24% of startups fail in Kenya.
As of 2020, Africa’s average startup failure rate was 54 percent. However, the rate differed across countries. In Ethiopia and Rwanda, 75 percent of the startups ceased operations, while Kenyan startups had a failure rate of 24 percent in the same year.
In this article, I will share why start-ups in Kenya fail and the lessons we can learn to build a successful business.
Let’s dive in.
List of failed startups in Kenya
Kune Food, a cloud kitchen, shut down after failing to raise funds to keep up operations.
The startup, founded in December 2020 to offer ready-to-eat affordable meals, conducted a trial in Kenya in early 2021 before officially beginning operations later that year.
The cost of food in Kenya hit record highs recently as prices of some commodities almost doubled over the last few months, and the country’s rising inflation also contributed to the startup’s closure.
Rising food costs deteriorated Kune’s margins, and the startup needed help to sustain its growth.
The founder and CEO, Robin Reecht, announced the closure after failing to raise funds to keep up operations while blaming the “economic downturn and investment markets tightening up.”
This startup ran a rent-a-shelf model and shut down its operations after nearly 5 years.
They cited high operating costs as the reason for its closure.
Notify Logistics could not break even, and the cost of operations was too high for the company to sustain its business.
WeFarm Shop, an app that allowed farmers to acquire agricultural products online, closed down in July 2022.
Difficult market conditions that made it difficult for the business to scale.
WeFarm had launched the service just a year before it closed down.
The closure was part of a larger trend of African startups failing due to high operational costs and an inability to replicate the frugality that traditional businesses are known for.
Sky.Garden had been struggling financially before the acquisition—Lipa Later’s acquisition of Sky.Garden could be seen as a move to rescue a troubled startup and turn it around.
Here are some possible reasons why Lipa Later acquired Sky.Garden:
- Expansion of services
- Increased market share
- Synergies between the two companies.
Kenyan logistics startup, Sendy, has made the decision to cease its operations and is currently considering the possibility of selling its assets.
The company depleted its funds two months ago and had been implementing cost-cutting measures over the past year in order to stay operational.
Sendy made an announcement in July 2023 about reducing its workforce by 10%. Since then, the company has continued to implement cost-cutting measures by further downsizing its staff, which includes closing a product line and exiting from a particular market.
In October of last year, the company had to let go of 54 employees and shut down its supply service. Additionally, in February 2023, it decided to discontinue its end-to-end fulfillment offering in Nigeria.
This recent setback adds to the challenges faced by B2B e-commerce companies that initially experienced significant success, raising substantial funding and increasing their value.
However, they have now encountered difficulties in managing operational costs and finding the optimal pricing strategy to attract customers.
Sendy is currently engaged in discussions with multiple African companies that operate in the B2B e-commerce and trucking industry. These include Trella, Sabi, Wasoko, as well as one of Sendy’s investors.
The purpose of these talks is to explore the possibility of selling certain assets, such as their technology and fulfillment operations.
Nopearide, Kenya’s first fully electric taxi service, shut down because its parent company, EkoRent Oy, failed to raise additional funding to keep it afloat.
The startup grew from 3 vehicles to 70 by the time of closure and had built a charging network across Nairobi after raising undisclosed funding in 2019.
NopeaRide provided the charging network and the driver and rider apps and sourced the electric vehicles. However, the drivers were expected to arrange their financing frameworks.
The company expressed its deepest regret to its dedicated team of staff and drivers, loyal NopeaRide customers, corporate clients, and other partners who have supported NopeaRide’s vision for electric mobility in Africa.
NopeaRide is now working with relevant authorities to ensure that its operations are wound up in accordance with local legislation.
Now lets look at the reasons why this start ups failed;
Why Start-Ups Fail In Kenya
According to Leonard Mudachi– Chairman of the Retail Traders Association of Kenya, blame it on the shift in funding priorities. Initially, businesses were encouraged to prioritize growth over profitability due to the availability of cheap money from foreign sources, particularly from private equity and venture capital firms.
