10 Deadly Mistakes and Pitfalls African Startups should avoid in 2013
We are about to hit 2013, last year I wrote an optimistic post about the 12 trends to watch in Africa tech, there has been some very positive developments indeed and rather than repeat and add to any potential Africa tech hype that may or may not be bubbling I thought I’d take a somewhat bah humbug approach and offer some tips for startups based on what I have seen in the past year- call this a reality check if you must. Here are the “10 Deadly Mistakes and Pitfalls African Startups should avoid in 2013”
1. No “African” founder authenticity on the problem: This does not mean you have to be a native African to work on a startup in Africa (nor does it even mean you have to be on African soil 24/7) it does mean you have to have someone in the team that has direct experience in the problem or industry being tackled in the African context. Someone who has lived and experienced this has a greater chance of developing unique customer insight or spot industry trends, opportunities and successfully address them. It also means being able to execute on the ground with or without partners to see your vision through in the realities of the African environment.
2. Lack of positioning in crowded markets and ignoring global even local competition: It is natural to see many startups enter a market in a “hot” sector, but how many times have you heard, “so how are you different from XYZ startup in the same space?” Also just like western markets, startups may be directly competing with global and even local giants entering the space- we have seen this in mobile money with say M-Shwari service entering the lending market with a strong tie up with Safaricom/Commercial Bank of Africa which signed up 645,000 customers in 3 weeks. As Africa becomes more connected, the nature of the internet opens you up to compete with both local and global more than ever. You don’t think Mxit feels the heat from Facebook? Or Facebook from Eskimi in Nigeria? Especially when it comes to competing for the [little online] advertising revenue and African’s time and attention. Many African Startups think they are immune to global forces- this is a mistake without proper messaging and positioning vs other players.
3. Focus on wrong metrics:We are seeing a growing amount of press on this. Some countries get overwhelming attention and startups chase grants and prizes and vanity metrics as a measure of success- e.g. DEMOAfrica in Nairobi (where not everyone actually Demo’d). Startups spend money generating hockeystick pageviews and Likes via Google Adwords/Facebook vs focusing on figuring out effective ways to generate organic growth or start to work out customer lifetime value of a particular strategy or customer segmentation. Sometimes it is better to pause and make sure the startup has developed a unique customer insight and solving the right problem. Give a techie $5,000 and they can set up a site to generate likes and pageviews- now empower 10 techies at the same time competing for the same audience and you can quickly see how this might be unsustainable…Cohort analysis anyone?
4. Lack of focus on hiring the best talent- wherever it may be: Startups rely heavily on talent, the best founders always try hire someone smarter than them in a unique way- this includes product managers, growth hackers/marketers, business developers to secure partnerships. The most important attribute being scrappy and persistent (what is needed in Africa), not fancy titles hence no generic MBAs, no fresh of the boat foreigners or far away advisors who don’t have time or grounded relevance. It also means many startups may have to search further a field to get the talent they want and be willing to share in both the risks AND rewards- its not easy, some of that foreign talent my expect a high salary (inc. Diaspora), others expect cash vs equity compensation. Providing a long term career growth, responsibility and having a strong mission can be a great way to motivate and retain early employees- might be better to hire someone scrappy willing to learn then someone experienced who rests on their laurels.
5. Premature scaling on the wrong model: This is actually one of the leading startup failures globally, but it would apply twice as much in Africa. Many startups will point to a lack of capital as to the cause of why they failed, more often than not it might mean money was spent scaling on the wrong model and they must re-position or pivot. Many startups set up a consultancy business to support themselves and hence lose original focus. Avoid expensive mistakes sooner, an easy one to throw out there is assuming you can grow across Africa’s middle class country by country vs “urban” city by city. The other is establishing the right partnerships for growth. Mara foundation puts it very well in a tweet earlier this year:
“Is lack of capital just an excuse for startup failure in Africa or truly a fatal factor?”
