Seven mistakes the African diaspora make when starting a business in Africa

Dar es Salaam, Tanzania

Dar es Salaam, Tanzania

Rwanda-based Dr Harnet Bokrezion is the founder of the Africa Business Academy and she has also developed a training programme on how to start a business by importing and selling African products in the global market. In this article she looks at common mistakes the African diaspora make when doing business in Africa or investing on the continent.

1. Emotional decision making

Yes, your roots are important. Maybe you have family in a certain country in Africa or you have received your DNA results as an African American. But the country of your origin is not necessarily the best market for your industry. In fact, it may even be a country where doing business is not to be advised at all because the market is simply too risky.

Many of you in the African diaspora are basing your business decisions on emotional connections in Africa. Be it an uncle in Uganda who sent you business ideas on WhatsApp, a contact you met on the plane to Johannesburg, or a young guy you stumbled across in Nairobi who needs help and in return promises you support.

Working with thousands of ambitious people in the diaspora I have seen too many fail and lose money as a result of such emotions. Instead, make informed and professional business decisions. Check the business environment of a country, assess a market opportunity objectively, and only deal with partners who are already in your industry.

This brings us to mistake number two…

2. Choosing the wrong country

I divide Africa into four categories based on the risk and opportunity ratio in a given country.

There are high risk markets, which are also high in opportunity. Then, there are high risk markets, that are low in opportunity (you better stay away from those). And of course there are low risk markets, which are low in opportunity – some of Africa’s islands for example fall into that category. The best countries in Africa to get started in are hands down those falling into the low risk/ high opportunity category.

3. Juggling too many businesses

I know, I know… once you have set foot into Africa you will see opportunity left, right and centre. But starting a business is not easy. And starting a very profitable venture in the context of Africa is rarely achieved. When you now juggle two or even three ventures early on, because you see low hanging fruits in all of them, you significantly cut your chance to succeed. The same goes for offering too many products or services early on. Instead, simplify… focus… and build something of value that you will be known for.

4. Not understanding or assessing risk

Hands down, I hardly know any new business owner in Africa who has done a quick risk assessment when getting started. Most new entrepreneurs in Africa overestimate opportunity and underestimate risk. But Africa is an emerging market by and large, which means it is very volatile. Not understanding, assessing and actively reducing your risk is a big mistake that can cost you dearly.

5. You are investing too much

Many people are investing most of their money early on. This is a huge mistake in Africa. You see, you haven’t really tested the market in real time, which means that market dynamics and unforeseen challenges will only occur to you once you start producing and selling. If you have, however, invested most of your money already, it will be almost impossible to manage delays or any unpleasant surprises (and you will get many of those in Africa). I have seen too many making that mistake and they were forced to close.

Instead, start small with a very lean version and a fraction of your available funds, no matter how much or how little money you have. Then, test the market for at least a year and get real feedback from the marketplace. This will allow you to make the right decisions later on.

6. Not having a strong product–market match

Ok, I get it. You see an opportunity or have a great idea. But that does not mean the market will buy from you. Most people are very broad in their offering, which never works. Instead, find a specific problem or gap for a specific segment of the market and provide a specific solution to that problem. The more specific you are, the better your chance of selling.

For example, instead of offering real estate services in Africa, offer single unit luxurious apartments in Accra to investor networks in the US who are keen to quickly invest their money and their savings for a good return during a looming recession. That’s a match!

7. Not going high-end

Look, the spending power in Africa is increasing, but it is still comparatively very low. When you offer products or services to the poor or the average middle class, your profit margins are tiny, which means you have to sell a lot in order to make reasonable profits. The problem: as a small new business you usually simply do not have the capacity to produce, sell, and deliver large quantities.

Instead, go high-end. Sell to well established businesses in Africa, the upper-class consumer, or offer African products to foreign markets. This way, you can make great profits with just a few buyers. Your priority is to succeed, only this way can you actually serve Africa. Later, when your business is running strongly, you can start catering for the mass market.