Here are some possible reasons why the start-up failed.
1. Lack of Proper Market Research
Startups must conduct thorough market research to understand their target audience’s needs and preferences.
In the case of Kune Foods, not understanding the local food culture and customer preferences led to issues.
2. Influence of Private Equity and Venture Capital
Private equity and venture capital firms are pivotal in shaping the funding landscape.
They source their capital from significant pension funds and other substantial capital holders. This flow of funds has important implications for businesses in Kenya, as it influences their strategic direction.
3. Cost Considerations
Startups should be mindful of their capital expenditure and allocate resources wisely.
Mismanagement of funds can lead to financial troubles.
4. User Feedback
Listening to user feedback and making necessary product iterations is crucial.
Kune Foods and Brck faced issues related to their products and services, which could have been addressed with user input.
5. Product-Market Fit product
Finding the right product-market fit is essential for a startup’s success.
In both cases, Kune Foods and Brck may not have understood their target markets, leading to challenges entirely.
6. Cheap Money Availability in the United States
One of the driving forces behind the challenges faced by Kenyan businesses can be traced back to the availability of cheap money in the United States. Over the past few years, the U.S. market has witnessed an influx of investment driven by low interest rates. Private equity firms and venture capitalists have been channeling these funds into various businesses, including those in Kenya.
Be careful about what you say to the public and the press.
Negative statements or miscommunication can impact the perception of your startup.
7. Emphasis on Growth over Profitability
Many businesses, particularly in the fintech and e-commerce sectors, were initially driven by the pursuit of rapid growth rather than immediate profitability.
They received funding on the promise of scaling their operations. However, this model started to unravel when the focus shifted from growth to profitability.
Here are Lessons start-ups or small businesses can learn from this fails
1. Improve the Business Environment
- Simplify regulatory processes.
- Reduce bureaucratic red tape.
- Lower the cost of compliance.
2. Access to Credit
- Promote financial inclusion
- Establish credit guarantee schemes
- Foster a credit culture of responsible borrowing and lending
3. Local Funding Initiatives
- Encourage local investors and venture capital firms.
- Local investors have a better understanding of the market.
4. Business Support Ecosystem
- Develop incubators, accelerators, and co-working spaces.
- Provide mentorship, training, and networking opportunities.
5. Government Support Programs
- Offer grants, tax incentives, and R&D funding.
- Support local entrepreneurship initiatives.
6. Entrepreneurship Education
Invest in programs to equip entrepreneurs with skills and knowledge.
7. Local Procurement
- Encourage government and corporate support for local businesses.
8. Investor Education
- Educate potential investors about the local market dynamics.
9. SME Networking
- Facilitate opportunities for SMEs to connect with partners, customers, and investors.
10. Regular Feedback Loops
- Create mechanisms for startups to provide feedback to policymakers.
11. Technology Trends
Keep an eye on technological advancements and how they may affect your business. Startups should adapt to changing technologies and user behaviors.
12. Be Prepared for Pivots
Startups may need to pivot their business models or strategies based on feedback and changing market conditions. Flexibility is key.
13. Consider Local Factors
When launching a product or service, consider local factors, such as culture, pricing, and user behavior, to ensure a better fit with the market.
14. Long-Term Persistence
Success in the startup world often requires persistence.
Play the game long enough to increase the chances of success, as luck may eventually come your way.
15. Team and Leadership
Having the right team and leadership is crucial for a startup’s success.
Founders should have the necessary skills and knowledge to navigate challenges effectively.
Addressing these challenges requires a collaborative effort involving governments, financial institutions, investors, and the entrepreneurial community.
It is also important to note that fostering a culture of entrepreneurship and risk-taking is crucial for long-term success.
So, how do you Build A Successful Startup?
Let me know in the comments below, and let’s keep building.