When Cash is Not Always King
— Building Startups in Africa
I have had the privilege of working with quite a number of startup founders, angel investors and innovators across the African continent over the last two decades. These experiences have led to my view that while cash is a critically necessary resource for building startups, there are non-cash resources that are equally, if not more, essential to the success of startups in Africa.
We are prone to thinking of business success only in terms of money ; “cold hard cash” as some of my friends put it. We’ve been conditioned to think that financial capital is the primary, and some would even argue only resource requirement for a startup’s success. In reality, when it comes to cash, startups have two options: generating it or raising it. While raising cash can be advantageous in certain circumstances, generating cash should remain top priority as it unequivocally demonstrates product-market fit, validates business strategies, extends runway, and allows founders greater independence. Nonetheless, for startups who typically have explosive growth, raising cash is ideal when done on favourable terms.
What I actually want to challenge is the mindset that cash funding is the only or even primary driver of success especially within the context of the African startup ecosystem. While it is undeniable that capital is crucial, my argument is that non-cash resources, such as venture building, business advisory services, business connections, founder mentoring and most especially founder accountability partnering can be even more critical to the success of a startup in Africa. In fact, in my personal experience, these non-cash resources often provide the key to unlocking a startup’s full potential.
To illustrate my point, let’s examine some of the key things I consider to be essential aspects of building a successful startup on the African continent (or anywhere else with provision):
Let’s start with business strategy. The success of a startup is contingent upon a well thought out business strategy based on deep industry knowledge, market analysis, and strategic thinking which often requires expert guidance and support resources that don’t come with a price tag. A well-executed strategy will help a startup overcome initial hurdles, and a robust plan will guide its growth trajectory. However, it is ultimately the founder’s vision and the ability to execute that strategy that determines the success of the company, rather than the amount of money invested.
Next, let’s look at go to market. Many African markets are unique, with distinct cultural nuances and customer behaviours. Breaking into a new market on the continent is a challenge that goes beyond financial resources. Understanding these markets requires local knowledge, insights, and strategic partnerships to navigate the unique nuances of each local African market. On the continent (as the rest of the world), a well-connected mentor or advisor will open doors that money just can’t.
Now let’s talk about customers because as we all know they are the lifeblood of any business so finding and keeping them is vital for all startup ventures. The customer challenge is acquiring them, retaining them and managing the relationship with them to do that. This will often depend on the strength of the startup’s business model, the quality of the product or service offering, and an ability to create a lasting relationship with customers. In our increasingly digital world, for startups to build these meaningful relationships with their customers requires skill, creativity, effective communication and time. It’s about understanding customer needs and building trust — things that just can’t be bought.
Product development is another critical part of building a startup because developing and refining the product or service offering to meet customers’ needs is essential. The best products are built by startups with diverse and talented teams that have a range of expertise, understand their customers well and are driven by passion, not just money.
Managing talent is next on my list of critical startup building factors. Attracting and retaining top talent is crucial for a startup’s growth and building a team of dedicated, skilled, and passionate individuals is vital to the success of any startup. Doing this means building a strong company culture and providing growth opportunities for employees beyond simply offering competitive salaries. That’s because finding the right people more often depends on the vision, reputation and culture of the startup rather than just an attractive salary it may (or may not) be able to offer.
Then we have business development in which given the early stages of a startup I include marketing, sales, and communications. In our interconnected digital world, a startup can literally reach millions of people overnight with a well-crafted message. However that requires an understanding of the market, creativity, and effective communication skills, not just a big budget. In addition, building a strong brand and establishing a market presence is essential. It requires strategic thinking, creativity, and innovation, which often stems from a solid foundation in mentorship and guidance.
The startups business operations is another area where advice and expertise can outperform capital. Streamlining business operations and reducing inefficiencies requires a deep understanding of the business model and the ability to adapt and improve processes. This is often best achieved through a combination of hands-on experience and outside expertise. An experienced advisor can help streamline operations and maximise efficiency, leading to better results and lower costs.
Corporate governance can be a complex area where expert advice is invaluable for helping startups operate effectively while avoiding costly mistakes and legal issues. Navigating the complex legal and regulatory landscape in Africa requires knowledge and guidance from experienced professionals, which can often prove to be more valuable than cash in the long run.
Now let’s look at my home turf where leveraging technology and data to optimise processes and gain a competitive advantage are the backbone of any modern startup or at least the ones I deal with. Expertise in domains, such as data analysis, systems development, cybersecurity and others are crucial and available only from experience and knowledge rather than cash investment.
Even profitability of the startup, while certainly linked to capital availability, requires expertise in financial planning and management. A financially literate founder can do more with less and make every dollar count. So while cash is necessary for operations, it is the effective management of finances and the pursuit of profitability that ultimately determines a startup’s financial success.
Finally let’s not forget sustainability and impact of the startup as it gets built. Social and environmental impact is becoming increasingly important and Startups need to measure their impact and track their progress. This requires a clear vision, a comprehensive understanding of the business and its stakeholders and effective tracking systems, not just capital.
These are areas I see as important as, and in some instances, more important than cash because without these other critical elements in place, a startup may struggle to thrive, even with significant financial backing.
This brings me (thanks to my friend Philip Kiracofe of Startupbootcamp) to a very important point about accountability partners who play a pivotal role in guiding founders through the complexities of entrepreneurship, ranging from financial management, strategic planning, recruitment, to marketing and others as shared earlier. Founders are often placed in the challenging position of making tough decisions and compromises, which underscores the significance of their role. The reality is that many of our African founders lack an adequate set of tools and a structured process to facilitate optimal decision-making. Even with these tools at their disposal, maintaining focus and staying on course during unexpected crises can be a significant challenge to the best of them.
An accountability partner serves as an essential check-in point, irrespective of the founders’ proficiency in vision setting and other areas. These third-party advisors, mentors, or board members assist founders in developing disciplined thinking patterns and using external resources to minimise distractions and retain focus. Essentially, the accountability partner’s role ensures that the founder maintains a firm grip on the helm, skilfully navigating through the metaphorical winds, currents, and storms of the business world.
The accountability partner role underscores my assertion that cash is not the only measure of a company’s success. It’s why I say cash is not always king! Because it’s how the cash is managed and used that truly defines a startup venture’s success. Indeed, while financial resources are important, the strategic application of these other resources, guided by insightful decision-making, is in my humble opinion more vital. A founder may have access to ample cash, but without the strategic direction, discipline, and guidance provided by an accountability partner, these resources could be misallocated or wasted, leading to suboptimal outcomes.
Though cash is a fundamentally necessary resource, I trust that it’s clear that non-cash resources like those I have talked about here are equally, if not more, essential to the success of startups in Africa. As we continue to support and nurture the growth of our vibrant entrepreneurial ecosystem, let us remember that it takes a village of mentors, advisors, partners, and supporters to help entrepreneurs realise their dreams of building successful startups that unlock the true potential of African innovation.
So while keeping a strong eye on profitability and impact let’s shift our focus from capital to capacity building, from funding to founder development, and from cash to connections so we can build a more sustainable and inclusive startup ecosystem in Africa.
