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The Kenyan startup ‘Egosystem’ is broken and should focus on adding real value

The Kenyan startup system is broken. We can invest millions into a few company’s, but the focus is wrong and too many egos stand in the way. It’s time to take a critical look at where we are and what we are doing.

According to Steve Blank, a startup is not a small business like a kiosk hoping to become a supermarket, but rather a temporary organization used to search for a repeatable and scalable business model. The operative words here being temporary, search, repeatable and scalable so when I hear of someone providing accounting, management and business plan writing skills to a start-up I know we are dealing with an SME improvement activity and not the development of a start-up ecosystem.

Now that we are clear about what a startup is not, it is easy to answer the question “Are there any early stage start-ups in Kenya that can effectively absorb USD $100,000+ in seed funding?” A startup works with what you give it but that does not necessarily mean it will convert into its worth as the funds should rarely go into physical assets therefore your traditional accountant will not be able to ascertain its value using legacy processes.

Repeatable and scalable

Most of the funding given to a startup is to carry out experiments, many of which will fail. But what is important, whether it fails or succeeds, is the lessons learned. Unfortunately, this is difficult to quantify using a traditional balance sheet.

There are startups which will take Ksh. 10M (USD $98,707) and within 3 months it will be worth 8M (USD $78,965), most in diminishing value assets purchased but have nothing else to show. Yet on another end is another startup whose value will be equivalent to Ksh. 100M (USD $987,074) through an identified repeatable and scalable business model (please do not confuse this with a business plan).

I have a strange feeling that instead of answering that question I have instead opened the proverbial can of worms.

Boiled egg

I was once told by my grandmother that there is no value in having the hen sit on a boiled egg, as it will never hatch. We set-up incubators but unfortunately stacked them with boiled eggs and have been wondering why nothing has come out of them after spending so much on keeping them warm. As 88Mph decided, it was time to prepare an egg salad sandwich.

Over the past 3-4 years I have participated as a mentor, coach and judge for challenges at the various hubs, pubs and incubators and the outcome in most has been the presence of “Compepreneurs”, which are teams that come to look for cash winnings and then walk off into the sunset to continue their university studies and job hunting.

The one challenge that has been effective and that I have also learned from its experiences has been the Safaricom AppWiz challenge that was a partnership between Safaricom and the Strathmore based iBizAfrica incubator whose model pivoted (changed) several times over the 3 years it has been run.

Cash award

In the first year the finalists were provided space for 3 months, as happens at the iHub and other shared spaces, hoping for them to refine their offering (in startup speak – find a product/market fit) after which they were judged with the most impressive looking receiving a cash award.

In the first year, the winning team of 3 split the prize money 3 ways and varnished into the sunset of oblivion while another took advantage of the opportunity to refine their product and finally ended up selling their product to Safaricom. The latter team had co-founders who were in their late 30’s while the former had newly graduated, which says a lot about the need for maturity in startups that scale.

We learned from the mistakes here and they were corrected in the second challenge where the participants received true incubation where they had to attend various training sessions and were exposed to regular scrutiny and evaluation throughout the 3 months period.

Deliverables

In addition, after the selection of the 3 finalists the funds were not released in a lump sum as had been done previously, but were instead released in pre-agreed tranches attached to set deliverables. Of the 3 finalists only 1 was able to access the entire seed funding the others went the way of the pack.

During the third challenge we further improved the process and the result was one finalist went on to receive a further investment round, while a non-finalist has received a round of funding after refining their initial offering during the incubation period.

Has startup incubation failed in Kenya?

So you might ask, has startup incubation failed in Kenya? I will go back to my grandmother’s teachings; it does not matter where the egg is laid if the environment is conducive, it will hatch.

We have made the mistake of thinking that incubation is about a place instead of thinking about it as an environment conducive to flourishing. Before the Chinese brought us cheap egg incubators, my grandmother used a charcoal fire, the chicks hatched were no different from the ones that the hen sat on or the power-guzzling incubator produced.

