In 2006, I traveled to east Africa to do consulting work with three software companies. After I became comfortable with the culture and ways of doing business in my new home, I started to see business opportunities everywhere. I soon founded Africa Biofuel and Emission Reduction (Tanzania), Ltd., an agri-biofuels company that makes fuel from the oil-bearing seed of the croton megalocarpus, a tree indigenous to East Africa. Our goal is to create a commercially scalable, profitable renewable energy company.
Doing business in Africa is not for sissies. Africa, and other emerging markets, have the potential to bring extremely high returns on your investments of time and capital. But emerging markets also come with their own very specific, and real, risks. During my time in Africa, I’ve come up with three ways to lessen some of the big ones. All I had to do was forget everything I’d learned about entrepreneurship.
Think Big – Operate Small
Entrepreneurs are constantly urged to think big. Investors, particularly, want us to scale our businesses quickly and demonstrate that we’re prepared to serve huge markets.
That’s not the way to think in emerging markets. You can absolutely build a huge, successful company in the developing world. But think about it: In these places, Big is scary. These countries have a deep and profoundly negative history with Big: Big armies, Big famine, Big populations, and Big droughts, to name a few. Our company gets a better response if we approach on-the-ground development in steady, small, positive steps. We keep our vision and projections to ourselves. Meanwhile, we roll out little pieces of our business model at a snail’s pace, giving everyone lots of time to adjust to change.
In an emerging market, pilot programs carry the same sort of cachet that research and development carries in other places. In Africa, they don’t care about our fancy R&D. They want proof that we can do business in their environment, on their terms. So we present just about any new business initiative as a pilot program. Otherwise, local and regional governments quickly start to worry that they are being forced into a long-term commitment.
Of course, time is money. You can expect your development costs to rise dramatically – maybe even to triple – because you’re working in a slower operating environment.
Buy Global – Sell Local
Emerging markets provide great opportunities for entrepreneurs – to Western eyes, these countries need everything. The flip side is that in an emerging market, you can’t just buy stuff. There will probably be no supply chain for your business. Do not try to create one, tempting as it may seem. Doing so will cost you time, money, and focus. Until your company is dominant in its market, buy globally from suppliers who are already in- country and know the ropes. And bear in mind that standards for delivery, quality, service, and warranties are not what you’re used to. Caveat emptor – always.
Eurasia Group President Ian Bremmer defines an emerging market as “a country where politics matters at least as much as economics to the markets.” He nails it perfectly. In a country that lacks an enabling business environment, any activity with the potential to generate income and create wealth can be seen as threatening by the existing power base. You need to put a stake in the ground, communicate your terms of engagement, and manage your operations very tightly. Leverage your embassy and diplomatic networks to the nines.
As an entrepreneur, you don’t have the status that comes with being an operating unit of a Fortune 500 corporation. Your ambassador, your economic attaché and the state department staff are your home office. Put them on speed dial, and make them your friends.