Startups as a Science
Building and growing a startup is a science. This is probably something you have heard before. Entities like Y-Combinator have proven this time and time again. However, this still leaves the question, is this true for African startups and better yet, what does this even mean?
So how did this come up now? I was seated in a consultation meeting with Mark Karake for this brilliant startup recently which he has been helping with their strategy. The team had an amazing product. Actually, they had built a problem-solving machine, they had ticked all the boxes when it came to their product. One glaring problem however remained. They couldn’t sell it as fast or effectively as they wanted. For two hours we sat listening and going through their pricing, their market, their business model and their go-to-market strategy.
Being on the outside looking in and being a trained engineer, I could see exactly what their thoughts were when talking about their client encounters.
“I have made a product that is needed and solves your problem. Guys, buy it!”
Building a startup tends to have a lot of fundamental differences as compared to building your normal brick and mortar business. This is not forgetting that technology adaptation in various industries Kenya and Africa in general still has a long way to go. Therefore, how can techies go about selling new technology to mainstream customers?
I’ve been deep inside startup school for a while now. Listening and understanding what it means to run a startup in Kenya today. One thing’s for sure, this is not for the faint-hearted.
In comes the startup as a science bit and specifically with a focus on Go-to-market strategies. I’ll highlight three things that come up the most in these consultative sessions:
Startup success is directly tied to really knowing who you’re selling to. This is ultimately quite hard in Kenya taking that data barely exists for most industries. This, therefore, means you have to do a lot of groundwork, talking to people, networking and attending meetings.
The key is to check for patterns and trends among your early adopters. This is the key to move from the few first clients and into the mainstream market. (Crossing the Chasm by Geoffrey Moore is a must-read! Super great reference I got from Mark.)
Market segmentation is not mentioned without covering the Beachhead market. This is simply the one market that you want to go after.
Example: When PayPal was established, despite having a massive TAM, they identified a niche, eBay, and that helped them capture the online payments market niche. At the time, eBay payments were only by money order or cheque. Within 3 months, they had around 30% market penetration, brand recognition and enough business to expand into other segments. As Peter Thiel says, start small and monopolize! This concept is the same employed in the growth strategies of Amazon, eBay, Facebook, and many others.
Young startups have limited cash flow and therefore a niche market that is easy to capture is an effective way to start.
- Financial Modelling for Pricing
Pricing can be a nightmare, especially when starting out. How do you set a price that’s low enough to attract many clients while still being high enough to make you any kind of revenue?
A financial model is very helpful to guide you in determining where you are going, how you will get there and how fast you can get there. Once you really understand what really drives financial growth for your company, it is easier to now determine how much you really need to charge to get there!
Truth be told, this involves plenty of trial and error and hypotheses. The SaaS Financial Model by Christoph Janz is a great start, another super great reference I got from Mark.
I will definitely do a more detailed article on this subject in the coming weeks.
I have come to understand that as an engineer, the best way to sell effectively is to treat your sales data like an engineer. Ideally, the same way you sat to design your product is the same way you ought to sit and design your sales process around your different market segments.
It is key that you start seeing your product as a business. That means learning a lot about who you are selling to directly, developing a sales process around it and keeping that communication going as your prospective clients go down the funnel.
This, however, raises a question around focused selling versus by-chance markets and growth. What I mean by by-chance markets is where you talk to everyone and interested parties purchase. This can be really limiting since it involves a lot of time and effort and it may all be for a very minimal return. All in all, your market is your teacher.
As we keep learning, it would be amazing to develop a proven science of building big profitable startups in Kenya and Africa, if it is at all different from the rest of the world. That is what we’re working towards through ImpactAfrica.Network. Defining the science of building amazing African tech companies through practical on-ground implementations.
Originally published at annstellamumbi.com on October 18, 2018.
