African tech hubs must act like startups

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African tech hubs must act like startups if they are to be financially sustainable long-term, as what investors care about most are the outcomes from their funding.

This is the message from Tayo Akinyemi, director of AfriLabs, which is a network of 36 tech hubs in 18 countries across Africa that last year partnered AfriHive for a series of Google Hangouts on hub sustainability.

Akinyemi said last year African tech hubs were fragile with no clear path towards long-term sustainability, and must work together and innovate in order to prosper. Summing up the outcomes of the hangouts today, she said what “hub investors” care about are the outcomes that hubs produce and the startups and developers that hubs engage.

“Hub members care about what they get or experience in hubs – community, internet, space, training, ideas, and coffee. This simple reality may be a key to hub sustainability,” Akinyemi said.

She said hubs have an opportunity in that they serve as infrastructure to support tech, entrepreneurship and innovation, though the challenge is that “too many hubs try to do too many things to serve their communities, while few of these activities generate revenue”.

“Many hubs provide public good services – free training, access to internet – that aren’t provided elsewhere, and aren’t monetisable because community members can’t afford to pay market value for them,” she said.

“Their users are not their customers because they cannot afford to be. Also, it’s difficult to focus on what is useful and profitable while juggling many things. As such, many hubs develop value-added services to another set of stakeholders such as corporates and development agencies who become customers that subsidise the costs of the services provided to communities. Over time, hubs also tend to specialise and differentiate out of necessity. If all of this sounds relatively straightforward, don’t be fooled. The exact formula for a truly sustainable business model remains to be seen.”

Akinyemi said the key takeaways from the hub sustainability discussions were that hubs needed to understand themselves, define their targets, communicate their impact, and act like startups.

“Know your unique value proposition as a hub. At the risk of sounding remedial, it’s important to understand who you are, what you do, and what value you provide to key stakeholders,” she said.

“You must have a clear idea of your reason for existing beyond running a cool space where people do cool stuff, and what your value is alongside substitutes for your space, which include other hubs, or non-usage of your hub, for example. Whether it’s creating jobs, developing digital skills, facilitating foreign direct investment, or a combination of these, you need to clearly state through a mission statement, strategy, and/or business model what value you’re adding, and how you intend to be compensated for providing that value.”

Akinyemi said one size doesn’t fit all, and that what sustainability means and how a hub will get there will differ by hub.

“For an accelerator such as CTIC Dakar that supports startups as its core business, revenue and gross margin sharing makes sense. For a green tech focused pre-incubation space such as icecairo, which focuses on supporting social innovators with limited disposable income, a cross-subsidy model such as generating revenue from products developed in-house is a better fit,” she said.

“You should also keep in mind that your path to sustainability will probably change while you’re on it. What works in your plan may not work in reality, and what works in year two may not work in year five.”

She said sustainability wasn’t necessarily about being profitable.

“It’s about having a plan to stay open while building your community and business model over the long term. This usually means working with partners. If you have a solid ecosystem map and a clear idea of who the core stakeholders are, you’ll see that different organisations have different objectives that you can help them achieve,” Akinyemi said.

“Ideally, you’d be compensated for partnering to achieve those goals, and some of this compensation could be channeled through grants. This may not be a bad thing if you plan for sustainability from the beginning, and focus on how to work with key players to provide different benefits to the community, instead of assuming the full burden of funding and delivering everything yourself.”

She said hubs needed to “act like startups” by planning for sustainability from the beginning, even if donor-funded as most are. African tech hubs, Akinyemi said, should assume that they will need at least three years, probably more, to experiment with revenue streams, realise what works, and develop a business model.

“Of course, the transition from donor-funded to self-funded is a difficult one because donor funding can come with a “development” mentality,” she said.

“This is changing as the sector becomes more outcomes and market-driven. Nevertheless, despite serving users that have little to no disposable income, it’s important to set early expectations about paying for services, even if the initial costs are heavily subsidised, or you use non-monetary currency that enables members to exchange community contributions for services”.

Akinyemi mentions the use by RLabs of digital currency for its Youth Cafes and icecairo distributing icebites, or credits earned by making contributions to the hub that can then be used to “purchase” hub services.

Donors should also provide sufficient seed funding and room to pivot, or even fail.

“Although two to three years at minimum of “figure it out” funding is a luxury for many hubs, it’s necessary given the complexity of the hub model,” she said.

“Not only are hubs focused on building and serving communities to the best of their ability, they’re trying to test assumptions, experiment with and diversify revenue streams, and find their place amongst other hubs. We don’t talk a lot about failure in the hub universe, even though examining how and why hubs have struggled would be just as instructive as discussing success strategies.”

To do that, she said, hubs needed a “safe space” to discuss failure.

“No hub founder will have all of the answers at the outset, but she should have a set of working hypotheses and a strong sense of accountability so that if the project fails, there are critical learnings that leave others better equipped to succeed,” Akinyemi said.

“Unfortunately, grant funding schemes generally aren’t set up for that. If you fail, or even deviate from the original project scope, your future funding prospects could be damaged or disappear entirely.”

Diversification of funding resources to de-risk a hub’s business model is also key.

“Having a sole source of income is inherently risky, while having many, even if they don’t generate profit, makes you more resilient,” Akinyemi said.

“However, if there is one thing about which I am fairly confident, it is that the solution to the hubsustainability problem lies within the hub community. It’s being solved actively and creatively in silicon savannahs, islands, lagoons, and capes across the continent.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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