Inside Founders Factory Africa with Sam Sturm, Part Two

In the first part of my chat with Sam, we talked a lot about the many and varied experienced which led him to work with early stage start-ups and how that has shaped his work as the Chief Venture Architect for Founders Factory Africa.

In the second part, we talk more about the challenges entrepreneurs face in seeking investment and what it takes for an innovation team to be successful.

What do you see as the major differences in terms of the support that startups need between ‘developed’ and ‘developing’ markets?

The biggest myth is that there is a talent gap; there is not a talent gap.

There is often an experience gap. That experience gap is that in the US, for example, you have both early stage startup founders and early stage investors who have done it before at scale. The people who built PayPal, they launched many different venture funds and if you look at the family tree, it is incredible. And a lot of that ecosystem that exists comes from early successes.

The gap exists because it is more nascent. Not that it is less vibrant, but it is more nascent. You have fewer people who have been at startups that have scaled and exited, so you have many more founders who are doing it for the first time. We love that but part of what you need then is the support to get through those gaps.

In the US and the UK and other more mature startup ecosystems, you have vibrant angel networks that are designed to get you from an idea through this early problem-solution fit conundrum. Broadly speaking, what I’ve seen from over 100 startups across Africa and South Asia, is that a lot of what’s missing is the support to get through that product-solution fit piece. Everyone wants product-market fit. That is the goal, but that takes a while and the number of questions and hypotheses that need to be tested and validated before you can even think about that is huge.

There is a gap in the market in providing the support necessary to do the validation before you can go into that implementation.

So a lot of our approach, particularly in our build programme, is on that validation and providing the support through testing, through the way we build to do that validation because we know that investors are going to want to see metrics or an implementation of growth, even earlier than they might otherwise.

From things I’ve seen — I won’t speak for others — in the US there are investors who are who are willing to take greater risks because they think the market is less risky. Now is that true? I don’t know.

But perception-wise, I think people see Nigeria and South Africa as risky markets, and therefore the level of validation they are looking for and the fidelity of execution that they’re looking for might be higher than you would expect for a business that is at the stage that we’re talking about.

So you might have a business that is, I don’t know, six months old, and investors might be looking for the type of metrics and validation that you would expect for business at 12 months old and so there’s this mismatch. A big part of our responsibility is to fill that gap and make sure that we’re providing that right-sized support that looks for the right size metrics and the right size activities, so that you’re not trying to implement before you validate.

I think the problem with that mismatch of expectations is you get businesses trying to implement, because that’s what investors want to see. They want to see growth metrics, they want to see recurring revenue, when a business may not be ready for that yet. And because oftentimes you don’t have the capital or the support to do that early stage work, you get businesses rushing ahead of where they ought to be. As a business, you’re going to do to do what the customer wants, and in this case, the customer is the investor.

Can you share a little bit about the Build Team and how you create the right culture for innovating and supporting teams?

Creating a creative culture is hard. There’s a couple pieces: creativity, accountability, and momentum. If I thought about the principles behind what we do, the first is how you create a place where people are encouraged to share ideas, and part of that is just doing it constantly.

Doing lots of small things is better than trying to do one big thing. We had a session today where we kicked off a concepting sprint cycle for our next healthcare concept and we asked people to bring in examples of the most interesting healthcare startups they’ve seen around the globe.

Too often, people say ‘I’m not creative’, or ‘it is not the way my brain works’. In terms of creating a culture of creativity, you have to make creativity accessible. Ask people small questions they can answer. I think breaking down those barriers is really important for creating a culture that recognises that good ideas come from anywhere. Our job is not to come up with the good ideas, but it is to find them and foster them and develop them. Most ideas are bad ideas but good ideas and bad ideas come from the same place.

The first thing we want to do — no matter what stage we’re in — is learn. We want to learn as much as possible as quickly as possible.

We want to make sure that in doing that, we are matching the complexity of our solution with the level of the question that we’re trying to answer: for example, you can run a pretty complex business off of Google Sheets.

