Why startup owners fail to commercialise operations

Dar es Salaam. Startup owners and stakeholders have highlighted a range of issues such as lack of understanding, the nature of the product design, and financial management as key challenges contributing to the prevalent failure to transform their businesses into commercial successes.

Additionally, they have emphasised the necessity for the government to facilitate increased financing to bridge the gap in the current funding landscape.

According to their observations, numerous startups encounter challenges in securing funds for business growth. This predicament is exacerbated by the fact that a portion of these startups struggle to keep proper financial records.

The absence of comprehensive financial statements further compounds the issue, hampering the ability of investors to inject capital into these emerging ventures.

They expressed these views yesterday during the Startup Investors Tradeshow, a gathering organized by Habari Hub under Mwananchi Communications Limited (MCL). The event, held under the theme Stimulating Investment Pipeline to Tanzanian Startups, convened hundreds of small entrepreneurs and various stakeholders.

Mr Martin Warioba, an investor representing Warioba Ventures, remarked, “Young individuals often identify issues and propose solutions, yet they sometimes lack a comprehensive grasp of the underlying problem. Consequently, their creations tend to cater to short-term needs and overlook the core challenge at hand.”

Mr Warioba stated that the challenges highlighted by diverse stakeholders during the forum render investors unable to furnish them with funds. “We shouldn’t solely focus on seeking funds. Our priority should be comprehending the products and the market, enabling us to effectively persuade investors.” Reflecting on the event, Mr Edgar Masatu, an Innovations analyst with the United Nations Capital Development Fund Tanzania (UNCDF), noted that the majority of startup websites lack regular updates and fail to include pertinent information that enhances financial visibility.

He mentioned that the UNCDF is currently in the process of identifying a hub that will oversee the implementation of the NGO accelerator programme.

“We believe that the government should facilitate additional local financing to bridge the existing funding gap, as there are numerous potential investors interested in contributing,” he stated.

Mr John Mnali, the Director for Investment Promotion at the Tanzania Investment Centre (TIC), affirmed that the government remains committed to establishing a conducive environment for startups within the nation. This effort aims to facilitate the successful commercialization of their businesses.

“The government will continue working hand in hand with startups by attracting more investors as well as creating an enabling environment for them,” he said.

Participating in the panel discussion, Mr Daniel Materu, a Partner at Deloitte Consulting Limited, said that on the side of the government, several challenges exist, including issues related to tax incentives and policies that affect startups.

From a startup perspective, there are challenges that require attention in order to effectively attract investors.

“They need to exhibit a genuine passion for their endeavours, which will instill confidence when they engage with investors and articulate why their business merits investment. Without this conviction, they might struggle to advance their products,” he emphasised.

In terms of financial management, a notable proportion of startups lack clearly defined cash flow statements.

As a result, they face challenges in securing funding for business expansion from potential investors. This is because financial statements generally serve as crucial prerequisites for obtaining funds.

Ms Happiness Faraji, CEO of Happietoon Limited, a company engaged in cartoon contracts (animations) since 2018, shared valuable insights. She recommended that the government and local stakeholders consider establishing an annual funding system to support designers. This approach could serve as a viable alternative to address the challenges related to limited capital.

“I commenced with a starting capital of Sh600,000 to create an educational tape teaching the Bible to children using cartoons. Surprisingly, a Nigerian investor contributed $5,000 to our venture. It leaves me wondering how my fellow Tanzanians fail to recognise the potential within my company, while someone from Nigeria does,” she questioned.

She commented, “The demand for cartoons in the market is substantial, yet capital remains scarce. My goal is to generate abundant educational content for school lessons and advertisements. I need capital of at least Sh60 million for equipment and offices. I am grateful that CRDB Bank has accepted me in its Imbeju project that provides capital without strict conditions.”

Mr Ronnald Komba, the Managing Director of Fastcon Limited, a company engaged in cargo transportation services in Dar es Salaam, emphasized the significant hurdle posed by capital shortages, hampering their ability to seize more market opportunities. Fastcon Limited started this year.

“Our capital is modest; we commenced operations with Sh20 million. However, our aim is to expand. While opportunities exist, we grapple with the issue of unreliability of capital. Capital is imperative,” Komba remarked.

Kelvin Mayala, the founder of Pay For Sure, a company engaged in online payment transactions for purchasers of online products, pointed out that, in addition to the issue of distrust from financial institutions, there is a need for the government to formulate a dedicated policy framework to oversee innovation.

The core focus of the Startup Investors Tradeshow lies in investors showcasing their investment opportunities to entrepreneurs, startups, and business owners. This approach stands in contrast to the traditional format, where startups usually present their ideas to potential investors.

This format is referred to as a “reverse pitch,” allowing investors a platform to articulate their investment criteria, portfolio companies, and investment prospects to the attendees.

Entrepreneurs, in turn, will have the chance to introduce their businesses, ask questions, and explore potential partnership opportunities with the investors.

The goal of this is to provide entrepreneurs (and innovation hubs and centres) with access to a wider pool of investment opportunities and to allow investors to connect with promising startups and businesses.

The event offers a one-of-a-kind opportunity for entrepreneurs to network with potential investors based on relevance and for investors to showcase their investment opportunities to a better informed audience.

The event is intended to engage and rally investors in private-sector technology.