Tech Start-Ups: Time to Wake Up and Smell the Coffee

Published on 1st October 2012

Last week, I received an interesting email from a techpreneur.  The email read in part:

“… I have been working on a mega project  for the last two years that I believe can transform the software business in Kenya and Africa at large.  The project is an innovation and I have attached a document that details what it is, how I came up with it and why it has a huge business opportunity.  I hope that you shall review the proposal and perhaps we can enter into a partnership that will push the venture to greater heights.”

“Mmmmhh….! That should be very interesting,” I thought.

After replying and promising to get back after a review with my team (cc’d), I opened the lengthy document. First, I read the first paragraph word for word. Then, the second paragraph a bit faster but lost interest in the third. Why? There was nothing new, no innovation and surprisingly, no business on first impression.

I acknowledge and respect the techpreneur for spending two years working on a project he strongly believes in, for having faith in us and sharing the document before signing a non-disclosure non- circumvention agreement (NDNCA).  I however sympathize with him for not having spared some time to study the market enough to realize that what he was showcasing was  neither an innovation nor  would it add any value in the market prior. There are a million other companies that offer off-the -shelf computer value add; some on a very large scale and others in their very small ways. 

In the past couple of months, I have had a good count of financing requests from techpreneurs on my email. These have varied from the recently introduced cloud computing, mobile solutions, e-payments, online marketplace, gaming, just the old business of selling off-the-shelf software and hardware to the plain web-design.

One distinctive fact about majority of the early stage techpreneurs I have interacted with is the fact that they all score a meager 10 percent or less on innovation/creativity.  So, why this sudden wave of interest in the sector especially among the young graduates?  My personal judgment leads me to three basic factors.

To begin with, about 5 years ago, M-Pesa, one of the greatest innovations in the tech world debuted in the Kenyan market.  This innovation changed a great deal of how Kenyans transferred money and further changed the perception by the world on Africa and its role in innovation.  Secondly, it’s at around the same time, the undersea cable and fiber-optic installation was in top gear across most parts of the country.  This saw a major reduction in cost for access to information, that is, internet. Thirdly, the government zero-rated computers and accessories in their bid to make Vision 2030 a reality.

This made it easy for micro, small and medium enterprises to purchase computers and for most students and younger entrepreneurs to own laptops. 

It is at the backdrop of these three that many techies ventured into innovation in the sector.  Some went into this all fresh from campus, others had tried out employment and were the computer whizs at their places of work while for others, it was a case of divestiture from a business that was not yielding much in the already competitive sub-sector.

From the basic statistics, there has to-date been more losers that gainers in the tech sector.  Most of the startups have integrated online payments to mobile solutions and cheap internet to come up with winning and market-responsive products and services. The brands have however not proven sustainable in the long run. Why is this so? A number of factors explain this:

I must first admit that I am not an IT expert.  However, I believe that just like selling passion fruits, petroleum products to investment banking, techpreneurship is just a business like any other. It’s not about fancy, or an exciting puzzle; if it can’t put money onto your bank account, then it beats the whole business logic. 

In my many Tuesday mentorship drives to techpreneurs, I have reviewed with the principals of various companies the business models that they have generated.  More often than not, the models have proven very exciting, not to forget the fact that majority of these techpreneurs love what they do and so is their passion for their models. 

The problem is not about the model however, or the product.  It is far more rooted than that; it’s the one thing that they forget to visualize at the onset. It is the ‘bread and butter’ element of the concept, the market reaction, and the arithmetic game.  After  listening  to majority of techpreneurs, I have in most occasions found myself concluding with the same script.

Typically, the conversation goes something like this:

“Is there a market for your product?” The answer is obviously a yes.

 “Are you sure?” Again, it’s a confident yes.

“How many subscribers did you get during your pilot-run?” Typically, the answer varies from 2 to 200.

“How long ago was that?” In most cases, 2-6 months of piloting, I have on one occasion had a solid 2 year pilot run. And the product is now being re-piloted by 2 of the first tier commercial banks in the country.

“How many of those translated into business?”  Mostly none.

“Whats your long term goal/plan?” In most instances, most of them talk about increasing the number of subscribers in the first meet, not talk about business volumes during the second meet.

“How will the goal translate into money?”  Start demanding subscription fee, and commissions, and sell advertising space and so on.

“How much?” Not sure.

The fact remains, if it has not made money, it’s not worth your time. If it is taking too long, then someone else will overtake you at it. If you don’t sign up subscribers for a fee at onset, then they’ll find it hard to pay later.

Majority of techies who come asking for funds have the conviction that their model will work.  The challenge in most instances is the fact that most fail to realize that a unique IT proposition today might weather within a short time as the sector evolves. Take for instance the changing facets of Facebook, iPhone and iPad whose innovators have to work overnight to keep up with the changing trends.  Kodak paved way for mobile phone cameras while other tech companies have to keep up with the trends.

The bottom-line is, it is  a saturated market out there. The good news is that you’ve not missed the boat; you have every opportunity to get it right at very little cost if any. But you have to do your homework; you have to think overnight and keep testing and re-testing. For the established ones, the Growth Enterprise Market Segment is underway under the Nairobi Securities Exchange (NSE).  It presents a great take-off opportunity for established but yet Small and Medium Techprises (SMTs).  With it, a soft landing is guaranteed for these entrepreneurs who have toiled to make their innovations work.

By Michael Musau
Emerging Africa Capital
Michael@emergingafricacapital.com


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