Rwanda: Why Do Most Tech Start-Ups Fail to Take Off?

Running a tech business is a lot harder than most people think. Rarely is the business so in tune with the niche that it can float along with minimal effort.

For instance, in late 2016, Samuel Tuyizere and his friend, Romain Gabiro, pondered on what they could do to help reduce unemployment rate among fellow youth in Rwanda.

As tech enthusiasts, they came up with a platform "ejobu.rw" which employers could use to recruit part-time employees from anywhere in the world.

The global reach of the platform is something that Tuyizere thought made it stand out from similar platforms.

According to him, at the end of 2019, over 1,000 freelance employees had registered and over 40 clients and 30 projects had been completed with the help of the platform.

Nevertheless, he and his co-founder decided to shut down the project; So, what went wrong?

"We ran out of cash," replies Tuyizere. "We couldn't raise more funds, and this was because our company was in a bad state. We weren't able to hit the right metrics needed to raise funds. Our team was also not strong enough to pivot successfully."

For him, if he could go back to the days they launched the project, he would first define what kind of market was the best fit for their product and work towards it. He would also estimate how much it would cost them to get there, gather finances in order and build everything with the right team.

Tuyizere's business is a typical example of many tech start-ups that failed. Despite efforts by government and other stakeholders to boost performance of start-up firms within the local ICT sector, the survival rate of emerging firms remains fairly low.

In general, start-ups don't have the best track record. According to Start-up Genome's "Global Start-up Ecosystem Report 2019," 11 out of 12 fail, mostly due to premature scaling.

However, no matter how bleak a picture the numbers paint, there is always a silver lining, including drawing valuable lessons from this undertaking.

According to Tuyizere, there are some incentives that should be put into place to help upcoming ICT ventures, especially those initiated by young tech-enthusiasts to flourish.

Among these include bringing in more experienced and practical accelerators (like 500) as well as 'techsters' who can help in terms of educating and equipping local tech entrepreneurs with applicable skills that match the trends of the world.

"We can also set up a startups' school (the same way there's a coding academy) and people who graduate from there can have a better chance to create or help in building successful startups," he said.

He and his friend are currently working on Expensa, an automated expenses management platform for Rwandan startups and they aim to help them get a clear view of what their expenses are projected to be, run financially stable companies, and increase their compliance-ness with both government authorities and potential investors.

Market penetration is among other factors that contribute to ICT startups' failure.

The issue, according to Serge Tuyihimbaze, Co-Founder and CEO of Leapr Labs, a local tech incubator which focuses on tech research and development, goes hand in hand with identification of the right market and needs.

To him, in the African ecosystem, an ICT startup's failure also revolves around how equiped its team is in terms of technical and entrepreneurship skills.

"You'll find out that customers are there and need their products, but entrepreneurs are not able to deliver what they need," he said. "They should be able to identify real customers by conducting market research, reaching out to them in person to know what they really want."

Tyihimbaze also sees the immaturity of the funding ecosystem in the country as another big contributor to the failure of ICT startups.

He said that although initiatives such as Hanga Pitchfest, among others, have been put into place to help, many more investors and initiatives are still needed.

However, according to him, startups have to first develop their micro products, build a strong team and identify the right market.

He has also realised that many young tech entrepreneurs have made it a culture to look for funding by pitching their products to investors instead of first pitching them to customers to make sales or even acquire feedback that can help them to improve.

"Money from investors shouldn't be your first income. Think about how it can come from customers. If you find an approach to that, that's the first step to success," he said. "Investors also look at attractions: how many customers you have served so far, how much they paid you, among other things. If customers haven't, then, how do you validate that they need your products?"

Although some tech businesses passed relatively well throughout the COVID-19 storm, others that depended on physical services and in-person consumers hardly survived.

"There are startu-ps whose products and services were no longer needed when Covid-19 hit, and they failed to adapt to the new working conditions," said Claudine Niyonzima, Co-founder of San Tech, a start-up which came up with a smart data collection system during the pandemic.

She is aware that most upcoming tech companies need high investment and if not gained, they do not deliver enough as expected, adding that as delivery delays to win the market, consumers might feel uninterested in their products which also result into high competition in case there are other businesses with enough capital offering the same solutions.

According to her, the biggest contributor to startups' failure revolves around "insufficient" investment because even those that join incubators are looking for funding opportunities so that they can bring their ideas to life.

"They have technical knowledge but they need investment to buy materials and pay for other bills," she said. "I think society should also understand what local ICT start-ups are doing. Maybe they don't due to the low level of technology startups use and hence investors are also still afraid of investing in them. They do not trust them because they are new on the market."

Niyonzima also suggests incubators and accelerators of ICT-startups to think about the investment side in their curriculums instead of just providing only training that offer different skills and never care about how they'll be put into practice.

She urged initiatives that fund or award tech projects to make regular follow up.

"Helping a startup is like nurturing a baby. Investing a certain amount of money in it is not enough. You should follow up and see if it still has challenges, help them out as well as offer advice," she said.

Tackling the exemption of trading license tax on small and medium enterprises for the first two years following their establishments, she recommended that it should base on key metrics (including how a startup has earned and scaled) rather than just time, declaring that an ICT startup can spend two years developing a product without selling anything.

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