This past weekend’s rainfall has brought a huge relief to residents and reservoirs in what has been another dry start to Cape Town’s winter….
We are at a very exciting stage in the African Startup space. The attention we are getting internationally is great and we are seeing competitions, incubation spaces and accelerators popping up seemingly weekly. It is great to get the international support and attention, but beware the hype. The international ‘plug and play’ formulas offer limited value and struggle to create any kind of consistent momentum and value in the local markets.
Setting Africa apart
We need to look at the market to see where we are and what is unique to Africa, and make sure we are addressing the problem. When launching any new venture, even if you are a fast follower, it is essential you go through the three core steps — Vision, Customer and Market validation.
The Vision should be in line with the value you wish to impart and be aligned to your personal Value System. The Customer needs to have a problem solved and be given value, and the solution needs to be Market Appropriate.
The first thing we need to look at is Silicon Valley, where they have come from, and the value they offer. Silicon Valley was 75 years in the making, there is no doubt they are the centre of the universe for the sectors they address. Their strong sectors are Social, B2C and Mobile. These are the three weakest, and most complex, sectors in Africa.
Silicon Valley looks to take the top one percent of the market and make its products fly. The founders there are looking for the billion dollar exits. In Africa, we need to build depth and breadth in the startup community first.
We would love to have billion dollar exits, but the reality is that if we can consistently produce five and ten man businesses that are making good money, building a community, extending our skills base and innovating, then the rest will come. The last, and perhaps most important point, is to try and understand the value proposition of the acceleration programme.
Most global programmes are Venture Capital, Angel or Founder funded and are there to make money. They are ruthless in who they select and are not concerned about ‘the rest’. The top one percent were probably going to make it anyway, and the acceleration programmes are called just that for a reason. They don’t help to create the opportunity, mould the personality or the team, or try to build twenty ten man businesses, they accelerate a few business and make them grow bigger and faster than they could have done on their own.
More people apply to Techstars in the USA now than Harvard. If you are taking that kind of quality into your programme, you have fantastic material to work with in a massive addressable market. They are an important part of the ecosystem, but you need a functioning and vibrant ecosystem for them to flourish.
Over 80% of US startups bootstrap. The number is probably above 90% in Africa, so also keep perspective, these programmes are addressing between five to 15% of the market. There are 750 Angel Investors per million people in the USA, and three Angels per million people in South Africa. If you want to launch, accept that you will probably bootstrap.
So what’s Africa’s formula?
Startup 101 Rules apply:
- Solve a local problem
- Add value to the Customer
- Focus on what you are good at
- Deliver a solution that is Market Appropriate
- Be sure that you are building something with integrity that re-enforces your brand and values in the local community
The local problem is that the eco-system is fragmented and needs building, we need to bring everyone along for the ride to grow the base, create jobs and build a skills pool. More is more for everybody.
The programme funder is the customer, whoever that may be. In our markets the Customer is not the same Customer than in developed markets. Our Customer is often ED or Government funding – most of the global programmes are built to address the needs of a different Customer, which is a significant point of divergence.
The B2B market in South Africa is world class, and this is where much of the opportunity lies. There is a need, an engaged client, and most importantly of all, budget. Servicing the un-serviced and solving social problems are huge opportunities. These issues are at the heart of the continent and not easily graspable by Silicon Valley, who have a functioning foundation to leverage.
African goals and definitions of success are very different to those of the more developed markets. We would all like a US$100-million funding round, but when we are first launching, most of us would be happy with a nicely geared, profitable, 10 or 20-person strong business. Investors are unlikely to get a return from these businesses that are in line with the risks. If the investor is Government or associated, they would be over the moon with these kinds of successes.
It’s a big continent, but we are a small community, and we need to be careful of how we engage. Our goal is to build open networks that help tech businesses get to market. This does not just mean funding, nor does it mean taking the top one percent and leaving the rest behind. It is about paying it forward and helping the tech community as a whole. In a word, Ubuntu.
The African market is complex, and if the global programmes have not taken the trouble to understand it, or their motives are ego driven and they are not truly committed to the region, the local team will be the ones that get burned. The equity sacrifice is probably the largest bone of contention for any Startup, and this needs to be considered carefully. We are a small market, and you need to make sure that you are building bridges, not burning them.
It sounds like I am bashing the USA guys. I am not. We have hosted a visit from Gary Boddington along with Growlabs and LXVentures from Vancouver, the Sendgrid team from Boulder, and also hooked up with the Evernote team. These kinds of visits are the key to our growth and must be encouraged and supported at all costs. My personal learning and insight has gone up orders of magnitude with their insights, help and support. They show us what is possible. It is our job to take these insights and apply them in a way that solves a local problem and allows us to sell the value with integrity.
There are some guys that are doing great stuff in the market, the likes of 88Mph and Grindstone are addressing local needs. The plug and play global programmes have delivered limited results in our markets and if you are thinking of taking a cookie cutter programme and launching it locally, all I can say is “approach with caution”. Getting it wrong will do more harm than good.
We are going to get to where we are going, but, as always, will do it the African way. We need as much support as the international community is prepared to offer, and must show them true South African hospitality when they come, so they tell their friends, and want to come back. But we also need to take the insights they offer and apply them in a way that suits us and the way we do things. We are building an African technology village, not Silicon Valley.
Image by Kyle May via Flickr.