By Eloho Omame (Managing Director & CEO)
Entrepreneurs are crucial for economic growth, but not all entrepreneurial firms are important contributors to economic productivity. The best entrepreneurs drive innovation, create high-quality jobs, spread wealth and wider prosperity, contributing to vibrant markets that boast inclusion and sustainability. Entrepreneurs that have the desire and potential to create businesses that will scale are rare.
Two things are still missing from the conversation about the potential for entrepreneurship in Nigeria: first, clarity about the kinds of entrepreneurs that could deliver the large-scale impact that our economy needs; and second, a strategy to create the best conditions for those founders to be successful.
Ultimately, the entrepreneurs that drive productivity are those that successfully navigate their companies beyond the startup phase, tackling big markets, making bold decisions, and using innovative strategies and tactics. They grow high-quality workforces and attract capital. When we talk about “entrepreneurs”, SMEs and companies without innovative business models are unfortunately too often grouped together with the small number of founders that drive the lion’s share of productivity.
When ecosystems are productive, their cities and regions are more likely to thrive. Productivity differences ultimately translate to thousands more jobs, billions more dollars in economic growth, and a dramatically greater distribution of new innovations. Ecosystems that outperform generate more of the relatively few companies that will ultimately reach scale.
In a recently concluded city-level study on six entrepreneurship ecosystems, produced with the support of the Bill & Melinda Gates Foundation, Endeavor Insight found that in places like Bangalore, Dhaka, Lagos, Nairobi, Kampala and Dar es Salaam, a large proportion of companies are not only SMEs, but actually low productivity microbusinesses, making no significant impact on local job creation, economic growth or other measures of productivity. Of 800 companies in Lagos (9,500 jobs between them), almost half had fewer than three employees and had never raised capital. The top 10 percent created more than two-thirds of employment and only 2 percent reached the scale of 100 staff.
For revenue and job creation, it is companies at the scaleup stage that deliver the most significant outcomes. Innovative and typically technology-enabled, scaleups are identified by their high-growth rates and adolescent life-cycle stage, rather than sector or age. Their founders have navigated startup challenges (for example, acquiring their first customers, making their first hires and technology investments, refining their business models, raising seed capital) and are now focused on organisational robustness, aiming to address a widening customer base. They are often at critical inflection points, whereby revenues can be rapidly scaled without jeopardising their business models.
Critically, scaleups have the potential to make transformative contributions to their local economies. The London Stock Exchange estimates that 97 “fast-growing and dynamic” scaleup companies in Nigeria grew their revenues and workforces between 2015 and 2018 by compound averages of 47 percent and 23 percent respectively. For Paga, this meant an almost doubling of its financial services agent network from 12,000 in 2017 to more than 20,000 this year.
Endeavor coined the term “high-impact entrepreneur” nearly 20 years ago. By “high-impact”, we mean those with the biggest ideas, the greatest potential to achieve meaningful scale, and the ability and mindset to inspire, mentor, and reinvest in the next generation. High-impact entrepreneurs are critical to the advancement of innovations and the spread of its benefits to customers.
Sometimes they do this by commercialising R&D, often it’s by inventing new business models, and other times, it’s by finding better solutions to problems affecting consumers. Beyond innovation, high-impact entrepreneurs inspire generations, paying it forward by actively mentoring, advising and investing in other founders in their local ecosystems. They generate important multiplier effects that act as turbo-chargers to their success.
Multiplier effects are extremely powerful and are the secret sauce of the world’s most productive ecosystems, an obvious example being Silicon Valley. Since 1995, 13 former PayPal employees, including Peter Thiel (PayPal, Founders Fund), Elon Musk (Tesla, SpaceX) and Reid Hoffman (LinkedIn, Greylock Partners) have founded companies, actively advised and mentored founders, and invested over 1,000 times in 650 companies, creating arguably the community’s most important network of serial entrepreneurs and venture capitalists.
Away from Silicon Valley, Endeavor’s work with high-impact entrepreneurs in emerging markets for over 20 years has proven that it doesn’t take many to fundamentally change the prospects of a city or even a country.
In Argentina, despite severe economic challenges between 2000 and 2010, including a weakened exchange rate and double-digit inflation, a small group of Endeavor Entrepreneurs proved that by being leaders in Buenos Aires’ entrepreneurship ecosystem, even while focused on scaling their own companies to achieve the community’s first major exits, they could together create over 80,000 jobs and generate $1.4bn in revenues in 2010 alone. They contributed to a vibrant ecosystem by openly sharing their experiences, while actively investing, mentoring and promoting high-impact entrepreneurship. Those scaleup entrepreneurs included the founders of MercadoLibre — now Argentina’s most valuable company.
The best incubators for entrepreneurship occur when high-impact entrepreneurs form close networks and nurture fellow risk-takers with their experience and resources. For Nigeria’s ecosystem to be long-term productive, its path must be led by successful entrepreneurs.
This article first appeared in Business Day.