🤸‍♂️ Making the Bank Work for You...

Plus: Gov takes on Netflix, our dry mines & how to get a startup mentor.

Newsletter

October 17, 2023

Hi there,

A bit lonely? Meta’s apparently paying celebs like Kendall Jenner and Mr Beast up to $5 million a pop to turn them into AI chatbots on Facebook, WhatsApp and Instagram. Because you’re not wasting enough time on social media yet.

In this Open Letter:

Smart money: Why SA needs better startup & SME banking.
Dry mines, cash for trash & SA gov takes on Netflix.
Solid advice: How to get a startup mentor.
Hottest opportunities: The results are in.
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TRENDING NOW

Smarter Small Business Banking

Let’s be honest here, SA’s current business banking solutions aren’t ideal for SMEs.

It’s no one’s fault. The SA business banking segment is defined as companies with a turnover of R30m–R1.6bn. Most SMEs and startups just fall outside of that category – hence government had to launch special measures to stimulate SME growth.

Every bank, ever…

And yet the SME and startup market is huge. Estimates vary between 2.6 million and 3.5 million SMEs in SA. According to Stats SA’s 2019 Annual Financial Statistics, SMEs generate about R2.3 trillion annually or 22% of the total R10.5 trillion that SA’s formal business sector generates.

A few quick sums show that’s an average of R880k turnover per SME per year – money going in and out of their account, of course. So, isn’t it time we built more creative products and businesses in the SME/startup banking space?

It’s a smart move since banking comes with a built-in moat. It’s such a nightmare to change accounts as a business – because it means getting your customers to change your details on their banking app, which they never do. So, if you get SME banking solutions right, you’ll probably have a lot of long-term clients.

So, what do SMEs need?

Well, for starters, there’s capital and funding. In 2020, McKinsey did a report on just how laughably inadequate banks’ service is to SMEs. Sorry Mr Commercial Bank, you can’t just rebrand your normal product as “business banking” and then just deny every SME application because they’re not already bazillionaires.

Seriously, walk into a bank with a new business idea and be prepared to get laughed out. Or they’ll just ask you to get someone to sign surety. This begs the question if it’s not better to fund it out of your home loan. Which leads to: is this even business banking at all?

But, we get it. Banks just don’t have the data to make good decisions when it comes to risky new ventures.

Yeh R150 a month bank fee when you have zero revenue is splendid.

But there are some who do – they’re just not using it (yet). If you’re the likes of famous disruptor Yoco, with lots of SMEs’ transaction data, you can do something banks can’t: predict with much greater accuracy which SME will make it or not.

See, companies serving SMEs directly could summon their data – who has which type of business, in which location and how much are they transacting per day – and use that as a model for reviewing funding applications.

Whilst it’s hard and expensive to get a banking license in SA, the opportunity to build another “Capitec” is just too lucrative for local players to stay away….

Local business banking plays

After years of supplying loans to small businesses, Lulalend probably picked up on this issue of banks not really servicing the needs of small businesses well. What’s more, when you offer business banking to a range of small businesses, the data gathered can help you package and offer even better finance products to small businesses.

And that’s probably why they just launched Lula, SA’s first dedicated SME banking platform. It promises to let you handle your day-to-day banking, manage cash flow, and access funding quickly – all from its digital platform. The fees? Well, they offer a free account that has zero monthly fees and only R3 for an outbound transaction.

Then, backed by former FNB CEO Michael Jordaan, Bank Zero recently launched commercial and business banking offering banking with basically no fees – yes their name speaks to fees not your balance as a founder in case you wondered. Bank Zero is still very small, yet they have seen their deposits grow from just over R110m in January to almost R200m by August. (Pssst… Neat little data source if you are a bank geek – banks report their balances to the SARB monthly which then publishes it on their website).

And, we’ve yet to see any big or exciting moves from them, but Capitec bought Mercantile, which traditionally served SMEs and entrepreneurs, in 2019. Whilst they’re most likely still working on integrations and optimisation between the two entities, it’s clear that SA’s biggest bank in customer terms is seeing SME banking as a major next phase of growth.

So, there are options. But we reckon there’s still a lot of opportunity to be unlocked in the startup/SME banking space. That’s why we’re keeping an eye on it…

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OVER TO YOU

Where do you bank?

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IN SHORT

⏳ Countdown. Renowned for our mineral supply of gold, platinum, iron ore, and coal, South Africa’s dwindling resources threaten the local mining industry, with reports suggesting we have less than 50 years of mining left. Perhaps if we load shed enough we can add another 25?

