By Oladimeji Olutimehin
I have been following the Tony Elumelu Foundation right from its inception and have been excited about the impact its grants is doing in Africa. For those who may not know, The Tony Elumelu Foundation (TEF) runs one of the most prestigious entrepreneurship grant program in Africa. Every year, the foundation gives grants of between $5000 to $10,000 to young entrepreneurs across the continent. It was launched in 2015 and so far has funded over 9,000 Africa entrepreneurs across 54 countries. This is amazing and mind blowing.
I started searching to know the state of those entrepreneurs supported by the program and how they have fared. Most of those businesses no longer exist. I then ask myself what will be the most likely causes of this. I had to join TEF as a mentor to do my research and find out where the system must be broken. Here are the reasons I came up with:
- Most people who seek the fund only do that to use it personally not for business.
- The African business environment and government policies is anti-entrepreneurship
- How entrepreneurs get selected
- The training they get from TEF isn’t what will give them the foundation to succeed.
In my research, I came across one success story. A business that got $10,000 and grew to become valued at $100 million. That is the story of Selar an ecommerce store builder for digital creators to sell products and services across aboard. A kind of amazon only that it goes beyond books, and incorporates courses. When he first applied for the grant, he wasn’t shortlisted. My question then was, how could a the TEF system missed someone like that?
“A founder cannot pursue a novel opportunity in any meaningful way without resources, and she can’t attract resources until she’s actually pursue the opportunity- at least to the point where she can demonstrate to resources owners that risks are reasonable.” Tom Eisenmann
He eventually got the funding when a German development aid company decided to sponsor more entrepreneurs through the TEF grant window. We need to understand the background of the entrepreneur founder of Selar to understand its success. Douglas Kendyson in entrepreneurial circle in Nigeria and understand what it means to build a startup.
He had worked as a Customer Success Expert & Software Engineer at Paystack and software engineer & manager at Flutterwave. The experience he has gained from those two startups helped him. He has understanding of Lean Startup model in building a company. The funds applied on lean model helped him to get the product-market fit and then to scale. Most TEF grant recipients lack this.
While judging the pitches of most recipients, I got to see the gap in the system and why most may not apply the money to grow their business. From the judging I walked backward to the training module they were given. It wasn’t entrepreneurial but rather business management related.
I tried to get the statistics of the success rate of the grants from the TEF website, unfortunately that isn’t available and no one has done research to get that. Selar’s success, I believe is based, on its closeness to its customers. However, most entrepreneurs in the TEF grant program don’t even have a close touch with their customers. They just have an idea and believe all they need is funding to make it happen.
It will be important if TEF will use part of the grant to train those it selects to build minimum viable products, test their assumptions and then get market validation before getting the grant. The grant will then be to fund their early success. A startup doesn’t need cash injection, it needs validation of its products to prove that its assumptions are right. In the Truly Human Startup concept, there are three assumptions the entrepreneur needs to test and validate:
- Value Hypothesis Test
- Cause Hypothesis Test
- Relationship Hypothesis
This means the most important knowledge the entrepreneurs need should be business model, product development cycle, customer development and marketing. That is focusing the entrepreneur on the revenue and impact side of the business. All other areas outside this are cost centers. Startups don’t need cost centers, they need to minimize cost.
The Business management Training TEF organizes for those it accepted should be more of an incubator program where entrepreneurs focus on product development and validation. Those who have validated their product or services should then move to the next stage of getting the grant. Ideas don’t become successful business because you have funding. However, it becomes successful when you build with your customer.
“Startups don’t need funding, they need to validate (prove their concept) their products or service. Once validated, they need fund to scale and reach more customers.” Coach Dimeji
Selar knew who their customers were and then build their viable product with the customer in mind and then test it. They used the real-life feedback from their customers to improve their product. They kept testing, listening and iterating until they got to where they are. Have they stopped testing and listening to their customer? I believe it. That should be what TEF should be training the entrepreneurs in not in business management.
They should validate their assumptions (test hypothesis) about their product or opportunity in the market and resolve the uncertainties and risk around their new product before they are funded. TEF should come up with a standard tool for ascertaining these product validations and eliminate the pitches.
They should learn how to use management by objective tools to achieve their vision and measure and evaluate the progress they have made.
Startups Don’t Need Business Plans
The emphasis of the training TEF conducts is more geared towards business plan than business models. The pitches are based on the one paged business plans they have written and submitted. The thing with business plans are that they are based on assumptions that never get tested or validated.
Rather than a business plan, entrepreneurs need a marketing strategy to complement the validation of their product. And all these are captured in the Truly Human Business Model Canvas Design. When entrepreneurs understand how to build products that customers want and then market it, then can use the funds to scale.
Most entrepreneurs who have business plans end up with excuses and blames when their plans come in contact with the market. Everyone has a plan until they get the first blow. However, if they learn to differentiate themselves by the customer value proposition, become a value giver monopoly and create amazing experience for their customers, there is a greater likelihood for their business to scale when they get the grant.
My advice to the Tony Elumelu Foundation is to incubate early-stage startups and make sure the validate their products before funding them. Pitches doesn’t tell who will succeed, but product validation and marketing does. All a startup need in the Truly Human Startup space is a product, a promise to early employees and a transformative relationship with the customer.
“If you have a dream, you can spend a lifetime studying, planning and getting ready for it. What you should be doing is getting started.” Drew Houston, Dropbox Co-Founder, and CEO
Whatever needs to be done should be done in a better way. I believe this is a better way for TEF to develop and support entrepreneurs and businesses that will work. It reduces the risks and uncertainties. At the end, even those who were not able to get the funding would have been built up to seek investor injection. The training as well as the funding should all be impact-investments.
Oladimeji Olutimehin is a Keynote Speaker, Coach and consultant
This article was first published here