Let us ask ourselves what it is that the startups need and then provide that to them wherever they may be across the country. In my experience this are usually the three (3) Ms; Mentoring, Mention (introductions not newspaper mentions) and last and least Money. None of this requires one to be seated along Ngong Road, it can happen from anywhere there is a connection.

Innovation clusters

The birth of Silicon Valley was because of an existing environment of innovation, Stanford. The Silicon Savannah on the other end is a fenced off piece of land 70 kms away from any sensible activity while the other is along one of the most expensive stretches of real estate in the country.

Incubation is about going to where there are already naturally occurring innovation clusters and then building on this, it is foolhardy to want to relocate the innovators.

We have refused to leverage technology in any form or shape and instead prefer to make presentation at conferences about how well we are doing. It is sad to see harp-less youth put on pedestal like little orphans on Unicef and Care posters for raising grants and concessionary accolades because we are from Africa.

A startup in Kenya has most of the resources that one in Cape Town or Silicon Valley has, so why aren’t we seeing more success stories? I suspect it is because our mainstream media has no clue about what is actually happening in the startup space and instead prefer to regurgitate another media houses stories.

Universities

If we want to have an impact in the innovation space, we need to go to where innovation happens. That is within and around universities and where young people gather, which means that some of the ideal locations for setting up incubators would be places like Kahawa Sukari (Kenyatta University), Juja (Jomo Kenyatta University), Ruiru (Zetech University) or Ongata Rongai (Nazarene, Catholic, Multi Media & Adventist Universities) if not Karachwonyo.

We have startups that have gone past customer validation and are executing the identified business model. This are organisations such as Mo-De, PesaPal & TicketSasa (Verviant), Synergy Systems, JamboPay, Virtual City and Cellulant.

They are getting traction because they are not looking to win challenges or receive grants or accolades from non-paying cheerleaders.

‘Success stories’

What is wrong with our startup ecosystem is the parading of startups such as mFarm and WezaTela as success stories yet no one has tried to look beyond the facade. Many of the over showcased startups make us continue to look like a basket case requiring handouts to grow our next generation enterprises.

We are still at the infancy of our development yet we still cannot even feed ourselves, the entire excitement about FinTech is all driven by the fairy tale story of mPesa, which to the best of my knowledge only automated an existing system, its failure elsewhere is a clear indication that it is the people of Kenya and not the technology that made it happen.

Already Kenyans are one of the most banked countries in the world, we have an efficient electronic money transfer system, we always had money orders, which we refused to leverage with technology. The sad part about this is I still cannot order medicine for my grandmother online and have it delivered to her in Kabartonjo, yet Posta exists with over 600 evenly distributed locations across the country and instead of leveraging this are busy rolling out archaic products.

Peasant farmers with smart phones

In a few months, as happens every year, thousands of peasant farmers with mobile smart phones and internet access will harvest an excess of maize resulting in a glut, all because there is no advance notice of what will be harvested as we have no clue about what was planted and on what acreage. Most of the maize will be sold off at below production cost to meet impending expenses such as school fees, while another equally large chunk will be lost due to inadequate storage and wrong post-harvest handling.

Showcasing an application that gives a farmer in Kendu Bay in Kisumu the price of Millet in Muembe Tayari market in Mombasa is not a solution, but more a disruption of a working system. Let us first get the farmer to know what he should plant, if plant at all, then notify the broker in Mombasa in good time of how much product you will be harvesting. As you might be aware, maize cannot be transported electronically.

Grow value addition activities

We need to grow our value addition activities such as peeling potatoes in Njambini and leaving the peels there to be used; as opposed to shipping them to Nairobi where the peels end up in landfills, on the roadsides and inside the sewer system.

I reiterate: FinTech is the least of our issues, we need to first feed ourselves. With over 85% of the country covered by wireless data, with over 30 local TV channels, a devolved government structure and over 2 million graduates, yet we cannot feed ourselves it is a misnomer to then call us a technology destination. We first need to feed ourselves before we can go to war with the rest of the world on technology.

Robert Yawe is a mentor, financial literacy coach and entrepreneur. He is Managing Director at KAY System Technologies Limited, as well as Independent Pitch Friday evaluator panel member & mentor at Strathmore Incubation Centre.

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