Thursday, 18 September 2014

Fallacies of entrepreneurship

I've been involved in the so-called 'Silicon Savannah' to varying degrees since almost the beginning of this incarnation of the tech/software industry in Kenya.

Recently, I had a conversation with someone who runs an entrepreneurship consultancy & capacity building firm. They've worked with entrepreneurs in several sectors including those in the tech/software sector. This acquaintance proceeded to express extreme dissatisfaction with the encounters he's had with many 'techpreneurs'. The narrative is not new. These 'techpreneurs' just want to sit behind their laptops and code. They're not interested in getting out of their comfort zone and hitting the streets to get customers, engage suppliers or otherwise get their hands dirty in the work of running a real business. They're comfortable with just building products that they imagine users will want while entertaining grandiose thoughts of millions of investor shillings and such, all without bearing the weight of actually running a business.

His observations hit a little too close to home.

(continue reading here)

Monday, 8 September 2014

Venture Capital Lessons from the Shark Tank

I was watching the Shark Tank episode where James Martin, founder of Copa di Vino turned down an offer from the sharks for a second time. The first time he came on the show he had an 'unproven' business model with a modest $500,000 in revenue seeking an investment of $600,000 in exchange for 30% of his business. Kevin O'Leary made him an offer but wanted to pursue a licensing business model based on the patent on the container. James turned him down.

The second time around he had proven his wine by the glass model and was raking in $5 million in revenue and on track for 12 million and was seeking $300,000 for 5%. He got an offer of $600,000 for 30% from three sharks which he turned down, greatly disappointing the sharks once more.

In a recent article on ABC's website he was noted as one of the most disliked entrepreneurs to appear on the show yet one of the most successful, now on track for $25 million and to serve more glasses of wine than "McDonald's serves cheeseburgers". According to the same article, Mr. Martin claims the sharks missed out on 20x ROI in 2 and a half years!

Now, I won't comment on Mr. Martin's 'stage presence' on the show but here are a few things I learnt about venture finance from this:

1. Investors need to understand that making money fast is often not the sole or primary reason why entrepreneurs start businesses.

O'Leary claims in the aforementioned article that whatever Copa di Vino's founder is making, he could have doubled it. That may be a fair claim, but it wrongly assumes that the founder's primary interest is making tons money, fast.

From the investor's perspective, a very valid primary objective could be: to maximize return on investment and turn the investment around in the shortest period of time. That means, buy it as cheap as you can and sell it as much and as fast as you can. As Mark Cuban says at one point during the episode, "there's not enough meat" in the deal.

Kevin's proposal is based on essentially commoditizing wine by the glass, making it available to other players and especially the dominant brands. James on the other hand sees the value in his own brand. The investor and the entrepreneur see the world with regards to the enterprise from very different perspectives. The danger on both sides is either myopia or tunnel vision: each party does not give room to consider the other's perspective objectively and weigh it appropriately and contextually.

Which brings me to the second point.

2. Entrepreneurs need to be confident about themselves and their businesses when they stand in front of investors.

The minute an entrepreneur stands before an investor, they need to understand that many times, if not most, of the time the investor's primary interest is ROI (putting so-called 'Impact Investing' aside). If the entrepreneur is not sure about themselves and their business they will end up selling short.

In this case, I respect Copa di Vino's founder for being confident in his business and having the guts to stand by it, particularly in such a public setting and before a 'rock star' investor group. The worst thing for an entrepreneur standing before an investor is to be desperate or appear to be desperate or unsure of themselves, the investor will eat you for lunch (that's why it's called the 'Shark Tank' I guess).

Where did Mr. James Martin get this confidence come from?

