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Cheat sheet for building startups in South Africa

12 May 2023 , by Philip Joubert

This article has been reposted from Philip’s personal blog with permission.

Cheat Sheet for Building Startups in South Africa

Many South African founders have been heavily influenced by startup advice from Silicon Valley. The advice you get from places like YC Startup School is incredibly valuable, but it’s also mostly written for American founders.

Having worked on various startups in South Africa for the last 14 years, I thought I’d create a little cheat sheet for those aspiring founders.

I’ll start by pointing out the key reasons South Africa is different from Silicon Valley:

  • SA is a much smaller market - both in terms of population and wealth
  • SA is geographically isolated - it takes longer to get anywhere else in the world.
  • SA has limited access to capital - local investors are very tight-fisted
  • SA has low startup talent density - there aren't many veterans to hire

That said, there are also many advantages to building a company here. We have fantastic software engineers, low operating costs, and limited competition. Those factors make it possible to build a big business from SA with minimal funding.

With that context in mind, here’s my cheat sheet for building a startup in SA:

1. Build a B2B startup

The local consumer market is too small and too poor for consumer startups. The only exception to this is if you're selling big-ticket items to consumers like cars, home loans, or online degrees. That means: no social networks, dating apps, subscription boxes, streaming services etc.

2. Business model on day one

You'll struggle to raise capital in the local market without revenue. That means you'll want to avoid startups with technical risk and those that need to get big before you can monetise.

3. Pick a boring industry

The more boring the better. The more money in the industry the better. Something like insurance, agriculture, recruitment, mining...you get the idea. Remember that you can still build a great brand in a boring industry.

4. Don’t overfit to the local market

Launching your product in South Africa can be great because we have so little competition. But be careful of spending too long only focused on SA. Small markets incentivise you to broaden your product, which will make it much harder to compete against focused competitors when you expand globally.

5. Register the company outside SA

It is incredibly difficult to raise capital from international investors if you have a South African legal entity. My go-to recommendation is to use Stripe Atlas to set up a Delaware C-corp and get some lawyers to help you put your IP in that entity.

And that’s it! Hope these rules help you build an awesome startup 👏

p.s. There are of course, successful South African startups that do not follow these rules. Just don't count on being one of those outliers.

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