The relationship between small business owners’ practice of effectuation and business growth in Gauteng townships

Abstract

Background: With the high unemployment and increasing levels of poverty in South Africa (SA), especially in the townships, the start-up and growth of township-owned small businesses have been proposed as the solution to address this phenomenon. The extant causation approach has had its challenges to develop township-owned small businesses because of resource constraints. Consequently, the emergent effectuation approach is worth investigating.

Aim: This study aimed to determine if the practice of effectuation and the effectuation constructs (experimentation, affordable loss, flexibility and pre-commitments) by a non-expert township small business owner (NTSBO) would result in business growth (assets, sales and employment growth) and if the industries the businesses are operating in are a moderating variable.

Setting: Primary research was conducted in the three Gauteng townships of Alexandra, Honeydew and Soweto in SA because townships contribute more than 38% towards South Africa’s gross domestic product (GDP).

Methods: A quantitative study of 728 NTSBOs was conducted using an interview-administered structured questionnaire. Non-probability sampling methods were used, and the data were analysed using structural equation modelling (SEM).

Results: The study found that effectuation and its components of experimentation and flexibility had statistically significant relationships with financial business growth (FBG). Industry did not moderate these relationships that were found. Experimentation and flexibility probably empowered the NTSBO to adapt to the ever-changing and unpredictable township business environment they operate in. Neither effectuation nor its components demonstrated statistically significant relationships with nonfinancial business growth.

Conclusion: The findings of this study may inform policymakers, government and financial institutions that the effectuation approach can be an option incorporated for the training, funding and/or support of township small business owners.