of rands worth of procurement spend to small businesses. Not only did they do this successfully, but they also saved hundreds of millions of rands in the process,” says Maren.

He notes that with the world’s supply chains in turmoil, companies around the globe are realising it’s not just about the lowest manufacturing costs anymore – and the practice of ‘just in time’ supply chains are risking their entire production lines. 

“As companies and countries work to diversify their supplier risks, it provides a great opportunity for companies to give the small companies a chance as well. Not only does this diversify their supply risk, it has the potential to create new industries and much-needed job creation in the communities in which they operate.

“We need to seize the opportunity brought about by the recent disruptions around the world and use it for good,” he urges. “We can use this to support B-BBEE compliant suppliers and specific designated groups, such as black youth, women, and people with disabilities).

“This is also an incredible opportunity for the enterprise and supplier development arms of corporate South Africa to strengthen and diversify their corporate supply chains, while simultaneously stimulating economic transformation and job creation.”

However, Maren notes that accessing capital for these new small businesses, no matter how well-intentioned the corporate is, remains difficult. “PSP was born precisely to solve exactly this problem.

“Using fintech to facilitate small businesses’ access to finance simply and with great speed, PSP created a model that doesn’t require financials, security or even a banking track record.

“Being a fintech rather than a bank gave us the ability to work with small businesses. We began talking to SMEs that had the opportunity to sell their products or services to large corporates, so we started there, disrupting traditional finance models to empower businesses for growth and to encourage economic trade.”

Quite simply, ProfitShare Partners would grant an SME or entrepreneur funding if they had a signed, legal purchase order from a corporate. “The purchase order is the security we need to provide the financing. Our client gets the order, and our team ensures it has all the information we need.

“Because we’re a fintech, the whole process is done online, and we’re able to get feedback to our client within 24 to 48 hours and usually pay out for new approved applicants within a few days of application,” Maren notes. “Our focus is mostly on clients in the corporate supply chain of large companies or government entities.”

Once an SME has fulfilled all ProfitShare Partners requirements, the team works to make the capital available, and the opportunities for success happen. SMEs who meet the criteria then have the opportunity to be one of the many who will be supported, step by step, to help grow the South African economy recover – and thrive.

How the big guys can boost business

As a serial entrepreneur and ex-banker, Maren believes it is not only possible but incumbent upon successful companies to find ways to access small, B-BBEE compliant businesses and assist them with opportunities for growth and ultimate success. “The only way we can truly claim real business development in the current economic climate is for those with the advantages to pass them on.

“Our constant aim is to build our clients into profitable and sustainable businesses, even if we lose them to traditional funders like banks,” Maren says. “We boast a zero per cent performance failure rate and scores of our clients have gone on to achieve a 1000% increase in turnover within a 12-month period.

“There is no financial risk for a corporate in giving an order to an SME if they have been approved by PSP. This can also mean improving their own B-BBEE level by dealing with small firms run by black youth, women or people with disabilities, thereby furthering the spread of benefits,” he asserts.

“When we’re talking 50% and 60% of South Africans being employed by SMEs, we’re talking massive impact each time a large concern gives an entrepreneur or small business the chance to be better, to grow and to keep creating those jobs.

“To be in a position to assist, without giving away anything for nothing or risking losses is a fairly good place to be. ProfitShare Partners looks forward to more corporates being the reason one small company became a corporate with the same business ethic.”

References – How South African SMEs can survive and thrive post COVID-19

July 10, 2020 | Article