By Salisu Uba, PhD FCIPS
I have read some devastating news over the last couple of weeks in relation to the ecosystem in Africa, some promising startups are shutting down operations. I am sure the recent events will affect any potential investments in our startups.
I want to address some concerns around two contrasting paths that often emerge: the allure of rapid growth without immediate profitability versus the steadier route of slower growth with assured profits. Let’s explore these models and the lessons they hold for startups in attracting investment.
High Growth, No Profit: the temptation of business sprinting towards expansion, capturing attention with its rapid growth but yet to turn a profit (wework case study). These ventures entice investors seeking significant returns. They prioritize scaling up, seizing market shares, and envisioning a lucrative future, often emphasizing customer acquisition over immediate profitability.
Slow Growth, Steady Profits: the assurance one perhaps, on the other side, is progressing at a more measured pace prioritising sustainable growth and consistent profitability. While not racing ahead in growth, they maintain stability, focusing on operational efficiency, nurturing loyal customers, and ensuring profitability from the outset.
Investment Magnet: the high growth appeals to investors as it favours the high-growth model due to its potential for explosive returns. African startups are promising and bustling markets, venture capitalists are scouting for opportunities everywhere, and the allure of substantial growth can overshadow concerns about immediate profits, maybe! However, sustainable profitability forms the backbone of long-term success, offering stability even in market downturns (don’t aim for what’s not realistic).
Learning from Both Models: from experience, the winning formula for our startup founders is to glean invaluable lessons from both models. By embracing the innovation of high-growth ventures and adopting prudent financial practices from profitable businesses, a potent combination can emerge. Striving for growth with an eye on achieving profitability can attract investors while ensuring long-term viability.
Striking the balance between growth and profitability is to find the equilibrium between high growth and profitability. It involves building a robust foundation for scalability while ensuring financial viability in the long run. This hybrid approach could be the linchpin to captivate venture capitalists eyeing the burgeoning African startup landscape, offering excitement and stability in equal measure.
Perhaps as we always aim to make a positive impact and make economic progress, investment is key to a successful venture. Therefore in the quest for investment opportunities, startup founders and entrepreneurs should combine the dynamism of high growth with the solidity of profitability.
Salisu is a fellow of the Chartered Institute of Procurement and Supply (CIPS) and a member of the CIPS Education Committee in the UK. He is the founder and CEO of NarQuest Limited – a supply chain technology company based in Glasgow, UK.