Welcome to the New Year! I’m been very quiet lately, for a variety of reasons, but let’s just say that you can expect the quantum of posts on this blog to pick up considerably in the new few weeks. Since my previous post, things in the global market have gotten far worse (as expected), the only glimmer of hope for the world economy being President Obama’s election. His inauguration speech moved me, and in my opinion, he is one of the few politicians that I’ve seen, that has truly noble intentions.
Vincent Maher wrote a very controversial article today that has received much fanfare in the South African blogosphere. I have much to say on this topic, so instead of just commenting on Vince’s blog, I’d rather detail it in a blog post. I affectionately call my home, Silicon Cape (Cape Town) – that’s where we’re (SynthaSite) from and we still have strong roots there with our development office now bursting at nearly 20 people, in addition to the 25 strong we have in San Francisco.
Nice article Vince – but the real question you are asking is, why are there not enough breakthroughs in the South African web space, like SynthaSite. Like Eve (who commented on the post), I am also aware of many Cape Town startups (much more than the two that Eve mentioned) that have now successfully raising funding either locally or internationally – and in large sums – expect a number of press releases in the next 8 weeks. I’m not going to delve in the Johannesburg startup scene, as I’m not familiar with it, so my comments here are regarding Silicon Cape based startups. Many of my comments applies to startups that are not just based in South Africa, but around the world – why are there not enough web based success stories from outside Silicon Valley?
A question has also been raised, asking if there is a bubble – how can there be a bubble if no one has made any (real) money in this space, yet? I agree that far too many startups with stupid ideas have received funding in the past 2 years, but technically a bubble is when people are making a lot of money, not spending a lot. Most people just don’t realize that when investors put money INTO a company, that’s where it goes – not into the entrepreneur’s back pocket! The money is used to build a company – the payoff is the exit or the profits.
That said, here are a number the key reasons why the SA startup scene has not taken off yet, IMHO:
1. Punishment for failure
South Africa is not friendly on those who have failed in business – it’s like you’re a criminal if you do. I’ve been there. Broke, unemployed, living in Johannesburg in 2000 with major student loan debt and a failed business attempt. I had two options, try to start a company with bad credit and no capital, or take a nice stable corporate job with a high salary. Guess what, I took the salary and got stuck in the corporate trap for 3.5 years, which as it turned out, was a good thing as I learned some excellent skills, but the key was getting out of that trap (read: Rich Dad, Poor Dad). In the US, you can declare bankruptcy and walk into a VC the next day and raise capital for your next business – in SA and many other parts of the world, you would be ostracized for failing the first time. Most solid entrepreneurs have had a couple of major failures, and will continue to do so their entire life. Failure is just a part of the learning process. If we punish those who fail, we prevent ourselves (society) and them from benefiting from their learnings and their subsequent future successes. Unless you’ve been to the edge of the cliff and peered over it, no-one can ever understand what you’ve seen.
2. Failure to take risks
After leaving Clicks2Customers, and before raising capital, I literally put every cent I had into SynthaSite. I was selling shares and other assets on a monthly basis to fund SynthaSite and keep it going in the hopes of raising capital. I put a very large % of the wealth I had created in the previous 4 years on the line for my “risky” venture. Most people I spoke to thought I wouldn’t make it out the gate. I maxed out credits card and overdrafts yet again (as I did the first time round with Clicks2Customers) in the belief that by getting the business further and further down the line from concept to prototype, I would attract capital. Yes, I risked it all, arguably – but if you believe in yourself and you’re willing to take risks, your chances of success are much higher than taking the low road and protecting yourself – yet you can still fail. But I wasn’t willing to fail… those who know what I went through during this tough time understand the stamina it took to raise capital during a time where both my personal and business life was in flux. I just never gave up – I probably spoke to at least 20 VC’s & Investors before raising the capital it took. And this is from someone who had already had moderate success locally with a prior company. I had a profile, a track record and good experience – and it was tough – if I hadn’t taken the risks I had, we wouldn’t have raised our $5m in funding. I had to take the risks to in order to get far enough down the road.
