Creative destruction is why start-ups will survive the pandemic
Unlike entrepreneurial start-ups, corporates are not lean, nimble or agile enough to search for a new business model
2020 rocked everyone’s world and challenged every belief system we had — not least the assumption that having a plan always pay off. Didn’t we all have a strategic plan for 2020? Are any of us working on that same plan now?
2021 will bring more of the same uncertainty. In fact, I believe 2021 will be worse on a macro-level for our economies, jobs and livelihoods. These difficulties will be intensified across Africa as it is unlikely we’ll be able to roll out the vaccine at the same speed and scale as the global North. We are also seeing new variants of the virus that threaten to keep much of Africa on lockdown for some time to come.
What does this mean for start-ups? Whenever there is a challenging macro-economic event — caused by terrorism or financial crises, for example — things get tougher for start-ups at a surface level. There is less funding available, customers may be reticent to spend money or switch products, and people are more risk averse.
However, adversity always presents opportunity and “creative destruction” is a real thing. Entire industries are being disrupted. This disruption is the fertile soil in which great entrepreneurs are grown.
At Stellenbosch University’s LaunchLab we define a start-up as a “temporary organisation searching for a scalable and repeatable business model”. This definition means start-ups are perfectly positioned to capitalise on this state of flux. In a pandemic, the old business models are broken, which disrupts corporates such as airlines, hotels, chain restaurants and service industries.
Corporates are not lean, nimble or agile enough to search for a new business model — plus they have soaring fixed costs and liabilities to be serviced.
Well-built start-ups do not face these same fixed-cost burdens. They remain temporarily small and lean so they can search — as quickly and cost-efficiently as possible — for the model that fits the new normal. They are designed to thrive in ambiguous environments. They transform uncertainty into market insights that surprise and delight their customers. The key is to understand the dislocation then search for innovative business models that meet new-world order needs.
Essentially, we are collectively rewriting a social and economic contract, which is accelerating digitalisation and driving automation across the world. We’re already seeing significant changes in logistics, retail, entertainment, healthcare and education, to name a few. Enormous opportunities lie in each of these sectors. But, closer to home, Africa urgently needs a new model to progress.
We believe Africa needs to utilise private-sector entrepreneurism to solve the public-sector deficiencies prevalent on the continent. These deficiencies exist primarily in three sectors, and start-ups that focus on and find solutions for these challenges will be greatly rewarded.
- Agricultural and data science. Africa needs to become more efficient and effective in its agricultural techniques, and data-science tools, such as big data, machine-learning and artificial intelligence (AI), provide the opportunity for farmers across the continent to increase their crop yields.
- Public goods. Governments across Africa will continue to collapse, especially under the weight of the pandemic. Public goods, such as clean water, energy, infrastructure and education, which are generally supplied by governments in the global North, will be solved by the private sector in the global South.
- Africa-focused biotech. We have an enormous and diverse genealogy across Africa that has yet to be fully understood. There is a great deal of work in life sciences and genetics that can be done on the continent, for the continent.
Along with new buzzwords such as the “new normal” and “remote working”, “pivot” is now firmly in our vocabulary and collective consciousness. But to pivot simply means changing your strategy without changing your vision.
That was the key to riding out 2020, and it’s going to be the key to riding out 2021 and beyond. The task now is to unpack that vision and match it with the realities around us. Pivot, as swiftly as possible, to a place where one’s vision and what one does best to serve the needs of the world into which we’re evolving. Then try, test, measure, repeat.
- Get lean so you can search. It’s all about getting costs — especially fixed costs — as low as possible so you can buy the time to search.
- Use design thinking and lean start-up methodology to search, search and search again for your new business model. This requires spending upwards of 50% of your time talking to potential customers to better understand the new problems they face. Only then can you design products and services that best solve those new problems.
- Develop an entrepreneurial, growth mindset by reading books such as Grit: The Power of Passion and Perseverance by Angela Duckworth and Mindset: The New Psychology of Success by Carol Dweck.
No-one knows how long it will take before we can unequivocally say we’re living in a post-pandemic world. I believe it’s not months but years away. Either way, the most important and urgent shift we are facing is the way in which we decide to respond.
One of the key differences with this pandemic is that capital is still available. Governments around the world continue to flood the system with cash, and there will be more venture capital funding if entrepreneurs can build customer-centric companies that search for viable business models. Those that see opportunity in the adversity, get lean and use techniques to help them search will be rewarded with the unique opportunity to build the future.
• Romisher is the CEO of Stellenbosch University LaunchLab.
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