Owolabi Olatunji is co-founder and chief executive officer (CEO) of Nigerian real estate marketplace Hutbay. In this post for Disrupt Africa, he narrates his experiences of running a business in Africa and the future for start-ups on the continent.
The start-up ecosystem in Africa in the last five years has experienced meaningful growth.
Comparing the last two years, according to VC4Africa, total invested capital more than doubled from $12 million to $26,9 million.
We now have more Africa-focused investors, more accelerators/incubators and entrepreneurs that are frontally taking up the challenge of building tomorrow’s Africa’s corporate titans.
Governments in several African countries, from Kenya to Nigeria up to Egypt, are also not relenting in supporting and making policies that encourage technology entrepreneurship.
As we forge ahead in the quest to build legendary companies from scratch, companies that solve fundamental problems in Africa, there are mistakes we can easily avoid by studying the ecosystems and case-studies of our Western and Asian counterparts who obviously are pioneers in start-up entrepreneurship.
Every market is different, just as every climate is different. But the fundamental law of nature is still applicable everywhere.
On Team Building
“A single tree cannot make a forest”. Nothing great can be achieved without collaborative efforts. Tomorrow’s legendary companies are today’s start-ups that appreciate the value of collective efforts and know how to harness it.
But a start-up visionary just starting out often do not have the capital to attract talents to its cause. This is where the concept of co-founders come into play.
To seek for someone or people who have the needed skills and attitude and are ready to “partner” with you to move the business from zero to one while they themselves earn next to nothing in the meantime.
However, finding that right partner or co-founder is not as easy as it sounds. A right partner is someone with the perfect skill-set and the right attitude who will work and persevere with the main visionary to ensure that the business breaks even.
“Skill set alone is not enough. If you must start with co-founder(s), make sure you have been friends for many years.”
For the very strenuous nature of start-ups, the long time it may take to hit key milestones, the challenge of maintaining a steady cash-flow, can be put any partnership into serious strain. One of the major causes of start-up failures is founder’s implosion.
Founder’s implosion is like swallowing cyanide: you die almost immediately. It is therefore very pertinent that much thought is given by African start-up entrepreneurs into who their co-founders will be, if any at all. Beware of founder’s match-making event, they don’t work.
“Founders should share a prehistory before they start a company together — otherwise they’re just rolling dice.” Too many founders is bad for start-ups.
“The best scenario is two co-founders; the next best scenario is a solo founder. The worst scenario is bad co-founders (Paul Graham).”
Beware of part-time or remote employees as well; avoid them in the early days.
“As a culture is still gelling, it’s important to have everyone in the same building.”
Remote employees add to the communication overhead which is not a good thing for a young start-up.
Above all, avoid hiring “professional managers” to run your start-up, at least in its early stages. This “will lead you to the graveyard”.
“You should not put anyone between the founders and the users for as long as possible — that means the founders need to do sales, customer support, etc (Sam Altman).”
Product Development
China and Russia have shown that it is possible for indigenous start-ups to compete with their Western counterparts and win.
African start-ups should also dominate their own markets, at least. The days of a tiny (overhyped) US start-up with office 12 547 kilometres away in Palo Alto dominating our local markets and getting all the juice should be over.
The way forward for African start-ups is to innovate aggressively, iterate faster and quickly adopt latest technology. The African founder that have it ingrained in his heart that his products will not be inferior to foreign alternatives will have ready adoption from local markets and could eventually dominate.
Of course capital and patience is needed to build an awesome product. Investors in African start-ups should encourage founders to come up with great products as they iterate away from their MVP.
This will require more capital investment and time. But it will be for the good of all. Without an awesome product, spending money on ads and marketing will be a waste or not efficient as little will convert.
On Business Model
As we set out to shake up industries, we need to evaluate what we truly are capable of; there is limit to what technology can do after all. A lot of industries in Africa is overripe for disruption; others are not.
Choosing what to disrupt should be like choosing where to fight the enemy as a war breaks out. More often, the place where a battle occurs is a great determinant as to who will win the battle.
The US army, despite their superior force and equipment, had a very hard time defeating the Vietcong in the jungle of Vietnam. A lion, as strong as it is, will be shred into pieces by a great white shark if the lion dare ventures into the open ocean.
Disruption is good if it doesn’t lead to direct or fierce competition with powerful elements in the society or established players.
“Competition is bad for start-ups and disruptors are people who look for trouble and find it. Disruptive kids get sent to the principal’s office. Disruptive companies often pick fights they can’t win” (Peter Thiel).
African start-ups must be careful not to repeat the mistakes of the past. Choosing the right business model is as important as the product itself.
Branding and Distribution
Africans are great consumers of western and Asian (especially Japanese and Korean) products. In Nigeria, we often prefer these foreign products to locally made alternatives. Why is this? The answer is simple: either the foreign product is of better quality or it is because it has better branding.
Good branding alone is not sufficient. Superior product always barge a mark of quality and good branding. African start-ups must pay closer attention to branding.
From logo, to slogan to user experience to customer service, careful thoughts must be given to ensure our products and company stand out.
If we pay great attention to both the contents (products) and its container (branding, packaging), our people will use our products and services, indeed prefer them to foreign alternatives.
Alibaba, Baidu and Tencent did this in China (government policy aside, these were good alternatives to their western alternatives), Yandex and Telegram own their markets in Russia while Flipkart, Ola, Inmobi owns their own turf in India as well.
On Revenue Model
The ultimate objective of any start-up is to have a growing net revenue and eventual profit as soon as possible to be able to sustain the company in the long run.
This is achieved by creating something of value (software tools, eyeballs, users, etc.) that the market is willing to pay for.
Most non-technical businesses generate revenue almost from year one. That they could generate revenue quickly doesn’t make them great businesses.
“A great business is defined by its ability to generate cash flows in the future.”
These non-technical businesses are able to do this because their own process of creating value and monetising it is very short.
“Technology companies follow the opposite trajectory. They often lose money for the first few years: it takes time to build valuable things, and that means delayed revenue. Most of a tech company’s value will come at least 10 to 15 years in the future.”
It is a geometric revenue and not a linear revenue for start-ups.
And this brings us to what kind of revenue should African start-up pursue. Google, Facebook, YouTube, Instagram are instances of start-ups whose net revenue were in the red for years before they started pushing for real revenue.
These companies first differentiate themselves by building a strong product that has so much value and that resonates with their targeted audience; once they reach a particular threshold of user satisfaction, they then started pushing for revenue.
Africa’s legendary companies of tomorrow are those who are creating so much value now that can easily be monetised in the future.
African start-up ecosystem is still at its infancy but we can speed up its development by not repeating the mistakes of our Western/Asian counterparts.
Now is the great opportunity to give birth to Africa’s Microsoft, Amazon, Google, eBay, PayPal, Zillow, Airbnb, Uber, Instagram.
The founders of these companies will be those who avoid making the same mistakes that contributed to the failure of many dead start-ups.
The investors in these companies will be those who “partner early, (are)comfortable with the rough imperfection of a new venture (and are willing to) help founders from day zero, when the DNA of their businesses first takes shape.” — Disrupt Africa.