THREE TIPS FOR NIGERIAN TECH STARTUPS

After a number of years working with startup ventures of all kinds, ranging from traditional/legacy businesses to new digitally-driven…

THREE TIPS FOR NIGERIAN TECH STARTUPS

After a number of years working with startup ventures of all kinds, ranging from traditional/legacy businesses to new digitally-driven enterprises and pure technology companies, I’ve noticed a few trends and misconceptions amongst tech startup founders.

From analysing, and advising founders on their, business models and operations I have observed some recurring themes in how founders operate their businesses and develop their growth strategies.

Based on said observations I thought it necessary to address these misconceptions by way of the following three tips:

• Monetize from Day 1

• Only Raise Funds To Grow Revenues

• Manage Operating Expenses

Monetize From Day 1

Tech startup founders — particularly those with primarily ad-supported offerings — seem to have a notion that revenue growth is secondary to user growth. Whilst the logic for this assertion is understandable, I fear adherence to same has been taken to dangerous extremes.

When founders postpone the “headache” of developing revenue generating business models — instead opting to only focus on the coding, UX design, and back-end operation etc — they invariably find that what they thought would be the easy task of monetizing their users is extremely difficult for a number of reasons.

Firstly, once users taste and get used to “free” it is almost impossible for their pallets to adapt to 'fee’. Secondly, the much discussed gold-mine known as internet/digital-media advertising is not able to generate the type of revenues required to operate the average tech company unless/until user numbers are comfortably within the nine to ten figure range.

Startup founders must from day one ensure that their business can generate, and is generating, revenue and possibly even a profit.

Only Raise Funds To Grow Revenues

As obvious as this tip sounds, you would be surprised at the number of founders that spend the bulk of their time engaging in activities solely revolving around fund raising.

Be it pitch deck prepping, researching potential investors, filling in competition entry forms, or 'networking’, said founders are doing all but their most fundamental job; namely, building a profitable business.

The publicity, validation and, of course, the 'cash-in-hand' associated with the glamour of successful capital raises is understandably a lure too strong for a lot of founders to resist. But founders must remember that the majority of all startups fail within the first five years — whether they secured funding or not.

The startups that survive this threshold, and go on to grow into strong, long term businesses (either as a large behemoth or a smaller company that simply turns over a tidy profit), almost all have one common trait; they were already generating strong revenues before seeking investment.

Naturally examples can be found of startups that bucked this trend but there are always exceptions to every rule. Although it follows that all startup founders believe that they are/their business is the exception to the rule, successful founders are at all times concerned with the following question: “How can my business make money without funding?” And ironically, it is those businesses that can show traction that usually attract the most investors and investment.

So instead of startup founders looking to generate headlines from convincing one person/group to give them money in the form of an investment, they should concentrate on making headlines from convincing millions to give them money in the form of revenues. And once revenues are being generated, it is then that capital infusion into the business can really have a huge impact — if spent wisely.

Managing Operating Expenses

From what I’ve noticed, after reviewing countless decks/proposals/business plans etc for capital raising purposes, the primary objective of a number of Nigerian founders is simply to raise as big an amount as possible (preferably in USD). This is usually to pay for unnecessarily excessive operating budgets that are predominantly laden with bloated executive remuneration packages and expensive leases for office space in prime locations.

Startup founders would do well to remember that the overarching objectives of any business are to generate revenue and turn a profit on same. Successfully rasing capital is indeed a positive and strong validation of the business, however sight must not be lost of the fact that a return is expected on said capital.

As such, ensuring that investment funds are as far as possible applied directly to the revenue generating activities/capabilities of the business should always be the foremost justification for any line item in the operating budget and investment spend to be allocated to same.

When properly implemented these three basic tips will serve to position any startup for success by making it strong enough to stand on its own from the beginning, increasing its likelihood of profitability, and ensuring it is not dependant on capital injections for survival.