From Flash to Fundamentals: Why African Startups Need to Focus on Profitability in 2024

Beyond VC-Funded Cheap Prices: Smart Pricing Strategies for African Startups to Thrive.

For some weeks, I have been writing about the death pandemic that ravished the tech startup space in 2023, highlighting the root causes and possible ways out, like mergers and acquisitions, the role VC platforms can play, and rethinking the fancy problems that startups are solving in Africa, which has caused a lot of duplicity and even further widened the inequality gap. Today, I will be writing about the “growth at all and/or any cost strategy” in a bid to pump valuation and raise large amounts from VCs, which in turn leads to an increased burn rate, unsustainable business fundamentals, a very short cash runway, and sometimes eventual death, as seen in various announcements. (I am not pointing fingers????).

The Problem: Chasing Growth at Any Cost

In the African scene, this troubling trend of rushing to grow quickly is funded using lots of venture capital (VC) money. Sometimes, VCs also look to invest in founders who can build for “pump and dump” to meet their return KPI thereafter, leaving a trail of weak investing environments for VCs who are willing to look beyond immediate gratification to wholesome sustainability in terms of market maturity and value delivery. While it might seem like a smart move to offer super-low prices and attract tons of customers, this strategy often hides big problems. Many startups look successful on the surface but struggle to make real profits or real cash flow to extend their runway if the next funding round is delayed.

Why This Matters

Flash to Fundamentals: Why African Startups Need Profitable Growth in 2024

The African startup scene is booming, fueled by VC money and the promise of rapid growth. But a worrying trend lurks beneath the surface: a reliance on unsustainable, low-price strategies to attract customers. While this might seem like a quick win, it often hides deeper problems, leaving many startups struggling to turn a profit.

This needs to change. In 2024, let's shift the focus from flash to fundamentals. By prioritizing sustainable, profitable growth, African startups can build stronger businesses, create lasting value, and contribute more effectively to the continent's economic future.

Here's why it matters:

• VC dependence is risky. When startups chase growth at any cost, they become vulnerable to fluctuations in funding and investor interest. This can lead to sudden collapses or unfavourable deals.
• Cheap prices don't equal true value. Building a sustainable business requires offering products or services that people genuinely need and are willing to pay for.
• Profitability is the foundation for long-term success. By focusing on making money from the start, startups can reinvest in growth, attract better investment opportunities, and create lasting impact. Relying heavily on VC funding can be risky. When startups focus mainly on raising money instead of building a solid business, they set themselves up for trouble down the road. If VC funding dries up or investors lose interest, these startups could collapse or be forced into unfavourable deals.

A Better Way Forward: Building Strong Businesses

As we look to 2024, it’s time for a change. Instead of chasing fast growth with low prices, African startups should focus on building businesses that stand the test of time. Here’s how:

1. Create Value That Counts: Startups should offer products or services people genuinely need and are willing to pay for. This ensures steady income and long-term success.
2. Know Your Numbers: Understand the costs involved in acquiring customers and ensure you’re making more money from each customer than you’re spending to get them.
3. Make Profit a Priority: While it’s tempting to spend big and grow fast, focusing on profitability from the start can make your business stronger and more resilient. At the early stage, it is important to ensure that you are at least unit economics positive and that you can generate enough cash in the medium term (growth stage) to cover your operating expenses and save yourself from shocks.
4. Adapt to Your Market: Instead of relying only on low prices due to economic challenges, find smart ways to price your offerings that provide value to customers while keeping your business healthy.
5. Think Long-Term: Don’t just aim for quick wins or flashy growth numbers. Build a business that can grow steadily over time, even if it means growing a bit more slowly at first.

In Summary

The current approach to startup growth in Africa isn’t sustainable. By building strong, profitable businesses rather than chasing rapid but shaky growth, African startups can create lasting value, attract better investment opportunities, and contribute more effectively to economic growth and job creation across the continent. The goal for 2024 and beyond should be clear: prioritize sustainability over short-term gains.