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5 Reasons Behind Silicon Savannah’s Recent High Profile Startup Failures.

Something strange is afoot in Silicon Savannah, Kenya’s much-hyped and oft-feted technology ecosystem. This vibrant hub has birthed everything from Safaricom’s fabled and ludicrously successful M-Pesa mobile money platform to storied startups like M-Kopa, Cellulant, PesaPal, Jumia, and others.

However, in recent years, we’ve witnessed a number of well-funded technology startups flame out, sometimes quite spectacularly, such as Kune Foods, Sendy, SkyGarden, Marketforce, and, as of this week, Copia. We’ve also heard murmurings that several others are not exactly in the best shape, leading to massive restructuring efforts aimed at optimizing operations and finding a path to sustainability, if they can survive their current challenges. It’s a pickle for sure!

In all of these instances, one thing is clear: there seem to be underlying issues in how these startups were set up and operated, ultimately causing their failure. This blog post is not the first time I’ve written about what I perceive as serious cracks in Silicon Savannah. In December 2023, I penned a poignant blog post titled, ‘Is Kenya’s 20+ Years Silicon Savannah Dream A Mirage That’s Finally Unraveling? Or Are These Just Growing Pains On The Road To Global Greatness?’ which you can read here.

We need to dig deeper to understand why these well-funded and presumably decently run technology startups failed. As a seasoned and battle-hardened entrepreneur, I have enormous respect for anyone who makes the giant leap into entrepreneurship and starts a technology startup in Kenya, or anywhere in the world for that matter. They do so to solve a big enough problem for a large enough market, literally on the back of an idea and unshakable faith that it can grow, thrive, and become a sustainable business.

It’s so very easy to criticize and fail to appreciate just how much effort building any kind of startup actually takes! Pointing out failures or making snap judgments without fully understanding what could have gone wrong is shortsighted. Entrepreneurs are a breed apart, deserving our respect for creating businesses seemingly out of thin air and having the courage to do so beyond simply having a ‘great idea.’ They are to be celebrated, whether or not they actually succeed, as the initiative itself often makes the world a better place for the rest of us.

Indeed, everyone has ‘great ideas,’ but very few actually follow through and make them happen! Those ‘crazy ones’ are the reason why we have great brands and businesses like Apple, Microsoft, Google, Equity Bank, and many others. Let’s recognize the importance of startups built through the sweat, blood, guts, and tears of the few brave souls who do what the rest of us only perceive to be ‘impossible’ dreams.

In a nutshell, after spending some time thinking deeply about what key issues led to the recent failures of some of Silicon Savannah’s brightest and most promising technology startups, here are the five possible reasons I have identified:

1. Investor Funding As An End In Itself & Not An Enabler. 

This, in my opinion, is the leading reason why most of the aforementioned technology startups failed. If you read and hear all of their post-failure stories, they all come down to one common thing: they were ‘trying’ to raise or expected a critical funding round that never materialized, leading to their closure. It’s as simple as that. Nothing more, nothing less.

As an entrepreneur myself, one thing I have always known to be true is that a business needs to generate sufficiently large sales volumes from its products and/or services that meet or exceed market demand with ample sales margins built in to do so profitably. There is no rocket science whatsoever to this approach. Some of the world’s largest businesses have grown organically by selling what they offer and growing organically without ever having to borrow a single cent or source investors.

Yet, we see in Kenya that many startups seem to be following the tried and proven route of many successful Silicon Valley startups: starting on the back of a great idea, scaling up fast via funding from investors like venture capitalists, and then, at some point in the future, becoming commercially viable. This is the playbook that the likes of Google, Apple, Amazon, and others took to become the gargantuan businesses they are today.

Let me be clear that I have nothing against substantial startup funding as a basis for long-term success since it has proven it works in a myriad of scenarios. However, Kenya and the rest of Africa have completely different market dynamics from what we see in North America, where the Silicon Valley startup funding model of ‘raising funding rounds’ to stay afloat, for even over a decade, actually works. This ‘modus operandi’ seems to be ‘persona non grata’ in the context of our Silicon Savannah startups.

We cannot simply cut and paste what works ‘there’ and make it work ‘here.’ Therefore, my suggestion is that Silicon Savannah startup entrepreneurs create business models that ‘work’ from day one in terms of having ample sales volumes, a real customer base, and sufficiently large sales margins to stay afloat while also being ‘lean’ and ‘agile’ in how they operate — also known as ‘bootstrapping.’

2. Poor Corporate Governance Structures. 

One of the common emerging narratives from many of the failed Silicon Savannah startups is that some had corporate governance issues. In one instance, the leadership team was top-heavy and comprised of rock stars earning massive salaries while over-investing in marketing initiatives but failing to invest in their own core product development and production capabilities. Some had no way of actually tracking how they performed operationally, leading to undetected pilferage from their coffers as well as overstated performance metrics.

In another case, senior leadership had the startup pay for personal expenses unrelated to the core business. Others spent disproportionately on expensive capital and operating expenses such as swanky offices, home rentals, club memberships, the latest MacBooks, and cloud services typically used by the Fortune 500. Probably the worst case involved founders diverting substantial investor funds to their personal bank accounts with no accountability, leading to investors rescinding their decision to fund the next critical round, which ultimately led to the startup’s closure.

