If it is one thing that the great tech startup gold rush and eventual bust at the turn of the 21st century should have taught us, it is that if it seems too good to be true, it probably is. Another lesson it should have imparted is that having a cool idea doesn't automatically mean businesses or people will buy into that idea in the long run - or that it will make you money once the novelty fades away. So is the plight of what have now been dubbed "tech unicorns", or companies launched since about 2007 that have been valued at more than 1 billion US dollars. Like dominoes beginning to fall, a number of tech unicorns are presently having their valuations slashed, or, even worse, in the case of one formerly high-riding tech unicorn LivingSocial, having massive layoffs and trying to grasp hold of a new and better business model - something they should have had to begin with. All of this activity undoubtedly has implications for startups in Africa, and I'll explain why. The startup scene in Africa is booming, teeming with young creatives, entrepreneurs, and visionaries that think they have a good idea of what the "Next Big Thing" in tech will be on the continent. The recent Global Entrepreneurship Summit which was held in sub-Saharan Africa for the first time in July 2015 brought together many such people and underscored the shared sentiment that more and more, people are setting their tech-filled sights on the region. Eric Osiakwan also points out that there are a number of tech-oriented investment funds sprouting in the region, drawing the attention of investors near and far. But given the growing number of cautionary tales arising from the tech startup scene in Silicon Valley, the startup failuresobserved in Africa, and indeed observations from African ICT luminaries such as Bitenge Ndemo, what do aspiring unicorns in Africa need to do to avoid going bust if they really do have a startup idea with potential? As a person who is passionate about tech but admittedly has never worked in a startup, my advice could be taken with a grain of salt. However, as someone who has lived in three countries in Africa, visited 1/5th of the countries on the continent, and is an avid follower of tech-related developments in the region, I feel at least partially qualified to make some suggestions based on my own experiences there and personal observations. Here goes!
Top Suggestions for Avoiding Unicorpse Status as an African Tech Startup
- Conduct extensive market research around the feasibility of your idea before you startup. Duma Works in Kenya is a recruitment firm and online job matching platform all rolled into one. It is headed up by the ever-spunky Arielle Sandor, a US expat who came to Kenya soon after completing her undergraduate experience. After identifying a gap in the market for efficient mechanisms for identifying good people to be placed in the jobs available on the market, a major part of her startup work became researching and segmenting her potential customer base. As Arielle mentions in her blog post, she learned that "defining your customer base is tricky before you have completely defined your product/service. For this reason, it’s important your early conversations are full of questions and observations, rather than pitches for your idea." While she admits to many missteps along the way, I find that many startups would do well to heed Arielle's advice since it seems a number of startups in Africa fail because the customer base is non-existent or not well understood before investing time and money in building the startup.
- Try making your startup based around a B2B or B2B2C model and not a B2C proposition. As writers for Techzim, Ventureburn, and ICT Works have all pointed out, many startups in Africa seem to target business-to-consumer propositions. The problem here is that, regardless of whether we're discussing a startup in the US or one in the Ivory Coast, it can be an uphill battle to create a successful B2C proposition since rarely do the ideas that are the crux of a B2C-based startup yield the stable customer base and cash flow that a business just starting out needs to grow. People were loving LivingSocial when that startup began, but as the article I shared earlier illustrates, customers can change tastes like the wind and when those tastes do change, it is the startup who will be left standing in the cold. African startups are often social enterprises in nature since they want to do good while also generating revenue and turning a profit, but B2C models outside of proven successes like mobile money are hard to come by - in large part because of the lower socioeconomic statuses of the majority of people living in African countries. One of my favorite startups, KopoKopo, which is also based in Kenya, piggybacked on the success of mobile money and targeted merchants by enabling them to accept mobile money payments. This B2B model has worked exceptionally well for their firm, and they continue to grow. Earlier this year, KopoKopo launched a new software product that "...enables organizations in Kenya to schedule and send tens, hundreds, or thousands of payments in minutes." By filling a concrete need in a market that had already enjoyed high levels of adoption of the technology innovation that is core to the startup's success, KopoKopo was able to make money from a B2B proposition while still serving important stakeholders who don't often get much attention - small and medium-sized enterprises.
- Think global, act local. Although I cannot find the relevant post, I recall that one African blogger admonished African tech startups for designing only for Africa. Instead, they suggested designing for the world so that the innovations might reach scale. In the case of African tech startups, I could not disagree more. It is one thing if the tech idea is designed to be used by people inside and outside of the continent to be a success, but to suggest that something created in Africa should ensure its design caters to countries in the East and/or West is pure madness. While Facebook has managed to firmly insert itself in people's lives around the world, somehow casting off its elitist U.S. origins to reach people at the base of the pyramid in myriad countries, there are few other sustainable or longer term startups that have achieved similar heights of business success. Furthermore, since most tech startups in Africa try to (and rightly so) address local challenges, adaptability for and scaling out to other country contexts may end in a mismatch. Again, to use the example of LivingSocial (sorry to beat a dead horse!), the startup tried expanding rapidly and bought up similar businesses in Spain, New Zealand, Australia, and South Korea (to name just a few countries). As it continues its slow downward spiral, LivingSocial is belatedly realizing that its core customer base is in the English-speaking countries where the concept first originated and took off - it just didn't seem to work the same as a global product. I think that this situation will be the same for many tech startups in Africa, and as my colleague Lauren previously decried, the obsession with scale as the one of the primary indicators of success for a tech startup is extremely limiting. Developing a good product that works well locally is something to be proud of even if it does not reach beyond the borders of one's country. Trying to force it elsewhere if there is no natural fit is a fool's pursuit. Don't believe me? Just ask former LivingSocial employees!
So what do you think? Do you agree with my top three suggestions? Am I missing others that are just as important? Please sound off in the comments!