Great businesses start with a great idea, and this foundational principle has inspired dozens of generations of aspiring entrepreneurs to believe that idea and a lot of hard work is enough for anyone to become a billionaire.
Unfortunately, for them, the reality is different. Just because all good businesses need a good idea to get started doesn’t mean that a good idea is the only thing needed to succeed in business. So many startups have been created out of good ideas, only to collapse under their own weight, fall victim to competitors, or fail to gain momentum from the start.
In 2015, Fortune estimated that nine of ten startups would fail and in 2016 the Huffington Post said it was 95%. In Africa, however, the business space is even less conducive for startups to survive as most of them fail even before they make it to their seed funding stage.
According to the “The Better Africa“ report published by Weetracker in partnership with GreenTec Capital Africa Foundation, the shutdown rates for startups on the African continent between 2010-2018 was at 54.20%.
Further, the report showed that Ethiopia (75%), Rwanda (75%) and Ghana (73.91%) were among the countries that experienced the highest shutdown rates amongst startups while Nigeria – among prominent startups hubs in Africa – witnessed maximum shutdowns at 61.05%, followed by Kenya at 58.73% and South Africa 54.39%.
Some of the African startups that had amazing ideas. This is why they failed.
- SuperGeeks – failed due to the onerous terms and conditions of investors
Co-founded by Edmund Olutu and Samuel Uduma, SuperGeeks, Nigeria’s version of Geek Squad, was described by CNN as “finding considerable traction”. Two years after the company launched, its domain name was up for sale with one of the co-founders explaining in an interview with Quartz that the decision of a “controversial” investor to pull out of a multimillion-dollar investment commitment was the last straw that sealed the fate of their young business.
- ORide – failed due to the harsh business environment
Popular Chinese-owned African fintech startup, Opay stormed the market with a full marketing force when it launched in 2019. Within 6 months of operations, the company had expanded to about 6 cities across the country with a very visible presence in each. However, its activities came to a significant halt as soon as the Lagos State Government banned motorcycle operations in some highbrow areas. A few months after the ban, some of Opay’s business units like OCar, ORide, and OExpress were also discontinued. The firm made it known that it had to discontinue these services to pay attention to Fintech and offer financial services to the millions of customers it had already acquired.
- Afrostream – failed due to lack of adequate funding
Afrostream was a Cameroonian startup that was on the scene for just three years. It came into existence in 2014 and was off the scene in 2017. It was founded by Tonje Bakang and functioned as a video-on-demand firm that had a good store of African, as well as Afro-American movies. Based on the structure of this startup, it appeared like it was patterned after Jason Njoku’s iROKO. Unfortunately, it was not meant to last a long time. This startup was backed by Y Combinator and also had five other investors provide funding. Regardless of the backed investors, it was out of business in three years. Considering the fact that this startup had five investors, it might be normal to assume it had the right level of finance. Nonetheless, the founder made it known that it could not raise funding to acquire the much-needed content, and upon sensing the startup was going to go nowhere without access to funds, made attempts to sell it.
- Wala – failed due to poor internet infrastructure
The crypto industry seems like one that could never go wrong. Nonetheless, things are not as rosy as they seem. Wala, a South African crypto startup is a perfect example of the challenges crypto firms could face in the African business space. While it existed, Wala was a South African startup that had operations in Uganda. It made use of an app that was crypto-powered to help the unbanked in Africa carry out financial transactions effortlessly. All was going on smoothly until things suddenly began going south.
In early 2019, Wala had to do away with its staff and closed access to its app. Although a lot of factors could have been responsible for this startup not making it to the top, Smer Saab, its co-founder claimed poor internet infrastructure, as well as business regulations in Uganda, were responsible for the bad turn of events.
In 2018, three intrepid entrepreneurs from Angola, Ghana, and Nigeria undertook an ambitious journey to build a trading platform for digital currencies. One resigned from a high-paying job at Dell in Canada. They emptied their savings, building the firm with limited resources and stores of perseverance.
The story of KubitX
Money started coming in from angel investors, friends, and relatives. They put together a token generation event, a crowdfunding mechanism for crypto startups, that initially raised $600,000. Altogether, the company, which they called KuBitX, raised over a million dollars.
KuBitX founders had dabbled in cryptocurrency and blockchain, but really didn’t know much about it.
One of them, Eric Annan, a Ghanaian living in Abuja, Nigeria, had no idea what blockchain was until 2016. Previously an account manager for Chinese tech giant Huawei and a microfinance bank founder, he placed his first crypto bet on OneCoin, a much-hyped cryptocurrency that ultimately turned out to be a Ponzi scheme. Most of his ideas about blockchain then came from reading The 7th Disruption: The Rise of the Digital Currency Billionaire by Thomas McMurrain.
“Blockchain is the future,” Annan said at a conference in Lagos in 2017. “We need to start thinking outside the box. China or America won’t solve our problems. We must solve them ourselves.”
But after launching a crypto trading platform called Digital Kudi in 2017, he realized he could do it better and bigger by partnering with others. He found one partner in a WhatsApp group of students who were taking a free course on blockchain and cryptocurrency at the University of Nicosia in Cyprus: An Angolan named Alex Amadeu, who had a crypto startup called Anglobit. The other was a friend, Victor Akoma-Philips.
While they were waiting for their crypto exchange to become functional, KuBitX’s founders assembled over 50 team members scattered across the continent with roles ranging from marketing to management. Most of these positions were not necessary at the time.
“We built a company before we realized that we’re a startup,” Annan told Quartz Africa. “If I was doing it today, I would go on the lean startups methodology. Do customer surveys, interviews, and bring in team members who are problem solvers, aligned to the ‘why,’ and able to deliver the ‘what.’”
By the time their crypto exchange was up and running, they had burned through $400,000, almost all the money they raised through friends and relatives as well as the initial coin offering, crypto market’s version of an IPO. They didn’t attract enough market makers to keep the liquidity of their tokens and had no money to advertise their platform. They were also facing a downturn in the crypto market.
When members of their oversized team began to exit, the cofounders found themselves at a crossroads.
Why startups fail
Startups fail by over depending on one success rather than thinking of how to bring forth other successes. A great example of a company that constantly reinvents itself or product portfolio is Safaricom, the tech giant has constantly evolved by continuously expanding its products portfolio and ensuring that its mission and vision is literally in the DNA of its employees. Companies to move from traditional general management where a lot of time and costs are spent on research and development without bearing much fruit to the modern approach of rapid experimentation with failure using minimum viable products. For companies to rapidly innovate they need to constantly experiment at a low cost.
Another reason why startups fail is poor talent management. Most startups in Africa leverage on the fact that they are just starting out and trying to figure out their structures, they use this poor excuse to exploit their employees. In this era, this is unacceptable. Smart startups are fairly compensating their employees and empowering their employees to deliver quality work. Poor talent management ultimately affects innovation and business continuity, it may seem cheaper at first but very expensive in the end.
Poor transparency and accountability structures, when it comes to financial performance some startups simply fail due to poor design and implementation of internal controls. A lack of functioning controls in a company always leads to fraud and this is usually evidenced through revenue leakages, management override of controls and creative accounting.
For startups it is even worse as much as there is the aspect of metered funding once a startup fails to prove to investors that it has done great things with previous funding it will be hard to dive into a second-round funding.