Why your African Hustle Needs a Corporate Mindset

One thing that has fascinated me for a long time is the mythical and romantic view that entrepreneurs must operate in an unstructured environment, roaming free with limited adherence to the basics of corporate business.

This idea is always further exaggerated and assumed when applied in the African context — cue colonial views of “the scramble for Africa,” an idyllic positioning of how being an entrepreneur in Africa allows for little effort and maximum returns based on a lack of stricture or structure.

Nothing could be further from the truth. I would go as far as to suggest that entrepreneurs who see their activities as an escape from corporate structures are the reason why the new business failure rate across the continent is so high.

The reality is that the more “corporate” you are as an entrepreneur, the more likely you will be able to survive, grow your market share and attract investors. The starting point is company valuations and buyouts.

Investors can pay premiums of up to 30% for well-constituted businesses with good governance, proper processes and structure, as well as compliance procedures. If you want to see that big payday one day, you must bear this in mind.

It would help if you also understood that people you will court to achieve that payday will be corporations such as banks, private equity firms, competitors and complementary industry players. If your business does not meet their standards in terms of its structure, your payday will be significantly diminished or never happen.

To be clear, what we’re talking about here are:

  • a transparent set of finance processes
  • compliance procedures, including KYC (Know Your Customer, legally) and the management of PEPs (Politically Exposed Persons)
  • properly constituted transfer pricing and taxation agreements
  • sustainability plans and processes, and
  • ESG (Environmental, Social and [Corporate] Governance)

Without these, potential buyers or investors will most likely be willing to pay much less for your business, or they’ll walk away from a deal because you will not be able to satisfy their own internal risk and compliance processes.

Essentially, a good motivational strategy is to apply a corporate mindset to build your entrepreneurial venture so that you don’t leave money on the table when it comes to deal time. And you funders don’t walk away from you.

Currently, there is an estimated $5 trillion of excess capital globally looking for investments. The single biggest reason African businesses continue not to benefit from this vast pool of finance is that our entrepreneurs don’t want to – or don’t believe they need to – play the corporate game.

In summary, strong businesses with sustainable cash flows and scalability require a corporate mindset. Sizing your business, developing a defendable business case, initially securing seed funding, appealing to customers in Africa that may be in less developed markets dominated by large incumbents requires rigour.

Clients will not buy your product unless you can sell it and position it in a compelling manner. Replenishing your inventory in your business requires proper lead-time management and needs you to utilise modern port, rail and road capabilities. Securing customer data requires proper security and Cloud technologies. The list is endless.

For us African entrepreneurs to grow their businesses sustainably, we will need to benefit from the deep pools of capital available globally. But to do that, we need to behave like a corporate while remaining nimble and responsive to market changes and technological upheaval.

As an entrepreneur myself, I always encourage startups to have their exit in mind from the very beginning and avoid shortcuts, which will always come back to bite you on the backside.

 

AUTHOR: DZINGIRA MATENGA
DATE PUBLISHED: March 02, 2022
SOURCE: incafrica.com
PHOTOCREDIT: aaionline.org

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