  1. He was determined that licensing out the technology was not the path he wanted to take: be clear on what is NOT acceptable to you just as much as on what is acceptable to you as an entrepreneur. In other words, be crystal clear about why you started your enterprise i.e. your purpose, vision and mission, whatever it is. If it is to make tons of money, fair enough, but be very clear on it. Also, be very clear on why you need the investor's money. Communicate these clearly to the investor. Bring him into your world.
  2. During the episode, James at one point stepped out to consult Jim Koch, founder of Samuel Adams Beer and one of the giants of craft brewing in America and an advisor to his company: Seek out experienced and authoritative industry players to advice you. Get objective counsel. Don't depend on your own lofty dreams, the right advisors will ground you.
  3. He mentioned that his valuation was not a simplistic guesstimate but done by experts and he refused to alter his offer significantly (the best he could do was 8% for $300,000). Was his valuation accurate? Well, I can't say for sure but the fact that he had hundreds of phone calls from investors after the show says a lot: Get an objective, third party, valuation of your enterprise. Know what it is really worth.
  4. In the first episode that James Martin appeared, much as he had only started proving his wine by the glass model, he had been in the wine industry for a long time.The second time around, he not only had this to his credit but had grown his expertise in the wine by the glass model significantly as evident in the company's growth. He knew that he didn't just have a great way to sell wine, but that he also had great wine to sell as well: Know your stuff. Be an expert on your industry, your business and your value proposition, and know it inside out. The investor may know about business but may not know about your particular business or industry.

Be clear on these things and be ready to walk away from a deal if it does not meet these benchmarks. As James Martin concludes, "Make sure no one undersells you even if they're a shark."

Wednesday, 3 September 2014

Why is it so hard to implement innovation?

One word: 'Culture'.
Culture is the single biggest hurdle any established organization has to go over to become truly innovative. Why? It's simple: innovation is not just about stuff you do, it's about who you are as a company; it is a culture.
It is not just about thinking up new ideas, nor even about implementing those ideas. You can do that on a one off basis. Even the most 'un-innovative' organizations are capable of producing one hit wonders just as much as the most unkind individual is capable of surprising us with a kind gesture once in a while. They may have done a kind action but that does not make them a kind person. The organizations we term as truly innovative are those that are able to show innovative qualities and churn out innovative products or services consistently and repeatedly.
To prove the point, in recent history, people started wondering if Apple had lost its innovative mojo, why? Simply because it seemed that Apple had stalled in producing innovative products consistently. (However, popular media in a fast paced world can be quick to judge).
You see, there are two different aspects of innovation here:
  1. Innovation as a verb: It is a doing word. This refers to innovative actions that an organization can take, for instance, bringing an innovative service to market.
  2. Innovation as an adjective: It is a description (of the culture) of the organization. Innovation is a way of thinking and being that is deeply ingrained in the organization. It is a norm and a belief system among the employees. In the same way that we would describe a person as kind, or patient, or tall or short - innovation becomes a way to describe the organization.
Today's executives are being pressured to make their companies innovative. It has become almost an imperative for the leaders of today's corporations. However, many start with a lot of enthusiasm only to soon find themselves running up against a wall. Why? They try to institute innovative actions (innovation as a verb) but forget that innovation is in reality a culture and 'implementing innovation in the enterprise' is really supplanting or radically altering the existing organizational culture.
Culture eats strategy for breakfast, technology for lunch, and products for dinner, and soon thereafter everything else too. - Peter Drucker.

Sunday, 18 May 2014

Productivity Hacking: Enter the 'Productivity Hacker'

Most, if not everyone, reading this article will be familiar with the term "Growth Hacker" and "Growth Hacking", a form of data-driven, aggressively growth-focused marketing. Originally coined by one Sean Ellis (according to Wikipedia), who defined the term 'Growth Hacker' as:
A growth hacker is a person whose true north is growth. Everything they do is scrutinized by its potential impact on scalable growth.

At a basic level, it's all about using non-traditional means to drive large scale adoption of a product - growing marketshare, hence growing the startup by expanding the customer base. (Others claim this is just online marketing by another name). In essence though, I suppose Ellis' point is the 'growth' part - doing whatever it takes to optimize growth and growth potential.

