Africa’s startup ecosystem is structured in such a way that securing funding is possible as long as you have a strong idea. Investors are eager to help founders get to a point where they can build their business, acquire the first 100 customers, or even hit significant milestones like $100,000 or $1 million in revenue. But moving from the build phase to full-scale operations requires more than just a good product — it demands strategic action and an understanding of key growth drivers.
The Build Phase: Getting Your Business Ready for Scale
During the build phase, you’re focused on product development, creating your MVP (Minimum Viable Product), and working toward product-market fit. This stage involves identifying a clear target market and beginning to generate revenue. At this point, you might have moved out of your home office and into a proper office space. You likely have a team in place and have started to implement necessary structures, like an HR team. This indicates that you’ve made progress and that revenue is coming in.
Example: Early Success of a Nigerian Fintech
For instance, a Nigerian fintech startup focused on digital payments may have initially been run out of a home office, but after acquiring 1,000 users, they move into a co-working space, hire a couple of developers, and bring on an HR manager to handle the growing team. This marks a significant milestone, signaling that their product is resonating with the market and revenue is flowing.
However, there’s a crucial distinction between a startup and a small-to-medium enterprise (SME): For an SME, reaching $1 million in revenue may be enough, and the focus will often be on steady growth and reinvestment. But a startup, especially one with external investors, needs to scale exponentially. Investors typically expect a 10x return on their investment within 5-7 years, which necessitates aggressive scaling strategies.
If you are already past the MVP stage and generating revenue, then you’re likely ready to scale. Here are 7 crucial steps to help you grow your startup into a successful scale-up.
How to scale a startup:
1. Understanding Your Addressable Market Size
Knowing your total addressable market (TAM) is critical when scaling. At the startup phase, your immediate market might be small, but as you grow, it’s important to identify a broader serviceable addressable market (SAM). Your TAM refers to the overall revenue opportunity if you achieved 100% market share, while your SAM is the portion of the market you’re realistically targeting.
Key Points:
- Customer Numbers: Ensure you have enough potential customers to meet your revenue targets. For instance, if you’re aiming for $50 million in revenue, calculate how many customers you need to achieve that figure based on your average revenue per customer. If your average revenue per customer is $500, you’d need 100,000 customers to reach that target.
Example: A Fintech Startup’s Market Estimation
A fintech company targeting $50 million in revenue with an average customer value of $500 would need to onboard 100,000 customers. This target influences decisions like marketing strategies and geographic expansion.
- Geographic Considerations: A critical question to ask is whether your current market size supports your growth goals. If you calculate the necessary customer numbers and realize that your market is too small, it may be time to consider expanding into new regions or countries.
Example: Nigerian Fintech Expanding into Ghana
A Nigerian-based fintech startup may realize that the market size in Nigeria is limited for their product, so they look to expand into Ghana, where there’s a growing need for digital financial services.
- Similar Needs: When assessing your addressable market, it’s vital that your customers have similar needs. For example, if you’re in the loan business, everyone needs a loan, but their loan amounts may vary. This is easier to scale compared to a market with highly diverse customer preferences.
2. Ensuring Solution Distinctness
What sets your product or service apart from the competition? It’s essential to have a distinct offering that can be easily repeated and scaled. There are three main ways to achieve this:
- Repeatability: If your product works for one customer, it should work for others with similar needs. For instance, a loan company offering a simple loan product with set interest rates can easily replicate the offering to thousands of customers. Avoid overcomplicating your offering with excessive customizations, as this can hinder scalability.
Example: Simple Loan Products in Fintech
A loan service that offers easy-to-understand terms and fixed interest rates can be easily scaled to meet the demands of thousands of customers. This approach avoids the complexity of tailoring each loan package to individual preferences.
- Differentiation: Your product must have a clear unique selling point (USP). Whether it’s exceptional customer service, fast delivery, or a unique feature, your differentiation strategy helps your business stand out. For example, EasyJet succeeded by offering reliable, on-time flights, even at lower costs.
Example: African Ride-Hailing Company
A ride-hailing company in Kenya might differentiate itself by offering zero-emission electric vehicles, tapping into the growing demand for environmentally friendly transportation.
- Dependability: Your product should be hard to replicate. In markets where entry barriers are low, such as lending, your distinctiveness will gradually fade if competitors can copy your model easily. To stay ahead, continuously innovate and reinforce the dependability of your product or service.
3. Building a Scalable Revenue Model
Your revenue model plays a crucial role in scaling. It determines how your business generates income and how much value your customers perceive in your offering. Here are a few important considerations:
- Value vs. Perceived Value: Ensure that your product provides more perceived value than its cost. For instance, a premium-priced product like an ice cream van can succeed if the experience is perceived as unique or prestigious, despite the higher price.
- Pricing Strategy: A competitive yet sustainable pricing model is crucial for scalability. Avoid competing purely on price, as it’s easy for competitors to undercut you. Instead, focus on the value your business provides to your customers.
- Revenue Diversification: As your business grows, consider diversifying your revenue streams. Having multiple sources of income, such as subscription models, partnerships, or additional products, can help your startup scale without relying on one revenue stream.
4. Focus on Operational Efficiency
As you scale, your operations need to be efficient and scalable. Streamlining processes, automating workflows, and leveraging technology can help your business handle larger volumes with fewer resources. This reduces costs and improves margins, helping you stay profitable while scaling rapidly.
5. Building a Strong Team and Culture
Scaling requires a robust team that can execute the business plan. Focus on hiring people who complement your skills and bring new perspectives. Cultivating a strong company culture that aligns with your mission and values is also essential for long-term success. Your team should be motivated and adaptable to the evolving needs of the business.
6. Leveraging Technology for Scalability
Invest in technology and digital tools that help scale your business. From customer relationship management (CRM) systems to data analytics, technology enables you to make data-driven decisions and optimize your business processes. It also allows you to serve more customers without significantly increasing operational costs.
7. Securing Investment for Growth
Finally, scaling a business often requires additional capital. Investors can help you fund your expansion plans, but it’s important to have a solid business case and clear projections for how you will use the funds. Be transparent with investors about the potential risks and rewards to ensure long-term partnerships.
ALSO READ: 10 Tips For Pitching To Angel Investors
Scaling a startup in Africa comes with unique challenges, but with the right strategies in place, it’s entirely achievable. By understanding your addressable market, ensuring your solution is distinct and repeatable, building a sustainable revenue model, and focusing on efficiency and innovation, your startup will be well-positioned to thrive in an increasingly competitive landscape. Whether you’re looking to expand locally or enter new markets, these seven steps will guide you in scaling successfully.
