In the past couple of years, start-ups — especially in the technology sector — have at long last been given a bit more time in the spotlight. This has mostly coincided with endeavours like Silicon Cape and the passion of a handful of individuals — entrepreneurs, investors and geeks — to create more of an ecosystem for tech entrepreneurs to flourish.
I’ve mostly been on the fence about getting overly involved or saying anything too opinionated about this as I’ve always sensed a bit of ignorance and arrogance in how we (as South Africans and stakeholders) have gone about this. The best example of this is branding this endeavour as Silicon Cape in the hope that we can replicate Silicon Valley’s success. While it had a nice marketing ring to it, it was never going to be a sustainable or viable thing; evidence of this is how the initial hoo-ha and excitement has almost completely died down.
And most worryingly, I don’t think South African tech start-ups or entrepreneurs are much better equipped than they were before all of this.
In my mind, this is completely down to start-ups and entrepreneurs not considering an alternative approach that is aligned with the fact that we’re based in South Africa and, unless you’re moving abroad, you need to consider the good and the bad that this brings.
A big part of entrepreneurship is being creative within constraints and being a South African entrepreneur is no different.
1. Stop waiting for funding
Right off the bat, we’re way too concerned with getting funding for our businesses instead of just bootstrapping. South Africa historically hasn’t relied on venture capital to build great businesses. Instead, it’s mostly been down to hard work. So many industries in South Africa are thriving without having ever worried about venture capital, so why is this so different in the tech industry?
That said, I’ll indulge those that disagree with me for a minute.
I often hear that there’s not enough angel and VC money available locally. This is bull. I know that the likes of Andrea Bohmert, Keet van Zyl (both at Knife Capital), Brett Commaille (AngelHub) and Justin Stanford (4Di Capital) would love to give the right entrepreneurs and start-ups some money.
So, although the local VC ecosystem may be underdeveloped compared to international markets, this isn’t the biggest problem we have.
Looking at South Africa on AngelList, you’ll find 318 companies listed. More importantly, there are 1 755 investors listed as being interested in investing in South African start-ups. The biggest bonus is that loads of those investors are foreigners who want to bring their shiny dollars and pounds (sterling!) into South Africa.
After that AngelList-induced euphoria, though, do me a favour and actually have a look at the companies listed there: the quality just isn’t there and the vast majority of those businesses aren’t fundable.
The reality is that many businesses aren’t fundable as they can’t generate a 10 times a higher return on investments in a relatively short space of time.
That’s ultimately what angels and (especially) VCs need, since that’s the way venture capital works. This, however, applies only to a certain type of start-up and there are many other ideas that could become great businesses without ever becoming fundable.
The further reality is that the local market simply doesn’t have that many natural acquirers, which makes an exit or liquidation event of some kind unlikely. Within tech, this is also very different to other industries where global corporations buys local companies as part of their worldwide expansion (WPP buying Cerebra and Quirk being two examples). Sure, Groupon did this with Twangoo (now Groupon South Africa), but it doesn’t happen often enough for entrepreneurs to consider this a viable strategy.
I’d argue that our focus should be on profitability and sustainability. The best metric for local start-ups should be getting to the point where they can pay their founders significant cash dividends. You know, my dad always said that cash is king.
Doing this over an extended period of time will eventually attract more interest from all the stakeholders involved: customers, other businesses, the media and investors (both local and foreign).
2. Seek relevant role models
Local entrepreneurs are seeking out the wrong role models. Every day we’re fed stories about the Facebooks, Instagrams, Dropboxes and AirBnBs of this world. None of them is South African.
Neither should Vinny Lingham’s success with Gyft be something that the majority of local entrepreneurs aspire to. Unless of course, you want to move to San Francisco and build your business there. I can’t fault Vinny and Gyft in any way (in fact, I’m in awe and slightly jealous), but trying to replicate that journey in South Africa has the odds that make me cringe.
Instead, I’d look at the South African start-ups that have always flown under the radar: WooThemes, Obox, OnNet, Cerebra, Quirk and Yuppiechef. (If I spent a little more time on this, I could probably find loads more examples.)
