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Importance of Startup Incubators in Emerging Markets

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Entrepreneurship, at different scales, always has an impact on individuals and communities as it brings independence and prosperity.

Entrepreneurship in developing markets grows economies and can be a powerful social equalizer. To break down barriers, it is imperative to further promote business creation in such nations on a wider scale and as quickly as possible, especially as emerging countries are continuing to lose their brightest minds who opt to move to more prosper regions of the world; a brain drain that further accentuates economic disparities between countries.

According to the International Organization for Migration (IOM), this exodus affects African countries the hardest, since Africa has already lost one third of its human capital and is bleeding its skilled personnel at the rate 20,000 per year. These are highly educated university graduates: doctors, university lecturers, engineers and other professionals who are leaving the continent each year, for good!

Emerging countries desperately need to keep these skilled executives, managers and entrepreneurs. Many developing countries have understood this and have worked on trying to ease the problem by simplifying their company creation processes, and launching business accelerators and incubators. These initiatives remain scarce and are usually backed by the government or NGOs who tend to be the driving force.

NGOs tend to focus on projects that have local immediate impacts on disadvantaged communities. In a few cases, business coaches have launched private mentorship outfits, sometimes with the backing of government initiatives, but success stories are scarce and so often the impact is limited to the mentor having a successful mentorship business.

Developed nations, through regional investment and empowerment authorities, use the same acceleration models to promote projects that help employment and have an impact on local economies, but the most powerful effects, those felt worldwide, have always been initiated by the creation of startups that were backed by private funds through mechanisms like private incubators, accelerators, angel investors and venture capitalists.

Still, wide impact entrepreneurship isn’t exclusive to Silicon Valley, New York, Paris, London or Tokyo, and it is not always about using the latest technology! Simple solutions, developed by entrepreneurs in developing countries, can similarly have impacts on worldwide audiences.

Unfortunately “world reaching” ventures from emerging markets are rare, as entrepreneurs in these countries face major obstacles to building successful startups due to the local culture, the scarcity of experienced mentors and very inadequate funding. In fact the 2015 Africa Competitiveness Report details the most problematic problems for doing business in Africa. They are in order of importance: access to financing, corruption, lacking infrastructure, bureaucracy, and an inadequate workforce

Many entrepreneurs, in developing countries, simply do not trust themselves to compete on the international scene and stick to creating solutions that insure their local prosperity rather than embrace worldwide aspirations by building perhaps farther-reaching solutions, which may fail! It does not help that failure is often regarded as a form of inadequacy on the part of the entrepreneur, which further burdens, those that go through such stigma.

In the few cases where local entrepreneurs go with their ambition, they often have no recourse but go through banks, which seldom finance projects when there are no tangible collaterals and even then, they usually qualify these types of projects as risky and dictate financing at very disadvantageous terms.

Even with the Internet being the great equalizer that it is, startups who emerge from the developing word with worldwide ambitions remain very scarce, as investors often concentrate their investment in particular sectors or regions of the world and tend to shun investing in areas that present just too small of opportunities for them and thus, in their mind, are not worth the trouble of their time and investment, when in fact some of these startups can be lucrative investment opportunities, due to this very lack of competition for these projects! RoamStart in Tunisia, Fuzu in Kenya, Custos Media in South Africa, or Pointivo in Nigeria are examples of promising startups but there are still too few of them.

Some companies, especially from Europe, have seized on this opportunity and created private funds and incubators in several emerging countries. These incubators have launched startups for which they basically “hired” local entrepreneurs to develop local solutions based on “what already works” in leading nations. Rocket Internet, Seedstars and NUMA are some examples.

The market for such ventures being so open and at such an embryonic stage, the terms of the deals that the entrepreneurs get are often not as advantageous as those obtained by their counterparts in the US or Europe, but in light of the risk mitigation steps that need to be taken by these first movers and with terms being much more favorable than those of banks, this is an acceptable investment strategy since it is clear progress.

These investment outfits are growing very fast as a result of their first mover’s advantage and the lack of competition from other venture capitalists, so there is a bit of the “Wild West” effect. A few incubators, however, had to close! Hypercube Hub in Zimbabwe and 88mph in Kenya for example closed in 2015, Raizcorp on the other hand is a rare example of a profitable incubator not receiving grant funding. Other brave local outfits are launching, such as Wired Startups, out of Morocco, also a private company, who is launching its own brand of incubation, championing projects aimed at the U.S. market using unique co-founding partnerships.

This is encouraging for Africa, especially as we see in parallel that the number of investments is increasing. In fact, Disrupt Africa reports that African tech startups received funding in excess of US$129 million in 2016, with the number of startups securing funding up by 16.8 per cent year to year. Still, this remains a dismal number for such a large and full of potential continent.

In time, more local players will get over their fear of failure, especially as they accept that most startups can fail but that those startups that succeed can substantially cover the losses of a portfolio and even make it very profitable. Things should also stabilize even further as more local and international players get into similar forms of co-founders incubation types of agreements, and competition for talent and projects grows.