I think part of the culture is about the principle of going further faster. We talk frequently about momentum over perfection, which can sound trite, but if you remind everybody that our goal is to learn as much as possible as quickly as possible, I think that really does help in creating a culture of learning and capturing insights. The other problem is that if you go and do stuff, and then you wait six months and say, “Okay, great, what did we learn?”, at that point, it’s too late, you’ve lost a lot of value.

So instead you start by saying, “What do we want to learn? Let’s spend the time now figuring out what we want to learn and let’s go do that.” At the end of six months, you have this list of 20 things we wanted to learn and these 15 turned out to be true, these five are wrong. It’s a very different process. Starting with the view of learning is important. Empowering everybody to rigorously track that is again, trite, but what you measure matters, so measure what matters. You can’t change it if you don’t measure it.

The biggest mistake we see early stage entrepreneurs make that they’re not measuring anything, so they don’t know what’s going well.

They just know, yeah, people are using our stuff. It’s hard to decide what to do next with ‘people are using our stuff’, and the worst thing you can do as an early stage entrepreneur is hit a dead end.

Challenges don’t go away and the need to evolve doesn’t go away. The problem with not being in this constant learning mode is you hit a dead end, both in terms of good dead ends and bad dead ends. You hit a dead end where you know this isn’t working, but you don’t know why. And other ones where you’re like, oh this works. But similarly you may not know why. If you don’t have the answer to why, you as an entrepreneur and as a business can’t pivot, can’t optimise the next step is for where you are.

What would you say to someone who wants to start a company with Founders Factory Africa?

I think there’s two things I ask myself. What do I want in a founder? What do I want in an opportunity?

I look for opportunities that have two things. Real scale potential in terms of what is the market we’re addressing. You can make TAM big for the purposes of a presentation, but I’m more interested in knowing what the market forces are at play? For example, right now we’re looking at an opportunity in the pharmacy space. I know that the pharmacies are the first point of contact for health care contact for a huge percentage of people in Africa. I don’t need a TAM to know that is a huge market opportunity. But what really interests me is not just that it’s a big market, but that it’s a fragmented one. There are dynamics there that create opportunity, that create challenges worth solving.

The second thing that I want in an opportunity is a real user need. Take the pharmacy example. I want to know how this addresses what pharmacists need, what pharmaceutical companies need, what patients need. I think often people focus on the size of the market opportunity. But if that isn’t married to an actual human need, you’re building for the sake of building.

When it comes to founders themselves, the biggest thing I look for is a real point of view on how to solve that problem. It doesn’t need to be the most innovative idea. You don’t need to always reinvent the wheel.

But I want an entrepreneur to have a real strong point of view on how to solve that problem, and why that hasn’t already been done.

It’s important for founders to realise this. I will never believe that no one else has had an idea. You will never see me come to a meeting where we’re brainstorming and say “I’ve got an idea no one else has had”. I promise you, there are many people out there who are smarter than I am, who have had an idea before. And I think founders need to realise that too.

So the question is, why does this problem still persist? It’s not because nobody has tried to address it, because somebody undoubtedly has. So having a point of view on why this problem persists and how you are going to solve it is really important.

I also look for a founder who is additive for us, and ask what they bring that we as FFA don’t already have? There are lots of potential answers to that question. There’s experience, there’s knowledge of a market, there’s specific expertise. We view our entrepreneurs as co-founders, and the work we do is co-building, so when we bring on the entrepreneur or the team that we ask, what are they and what do we bring to this?

There are plenty of wonderful opportunities that we won’t engage in, because we don’t actually think that we can be additive given our expertise, our resources or our process. And similarly, I look at the same thing to find an entrepreneur who’s right for us. They bring something added, something extraordinary, that we don’t have internally, to the table.

I hope you found this chat as informative as I did — for more like this, don’t forget to follow Venture Studio Insider on Medium.