In a recent article, of what now seems to have become a continuing series (here, here, and here), I discussed the clear importance of building capacity in a startup enterprise, focusing on two parts to this: financial capacity and more importantly human resource capacity. I made the claim here that "Capacity is alpha".

Growth Hacking is directly correlated to capacity. There's no point in aggressively growing your market, if you do not have the capacity to serve a rapidly increasing customer base, or at least have the ability to scale up capacity on demand. And of course, there is a place for that.

In a subsequent article, I elaborated further that beyond having capacity, what matters even more is productivity:
At whatever scale of operation, what matters more than how much capacity you have, is how much of that capacity you are making productive use of.

The bane of every startup is having untapped potential, unused capacity.

Let's apply this to how startups make use of human resource capacity, the same could be true of other forms of capacity, say financial (or put it another way, other factors of production, for the economists amongst us):
Take two startups A and B: both in the same industry, under the same micro and macro-economic conditions (for argument's sake), both having the same level of output, client base, product features, same capital base etc, but if A manages the same feat (market share, revenue, profitability) as B with 5 employees against B's 10 employees: A is twice as productive as B, I would bet my money on A.

Furthermore, A has just proved that, all other factors held constant, B should be twice as productive as A.

So why isn't B twice as productive as A?

Enter the Productivity Hacker.

Now, while I have not been known for coining terms (just as I have not been known for my math or economic skills), what I mean by a Productivity Hacker, is simply the person in the company who is not involved in the day to day operation of the organization, in its production or distribution activities or its management. Instead, this is the individual or the team, that studies and observes the organization from a third party perspective. A lot like a biologost studying a living organism - because really, any organization of people trying to achieve some goal is exactly that: a living organism. The Productivity Hacker is, for all intents and purposes, a scientist, and his specimen is the startup, he seeks to study it, and then to improve it.

Now I should be quick to say that, yes, such people do exist in the form of strategy officers or strategy consultants, just as the Growth Hacker, may just be another name for an online marketer to some.

However, what really separates the Growth Hacker from the Online Marketer primarily is the context:

  1. The Growth Hacker's world is all about one thing and one thing only: Growth.

  2. The Growth Hacker's environment is unique. He/she lives in a unique kind of organization: a Startup (even more specifically, usually, a tech startup). So they live under various extreme constraints.

  3. The Growth Hacker, precisely because of the constraints imposed upon him/her has to seek unconventional means to achieve the 'Growth Imperative' and as such is required to have technical/analytical (especially data analytics) skills that go well beyond the average marketer, hence: 'Hacker'.

In the same manner my imagination of a 'Productivity Hacker' is not necessarily different, in principle, from a strategist. But the two are worlds apart by virtue of the context:

  1. While the strategist's world may revolve around many things, the Productivity Hacker's world revolves around one thing and one thing only: Productivity.

  2. The Productivity Hacker lives in the very unique environment of a startup enterprise (more specifically a tech or tech-driven startup, in whatever kind of technological field really)

  3. By virtue of this environment, the Productivity Hacker is called upon to apply unconventional means to achieve the Productivity Imperative, even inventing those means where necessary.

Now, in conclusion, just to balance this out, productivity or the productivity imperative, is not an end in itself. A problem could arise if it is taken as such. For example, in our comparison of startups A and B previously, B could hire a rock star Productivity Hacker, who goes about the business of optimizing the output of B's employees, with productivity as an end in itself, the company may end up driving their employees up the wall to squeeze out maximum productivity leading to the place being a nightmarish work environment for employees, maybe even driving some away, because it's no longer a fun, enjoyable work place.

As such, the Productivity Hacker, should be tightly knit into the company, such that they can understand and appreciate all the dynamics at play. It also means that beyond 'technical' skills - strategic thinking, data analytics etc - they need to be well informed of other aspects of running an organization - the human resource aspect, the financial aspect, the operational aspect etc. In other words, the good Productivity Hacker takes a 'balanced approach', knowing the startup's strengths, weaknesses, and potentials, internal dynamics, culture, external context etc to optimize productivity without unfairly negatively impacting one or more aspects of the organization.