3. Unavailability of capital
It’s very easy to blame the unavailability of capital in South Africa in particular, and to a large degree it’s true, but it’s changing rapidly. In the past year – no fewer than 3 VC/startup investment funds have announced/launched. The biggest issue they are having is finding battle-tested entrepreneurs who see the bigger picture. At the end of the day VC’s are looking to make money from their investments. If you want to build a business that serves the South African web, all the power to you – but don’t expect it to be easy to get investment. Even if you create web service that people would pay for, assuming the South African web is 5m people and you get 1% paying you R100/year, that’s only R5m/year turnover. If you are able to make R500k profit per year ($50,000 USD), it wouldn’t even pique the interest of the smallest VC – the economics just don’t make sense. The money is out there, but mainly for ideas that address a broader market problem. Remember, the Internet is global. Over 50% of Google’s revenue comes from outside the USA – just because they are a Silicon Valley startup, doesn’t mean they have to make their money from the USA. They serve a bigger need. South Africans needs to start thinking in the same vein. Build Web business that appeal to 1bn+ people worldwide, build it from South Africa and bring those revenues into the country, creating much needed employment and skills transfer! Unless you have big global ideas, capital is largely going to be unavailable. South Africa need to get over the idea that if it’s not homegrown, it’s unpatriotic. One of the comments suggested that we should stop using Facebook and Twitter – that’s just stupid. Why would anyone use a local version which would have far less utility given the diminished network effect? In short – thing global and raise capital to address a real market need, where there is real money to be made. Be commercial – focus on making money and addressing under served markets and the capital will present itself. A University of Cape Town student who has a student loan to pay off and decides to take the high paying corporate job – arguably it’s far easier in the US to get student loans, but that also acts as a filter – those who are unwilling to take personal risks using debt, probably shouldn’t go into business either.
4. Too many consultants
I do agree with Vince – I see far too many so-called “SEO, PPC, Social Media, blah blah” “Experts” in the market today. How many of these people have ever build a business or made real money? If these guys would put their skills to good use, they would be building products and using their great marketing skills to build a successful business. It’s much easier (and safer) though to sell hours and help some else with their “strategy” – if it doesn’t work, then nothing lost right? Well, that’s the problem – no risk, no return. My hat’s off to the guys who create real value through consulting – but then again, I ask them : Why are you not building and marketing your own product or service? If you’re billing by the hour, you’re making someone else rich. Trust me, I know. Having established myself as an “online marketing expert”, I realized that I spent many years building other people’s company and generating hundreds of millions of dollars in revenues for them. Enough was enough for me. SynthaSite has grown in one year, from 10,000 users to over 1m people building and maintaining their website and we’re already generating healthy and fast growing revenue streams from that user base. I’m putting my marketing skills to good use by not consulting and instead creating value – shouldn’t the same apply to all these other “experts”. Even with all the market presence SynthaSite has in South Africa – it still accounts for less than 10% of our customer base. We are achieving a major economy of scale by going global – this is critical for building a successful business.
5. Lack of global experience
Too many startups look at the foreign markets from their hole in the wall in SA. Many startup entrepreneurs never get the chance sit in traffic on the 101 (main highway in Silicon Valley), breathe the somewhat dirty air here, attend at meeting or two at Google and Yahoo, attend a conference in the US or UK and see your global competitors. It’s very difficult building a solution for a market you’ve never seen and an invisible enemy. Reverse engineering is not enough -without substantial data it’s stupid to “guess” why competitors do certain things, and then try to do them differently because it’s “cooler” or better – this is why so many clones fail. Without a user base, you cannot make data driven decisions. You need to be in the thick of things. Flights are so cheap these days ($500/R5k to get to London and back) – there is no excuse. The good thing is that with companies such as Google & Amazon who have offices now in South Africa – there is effective skills transfer. Eventually these guys move on – make sure your startup is positioned to hire from them!
6. No liquidity events
Other than Mark Shuttleworth’s sale of Thawte to Verisign back in 1998, there has not been a major exit of a South African web company (ok, maybe a few more, but I can’t recall offhand) in ten years!! The lack of liquidity events for entrepeneurs is a problem. Seed capitalists (the angel investors who put money in), often have their cash trapped for many years inside a company – either the company makes a profit and pays dividends or closes down. Without any liquidity, the money does not recirculate from one startup to another. The lack of liquidity in the SA market is the main reason, I believe, for the stagnant innovation. Also, those who control government funds are not in touch with the market and therefore don’t know where and how to allocate the money. Angel investors are urgently needed to get prototypes to market. Most VC’s cannot invest in a concept, they need more than that and there are to few angel investors around. I myself have invested in a few companies – and I had to take a long term view, knowing that there is no liquidity – either they become very profitable or close done. Exits are not really an option as all the major web companies are based in Silicon Valley (eBay, AOL, Yahoo, Google, etc) – and they do not want small offices in Africa with no one to run them.
