Whether you’re in San Francisco, London, Cape Town or – I dunno, Rome? – one of the downsides of a ‘start-up culture’ is that so much of the background buzz is just well presented PowerPoints (like old-fashioned Prezis, children of the ’90s) and clever hair. If you’re a budding entrepreneur and you’re serious about starting a new tech business, your country really does need you. But how do you avoid becoming yet another failed Zuckerberg wannabe and end up South Africa’s answer to Chinedu Echeruo?
Coetsee worked for IBM for eight years and is the co-founder of StartupCherry, an organisation which helps others create and launch new businesses, and has collaborated on skills programs with Microsoft and SAB Miller. StartupCherry also develops tools to help large businesses identify which start-ups are worth investing in, and which ones are likely to collapse before turning a profit.
What do start-ups need?
Coetsee: Once you’ve got a company with cashflow and product, then having an MBA is really good. But if you’re starting out, that stuff is overhead. It’s overhead that’s full of guesses. You’re making absolute assumptions about everything over the next five years. So we let people build fairly simple financial models about where revenue is going to come from and then encourage them to go out and test that kind of stuff rather than just assume it will work and then try to build a business around it.
A start-up we were talking to the other day had a pretty good idea around car servicing. Now that industry is fairly standard – you just have to talk to a few companies to find out what the going rates for certain types of standard products and work out how much you’ll have to pay for space and so on. But if you’re trying to launch the next Facebook, for example, you have to look at how many millions of users you need to earn so much revenue and that’s the point that you might need to realise that you’re shooting a bit too high.
A lot of guys think that users will just come to these projects easily, and it’s only after you’ve been up and running for a month and had less than a thousand people come by your site that you realise how hard it’s going to be.
There’s such a burning desire among these guys to be entrepreneurs and such a lot of support from the government side that we don’t want to be crushing anyone’s hopes. Our research has shown that the most successful entrepreneurs have had several shots at it before they find the business model that works.
There’s two schools of thought isn’t there? I interviewed Roy Singham, the founder of Thoughtworks, recently and he said he won’t hire people who have entreprenurial backgrounds because they don’t want to do the hard work that keeps a company going.
Me and Roy have had quite a debate about this, and I have a lot of respect for Thoughtworks. They’re a fantastic company, but what Roy talks about works very well for his company and his model. Talk to FNB, on the other hand, and you’ll get the opposite answer – they want entrepreneurs and ‘out-of-the-box’ thinkers. Sure, you have guys who won’t settle and want to move on, but FNB’s success is testament to the fact that if you get the right people and they’re given enough leeway within the hierarchy, there’s enough space for them to explore their entrepreneurial spirit.
Most of the entrepreneurial activity in this country is based on being unable to find work and doing something out of necessity, and therefore we rarely create scaleable companies that can support more than two or four people. Or it comes from people who’ve been retrenched and want to start a lifestyle business with their retrenchment packages.
Because we’ve got thousands of those, South Africans think we’re very entrepreneurial, but the rest of the world is a bit wiser than that. A lot of our entrepreneurs would rather be working for corporates.
Really? Even the younger generation?
There’s still a lot of them who want to go work for a corporate because guess what, corporates will pay you R20 000 a month straight out of college if you get lucky. Who’s going to turn their nose up at that?
You come across a lot of people who say look at what goes on in Silicon Valley, or Silicon Roundabout or Silicon Cape even, and they say look there’s this hackathon, there’s this open data thing and there’s that and its great. But there’s a big hackathon which I know of that got 200 sign-ups in Nairobi, yet struggles to get 20 in Johannesburg.
A lot of people say that the reason start-ups struggle in South Africa is because there’s problems finding investment – and especially foreign investment – here. Yet I see a lot of local initiatives designed to help new businesses starting every day.
They’re right, there is a challenge with FDI money coming in. But my view is that there’s more than enough money floating around already. Joburg seems to be very much a bootstrapping mindset, though, people with good ideas just get on and build stuff without investment. Guys that are looking for investment have the Zukerberg-ideas. They’re building the next Facebook. People who are building a business just get on with it.
You’d be amazed, if you look around Joburg, how many companies there are sitting around 100-150 employees turning over R40-50 million a year that you never hear about. What Cape Town is good at is making huge news about those companies and shouting about them from the top of the mountain. They only have three or four of them, but you feel like there’s a hundred.
So a lot of this noise is coming out of Cape Town, and what we call ‘presentrepreneurs’. They’ve got these wonderful decks and ideas, but as an investor they present a huge risk. So investors start the conversation at 20-30% equity, and these guys don’t want to give away that much of their business. So they turn around and say there’s no money. The better thing to do is to build something, get some customers and then have a realistic conversation with an investor and you’ll find there’s more than enough money.
We’ve seen Dragon’s Den. 20-30% doesn’t sound like a lot of equity.
They just don’t want to give it away. It’s a mindset. They want the money, they want the R100K but they don’t even care about the support, the guidance and the free office space that somewhere like Seed Engine gives them. They just want the money and to go off and start building.
That seems like a very ‘young’ approach to investment.
It is. It’s very immature thinking. And one of our ‘success predictors’ [one of StartupCherry’s tools for recommending investment] is whether or not the founders are willing to take advice or actively seek it. If they do, they have a better chance of success.
With your particular programs, you seem to focus more on business and marketing skills rather than programming basics. Is that because there’s a glut of people with IT skills out there?
I don’t think so. I think our challenge there is worse than the rest of the world. The number of maths and science graduates are insufficient and the teaching is poor. The calibre of maths and science student is not high enough. There are exceptions – we’re looking to bring two youngsters who matriculated last year into our business as equity partners – but it’s a handful. We desperately need more.
Justin will be helping start-ups to develop their IT skills at the Tech Bootcamp Weekend at JoziHub this Friday and Saturday. Google, Microsoft and BlackBerry reps will all be presenting and on hand afterwards to offer advice. You can book tickets at the Startup Weekend Johannesburg site, they cost R200 for the Bootcamp and R500 for Startup Weekend itself in August.