Navigating Nigeria's entrepreneurial jungle is no walk in the park. This ranges from raising capital, identifying and engaging the right talent, business registration, implementing the right financial and operational procedures, complying with government policies and regulations, paying taxes, and identifying the right investors, the journey can be daunting!
This guide, informed by the latest trends in Nigeria's startup ecosystem and insights from Moniepoint's 2024 Informal Economy Report, aims to equip you with the knowledge you need to navigate these challenges and build a thriving business.
The Nigerian Startup Landscape: A Land of Opportunity
Moniepoint's report - The Informal Economy Report 2024
highlights the dominance of young entrepreneurs, with over 57.7% of informal businesses owned by individuals under 34. This youthful energy fuels innovation and creates a dynamic startup environment. However, challenges remain. Access to finance is a constant hurdle, with many entrepreneurs relying on loan apps (second to friends and family) rather than traditional banks. Yet, there's a silver lining! The 2023 cash crisis, though disruptive, inadvertently boosted digital payments, a trend that benefits cashless startups.
Studies by the International Finance Corporation (IFC) also show that approx. 96% of Nigerian businesses are SMEs compared to 53% in the US and 65% in Europe. In addition, Nigerian SMEs are distributed in clusters, which implies huge opportunities for start-ups to make social and economic impacts, increase their contribution to the GDP, and create more employment. However, with Nigeria being among the top three destinations for tech investments
in Africa, access to finance is now within reach for start-ups with top-notch business models addressing real problems whilst ensuring better returns on investment.
The purpose of this article is to give entrepreneurs some basic insights which hopefully will lead to a more detailed analysis required in making informed decisions about launching a smart start-up.
10 Key Considerations for Launching Your Nigerian Startup!
- Problem-Solving Business Model: A truly exceptional business model is self-sustaining. It's a meticulously crafted blueprint for generating value, encompassing a deep understanding of the target market, the creation of compelling products or services, and a clear path to monetization. Moreover, it outlines the strategic acquisition of funds to propel the business forward. The efficiency of operations is mirrored in the business model, and its viability is often measured by gross profit – a barometer of pricing, cost management, and long-term sustainability.
- Building the Right Team: A well-crafted business model is essential for operational efficiency, but it's the people behind it who truly drive a company's success. The calibre of your management team directly impacts your business's performance. Carefully weighing the risks, costs, and responsibilities of hiring is crucial. When starting, a lean approach can be advantageous, focusing on core competencies and outsourcing non-essential tasks.
- Unit Economics that Scale: Grasping the financial fundamentals is paramount for entrepreneurial success. At its core, unit economics boils down to understanding revenue, costs, and pricing on a per-unit basis. A thriving venture hinges on generating more from each customer than it costs to acquire and serve them. While early-stage businesses often face challenges in achieving positive metrics, a solid grasp of unit economics is the cornerstone for attracting investment and building a sustainable enterprise.
- Leveraging Clusters and Hubs: Nigeria's startup ecosystem is clustered geographically and sectorally. Tap into existing hubs like Ventures Platform, Co-Creation Hub, TecQuest STEM Academy, Impact Hub, Roar Nigeria Hub, etc to benefit from shared resources, learn from other entrepreneurs, and potentially attract investors. While innovation can flourish anywhere, strategically choosing your startup's location can be a game-changer. By tapping into the energy of startup clusters and incubators, you gain access to valuable resources, potential partners, and increased visibility. This strategic positioning can significantly boost your chances of success.
- Staying Compliant: Build a culture of compliance from the start. Immediately after securing a business name, startups should prioritize obtaining a Tax Identification Number (TIN) from the Federal Inland Revenue Service (FIRS) and any relevant state-level tax ID. This foundational step fosters a culture of compliance from the outset, a practice that becomes increasingly crucial as the business expands. It's worth emphasizing that a TIN is now indispensable for opening a corporate bank account and conducting business with larger corporations or government entities.
- Choose the Right Business Structure: Selecting the right business structure is pivotal for any entrepreneur. This crucial decision impacts everything from risk management to investor appeal. A limited liability company (LLC) offers owners protection by shielding personal assets from business liabilities, making it a popular choice. Conversely, a sole proprietorship, while simpler to set up, exposes the owner's assets to potential business debts.
- Streamlined Methodology: A well-defined business methodology is essentially a roadmap to delivering exceptional value to your customers. It's a systematic approach that guides your startup in identifying opportunities, optimizing resources, and consistently delivering on your promises. A robust methodology serves as the backbone of your operations, ensuring that your team's efforts are aligned and effective.
- Robust Financial & Operational Systems: A business that markets its products and services well, and has poor financial and operational systems can fail or would fade away with time. Having a top-notch system for cash flow management, budgeting expenses, fulfilling customers’ orders, and processes for reviewing and updating financial performance consistently is key to building a sustainable business. Hence, venture capital and institutional investors are now on the lookout for start-ups with not only great business models but also financial and operational systems that guarantee better returns on their investments. Profitability with Impact: While financial success is important, don't lose sight of your social impact. Focus on addressing real problems and building a business that can create positive change alongside profitability.
- Embrace Continuous Learning: It is important to understand that your start-up may or may not generate profit or positive cash flow at the early stage of business operations. In my opinion, start-ups that survive the first three years of operating activities are those that profit by making an impact. Start-ups that become sustainable businesses in the future are those that can make a profit while solving real problems.
- Learn, Innovate & Improve: Know that starting your venture means you must be ready to make mistakes, learn, innovate, network and improve. The start-up business is a platform to learn, make money, fail, innovate and bounce back without fading away!
Should you have any questions or need more insights, don’t hesitate to get in touch via @bashirahmed
