NAIROBI: The DNA of an African entrepreneur is the same as that of an entrepreneur from any other part of the world, including developed countries.
The real motive of an entrepreneur is to relentlessly grow an idea to fruition, despite the risks associated with failure. But there are environmental and cultural differences between an African entrepreneur and one, especially from the developed world.
One thing that should be appreciated is that entrepreneurs create businesses around their ideas. They combine their entrepreneurship with other factors of production (financial, human, as well as intellectual capital) to actualise their ideas. It is true that African entrepreneurs face hardships in raising financial capital.
There aren’t that many financiers around, and the ones that come around tend to be a bit expensive. Further, capital markets are still developing to accommodate small players.
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Entrepreneurs, thus, resort to taking up employment (which is also hard to come by) or run multiple start-ups with a view to saving enough to finance their big ideas.
Although it has been argued that this surrogate role in many start-ups manages risk and improves management skills, it is my belief that it is at this point, and on this account, that initial entrepreneurial ideas die or their hatching is delayed, sometimes for too long. The chance for specialisation in order to perfect is also lost.
Even where the ideas really do take off, they tend to become family-owned and managed businesses. Spouses, brothers, sisters, parents and cousins suddenly become business managers and directors, despite having zero management skills.
Professionalism is kicked out the window, and the family-first mentality comes in. The idea owners get advised by professional pretenders only because they are family.
In other instances, despite hiring professionals to manage their businesses, entrepreneurs do not take their advice and overrule them on important decisions. The professionals, therefore, either completely shy off from providing advice, or when they do, they say what the entrepreneurs would like to hear.
Business risks set in and opportunities are missed. And this becomes the point where would-be successful entrepreneurs quickly head south.
Further, these entrepreneurs forget the silent partner in every venture — the taxman. Either due to not getting professional advice or getting advice from the wrong people, entrepreneurs undertake certain transactions without consideration of tax consequences. This might go uncaught for a while, but when it is, the ramifications can be financially punitive, sometimes resulting in business closures. The entrepreneurial spirit thus dies.
CULTURAL ISSUES
The above are just some of the differences between African entrepreneurs and their counterparts from developed nations.
The environmental issues may be addressed by the entry of venture capitalists and financial innovations such as the development of the Growth Enterprise Market Segment at the Nairobi Securities Exchange. However, the cultural issues will require individual entrepreneurs to realise that their innovations create businesses, and businesses must be run professionally to create value and prosper.
Opportunities for creating value in intellectual property and brands, as well as mitigating business risks, require professional advice.
In any event, any investors who might want to partner with local entrepreneurs in taking the leap of faith in their businesses, either as financiers or co-investors, will require a minimum level of professionalism.
Empirical evidence shows that nobody wants to invest in a venture that is fluid, disjointed or unprofessionally run.
The writer is director, tax services, Ernst & Young. The views expressed here are personal.
bizbeat@standardmedia.co.ke
