Entrepreneurs can thrive in the face of Covid-induced adversity
Covid-19 has happened and the world will never be the same. Embracing an entrepreneurial mindset helps us to view this fact not as something terrifying, but rather as an opportunity for social and economic benefit. Great ideas, innovations and companies are born during these volatile times. We simply need to strategically assess the landscape to transform adversity into opportunity.
Entrepreneurism is the tool that will allow us not only to survive but thrive in this new world in which we find ourselves. I refer specifically to entrepreneurial businesses that fall into two categories: the first are rock-solid companies that will have the financial runway and flexibility to seize opportunity; the second can capitalise on macro trends that have been worsened by the pandemic.
The world has been flooded with cheap, risk-seeking capital for the past 12 years. This has allowed many unsustainable business models to live longer than they should have by, in effect, supplementing negative cash flow from operations with cash flow from financing. This dynamic has come to an end. Businesses that will thrive going forward will be real businesses. I focus on three metrics to help define this point:
- First, cash is king. All early-stage start-ups are simply trying to locate product market fit (successfully identify a target market to serve with the right product) before their financial runway ends. This simple fact highlights the components of our first important metric: cash in the bank vs burn rate. You always want to have more than 24 months of runway. Businesses that can generate cash, minimise spending, or both will outperform as they’ve bought themselves the time to find product-market-fit.
- Second, fixed cost as a percentage of revenue will become a key determinant of success. The higher the fixed costs, the less flexibility to pivot and adjust the business model to meet changing market needs. Agility will win. Make your business agile by trading fixed for variable costs. There are creative ways to do so. Making it happen may be the difference between going down with the ship or smooth sailing.
- Third, we must re-examine our customer value proposition. Products that worked in the past have become obsolete overnight. If you’ve seen recurring revenue drop or customer churn skyrocket then you’ll know this is the case with your product. At Stellenbosch University LaunchLab we use design thinking to connect with our customer. By following the five stages — empathy, define, ideate, prototype, test — we design a product and platform that is educated by and meets the needs of the market. We will know we’re moving towards success when we achieve 300%-plus year-on-year revenue growth, with a high percentage coming in as recurring revenue from customers who love our product as demonstrated by little to no churn.
What about the macro trends brought into sharp focus by the pandemic? Which industries are ripe with opportunity? Which sectors will outperform? Where should we focus our venture-building efforts?
In our view Africa holds enormous potential. An incredibly large, diverse and resource-rich continent, Africa is experiencing huge population growth around a crumbling infrastructure that cannot be fixed by underfunded governments. Bringing these two macro challenges together demonstrates both the imperative need for innovation, as well as the opportunity for companies dedicated to creating new, user-focused solutions.
Climate. No continent will grow faster than Africa over the next 50 years. It will account for 85% of global population growth and be home to the three largest cities on earth: Lagos, Dar es Salaam and Kinshasa. This growth will happen in both rural and urban settings. Governments across the continent do not have the knowledge or capital to fund the energy demands of this growing population. Combine this element with the fact that we must find a way for this growth to happen with clean, renewable energy and Boom! you have a huge private sector opportunity. Now that we’ve adapted to a world where Covid-19 will be a factor for some time, we need to shift our focus back to climate change. Innovative companies focused on distributive energy solutions based on customer demands will serve a growing market segment while creating massive value for shareholders.
Health. The next uniquely African opportunity is focused on biotechnology. The African continent has the world’s greatest diversity of human genomes, many of which are yet to be mapped. Homo sapiens originated on the African continent, so our understanding of their underlying molecular structure and practical applications of that information is a huge opportunity. We are in effect sitting on the world’s most extensive and important data set but are yet to mine it. We are blessed with skilled technicians, world-class universities, low operating expenses, mission-aligned venture capital and world-shaping incubators. Pooling these collective resources will allow us to unlock insights that will positively affect the entire planet.
Agriculture. A recent International Monetary Fund working paper states that crop yields are much lower in sub-Saharan African than the rest of the world, which has led the continent to import a large share of its food needs. These below-average crop yields are a persistent issue across the continent, negatively affecting both small-scale farmers and large producers. New technology developed on the continent is allowing us to better understand and use efficient growing techniques, analyse soil components and monitor our growing progress. We have incredibly fertile land that is vastly underproducing relative to its potential output. Using technology and innovative business models can decrease our dependence on imports, increase job creation and grow GDP. Public-private partnerships will play a critical role in the development and deployment of these new agriculture focused technologies.
Let’s be clear: the world will never be the same. That’s neither a good nor a bad thing, it's simply a fact. The businesses that thrive will be the ones that subscribe to metrics that matter, then focus on executing them with laser-sharp focus. By doing so they will help us all see the bright light at the end of the tunnel. Global disruptions are here to stay. We simply need to embrace an entrepreneurial mindset that sees only opportunity in this unfamiliar world.
• Romisher is CEO of Stellenbosch University's LaunchLab.
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