As Neotel, We're an 8 years young business in South Africa. In August 2006 we started from nothing. We were 2 people, a laptop and a spreadsheet in August 2006... …and we were a startup, we still are.
These were the words of Sunil Joshi, Managing Director and Chief Executive Officer of Neotel, at this year’s MyBroadband conference. The words drew a couple of befuddled faces from where I was sitting. I have to admit that I wasn’t fully convinced myself.
This may seem a trivial or exhausted topic, but until today there isn’t a formal or globally accepted definition of a startup. Let alone what it means to be a startup in Africa. My experience with African business owners and entrepreneurs tells me that there were two groups in our confused group.
Group A consists of those that only understand the word startup for its age-old literal meaning – a newly formed business venture that is “starting up”. Hence you still find terms like Startup Capital used in today’s Business Plans for any type of business. This group also employs a subgroup of "grammar Nazis" that insist that the word should be spelt “start-up”.
Group B has individuals that have a personal understanding of what a startup of the recent age is. This group’s startup definition relies on opinions from different thought leaders and "Entrepreneurship Gurus". They have no academically accepted definition to reference. This is at the back of the fact that the only real school for the startups world today is outside of Academia. The best form of schooling is being involved in starting a startup - The old Get-Your-Hands-Dirty method.
Group A’s understanding is one of the main reasons why establishing a conducive startup environment in Africa will take many years.
It’s an understanding adopted by most governments and Funding Institutions. Hence you’ll find a Funding Institution asking for a detailed “Financial Projections” section in a Business Plan to decide whether to provide any form of assistance to a startup.
That’s however a topic for another day. I would like to focus on Group B for the remainder of this article.
Allow me to begin with the two most widely accepted definitions globally and in the “Silicon Valley school of Entrepreneurs.”
Steve Blank - A startup is a temporary organization designed to search for a repeatable and scalable business model.
Eric Ries - A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.
Conditions of Extreme Uncertainties
Image Credit: Pedro Belleza
Both the above definitions highlight uncertainty as a main factor. For your organisation to be a startup, it needs to be searching or defining its product, customer and business model.
These companies typically go through cycles of releasing products, validating through potential customers and pivoting depending on customer feedback. Pivoting could result in a different product, customer or business model.
Under its Company Profile, Neotel describes itself as “a telecommunications network operator that caters for wholesale, business and home customer needs.”
Within these three categories, Neotel provides a range of products that cater for Voice, Internet and Data services. This sounds like an organisation that knows its product and how to make money from its customer. I was tempted to throw away the litmus paper at this stage, but it’s only fair to entertain Sunil’s ensuing statements and consider other factors.
Shortly after announcing his organization as startup, Sunil shared some performance indicators and painted a culture that he believes fit the startup definition.
But more importantly, our financial performance: Our last year when we finished on 31st March 2014, our business grew 23% Year-on-Year on revenue on an industry that’s growing 1.4%. So we’re growing about 16 times industry growth rate…we continued to grow as a sustainable business… we turned PBT positive for the first time ever last year…we also grew our business customers 28%...
Another widely accepted gauging tool is that of Co-Founder of seed accelerator Y Combinator, Paul Graham -
"A startup is a company designed to grow fast."
This might be what informs Sunil’s conclusion that his organization is a startup. That’s fair enough. I must mention though that Google has reported attractive growth figures for years and it’s been widely accepted that they’re not a startup.
…because we believe in challenging the status quo in South Africa. We believe that making things simpler for our customer is critical for our own success. But most importantly, we are absolutely excited about the future…
One of the things we have always looked at is saying we need to innovate, we need to do things differently in South Africa to be able to demonstrate that we can game change the industry.
…Every year, we’ve looked at saying: What we do to create more value for our customers in our service level, while still offering conventional services which are traditional in nature? So we were the first service provider to have launched public telepresence room in Joburg…
We’re the first service provider in South Africa to have launched broadband-on-demand…
We’re also the first in the portable landline and a few other things…
Innovation, more so disruptive innovation, is associated with startups. Innovation is definitely a key element of startups but not all innovative organisations are startups.
Neotel has been introducing market-specific customised solutions over the traditional generic products, that their competitor had previously monopolised the fixed broadband industry with. They’ve shown great customer growth but does a significant part of this growth consist of new markets?
By definition they pass the disruption test but I don’t have the numbers to back up the emerging market expected. I’m also unsure whether their growth mainly consists of customers looking to take off excess fat in their packages or whether this is a previously ignored/non-existing market.
Their competitor also carries a history of bad service (said to be improving) and customers looking for other options... making my job even more difficult.
Business Size and Age
… but also the thousand odd passionate staff that we have at Neotel… that absolutely are a brilliant bunch of people who are trying to make a difference in South Africa.
Number of employees and age don’t feature in any of the widely accepted definitions so they’re irrelevant and lean towards Group A’s understanding of what a startup is.
I must mention that it was not easy to ignore age considering that many (including Paul Graham) also suggest that 10 years is starting to be a stretch for a startup.
Sunil also seems to assume that the word temporary in Steve Blank’s definition doesn’t apply to his organisation. A startup aims to graduate to a large business. In May this year, the shareholders of Neotel and Vodacom SA announced conclusion of an agreement to acquire 100% of the shares of Neotel valued at an enterprise value of 7 billion South African Rands.
In most cases, an acquisition by big players results in graduation from the startup world. The organization then needs to accept itself as a large business and put in place mechanisms to sustain its unique culture and innovation.
Being part of the startup gang is great and attracts the pioneers you need to bring your new products to market. When a startup-graduate holds on to that as a marketing tool, it becomes uncool.
Priding yourself as an innovative startup-graduate is safer.
Do we have an African Dialogue?
There’s a plethora of doctrines and personal definitions globally. Neotel doesn’t pass the test for the most widely accepted definition of a startup. It’s also widely accepted that we all have our own understanding of what a startup is. “I’ll know it when I see it.”
What should inform what an African startup is though? Are there metrics outside the global definition that we need to consider for the African environment? Are Africans discussing among themselves what a startup is?
How do we effect change in the status quo of African Venture Capitalists or Funding Institutions, if we haven’t sufficiently discussed and defined what a startup is?
Your opinion matters.
Cover Image Credit: Daria Nepriakhina