By Sergio Barbosa
Known for its innovation, Africa is making headway in becoming a launch pad for novel, new hi-tech companies. According to consulting firm BCG, between 2015 and 2020, there was a 46% growth in companies attracting and securing funding.
The problem, however, is nurturing an environment conducive to sustainable growth and scaling past the start-up phase. The solution lies in enterprises turning their existing partnership approach on its head.
There are currently 1 200 unicorns (start-ups with a valuation of $1 billion (R19bn) or more) in the world. Seven of them are in Africa, and of those, six are in the fintech space. However, the same BCG report points out that African start-ups seldom survive past the Series B funding round. “As a result, returns on venture capital investments are weak – less than 3% on average across the region over five years, compared with around 11% in Asia-Pacific and nearly 16% in Europe.”
For a continent with such huge potential and latent innovation, there seems to be a disconnect between ideation and building a sustainable, scalable operation.
We know that partnering with nimble, innovative fintechs can make all the difference to enterprises hoping to deliver exciting new products and services. Enterprises should be looking to invest in tech start-ups where the start-up’s sphere of influence will have a large impact on the enterprise’s revenue in key business focus areas.
Unfortunately, most business leaders see this as a high-risk move, worrying that they may suffer should the start-up fail to deliver, and rather assign their engagements to side car investments in low impact areas to reduce risk. This needs to be turned on its head.
The cautious approach of enterprises often stems from business leaders worrying they could be found negligent or that their brand may be negatively impacted should the start-up fail. However, he strongly believes that investing in tech start-ups that operate in high-impact areas will give the required impetus to the tech start-up to deliver on expectations. It will also encourage the enterprise to take its investment in the start-up more seriously.
In addition, the momentum of success in a high-impact area will almost certainly guarantee long-term sustainability for the tech start-up, helping it reach maturity faster and boosting its sustainability.
Adopting a ‘more’ or ‘better’ approach is best
How enterprises choose to partner with start-ups has a significant impact on their chance of success. Setting up a robust product and market feedback loop, as well as ensuring a great talent acquisition strategy, can make all the difference.
There is a great industry anecdote that talks about “more” or “better” and how companies must focus on one or the other. In the beginning of a partnership, companies should focus on making their product or solution better, ensuring they crack the right product or market fit.
Once they have achieved that, they can focus on the “more” part and scale their sales and marketing. Once the company starts facing constraints, they should switch again to focus on the “better”. This means they once again work to improve the efficiencies, and then flip back to look at scale. And so it goes, “more” or “better”, but always starting with “better”, adding that when scaling begins, companies should also be mindful to pay attention to executive and business development processes and hires.
Let them be start-ups
Another big challenge facing start-ups is the often unrealistic expectations placed on them by their enterprise investors and partners. What works for enterprise companies will hinder small companies. The added pressures of unnecessary governance, bureaucracy, and processes that are designed for larger companies with multiple teams, focus areas and disciplines, can be crippling to a small start-up.
Start-ups should be allowed to leverage their nimbleness and agility. It is their greatest asset and it is easily and quickly lost as the start-up becomes successful. However, enterprises can help start-ups see blind spots and then guide them through the challenges of dealing with them. Having key people that cross-pollinate or move between the enterprise and start-up worlds allows the relationship to develop with a sense of empathy and appreciation for each party. Africa has a vibrant start-up ecosystem. But with the right approach and mindset, enterprises could very well hold the key to ensure they survive to become flourishing growth companies. Unicorns needn’t be a mythical creature any more.
Looking at how the company could, itself, help drive innovation on the continent, Martin Dippenaar, Global Kinetic CEO, added: “We’re excited to be exhibiting at this year’s Africa Tech Festival where we will get a chance to see what new and innovative tech is coming out of Africa and connect with enterprises and fintechs looking to innovate.”
Sergio Barbosa is the chief information officer of enterprise software development house Global Kinetic, and CEO of its open banking platform, FutureBank.