7. Too much focus on advertising
Most startups I meet today are monetizing using advertising. It’s not sustainable during downturns. Those who understand online advertising and business understand that advertising rates are a function of business efficiency (this is a topic for another day!). Companies that can advertise, acquire customers at a certain price point and then need to monetize at a rate higher than the cost of acquisition. The biggest issue comes in when there is a downturn – the dumb money leaves, the smart money stays and unless your business is capable of driving real value to advertisers, you will fail. Period. Advertising revenues should be the cream on top – not the milk. If you can’t build a business that sustains itself on creating true value for users, you’re at risk when the dumb advertisers leave. And this is coming from an online advertising “guru”…
–
Where South Africa really succeeds is that entrepreneurs who get out of the gate have been through such a large number of filters (struggles!) that invariably there is no other destiny but for them to succeed because they are the best of the best. The toughest steel is forged in the harshest conditions. I’ve met so many top SA entrepreneurs living in the US, UK & Australia who are magnificently successful, due to the fact that it is so much harder to achieve any level of success in SA, that after running a business there, and then moving to a more developed country, the conditions are much easier for business to be conducted. The reason I say this is a success, is that we are breeding a better class of entrepreneur – those who will weather the current global storm.
I could go on, and there will be many opinions as to whether or not I’m right or wrong. The bottom line is, that I think we need to celebrate our heroes, our successes and our failures. Only then can we make true progress. I am very positive about the Silicon Cape – we have a number of success stories and future success stories to be proud of – it will take time, but I’m betting that over the next 5 years, SA will become virtual hub of web successes.
Paul Graham wrote a great essay about 2 years ago, on how to create a Silicon Valley. If you read this – those who live in Cape Town will agree, we have most of the ingredients already. While living here in San Francisco, I must say that the lifestyle is very similar – small community, great city, beautiful outdoors.
To end off, I’d like to highlight my top Silicon Cape startups to watch out for in 2009, in no particular order (and I’m excluding SynthaSite because I’m clearly biased 
):
ChessCube (Disclosure: I am an investor)
SkyRove (Disclosure: I am an investor)
Fireflight
Yeigo
Mine Bang (currently in stealth mode)
Weddinic (niche, but global appeal)
Springleap (Disclosure: Eric, the CEO is a good friend of mine)
(apologies if I left anyone off – this post has taken nearly 2 hours and I have to run!)
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Comments On This Post
January 23, 2009 at 8:14 pm
Great post Vinny – and I agree with all the reasons you cite, particularly the 'failure is taboo' ethos that permeates business in South Africa. The fear that this adds to the mix, which combined with a lack of seed capital and angel investors really makes being in the start-up business a challenge.
I also agree that South Africans have too narrow a view – we tend to think locally instead of globally: we have to start thinking bigger. Just because we're down at the bottom of Africa doesn't mean we can't change the world
January 23, 2009 at 8:43 pm
Glory be… A great, frank assessment of SA business and the challenges facing entrepreneurs here.
Well done Vinny.
Vince – keep up on the line you're pushing, there's a helluva lot more to consider and push SA investors and would-be entrepreneurs to ask tough questions of themselves
January 23, 2009 at 9:54 pm
Vinny, great post. I first wanted to comment on Vince's post but you kind of said it all.
The only issue I want to emphasize is that the VC bashing that is going on in the blogger community is really not constructive. Just because a VC has declined a business plan does not mean that VCs are not investing. We are constantly looking for great investment opportunities but they need to fulfil certain criteria. Venture Capital is about realising above average returns when you exit your investments. This can only be achieved if the target market is sufficiently big which is not achievable if you only focus on South Africa. You need to have a monetization strategy and a Unique Selling Point. Unfortunately we are seeing too many "Me too Lifestyle businesses".
