Understanding the key drivers that transform an entrepreneurial mindset and innovative ideas into high-performing businesses could be key to reducing the 95 percent first-year failure rate of African tech startups. This, in turn, could unleash their potential to boost economic growth and job creation.
Entrepreneurship is seen as a catalyst for overcoming Africa’s socio-economic challenges. But while the continent has no shortage of innovators and risk-taking entrepreneurs, the performance of many startups is limited by their lack of expertise to achieve growth and scale.
Less than two percent of internationally recognized high-tech startups come from the African continent. Of the 600 “unicorn” tech startups (companies valued at over $1 billion) in the world, the African continent, with over a billion people, has only produced seven.
New research at the Stellenbosch Business School has identified and developed a model of key skills that enable startups to identify and seize opportunities, drive the delivery of innovative products and services to consumers, and build sustainable businesses that attract investment.
dr Ekene Onwu, a graduate in business and administration at Stellenbosch Business School, interviewed more than 250 people working in tech startups in four African countries – Ghana, Kenya, Nigeria and South Africa. This enabled him to examine the drivers of entrepreneurship and innovativeness in African tech startups.
The four countries combined have so far attracted the most startup investment on the continent.
Onwu says, “Research shows that tech startups that take a comprehensive development approach that leverages their top management skills, technological competencies, as well as their ability to foster rapid and locally relevant learning have a better chance of succeeding, despite the obvious macroeconomic challenges in Africa’s dynamic and complex business environment.”
He hopes that by applying his African ‘Sense Seize Transform’ model of connected, dynamic skills, startups and their founders will have better performance indicators to assess their ‘culture, mindset, behaviors and ability to succeed, where so many seem to have failed before”.
Onwu’s research and model challenge the prevailing mindset of entrepreneurship in Africa.
His research found that the skills of top management, the company’s technological competence, and the organization’s ability to learn and adapt to a changing environment are the key factors that enable the company to identify (seize) opportunities. , to seize and transform them into sustainable corporate success through entrepreneurial thinking and innovative ability.
“’Technological DNA’ alone is not enough to guarantee success in highly competitive and rapidly evolving digital environments. Many companies fail because they lack the knowledge, networks and skills to effectively increase their performance.
“To achieve favorable business outcomes in high-tech environments, startups must be able to constantly identify opportunities and strengthen their abilities to seize and implement opportunities, and to address complex business problems, threats and opportunities as they arise.
“Achieving these capabilities allows the tech startup to increase productivity and create change in the marketplace that its competitors are unable to.”
The knowledge gap in many developing countries about what business skills to nurture and focus on has resulted in low levels of sustained innovation and entrepreneurial activity, threatening much-needed job creation and economic productivity.
“Ensuring the success of tech startups on the African continent is becoming increasingly important to help nations address socio-economic challenges such as high unemployment rates, food and healthcare insecurity, environmental sustainability, financial exclusion and infrastructural deficiencies,” said Onwu.
“Tech startups need to succeed as they are the drivers of economic development and productivity improvements and are the catalysts for creating novel industries, products and services and attracting foreign direct investment into developing sectors.”
However, the performance of tech startups in multiple sectors and industries on the African continent has been “dismal,” he said, and very little venture capital investment has been attracted or acquired by larger, more established companies compared to startups on the African continent. These are considered key indicators of startup success.
While positive for the continent, venture capital investments of US$560 million in about 80 African startups in 2017, showing annual growth of over 50%, are negligible compared to the US alone. During the same period, over 8,700 US tech startups attracted $85 billion in investment, a growth of over 400%.
In Onwu’s sample, 37% of companies were self-funded, while only 7% had attracted venture capital investment.
Infrastructure issues on the African continent play a significant role in hindering startups, with 61% of startups surveyed by Onwu struggling with access to electricity and 71% lacking reliable internet access.
However, as these challenges are largely beyond the company’s control, Onwu focused on the internal dynamic capabilities that enable startups to survive, adapt to change and thrive despite Africa’s complex and dynamic business landscape.
His research found that improving the skills of top management (to think, network, lead and use technical resources effectively) and the company’s overall technological competence had the greatest positive effect on both its entrepreneurial direction and its ability to innovate and their combined effect increased on the company’s performance.
“Results also showed that there was a positive effect on the performance of tech startups that focused extensively on both their entrepreneurial drive (proactivity, risk-taking, autonomy, etc.) and their ability to innovate (product, process, and innovation). marketing innovation) at the same time.”
The importance of his research is that while the skills and drivers are usually studied and viewed in isolation and the conclusions drawn from them are often oversimplified and impractical, his model takes a comprehensive, integrated view that highlights their linkages and directly links a key group of skills to organizational performance.
“Startups often view skills as drivers of success in isolation, but this limited focus doesn’t give them the comprehensive view needed to drive success in an increasingly digitized business climate.
“Startups that develop the appropriate in-house capabilities and take a holistic, integrated view can better understand where exactly investments are needed internally to fuel their growth, scalability and ability to improve performance. It is about simultaneously looking at the skills of the top managers, the technological skills, the knowledge and will of the entire startup, their ability to learn and unlearn processes in a way that is entrepreneurially deep and innovatively robust, the affect their ability to perform and survive doing business in Africa.”
Onwu’s research received the award for the most outstanding future-related doctorate in business and administration at the Stellenbosch Business School.