There are many issues that African tech startup entrepreneurs have to deal with in building successful global businesses, but I’d like to highlight these four points because I believe they are particularly important for the ever-growing African tech scene.
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1. Be open to partnerships
I have identified two main kinds of partnerships: the first kind is based more on the core team itself. Your early employees or co-founders will bring complementary skill sets to make your team a stronger one. These co-founders also create/become a social, supportive work environment for your business.
A classic example is how Pierre Omidyar, who had already built his code for eBay, brought on Jeffrey Skoll to write Omidyar’s business plan. The relationship and support network was entrenched and three years later, this led to an IPO. Companies such as Twitter, HP, Microsoft and Apple are all examples of founders forming partnerships with colleagues based on complementary competencies.
The second kind of partnership is based more on business entities themselves. For example, Safaricom’s partnership with Vodafone in Kenya gave birth to M-Pesa. When your startup is at a stage where you need investment, exposure, leverage and also credibility, you need to research and find the right companies to partner with to bring these values to your customer.
As an entrepreneur you must be open to collaboration and only through partnerships are you able to build a globally successful businesses. As Curtis E. Sahakian puts it, “Partnering is (also) the quickest, most effective way to re-engineer a business.”
2. Understand your ecosystem
I have seen many entrepreneurs pitch ideas without thorough research on customer discovery or idea validation with the customer. The fact that you perceive a problem and are working on a solution for that problem does not directly translate into customers’ willingness to pay for the solution.
Factors you need to consider include:
- The geography and lifestyle of the customer
- The needs of the customer
- Barrier to market entry for your product
Taking time to understand the ecosystem gives you a competitive edge over other businesses. It also helps you to focus on providing more value since you understand the needs of the customer. These benefits will help you when seeking out partners because you will pick the right partnerships that will translate into value for your customers.
3. Target the large ‘unappealing’ market
According to Clayton Christensen’s Innovators’ Dilemma, the successful companies do not lose market dominance because of lack of innovation or execution, but rather because the ‘disruptive technologies’ introduced by the smaller businesses that focus on:
- The ‘unappealing’ market that has low margins
- Pursuing small markets at the expense of seemingly larger and more lucrative
It makes sense that when building software in Africa, you will target the markets which have been neglected by the large successful businesses. You should also understand the source of your disruption. It could be a totally new product or a new way of distributing an existing product. The difference between a new product or an incremental product lies in this space. You have easier entry and you serve an un-served mass.
The benefits of this model include:
- With time, because the capacity/performance of the innovation exceeds the market’s needs, your innovation comes to displace the market incumbents. A case in point is 2go. Since their introduction in Nigeria, there are estimates that they have about 10-million active monthly users. This is bigger than Facebook in Nigeria, and they are already giving BBM a run for its money in that market.
How did they do it? They provided cheap chat services to feature phones. The major chat applications are focusing on smartphones but 2go focused on feature phones and they are now getting ready to displace the market incumbents such as BBM and Whatsapp in that market
- By the time the established companies introduce their own service to that segment of the market, they may be late entrants and may need to acquire you to get into that market – a prospect that delights most investors.
4. Be directional with your financials
You need to figure out your financials as a startup because this gives you credibility when you pitch to any VCs or investors. However, your focus should not be on the numbers themselves since they are just forecasts and there is a high likelihood you are about 90% wrong. As Arjuna Costa, a director at the Omidyar Network, said on one visit to MEST, “If you are even 50% right with your forecast, we would make you a professor at Harvard.”
The focus should be on the assumptions in your projections. The investor will go into your numbers to figure out only one thing – how are you thinking about your business? Do the financials make reasonable and intelligent assumptions? Is there a big and interesting business to be built? Have you considered different scenarios? Have you considered sensitivity analysis to figure out the key variables?
Your financials are more a way for the investor to find out about your perspectives and your thoroughness. Your investors are interested in the direction you are planning to pursue more than the numbers you are showing. Show them a vision of the business you are building for the future. If you can’t do it all, you can partner with someone who can.
Building a software startup takes tremendous effort. You need to be totally committed, remain motivated and focused, and be open to collaborations which can help you develop the business.
This article by Charles Ansah Mensah originally appeared on VC4Africa and is published with permission. Image: Bigstock Photo
