Manyowa Nong has hired 30 or so employees in the two years since creating a start-up that helps minibus taxi owners to track and monitor vehicles via a mobile device.
His app has helped taxi owners by preventing drivers from taking unreported trips and pocketing the earnings. Nong added jobs through a call centre he opened, as well as with a number of installers and a sales team.
Yet his company, MobifyTracker, is probably one of the exceptions when it comes to tech start-ups. Most create very few jobs. In addition, a large number of tech companies are likely to destroy jobs in the country when they disrupt traditional sectors.
Tech start-ups normally employ few staff but can enable other companies to create work
Three incubation or business acceleration programmes sampled by the Financial Mail create, at best, between 2.5 and 5.5 jobs per firm a year. A 2015 survey, by start-up news site Ventureburn, of about 200 SA tech start-ups revealed that just 3% employ more than 10 people.
In the US, a report in The Wall Street Journal in October last year noted that employment in computer and electronics firms fell to 1.03m in August last year from 1.87m in 2001.
Gideon Potgieter, head of business development at Resolution Circle, a University of Johannesburg technology hub, points out that one doesn’t need more than five or six people to build a multimillion-dollar Web company. Instagram had just 13 employees when it was bought for US$1bn by Facebook in 2012. With more concentrated revenues and lower employment potential, digital companies may be increasing the levels of inequality, he says.
It’s why the hub’s incubator doesn’t take on entrepreneurs who have pure Web or app-based solutions, he says. Instead, it favours those who develop or license a physical product which might then be supported by an app or Web-based platform.
Though the first company moved into the incubator 18 months ago, job numbers are still low. Currently 18 companies are based at the incubator, employing 32 people — mostly the founders themselves.
More support needed from private investors as the tech sector has struggled to convince government to support it
There are some exceptions. Cape-based fintech company Jumo is only in its second year but employs 240 people. It is expanding into the rest of Africa with a mobile app that helps assess unbanked customers who apply for finance.
Founder Andrew Watkins-Ball believes the employment opportunities in tech are expanding rapidly as businesses transition into an increasingly digital environment. "However, the increase in efficiency probably also leads to a loss of manual jobs over time," he concedes.
But Jens Herf believes small tech entrepreneurs can add jobs — just not in their own company.
He admits that his three-year-old firm Shopstar, a platform that offers online stores to small businesses, is not likely to make a substantial number of hires. But he says it can help enable the small businesses it serves to grow and hire more people.
Brett Commaille, a partner at venture capital fund AngelHub Ventures, agrees. He says while it’s true that investors look to scale firms with the fewest number of employees as possible, tech firms can enable the creation of new jobs by introducing certain efficiencies.
The legal sector, he says, is ripe for disruption. New start-ups could reduce the fees charged to clients by using technology to strip out the cost of infrastructure, such as expensive buildings. Clients such as small businesses that previously couldn’t afford the high fees, can then afford to use legal services and, in so doing, can perhaps expand.
Llew Claasen, managing partner at angel investment and venture capital firm Newtown Partners, backs this up.
Though he was unable to provide job numbers for those companies his firm has invested in, he says on-demand services can help add new jobs in those sectors they serve.
He says one of the firm’s investee companies, SweepSouth, which provides domestic workers on demand, has created 2,500 jobs — with 71% of those hired having previously been unemployed. Another, SA Florist, provides a growing online customer base that enables 280 small florists to collectively employ 1,000 people.
While he agrees with the World Economic Forum’s argument that technology increases wage inequality and doesn’t increase employment, he says the economic impact of a lower number of better-paid jobs would still increase overall income, if not equally.
"We no longer live in a world where the goal can be full employment, if we don’t also invest heavily in education and create knowledge workers," he adds.
Ian Merrington, CE of the Cape Innovation & Technology Initiative (CiTi), a government and private-sector partnership, believes government could intervene, by trying to understand the challenges that businesses are expected to face. It could, for instance, insist on coding being taught at all schools.
He suggests the state should help companies pay for staff to take three months off to reskill themselves. In addition, he says companies need to consider more decentralised decision-making and look at more reward-based compensation for employees.
Businesses will also need to realign their recruitment and training priorities.
"Where companies spent on a sales force, they now need to spend on someone who can write great algorithms that can help them to get to know what’s happening in their sales," he says.
More specialised IT skills, such as data skills, are in demand, as are people with a good understanding of maths and teamwork skills and the ability to be innovative. However, he believes schools and universities are not preparing people in these areas.
Perhaps when it comes to upping job numbers at tech companies, rigorous business support might help.
Grindstone, a 10-month accelerator programme run by Knife Capital, has been slightly more successful than other tech programmes in helping tech firms create jobs.
It has helped 22 companies create 120 jobs over two years — mostly older companies — the average supported business had been running for six and a half years, employed 12 people and the founders were, again on average, 36 years old.
Two rounds of the programme have been concluded. A third is in progress and applications for a fourth are open.
Knife Capital partner Andrea Böhmert says the venture capital fund invested no funding in recipients — only knowledge, networking and time.
"We wanted to prove you can engineer growth without investment and that investment is just an additional accelerator but not the main catalyst. We are subsequently looking at investing in some of the companies but these job numbers have been achieved without investment."
Böhmert says there’s a lot of emphasis on selecting the right candidates, where the aim is to take on companies with the potential for growth.
The cost per job at Grindstone last year was R40,000, which she says is way below government-funded programmes. But funding is needed and that’s where corporate or government support is required.
More support will probably have to come from private investors. Claasen says the tech sector has struggled to convince government of the importance of supporting it.
"Seeking to increase low-skill employment in primary industry is a fruitless exercise, a race to the bottom. Government money would be better spent on education, especially retooling via adult education programmes," he says.
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