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Top 10 reasons why African tech start-ups struggle

August 21, 2012 • Lists

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.

Pavlo Phitidis, CEO, Aurik Business Incubator. (Image: Aurik Business Incubator)

 

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.

3. Skills

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.

7. Conceptualisation

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

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15 Responses to Top 10 reasons why African tech start-ups struggle

  1. Brian Gondo says:

    I'm in Zimbabwe and don't think the skills argument holds up that much here. Not saying there are no skills related issues but there is a high degree of proficiency in science and math. Coding and programming skills though are not as deep and that's something that needs redress. There are other systemic issues some of which you have touched on which inhibit the success of start-ups. I found this line right on the money "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"….LOL, I can actually relate to that!

    • Yan Kwizera says:

      Brian, if you are agreeing that Programming skills are still scarce and yet 90 or even more percent of tech business has its foundation on programming, I do believe then the required skills are not there… sure Africa has Historians, Lawyers etc but we need programmers and innovative ones…

    • Brian Gondo says:

      My point is you get a lot of people with a science/ engineering background. o they make have a degree in physics/maths/engineering even computer science but they may not be proficient in writing code in C, Java, Ruby, PHP etc…Tech is not just IT

  2. Yan Kwizera says:

    Great analysis, I liked especially the point where you tried to propose some sort of solutions, indeed we need short term solutions while we( Future decision and policy makers or even business people of tomorrow) plan for long term ones… What can be done with limited resources that most African States still have?

    • You what lacking Yan? A gut. We don't have a culture venture… We scare to loose the fact the matter…

    • Yan Kwizera says:

      I do think the bigger problem we have to address is point 1,3 and 9… We have to accept that we have gaps and work hard to fill them rather than wanting to carry them and expect to be the next Instagram or Zimperium ( avoiding to mention the always used Google and Facebook), then by the time we get skills, Governments will have solved the issue of capital and infrastructure( at least my country, Rwanda has solved much of them).

    • Alain Inema says:

      Maybe I should add The Mentality as point 10

    • William Kent says:

      Richard Hitayezu some people do, see this branding agency that is trying to re-imagine the startup culture through design (eshanmedia.com)

  3. Anonymous says:

    This analysis is right on point. At coders4africa we understood these African Tech Industry issues very early on. We realized that too many corners are being cut and bridges being burnt. We decided to focus on Human Capital development via Tech and ICT. We have to create an environment for tech startup to flourish, for qualified skills to be found and for Tech Hubs to be prominent. We chose the continental approach instead of the individualized country one. The future is bright!

  4. Tendai Sean Joe says:

    Hoping that some of the outlined challenges will be dealt with one of these days. Look at how Chile is doing it with Start-Up Chile. One African country need to get the balls to built a sustainable start-up ecosystem, with heavy investments. Kenya or South Africa, I challenge you.

  5. William Kent says:

    I think the article details things quite nicely, one point that I would also put an emphasis on is consumers for innovative ideas. When needing to create something innovative and new for an African market there is a lot of blockage at this level as well. Say if you were to create an iPhone app, you already sacrifice the fact only very few people will have access to it, so the end you sick to respond to gadgets that are available which in most case, for the highest reach are old fashioned tools that require old fashioned solutions, leaving very little room to the use of high quality design, graphics or interaction for that matters.

    Yes, gadgets shouldn't limit creativity, nevertheless can't be ignored. This for me has played a big role in poor deign especially when it comes to website design, you are unlikely to use great innovation and design, unless you wish to reach very little number of people.

    I think we are still playing with a two pointed knife that need to be neutralised on both sides, and yes, education is needed, on both level, consumers and innovators. And of course, the economy.

  6. Very interesting well written article.At one stage when I was working in Zimbabwe I met a young man who was so talented in programming.He built us a CRM system which was top notch.After that he designed a bulk SMS program.He told me that he had also designed an inventory control system.What he lacked most were the marketing skills on how t promote his products.The culture in the developing system is often to look down on the small companies and only support the big. The last time we spoke he was now designing websites a far cry from all his programs he was working on simply because he was not getting any money.

  7. Kiragu Gichuri says:

    Nice article. Another factor to add is that African tech entrepreneurs mostly concentrate on developing the app, and not on implementing it or monetizing it. This is mostly due to the app contests that happen around Africa.

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