A few years ago, a group of people in East Africa banded together to solve a problem in the tech industry. Doing this involved writing a business plan, researching the problem further, determining their target audience, and so on. They spent months developing the brand and putting structures in place to provide people with a solution.
Everything was in place, and they were ready to begin. There was, however, a caveat. Their plans were solid, and everything looked promising, but they ran into the same problem that nearly every startup in Africa does. Even with a solid plan in place, their company barely made it through the storm that comes with being a start-up in Africa.
Starting up a business, especially in Africa, is very challenging. From conceiving the idea to implementation, founders are constantly plagued with difficulties that require a certain level of expertise to overcome. These issues that Startups face are common to all industries and makes it hard to meet that three-year mark. What are these challenges? Can startups survive in Africa? Let’s answer some of these questions.
Challenges facing startups in Africa
Africa’s economy has been on the rise due to the impact of technological advancement. This has led to an improvement in human capital development compared to the past decade. With the rapid increase in business ideas due to technological advancement, it’s important to examine the challenges that might keep these from development. So, let’s dive right in.
Unfavorable government policies: This is one of the issues that African startups face. Government policies are major determinants of economic development and can have a significant impact on business productivity, either positively or negatively. However, government policies in Africa hurt startups, regardless of whether or not they intend to.
For example, the Nigerian government's cryptocurrency ban resulted in the closure of some cryptocurrency trading companies in Nigeria or forcing them to register in other countries. Furthermore, the government has erected a high barrier to entry in sectors such as finance, which has prevented brands and startups from being innovative and from exploring.
Lack of adequate facilities and infrastructure: Another major challenge that African startups face is a lack of necessary infrastructure. Many African countries suffer from the erratic power supply, poor internet connection and speed, insufficient social amenities, bad roads, and other issues. Solving these problems can be difficult, and it impedes the growth and success of African startups.
For more established startups that can afford to solve the problems, the cost of solving the problem will inflate the cost of running the business, either running the company down or absurdly raising the price of their services. Lack of infrastructure deeply affects African Startups.
Restricted access to capital: Capital is unquestionably the oxygen that keeps a business running. Obtaining capital as a startup is a completely different story, as it can be extremely difficult, particularly in Africa. You can either finance the business with your own money or pitch your business idea to investors and hope they will invest in your startup.
Regardless of how you plan to do it, you either get capital to finance your business or your business dies, regardless of how brilliant your business idea is or how beautiful your solution is. As previously stated, capital generation is a significant barrier for many African Startups, and research shows that 80% of Startups fail due to insufficient funding.
However, in today's world, there has been an increase in funding for African businesses, but African startups continue to be underfunded. Even when funding is available, many entrepreneurs lack financial knowledge about how to raise capital for their businesses through investments.
Market access: Many African startups face this problem because obtaining information from the internet is inexpensive, making many people too lazy to conduct thorough research. Research is an important aspect of branding and marketing because it is difficult for a startup to penetrate the market if the research is not done correctly.
Poor market research can result in a poor marketing strategy, which can result in marketing to the incorrect audience. This demonstrates the significance of conducting thorough research to facilitate Startups' access to the market. However, in Africa, many startups fail to get it right during the research phase, which prevents them from thriving.
Competition: Nothing kills a startup more quickly than the competition. When it comes to product or service quality and funding, startup brands typically face the challenge of competing with more established brands. This level of competition can be detrimental to new businesses that aren't yet established enough to gain a reasonable market share.
Customers are more likely to choose brands that have been in business for a long time because of the level of trust that they have built with their customers. It takes time for startup brands to establish brand trust with their target audience, which they can do by maintaining consistent product or service quality.
Unhealthy competition, on the other hand, can be harmful to them, especially when they compete with larger brands in the industry.
Is there a way out?
When the factors discussed above work in their favor, we’ve seen that African Startups are capable of achieving remarkable success. We’ve also seen Startups thrive despite these odds.
Startups, with the right policies, skill set and knowledge, infrastructure, and easy access to capital through the guidance of established advisory firms, have potential for growth in the private sector. However, before these challenges are dealt with, African Startups can take advantage of the resources that make their processes easier. Like access to cross-border transactions, or incorporation in other countries.
We recently announced a partnership with Legal Trunk that allows Startups to incorporate their business in the US at a 40% discount using our code - LB2023. Little by little, we’re working to remove the barriers of entry for African Startups, and make it possible for growth to happen on a global scale.
