AFRICAN STARTUPS AND SUSTAINABILITY

What is a startup business?

Not all new businesses fall under the definition of a startup. According to Britannica dictionary, a startup is a business at the initial stages of its life cycle. It is typically characterised by an innovative stance, a potential for rapid growth, external funding, and vulnerability. Startups should never be confused with SMEs. A key difference is that, start-up founders envision growing their firm into a large, disruptive company that will rearrange an existing industry or create a new one altogether. Whilst SMEs or small businesses follow a tried and tested path and don’t travel off it.

The rise of the startup industry 

The rise of small startups into global brands, best exemplified by tech companies such as Google, Apple, Airbnb, Amazon, Facebook and Twitter, has forever transformed the venture business industry. Today, innovators only require to have a solid idea and pitch it to investors. Buoyed by the success of some of these global brands, over 50 million startups are registered every year globally according to Microsoft. On average, there are 137,000 startups registered globally daily. South Africa, Nigeria, and Kenya are the most vibrant African countries for startups going by 2022 data. Kenya recorded the highest number of new startups only second to Nigeria. The over 1000 Kenyan startups span different fields and sectors but many lean towards innovative digital technologies as the country continues to enjoy a vibrant digital landscape. 

Common challenges for African startups 

These startups face immense challenges when it comes to pursuing sustainability. These challenges can summed into five as illustrated below: 

• One of the struggles facing many African startups is access to the necessary funding to implement sustainable practices. Africa lacks adequate venture capital and investment infrastructure. Although over two billion U.S. dollars in 2021 and $13.9 billion in 2023 was availed by investors to startups, such funds are hardly directed to sustainability efforts and climate mitigation unless these firms are in themselves anchored on sustainability products such as recycling, clean batteries and carbon capture. Additionally, startups have limited access to funding from traditional financial institutions as they are considered high risk. 
• African startups are faced with infrastructural challenges such as poor road networks, low internet speeds and unreliable power e.g.load shedding in South Africa or the nationwide blackouts experienced in Kenya and Zambia. Such challenges increase risks and costs for  startups is simply trying to remain operational.
• Another major challenge is income disparity as millions of households are poor, low-income with meagre disposable income or   purchasing power.
• There’s also policy and regulatory barriers limiting startups on the continent. Inconsistent regulations with minimal stakeholder engagement make compliance to such regulations an expensive and arduous affair to implement. For example, Kenya’s recent Waste Management Act, while extremely relevant, will pose significant challenges to budding business, as well as SMEs.
• Another underlying challenge is around cultural norms. African startups have to contend with existing attitudes towards new innovations brought into the market. For instance, Kenyans buy more second hand clothing than locally tailored clothing.  

Addressing these challenges 

It’s important to consider that the social and environmental challenges are also business opportunities. Startups can explore:

• Setting up to solve a sustainability issue – the social and environmental challenges we face here in Africa also present business opportunities i.e. the SDGs are business opportunities for example, Mr. Green Africa business model is recycling plastic waste by working with waste pickers. Another good example is Gjenge Makers Ltd that manufactures poles and pavements blocks from recycled plastics sourced from waste collectors. 
• Embracing circular economy principles – Design products and services with a focus on reducing waste and maximising resource efficiency. E.g.Kenyan fashion brand, Lila Bare relies on excess materials from the textile manufacturing industry to create fashion items.
• Engaging communities – Involve local communities in decision-making processes and ensure that business activities benefit the broader society. For example, households can be engaged to sort their waste into different categories such as plastics and organic kitchen waste.
• Investing in renewable energy – Explore alternative energy sources to reduce reliance on fossil fuels and mitigate the impact of unreliable infrastructure. E.g.  M-KOPA Solar – Provides solar energy solutions to off-grid communities.
• Partnerships and Collaboration – Collaborate with NGOs, government agencies, and other businesses to leverage resources and expertise in sustainability initiatives. For instance, the Kenya Climate Innovation Center offers incubation, capacity building and financing services to upcoming startups in the sustainability sector. 

How can African startups embrace sustainability?  

African markets and societies are on a fast learning curve to mitigate and adapt to the climate crisis, and to pursue sustainable development – which has never been done before; the opportunities for African startups can point the way towards the sustainable and low-carbon economies and societies we need to create. This will mean increased need for partnerships and collaboration for startups towards:

• Pooling resources and expertise: Collaborating with stakeholders to leverage resources, knowledge, and networks for more significant impact. Take the case of PetCo Kenya which brings together all manufacturers that use plastic packaging such as Bidco, Kapa Oils and Coca Cola Kenya and commits them to fund the recycling of their waste packaging collected from the market. Pooling their resources ensures that the companies enjoy the economies of scale and their climate action has greater impact than if each of them would go solo. 
• Sharing best practices: Learning from each other’s successes and failures to improve sustainability practices across the startup ecosystem. There are various forums organised by different players such as the SME Support Centre that work with entrepreneurs and startups to build capacity,  engage, network and share ideas. 
• Advocating for policy change: Working together to advocate for supportive policies and regulatory frameworks that incentivize sustainable business practices. In Kenya for example, KAM and KEPSA are very vocal in advocating policy and regulatory frameworks that favour their operations. It makes sense for startups to join such umbrella bodies or even create their own to lobby and advocate for better policy. 

How to demonstrate impact 

To successfully navigate the turbulent waters of entrepreneurship, startups are advised to have a strong climate change and sustainability agenda. A recent assessment of venture capital available to startups globally shows that the majority of the funding went to green ventures. To tap into such funds, startups need to develop green products or demonstrate their sustainability impact on the environment and society. They can achieve this through four steps: 

• Integrating sustainability into business models from the outset;
• Set clear goals and metrics: Establish measurable targets related to environmental, social, and governance (ESG) criteria and track progress over time;
• Transparency and reporting: Be transparent about their sustainability efforts and performance through regular reporting and disclosure;
• Engage stakeholders: Involve stakeholders such as customers, investors, and communities in conversations about sustainability and solicit feedback on performance.

Useful resources and support for startups 

Resources and support are available for startups to help them grow and eventually thrive. It’s important to keep in mind that like any other endeavour, not everything will succeed. That said, startups can take the chance and make use of available support and resources. Three types of support and resource available for startups:

• Incubators and Accelerators: Joining programs that provide mentorship, funding, and resources specifically tailored to sustainable startups some examples include: Impacc Africa,  Tony Elumelu, Google Startups, Kenya Climate Innovation Centre, Baobab Network, e.t.c.
• Networking Opportunities: Engaging with sustainability-focused networks and communities to learn from peers and access potential partners and investors e.g. industry specific, private sectors/chambers (under SMEs), conferences, events, etc.

Educational Initiatives: Participating in workshops, seminars, and online courses focused on sustainable business practices. E.g. Several online learning platforms like Coursera, UNEP, EdX and others provide short online courses to get you started.

What does the future hold for startups?  

As we move ahead into the future, the role of startups in addressing African environmental and socioeconomic challenges will be more prominent. As one of the world’s greatest disruptors, Albert Einstein, aptly said: Insanity is doing the same thing over and over and expecting different results. For the future we need and want for Africa; new, innovative and disruptive businesses will hold the key.