Editor’s note: African-Startups is a sister publication of EU-Startups, bringing trusted coverage of startups, venture capital, and innovation across Africa.
Globally, the odds of startup success are vanishingly small. Only 1 in 10 startups survive. Most fail within their first year of operations. 75% never yield returns to their backers. In Africa, the odds are even smaller. Here, liquidity takes longer. The Internal Rate of Return and exit-to-investment ratios are lower. Exits are few and far between, and mostly through trade sales.
In the world of African M&A, 20 – 30%, and in some consumer facing sectors even 50% of the valuation is driven by brand. Harvard Business School found that shareholder value increases by 5.2x for every 4% increase in brand equity. Kantar found that strong brands outperform their competitors by 3.5x. Brand strength is also positively correlated to pricing power, churn reduction, lower cost of customer acquisition and higher sales conversion rates.
Now think about the last startup pitch competition you sat in on. Strong brands were likely not in evidence.
We’d bet that there was at least one startup whose audience was “all the somethings in a very broad geographical area”. All the women in Dubai. All the farmers in Africa. All the restaurants, hotels and cafés in London. Their reasoning is clear: the bigger the target audience, the bigger the Total Addressable Market and opportunity for scale, and therefore, in their eyes, the greater their chance of investment.
In that same pitch competition you also probably saw a startup who couldn’t explain why they were better than their competitors. They might even have argued that they had NO competitors.
And when asked what made them different, we’d bet all of them rattled off a long list of features, regardless of whether those features were specific, had a clear benefit, or were unique to them. You probably heard versions of “great” a lot.
The lack of clarity that this demonstrates links to 5 of the top 10 reasons why startups fail: they ran out of cash whilst iterating to find product/market fit. They realised that there’s no market need for what they’re selling. That a competitor does it better, or that their pricing was not justified by the value they delivered. That their product did not meet their audience’s expectations.
These are product/market fit issues. They are also foundational brand issues.
“Brand” is not just a visual identity. These decisions: who your audience is, what matters to them, and how to differentiate from your competitors – are the positioning inputs that form the foundation for a strong brand.
And these decisions matter to investors.
When a startup has an undefined, or too broad a target audience, their burn rate is higher. They’re trying to be all things to all people, and that means the product features that they have to include have to cover, well, everyone. It also means that their sales approach has to reach everyone, and so does their marketing channels, with messages that appeal – to everyone. Dev slows down. Close rates drop. Cost of acquisition rises. Cash is burned.
Equally, when they don’t know who their competitors are, or have a clear source of differentiation that actually matters to their target audience, they become just another provider. People will buy from them if it’s convenient, or cheap to do so, and will move on when a better alternative presents itself. That, of course, leads to high churn. To a reactive pricing strategy that can never be higher than the average. To steep discounts and high marketing spend. It slows the path to profitability.
Less than 2 out of 100 businesses have this – a clear value proposition – in place.
So why do so few startups and investors focus on this? Very few – 1 in 8 founding teams – have the skills in place to do so. There’s also a broad misconception that brand building is something to do once you’ve figured out product/market fit, rather than seeing the process of brand development as a way to find it. And there’s a lack of understanding of how long it takes to build a brand. This is a process of years, and in an investment holding cycle of 5 – 7 years, sooner rather than later matters.
At WS&O, we believe that a startup’s unfair advantage in navigating this uncertainty, more than the team, more than the tech, is laying the foundations for a strong brand, which bridges the gap between a great idea and a sustainable, scalable enterprise. Our advice to startups seeking to beat the odds is to invest in these foundations as a strategic priority. The benefits are significant, and the risk of not doing so is your startup’s future.
About the Authors
Dorothy and Imke are the co-founders of WS&O, a startup positioning and branding agency focused on helping early stage African startups unlock the power of brand.
Dorothy Ooko has spent 20 years in tech. Ex-Google, ex-Nokia, tech enthusiast and communications strategist helping brands and founders tell stories that move people and markets. Passionate about demystifying AI.
Imke Dannhauser is a senior brand builder, transformation leader and management consultant, with a special focus on consumer-facing industries including CPG, retail, telco and tech. She previously worked at Google, McKinsey and the South African Breweries.