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About the Author

This article was written by Mounir Elabridi. Mounir is Co-Founder and CEO of Wired Startups, a startups incubator, based in Morocco. Wired Startups brings together teams of developers, entrepreneurs and designers and helps them build investable prototypes for the international market. Follow Wired Startups on Twitter, Facebook and LinkedIn.

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Entrepreneurship

The Brittle vs. Ductile Strategy for Business

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Companies and startups often pursue a path of “brittle strategy” and in it’s execution, it can be translated, in layman terms, into something like this:
Heard about the guy who fell off a skyscraper? On his way down past each floor, he kept saying to reassure himself: “So far so good… so far so good… so far so good.” How you fall doesn’t matter. It’s how you land!
– Movie : La Haine (1995)

Brittle strategy :

A brittle strategy is based on a number of conditions and assumptions, once violated, collapses almost instantly or fails badly in some way. That does not mean a brittle strategy is weak, as the condition can either be verified true in some cases and the payoff from using this strategy tends to be higher. However the danger is that such a strategy provides a false sense of security in which everything seems to work perfectly well, until everything suddenly collapses, catastrophically and in a flash, just like a stack of cards falling. Employing such approach, enforces a binary resolution: your strategy will break rather than be compromising, simply because there is no plan B.
From observation, the medium to large corporate company strategies’ landscape is often dominated by brittle “control” strategies as opposed to robust or ductile strategies. Both approach have their strong parts and applicability to corporate win the corporate competition game. The key to most brittle strategy, especially the control one, is to learn every opponent option precisely and allocate minimum resources into neutralizing them while in the meantime, accumulating a decisive advantage at critical time and spot. Often, for larger corporations, this approach is driven by the tendency to feed the beast within the company that is to say the tendency is to allocate resources to the most successful and productive department / core product / etc.. within the company. While this seems to make sense, the perverse effect is that it is quite hard to shift the resources in order to be able to handle market evolution correctly. As a result of this tendency, the company gets blindsided by a smaller player which in turn uses a similar brittle strategy to take over the market.The startup and small company ecosystem sometimes/often opts for brittle strategy out of necessity due to economic constraints and ecosystem limitations because they do not have the financial firepower to compete with larger players over a long stretch of time, they need to approach things from a different angle. These entities are forced to select an approach that allows them to abuse the inertia and risk averse behavior of the larger corporations. They count on the tendency of the larger enterprise to avoid leveraging brittle strategies, made to counter other brittle strategies. These counter strategies often fail within bigger market ecosystem as they are guaranteed to fail against the more generic ones. Hence, small and nimble company try to leverage the opportunity to gain enough market share before the competition is able to react.

Ductile strategy :

The other pendant of the brittle strategy is the ductile strategy. This type of strategy is designed to have fewer critical points of failure, while allowing to survive if some of the assumptions are violated. This does not mean the strategy is generally stronger, as the payoff is often lower than a brittle one – it’s just a perceived safer one at the outset. This type of approach, will fail slowly under attack while making alarming noises. To use an analogy, this is similar to the the approach employed with a suspension bridge using stranded cables. When such a bridge is on the brink of collapse, will make loud noises allowing people to escape danger. A Company can leverage, if the correct tools and processes are correctly put in place, similar warning signs to correct and adapt in time, mitigating and avoiding catastrophic failure.
To a certain extend, the pivot strategy for startups offer a robust option to identify the viability of a different hypothesis about the product, business model, and engine of growth. It basically allows the Company to iterate quickly fast over the brittle strategy until a successful one is discovered. Once found, the Company can spring out and try to take over the market using this asymmetrical approach. For a bigger structure, using the PST model combined with Mapping provides an excellent starting point. As long as you have engineered within your company and marketed the correct monitoring system to understand where you stand at anytime. Effectively, you need to build a layered, strategic approach via core, strategic and venture efforts combined with a constant monitoring of your surroundings. This allow you to take risks with calculated exposure. By having the correct understanding of your situation (situational awareness), you will be able to mitigate threats and react quickly via built-in agility. However, we cannot rely solely on techniques that allow your strategy to take risk while being able to fail gracefully. We need techniques that do so without insignificant added cost. The cost differential between stranded and solid cables in a bridge is small, and like bridges, the operational cost between ductile and brittle strategy should be low. However, this topic is beyond the scope of this blog post but I will endeavor to expand on the subject in a subsequent post.
Ductile vs Brittle :
The defining question between the two type of strategies is rather simple: which strategy approach will guarantee a greater chance of success? From a market point of view this question often turns into : is there a brittle strategy that defeats the robust strategy?
By estimating the percentage of success a brittle strategy has against the other strategies in use, weighted by how often each strategy is used by each competitor you can determinate the chances of success.Doing this analysis is a question of understanding the overall market meta competition. There will be brittle strategies that are optimal at defeating other brittle strategies but will fail versus robust. However, the robust one will succeed against certain brittle categories but will be wiped out with other. Worse still, there is often the recipe for a degenerate competitive ecosystem if any one strategy is too good or counter strategies are too weak overall. Identifying the right strategy is an extremely difficult exercise. Companies do not openly expose their strategy/ies and/or often they do not have a clear one in the first place. As a result, if there is a perception that the brittle strategy defeats the ductile one, therefore the brittle strategy approach ends up dominating the landscape. Often strategy consulting companies rely on this perception in order to sell the “prêt a porter” strategy of the season. Furthermore, ductile strategies tend to be often dismissed as not only do they require a certain amount of discipline, but also the effort required in its success can be daunting. It requires a real time understanding of the external and internal environment. It relies on the deployment of a fractal organisation that enables fast and risky moves, while maintaining a robust back end. And finally, it requires the capability and stomach to take risk beyond maintaining the status quo. As a result, the brittle strategy often ends up more attractive because of its simplicity, more so that it’s benefit from an unconscious bias.

