Africa’s Entrepreneurs Can’t Be Restrained by Fear of Failure

Grow my business to a million dollars? No thank you, I’d rather stick to the two stores I’ve got!

The spirit of entrepreneurialism, with its promise or reduced youth unemployment and economic renewal, is certainly gathering steam across Africa. But true entrepreneurship-led transformation will require a mindset shift amongst Africa’s small business owners.

From South Africa’s Silicon Cape to Kenya’s iHub-centered Silicon Savannah movement – from Ethiopia’s burgeoning textiles industry to Nigeria’s ubiquitous Nollywood film industry – there are visible signs of the growing profile of African entrepreneurs. Government programs abound: YEDF in Kenya, SEDA in South Africa, and YOUWIN in Nigeria to mention a few. New incubators are rising every day and private initiatives like Generation Enterprise and InChallenge are training promising young entrepreneurs. Fittingly, in his foundation’s first white paper on Africapitalism (PDF), Nigerian billionaire Tony Elumelu declares that “value creation through entrepreneurship is Africa’s unique path forward — distinct from emerging markets like China with its state-run enterprises, or Korea with its ‘Chaebol’ conglomerates, or India with its large family-run businesses”. As if to support his claims, Nigeria’s NYSC national service program, which trains over 300,000 graduates each year, has been recently returned to offer training linked to entrepreneurship. Africa’s entrepreneurs, more connected than ever to new ideas, are being told that this is their time to shine.

African GPD Growth Rates in 2010. Data from the African Statistical Yearbook.

African GPD Growth Rates in 2010. Data from the African Statistical Yearbook.

In a previous post, I identified entrepreneurship as a potential solution to Africa’s youth unemployment problem. Yet for all this apparent momentum, there is a reason to pause. The majority of Africa’s entrepreneurs – old and new – run micro-enterprises which don’t grow beyond the informal sector into productive formal firms. These firms are a social safety net to keep people alive, but rarely ever an engine of sustained growth or employment.

Sparking an entrepreneur-led boom in Africa will require a mindset transformation of these “small dreamers”. It will need, first, a better understanding of their motivations. Many African entrepreneurs embrace business as an escape from desperate circumstances. Far away from the romantic Silicon Valley ideals of changing the world, these entrepreneurs simply want to survive and avoid going back to the poverty they came from. What may seem like a lack in ambition is in fact rooted in a pervasive fear of failure. After all, failure for a Silicon Valley technologist might mean a few months temping while securing a new job; failure for an Ethiopian small business owner could mean a hungry family with no supporting government safety net.

It will also require a better understanding of how this loss aversion mindset influences a firm’s prospects. Many “small dreamers” are highly reluctant to delegate responsibilities or even partner with other firms, preferring instead to retain a close eye on all the details themselves. They will often point to staff unreliability and share anecdotes of unscrupulous behavior from previous business partners. In many cases, they don’t even trust family members to help manage their businesses. Instead of investing for expansion, they prefer to treat their enterprises as small cash cows and retain full control. The problem of course is that the status quo often cannot last. Many of these firms fall victim to economic travails, and go out of business in due course. More tragically, they fail to fulfill their potential in contributing to sustainable macroeconomic and employment growth.

The proponents of Africa’s booming entrepreneurialism – governments, incubators and investors – should pay more attention to the “small dreamer” phenomenon. They must focus on:

  • Creating better safety nets. Programs should be launched that enable failed entrepreneurs to get back onto the ladder, by providing access to finance and business support. Vocational training schemes can ease the path into salaried jobs, and mentorship/advisory roles may also allow failed entrepreneurs to earn a living while getting back on their feet. Ultimately, the best safety net in an entrepreneurial ecosystem is often a breakout success that plays a ‘mother ship’ role, like Google in Silicon Valley. Such firms provide a platform for entrepreneurs to launch new ventures, but can also employ them in related fields if their businesses fail.
  • Educating entrepreneurs to think bigger. Many African entrepreneurs could benefit from free online education on how to formalize and grow their businesses. It is also important to promote a societal image that celebrates entrepreneurs who have become breakout successes. This should be done in an informative way that teaches young entrepreneurs what decisions they will likely face as they seek to expand, and not in a manner that merely glorifies celebrities.
  • Building employer-employee trust. New mechanisms are required to promote trust between entrepreneurs and their potential partners and employees. Policy initiatives focusing on IP protection and improved legal enforcement will go a long way towards this, but often there are also softer cultural considerations. Programs and small business associations that increase information flow between entrepreneurs in a sensitive manner may help assuage their fears of being cheated.

By addressing the “small dreamer” phenomenon, Africa’s entrepreneurial revolution stands a better chance at harnessing the potential of the youth and creating a demographic dividend in the coming decade.

– Havard Business Review Blog