These companies have a few things in common:
- They’re not overly sexy (in the way that Instagram and AirBnB are)
- They’re bootstrapped (at least, initially)
- It’s taken them a considerable amount of time to get to where they are today.
- They are also all highly profitable and undisputed success stories. Heck, WooThemes is built on open source (so risky to do that), yet managed to build the most popular e-commerce platform in the world. All from the tip of Africa.
But how often do you find these success stories referenced in local media? Or even conversations at meet-ups or around the braai? How often do we invite these founders, entrepreneurs and team members to educate the rest of us about how they’ve been successful? Surely we should be tapping into their experience to find a better way to build great South African tech companies, rather than sitting around moaning about a lack of funding?
I’m not saying that this never happens, but looking at what new entrepreneurs and start-ups are working on, I don’t get the sense they’re trying to replicate any part of these success stories.
3. Double down on South Africa
Tim Ferris famously advocates in The 4-Hour Work Week that entrepreneurs should move to developing countries to build their start-ups due to the lower cost of living.
Well, guess what? We have that and we don’t even have to buy a plane ticket to go elsewhere. This is a good thing.
We have a low cost of living and cheaper labour (even skilled labour) than most other places in the world. Just a quick comparison of the salary range of a local developer (R20 000 to R40 000) versus US-based developer ($5 000 to $15 000) will make your eyes water.
We have an advantage in South Africa and this makes bootstrapping so much easier.
4. Build the right things
I have an incredible passion for building products and services for other businesses. It’s just a much easier strategy to pull off. And I’m definitely not the only one — business-to-business (B2B) software and technology is a massive industry worldwide.
Yet I see so many local entrepreneurs and start-ups pursuing business-to-consumer (B2C) ideas. I’m not saying that these ideas are bad and won’t work. The odds of success are, however, much less compared to B2B-focused ideas.
Grand B2C ideas — Facebook, Uber, AirBnB — can only flourish where there is a high concentration of early adopters due to the network effect that this kind of consumer product needs. South Africa doesn’t have that. We might have that within the mobile feature phone space, but that’s about it.
Our focus should be on B2B products and services, not on B2C. And it should definitely not be on things like Bitcoin (regardless of how great or trendy it is today). We simply have too many promising and talented people working on things that are less likely to work within South Africa.
To my mind, this is all about increasing your odds of success. None of the successful business I listed above is likely to ever sell to Facebook for $1bn, but that shouldn’t be our aim.
The first aim should always be a profitable and sustainable business. If you get there with a less sexy B2B idea, you have suddenly given yourself a fantastic platform to explore and pursue riskier B2C ideas.
The South African tech ecosystem needs more companies like those above to flourish, because that builds a long-lasting foundation (which is aligned with our DNA) to do bigger and better things.
5. Become builders
There’s a reason why hackers are so highly regarded in San Francisco, New York and other tech hubs around the world: they’re the one’s that build the things that become businesses.
We need more builders and makers locally. We need individuals who can take an idea and turn it into a prototype or first version that allows them to take the next steps (whether that means finding investors or finding customers).
This means that you either have to learn to code or you need to figure out how to build something on the cheap. I’m not a builder (anymore), but in the last year I built two products on the cheap:
- The first version of PublicBeta cost less than R20 000 and generated more than R40 000 in revenue in a couple of weeks.
- SummaList cost me nothing and took 24 hours to build. It also had in excess of R1 000 in revenue within the next 24 hours.
Back when I started WooThemes, though, I had taught myself just enough code to be dangerous and to build the first product. This helped me find my co-founders (who added further capacity and skills), first revenue and the eventual team. This meant that I eventually stopped coding, because I’m not a natural builder or maker.
What I like about this is the “show, don’t tell”-mindset. Instead of sitting around and waiting for funding (to pay someone else to build your ideas), there’s a JFDI spirit where you can take control of your own destiny.
There’s no risk in sitting around waiting for funding (most entrepreneurs do this while they have cushy jobs and pay cheques). The real risk is investing time and energy (along with the sacrifices that comes from this) to either learn to code or to just build something. Only the latter is entrepreneurship in my mind.
- Adii is founder of WooThemes, now working on Receiptful
- This article was first published on his blog and is used here with permission
