How (African) hubs can reach financial sustainability - Post image

How (African) hubs can reach financial sustainability

The number of ‘hubs’, both globally as across Africa, continues to grow rapidly. Yet, behind the output and success (or struggles) of physical hubs and co-working spaces lies the question of their continuity. As hubs launch, scale and develop, how do they seek to become financially sustainable? Are their business models created and leveraged in such a way that they can continue to operate in the future?

Often, the prestige and attention bestowed upon these hubs comes as a result of the startups and entrepreneurs they facilitate, the partnerships they develop and perhaps most importantly, if the environment where they operate have lucrative (technological) innovation pathways and if there is access to capital. Such a situation is purportedly created where initially the presence of startups and serendipitous opportunities ‘create’ hubs, and not the other way around.

While one hub alone can not provide the answers to the above, I intend to use Impact Hub Accra (where I have been based for 3 months) as a case study, shedding light on how a West African hub endeavours to become financially sustainable considering its objectives, context and potential challenges.

Challenges around hub sustainability

In December 2014, Tayo Akinyemi shared an excellent post on VC4A which highlighted numerous challenges that confront African hubs when it comes to sustainability and proposed systemic solutions. Tayo was formerly a director at Afrilabs, a pan-African network of over 50 technology innovation hubs across 20 African countries. Afrilabs strives to “build an innovation infrastructure that will encourage the growth of Africa’s knowledge economy by supporting the development of start-ups, technology, and innovation”. As such, Afrilabs is also inherently dedicated to supporting sustainable growth trajectories for hubs.

As a follow up to this article, Akinyemi wrote “11 key lessons for innovation hubs in Africa”. Messages included that hubs should articulate their sustainability goals, plan their sustainability from the beginning and diversify funding to mitigate risk to the hub’s operation and model.

Commercial model

A year ago, Kenya’s iHub announced an investment which would ‘push’ the hub towards a self-funded model. iHub has now changed to a fully commercial model by leveraging their consulting services and partnering with Google, Facebook and Microsoft, amongst others. In April, an article in The Wall Street Journal lauded the move of iHub and others in moving towards such a model with the apt headline “‘Silicon Savannah’ is refocusing on profit and revenues, going beyond social activism”.

These sentiments and initiatives come on the back of current trends for hub funding models, particularly within the African continent. At present, hubs across the continent typically seek funding from donors and sponsors from multiple avenues in order to fuel the majority of their growth. While this model might be successful during the hub’s early stages, in the long run it seems unlikely to be sustainable. Not only does it add uncertainty to the mix (how long will we receive funding?) but it increases the level of risk faced by the hub itself and thus its community of members and stakeholders.

Impact Hub Accra

In order to investigate Impact Hub Accra’s trajectory towards sustainability, I spoke with the hub’s Finance Director Priscilla Adjubel in order to gain a clearer understanding of both the current situation as well as future targets. Impact Hub Accra currently finances its operation through a combination of internally generated revenue and external funding sources.

Internally generated revenues include fees paid by members, renting out the space for events, partnerships with organisations and any consultancy services which the hub offers. Collectively, internally generated revenues amount to roughly 20% of the hub’s revenue today, with each above mentioned subcategory being responsible for approximately 5% thereof.

Pivotal role of donors

In terms of fundraising, to date the US government (U.S. Broadcasting Board of Governors, BBG) has played a pivotal role in supporting the hub since its launch, as have other leading partners including Siemens Stiftung and Merck. While BBG funds the digital innovation vertical of the hub, with the support of Siemens the hub has recently opened a Makerspace – while Merck continues to fund a successful health innovation vertical.

Registered as an NGO in Ghana, the hub does not make any profit. Instead, any surplus revenue that is generated goes back into development of the hub, whether it be programming, staff costs or paying bills. The hub’s biggest expenses include providing internet (in the form of Google Fiber) and real estate costs. Accra’s property and internet prices are notoriously steep, and the hub thus provides a much needed refuge for entrepreneurs and startups who are unable to meet these hurdles.

The road to financial sustainability

Ideally, the hub would seek to cover many of these costs through the fees which its members pay. But one of the core values of the hub lies in offering accessible and affordable rates to the local entrepreneurial ecosystem. The hub offers tiered membership options, with a ‘day pass’ for the co-working space starting at around $5 and monthly memberships starting at $50. As such, rates are subsidised to ensure that Impact Hub Accra can continue to attract local talent.

The hub is actively working towards an ambitious target of increasing revenue from internally generated sources up to 60% from 20%. To achieve this, the hub is seeking to continue its success in hosting high-quality and impactful events. Events such as ‘Hackathons’, when held just twice a month, make significant contributions towards financial sustainability. Further down the line, the hub hopes to adopt a hybrid profit/non-profit operational model in order to monetize more services.

Strategies for hubs on a global scale

While hosting regular events is a viable path towards sustainability, the hub acknowledges there are other options- or strategies- which can be adopted to ensure optimum financial health. Many of these are not confined as per context, but could be implemented by hubs and co-working spaces on a global scale. These include:

● Effective, realistic and annually reviewed pricing plans for membership fees, which both attract local talent whilst simultaneously reflecting the value of the hub’s services.
● Partnerships with local businesses or corporates. The example at Impact Hub Accra might be offering members incentives with local retail outlets, such as Shoprite.
● Targeting specific investors who would be willing to support the growth of a hub.
● Seeking support and connection opportunities from an advisory board of investors who are aligned with the hub’s vision and mission.
● Offering consulting and research services (a local ecosystem analysis, for example, or market research report), leveraging the strength and expertise of a hub’s community and members.
● Event hire and planning services, packaged and offered by the hub.

One size doesn’t fit all

As noted by Akinyemi, there is “no “one size fits all” for sustainable business models. The model(s) will evolve as the hubs do”. This is particularly true if we consider the context in which a hub is operating.

Impact Hub Accra will need to adopt a uniquely context aware and tailored financial sustainability strategy. This might be completely different to, say, that of Impact Hub Amsterdam. This does not mean that either hub can not successfully work towards targets of becoming self-funded. What is needed is a clear strategic plan (considering opportunities and constraints of the local environment) and a glance towards the future, to ensure both the hub and its operating model can adapt and thrive over time.

Eline Sleurink was based at Impact Hub Accra as part of a combined research and placement project for her master’s in African Studies at Leiden University. During this period she published a series of guest blog posts on the VC4A platform, which look into the success factors of hubs (above), the social entrepreneurialism ecosystem and innovation pathways.