Everybody fails. You have to make the failure count. In the movie “The Pursuit of Happyness,” a man loses everything. Eventually, he gets everything. He is hard-working. He is caring. He is a loving father. He is homeless. But he scraps financially to provide for his wife and son. His wife left him.
But fate rescues him. Fate takes him to a lifestyle he does not envisage. While he struggles to take care of his son, he works as a salesperson, selling medical devices. Then, he finds an unpaid 6-month-apprenticeship position at a brokerage firm. He displays courage. He demonstrates perseverance. He has faith. Then he finds “Happyness.”
On The One Hand
That is the story of some fintech start-up owners. Some of them started their businesses in pursuit of fulfillment. Some searched for happiness. Others needed independence. But their stories have a common thread. They are all start-ups. In a 2020 Greentec Capital Africa Foundation and WeeTracker Media’s report, what led to start-up failure was uncovered.
The report traces the movement of African start-ups during the period of 2010 to 2018 to arrive at understandable statistics of failure rates. Titled “The Better Africa,” the report captures the positivity in the African start-up ecosystem that is hogging the global limelight. In order to guide the aspiring start-ups and ventures on the continent, the report compiles first hand experiences of start-up founders, founders who have operated their companies successfully or have raised external capital.
WeeTracker Media is an African digital media company that covers start-ups, technology businesses, and stories of individuals who inspire the continent. Greentec is a non-profit organisation founded to promote the development of investment into African entrepreneurship and support the creation of local economic and social value.
In the report, the founders shared insights on building a start-up, the importance of external funding and team building to be able to help fresh entrepreneurs gain a perspective. Since 2010, the revolution has caught momentum. Many youngsters have joined the entrepreneurial force. Some joined out of vision. Others out of compulsion.
To give a proper perspective, the report compares the start-up failure rates of two large ecosystems on the globe. Failure in this context means a start-up operating in Africa that has ceased to function and has an inactive website and social media handles. The report notes that a country’s economic health can have a direct effect on start-up shutdowns.
A shutdown means a start-up that attracted venture capital funds and then ceased to operate. The shutdown rates in South Africa followed a similar trend as its GDP.
The report observes the same trend in Nigeria where the GDP peaked around 2014 and has been sliding since then. For Kenya, such correlations between GDP and shutdowns were registered as the GDP is constantly growing since 2010. You see, money is not an indication that your start-up will succeed or fail. Then, what is it?
Before we uncover the secret sauce, let us delve more into the report. It states that over the past few years South Africa, Kenya and Nigeria have become the hubs of start-up creation. That is not all. Nigeria scored the maximum number of venture capital deals in Africa. This trend was followed by Kenya and South Africa.
Nigeria has more start-ups. Nigeria collected more funds from venture capitalists. But Nigeria experienced more shutdowns at 61.05 per cent. Kenya and South Africa had fewer shutdowns. Kindly note, among the three big regions – West Africa, Southern Africa and Northern Africa clusters – South Africa had a 54.39 per cent failure rate and is the closest to the continent’s average. Kenya matches up with South Africa at a slightly higher rate of a shutdown at a 58.73 per cent failure rate.
So, why do some start-ups fail? Why do others succeed? What is the secret sauce? We will get to it shortly. Meanwhile, some industries experience more shutdowns than others. For instance, social networking has more shutdowns with 95 per cent. E-commerce is next with 76 per cent. High-tech comes next with 46 per cent. Edutech has 60 per cent shutdowns. Overall, more shutdowns are witnessed in the service sector with 84 per cent closure. Start-ups that focused primarily on product experienced 15 per cent shutdowns.
You may have had contact with some of the fintech start-ups that came but were not able to conquer. The failed start-ups include Dealdey, iFarm, Payup, Isoko, SuperGeeks, Wireless zone and Careers24 among others.
As uncovered in the report and corroborated by a venture capitalist I spoke to, fund availability does not guarantee success. For instance, many of the start-ups profiled after they have received external financing. The figure stood at 20.30 per cent.
On The Other Hand
In countries with the highest start-up shutdown rates, many of the start-ups did not get external funds. So, what went wrong? The report reveals that the vibrant ecosystem of South Africa witnessed 41.94 per cent of the failure rate of funded start-ups. Money is not everything.
Nigeria had a 32.76 per cent of failure rate among funded start-ups. Egypt is third on the list with a failure rate of funded start-ups at 29.41 per cent. In Zimbabwe, Rwanda, Zambia and Morocco the shutdowns are attributed to a lack of external funding. The verdict? Funding is relative.
I spoke to a CEO of a shutdown start-up. He is in the process of starting all over again. He told me that to succeed he would need “non-equity assistance and grant,” Note again, that is not a surefire assurance for success. It may be a cushy way to start a business. This CEO now relies on a professional human resources firm to handle his hiring. He hires the best and most competent employees. That is one of the secret sauces.
From the sideline
What is the secret sauce of successful startups?
It is the people.
I am with you.
The startups hired professionals who are on top of their game. Flutterwave CEO, Olugbenga Agboola hired individuals he had worked with previously at former jobs.
What does that matter?
It means what leads to start-up failure or shutdown is a lack of cutting-edge talents.
Everybody fails.
Some succeed.
