As the Global Entrepreneurship Summit comes to a close and President Obama completes the second chapter of his African tour in Ethiopia, it is hard not to see the enormous upside the entrepreneurial movement can offer the world.
|
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

Part 3 of 3 articles focused on entrepreneurship in Africa.

As the Global Entrepreneurship Summit comes to a close and President Obama completes the second chapter of his African tour in Ethiopia, it is hard not to see the enormous upside the entrepreneurial movement can offer the world. Nowhere is this clearer than the vibrant entrepreneurial culture taking root in Kenya and indeed across Africa. President Obama's message was necessarily upbeat and he left GES2015 with a call to action for entrepreneurs, particularly women, who were among the more impressive innovators at the summit. In a word, entrepreneurship is a road toward economic self-determination - one where investors should get off the sidelines and where political and established business leaders should remove the pernicious roadblocks of corruption and arcane economic policies favoring the largest firms and kleptocrats.

In many developing countries the state is often the most important economic actor, crowding out virtually every segment of the economy with government spending. This creates a heavy yoke entrepreneurs must overcome, where many of them are not innovative per se in their products or services, but rather are masters of government and institutional procurement. Despite nascent angel and venture capital networks forming across Africa, the general state of the capital markets, lack of liquidity and limited exit possibilities through exchanges makes for a shallow and impatient pool of risk capital when applying Silicon Valley's yardstick. As a result African entrepreneurs need to either master the art of bootstrapping, friends and family funding or selling their wares to established firms or the government not as prototypes, but as finished products. Half a trillion dollars of interest free development aid over the last 50 years has certainly hampered financial acumen around the notion of the risk-reward trade off and the investment horizon. Nonetheless, most of the entrepreneurs at GES2015 took umbrage at the notion that an investor was giving them a handout with no intention of getting a positive return.

Against this backdrop, some parting thoughts (and words of caution) for the many impressive entrepreneurs, investors and policymakers at GES2015, whose endeavors represent an inflection point for Africa and the world.

Build businesses you want to run, not businesses you want to fund. While capital is the lifeblood of any firm (for profit or non-profit, public or private), the short term focus on fund raising makes many entrepreneurs sway with the wind. Facebook would have been Myspaced out of existence if Mark Zuckerberg was not committed to running it over the long term.

Work like a general manager, think like an entrepreneur. A general manager's decision framework is shaped by resource constraints in their strategic and operational environment. The entrepreneurs' imagination is their greatest asset. Too wide a gap between what a general manager would (could) do and what an entrepreneur desires to do can lead to fanciful visions of solving the world's problems with no viable way to get there.

Nobody buys prototypes or installs beta. If product recalls and software patches are good enough for Toyota and Microsoft, they are good enough for entrepreneurs. These moments of market-testing are important sources of feedback on how to drive continuous market-led improvements. The market decides whether your product or service is "disruptive" and not the mad scientist entrepreneur in a lab. An imperfect product with flawless execution is better than a perfect product that never sees the light of day. So it is better to put the train of your idea on a collision course with the market, even though the tracks are not totally finished.

The entrepreneur's portfolio life. You can have a job and be entrepreneurial. You can be a student and tinker with a business model on the side. The fatalistic ethos of the entrepreneur having to lose it all for their endeavor is not true. While you can and will likely run out of money with your startup, you should never lose your fulfillment or happiness with your life choices. If you do, you can create another business or opportunity, it is improbable that you will have another life. When you find the business you are willing to happily suffer for, you are on the right path.

Beware of jargon. To the uninitiated, attending a large gathering of entrepreneurs like GES2015 is like traveling to a foreign land with a foreign language. Everyone is disrupting something, the successful ones are serial innovators and scale is not something you use to gauge your weight, but rather your strategic imperative to create virtuous cycles. While this lingua franca of entrepreneurship binds us, it can be off putting to investors and, more importantly, customers and partners who all want to get to the gist of what you offer and how it adds value to them. Save the 'creation myth' of your world-changing idea for your inner sanctum or TED talk and run your startup like it was the largest firm in the world.

Speed to market is your best patent or copyright. How many times have you thought of the next game changing idea to shape the world? Normally with a little bit of research you find that the domain name is already registered and the idea is not only an established industry, there are countless firms competing in the red ocean of your blue ocean breakthrough. Against the industry trend of non-disclosure agreements and top secret meetings and pitch decks, you cannot fund or sell the world's best kept secret, unless you enjoy 100% equity ownership of nothing. As Steve Jobs famously said of the market, "people don't know what they want until you show it to them."

Profit and purpose are not competing forces. You do not have to brand yourself as a "social entrepreneur" to be en vogue or to soften the blow of your funding requests. All entrepreneurs and all businesses for that matter have a purpose beyond making profits. Even the most nefarious industries on the planet create employment, which presumably generates some social value for the employed beyond the many negative externalities they may cause. An established company's CSR program is the social entrepreneur's raison d'être. So before you register your idea as a non-profit limiting your funding sources, recall that self-sustaining profitable firms have an impact.

Risk is a catalyst not a cost. As an entrepreneur it is not the jump that kills you, but the landing. Mastery of risk or the downside in your venture can not only soften the landing, it can unlock investor and customer confidence. All too often entrepreneur's narrate the upsides and the incalculable value they have uncontested access to in their addressable market with their minimum viable product. Worse yet, many investor pitches use this improbable math to describe their often inflated company valuations instead of turning to investors for their more reasonable operating budget.

The burgeoning incubator, lab and entrepreneurial hub ecosystem in Africa can serve an important function in mutualizing risk and rewards in early stage investment opportunities. This may be particularly appealing to risk-averse investors looking for comfort and risk mitigation balanced against better spread and longer horizons. The idea would be to pool or index the equity of all the startups in a given cohort where the incubator serves as a broker and guarantor of sorts. This gives investors access to early stage firms at an arm's length and gives entrepreneurs in developing markets much needed access to regional and international capital. The hubs, many of which are also searching for financial viability, can maintain their impartiality toward the individual startups by charging a management fee for this service or participating in the overall equity pool. This concept has worked exceedingly well in micro-finance and can help move capital up a notch to accelerate the impressive potential among small to mid-sized enterprises (SMEs).

(First published in LinkedIn Pulse on 7/27/2015).

Go To Homepage

Before You Go

Popular in the Community