Pitfalls to avoid when expanding a startup: Lessons from Paystack, Jetstream, and Lapaire

·
June 11, 2024
·
5 min read

When I speak with startup founders for features, one question I ask most is where they see themselves in five years. Eight out of ten times, they speak of establishing a presence in other African countries.

Local or international expansion is part of the growth strategy for most venture-backed startups in Africa. And it has many advantages.

For starters, these businesses access a new market, which they hope will deliver higher revenues for them. There's also the ability to hedge their bets and protect their business from economic and political volatility.

Despite these obvious benefits, not all businesses should expand, and those that do need to handle it properly.

Advertisement

Techpoint Africa spoke to three startup leaders who have been part of expansion moves across Africa about their experiences, including the right time to expand, mistakes to avoid, and strategies to gain a competitive advantage.

Start with why   

Your decision to expand must be driven by your startup's mission, Nefe Etomi, Expansion Strategy and Operations Lead at Paystack, says.

"You need to know why you are moving because that would be your North Star for any issues that pop up. Why do you exist as a startup, and what does expansion do to promote your cause?"

Jerome Lapaire, whose eyewear startup operates in six countries, posits that startups typically consider expansion when they have saturated their original market or in order to gain a first-mover advantage in new markets. Additionally, startups can pursue international expansion to show their businesses are scalable.

"Building a business in one country is already very impressive, but if you can build it in multiple countries that have different regulations, different languages, and different currencies, it shows that your business is even more scalable," he notes.

Join over 3,000 founders and investors

Subscribe to the Equity Merchants newsletter and start receiving tips and resources for startup success.
Equity Merchants form

Give it a try, you can unsubscribe anytime. Privacy Policy.

While geographical expansion comes with significant benefits, it also comes with additional operational costs for businesses.

Employees have to be hired in the new locations, and even when that doesn’t happen, relocating existing employees to a new country increases a business' expenses. Moreso, the process of localising products and communication materials also means the business will incur additional costs; hence, the timing of an expansion must be gotten right.

Mistakes startups often make   

A common mistake Lapaire sees founders make when considering expansion is spending too much time thinking about the decision or conducting market research.

“If you think too much about it, you will never do it,” he says.

However, he notes that the reverse – expanding without adequate market research – could also be detrimental. With most regions in Africa sharing a similar economic status, entrepreneurs may make sweeping assumptions about consumer behaviour that are not backed by data.

Etomi explains that even for countries with similar languages and cultures, factors such as consumer behaviour and the regulatory landscape could be significantly different. Thus, she advises that even when a move seems logical, startups need to conduct in-depth market research before committing resources to it.

Lapaire suggests that startups leverage social media, local partnerships, and market research firms to get an accurate understanding of a market. Considering most market research firms work across several industries, he encourages founders to be thorough and push them to get the right information for their businesses.

“Founders should not go to a market research agency and say, ‘Just do research and come back to me with the data in two months.’ They will fail, for sure. A startup founder should review everything; review the brief, the customer interview, the interview guide, and really ensure that it’s a hands-on collaboration.”

While Lapaire warns against spending too much time on research, Etomi warns that beginning the process of expansion too early could hurt a startup’s chances of survival.

For Jetstream, a logistics startup founded in Ghana, despite its business model requiring geographical expansion from day one, the decision to expand to other countries was not made until it had achieved product-market fit in Ghana, CEO Miishe Addy shares.

Ignoring cultural nuances is another mistake that founders make, according to Etomi. These nuances impact how consumers use a product, how a startup markets to them, and even how they relay their impressions about the business.

“Your support team needs to know that not every problem would come to you. Sometimes, you need to go out there and find them, so you need to know how to collect customer feedback,” she shares.

Addy encourages founders considering international expansion to discard any assumptions they may have about the countries they plan to expand into.

Regulations can make or break you   

Regulations are a major factor that any startup founder must consider while expanding in Africa. Etomi advises that startups first speak with regulators informally to understand their concerns, plans, and the behaviours of current players.

Additionally, startups should speak to businesses already operating in their target countries to understand how the regulator operates. Startups should also hire legal professionals with experience operating in the target country during the process.

“Having a good relationship with the regulator is never a bad thing. A lot of us try to ask for forgiveness and not permission because we see regulation as a thing that slows us down, but if you’re operating in sensitive spaces like fintech, where you can get grey-listed globally, it helps to engage with the regulators early.”

Hiring pitfalls to avoid   

Lapaire notes that his startup has not always nailed hiring when moving into a new country. It once used a recruitment agency but failed to provide them with a clear profile of the candidate they needed, thereby leading to a mismatch.

Now, it has an internal headhunting team that liaises with its operational team to identify the roles and profiles needed during expansion. He argues that startups should not only depend on the references provided by a potential hire but should also reach out to people who have worked with the person.

“If you have more than one person who raises a red flag, it’s a big one. If only one raises a red flag, that’s okay, but more than one, I’ll be very careful,” he notes.

Startups could either hire local talent or have existing employees take on these roles. Etomi notes that one of the first considerations should be the cost of hiring local talent.

Often, businesses may be unable to afford the cost of such an investment, in which case they could turn to employees who may be interested in the role.

In addition to saving the startup money, it allows it to have someone already familiar with the product leading the expansion. Of course, this may not always be the case, with many African countries having indigenous quotas for new companies.

Although having existing employees take on a new role saves the company money, they may also lack an understanding of local business practices, which could hinder the company’s growth in the new market.

When hiring local talent, Etomi advocates for hiring people who are both a culture fit and understand the local business environment, as not every local has the required context. She adds that companies should have a blend of an existing employee alongside local talent, as it helps them have someone who knows the product and business well and another who understands the market well.

Finally, she notes that startups need to consider the emotional toll on local talent, whose struggles may not be understood by other members of the team.

“It can be demoralising when you’re facing all these problems and no one else in the company can connect with you. Sometimes, people can get in their own heads because they’re not able to share that stress and frustration or share the wins, or the wins are not fully appreciated.”


Got a tip? Our journalists are ready to dig deeper. Please share your insights and information and help us uncover the stories that matter.

Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.
Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.
Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.

Other Stories

43b, Emina Cres, Allen, Ikeja.

 Techpremier Media Limited. All rights reserved
magnifier