Decoding #hubsustainability: Confronting the Critically Important yet Painfully Obvious
Note to Readers: This is a #longread. Apologies in advance, but it’s not easy summarizing 4.5 hours of hangout content. For those of you who read my first piece “All Hands on Deck” the organization of this article may be familiar to you. It’s intentional; structure makes #longreads a bit more manageable.
No one really cares about hubs per say. What most “hub investors” care about are the outcomes that hubs produce or the people and things (startups and developers mostly) that hubs engage. Hub members care about what they get or experience in hubs — community, internet, space, training, ideas, and coffee. This simple reality may be a key to hub sustainability.
During a fascinating conversation with a hub manager in Zimbabwe, I was advised to identify AfriLabs’ substitutes — who or what key stakeholders would engage in AfriLabs’ absence. What’s interesting about the typical hub is that in most cases, there is no single substitute. A hub is a workspace, internet café, coffee shop, training center, incubator, accelerator, event venue, and maker space; it’s usually many of these at the same time. Perhaps obviously, this creates both an opportunity and a challenge.
The opportunity is that hubs serve as infrastructure to support tech, entrepreneurship and innovation. This is because there are so many gaps in the enabling environment to be filled, or to be filled better, cheaper, or more easily. The challenge is that too many hubs try to do too many things to serve their communities, while few of these activities generate revenue. Why? Many hubs provide public good services (free training, access to internet. etc.) that aren’t provided elsewhere, and aren’t monetizable because community members can’t afford to pay market value for them. Their users are not their customers because they cannot afford to be. Also, it’s difficult to focus on what is useful and profitable while juggling many things. As such, many hubs develop value-added services to another set of stakeholders such as corporates and development agencies who become customers that subsidize the costs of the services provided to communities. Over time, hubs also tend to specialize and differentiate out of necessity. If all of this sounds relatively straightforward, don’t be fooled. The exact formula for a truly sustainable business model remains to be seen.
However, if there is one thing about which I am fairly confident, it is that the solution to the #hubsustainability problem lies within the hub community. It’s being solved actively and creatively in silicon savannahs, islands, lagoons, and capes across the continent. What we need is a mechanism to share learnings in a way that is aggregated, transparent, and easy to understand as well as replicate. This blog post, which will outline key learnings from the AfriHive-AfriLabs #hubsustainability hangout series, is one small step in that direction. We need to do more, but this is a start.
So what did we learn during our three, 90-minute hangouts last winter? (You can watch two of them here and here.) There were many fascinating insights, but I will distill them into 11 lessons in 4 categories: 1) know thyself; 2) define your target; 3) act like a start-up; and 4) communicate your impact. Although three hangouts do not “the definitive guide to #hubsustainability make”, the journey of 1,000 steps begins with… Well, you get the picture. Let’s dive in.
Lesson #1: Know your unique value proposition as a hub. At the risk of sounding remedial, it’s important to understand who you are, what you do, and what value you provide to key stakeholders. You must have a clear idea of your reason for existing (beyond running a cool space where people do cool stuff), and what your value is alongside substitutes for your space, which include other hubs, or non-usage of your hub, for example. Whether it’s creating jobs, developing digital skills, facilitating foreign direct investment, or a combination of these, you need to clearly state through a mission statement, strategy, and/or business model what value you’re adding, and how you intend to be compensated for providing that value.
Lesson #2: One size doesn’t fit all. Lesson 1 begets Lesson 2. Ultimately, what sustainability means and how a hub will get there will differ by hub. For an accelerator such as CTIC Dakar that supports start-ups as its core business, revenue and gross margin sharing makes sense. For a green tech focused pre-incubation space such as icecairo, which focuses on supporting social innovators with limited disposable income, a cross-subsidy model such as generating revenue from products developed in-house is a better fit. You should also keep in mind that your path to sustainability will probably change while you’re on it. What works in your plan may not work in reality, and what works in year 2 may not work in year 5. As such, it will be necessary to experiment with lots of different revenue streams and adjust as necessary. In the case of CTIC Dakar, it has reached nearly 75% sustainability (excluding space rental and electricity) with a combination of royalties, events, and other value added services. However, to reach full sustainability, it will need to double its number of incubatees and increase the number of start-ups it rents space to, without necessarily providing incubation or acceleration to them.
