An important driver motivating our work at Growth Surge is helping entrepreneurs achieve economic self-reliance and financial freedom. This can be measured by each client we help as well as in macro terms: the health of a country’s small business sector is a useful predictor of economic resilience. That’s why improving entrepreneurial success ought to be a key driver of economic growth.
So it’s good to see media quotes that president Ramaphosa and other top politicians seem to agree. But that’s about as far as my alignment with government goes. The problem is that government is prioritising some bad metrics.
Take for example the rhetoric around job creation and alleviating unemployment. Although it’s a blunt instrument, the unemployment rate* is nonetheless a good-enough indicator at a national level in measuring our collective progress or failure in addressing raging unemployment. (* Defining “unemployed” depends on the spin doctor.)
Except, there are two critical problems with the job creation metric: 1. it’s an output mis-used as an input and, 2. government’s macro targets trickle down the bureaucracies and are mis-applied at the micro level. Both these issues prejudice the small business.
For example, Small Enterprise Development Agency (SEDA) is measured on how many jobs it helps create through its clients, small businesses. Hence, an explicit criterion in SEDA’s grant funding decisions is a venture’s job creation propensity. For every small business funding application reviewed, SEDA asks, “How many jobs will this funding create?” The more jobs forecast, then perversely, the better the scorecard.
If job creation is a relevant criterion in a funding decision, I’d be inclined to penalise it.
All other factors being equal, if only one of two companies can be funded, I’d expect the company with fewer workers to be more likely to succeed. The business with more workers will likely suffer higher management overheads and – importantly from an investor and growth perspective – it’s much harder to scale a business that’s heavily reliant on talent.
And job creation is simply not a priority for entrepreneurs. In all my mentoring and consulting, I’ve not met one business owner who started or expanded their business in order to create jobs. Entrepreneurs’ drivers are either self-preservation or self-enrichment. Benefitting others or at least not harming others is merely an incidental bonus.
There are far more relevant metrics at a micro level that ought to be counted, all of which are standard questions relevant to any investor, including the business owner. E.g. ROI on the funding amount requested, market traction, detailed forecasts built on solid customer- and technical research, and management’s track record, to name a few.
In short, government has FUBARed the cause-effect relationship between the economy and unemployment. Here’s the reality:
Creating more jobs does not grow an economy; instead, jobs grow when the economy grows.
Whether applied at the micro or macro level, the job count (or unemployment rates) is only ever an output metric. The success of neither small business nor the national economy is predicated on creating jobs.
Even at the most micro level where the entrepreneur is the only employee, that worker has a job only because other business factors are in place, notably, there’s at least one paying customer. Hiring more people won’t be justified unless the business can grow its revenue base. Business success drives jobs.
So, whether you’re in business or government, the message is the same: fix (your) business first, then job creation will follow.