The Human Capital Trap for East Africa Startups

In Innovation, Startup, Tech

Startups need capital to build a strong team, but need a strong team to attract capital, a new report by Village Capital shows.

Starups face fierce competition when recruiting the limited number of candidates with these specialized skills. As in many emerging markets, startups are at a distinct disadvantage when competing with large institutions because candidates see startups as the less stable, lucrative, and prestigious option.

In East Africa, it is extremely difficult to convince candidates to leave their jobs to work for a risky startup. Like startups anywhere, Companies with limited capital offer equity to supplement employee-compensation packages. However, equity is not yet a widely-accepted form of compensation in the East Africa because there haven’t been enough notable exits or acquisitions to prove the economic value that stock could provide.

Further, workers typically have dependents even beyond their immediate family, increasing their need to find and keep well-paying, stable employment. As one Kenyan entrepreneur explained, “People who work in startups in Africa work on the side, because they can’t afford to take the risk.”

The challenges are similar in India, where there is a strong cultural emphasis on working for large corporations, banks, or the government, due to job security and prestige. Often, candidates focus on getting a stable job with a predictable and consistent income. As one investor noted, “brands matter: working for a well-known and prestigious company, such as a consulting firm or bank, will improve your marriage prospects.”

As a result, startups must compete with global companies such as PwC, Google, and Oracle, as well as with banks and stable government positions.

Buymore struggles to find and attract talented developers in East Africa, where equity doesn’t hold much value In East Africa, 86% of merchants capture and store their sales and expense data manually. As a result, they are more vulnerable to theft, are unable to determine their profit margins, and lack credible data that they would need to gain access to credit facilities.

Better analytics

Buymore is a Kenya-based merchant-payments company that turns any smartphone into a point-of-sale [POS] terminal for merchants to capture sales, record expenses, manage inventory, and accept credit cards, M-Pesa, or cash. The POS provides small merchants with better analytics, insights into their business, and the ability to get access to credit facilities.

To acquire more customers and continue offering them support, Buymore needs to design – and build on top of the already existing minimal viable product – a simple and user-friendly POS interface that is easy for all merchants to use, including those with limited familiarity with digital technology.

In addition, Buymore has to train merchants to incorporate the analytics into their business. Buymore’s CEO, Tony Kuchio, noted that a major barrier to increasing customer acquisition is the difficulty the company has had hiring talented developers and field agents who can train merchants.

Due to financial constraints, Kuchio has had to hire and train inexperienced staff. Once trained at thecompany’s expense, employees often leave for well-known, better-paying corporations. To make up for the lack of financial capital at his disposal, Buymore began offering increasing amounts of equity.

However, “no matter how many shares you offer,” workers in East Africa continue to prefer large corporations to startups.

 

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