There has been significant growth in the African tech startup ecosystem over the past 5 years. African tech entrepreneurs, day by day, are coming up with different products to make our lives easier in Africa and the diaspora. This ranges development of Fintech, communication, transportation, media, and several others. However, despite all this, many of them struggle to succeed.
There are several reasons why African tech startups are recording failure, even after launch. This range from poor product design, inadequate funding, unfriendly government policy, and several others, making it difficult for these businesses to get off the ground or sustain their operations.
This article gives an insight review of common reasons African startups are failing, even after product lunch.
Table of Contents
10 Reasons African Tech Startups are Failing
While the success or failure of a tech startup is not limited to any particular region or location, several factors can contribute to the success or failure of tech startups in Africa. They include:
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Poor product design and development
Poor product design and development is one of the critical reasons most African startups are failing. Poor design and development affect a product’s usability, appeal, and overall success. This is usually due to failure to conduct user research and understand the target audience’s needs. Poor product development ranges from poor project architecture, unappealing UI/UX, constant errors and bugs, etc.
A good example is Nairaland, a bulletin board that used to serve as the largest African online community. Nairaland launched its mobile application version some 8 years ago. The Nairaland application, till today, only functions for notifying users about a new post on the forum; users are still led to the web page to view content. One wonders about the kind of development idea behind such an application, especially in this 21st century. Nairaland, till today has just 2 ratings on the App store. While Nairaland is constantly on the trends, we have other applications like Vulte by Polaris Bank, Channel TV app, and the so called eNaira and others.
Disclaimer: Poor product design is not limited to African Software.
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Intellectual Property concerns
Intellectual property (IP) refers to creations of the mind, such as inventions, literary and artistic works, symbols, and designs. IP rights are laws that protect intellectual property and its owner. Examples of IP rights include patents, copyrights, and trademarks.
Many African countries, including Nigeria, have weak IP protection laws. This makes it easy for larger companies or competitors to infringe on the IP of small startups. It also complicates the ability of startups to commercialize their ideas and products, as they may not have the resources to prevent IP theft or defend their IP in court.
IP concerns may also arise when startups seek funding or partnerships with external investors or companies. For instance, they may have to transfer ownership of their IP in exchange for funding or have difficulty negotiating fair terms for using their IP, creating barriers to growth and success for African tech startups.
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Lack of investment
Most venture capital firms and other investors may be hesitant to invest in African tech startups due to perceived risks, such as political instability, corruption, and a lack of infrastructure. In 2015, Wabona, a South African video-on-demand company, closed its doors due to a lack of funding from investors.
The Cofounders, Simbarashe Mabasha and Simukayi Mukuna, reported that investors had refused to fund their companies due to “uncertainty in the African video-on-demand (VoD) industry.” While these perceptions are only sometimes accurate, they can create barriers to funding for promising African tech startups like Wabona.
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Limited access to resources and infrastructure
African tech startups have difficulty accessing the internet or reliable electricity, which are crucial to developing and testing their products. Limited access to resources makes it difficult for startups to scale their operations and expand into new markets, eventually leading to stunted growth in the long term.
Wala, a South African crypto startup in Uganda, folded up in 2019. Smer-Saab, the co-founder of the budding company, revealed that Wala failed due to poor internet infrastructure and business regulations in Uganda.
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Limited market opportunities
African tech startups face competition from larger, more established local and international companies. High-level competition makes it difficult to gain a foothold in the market. For example, the Egyptian ride-hailing company, Ousta experienced major bankruptcy due to limited market opportunities.
In 2016, the startup filed a complaint against Uber with the Egyptian Competition Authority about Uber monopolizing its market with low prices and free charges for its drivers. Apparently, Uber had taken over the mobile transportation market using these tactics, kicking Ousta out of the scene.
Like Ousta, many tech startups have shut down because a larger company monopolizes the limited market space and creates a barrier for newbies.
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Lack of skilled personnel
Many African tech startups lack skilled personnel because many qualified tech professionals may be attracted to international companies that offer more attractive salaries and benefits. In this scenario, it’s difficult, if not impossible, for these startups to compete for top talent.
Efritin, an e-commerce platform, blamed its former manager for internal mismanagement and theft as reasons for the company’s bankruptcy. Perhaps, Efritin would have flourished if they had skilled and sincere employees in their establishment.
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Cultural and societal barriers
African tech startups may face skepticism or resistance from certain population segments. For example, some people may be reluctant to adopt new technologies or hesitant to trust tech startups, especially if they aren’t familiar with the company or its products.
Opay, a famous African Fintech startup, had lost some of its business units, such as ORide and OExpress, that offered transportation services in Nigeria. This happened because the Lagos state government banned motorcycle operations in some areas, causing businesses like ORide to shut down. While the Lagos state government had its reasons for banning motorcycles, the barriers didn’t bode well for OPay.
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Political instability
Political instability can create a volatile and uncertain business environment for African tech startups. For example, political instability can lead to changes in government policies or regulations that can impact the operations of tech startups. It can also create uncertainty around issues such as property rights, contracts, and other legal matters, making it difficult for startups to plan for the future.
Political instability can also lead to economic instability, affecting the demand for tech products and services and funding availability for startups.
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Limited experience and expertise
Some tech startups in Africa are founded by individuals with limited experience in the tech industry or business. This limits their chances of successfully navigating the challenges they face.
KuBitX, an African crypto startup, shut down its business in 2021. The company’s founders, Eric Annan, Alex Amadeu, and Victor Akoma-Philips, revealed in an interview that the startup failed because they had limited technical knowledge of cryptocurrency.
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Poor product performance
Poor product quality leads to low customer satisfaction and a lack of demand for a startup’s products or services. There are several reasons why African tech startups might have poor product quality, including insufficient resources, limited expertise, inadequate preliminary tests, and debugging before they launch their products. A significant cause of poor product quality can be a lack of customer feedback or adequate testing that makes it challenging to identify and fix problems before they become major issues.
Final Words
African tech startups encounter several challenges that impact their success, including lack of funding, inadequate business models, a shortage of skilled talent, intellectual property concerns, and poor design and development.
To increase the chances of success, these startups must address these issues by restrategising to better communicate their solutions and acquire adequate funding. When there’s funding and a clear picture of the vision for any startup, it’s much easier to build a skilled cross-functional team and invest in high-quality design development. This way, African tech startups will have better chances of overcoming obstacles and achieving success in the competitive tech industry.
About Author
- Adetola Rachael is a content and copywriter. With experience in tech, entrepreneur, and casino niches, she relies on deep research to create quality, original, and marketable content.
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