Define Your Target
Lesson #3: Articulate your own sustainability goals. What is financial sustainability? Believe it or not, it’s up to you to determine that, as there is no consensus. But there are at least two basic models: 1) a “corporate” model, in which a hub develops products and services that primary customers buy; 2) a cross-subsidy model in which hubs generate revenue by selling non-core products and services to secondary customers, while community services are offered to users for free. An example of this could be offering innovation advisory to corporates, the proceeds of which support training for local start-ups. There are probably many other models, and other key distinctions (such as whether or not to include fixed costs such as internet and space rental), but this is a basic framework.
Of course, it’s difficult to develop a model that works without understanding your ecosystem. You have to know who the key players are, what jobs they want done, and which ones they’re willing to pay for. If ecosystem mapping (and defining the ecosystem to begin with), isn’t your thing, get help. BongoHive has worked with a researcher to produce a map that will help it articulate the hub’s role in the ecosystem, and have meaningful policy discussions with government. We all know there is no shortage of hub/tech/innovation/entrepreneurship researchers roaming the continent. Make them work to your advantage; you provide data and guidance for their work; they create the best ecosystem maps EVER.
Lesson #4: Sustainability isn’t necessarily about being profitable. It’s about having a plan to stay open while building your community and business model over the long term. This usually means working with partners. Again, lessons #3 and #4 are related. If you have a solid ecosystem map and a clear idea of who the core stakeholders are, you’ll see that different organizations have different objectives that you can help them achieve. Ideally, you’d be compensated for partnering to achieve those goals, and some of this compensation could be channeled through grants. This may not be a bad thing if you plan for sustainability from the beginning (more on that shortly), and focus on how to work with key players to provide different benefits to the community, instead of assuming the full burden of funding and delivering everything yourself.
[Tired of reading? Take heart. It’s the halfway point and you’ve earned a dance break. Don’t like my song choice? Feel free to make your own. Enjoy, but come back and read on.]
Act Like a Start-up
Lesson #5: Plan for sustainability from the beginning, even if you’re donor funded. Most hubs are donor funded, especially when they’re getting started. However, you should assume that you’ll need at least three years, probably more, to experiment with revenue streams, figure out what works and what doesn’t, and cobble together a business model. Of course, the transition from donor-funded to self-funded is a difficult one because donor funding can come with a “development” mentality. This is changing as the sector becomes more outcomes and market-driven. Nevertheless, despite serving users that have little to no disposable income, it’s important to set early expectations about paying for services, even if the initial costs are heavily subsidized, and/or you use nonmonetary currency that enables members to exchange community contributions for services. For example, RLabs uses digital currency for its Youth Cafes and icecairo distributes icebites, or credits earned by making contributions to the hub that can then be used to “purchase” hub services.
Lesson #6: Donors should provide sufficient seed funding and room to pivot, or even fail. Although 2–3 years (at minimum) of “figure it out” funding is a luxury for many hubs, it’s necessary given the complexity of the hub model. Not only are hubs focused on building and serving communities to the best of their ability, they’re trying to test assumptions, experiment with and diversify revenue streams, and find their place amongst other hubs. We don’t talk a lot about failure in the hub universe, even though examining how and why hubs have struggled would be just as instructive as discussing success strategies. However, to do that, we need a safe space to discuss failure, not just amongst hubs, but with funders as well. In a way, donors need to be willing to fund hubs as learning experiments. No hub founder will have all of the answers at the outset, but she should have a set of working hypotheses and a strong sense of accountability so that if the project fails, there are critical learnings that leave others better equipped to succeed. Unfortunately, grant funding schemes generally aren’t set up for that. If you fail, or even deviate from the original project scope, your future funding prospects could be damaged or disappear entirely.
