Venture scale startups targeting Africa should start with a multi-country mindset
Most African markets are relatively small and many are highly uncertain necessitating geographic expansion; early recognition & preparation is paramount
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Some markets are blessed with wealthy consumers and sizeable populations; others aren’t as fortunate. Entrepreneurs in the former have the latitude to focus on growth in their home countries; however, in the latter, entrepreneurs seeking sizeable growth have to look outwards relatively early in their journeys.
African markets, generally speaking, belong in the second bucket. As such, startups targeting African markets would do well to adopt a multi-country mindset early on. On the one hand, most African markets are relatively small, and on the other, many African markets are highly uncertain. Given these characteristics, entrepreneurs seeking rapid growth and venture scale in African markets should begin thinking about geographic diversification and market expansion at the onset.
Scale: meaningful scale comes via market expansion
While the African continent currently has a population of ~1.3 billion people, GDP per capita in sub-Saharan Africa was only ~$1,600 in 2019, compared to ~$63,000 for North America and ~$35,000 for the European Union, according to the World Bank. This points to much smaller total addressable market sizes across Africa for most non-staple products & services. Compounding this issue is the fact that today’s African markets are marked by fragmentation — thus, market sizes in any given country tend to be further limited. (See for example, ‘A potent way to compete in Africa's fragmented markets is by deploying platforms.’)
Nigeria, the so-called ‘giant of Africa’ with its purported population of ~200 million is an instructive example. While many have been and continue to be seduced by the market’s ‘latent potential,’ experienced industry analysts including Dr. Ola Brown and Professor Ndubuisi Ekekwe have sounded alarms for those who would hear. They argue that the true consumption opportunity in the country (for non-essential goods & services) is much smaller — closer to 30-60 million people.
Given these on-ground realities, it makes sense that entrepreneurs in Africa seeking venture scale should prepare for early expansion to other markets. This is also bolstered by various entrepreneurs with long-standing experience across African markets. For example, Dare Okoudjou who founded Pan African fintech firm MFS Africa in 2009 shares this advice:
“There are a few facts that one has to always keep in mind. And one of them is that most markets in Africa are sub-scale, … winners will need to be multi-market…to be able to get to something that is sizeable and matters in the long-run.” — Dare Okoudjou, Founder & CEO - MFS Africa
Stability: geographic expansion mitigates against uncertainty
The search for scale is not the only reason to look beyond a home country’s borders however. Another reason to venture outwards on the continent is the high levels of uncertainty present in many African markets: of regulations, of exchange rates, of political stability, and more. Examples abound. One way startups can reduce this ‘uncertainty risk’ in a given market is by pursuing geographic diversification. Nigerian serial entrepreneur Sim Shagaya shares his thoughts on the role diversification plays in mitigating against shocks in any given market and making startups more stable: