Tuesday, December 6, 2016

A SOLUTION FOR UGANDA’S BUSINESSES?

The numbers are quite disheartening.

Only one in a hundred businesses in Uganda make it past their fifth birthday. There are a handful of businesses with a nationwide presence. The same goes for companies that have transcended a generation – passed on from founder to son/daughter and continued the legacy.

This is a cause for alarm for several reasons, not least of all that if we cannot create viable businesses, we cannot create jobs or expand the tax base or create wealth sustainably. Never mind the negative effect to democracy that we do not have a viable indigenous capital class.

We have tried everything over the last three decades.

"Palmed off juicy assets during privatisation to locals only for them to accelerate, rather than reverse their downward spiral. We have tried seeding businessmen -- small and connected, with some start-up capital, only for that too to come to naught. We have offered preferable tax terms and concessions to our own but wapi!..

It would be funny if it weren’t a scandal, that during the fastest growing phase of economic growth in our history we have little to nothing to show in the way of solid businesses.

If it is any consolation we should keep two things in mind.

Even in the US, the bastion of freewheeling economics, start-up statistics are not very much different in relative terms. What helps there is that the process of creation-destruction is ongoing, non-ceasing , a numbers game which ever y so often throws up a Facebook, Google, Microsoft, Coca Cola or GE.

And secondly that Uganda is one of the most entrepreneurial countries in the world only second to Chile at last count. This is good because it means we on average have no fear of going into business for ourselves.

Believe it or not our companies don’t sputter and grind to a halt for lack of money but more for a lack of entrepreneurial and managerial capacity.

So what is the solution?

I think I might have stumbled upon it last week in the form of the book “The Start Up J Curve” by Howard Love.

Love, a serial entrepreneur and venture capitalist, after years of starting up his own companies or helping others has distilled his experience into a model of how startup companies go from inception to maturity.

His six phases of the J-curve starts with creation, dips down into “long cold winter” or the “valley of death”, the phase when after you start a company reality hits that your idea is not so brilliant and requires much more work than was anticipated.

If you manage to survive the valley of death and pull out, you can then scale up your business and eventually reap a rich harvest either by selling the company or earning serious money from it.

This model is important the author says, and the sequencing of events more so.

His suggested order is product development, then creating a business model – how the business makes money, around the product and once those are sorted you can then begin to scale and eventually cash in.

"He makes the point that startups fail because either entrepreneurs jump to soon to create a business model before they have created a product that is acceptable to the market. Or try to scale the business before you have determined the business model or even got the product right...

And it each phase of the J-Curve there specific tasks to perform and targets to aim for before you can go to the next stage. To short circuit the process is increase the certainty of failure.

How many times have we seen startups taking out huge office space – scaling, before they have even tested their product in the market or nailed down a business model?

He also has some interesting thoughts at how to finance each stage of the process. All finance is not the same and what may work at the creation phase – angel funding will not necessarily work when it comes to scaling the business, where venture capital may be more desirable. And vice-versa.

No one can tell anyone about how a business will turn out. The mere fact that businesses are different, start at different times and in various locations alone mean no two experiences can be the same.

But they also say if you want to climb a mountain study all the routes to the top and then ask someone who has already been there.

"That last part – finding mentors, is notoriously difficult in our context, because as described at the beginning there is a dearth of businesses that have gone beyond providing a lifestyle for their founders...

During the grand finale of the NSSF Friends with Benefit show I learnt that NSSF has 1.5 million members out of a workforce of 15 million Ugandans. This statistic is a proxy for the size of the formal economy to informal economy. That the informal economy is ten times the size of the formal economy.


This could be significantly changed if more businesses could go from inception to maturity. Just imagine if we had 1000 companies of the Vision Group’s size – the size having been achieved by successfully charting the J-Curve, how qualitatively better the economy would be?

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