Reflecting on the Entrepreneurship for Emerging Markets short course
This was the first online course I did through GetSmarter. I found the online learning process well designed, convenient and efficient. Well done to GetSmarter for building a world-class platform. There is a wealth of information on the Internet, but curating is needed to learn the most important concepts and not waste time. Thank you to UCT GSB for doing a great job with curating this course.
I started this course knowing some things about entrepreneurship, such as experiencing a startup journey from the employee perspective, exposure to the Lean Startup principles and mentoring small business owners. I worked as a business analyst and solution architect, so I understood problem solving and how important knowing your customer is. However, I learnt a great deal during this course and below I want to reflect on the most important learnings for me.
It is important, especially in emerging markets, to understand the difference between entrepreneurs and small business owners. A startup is an entrepreneurial venture designed for high growth to reach a potentially huge market and therefore to have a significant impact. To grow fast (ideally 5–7% per week) you need to make something lots of people want and you must be able to reach them all. A startup will have more competitors than small businesses, so entrepreneurs need innovative ideas. Disruptive innovation simplifies products/services to reach a larger market. Peter Thiel said you need a good idea that seems like a bad idea. Look for problems few others realise are worth solving. Then build something few people want (or need) a lot and only grow the market afterwards. First go deep, then go wide. How do we find problems? Many problems are inefficient processes, even if people got used to them. Observe behaviour. Keep questioning. Think younger. Don’t ask people about the future. Figure out how people make gut-feel decisions.
Entrepreneurs have the same appetite for risk as typical managers. They need to work hard, persevere and take accountability, not worry about luck. They need to look forward to the future. They need to be open-minded, willing to adapt and experiment, like cooking without a recipe. They must thrive on the thrill of creating something new that is useful. They must learn from successes and failures. Fail often in order to succeed sooner. Entrepreneurs should actually love uncertainty and mistakes. We should all preach tolerance for this type of culture.
Working with a co-founder is recommended, but entrepreneurs must realise it is like a marriage! Pick a good friend if you can. Look at character and commitment. Build a culture in your startup that you want to be part of. Encourage critical thinking and transparency. Explain why and trust your team to execute. Remember that diversity improves innovation, productivity and decision making.
Startups should not worry about marketing before product-market fit has been achieved. At the start spend your time either building or selling. Selling is more targeted than marketing and provides necessary feedback. It is also very important to use your own product. Recruit the first 100 users manually. At least one co-founder must spend a lot of time on sales and for most this will be outside their comfort zone. The best salespeople listen and ask questions. Work with your most enthusiastic users and give excellent customer service. Then rely on word-of-mouth from there. Instead of a free trial rather give a 30 day cancellation period on an annual contract. When you get to advertising, remember to explain why users must buy, not just how and what.
In order to contribute to economic growth in emerging markets, should we focus on solving problems for the mass market or giving (new types of) jobs to the mass market? We have a youthful pool of job-seekers with varying levels of education and skills. We would have to do targeted on-the-job training to compensate for shortcomings in education. It is hard to find employees with good tech skills in emerging markets. In South Africa 65% of the population lives in urban areas, 62% of goods/services are consumed by households and 50% of the population has smartphones, so a fair target market is urban households with smartphones.
In Africa entrepreneurship is necessity-driven and the majority of businesses only create employment for the owner. A lot of entrepreneurs and small business owners would rather have a job. These businesses make use of older technology, has a low rate of innovation and low growth. This seems very inefficient. Maybe we should facilitate communities of small businesses with loose links between them, being suppliers to each other and supporting each other. Can we afford the high failure rate typical of startups all over the world in emerging markets?
The Silicon Valley model of entrepreneurship is built around technology, which works for high growth opportunities because it changes so rapidly. Can we have a low-tech version in emerging markets? Or perhaps we should focus on making high-tech more affordable? After all, it is about effectiveness. Frugal innovation means doing more with less, which is the very definition of technology. I think we can also apply the concept of reduce, reuse, recycle to startups in emerging markets. Starting out poor helps with this mindset, because you are used to making do without resources.
Funding for startups and small businesses is less important than most people think. In South Africa 72% of profitable startups are self-funded. High-potential and high-growth startups often need outside resources, but consider staged investing (also on a small scale) and renting resources. Airbnb sold themed cereal boxes to raise $30K! If you have traction, funding generally takes care of itself. Crowdfunding is worth exploring, because you don’t have to give away an equity stake. Customers are always your best investors. Access to market is a bigger barrier than funding.
The time to raise money is not when you need it, but when you have determined the path to your next growth milestone. You might want not to raise money at a certain point in time so that you can choose a more controlled growth path. Do you want to become a big company? Raising too much money can force entrepreneurs to make decisions they are not ready to make and make it harder to change direction. It is better to do one thing well than many things poorly. Prioritisation is critical and hard. Don’t be distracted by fundraising. Distraction is fatal to startups.
Before this course, my only exposure to investing in startups was watching Dragon’s Den on TV. I now understand the roles of angel investors and venture capital funds, the different rounds of raising funding and how the equity pie is split. With each dilution an investor loses more control, but the pie should get bigger. We should warn entrepreneurs to not bow to unreasonable investors who will want too much influence, too big an equity stake, unfavourable terms or an exit vision not aligned with that of the founders. Investors must provide introductions and act as a sounding board. When investors tell you No, believe the No, but not the reason. Investors are mostly clueless about your business.
Lastly, I came to realise that entrepreneurship is really hard. Entrepreneurs need advice, introductions, accountability and encouragement. The development of the ecosystem should be driven by entrepreneurs. In emerging markets, even more than in developed markets, we need to support entrepreneurs through: Community building, brainstorming with them, promoting innovation and a focus on users, mentoring, coaching, advising, encouraging, sharing the load, cheering them up. Entrepreneurs must be optimistic about things they can control and not worry about things they cannot control like competitors or government. Rather just make sure the idea and execution are excellent.
