• Date Posted: October 29, 2015
  • Author: Deon Oberholzer

Why the hell do I need a black partner?

by Deon Oberholzer*

BEE ownership is not only a legislative or policy issue. It’s very personal, very emotional and very likely to provoke a hostile response from white owner-managers who have built their businesses from scratch.

This sounds bad, but some black opportunists make things worse.

According to one report I received, one black chancer recently told a white business owner … ‘You have to give away 25% of your business to a new black partner and it might as well be me!”

That was the pitch – no value proposition, no credentials presentation, no talk of sweat equity.

This owner-manager runs a firm with annual turnover of between R10 million and R50 million – in BEE terms, a qualifying small enterprise or QSE.

This type of company is currently in the empowerment cross-hairs. Often, BEE ownership is zero, while skills development is non-existent.

Without some action on these elements of the Amended B-BBEE Codes, these firms risk non-BEE compliance. Ultimately, the very existence of non-compliant QSEs could be threatened.

But back to the ‘make-me-rich’ partnership proposal as it crystalises key issues.

BEE is not meant to be a shake-down or a take-it-or-leave-it ultimatum.

Policy is predicated on rational self-interest and a forward view of national prospects and growth of business profits.

Self-interest applies to white owners, as well as black workers who acquire skills, black managers who win promotion and black owners who achieve wealth.

The BEE rationale is simply this … unless our country harnesses the potential of all citizens, we cannot grow and lift living standards. Similarly, without a significant black stake in the economy, we cannot achieve political stability.

Without stability, the economy shrinks, capital takes flight, businesses fail, unrest breaks out and nobody makes any money. A white business and entrepreneurial class suffers along with the rest.

Money is the key.

White entrepreneurs want to make some more. Black new entrants don’t have any, but would like to get some.

The big QSE issue is therefore: How can we all make money and come out ahead?

This sounds selfish, but ramifications benefit the entire nation. This is a conversation around how best to drive company growth and, as small and medium enterprises drive a big chunk of the economy, this helps us all.

The challenge is how to insert a black equity owner and create net gains that easily outweigh extra costs.

This is not only possible, but it’s already happening and QSEs on this path are well placed to secure competitive advantage.

A BEE professional familiar with the real challenges faced by real businesses can develop the structures and procedures that harness  value-add, while keeping white owners and their new black partners focused on mutual self-interest (aka ‘the money’).

Unfortunately, many QSE owners go at it alone, making multiple missteps along the way.

Resultant deals are not properly structured, valuations are unrealistic and funding models are set up to fail, either because the BEE partner pays too much and cannot make a fair return or pays too little and white owners feel growing resentment.

Failure is inevitable without a well-defined set of (reasonable) expectations, clear benchmarks around the black partner’s contribution and a pre-determined method of managing these processes.

A key rule for white owners is never say ‘Yes’ to the first person to knock on your door. The right partner is probably too busy being successful to make cold calls like this. Make a wide-ranging search for possible partners. Those who place themselves first in the queue may not be the most suitable.

Filter applicants based on the benchmarks. Create a shortlist and investigate those on it. Make sure candidates are who they say they are, because false qualifications and misstated CVs are out there.

When shortlisted candidates are met, they are there to sell their potential value-add, not deliver an ultimatum.

Typically, black owners don’t have their own money to buy equity; they either earn it or it is debt funded. What is best for all must be determined.

Clear performance parameters from the outset significantly reduce the chance of failure. Non-performance should be a deal-breaker. Everyone’s expectations must be met or the partnership fails.  And if the partnership fails, it must be possible to buy out the partner in a fair and orderly manner without endangering the business.

Some QSEs take a less formal approach without facilitation by a BEE practitioner and waste years searching for credible black partners, or they get stuck with the wrong one.

There are untold stories of failed transactions. This is to be expected. Partners in a successful transaction are too busy making money to talk about it.

One QSE owner told me he had tried, and failed, three times.

Others make no attempt at all. They challenge me … ‘Why the hell do I need a black partner?’ Only they don’t say ‘hell’.

This has to change, and fast, in everyone’s rational self-interest.

* Deon Oberholzer is Group CEO of Gestalt, a leading BEE Consultancy. Gestalt offers unique legitimate solutions for maximum BEE compliance, using cost effective solutions while ensuring maximum business benefit to their clients.