Some of the ideas will feature in my upcoming economics book, Robust Manifesto Nation.
“Entrepreneurs are heroes in our society. They fail for the rest of us.” – Nassim Nicholas Taleb (Skin in the Game)
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I recently shared a LinkedIn post by someone criticizing the Enterprise and Supplier Development (ESD) system – saying South African entrepreneurs are over-mentored and underfunded.
It showed the iconic video of Sibusiso Ngwenya of Skinny Sbu Socks on SABC News, where he outright defied the advice of an invited mentor on the show. Sbu said he “needs money” and not “solutions,” i.e., he does not want advice, but money. His business needed money as his market had developed and demand was growing.
I added to the post that ESD is “close to a scam.” Surprisingly, I wasn’t alone – other entrepreneurs, including some in the space, agreed. That says a lot.
In addition, privately, there are those who share the same analysis and sentiments. They are afraid of being persecuted as they work in this ecosystem.
Ironically, when it’s government spending most of our tax on employees and support, we rightfully call it a scam. We don’t see it when the coin flips in our favour.
Let’s start
N.B. The bottom of this article has a nice fictional tale that exemplifies ESD as an Industrial Complex scam.
I’ve worked in entrepreneurship development both inside and outside of ESD. I’ve serviced tons of ESD programs. I also have my own interests outside of ESD through books and our own proprietary teaching frameworks. I’ve also founded Startup Picnic Academy, which curates rapid economics skills programs – it started out as purely “Startup Picnic” events in 2014.
But before and above all these, I am a technical writer of non-ergodic economic, innovative, and entrepreneurial dynamics. Writers have a duty to be honest and say what they see as measurable truth or smell measurable scepticism towards. I.e., we are not politically correct like corporate and academia often require.
How Do You Know You’re in an Oppressive System? Silence Preserves Dysfunction!
Simple. You’re afraid to call something a scam publicly because you worry that saying it out loud might get you excluded from the “ecosystem.”
I think most people who are close to ESD are afraid to echo such sentiments publicly. But silence preserves dysfunction. – and in the case of ESD in South Africa, the dysfunction seems to have metastasized into what looks like an Industrial Complex.
N.B. First principle in business – not social investments
Like I said, I am a technical writer. I study dynamic and non-ergodic discrepancies.
I’m not easily swayed by abstract terms like “diversity,” “Strategic Enablement,” “Ecosystem Strengthening,” “interventions,” “Pre-investment Readiness Support,” or “optimization” when used in business – terms that are often used without clear definitions and, in many cases, serve as smokescreens for inefficiency or even deceptive practices – i.e., spending over 51% for support and management costs (admin, overheads, consultants). I will demonstrate how these concepts can be misused to justify outcomes that fail to deliver measurable value.
In business, things are straightforward: there is either profit, break-even, or loss. Similarly, in investments they also should be straightforward: only a fraction of the funds should go into support and management fees.
In the context of ESD, the principle should be just as clear: if the majority (at least 51%) of the funds do not reach the intended beneficiaries, then the program is, by definition, either mismanaged or fraudulent.
Capital should fuel creation and growth, not disappear into support and management fees.
Any attempt to argue otherwise usually belongs to the realm of social or political theory – spaces where claims are often unfalsifiable, ideologically charged, and far removed from reality, leaning towards Marxist or Soviet-style ideologies, i.e., they sound polished but are far removed from real-world application.
They deviate from First Principle Logic, or lack a positive Impact Efficiency Ratio, as some would say.
Actually, when a saying or a speech is charged with social terms, it’s definitely a word salad that you should not eat – because you don’t know what’s in it.
What Is ESD – On Paper?
Enterprise and Supplier Development (ESD) refers to initiatives created under South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) policy to address the economic non-ergodic inequalities of Apartheid. It’s meant to support Black-owned SMEs through preferential procurement, supplier development, and Enterprise Development, with the goal of integrating them into major supply chains.
ESD has two parts:
- Enterprise Development (ED): Companies are required to allocate 1% of Net Profit After Tax (NPAT) annually to support Black-owned businesses that operate outside their supply chain.
- Supplier Development (SD): An additional 2% of NPAT must be spent on developing Black-owned businesses within the company’s supply chain.
- Total ESD Commitment: Combined, ED and SD represent 3% of NPAT per year.
- N.B. ESD is not CSI – wherein the latter is an additional 1% of NPAT.
These are absolutely noble endeavours.
I’ve been writing a series of articles and posts on BEE.
N.B. In this article, I will concentrate on ED (Enterprise Development) in ESD, and not SD (Supplier Development) – the latter I will address soon. So, when I mention ESD in this article, I refer only to ED.
ED in Practice
A report by GIBS’ Responsible Finance Initiative estimates the South African ESD industry is between R20 billion and R30 billion, with ED as 1/3 of it – and SD as 2/3.
I could not find any aggregate data or metric that shows the ratio of ED industry spending on support and management fees (including admin, consultants, trainers, other overheads) versus what goes directly to entrepreneurs.
It seems companies don’t share this info – I don’t blame them. If it’s negative, it will be bad PR. Anyhow, it not legislated.