This also means the Productivity Hacker needs to have fruitful relationships across the organization; in fact they should have just as good relations with the top level (founders, executives) as with the lower / operational level, in order to appreciate all the aspects of running the enterprise.

So. What do you think? Is the idea of a 'Productivity Hacker' simply hodge-podge or is there something to this idea. Let me know what you think, the comment box awaits...


Wednesday, 14 May 2014

Productivity: What do you have and what are you getting out of it?

My last entry continued the thought pattern regarding what I have concluded, from my own experience and from observation, are the two greatest challenges faced by startups and entrepreneurs: capacity and consistency. In the last post, I did some rough math to show the critical importance of building capacity, especially, human resource capacity (skills, knowledge, talent) in an enterprise.

The conclusion: Capacity is alpha.

Well, upon mulling over this further, I'd like to retract that statement and replace it with this one:

Productivity is alpha!

At whatever scale of operation, what matters more than how much capacity you have, is how much of that capacity you are making productive use of.

The topic of productivity is a familiar one to economists. And whearas, the often quoted figure of Gross Domestic Product (GDP) is arguably not the full representation of what there is to an economy and its development, it nevertheless manages to express a lot about an economy in a quantfiable way.

Investopedia puts forth a simple and succinct definition of productivity:
An economic measure of output per unit of input.

It's as simple as that:

a) What do you have (inputs, or put it another way: capacity)?and

b) What are you getting out of what you have (output, i.e. productivity).

To put it another way, do the best you possibly can with what you have, until you cannot possibly do any better.

I also previously stated that enterprise growth can be summarized simply as a series of consistent phases of execution at successively higher levels:
... execute consistently as a startup, expand, execute consistently as a small business, expand, execute consistently as a small enterprise, expand… and so on. When a large corporation, ‘downsizes’, it is simply looking to find a level down where it can execute consistently again because it is no longer able to be consistent at its current scale.

I'd like, not to retract this argument, but to augment it by adding that it's not just about consistency, but consistent, optimal execution. What you want as a startup (or really whatever size your enterprise is), is to optimize your operations to get the most out of whatever capacity you have, and then maintain that level of execution.

To apply this to my own situation with Afrinnovator: Could I say I used the capacity I had (of whatever quantity and whatever quality), optimally? Perhaps not. Why?

Sunday, 27 April 2014

Show me the money: of cash and capital in startup enterprises

In the last article, I discussed what I think are the two greatest challenges that I have faced in the past, which I also think many entrepreneurs, particularly in the African (or developing world) setting, face:

  1. Capacity: Which I would simply summarize as: the ability to execute (effectively and efficiently) - specifically with regards to financial  and 'human resource' (skills) capacity

  2. Consistency: The ability to execute effectively, efficiently and repeatedly (call it a 'repeatable business model')

I argued that solving these two big challenges could go a long way to spur entrepreneurship to a new level, not just in tech.

Show me the money

Let's talk a bit about capacity, specifically, financial capacity. I am no financial expert but, I'd say there are two specific aspects of financial capacity that are particularly troublesome for the entrepreneur (again also from past experience):

  1. Capital

  2. Cash

The capital bit has received much attention. This is not just a matter of quantity - in terms of the sheer amount of (potential) capital available, say, in a country - but also a question of quality: for example, what will it cost the average entrepreneur to get that capital in terms of interest rates, security etc; 'fluidity': how accessible is it, how freely can the capital 'flow' where it's needed most, how fast can investors 'turn around' an investment and re-distribute the principal amount and gains elsewhere?

Now, the cash bit, is not talked about often enough, I think.

