5 Things Service Providers Targeting Startups in Africa Should Keep in Mind
Over the years working with Startups in Africa I have noticed the steady rise of services providers who are trying set themselves up to help startups in Africa. In fact in the first week of 2015 a number of service providers have already approached us- the “Africa Rising” narrative will likely continue this year and I fear there may be more service providers than good startups (lets not get ahead of ourselves). Here is some of the advice I have for service providers, this may also form a guide for startups assessing partnerships with them.
- Avoid the use of “consultancy” approach or confusing broad business terms: I was careful in NOT choosing the word “consultant” in describing these organizations. Startups and consultants just don’t mix- they often form the wrong expectations on the relationship including short term goals vs the long term and uncertain and different risk profile that startups exhibit. The best service providers are very clear about the value they provide and are able to work at the timelines of a startup on the right things, many are not sexy for consultants to work on or the startup is too busy iterating to find the right product market fit to assign a specific issue to a “consultant”. Ones that offer fundraising services (very tough in Africa) for a success fee is an example of a better approach, these are not consultants, but “investment advisors”. The more specified in writing the better.
- Offer real value to what startups actually need: “We offer value added mentoring and network”, may sound like a really catchy phrase. But when your advisors are based overseas or have never started a startup then you are probably starting off on the wrong foot. Think basics and often unsexy. Do you know the statutory legal fillings needed for your business? What about tax? Have your books been audited? These are often quite trivial and easy in developed markets for the founder or even early employees to do on their own but are really tough to do in many African countries without specialized and experienced help, and getting them done puts you on a much higher credibility path going forward and is often more needed. Governance is a competitive advantage in Africa.
- There are probably not enough venture backed startups that can afford your services: I have seen it many, many times. Startups get funding and they spend it all on new laptops, salaries, drive an online marketing campaign and before long at the bottom of the list they have a small budget for those service providers. This is the reality of early to seed funded startups in Africa which leaves very little true venture backed startups or startups making meaningful revenue. Sometimes the startups are stubborn about spending money on essential services (see 2nd point). This means many services providers may struggle to find viable market, especially in smaller countries outside of say Nigeria and South Africa- the quality of service providers country to country can vary dramatically. Taking equity is one strategy but many will say “equity doesn’t pay the bills” (at least not yet, its too early in the ecosystem). Postponing billing is another suggestion that is more practical- service providers like lawyers that have diversified clients into larger corporates are most able to do this, I wish more accounting firms would do the same, let the larger clients subsidize work for startups (wich one day a few may become big clients of yours that you feel more satified to have truly helped from the very beginning (code name = ”impact” and not the touchy feely kind).
- Are you trying to take over the startup and be like Rocket Internet? Another approach I have seen is service providers stating that they will come in and make key strategic decisions and even straight up run the day to day of a startup (this is often pitched by local firms positioning themselves to work with overseas startups or investors). First off, if you are a one or 2 person firm, this is like saying “I want to work with you but not as part of you”– a strategy to clearly diversify by putting eggs in many baskets, but also contradicts in being “hands on” which is hard to do with multiple clients and dealing with multiple issues. Many claim they can do this across sectors- real estate to retail- no problem! Finally it also reminds me a lot of a Rocket Internet strategy, except you are not rocket with the control, assets/capital and expertise they bring to the table- if you remember, the Samwer brothers were real entrepreneurs to start. Finally, startups are fundamentally about independence, so coming in and taking over kills that entrepreneurial spirit at the earliest stages. Startups in Africa will already have to deal with this at the investor and board level should the founder/CEO make mistakes as the stakes get higher.
- Who is the real customer. Perils of donor dependent business model: Finally, my least favorite issue. The impact of donor related funding in subsaharan Africa as it creeps more and more into the startup ecosystem. Many donors will increasingly set up “technical assistance” funds or budgets to help startups in areas of perceived weaknesses. With this money, they will hire consultant-like organizations (see my first point)- further problems will be how the donor defines success and how and why they get paid will determine the fate of that relationship and it is very likely not tied to the success metrics of the startup. In short, the interests will likely not be aligned. It should be clear in most of the scenarios the donor is the client not the start-up and hence not a the foundation for a good relationship. Because donors have a lot of money, there will be many consultancies new and old that will get into this arrangement. This is the same approach as aid has been and the accountability issues it creates for the last 50 years in Africa.