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What’s It takes to Launch a Company in Ethiopia?

,v2

The best starting place, is to think through how to serve a completely vacant market waiting to be developed and

July 16, 2019
Team Shega Avatar

Team Shega

Addis Ababa, Ethiopia

,v2

The best starting place, is to think through how to serve a completely vacant market waiting to be developed and seek to grow fast enough to own it.

Having helped set-up four companies over 6 years attracting over $200mn in committed capital in Ethiopia, I get asked all the time, “How do you do it?”

So here is my best and most obvious advice:

 

Think Big

Most of the entrepreneurs I run across in Ethiopia are working on small ideas, neither inspiring nor able to scale into meaningful segment-dominating businesses. They generally are developing a “marginal improvement” idea to someone else’s already successful company, just another ‘me-too” idea. In a market as immature, fragmented and strewn with under-capitalized companies as Ethiopia, there are white spaces on the chessboard everywhere you look.

The best starting place, is to think through how to serve a completely vacant market waiting to be developed and seek to grow fast enough to own it. harnessing resources to feed the pace of growth is key and usually, that means three types of capital resources: financial, human, and intellectual. Those three resources are inescapably essential to scaling fast.

Partner Carefully

Finding great people to partner with is very challenging in Ethiopia. Nevertheless, finding co-founders / team-members who are: smart, reliable, sacrifice-oriented, lacking envy, good-hearted, and execution obsessed is essential. But there is more to finding great people than that.

As Hakeem Belo-Osagie pointed out,

It seems everyone in the market wants a big title, top salary, 9-5 hrs, generous maternity/paternity leave, a corner office, and a well developed enabling environment (preferably created by someone else).

Moreover, they don’t want to invest their own savings or unpaid time. Whenever I run across those types, I am reminded of the following joke, “What’s the difference between the chicken and pig at the bacon and eggs breakfast?”, Answer: “The pig is committed, but the chicken is only involved!” I look for the pigs whenever pulling together founding management teams as only then are interests truly aligned.

Every time I’ve been seduced by a chicken dressed up with a fancy resume, I’ve regretted the messy omelettes that ensued.

Finally, at all costs avoid people with toxic personalities, or those that are prone to dodging commitments, or excuse-makers, or people you could characterize as “Big hat…no cattle”. As Warren Buffet says, “Who you spend the most time with, will largely determine who you will become.” Hence, consciously choose to team up with the best and the brightest who have the highest integrity and also believe enough in the idea that they will invest in the project. Every time I’ve been seduced by a chicken dressed up with a fancy resume, I’ve regretted the messy omelettes that ensued.

 

Do the Work

Many say business plans are useless but business planning is essential. In my experience business plans rarely play out as anticipated. But the work that goes into a thorough, excellent, deeply researched b-plan is invaluable, in:

A) Identifying the risks that inevitably must be mitigated to increase the likelihood of success.

B) Building the depth of credibility required to foster the trust that is the basis upon which capital passes hands. I have seen hundreds of business “napkins” in Ethiopia and spoken to many dozens of family businesses seeking to raise capital. And I am shocked by the naivete that informs their capital raising strategy, evidenced by the superficiality of their b-plans, i.e., basically sketches on napkins.

So I say to them. “If you were a General tasked with the job of taking your country to war, would you conscript a bunch of teenagers and arm them with sling-shots guided by accountants or teachers and expect to win against a highly trained, professionally managed army equipped with state of the art weapons? Why then are you unwilling to properly prepare for a serious capital raising campaign, seeking investment from the most sophisticated sources of capital with state of the art analytics and the best educated staff, who don’t have to invest in your company or even in Ethiopia?”

In my experience thus far, the average Ethiopian business person simply is not willing or able to do the work to prepare at the same level of excellence and detail routinely expected of companies in the US, Europe, or other developed markets.

In this context, those that have boiled the ocean in preparing their investment case, have a significantly higher probability of winning the trust of investors and therefore winning the war for capital.

 

Trust in Science

Attract diverse stars to your business and help them become pigs instead of chickens. No-one achieves remarkable success alone or in a vacuum.

The science I am referring to is the science of sharing, i.e., spreading the equity and sharing it with those who have more experience, better networks, deeper insights, genuine domain expertise, or specialized knowledge/skills of value to the business.

Attract diverse stars to your business and help them become pigs instead of chickens. No-one achieves remarkable success alone or in a vacuum. Teams achieves success. To date, the level of competition in Ethiopia has been very low. So those entrepreneurs who could get access to bank lending were able to build up leading positions in their segments and over time build sole proprietorship’s owned by a single person.

Very quickly, the war for talent will build in Ethiopia. Job-hoping is already become common. I saw this happen in India from 1995 onward. Retaining the best and the brightest will becoming an increasing challenge in Ethiopia. Be warned. Intellectual and human capital will rapidly become more important than financial capital as a basis of competitive advantage.

Judiciously employing the science of sharing to attract and retain talent that might not otherwise commit to your business is not only a smart tactic, but the best insurance against foolish decision-making if and when you do get your business up and off the ground.

Of course, there are a thousand other pieces of advice I could share. But the above four basics are a good place to start for anyone considering starting the entrepreneurial journey in Ethiopia.

Henricus Stander founded many business in Ethiopia and been in emerging markets finance and private equity business since 1992.

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