Top 10 reasons why African tech start-ups struggle
Given Facebook’s turbulent entry onto the stock market (with shares recently falling 4% to $20,04 and Zuckerberg’s reported financial loss of $423 million, there are lessons to be learnt about dabbling in technology and establishing a business. The saying ‘be careful what you wish for’ comes to mind.
Business analysts would agree that there are risks to any venture, of any size and focus, and approach certainly matters – the question of where African tech start-ups fit into the bigger picture warrants closer inspection.
What does it really take to establish a credible, sustainable technology-focused start-up business in Africa? And, once established, can these businesses seriously compete for market share?
Before any attempt can be made to answer these questions, those behind business incubators or the business of building business, warn that it is critical to differentiate between the many forms that a tech start-up can take.
There are product-centric businesses that are designed to leverage off learning, science and factual reports to reduce product development cycles and source customer feedback. These are classified as ‘Lean Startups’. There are those that use technology extensively to get up and running, but are essentially squarely focused on other industries. These are startups, yes, but not strictly speaking tech startups.
“Tech startup’s take many forms and good reporting would be cognisant of this fact. Different types of tech businesses will experience different challenges so the question itself is broad,” explains Pavlo Phitidis, CEO of Aurik Business Incubator (Pty) Ltd.
Speaking from a formulations sector point of view, Colin Mkhonza from Chemin and Secretary General of SABTIA (The Southern African Business and Technology Incubation Association) identifies a lack of innovative ideas and seed funds as two of the main contributors towards the difficult situation small-to-medium sized businesses find themselves in.
From their responses below, we are able to deduce the real challenges African tech start-ups face in finding their feet and maintaining balance.
1. Shortage of innovative ideas
There is a huge challenge with Universities not being able to produce graduates willing or able to commercialise their innovative ideas and research projects. The results of PHD theses often end up in dusty store rooms. In addition, a dearth of research funding is also a major hinderance to innovation.
2. Seed funding
So many high technology projects die due to lack of seed funds for piloting production processes and product refinement. This also refers to start-up capital.
Tech companies are built by people, not machines. By definition, these people are skilled in the sciences, the very weakest of all our school syllabuses. This means we are not seeing people secure tertiary education in the sciences and engineering faculties at nearly the levels that we require to build a vibrant tech sector. The scarcity in skills sees many early stage businesses not being able to afford the skills that they need to get going.
4. Social issues
SME companies are predominantly one-man businesses. Some of the SMEs manufacture products from their kitchen or garage, and sell to the surrounding neighbourhood. The products are predominantly of poor quality due to poor manufacturing practices and in some cases, with low quality raw materials. The end result is that the final consumer – be it government department or individual consumer – ends up with a product that is sub-standard.
5. Commercial ability
Tech trained and skilled individuals are no different to tertiary trained accountants, lawyers, engineers and MBA’s. They are all technicians i.e. technically proficient at numbers, contracts, building things and consulting respectively. Tertiary education makes you into a technician - it does not help you build a business. Entrepreneurship is not the endeavour of a single person. Knowing how to build a business and motivating people to support you and help you (and yes, there is nothing wrong with getting help), is key to success.
6. Growth funding
Africa is not used to funding tech start-up’s. These businesses often burn a lot of cash and are built on a model called “build it and they will come”. Often this fails. Experienced funders focused on tech know how to fund in rounds and experienced entrepreneurs know how to select the right funders. This is the nature of a tech community similar to what is found in Palo Alto and does not exist in Africa at this point in time.
Many tech start-up’s forget who comes first - The idea of the tech entrepreneur or the need of the customer. Who is the customer, how to find them and most importantly how to build towards their needs is the single biggest challenge that we see facing tech entrepreneurs. Get this wrong (or worse assume it and do not do it) and you will be hacking away for years to come thinking that the world is against you and customers are stupid. This is not uncommon.
8. Government Policy
There is nothing in government policy that makes tech start-up’s easy. We have no tech-development zones where bandwidth is free to take some of the load off tech start-up’s. We have no aggressive policies that allow us to capitalise on global trends. For example, in the USA, Fulbright Scholarships target the best and brightest students offering them tertiary education in the best universities in the USA. These students seldom leave after graduating populating the West Coast of the USA with some of the best, brightest and most capable brains in the world today. Why have we, as Africa, not gone into Europe and taken the already qualified electronic and computing engineers who have no prospects in dead, dying Europe and offered them opportunities to use their skill to help contribute towards building our future?
9. Arrogance and naiveté
Many young tech entrepreneurs believe the nonsense of their excel spread sheets that tells them that they will be billionaires in a short period of time. The biggest enemies are often the entrepreneurs themselves. In understanding how and what is needed to build wealth as a tech entrepreneur, this problem can be alleviated substantially.
10. Marketing issues (branding, advertising and sales)
This is a massive challenge for all start-ups as they cannot properly advertise and brand their products to compete with established brands. This directly affects their sales and consequently their revenues.
Chris Tredger, Online Editor