What ails most Kenyan start-ups

Inadequate technology causes start-up enterprises to fail. [iStockphoto]

Lack of requisite infrastructure and notable skills gap among individuals heading start-up incubators have been mentioned as some of the challenges facing infant businesses in the county.

A study that looked into how incubators and accelerators are helping start-ups get into the market in the country cited these challenges, among others, adding that the Covid-19 pandemic exasperated the conditions.

The study, titled Start-up Incubation and Accelerators in Africa; Are Start-ups Scaling Up in Kenya? recommends the need for a next-generation model for incubators.

The study published by American International Journal of Social Science Research authored by Dr Stephen Muathe (Kenyatta University) and others notes that inadequate technology causes start-up enterprises to fail.

Poor ICT infrastructure 

The report adds that the level of innovation at Kenya’s technology incubation centres is heavily influenced by information communication technology infrastructure and expertise.

“Start-up businesses in Kenya are impeded by a lack of infrastructure,” reads the study.

The March 20222 study says ICT infrastructure and ICT skills are the two most important factors influencing creativity in technology incubation centres.

The study notes inexperience among some of the techies that are based in these start-ups. As such, they are not well equipped to lead groups in the hubs.

This in turn affects the sustainability of these businesses once they are released into the wild market.

“Many people lack the skills to lead these groups, and as a result, their long-term sustainability suffers. Hubs must serve as a knowledge-building environment for the young and sometimes inexperienced techies who visit these locations, educating members on how to code, set up websites, and effectively advertise their work through social media,” reads the study.

Inadequate research 

The study says finding a solid business model is undoubtedly a challenge for Kenyan hubs. This is especially true for hubs in more rural and provincial locations.

“Kenya’s officials should acknowledge and address this issue as they work to build centres around the country,” the study reads.

The study further lists marketing issues such as inadequate research, poor customer service, a lack of adequate personnel training and inefficient demand forecasting and analysis as the other issues, also cited by other researchers, which lead to the failure of new start-up businesses.

“They also claimed that a lack of money might be a direct cause of firm failure, but a lack of managerial skills could be an indirect reason for such failures,” it adds.

The study adds that during the pandemic, it was reported in Organisation for Economic Corporation and Development (OECD) countries that the pandemic made the survival of start-ups harder, reducing their formation and limiting their development.

“Business registrations have been steadily dropping in recent months, and a lack of new businesses has major ramifications for economic outcomes, notably employment,” it reads in part.

Why incubators matter

The study acknowledges that incubators have a positive impact on the success of entrepreneurs as they assist businesses, particularly in their early phases, by providing them with space, assistance, mentorship, relationships with investors, and internet connectivity.

“Incubators in Kenya have had a positive impact on and contributed to the country’s economic progress. This might be enhanced by improving the incubator model framework, changing present national regulations, and strengthening coordination among the many actors in the start-up ecosystem,” the study reads.

A good environment for business incubators and accelerators, the study says, will ensure the success of micro and small enterprises which face tough competition from established corporates.

According to research, the majority of incubator managers believe there is a need for a next-generation incubator model.

It notes that for-profit incubator businesses are more effective at raising capital, and mentored startups outperform non-mentored startups in terms of success.

“As a result, there is an urgent need to establish a next-generation incubation model to meet the needs of Kenya’s massive population as well as the country’s developing new-age start-ups from all sectors,” it reads.

Change in policy 

It further notes that there is a need to support start-ups by taking steps to help existing ones as well as the establishment of new businesses. Also, policymakers may alleviate short-term concerns by enhancing short-term liquidity and funding availability, but more importantly, by fostering start-ups’ ability to capitalise on new business opportunities.

“Policies that lower entrepreneurship barriers, provide incentives for new ventures, and boost entrepreneurial potential may help to accelerate the recovery and sustain aggregate employment in the long run,” the study recommends.

Policymakers, it adds, must also lobby the Kenyan government to improve the incubator model framework, change current national regulations, and strengthen coordination among the many actors in the start-up ecosystem.

The study points out that regional integration has a direct impact on startup scaling; therefore, Kenya must develop policies that promote ease of doing business with other countries in the East African region. 

This includes frictionless cross-border trade which is critical, as some startups that rely on economies of scale require these young emerging regional markets to grow sustainably, the study says.