Every startup founder dreams of expansion. Local, regional, or global, expansion shows that the business is scalable and that the product offered is needed. However, the dynamics of expansion involve more than a simple decision to expand. More often than not, there is a need to consider the best market to expand to, the intricacies of new markets, and much earlier on, whether expanding is even the right move.
The decision to expand is not as straightforward as some might expect. Ameya Upadhyay, Venture Partner at Flourish Ventures, argues that while some startups like PiggyVest have seen great success operating in a single market for over nine years, “for a company to be successful in a venture capital model, expansion, at least regionally, is almost a necessity; it is not a choice because the markets by themselves are not big enough to sustain the growth that venture capital requires.”
However, Bunmi Akinyemiju, Co-founder and CEO at Venture Garden Group, tells Techpoint Africa that before expanding, founders must “do a bit of an internal diagnostic. And I think 90% of the time, the answer will be no; let’s just win the local market.”
For example, in 2021, on realising that it needed to focus more on its Kenyan market, Kenyan B2B agricultural produce platform, Twiga Foods, halted plans to expand to Nigeria. On the other hand, there are a few examples of startups like Flutterwave, which operates in over 30 African countries, that have successfully expanded to several countries in Africa and outside the continent.
These differing perspectives highlight a key challenge for African startups. While venture capital-backed startups often feel the pressure to expand quickly, others may find more value in solidifying their position locally before making a move. But when they make a move, where do they go?
The next best market is not your neighbour
Deciding on the best market for expansion might not be as easy as the decision to expand. On paper, Africa offers numerous opportunities for startups looking to expand, and startups on the continent could have possibly hit a goldmine with all the new markets available to them. But despite the African Continental Free Trade Area (AfCFTA), regional expansion in Africa has proven more difficult than expected, with fragmented regulatory frameworks across 54 countries, diverse cultures, and limited cross-border movements.
“Multi-country scaling is very difficult in Africa for obvious reasons. For one, market sizes are so small independently, and the overhead is too difficult,” says Akinyemiju. “That is why we haven’t seen a lot of successes. We’ve seen pockets of folks do it, but you go and look under the hood, and you find out that it is 80% in one market and everything else is 20%.”
While multi-country scaling in Africa has been successful in the telecommunications and banking industries, with the likes of MTN, Airtel, UBA, and Ecobank operating in multiple African countries, there are not many African startups that have had the same success.
Akinyemiju argues that you can scale better outside Africa than in Africa because of less fragmentation and a bigger market size. “You have a bigger market size, even if you just go to the western part of Germany.”
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Although Upadhyay does not agree that scaling outside the continent would be much easier than within, he asserts that finding the most viable market for expansion involves knowing where your product is most likely to succeed and where the size of the market rewards your expansion efforts. And many times, that market is outside the African continent.
“Often, what happens is, you do an analysis, and maybe the next best market to go to where the market size rewards your expansion is Mexico or Southeast Asia. So, I would question this idea of a regional expansion. Maybe for some businesses it makes sense, but for a lot of businesses, the next best market after Nigeria could not be on the continent,” Upadhyay tells Techpoint Africa.
When thinking of expansion, African startups need to look beyond the closest market. The most important factors have nothing to do with geography. A Somali product will not do well in Ethiopia simply because they share a border. The size of the market and the product-market fit matter more than the geography. If a startup finds a large enough market willing to buy its product in Bangladesh, with limited regulatory barriers, that would be its next best market.
Although Rwanda and Mauritius are two countries on the continent with high rankings on the ease of doing business scale, unless a business has a niche product that would appeal specifically to these markets, the market makes them less appealing for strategic expansion. On the other hand, Brazil, India, Mexico, and the United States, among others, offer large, diverse markets for expansion.
In the World Bank 2024 Business Ready report, Mexico was in the top quintile for its regulatory framework, with 75.07 points.
Companies like Moove Africa have taken advantage of these global markets. After entering three new markets in Africa, Moove turned its expansion strategy global, moving into the UK, the UAE, the United States, India, and Mexico.
“You can be the best entrepreneur with the best business model ever invented, but if you don’t have enough of the market, you are just not going to make money. What is the size of the market? And by size of the market, I don’t just mean population; I mean the disposable incomes of your customers,” Upadhyay argues.
However, market sizes are not the only factors to consider. Regulatory frameworks are also important. While Brazil is known for its complex regulations, the US and the UK have a reputation for ease of entry and doing business.
African startups have a lot to offer within and outside the continent, and while expansion may not always be the next move, they must begin to see the potential for their products beyond the closest borders. Whether that means a market in the Middle East or one in Southeast Asia is up to them.