Anyone who has done business of any kind in my home country, Kenya, or any kind of consulting work, will bear witness that it can be painfully hard to get clients to pay you, and pay you on time! Furthermore, in Kenya, as in many other countries, the small business sector (entrepreneurs) is considered to be the largest employer, therefore when small businesses struggle with cash flow, often employees end up similarly suffering as employers are unable to make payroll. It is a vicious cycle - business A doesn't pay B on time, so B has cash flow problems and can't pay C on time... and in time the problem becomes systemic. Which is is the case in Kenya, I think (call a spade a spade).

It has been said that 'cash is king', and for a good reason - if you are not bringing in income fast enough to meet upcoming expenses, (ignoring capital injections), you're basically heading down a troublesome path, and might find you no longer have a going concern, as it were (back to the idea of consistency).

Back to the bigger picture

Whereas I'm looking at these as separate issues, the various factors are actually co-related: to build up human resource capacity, one will usually need some level of financial capacity - to hire new talent, or acquire the skill through training. Consistency is dependent on building and maintaining capacity.

For purposes of this enquiry: consistency of execution is the key success metric for an entrepreneur we are interested in. 

Here's the golden question - Why?

Simply put - if at the lowest level (call it the 'startup' phase), an entrepreneur can't execute their business model consistently (repeatably), they can not graduate to the next phase!

Consistency is alpha (to borrow slightly from the financial world).

In fact, the growth of an enterprise can be summarized simply as a series of consistent phases of execution at successively higher levels: you execute consistently as a startup, expand, execute consistently as a small business, expand, execute consistently as a small enterprise, expand... and so on. When a large corporation, 'downsizes', it is simply looking to find a level down where it can execute consistently again because it is no longer able to be consistent at its current scale.

A little mathematics

Here's the equation:
Consistency (α)  = Capacity (σ) + other external and internal factors e.g. political stability, macro-economy, the entrepreneur herself... etc (μ):

α = σ + μ

Capacity (σ) = Financial Capacity (θ) + Human Resource Capacity (λ):

σ = θ + λ


α = (θ + λ) + μ

(I'm clearly not a mathematician either)

Let's move away from the problem space and consider the solution space.

I previously (in my last article) hinted that it might be that the future of Afrinnovator lies in solving these challenges, so here's a question / thought experiment I've been running:

What if we were to hold some of the variables in this equation constant, such that we could identify one variable which can be controlled in order to push α up?

Supposing we assume that the financial (θ) capacity bit is something we can't do anything about, at least for the scope of this experiment? Think about it as a constraint - the entrepreneur will more likely than not continue to suffer shortage of capital and cash flow.

We could also ignore μ  i.e. other factors beyond the explicitly stated ones, and assume those are beyond our control, but are stable to some reasonable measure as to enable enough room to work on the items we have identified.

Basically we distill,
α = θ + λ + μ


α = λ + β


β = θ + μ

β - factors we are 'holding constant' i.e. we can't do anything about them, for whatever reason

We end up with a situation where, other factors held constant, increasing the human resource capacity (skills, knowledge, talent...) inherent in an enterprise somehow, should lead to better ability to perform consistently, thereby setting up the enterprise for the next stage in its growth.

So the next question becomes: how can entrepreneurs be assisted to grow their 'human resource' base, without creating a further dent in cash flow, and assuming no new capital?

A worthy problem to solve, I would say. And while I still don't have the answers, I continue to ask the questions...

Monday, 21 April 2014

The two great challenges that every startup faces

This is my first article in more than 6 months, it also happens to be a unique one for two other reasons: firstly, I am writing from a personal perspective, unlike the ordinary subject-matter content I write, and  secondly,  the issues I raise here are the two key challenges I have identified in my experience of building up the vision that I have for Afrinnovator.

To put some context to it all, I began Afrinnovator in 2008 initially with a vision of highlighting innovation in Africa within the technology, and particularly Internet, startup space; the mantra: 'Putting Africa on the Map'. At first the form that this idea took was a kind of directory listing of tech startups in Africa, this evolved in 2010 to content, telling the stories of technology innovation and entrepreneurship with a view of spurring further innovation through the stories of the successes, failures, challenges and opportunities faced by others. The kind of content evolved over the next two or so years and I found a niche in a more analytical and less news-like format, and this is the brand that Afrinnovator became associated with.