To quote my late friend Carey Eaton, who was behind startups like Cheki in Kenya that scaled across Africa, “a business is not a website or mobile app.” His logic in saying this over a decade ago was that he felt many fledgling startups in Kenya and across Africa were built on the idea that making your startup ‘look’ like a business, even though at the core it was anything but a business, was enough. Some of the failed startups in Silicon Savannah needed funding, and would always need funding, for prosperity, without a viable business eventually emerging. In some ways, you could say this was as good a con as they get.

3. Flawed & Unviable Business Models. 

One thing I’ve noticed is that many of the failed startups had business models that were simply ‘cut and paste’ from other successful global technology businesses. Without fully understanding what made the ‘copied’ businesses successful in their respective markets, local startups made flawed assumptions about how they would work and find a path to commercial viability.

The critical step to building a successful startup is to create and validate a business model before attempting to scale it up. Finding a viable business model can be an arduous and time-consuming process, as any successful startup entrepreneur will tell you. It involves agonizing over details such as being ad-supported, charging customers a monthly subscription, or targeting the consumer segment versus the business market.

Using the ‘lean startup’ methodology, a startup creates a ‘minimum viable product’ (MVP) as the basis to validate the startup idea through various experiments that ‘stress test’ it before scaling it up. This is ideally how the majority of our Silicon Savannah startups should explore developing their business models for long-term success.

I am reminded of a case study I read as part of a Harvard Business School Executive Education program I attended some years ago. The case study explored why eBay failed to succeed in China where its competitor Taobao was thriving. Taobao did an exceedingly good job of creating a platform that mimicked how Chinese consumers experienced physical marketplaces, down to the ability to negotiate the final price of a product. In doing so, Taobao contextually understood the nuances of the Chinese consumer market, making them much more appealing and relevant compared to the American-influenced eBay, which had nothing in common with the Chinese consumer. As the saying goes, ‘it was game over from the get-go.’

Successful and scalable business models are like works of art crafted through lots of experimentation, painful and expensive moments of truth, as well as serendipitous and unexpected insights. Those who make them work do so from insight and a firm understanding of what they have created as a valuable proposition that the market is willing to purchase. Therefore, the view that one can simply ‘teleport’ a business model from London or New York into Nairobi or Kisumu ‘as is’ is flawed and can ultimately be suicidal for a fledgling startup.

4. Impatient & Unrealistic Investment Capital. 

Who invests in your startup is as important as how they invest in your startup. Let me explain. In some of the cases of the startups that folded, many founders reached high and low, as well as far and wide, to get the funding they needed for lift-off. However, in doing so, some also committed to unrealistic targets around ‘growing fast’ and ‘grabbing’ as much market share as possible.

The majority of businesses that go on to become successful often do so gradually and consistently. For example, Amazon took ages to become profitable after spending years growing the business as they received more and more external investment. Their investors were patient and understood that what Amazon was trying to build was truly significant on a global scale and would eventually become successful. The same applies to Uber, which took ages to become ‘cash positive.’

In Kenya, from what I have heard about the startups that failed, the investors simply weren’t patient enough and were highly demanding and unrealistic in terms of how the startups performed by not growing fast enough. If you know anything about startup funding, many investors, especially those of the venture capital or ‘VC’ variety, generally invest with the ultimate objective of making an exit when their investment has grown manyfold. This is what they do and how it works.

Therefore, if your startup is not showing ‘signs of life’ in terms of ‘fattening’ it for an exit event, you will suffer the unfortunate consequences. Indeed, I know of at least one successful technology startup that opted to return a significant investment when it became painfully obvious that they were not on the same page with their investors!

5. Delusional & Highly Egocentric Founders. 

The last thing I picked up from the various stories and personal experiences of the failed technology startups of Silicon Savannah is that of founders and leadership teams who were delusional and highly egocentric. This often takes effect following the monumental event of ‘raising a round,’ treated akin to winning the lottery!

Raising a funding round is not easy as founders often have to make the rounds to ‘kiss as many frogs as possible’ before meeting their proverbial ‘Prince Charming’ to make their startup fairytale dream come true! Sadly, this can create a situation where startup founders have a sense of entitlement and even arrogance that they have finally ‘arrived,’ leading to bad behavior thereafter.

In truth, getting an investment is just the first step and not the finish line for what is often a marathon in startup terms! Any arrogance or sense of accomplishment at this stage is simply delusional. From this vantage point, as I understand it, a few failed startup founders made bad decisions such as siphoning funds for personal agendas and investing in dubious experiments for their startups.

We also have the case of one founder who was asked to step aside as a condition for their investors to commit to the next funding round due to professional misconduct. The founder flatly refused, assuming their startup was ‘too big to fail’ and that the investors had ‘too much skin in the game’ already. As it turned out, the investors called their bluff and cut their losses by shuttering the startup, resulting in many hardworking employees losing their jobs (true story!).

What Are The Future Prospects For Kenya’s Silicon Savannah Startups?

In conclusion, these are my own personal observations and deductions from the Silicon Savannah technology startup failures that have occurred over the past few years in Kenya. It’s possible that some of these points are off the mark, but based on what I have read and heard from credible insiders, these are the main reasons why the startups have either completely failed or are significantly smaller than they used to be.

Going forward, the future promise of Silicon Savannah remains bright, and many more startups will emerge and become successful from what I can tell. They just need to do it right from the beginning and avoid some or all of the potential pitfalls I have shared here to thrive and survive for the long term. Long live the Silicon Savannah!

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