What African’s Entrepreneurs Can Teach the World

Continuing to ponder entrepreneurism, Africa and strategies for a rapidly changing environment, I came across this article on the informal economy.  I’m intrigued by the potential overlap it may have particularly in regards to strategies for the new economy.  Here is what I learned . . .

The author identifies two types of entrepreneurial activities that are repeatedly found throughout most of Africa, hyper entrepreneurship and excess diversification. 

Hyper entrepreneurship

This term describes the phenomena of a comparatively very high turn over rate within the entrepreneurial segment of the economy compared to it’s similar counterpart of start-ups and small businesses of the West.  Large numbers of paid employees are seen leaving these young ventures to go off and start their own enterprise (vs. going and finding a different formal employer).

Initially the author of the article, who is a part of a pro-business think tank that is looking into extensive data surrounding what drives enterprise in Africa, thought that this phenomena was a problem and drew the conclusion that this indicated there was a vital problem with the development of management talent.  A closer look however uncovered that just being in a job appears to trigger latent entrepreneurship with in turn also had the side benefit of leveraging significantly more social capital to generate financial capital than is ordinary in the West.

So in effect what he was seeing was individuals entering the workforce, quickly gaining confidence and stepping out to take the risk by resigning and starting their own business – in extremely high numbers.

This makes me think back to some of the discoveries I have made in how Sierra Leoneans learn that I stumbled upon during my years there.  The method that I found modeled in the village was, tell me, show me, let me do it with you, let me try it on my own, correct me if I make a mistake and then let me do it.  It makes sense, right.  That’s pretty much how we learn as children.  And, children learn that way fairly quickly.  So in this case, African small businesses are naturally acting as entrepreneur incubators.

The second dynamic at work is the tightly knit nature of their social structure.  You have heard it said that “it takes a village to raise a child,” likewise, just as the village raises the child, the village also protects the child.  And in this case provides entrepreneurs with a social safety net for taking more risk than more individualistic and independent societies.

Excess diversification

This type of entrepreneurial activity describes the common tendency for African entrepreneurs to concurrently operate on average six different businesses — with the most extreme case the author sited as being the operation of 66 businesses owned by one entrepreneur. 

The author’s initial perception was that these entrepreneurs where squandering their potential by not focusing their energy and attention on scaling a smaller more manageable number.  In other words, they had no vision for their own personal career growth.  And the effect of all the small, copy-cat businesses where appearing to result in lower profit margins, encouraging the loss of more employees who would go on to replicate the same business model further perpetuating the cycle and resulting in the retarded (or perhaps more stable) national economic growth.

In his deeper analysis it is uncovered that African entrepreneurs run profit ecosystems rather than business units.  There are many parallels with Western more “orthodox” way of doing things however in the end, the way in which African entrepreneurs do business with interactions between their “business ecosystems” in a culturally elaborate manner can actually produce extreme resilience, robustness and flexibility (there are those “new strategy” words again!).

The article states that, “When the World Bank's 2008-2010 survey of entrepreneurial activity observed that business failures in the wake of the financial crisis were far higher in the developed world than in the developing world, they shrugged off the need for deeper sounding.  Had they been more attuned to the unique character of business formation and propagation in places like Africa they may have questioned certain fundamental assumptions about risk management.”

Indeed we have some things to learn here in the West!  One of which is to not assume we have it all figured out and our way is the best way of doing things, and secondly that we can stand to learn from the proverbial “tortoises” of the world important lessons in how to foster flexibility and resilience that will take us the long haul.