Five common mistakes to avoid when setting up a business in Africa
Written by Dr Harnet Bokrezion, co-author of the book 101 Ways to Make Money in Africa
You have made a decision: you are ready to start a business in Africa. So far so good. But implementing this newly-won goal confidently and effectively is another pair of shoes.
If you’re giving it your all, but your business is still not in take-off mode, or has been somewhat stagnant for far too long, you may be sabotaging yourself in spite of your best intentions.
Here are five common mistakes aspiring entrepreneurs and first-time investors (especially those from the diaspora) make when embarking on the journey to build a business in Africa:
1. Sitting on your idea for far too long
Taking your time to do in-depth market research is good, but carrying your idea around for too long without making much progress is not. One crucial success factor widely overlooked when doing business in Africa is to have a sense of urgency. In fact, the importance of that is two-fold. There is a psychological and a practical aspect to it.
When you do too much planning, there’s a tendency to think of one reason after another why what you’re contemplating won’t work. When you procrastinate, you tend to lose your enthusiasm. And you may find that all you have done a year later is still researching another business idea.
Equally important is to develop that sense of urgency when doing business in a new emerging market. Yes, Africa is a pool of opportunities, but that pool is getting increasingly crowded by the day, and once competition intensifies getting started will become even more challenging for you.
Lesson for your success: Move forward with clear intent and focus – delay is a disservice to your ambition and can compromise your success potential.
2. Choosing your market on the basis of personal attachment
Too often decision-making is primarily based on personal attachments or perceptions, and less on market facts. If you are Nigerian, South African or Kenyan, and you can call Africa’s most powerful and dynamic markets home, you are among the lucky.
But even in those instances, you need to be aware that Nigeria is a difficult market to operate in, that in South Africa your start-up will face considerably higher market competition than elsewhere on the continent, or starting a business in the tourism or mining industries in Kenya currently means stepping right onto a trend surrounded by uncertainty.
Here are common errors, especially among the African diaspora: You choose home, because it “feels good”; you pick Angola, because “a friend” has made it there 10 years ago; Sudan becomes the preferred destination, as you know “someone in government”; or you opt for Tanzania, since it “seems like a good choice”.
Lesson for your success: When you make the choice be aware of three aspects to avoid disappointment: 1) It must be one of Africa’s most dynamic growth markets. 2) The industry you choose should be on a clear upward trend. 3) Be aware of the ‘ease of doing business’ in your country of choice, and if possible go for markets with a high opportunity/low risk ratio.
3. Aligning your business or investment concept with the wrong market
Africa has 54 distinct markets and you have to be in tune with the particular market you want to operate in. If you are flexible enough, I suggest choose the right market after you have designed your business concept, then make further adjustments as you go along. One business idea may turn into a great venture in one market and completely fail in another. Your business and your market need to be highly compatible, otherwise you are setting yourself up for failure. Too many aspiring entrepreneurs/first-time investors fail to adequately take that into account.
Lesson for your success: Who would be buying from you? Make a list of their characteristics. Then list what other enabling factors your business would need to flourish – port access, a thriving tourist industry, locally available mobile payment systems for example, favourable regulations…? Once you are clear about certain factors, choose a market in Africa that ticks the most boxes for you. Remain as flexible as possible until you find the perfect fit.
4. Starting without knowing the local regulations
A friend tells you about someone who made huge profits selling shampoo in Angola or building an alcoholic beverage brand in Mozambique. Great, you think, and you start planning.
But did you know Angola recently made imports much more difficult by introducing a mandatory registration for all traders, and a new licence for export and import transactions? Were you aware of Decree 54/2013, dated 7 October 2013, entailing “regulations on the control of the production, marketing and consumption of alcoholic beverages” in Mozambique?
Many hopeful business people have started and then found themselves grappling with regulations and bottlenecks that had been visible if only they’d taken notice.
Lesson for your success: Know the regulations, tax, and pricing trends before embarking on doing business in a certain market or industry, thus avoiding unnecessary challenges along the way.
5. Waiting for start-up capital
It is widely known there is a scarcity of financial capital in Africa, in particular for start-ups. Having said that, far more worrying in my opinion is a widely held myth: that you need a lot of financial capital to start a business. Sure, if your business model is to open a high street shop in Accra to sell TVs, you will need starting capital to make it happen. But here is a critical shift you can make in your approach: do not be held back by lack of capital, instead amend or change your business model.
Open an online business, offer services instead of products, build a platform for existing products, enable networking or business matchmaking, start working from home, or get started from scratch in a unique Africa business niche with no competition.
Despite these options, too many have invested thousands into their start-up too soon and ran out of cash. There are many benefits in starting small and growing your business organically, and Africa offers a lot of fertile ground in this regard.
Lesson for your success: You want a business that starts paying you soon, not one into which you have to pay great amounts of cash over a long period to keep operations afloat. Amend your model to minimise the financial risk in a market you are not yet familiar with. Do that and enjoy seeing your success grow organically.
Dr Harnet Bokrezion is the co-author of the book 101 Ways to Make Money in Africa. She coaches individuals and consults existing companies assisting them to make smart and strategic business decisions in Africa’s new emerging markets. Follow her blog on africajumpstart.com