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:

“One of the things that has been a big learning for me, and that’s why we built uLesson like this from day one, is that for the enterprise to be stable, we must diversify very quickly. The business model must speak to [geographic] diversification. So if you look at it today, 20% of our revenues are coming from Ghana already even though we're just three months old and I will continue to look for diversification in Kenya & South Africa. I think this is very important for…entrepreneurs.” — Sim Shagaya, Founder & CEO - uLesson


For companies that decide early on to pursue international expansion in African markets, one key challenge is where to go. Here, there seem to generally be two schools of thought: pursue adjacent opportunities within regional clusters or target the highest potential markets across the continent with no regards to proximity (e.g., going from Nigeria to Kenya to South Africa). While success can arguably be found with either strategy, it beehoves entrepreneurs to take a sober view of what it takes for aggressive, long-distance expansion and perhaps eye more proximate opportunities. Investment banker Victor Basta offers this input:

I think what companies underestimate is the risk-adjusted cost of expanding from one end of the continent to the other. I can’t tell you how many Kenyan companies…have gotten Nigeria already spec’d out on their plans…and they really don’t know how to do it. And by the way the reverse is also true…The idea of having to go across the continent and do it successfully is nontrivial…This is one of the biggest issues that companies face trying to expand beyond a certain size.Victor Basta, Managing Partner - Magister Advisors

One company that recently reconsidered cross-continent expansion plans is Twiga Foods. While the decision from the Kenya-based, Goldman Sachs-funded company to focus on adjacent East African markets and postpone a potential Nigeria expansion appears driven by COVID-19, it’s nonetheless a testament to the complexities involved in aggressive cross-continental expansion.

Aside from where to expand internationally, another consideration for startups that pursue international expansion is how to make such expansion additive. In theory at least, the company should have proved or disproved certain hypotheses in its home market, and developed insights, playbooks, and processes that allow it to operate more efficiently in a new market. Successfully doing so can make a startup quite attractive to investors as financial advisor Victor Basta explains:

“Investors have a very wide spectrum of appreciation and views about international expansion. Some view it as essential to build out a platform, others only look at the negative of the incremental cost…If companies can go to an adjacent market and show that their cost of building out a certain size customer base is materially lower than their home market…that’s a proof point for a positive EBITDA economic expansion which a lot of investors are particularly concerned about.” — Victor Basta, Managing Partner - Magister Advisors

The last word

Given the stage of development of African markets and their current structure, entrepreneurs on the continent face challenges that are quite dissimilar to those faced by their counterparts in the West. (See, for example, ‘African Innovators Should Look East, Not West, For Business Model Inspiration.’) Entrepreneurs that target African markets and seek venture scale should seriously reflect on international expansion sooner than later to maximize the chances of success. For those in smaller markets, this early multi-country mindset comes natural; however those in larger markets (e.g., Nigeria) should guard against the seductive siren song of single-market focus.

Thanks for reading 🙌 If you have feedback or questions, let me know by leaving a comment or contacting me at, on Twitter @eajene, or on Whatsapp.

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