I suspect most spend over 51% of these funds on support and management, meaning the actual cash that reaches the entrepreneur is less than 50%.
This allows a fraudulent Industrial Complex which benefits everyone but the entrepreneur – while using her as bait. I will illustrate.
The above report – titled “Enhancing Enterprise and Supplier Development Ecosystem Effectiveness in South Africa” (by Prof Kerrin Myres, Anne Cabot-Alletzhauser, Amanda Khoza, Prof Anastacia Mamabolo) – eludes corruption from respondents:
“Several respondents noted that the sector is fraught with corrupt activity, both overt and implicit, and may even be ‘the most corrupt sector in SA.’”
ESD in Practice: The Industrial Complex Revealed
I say this – and many entrepreneurs agree – ESD seems to be an extractive machine, where a majority of the budget goes not to entrepreneurs but to corporate employees working in ESD departments and accelerators/incubators, admin overheads, trainers, consultants, and academics.
This is the Industrial Complex I mean. It seems to benefit everyone except the entrepreneur.
Google’s Gemini AI defines an Industrial Complex as: “A network of interconnected entities, often involving both public and private sectors, that work together for mutual benefit – sometimes to the detriment of broader societal interests.”
ESD seems to have created an industry that uses the entrepreneur as bait to catch the big worm.
Example: Functional Definition of an Industrial Complex Scam
ED is supposed to benefit the entrepreneur. If more money goes to everyone else and not the entrepreneur, it violates the core principle of Enterprise Development.
When that happens, it’s either a scam or inefficiency.
If an ED budget is R2 million, you would expect at least R1 million-plus (51%) to go to the actual entrepreneurs – cash injection, working capital, or equipment.
Let’s use the example of a VC fund. A VC raises R10 million from investors (Limited Partners). Normally, over 50% of that would be deployed directly into businesses as investments. They charge 2–3% per year as management fees – around 30% over 5 to 10 years.
The majority – at least 70% – goes to actual investment. That’s logical. The VC is judged by performance.
So, if the ED model spends over 50% on support and management, not the entrepreneur – it’s fundamentally a scam or an efficient Industrial Complex.
Taleb’s Warning: The Soviet-Harvard Delusion
Author and risk anayst, Nassim Taleb, calls this kind of logic failure The Soviet-Harvard Delusion.
Without skin in the game and limited cash oxygen, Soviet-Harvard intellectualism will justify why 51% goes and can go to “support” and not directly to the entrepreneur.
But support and management are supplementary. They should not drain the majority of the cash.
The entrepreneur has skin in the game – bearing both the risks of loss and the hope of reward – while everyone else – consultants, trainers, and corporate staff – operates on secure, fully funded salaries of a fraudulent Industrial Complex.
This is what Taleb refers to when he says: “Teaching a bird to fly.” Instead of helping the bird midair, we fund the people writing bird-flying manuals.
Beware of the Language of Justification: Scams and Complexes are Protected by Fancy Words
Language has long been used as a tool of persuasion, manipulation, and even deception – especially when justifying large-scale violence or economic inefficiencies.
A classic example is the 2003 U.S. invasion of Iraq resemblance of a Military Industrial Complex. The public rationale was the alleged presence of weapons of mass destruction (WMDs) in Irag. When no such weapons were found, the narrative shifted subtly but powerfully to terms like “preemptive strikes” and “spreading democracy.” The war went ahead regardless, resulting in the deaths of hundreds of thousands and the destabilization of an entire region. Meanwhile, military contractors experienced exponential revenue growth.
A similar linguistic sleight of hand might be used in the defense of excessive support and management fees in ESD programs. When more than 51% of funds go toward support and management instead of direct entrepreneurial support, you might often hear phrases like “Ecosystem Strengthening”, “Capacity-Building Interventions”, “Pre-Investment Readiness Support”, or “Program Optimization”. These terms sound noble, even necessary – but can obscure the fact that very little reaches actual entrepreneurs.
Take “diversity and inclusion” as an example. On paper, a program may claim to deliver R300 000 in “value” by including two female entrepreneurs. But those women might each receive only R30 000 in direct cash support. The remaining R240,000? Consumed by the ESD Industrial Complex: consultants, project managers, branding, monitoring systems, and venue hire. The women become little more than line items in a funding report – pawns used to justify disproportionate spending elsewhere.
Another common example is when small business “acceleration” programs offer extensive workshops and mentorships, valued at hundreds of thousands of Rands, but deliver minimal direct tools, capital, or market access. Entrepreneurs – often desperate and hopeful – are told they’re being “developed,” while the real beneficiaries are the firms running the programs, not the businesses meant to be helped.
This is the problem of no skin in the game: program designers and administrators get paid more than the impact. Their risk is zero, while the entrepreneur’s risk is everything.
As Nassim Taleb notes in Skin in the Game, “Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.”
How to Achieve Broad-Based Efficiency That Drives Innovation
To create real impact, there must be legislated transparency – for example, a minimum of 51% of program value must go directly to entrepreneurs. If a program cannot deliver the majority of its value to its intended recipients, then it’s not empowerment. It’s extraction cloaked in noble language.
The Innovation Imperative
For example, most startup entrepreneurs can’t afford high-end service providers – like prestigious accountants based in Sandton – so they find leaner, more practical alternatives. Now, if an ESD (Enterprise and Supplier Development) program decides to pay that expensive accountant on behalf of the entrepreneur, it becomes counterproductive. A large portion of the funding goes to the service provider, not the entrepreneur.
This practice is what creates a scam-like Industrial Complex.
From the outset, the bulk of funds should be directed toward the entrepreneurs. Support services and management fees must be innovated and designed to take up only a small fraction of the budget.
This requires a shift. Support service providers – accountants, consultants, trainers – should tender innovative, low-cost solutions that enable maximum value to reach the entrepreneur. If the system is designed around first principles and measurable logic, we get a functional, innovation-driving mechanism. Otherwise, we get a bloated Industrial Complex masquerading as empowerment.
Life is Simple: Prioritize Outcomes, Not Status
Don’t hide inefficiency behind pseudo-intellectual rationalizations. If you can’t directly test or measure the value of a program, reduce risk by minimizing overhead percentile: I.e. any business/enterprise program where support and management consume more than 49% of the budget is built on assumption, not value.
In short: most of the money must go to entrepreneurs.
Anything else is intellectualism chasing status, not solutions.
A First-Principles Solution to Fix ESD: Reclaiming Enterprise Development from the Industrial Complex
Enterprise Development in South Africa is widely viewed with suspicion of bloated bureaucracy, excessive overheads, and consultant-driven models that serve administrators more than entrepreneurs.
This proposal offers a lean, performance-based alternative rooted in venture capital principles – designed to channel real value and direct support to entrepreneurs.
Options
Option 1: Entrepreneur-Led Investment Embedded Within the Company
This approach brings the entrepreneurial investment lead directly into the company – functioning much like an in-house angel investor or innovation operator.
How It Works:
- Hire an entrepreneurial lead/angel: Someone with startup or investment experience who can identify viable businesses and mobilize capital in smart, agile ways.
- The lead must ensure that total support and administrative costs remain below 51% and no less than 30%, mimicking the venture capital model where a balanced portion is allocated for portfolio support.
- Direct collaboration with entrepreneurs: The lead co-develops or helps entrepreneurs draft RFPs (Requests for Proposal) to source efficient, high-impact service providers or solutions.
- Outcome: Entrepreneurial progress is placed at the core of deployment.
Option 2: Outsourced Entrepreneur-Led Micro-Funds with Clear Mandates
Instead of bringing in talent directly, corporates outsource to specialized micro-funds run by entrepreneurs, angels, or accelerators. However, each corporate must define its own ESD mandate upfront to avoid aggregation inefficiencies and one-size-fits-all intermediaries.
Key Principles:
- No pooling of mandates: Each participating corporate must articulate its own industry-aligned or outcome-driven goals – avoiding generic fund structures that dilute impact.
- Entrepreneur-led fund managers: Outsourced funds must be run by individuals or teams with proven ability to deploy capital in early-stage or scaling businesses.
Mechanics for both options
Core Funding Rules: The 51% Deployment Mandate
- 51% Rule: At least 51% of all ED capital must go into direct business value – e.g., working capital, inventory, equipment, or revenue-generating inputs.
- Ideation limit: No more than 30% of funding should go to idea-stage or pre-revenue startups.
Decentralized Governance with Accountability
- Funders as observers: Corporate participants have observer status only, without voting rights, to prevent top-down capture.
Story time: The Farmer and the Middlemen
In the Valley of Enterprise, a farmer named Nathi dreamed of growing his small plot into a thriving business. Each year, the King of the land released gold to help entrepreneurs like him, declaring it was “for the growth of the people.”
The funds were managed by the Facilitari, a group of well-paid middlemen in the Tower of Enablers. They spoke of “ecosystem strengthening,” “capacity building,” and “stakeholder alignment.” But over 51% of the funds went to their salaries, offices, and endless strategy sessions.
When Nathi finally received support, it was a broken wheelbarrow, expired seeds, and a spot in a delayed pitch event.
He questioned the imbalance. The Facilitari smiled, “This is how development works. Trust the process.”
Yet Nathi saw they had no skin in the game. If he failed, he starved. If they failed, they got paid.
Disillusioned, he joined other farmers to form Seed Before Structure, a people-led support model with no middlemen – just real help.
Their farms flourished.
When the King visited and saw the results, he asked, “Why didn’t the tower produce this?”
Nathi replied, “Because gold alone doesn’t grow crops. Skin in the game does.”
“Real change begins when the doers lead,” The King said when he discovered the truth.
Impressed by what he saw, the King gathered his advisors and the Facilitari. “I have seen with my own eyes that true growth happens when the doers are trusted,” he declared. “From this day forward, no less than 60% of all development funds must go directly to entrepreneurs – whether in cash, equipment, or direct support. The rest may be used for administration, but never again shall the middle eat more than the one who tills the soil.”