The Brittle strategy bias:

Brittle strategies have problems “in the real world”. They are often unpredictable due to unforeseen events occurring. The problem is we react and try to fix things going forward based on previous experience. But the next thing is always a little different. Economists and businessmen have names for the strategy of assuming the best and bailing out if the worst happens, like “picking pennies in front of steamrollers” and “capital decimation partners”.
It is a very profitable strategy for those who are lucky and the “bad outcome” does not happen. Indeed, a number of “successful” companies have survived the competitive market using these strategies and because the (hi)story is often only told by the winner’s side only, we inadvertently overlook those that didn’t succeed, which in turn means a lot of executives suffer from the siren of the survival bias, dragging more and more corporations into similar strategy alongside them.
In the end all this lot ends up suffering from a more generalized red queen effect whereby they spend a large amount of effort standing still (or copying their neighbors approach). This is why when a new successful startup emerges, you see a plethora of similar companies claiming to apply a similar business model. At the moment it’s all about UBER for X and most of these variants. If they are lucky, they will end up mildly successful. But for most of them, they will fail as the larger corporations have been exposed and probably bought into the hype of the approach.
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About the Author
This article was written by Benoit Hudzia of Reflections of the Void, a blog about life, Engineering, Business, Research, and everything else (especially everything else). see more.
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Entrepreneurship

What Kills A Startup

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1 – Being inflexible and not actively seeking or using customer feedback

Ignoring your users is a tried and true way to fail. Yes that sounds obvious but this was the #1 reason given for failure amongst the 32 startup failure post-mortems we analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. For instance, ecrowds, a web content management system company, said that “ We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”

2 – Building a solution looking for a problem, i.e., not targeting a “market need”

Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing. “Companies should tackle market problems not technical problems” according to the BricaBox founder. One of the main reasons BricaBox failed was because it was solving a technical problem. The founder states that, “While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.”

3 – Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a starti[ company. Failure post-mortems often lamented that “I wish we had a CTO from the start, or wished that the startup had “a founder that loved the business aspect of things”. In some cases, the founding team wished they had more checks and balances. As Nouncers founder stated, “This brings me back to the underlying problem I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made.” Wesabe founder also stated that he was the sole and quite stubborn decision maker for much of the enterprises life, and therefore he can blame no one but himself for the failures of Wesabe. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.

4 – Poor Marketing

Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure. Oftentimes, the inability to market was a function of founders who liked to code or build product but who didn’t relish the idea of promoting the product. The folks at Devver highlighted the need to find someone who enjoys creating and finding distribution channels and developing business relationship for the company as a key need that startups should ensure they fill.

5 – Ran out of cash

Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the group or develop gradually over time is a tough act to balance. The team at YouCastr cited money problems as the reason for failure but went on to highlight other reasons for shutting down vs. trying to raise more money writing:

The single biggest reason we are closing down (a common one) is running out of cash. Despite putting the company in an EXTREMELY lean position, generating revenue, and holding out as long as we could, we didn’t have the cash to keep going. The next few reasons shed more light as to why we chose to shut down instead of finding more cash.

The old saw was that more companies were killed by poor cashflow than anything else, but factors 1, 2 and 4 probably are the main contributing factors to that problem. No cash, no flow. The issue No 3 – the team – is interesting, as if I take that comment ” I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made” and think about some of the founders and startup CEOs I know, I can safely say that the main way that any decision was made was by agreeing with them – it was “my way or the highway”. I don’t therefore “buy” the team argument, I more buy the willingness of the key decision makers to change when things are not working (aka “pivoting” – point 9).

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About the Author

This article was produced by Broadsight. Broadsight is an attempt to build a business not just to consult to the emerging Broadband Media / Quadruple Play / Web 2.0 world, but to be structured according to its open principles. see more.

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