African startups and how they should react to competition

startup

As soon as a startup pops up on the block, five more versions show up soon enough, taking slices of the market share, and if you did not anticipate competition from the beginning it can be pretty difficult to correct your strategy in light of the new boys in town.

I have spent a lot of my time in recent years interviewing startup founders — both remarkably successful, somewhat successful and failed ones — and they each had similar reactions to competition. As it turns out, no matter how well they planned for the event of competition rising, startup founders actually — believe it or not — pray that the competition doesn’t come.

That is wishful thinking of course; if your business model is a solid one and you show even the slightest hint of success, other people will storm the scene and try to weigh in with second mover advantage.

A study of over 2 million businesses in the UK shows something interesting: businesses that faced tough competition early on in life have a higher survival rate.

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Source: HBR.org

The reason for this can perhaps easily be guessed. When businesses meet with competition early enough, they take a more hands-on approach to their product/service than they naturally would. They would work on cost-efficiency, product differentiation and customer value enhancement while maintaining a dynamic structure that is lean enough to anticipate their competition. The need for Growth Hack methods comes in handy when you are faced with formidable competition and this healthy pressure can help sharpen the focus of the startup and keep it on its toes.

When Hotels.ng launched in 2012, it had a simple mission: to make hotels cheap and affordable for people who needed convenient accommodation, and to create a level-playing field for small hotels to compete with and gain customers in a market where established hotel chains otherwise ruled.

As it turned out, the goal was a good one; Hotels.ng showed market value quickly and growth followed. It has since then attracted multiple investors, factors that have contributed to its sustained growth and improved technology. However, Hotels.ng did not play alone in this market for long. As soon as it began to show value, foreign competition came in and they brought big money with them.

Nigeria, one of the much-touted MINT countries, is on the radar of foreign investors but these investors are always looking for a validation of the market before they commit. Netflix has expanded into Africa for example, and is currently doing interesting things in Nigeria, which has led to spectators to speculate on the potential effects on IrokoTV.

IrokoTV’s founder, Jason Njoku, however, thinks that there is no contest here — he even wrote this interesting post to prove it.

From the customer’s point of view, competition is ALWAYS a good thing. As more entrants come into the market, they will strive to bring in product/service differentiation that ultimately seeks to woo the customers to the other side. Startups that will keep their place — or at least maintain considerable market share — will quickly define the value proposition that works best for them and puts them ahead of the competition. As straightforward as this sounds, several companies drop the ball here, floundering for years, trying to define what makes them special enough for the buyer to care — and they wink out in a year or two when they cannot resolve this convincingly enough.

Yudala is the most significant entrant into the Nigerian eCommerce space essentially shared between Jumia and Konga, and they got buzz from their Black Friday campaign — where they pulled off the stunt with their ‘drone delivery system’ which got them some PR, including this one.

But startups in Africa are beginning to feel the same thing that European startups have woken up to a long time ago: buzz is fine, but it is a double-edged sword if you cannot match it with value, and value that is shared across competitors might be useful in the short term but not by much in the long term. And this is where the principle of building a competitive moat comes in.

The concept of building a competitive moat is one that several business blogs have explored, and it remains a very good way to hedge your bets: creating a value differentiation that is tangible and difficult to reproduce by anyone.

There are natural strong points for every startup. For example, the fact that your business employs locals as opposed to a foreign competitor (which employs expats) can lend you an advantage in communicating with and forming partnerships with locals in the area. This advantage, interestingly, does not scale as if you expanded into another country it would be totally lost. One constantly has to review one’s methods and apply the best strategies as the situation demands.

Nascent startups getting introduced too early to competition will feel strained- some of them might even crash and burn as a result — but the right attitude and a consolidation of strategy can have those businesses leveraging on their heavyweight rivals.

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