6 reasons why African Startups Fail
For the past decade, Africa has seen the birth of successful tech start-ups and businesses both old and new. These have provided Africans with jobs in a difficult macroeconomic environment, proving that Africans are capable of creating relevant, competitive businesses at home and internationally. However, some fail to succeed for many reasons, and a discussion about some reasons behind this is needed.
Lately in Ghana, tech start-ups have sprung up around the country. Most of them are housed in incubators, start-up hubs, and in individuals’ homes. One incubator called the Meltwater Entrepreneurial School of Technology (MEST) in Accra provides an incubator program with the goal of creating globally successful companies that create wealth and jobs in Africa.
The Entrepreneurs In Training receives comprehensive training, investment, and mentoring across the spectrum of technical and business skills required to build successful tech businesses. Many efforts are made to prepare them and their technological ideas to stand the test of time in the fast-paced and unforgiving atmosphere of the modern tech industry.
Some successful startups from across Africa are Dropfi, Jumia, Ushahidi, Encodev Labs, Adsbrook, Mpawa, Saya, among many others. It is a fact that there are numerous challenges when starting a business or a start-up in Africa, like seed funding, recruiting, growth funding, conceptualization, arrogance, naïveté, among other reasons.
For those that don’t make it, I ask myself: why then do some African start-ups and small businesses fail to succeed? According to a general survey by Statistic Brain, 25 percent of start-ups fail in the first year, 36 percent fail in the second, 44 percent in their third, and by the tenth year, 78 percent go out of business.
Why is this so? The reasons listed below may not apply to every start-up, but they may be relevant to some African experiences in building sustainable start-ups.
Every business or start-up needs money in order to operate. One of the biggest challenges for African start-ups is that they are hindered by lack of capital for their ideas. The truth of the matter is, there aren’t enough local investors willing and able to fund the dozens of start-ups pouring out. Cold calling is a hard business. Local investors may not trust the start-up or they demand unreasonably fast returns on investment. The system for matching investors to different start-ups is also not as well established as in e.g. the Silicon Valley environment. As a result, some start-ups search for funding in places like the US, UK, Germany, South Africa and at popular conferences like Demo Africa in an effort to find investors. Others might have to survive with less, if they survive at all. The lack of capital is a big problem for small businesses and start-ups across Africa.
Let’s face the fact that most people are scared to be successful with their start-ups because of the fear that their ideas might be stolen when they discuss their business ideas with others, especially when intellectual and creative property is very difficult to protect here. While this is sometimes true, it also slows down your progress, you end up only having an idea rather than a business. Hiding your ideas in the shell also averts you from potential investors.
Another reason why start-ups fail to bootstrap beyond a certain point is the habit of working in isolation. By this I do not mean there is too little collaboration of teams, but also start-ups led by solo entrepreneurs with little help from others are overburdened. From their idea stage to product launch, everything is sometimes done with a solitary effort. The process is lengthy: there is product design, research, developing the product, seeking funding to marketing. This whole process takes time, effort, energy and all sorts of resources that especially one person cannot do alone. By the time you are launched, you are frazzled and some people give up on their dream at that point.
Have you ever wondered what would have happened to Apple and Steve Jobs if Steve Wozniak and Ronald Wayne weren’t around? Well Mr. Jobs might have gone ahead with starting the company, but it would have been a formidable task for him. Take a look at some of the successful multi-billion dollar companies out there like Google, Apple, Microsoft, Yahoo, and Twitter: they were all established by co-founders.
4.Missing business management skills
Most people are adequate with the process of business, but fail in business management. You may be adept in designing that wonderful product and building the technology, but do you have the skill to manage a business? The management aspect is a different ball game altogether, especially in a cutthroat, constantly evolving industry like tech. Most investors are narcissistic and are busy with their daily rounds. Small businesses and start-ups must work within their strengths and delegate their weaknesses. If your strength lies in product research, it’s only wise to employ or partner with someone with management skills. Steve Jobs hired Pepsi CEO John Sculley to boost sales in 1983. Find the right person for the job; don’t try to do everything on your own, as many do.
5. Adopting a CEO or Co-Founder title Too Soon
Yes, it’s a wonderful feeling to run a multibillion-dollar company. The CEO title also has a nice ring to it. The problem here is that everyone is trying to discover and execute the next big thing, so is eagerly taking the title of CEO from the beginning an appropriate move? Notwithstanding, not everyone is capable of pioneering the next “Big Company” out there. Personally, I think it’s a problem of mindset. Lots of people think those in the limelight are the “idols” or the one doing all the work in his or her company. While that may be true, there is no fire without smoke as the African proverbs says. Every successful business has a crew that backs it. Don’t be fooled by motivational speeches that say “you can be anything you want to be”—not that you can’t. You just need to find your place, stay in your circle, and lay a foundation before getting to the top. Some of those speeches are misinterpreted.
You must have heard the adage “united we stand, divided we fall”. A lot of mushroom start-ups are established daily trying to break into an already saturated niche. Especially in the African market, many start-ups exist, providing services such as e-payment, bulk SMS delivery, and in e-commerce. Being redundant coupled with their stubbornness and pride, where people expect to pool their little drops of water in hopes of making an ocean, lead to the death of many start-ups.
What are some of the challenges you are facing or have encountered in your existing tech business or as a start-up? Let’s talk business tech.
NB: I originally shared this article on https://bitly.com/1l8SoX2
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