However, in late 2013 (Q4), I was prompted to take a rather controversial decision, I pulled the plug.

There were several reasons for this but above all it seemed necessary to apply the brakes and take a step back to analyze the situation,  which I felt required going into hibernation for a time. In the intervening period, I have had a chance to mull over Afrinnovator - think, re-think, toss it this way and that, analyze it.

I have explored (and continue to explore) various options, and while I do not have all the answers, it is apparent to me that Afrinnovator is something I am in a sense, 'stuck with' - not in a negative sense, but in the sense that, I just can't shake it. As a software developer, I am familiar with what some, particularly in the open source world, refer to as  an 'itch', something you can't shake, that you have to do something about.

Thinking about the Why

Eric Ries of 'The Lean Startup' phenomenon refers to the 'Five Whys'. I must admit that is a question I have asked more than five times and that I continue asking from: 'Why did I start doing this?' to 'Why didn't it work out as I thought?' and everything in between and beyond.

The latter question is one that I've been contemplating quite a bit recently, and so far I have identified two contributing and inter-related, factors:

  • Capacity

  • Consistency

As I have contemplated these two, I have realized that these are problems that many entrepreneurs, in all industries, face. As a matter of fact, I think these challenges are very particular to startups (tech and otherwise) in the African context.


By this I am referring to various kinds of capacity but primarily: financial capacity and human resource capacity.

At least in the tech world, in the Kenyan (and perhaps the broader African) context, the situation with regards to startup financing has improved significantly over time with multiple VCs coming into the market, drawn by the promise of some African countries being the the next big thing in terms of technological innovation. In more recent times, angel investors are also coming on board. However, broadly speaking there are still challenges with access and distribution of capital to where it is needed, and this is not just a tech-industry specific challenge.

With regards to human resource, the fact is that at the beginning of the life of a startup the founder(s) are usually forced to have a hand in almost all the tasks involved in running the company - from product strategy, to product development, marketing, selling and so on. At this stage,  the startup usually does not not have sufficient startup capital (financial capacity) to hire specialized skills;  the scale and scope of the business means that the lack of specialized skills does not have a detrimental impact on day to day operations. However, there comes a time when in order to attain 'escape velocity' to move from one stage to another, specialized skills are called for, these are skills that the founders may not have, so either they have to learn them or hire them, or as scope and scale grow there is only so much that the existing team can handle. (The opposite dimension is where a company scales too fast too soon).


In my case this meant consistency of content; in a content business, the primary way to obtain and maintain a captive audience is to produce quality content, consistently. Many would venture to say that Afrinnovator has quality content, however, the consistency was lacking (for various reasons that I will not share here). This led to a situation where the site statistics reflected a much higher acquisition rate (in terms of new visitors) relative to the retention rate (returning visits).

In a broader sense, every entrepreneur must find a 'repeatable (and scaleable) business model' - which may or may not be the model they started out with.

I did not start Afrinnovator with the vision of making a business out of it; it was, and still is a work of passion. It is only over time the potential and the opportunity crystalized and that I began exploring what kind of business model would work. Many startups have began with one idea in mind only to have to adapt, change, pivot in some way.

Consistency also ties back to capacity - in order to maintain consistency, you have to have the supporting level of financial, human and other forms of capacity.

So, what's next?
If I had an hour to solve a problem I'd spend 55 minutes thinking about the problem and 5 minutes thinking about solutions. - Albert Einstein

I do not have the answers yet, at least not all of them. But it helps a great deal to clarify the problem. The issues of capacity and consistency are issues that I've wrestled with throughout the history of Afrinnovator and which I believe many others face. Perhaps the future of Afrinnovator lies in finding solutions to these very same problems.


NOTE: If you are looking for good content about tech and startups in Africa, check out the re-energized Savannah Fund Waterhole