6. Trying to raise too much money that it takes too long or too little that you don’t move the needle: Following up on the last point, Africa is a harsh place to try raise risk/VC money, there are few local investors who get tech and many foreign who are risk averse investors and have high traction requirements. The name of the game is to make tangible progress. Take a milestone approach and target the right investors starting with angels/accelerators who can take a chance on you, show progress, work and learn your way up. The question on how much to raise is a function of what milestone you can achieve to derisk the venture, try raise too much and you risk taking so long you don’t get enough traction- too little may consequently not enable you to get a product built or show tangible proof of concept/customer validation- good news is that it should be getting easier with the falling costs of internet startups but this varies from market to market and industry to industry. Obsessing on valuation with little value created, helps no one in this goal.
7. Not addressing “African founder dilemma”: Social enterprise vs For Profit: The startup book of the year for me has to be Founder’s Dilemma This can be extended in not only thinking about angel vs VC but impact investors in Africa as well. I spent 2 days at a social enterprise workshop around boosting early stage social ventures, I am convinced that many investors in that world do not get early stage tech startups and they do not take that much early stage risk (its too insitutional), I have only really met one genuine angel investor in the social sector who could clearly articulate their investment thesis- but many startups still message themselves around a social enterprise theme without realizing what this might mean for future investors and partners- the social angle introduces many new variables on-top of traditional investor metrics. Read this post on Premature Incorporation from the Stanford Social Innovation Review and read the comments and understand why this decision can be crucial- go down that route at your own peril.
8. Not doing enough research on market size and total addressable markets: Africa is a tough place to get data on markets, yet alone reliable data- are you the one who Googles African countries and gets the CIA factbook results or actually goes into downtown Nairobi or Lagos and asks people real questions to get data that’s not recorded anywhere? Africa is changing fast I don’t even think the traditional media or research houses are covering it in depth enough. For many companies, Africa is still part of “EMEA”. Mobile Money in Kenya, Nigeria and Tanzania are completely different- everything from adoption rates to government regulations. Many startups are in danger of acting on the wrong or in-factual data (no. of smartphones, internet connections) and simply not doing verifiable on the ground research to guide them correctly. You need the right data to guide you in your startup even if you don’t care about investors (and if you do they definitely care about good market research). Oh, and there is a difference between market size and total addressable market (TAM).
9. Cloning western business models without understanding the cultural differences and Market Development Required in Africa: Read Rachel Hamada’s interview of the recently launched Fastjet in Africa, quote “[in the EURO] there was a lot of nervousness about commercial activity online. There were actually three companies who verified [that] commercial activity online [was doable], and that was Easyjet, Ryanair and Amazon.” Many of us are pondering whether e-commerce models are possible in Africa, the answer I believe is yes- its worked in India and China but they looked very different to the west. The Easyjet example above shows that Africa may need big giants to come in and validate the experience for consumers to pay online with mobile money or credit card. Maybe fastjet will help this in East Africa once they set up online payments, they are already the airline with the lowest fares so if you want to pay those fares then you might have no other choice but to book online or face the expensive alternatives. Or there is Rocket Internet who might do this across Africa in various retail markets from clothes to electronics.The point is startups should not underestimate the amount of market development required for what is asking consumers to do something radically different – it might be a bigger giant that enables the market. Watch for customer adoption and fundamental needs in the particular market first before cloning a western idea.
10. Focus on building a product vs running a business:“First you have a feature, then it might become a product, and if you’re lucky it becomes a business”. Its easy to slap a website together, print some business cards and call yourself a startup. I hear many VCs in Africa complain that many startups are not thinking big enough. How many markets are you serving? How big can this get? What does it mean to be in many markets? Are you are seller on margin vs a marketpace, game studio vs entertainment company, content production house vs content aggregator? Which segments of Africans are you focusing on, or are you exporting? Are you a social entreprise? These are hard questions and we are not even getting started- what culture are you trying to build? How do you retain employees, how do you work in infrastructure constrained Africa? How do you deal with online trust and fraud? These questions go beyond just building a product- its about running a business. But like I noticed in the first few months when I relocated to Kenya after years in Silicon Valley, the factors are interrelated and often cultural.