Regular readers will know that I care as much about startups as I do about the market. I find startup strategy fascinating.
The most depressing thing about the South African economy is the lack of successful small businesses. In developed countries like Australia, SMMEs employ a large percentage of the population.
We can’t keep relying on corporates (or government!) to create jobs. We need South Africans to start successful businesses and employ people.
The argument is always that funding is an issue. There is some truth in this of course, but I learnt in investment banking that there is always money available for the right opportunity. It requires founders to find the money of course, but the key point is that money isn’t as much of a hurdle as people think it is.
The biggest hurdle is formulating an appealing business strategy. Most small businesses are self-employment opportunities at best, feeding the family of the founder and creating perhaps one or two low-paying jobs.
That’s never going to be of interest to professional investors.
Enter the startup
This brings us to the world of startups with the potential to have a meaningful impact on our country. Founded by talented people with a vision to solve a specific problem, wealth creation becomes the by-product rather than the goal of the business.
These founders are incredible people. They are multi-talented and brave. They navigate technical challenges, regulatory hurdles and shark-infested venture capitalist waters.
A passion for startups led me to reach out to The Venturing Vagabond who I worked with in my advisory days. Possibly the most interesting thinker I know, he has read more books than anyone and loves thinking deeply about concepts. Combined with my 80-20 approach to life, we were a force to be reckoned with in corporate advisory and we hope to carry that through into the podcast.
The Startup Junto is therefore a passion project. We are meeting interesting founders and startup leaders, gleaning terrific insights along the way and having loads of fun. With four episodes now behind us, I thought it was time to set out some of the best insights thus far.
However, there is no replacement for going back and listening to the shows:
To whet your appetite, here are some of the more interesting insights from the episodes thus far…
Total addressable market is key
Startup investors care about the product, the team and the total addressable market (TAM). For South African entrepreneurs, we have all the talent needed in this country to pull together a great product and team.
Being able to grow internationally and expand the TAM is key to generating interest among local VCs. This is where many business plans fall short.
Learn fast and implement
In Episode 4, we discussed the role of a founder. As part of the discussion, Douglas Cherry (Founder and CCO of Snapt) pointed out that the role of a founder is ultimately to “learn fast and implement” – it’s a brilliant sentence that perfectly summarises what I love about startups.
The game is quick and deadly. Unless ideas become products, businesses fail.
Alignment > funding
Another Douglas insight was that one of the most common sources of failure is misalignment between founders, investors and board members. Startups only succeed when everyone is pulling in the same direction.
Alignment between the parties is therefore more important than raising more money for the sake of it. There is such a thing as “bad money” and I can confirm that this concept applies equally to multibillion-rand corporates.
Cape Town and Johannesburg both offer startup vibes
It’s a common misconception that Cape Town is the home of startups in South Africa. We’ve now debunked that point with Douglas as well as Nick Hill (Episode 3) who founded Math for Money, a pocket money app that incentivises kids to solve mathematical problems in return for their pocket money.
Whilst Cape Town is the closest thing we have to the Valley, there’s definitely a bustling startup scene in Johannesburg.
Copy the best ideas and iterate them
There’s more skill required here than you might think. As Douglas pointed out, the first requirement is to be able to recognise greatness in the form of the best ideas in any given market.
By starting with those ideas and then innovating at the margins, a startup can enter a market and compete from day one.
“A good artist creates; a real artist is a thief!”
Tongue-in-cheek of course, but a fun lesson. Focus on customer use cases and understand how you can iterate an existing offering to create a better product for those use cases.
Startups have strict timeframes for solving problems
It’s not always clear when a startup is no longer a startup.
SnapScan is now owned by Standard Bank, but ownership doesn’t necessarily change startup culture. The business requires ongoing investment and the devs arrive at work to solve problems within a clearly defined timeframe.
While in the cash burn phase, startup mentality is the only way. On that basis, there are enormous companies listed on the Nasdaq that could still be considered startups.
Another feature of startups, as pointed out by the SnapScan team, is that there is a wide-open door for growth. While corporates often aspire to maintain market share, startups target hyper-growth over 5 to 10 years.
Startups are story investments. Investors need to believe the story rather than the current numbers.
Track the right metrics
Vanity metrics don’t help anyone. As Nick Hill pointed out in Episode 3, it is critical in a startup to track the right metrics. The trick is to identify what those metrics are.
For example, strong initial adoption but poor retention might be a user experience problem rather than a product-market-fit problem. User experience can be improved. A poor product idea sometimes needs to be relegated to the startup graveyard.
Banks are undercover VCs in South Africa
The SnapScan team and Nick Hill confirmed that banks are highly active in the FinTech scene and even in other businesses that have a social goal at heart, for example EdTech. If you’re building a startup and you need funding, consider whether banks could be your undercover VC.
A further benefit is that banks are battleships. As the CEO of SnapScan pointed out, you would rather roll with the battleships than have their guns pointed towards you.
Building a business for yourself as the consumer
Shannon McLaughlin (Ubuntu Baba – Episode 2) was inspired to build Ubuntu Baba based on her own experience as a working mother. Without the traditional, business-focused academic background of the other guests we have had thus far, Shannon had to learn about business while flying the startup plane.
At Ubuntu Baba’s core is a desire to service a customer who Shannon fully understands. That’s the benefit of building a product that fills a gap in the market based on your own experience.
Three rather silly insights that have helped make this project so enjoyable:
- Beware of ping pong tables in companies and their impact on the likelihood of success
- Make sure you check your company name on urban dictionary before launching (as Nick Hill learnt the hard way)
- Office air-conditioning makes podcast editing rather painful (an insight from doing interviews in-person)
With four episodes down, The Startup Junto is going from strength to strength. Thanks for joining us on this journey!
We highly recommend that you listen to the shows and engage fully with the content.