Lesson #7: Diversify your funding resources to de-risk your business model. Having a sole source of income is inherently risky, while having many, even if they don’t generate profit, makes you more resilient. Case in point — BongoHive struggled initially to define which stakeholders wanted what type of value. But if you’ve followed BH over the last year or so, you’ve seen how they’ve brokered major partnerships with Protea Hotels Zambia to access its conference facilities and UNICEF Innovation to create innovative programming for women and children. This demonstrates how important it is to clearly define the value for each stakeholder and know exactly what each is getting (as well as how the hub and its community benefits) as a foundation for developing multiple avenues for value creation.
Lesson #8: The cost and ease of doing business matters. Doing business with donors comes at a certain cost, the name of which is bureaucracy. As critical as this “free” money is, it can be disproportionately time consuming and labor intensive for under-resourced hub teams to source it. On one level, the burden is justified given that the expenditure of public funds must be made transparent to taxpayers. Additionally, there can be non-monetary capacity-building benefits associated with these funds such as training and other forms of knowledge transfer. However one frames the costs and benefits, hubs should budget for bureaucracy. Carve out 10–20% of the program budget for reporting, auditing, and administration, and/or to hire someone to complete those tasks.
Lesson #9: It may not be easy, but find a way to work with government. Although government funding shouldn’t be considered a primary lifeline if you want to maintain your independence (and you should), aligning your priorities with theirs could lead to a mutually beneficial and productive partnership. For example, many African governments have certain themes, such as economic competitiveness, youth employment, and open data, which hubs can develop services and programming around. For example, mLab Southern Africa has run innovation challenges for local entrepreneurs as part of a government partnership while Nailab has received $1.6M from the Kenya Transparency and Infrastructure Project (a project of the Kenyan ICT board) to launch an incubation program designed to support Kenya’s tech communities.
Communicate Your Impact
Lesson #10: Communicating impact effectively, but authentically, can attract great partners, which is the gateway to financial support. One of the biggest challenges that hubs face is communicating their impact in way that makes it easy for key stakeholders to believe and understand. Although hub work is full of fuzziness, e.g. building community, sharing ideas, exchanging knowledge and the like, we gravitate toward measuring the “widgets” that hubs churn out, such as apps and startups, because those are the outcomes that donors pay for and other stakeholders prioritize. But if we’re honest, we have to acknowledge that it’s difficult to find metrics that capture what’s actually happening at hubs, not just what’s clearly visible or easy to measure. However, in focusing solely on widgets we lose sight of the equally valuable but difficult to measure outcomes previously mentioned.
However, this doesn’t change the fact that good impact measurement can be a catalyst for partnerships and funding. icecairo experienced this first hand when it launched its first impact report in 2013. After trying for a full year to explain what it did, icecairo released the report outlining key achievements such as businesses launched, social media traction achieved, and partnerships secured. The result? All of a sudden people “got it” and wanted to collaborate. Although this may sound contrary to the point I just made, one size doesn’t fit all with hub metrics, any more than it does with hub sustainability. But a little can go a long way.
Lesson #11: Don’t lose sight of whom you’re communicating for, or you risk losing your community’s trust. As obvious as it sounds, never forget that your hub is for your community. So, leave plenty of room for your users to go about their business, i.e. coding, building businesses, learning, etc. If you don’t, you run the risk of creating a “technology zoo” where developers and entrepreneurs serve as the main attractions, and feel as if they’re being used to tell stories that aren’t relevant to them. As such, it’s important to strike a balance between engaging external stakeholders and allowing the space to be fully owned and experienced by the community.
So, that’s all, folks. This is most of what AfriLabs has learned so far about #hubsustainability; there’s more to come. We plan to host more hangouts on the subject, as well as engage on other topics such as impact measurement, disincentives to collaboration, the future of African tech hubs, and the influence of hub/hype proliferation. Please stay tuned!
I would like to thank the hangout participants whose insights informed this blog. They are Akira Morita, Bahiyah Robinson, Dan Evans, Jon Gosier, Josiah Kwesi Eyison, Loren Treisman, Lukonga Lindunda, Marlen de la Chaux, Michael Kimathi, Mugethi Gitau, Muhammad Radwan, Toni Eliasz, and Yann Le Beux.
Photo credit: Eric-Emmanuel Galland