Startups are making their impact felt right across the world, and it’s created a globally connected ecosystem full of inspiring inspiration and exciting collaborations. From Bangalore to Bucharest, London to Lagos and Sao Paulo to Stockholm, dynamic startup communities have developed – each with different lessons and experiences to share.
As we enter into a year tinted with economic uncertainty, there is one quality that will help startups continue to grow: resilience.
Resilience is imperative to every startup, regardless of which market or location. But, it’s something that startups from emerging markets have an impressive track record in and is something they can teach their European counterparts. We can learn a lot from innovators in emerging markets – they’ve often had to sail through rougher winds in order to become successful – political conflicts and instability, lack of or insufficient infrastructure, difficult cross-regional trade, and unstable financial and economic environment, less access to capital – to name just a few possible hindrances.
here we take a look at the key learnings we can take away from startups from emerging markets and identify different strategies European companies might want to pursue.
1. Profitability over growth
Compared to developed countries, there is still much less capital flowing toward emerging markets. VCs from Europe and the US have focused on investing in familiar markets in recent years. According to the International Finance Corporation, a World Bank organization, there was a capital gap or inequality of $5 trillion Pre-Covid.
Lelemba Phiri of Africa Trust Group: “We are overtrained and over-mentored and underfunded.”
Put simply, emerging market startups can’t rely on startup investment to the same extent that developed countries often do – but they’re also learning not to depend on it.
Analysis shows that they grow more slowly, but also more profit-based, more sustainably with a long-term view. Instead of operating in a growth-before-everything mindset and satisfying investors, they rather focus on customers, product development and sustainable profitability – which gives a better chance of survival when the money runs dry.
LEFA, Namibia’s Uber, is a good example. Apart from a small investment from German business angel Thomas Festerling, it found no investors. So, expansion plans in neighbouring countries were thrown overboard and instead a sustainable, profitable business was built up – among other things by adding corporate shuttle services, for example for airline crews. LEFA now employs 25 people full-time and is growing in small but healthy steps.
Since in Europe, we’re looking at a tough year ahead when it comes to financing, maybe it’s time to reevaluate aggressive growth strategies backed by VC millions and go slow.
2. Focus on real needs
Many emerging market startups are addressing basic human needs. While a Village Capital study found that out of three hundred unicorns in the U.S., only 18% are involved in education, health, food, energy, financial services or housing, analysis in emerging markets has found that companies there focus on basic human needs, such as agriculture or easy to access financial services.
Addressing real human needs in the real world means there is always a pool of customers and a market to access.
A good example is the Kenyan startup OkHi, which provides postal and delivery addresses in emerging markets. It’s estimated that 50% of the world’s population still lives in slums or favelas, where there is no structured address system.
OkHI solves this problem through crowdsourced digital addresses – a unique combination of GPS data, a photo of a house and text description. The startup, therefore, gives residents of townships, often for the first time, the chance to receive mail, packages and deliveries. An important side effect: it makes them an accessible customer base – also for other startups or companies.
The concept of addressing market needs in business models could also be a reason why emerging market startups are showing more resilience. An HBR study looked at emerging markets startups during the crisis years of 2008/2009 and found that they showed better growth rates regardless of global economic downturns.
3. Do more with less
Finance, well-educated talent, political stability, bandwidth, office (equipment), manufacturing, infrastructure – everything is scarcer in emerging markets. Entrepreneurs in developing countries are therefore quickly learning to make a lot out of a little. They use production facilities from completely different sectors for their products, share warehouses and logistics with other startups, hire unskilled workers and train them.
What doesn’t fit from the start is adapted.
The resulting flexibility, coupled with resource efficiency, but also the willingness to embrace imperfection is exciting. One good example when it comes to hiring talented, but unskilled new workers comes from EBikes4Africa (who also started their business very startup-y style in a container which was dropped rent-free at the parking lot of another company).
Marita Walther, Co-Founder of EBikes4Africa:“At the end of 2019, as our business was finally gaining some momentum, we onboarded our second employee, who was recommended to us by – our first employee. Yet he had no prior experience in any of the skills we required, and only a grade 10 education. And still there was something about him: He was so passionate about bicycles and super motivated to learn, so we decided to take a chance on him and train him on the job. As he progressed, he moved through the ranks of delivery rider to bike mechanic to workshop assistant, and finally held the highest position of workshop manager, meaning that he was in charge of managing the delivery fleet and riders, receiving and sending out customer bikes, managing workshop staff and jobs, and had the key to our workshop. He’s also gained a lot of knowledge on electrics (due to the nature of the job), and at the end of 2022 he started his own business to become his own boss. We’re so proud to have been part of his development!”
4. Build your own clusters
Because there is less value creation in emerging markets than in Europe, for example, founders often find themselves having to move mountains to get what they want.
In many places, emerging market startups are building a completely new infrastructure of their own in their sector, on the basis of which other companies can then emerge – and grow: An entrepreneurial breeding ground. The tougher the times, the more it shows the importance of being of a strong cluster – if there is not one yet, build it!
5. Shorter sprints
Startups in emerging markets are often characterized by shorter validation sprints to test their business model and product-market fit.
This is partly due to the high number of startup programmes, mentors and workshop founders on hand to help founders get on the right track and stay there. The emphasis is placed on making the right choices from the very beginning, rather than being foolhardy – which is often the case for European and American counterparts.
Sebastian Vidal, CIO of the Puerto Rico Science and Technology Research Trust: “Entrepreneurs who don’t have the financial flexibility to take high risks lean toward more efficient (or traditional) business models. They can’t sustain the same losses as entrepreneurs with sizable funding, so they place greater emphasis on getting things right rather than growing exponentially.”
Validating in shorter cycles also ensures to not fall into the sunk cost fallacy – which many European startup founders might be facing at the moment.
6. Freemium? Perhaps not
As described above, founders often have to build their startups with less investment – even their own funds are often much lower than those of founders in industrialized countries. This leads to another interesting effect: Freemium models are taboo.
Although emerging market startups often have very poor households as customers – for example, because they offer simple financial products, insurance or educational opportunities via smartphone – they have to pay attention to profitability and only offer paid solutions. And because of the need for the products described above -they solve a real problem- customers are also willing to pay.
Take Zoona, a startup from Zambia, for example. It offers financial solutions for unbanked customers-but markets them as “fast, easy, and secure”-rather than “free.” And like so many others, Zoona shows its customers that it’s worth paying – right from the start.
It’s possible to sail in rough weather
There may still be many hurdles to overcome, but, as startups from emerging markets can teach us – it is possible to make it through rough weather.
With the right mindset, startups from Europe can stay flexible, revise business plans, become less dependent on VC money, and build sustainable, resilient businesses that people and other businesses really need.
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- Source: https://www.eu-startups.com/2023/01/6-lessons-on-resilience-from-emerging-markets-for-european-startups-2/