Innovationville: where good money-making African startups go to die

You will be hard pressed to find anyone in Africa who doesn’t agree that a wave of something big and game-changing is coming. In fact, the way the world is turning, it’s a school of thought that seems to be a soaring fire bird — it is starting to feel like everyone is thinking it.

Innovation is the key energiser. Having leapfrogged with wicked-smart and insanely useful mobile solutions, it seems the continent has no choice but to build the next big thing. So I keep hearing. So much so that innovation has become quite formulaic with rules as strict as a limerick or sonnet: find a problem, build an app to solve it, develop for smartphone and add social integration.

The tech ecosystem is slowly setting itself up as a playground for mavericks, dropouts and quick-talking 20-somethings just itching to change the world. The current atmosphere suggests fresh possibilities for a continent desperate to prove itself as an innovation and entrepreneurial destination. But is innovating more important than a real, solid business model?

All of the bright-eyed tech savvy, buzzword-dropping and skill-infused entrepreneurs want investors to take notice. They’re pissed off because foreign investors don’t seem to get it and governments make it doubly hard. Perhaps they have a right to be. Perhaps investors should be pouring their hard-earned cash into the industry — maybe they need to bring their Midas touch and change things.

It’s a growing space. Just ask The Economist:

A booming economy has made a big difference. Over the past ten years real income per person has increased by more than 30%, whereas in the previous 20 years it shrank by nearly 10%. Africa is the world’s fastest-growing continent just now. Over the next decade its GDP is expected to rise by an average of 6% a year, not least thanks to foreign direct investment. FDI has gone from $15-billion in 2002 to $37-billion in 2006 and $46-billion in 2012.

And the good folks at McKinsey & Company have stats for days on why “the continent’s consumer-facing industries are expected to grow by US$400-billion, representing its single-largest business opportunity, by 2020.”

It’s easy to get caught up in Africa’s sexy, trendy and attention-grabbing tech scene. It has the trappings of an intriguing love story, trying to make it in world that refuses to give it a break. It’s easy to want to join in and crusade for it.

Or maybe they shouldn’t…

My first startup pitch event was quite the experience. Eleven startups pitched that day and I couldn’t believe the sheer brilliance that Africa had to offer. The room was filled with anticipation: everyone waiting, nervous entrepreneurs peeked from their corners, masking their nerves with obsessive foot-tapping, nail-biting and deep sighs. Investors watched on like sharks ready to devour the fledgling startups. It was a whole new world. Every company that pitched that day could have robbed me of all my money and it would have been okay with me. Today, I wouldn’t even be bothered to write about one of them let alone advise anyone to invest.

Why? Because I have seen 20 of them pitch, with different PowerPoints, fonts and names, but essentially the same companies, ideas and value proposition. This is not to say Africa has nothing to offer — some great companies have been founded here. As an investment destination, Africa is a good choice. It just gets tiresome to only see the same people over and over: the dark jeans, faded T-shirt, hyped-up-on-caffeine entrepreneurs building the next Google or Facebook in a coffee shop is becoming the staple.

In essence, Africa is turning into one of those places where you’re screwed if you do and screwed if you don’t. The really loud and most talked about startups aren’t actually any good and aren’t doing anything interesting, or actually making money. Invest in those companies and you back mediocrity. Walk away completely and the good companies doing interesting things lose out as do you.

The people doing interesting things don’t talk about it — they play the undercover startup card. Quietly working away not caring for the media circus. They want investment but aren’t visible enough to be noticed on the surface. It’s the perfect catch-22. You have to invest, but finding what to invest in is a challenge. There is a likelihood that this is actually a reasonable approximation of the investment dichotomy in every continent for all I know — though somehow I doubt it.

Some startups on the continent are ruled by a fear of sharing their ideas because they are convinced someone might steal them. Venture capitalists are asked to sign non-disclosure agreements before an idea is pitched to them. Is a continent still guided by such fears ready to play in the world stage? Perhaps most countries have these problems (the Facebook legal dramas are a pertinent US example) but so what? If an entrepreneur is not willing to risk his or her idea for the possibility of success then perhaps an investor shouldn’t risk anything on that entrepreneur or their idea.

Innovation may be the death of us

In Africa there is a lot of pressure to innovate. Many wheeler-dealers, bored of the corporate humdrum, ready to turn an industry on its head, with a basilisk gaze are primed with the perfect quality for entrepreneurship. Good solid businesses become boring, making money is an afterthought and innovation is the watchword. The pressure to innovate is as overwhelming as the burning sun on delicate skin. Investors want you to innovate, mentors advise it and journalists flock to it like moths to a flame. Its appetite is insatiable and most startups are victims of it. Truly, we ought to rename Africa “the place where good companies die of too much innovation”.

A real African game-changer demands passion and some crazy inventiveness. That’s real innovation. That’s not what most African entrepreneurs are doing though. Even when you do encounter that kind of cavalier, risk-taking attitude, investors shy away. A large part of that is because investors on the continent just don’t have the money to take massive gambles.

There is nothing wrong with innovation, but not all business are primed for it. Some of the most successful business are based on old-fashioned business models that offer a unique angle. A simple ecommerce platform will always be successful if you offer people a simple way to shop coupled with decent customer service — just ask kitchen appliance retailer Yuppie Chef. You don’t need bells and whistles or fancy technology, just a good, sensible way of doing business.

The problem of focus comes from the fact that most of these companies are attempting to innovate at the same level as businesses in the mature markets. Entrepreneurs are building their businesses with the wrong audience in mind. It’s a bit of a stretch to pitch a business to an American investor aimed at an American audience that is something of a clone of an existing American company. Why would the investor choose you? The quest for the next big thing is stunting growth on the continent. We can start looking at building the big thing once we’ve figured out how to solve all the small problems around us.

Indulging in crazy what-ifs

Everyone walks around like mavericks but no one really is. Passion is lacking in startups I have seen pitch recently. It’s all about joining the sexy cool kids in the ongoing exclusive party where tech entrepreneurship is glamorised, workaholism is something to boast about and arrogance slowly becomes a familiar coat. There are many Groupon clones out there, but of all the entrepreneurs that started a group-buying business, only one person was actually passionate about it. The rest simply hoped that guy would buy them.

So for one unthinkable moment let’s forget building the next Facebook, Google or Apple. Think about using your vast technical knowledge to for example, solve the simplest problem Africa faces — service delivery. Think of the innovation that would come with that.

What if more entrepreneurs considered bootstrapping their companies, using a host of the many free services out there until they were profitable enough to invest in more infrastructure. Wouldn’t that crazy idea work and wouldn’t that profitability attract foreign investment?

Before the angry mob asks me for my passport back and ousts me out of the continent with nothing but the clothes on my back and my trusty MacBook, think about it for a second. Wouldn’t it be better to build boring companies that simply make money and provide useful services, employ people and watch them grow into juggernauts (think about how well Kalahari.com has served Naspers over the years). We can build companies that will eventually invest in other companies, companies that don’t need foreign investment. Now wouldn’t that be something?