By Njeri Kagwe
Every time I see a news story online with a photo of young people in uniformly branded shirts, I smile because I know another Kenyan start-up has received funding. Start-ups are the growth engines for Kenya’s economy – creating job opportunities for young people, introducing new solutions for everyday challenges, and generating revenue for the government.
Kenya’s start-up space was ranked among the top five ecosystems in Africa. In a report by Disrupt Africa released in 2022, Kenya was the second most attractive to investors, behind Nigeria. This is illustrated by the steady rise in funding to start-ups in the country over the years. In another report by African Private Equity and Venture Capital Association, Kenyan start-ups closed 54 deals valued at $330 million in the first six months of 2022, leading the peers in the East African region.
The rise in funding signals investors’ confidence in the start-ups and a supportive government that aims to achieve economic development through empowering the sector. For instance, the economic messaging for the current government has largely focused on start-ups mainly through interventions such as enhancing the business environment and easing access to affordable credit.
However, it has not been all flowery, especially in the past three years which is why I know the figures presented above indicate a major triumph. As businesses were striving to recover from Covid-19 effects; the costs of doing business were further pushed up by global supply disruptions, dimming their ambitions. At times of economic disruptions, start-ups are the hardest hit hence up to three-quarters do not get to celebrate their third anniversary and only a fraction of those that remain afloat get to become ‘unicorns’.
Lack of capital is clearly one of the biggest challenges these start-ups face. Entrepreneurs rely on savings and angel capital, which sometimes come out as small tickets. At the initial stages of business, bank loans are hard to secure due to requirements such as collateral or good performance track records. In addition, they might disrupt the start-up’s cash flow due to repayment plans. For those that rely on venture capital, economic uncertainties cause fear among investors to withhold funds and invest elsewhere.
In addition, start-ups compete with larger companies with a trove of resources and a loyal customer base. Entry into such a market is a hard nut to crack because of the stiff competition. Competing or outperforming large companies needs thorough research in the sector before starting out. Entrepreneurs should find out customers’ needs, and competitors in the market so as to provide solutions that meet the current market demand.
Every economic downturn is different and exacerbates the aforementioned challenges. However, start-ups should be better prepared to remain agile in the face of economic disruptions. One of the critical tools that boost business resilience is strategic communication which unfortunately many start-ups tend to overlook in their journey to profitability. With players constantly joining at least every sector, we use strategic communication to differentiate one business from the other. It can be by either showcasing the disruptive ideas they are bringing to the market or positioning oneself as a thought leader in their sector. Entrepreneurs can be helpful to their customers by enlightening them on their products and the possible big-picture impact they are making to gradually build loyalty in the market.
However, economic recovery goes beyond entrepreneurs’ strategies. Government should continue to ensure that start-up founders have an enabling environment. This is largely through amending policies and regulations such as removing multiple taxes, reasonable tax breaks or incentives, and deductions for start-up expenses. The issue of start-up funding can also be addressed by strengthening funds such as SME funds both through increment of allocations and removing corruption in the line of distributing such funds to businesses.
The writer is a communication consultant at Communicis Ltd.
