Think before you scale – the hazards of international expansion for African startups

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African tech startups need to ensure they are properly prepared for expansion into other markets, and not rush into such growth before they are ready.

In a panel focused on when and how to scale startups across Africa at last week’s AfricArena event in Cape Town, panellists advised founders to think long and hard about whether expansion was the right thing for their business in the first place.

If they decide it is, and that they are ready, startups need to make sure they are adequately prepared for all the pitfalls that comes with moving into new African markets.

Eitan Stern, is director and co-founder of Legalese, a creative legal agency for startup businesses. He said the first question for founders when scaling is actually whether or not they actually want to do it, and questioned the idea that bravery was all that was needed to scale a startup.

“You definitely do have to have guts to expand, but the people that succeed are the ones that really check out what they are doing,” he said.

“When legal issues arise, they arise not with things you thought about but with the things you ignored. Structure is an issue. When you are taking someone else’s money, it changes your business from one that is founder-focused. And that’s a very real thing.”

He advised startups to set up structurally and think about the logistics when pushing into other markets, and really ensure they know what they are getting themselves into.

“There’s this idea that you have a South African business, and then there’s the “rest of Africa”. But the “rest of Africa” doesn’t think of itself like that. Every country is different, and has very different rules, and people overlook the regulatory requirements. You want to know what you are doing,” Stern said.

“Then there’s brand. You are changing the environment and community in which your brand operates. There’s stuff as simple as whether someone has the same name as your company in this new market, and whether your business works in this new country.”

He also said startups should only expand abroad once the time is right, ensuring they have grown to their full capacity in their home market first.

“I quite simply believe with startups that you should play the hand in front of you. You can’t start a startup thinking about international expansion,” said Stern.

Investment advisor Aubrey Hruby disagreed to an extent, saying more experienced founders may decide to set their business up with potential to expand, and pick sectors where expansion would be easier. Yet she agreed with Stern’s suggestion that startups tend to scale into new markets before they are ready.

“There are times when people prematurely expand abroad and they don’t own their home market yet. You don’t want to look away too much from your home market when you still don’t have it tied up,” she said.

This was a view shared by Antoinette Prophy, founder of the 88 Business Collective.

“Founders are quite often rushing towards this big vision, but they need to be methodical and strategic in their approach. You need a board of advisors or people that can reel you in,” she said.

Prophy has experience of scaling across Africa, having expanded her previous business – Afrofusion Advertising – from South Africa into Kenya and Uganda. She said founders, especially female ones, should be prepared for a culture shock when it comes to the attitudes of men towards women in business and corruption levels.

“We have patriarchy lite in South Africa. In the rest of Africa it is on another level,” she said. “In East Africa, as we were going towards the bigger deals it was almost a requirement to pay someone under the table.”

But if a startup does decide the time is right to scale to other African countries, which companies are best equipped to do so successfully. Hrubry said the nascent nature of the space meant it was difficult to pinpoint key factors thus far, but offered what in her view were some of the main characteristics of successfully expanding startups.

“The key ingredient of successful scaling is the experience of the founding team. They are not first time founders, they have learnt the hard way. Teams that have been in that scaling environment before and learnt a lot. They also have international linkages, connections from their own network, the ability to raise money externally, the ability to do new market entry,” she said.

“They continuously pivot until they find product-market fit. Pivoting is a way of life for African startups, and it is not something that happens just once. I’m seeing more scaling from South African, Kenyan and Nigerian companies because they have a larger operating realm to start with, and they gain more experience.”

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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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