Securing route to market is the key ingredient to building successful tech startups in Africa, and corporate partnerships are one of the primary ways of doing this.
That is according to Zachariah George, co-founder and chief investment officer of Startupbootcamp AfriTech, who was speaking at last week’s startup-dedicated AHUB event at the AfricaCom conference in Cape Town.
He said startups were often too focused on securing funding, whereas building a customer base was the most important thing.
“The key question is how you secure your route to market. It is not about how much money you raise. Money will follow if you get customers,” George said.
“The reality is that people do not understand how to scale in Africa. You can’t just spend money to acquire customers here. It doesn’t work.”
The businesses that work best are businesses that are B2B and B2B2C, he said.
“The moment you convert B2B models into B2B2C models you have a much better chance of succeeding,” said George.
“We have had a lot of exits, but almost none of them are direct to consumer business models. The companies that have exited are B2B, or B2B2C. You have to be smart, you have to understand what your route to market is. You’ve got to look beyond what is sexy and appealing to the eye, and understand it is not just about a cool app. You need to look at what is appealing to a big company, a big bank, or a big telco.”
These corporates can play key roles in helping tech startups build their customer bases. Startupbootcamp is a corporate-backed accelerator that facilitates partnerships between big companies and startups, with George saying such deals can prove pivotal to growing a small business.
“There’s no point in spraying and praying. I would rather have 10 companies in my portfolio with corporate deals than 1,000 without any deals,” he said.
To work with corporates, however, startups need to figure out where the bottlenecks are, and understand how banks and other corporates work.
“Tech is disrupting the way large organisations work every day. Fintechs are the big competitors to banks. They understand how to fail fast. Corporates need you more than you need them but you need to understand how to solve a pain point. If you want to work with large corporates, you need to think like a corporate. You have to be able to understand how to use large institutions to your advantage. That’s the only way you can scale,” George said.
“The best way to build stuff is to use other people’s networks. It is the sharing economy. The biggest companies use other people’s networks – Uber, Airbnb, Spotify. Spotify got millions of users overnight when they signed a deal with Uber, and Uber got lots of new users. These are two big tech giants, but apply that logic too your startup. Understand how you can build your service if you partner with other companies. How can you leverage off a corporate’s, or another startup’s, networks? People say they want to raise money but they are not being smart.”
There has been a move towards bigger firms buying African tech startups, such as Standard Bank acquiring SnapScan in South Africa, but George said such acquisitions rarely worked well and that corporates should partner with, rather than acquire, startups.
“As soon as a corporate feels threatened by a startup, they buy it. It’s stupid. When you feel threatened, you make knee jerk reactions,” he said.
“Corporates do not understand how to run startups. But what they are good at is distribution. You as a tech startup need to understand what corporates have and make it work for you.”