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Ten key success drivers of young digital start-ups servicing the agri-food sector

2018 Pitch AgriHack finalists at the end of investment readiness training

© CTA

Ken Lohento, Senior ICT for Agriculture Programme Coordinator at CTA, discusses ten key strategies to help young digital ag-tech start-ups achieve ‘business success’.

CTA has been operating the AgriHack Talent initiative since September 2013 when its first ‘hackathon’ for agriculture was organised. Ensibuuko, a youth-led company from Uganda (they now offer digitally-supported financial management services to around 200,000 farmers), won the first prize. Since then, AgriHack has developed into a renowned programme which has supported more than 1,500 young entrepreneurs offering advisory, market linkage, financial and supply chain management services to more than 1 million stakeholders. During the implementation of AgriHack, and in a framework of an MBA (undertaken with a friend), we have identified ten key success drivers for youth-led digital ag-tech operations presented below.

Success in digital agribusiness

We can define business success as an economic activity which provides satisfaction to its owners and stakeholders (particularly customers), and generates a level of revenue that permits sustainability. Success is therefore defined by financial indicators (sales, profit margin, market share, etc.) and non-financial indicators (customer satisfaction, personal achievement, social impact, business longevity, etc.). This conceptual understanding is also valid for digital agribusinesses of which success depends on customer satisfaction. While digital agribusiness start-ups struggle to achieve sustained profits for a variety of reasons (AGRA, MasterCard Foundation, Digital Harvest, 2016; CTA, 2019), some are generating social impacts or business longevity (leveraging grants and public funding if needed). As achieving ‘business success’ represents climbing the ‘Everest’ for seasoned and younger digital ag-tech start-ups, strategies to ensure this happens need to be continuously devised

1) Access to finance

In a survey of 582 entrepreneurs in six sub-Saharan countries, 71% of participants indicated that there was insufficient equity capital for start-ups (Omidyar Network, 2013). Similarly, about 90% of finalists from three of CTA’s Pitch AgriHack competitions revealed that they fund their ventures mainly with their savings; grants and family donations or loans come next as funding sources. However, experts, including financiers, claim that many young ventures are not fundable and that most of them lack financial management skills (Omidyar Network, 2013). To address these concerns, CTA has been, among others, training all Pitch AgriHack finalists on investment readiness, in collaboration with venture capitals, since 2017. ACP countries’ venture capital and angel networks are becoming better organised but must provide more readily available capital to youth ventures.

2) Enabling policy environment

A concern many start-ups raise is taxation; in most African countries, newly-created businesses have to pay the same corporate taxes as mature businesses. Young entrepreneurs would benefit from policies so that, in their early years, they are exempt from paying taxes. A tax holiday adopted by the Ghanaian government for start-ups may be seen as model. In addition, policies facilitating affordable access to digital technologies, in rural areas in particular, as well as increased digitalisation in the agricultural sector, are strong business enablers.

3) Business management skills

A lack of business acumen is perceived as a ‘gravedigger’ for youth-led start-ups. Stakeholders offering business development services, such as incubators, are attempting to address this; however, those specialised in digital technologies are largely new and still fragile. Above all, very few incubators or accelerators have the double capacity in agribusiness and digital technologies, which is needed to be successful in this sector. Finally, to attract serious investors or banks, young companies need to illustrate rigorous business processes, sound corporate governance, human resource and financial management principles. Institutions supporting start-ups therefore need to better facilitate access to these capacities.

4) Committed teams

Committed human resources are usually lacking in youth businesses but are vital for their growth. They also need to retain the know-how acquired internally. Unfortunately, most lack capital and strategies to ensure this. Apart from the founders, few people are ready to work for free or with insufficient remunerations. Very often, employees that young businesses have trained for months then leave for more established businesses promising higher pay. Good practices to successfully address this challenge include nurturing a sense of belonging and collective company ownership. Ghanaian start-up Farmerline, for example, regularly recognises employees on social media and provides opportunities to non-founders, including attending conferences.

5) Effective business models

Targeting institutions (cooperatives, restaurants, NGOs, etc.) guarantees more sustainable revenue than targeting individual farmers who are usually unwilling or unable to pay for digital services. Institutions can act as proxies, offering services procured from start-ups to individual farmers. Collaborating with institutions that have a large user-base (though not easy to achieve) can also be a winning strategy. Bradstorne Enterprises from Botswana (Pitch AgriHack 2016 winner which operates mAgri) has successfully adopted this strategy by working with mobile provider, Orange.

Bundling digital and non-digital services is a very effective business model for targeting individual farmers. Entrepreneurs should learn to develop services that leverage data, but must protect farmers’ data rights. Some services may also facilitate revenue generation. For example, some drone services easily generate revenue, but offering advisory services (as a single service) via mobile phone is harder to translate into sales. A revenue model that has proven effectiveness is the subscription model (customers subscribe to a weekly, monthly or annual service); however, services offered have to deliver strong value.

6) Ecosystem partnerships

The mobilisation of a variety of digital and agriculture business stakeholders help young entrepreneurs build their capacities and access profitable markets. Youths depend on these partnerships as they have limited assets and business networks. Implementing viable ag-tech business models strongly depends on the ecosystem’s institutional collaboration. The start-ups need to know how to build these partnerships.

7) Digital literacy of users

Lack of digital literacy, particularly amongst farmers, impedes the adoption of services offered; and increases customer acquisition costs. Strategic collaboration with agricultural support organisations (CTA, FAO, etc.) can help to address these challenges, as they may pay start-ups for capacity building and some marketing services.

8) Availability of key agricultural, digital and business resources

To achieve success, start-ups need internal resources such as relevant ICT and agricultural equipment, and adequate systems. External factors include the existence of adequate digital infrastructure and connectivity, especially in rural areas, to enable better uptake of the companies’ services.

9) Effective and innovative digital solution(s)

Designing excellent digital platforms, that also respond to the target user’s socio-technical profile, especially farmers, and that are easy to use, is essential. Many young entrepreneurs do not have strong digital expertise. Prototypes developed during many hackathons struggle to be finalised because of a lack of advanced software capacity. Many e-commerce platforms that are available have no internally-developed algorithms or distinctive features, so are unable to provide a comparative advantage and become a successful service.

10) Agricultural expertise

Last but not least, it is critical for the young start-ups to have good agricultural expertise in the team, including good knowledge of the agricultural ecosystem in regions they target.

Some young start-ups are already achieving great impacts. We need to better nurture all the others, which will ultimately lead to more jobs and growth for our economies.

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