♻️ Conversion. Want to turn your e-trash into Makro cash? This weekend (21 & 22 October) the E-Waste Recycling Authority (ERA) will be handing out Makro vouchers for eligible e-waste dropped off at specific Makro stores.

🛰️ Connected. Looks like even ships & planes will get Starlink before SA does. Starlink just signed deals with both shipping giant Maersk and Qatar Airways to get high-speed, low-latency broadband internet onboard.

📺 Competition. Look out Showmax & Netflix, South Africa’s Government Communications and Information System (GCIS) is reportedly spending R1 billion on a new video streaming service, despite already having SABC+ which was launched in November last year.

🏆 Champions. South Africans are first to bed and first to rise according to the weekly stats published on Sleep Cycle’s home page. We like to hit the hay at 22:56 and are up and at ‘em at 06:25 for a grand total of 7 hours and 29 mins of shut-eye.

BUILDER’S CORNER

How to Get a Startup Mentor

OK, so you want to build not only the next best thing but also a company that’s really worth something. And that’s where a great mentor would really make a difference – someone who knows the ropes and can just help nudge things in the right direction.

Just one problem: It’s a bit weird walking up to total strangers like…

I’m totally not stalking you or anything…

Thing is, we really need mentors. In one survey, 75% of company executives said that mentorship was critical to their career development. One CNBC survey even found that 9 out of 10 mentees (people with a mentor) were happier in their work.

So it’s no surprise that we want mentors. In September, Adobe released survey results showing that 83% of Gen Z really want a mentor, yet only 52% say they have one. So, how do you actually find a mentor?

5 Ideas to get you going

1. Ask inside a company

If you’re still employed, or connected to a company in some way, look there first. Companies know they should have mentorship programmes (the most successful ones do), so, even if a company doesn’t have an official one, chances are that any slightly more senior person will relish the chance to “give something back”.

2. Fire up your network

You can try and make it less cringy by just reaching out to people and saying: “Hey, I’m building this new thing, know anyone in the space that could give me some pointers?”, as a start.

You could even do a bit of research first, see if there are any specific people you’d like to learn from, and then see if anyone knows them. LinkedIn is great for this because it shows you how many connections you’re away from a person, so you can ask for an intro.

3. Attend some startup events

Not all events are great learning experiences, but if you’re just there for the networking, you can actually make some valuable connections.

4. Online services

Although it’s a bit dubious because you’re actually paying for people’s time, some places like internationals GrowthMentor and Techstars promise to connect you with real pros. South African options include Startup Mentors and Start Wise.

Note: We don’t have any experience with any of these paid-for mentorship programmes, so we can’t tell you if they’re any good or not.

5. The distance-mentor method

We have to mention this option because it’s how most of us at The Open Letter like to operate – don’t even ask, just learn from whoever you want. Seriously. With the net there’s so much info about people online, you can literally appoint Elon Musk as your mentor without him even knowing it – just follow him on every channel, read everything about him and you’ll eventually develop a feel for how he thinks and operates.

So many founders publish playbooks and host podcasts and have their own blogs etc. You can easily distance-mentor yourself just by making them your focus of study.

Did you have a mentor? Got any tips for those looking for mentors? Hit reply and let us know…

THE RESULTS

We asked what you think is the hottest opportunity highlight out of Census 2022, and most of us are looking at EdTech (and staying in Cape Town it seems)…

🟨⬜️⬜️⬜️⬜️⬜️ 🌍 Building in more languages sounds hot (5%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🚇 Heck, I’m moving operations to Gauteng (0)
🟨🟨🟨🟨⬜️⬜️ 🌊Nah, Western Cape is where it’s at (28%)
🟨🟨🟨🟨⬜️⬜️ 🏗️ Keen to get into construction or PropTech (28%)
🟩🟩🟩🟩🟩🟩 👨‍🏫 Building educational product is the game (34%)
🟨⬜️⬜️⬜️⬜️⬜️ 😒 Not much useful for me here I’m afraid (5%)

Your 2 cents…

“Desperate for a smart translation tool for webpages & email newsletters, would be a real value add for my cross-continental project.”

Anon

Yeh, that would be neat. For now, we are using ChatGPT for translation, it’s pretty good.

“It would be good to have some info on where to source funding/investment in proptech as I am working on providing a services platform in this space.”

Fritz

Nice one Fritz. It’s quite a small and niche space so I’m sure what you can find on Google is pretty much all there is. Check out these guys who recently launched a R200m fund.