So, over to the entrepreneurs – prove me wrong!
January 23, 2009 at 11:18 pm
Thanks Andrea. We're on the same page as usual. I look forward to seeing what this year will produce out of the Silicon Cape!
January 23, 2009 at 11:30 pm
Certainly a comprehensive analysis there Vinny
To become globally successful your advice is certainly of value, but I do believe a more focused approach can mean a small sustainable business – but VC will be hard to come by then. Maybe most important is that the entrepreneur must back himself with his own money and time – the rest of the argument is rather simple. Ideas are a dime a dozen – but back your idea with a year’s hard work and your own hard earned cash and we get a situation that Vincent described 
January 24, 2009 at 2:20 am
Hi Vinny,
I'm a lifelong entrepreneur with a record of failures and successes. I wear my failures like a badge of honor, which might mark me as odd in SA. The entrepreneur business press in the US is big on the value of failing, if you are always learning, but even it prefers failure stories that end up as success stories.
You may recall me from your SynthaSite blog. I'm a thrilled SynthaSite customer with three major sites built on your platform. By chance, I just finished writing a post for my own blog explaining how people already married to other platforms can use SynthaSite as a tool. Inevitably, some will be impressed and think of SynthaSite for their next project.
It will post next week on floatinglightbulb.blogspot.com.
I'm glad I encountered a link to this site today too. Your story is inspiring and many will benefit from your sharing it.
Best regards,
Bengo
January 26, 2009 at 12:35 am
Hi Vinny,
Wish you and Synthasite a great belated 09.
If I can add my little grain of salt to what you said, I'd say that the little amount of time I've been to Cape Town, I felt a very positive energy coming from the city. That's already a great positive point compare to many other place in the world.
I got the feeling Silicon Cape could be a reality. I mean this could be the Africa's silicon/technology mecca. There's only going to be 1 Valley/San Francisco but there are striking similarities; geographic (cap/peninsula), quality of life, base of quality employees, potential to attract the best and a few others). Interestingly, that's the first impression I got after 1 day in Cape Town; It's already a great place to be and time should only improve the conditions for tech businesses.
More precisely, 2 of your points (Punishment for failure, Failure to take risks) are cultural. It's not that the Cape's business culture is so much different than elsewhere in the world, it's more that the Valley/San Francisco is such a different place in itself. I can tell you Montreal and most north american cities are not that different from Cape Town (ok, maybe in between Cape Town and the Valley/San Fran). The culture will change when the community sees a couple of success. It never change fast enough but it'll evolve. You're a good example of such successes and your indirectly paving the way for others.
Unavailability of capital and No liquidity events, I think every cities face the same the challenges for tech companies (it's probably truer for Cape Town) but I also think this also relates to the business culture. Success breed success and slow culture change.
Lack of global experience; that will be fixed when local companies will get global. Again, you're a good example. But the lack of global experience can be imported. If local companies want to go global they can simply bring their candidate to visit Cape Town; I'm sure it wouldn't be too hard to get some very good candidates to spend a couple of years in town. And if they still hesitate give them my email!
Too much focus on advertising and too many consultants; the first comes with the times (the latest fad biz model). The consultants, well, what can you do.
Ok, ok, I know, I've a positive bias for Cape Town.
But seriously your city really have lots of potential to become an important technology center.
January 26, 2009 at 3:11 am
Good article Vinny,
I guess looking at all the expansion Synthasite has had in the recent past and now that the market is in turmoil would you look to make your businesses profitable in the short term or continue to go after the big growth with the hope of raising more capital in the future?
Best of luck!
January 26, 2009 at 4:44 am
Now I'm ready to visit.
I say, when you can't afford to add positives, remove negatives. I don't know what those might be, and I never will if they are changed.
January 25, 2009 at 10:08 pm
Hey John
Most companies are now forced to hit cashflow breakeven asap – growth will be secondary. The market does not value growth, it values ROI at the moment.
V
January 26, 2009 at 7:36 am
I think the consultant phenomena just comes from people following the money. Corporates tend to identify better with consultants and broader strat planning than small agencies that specialise in the niche and have sales staff targeting these corporates on an impersonal level. That said many of the consultants have worked at some of the large corporates and understand the jargon that goes along with it.
Consultants hopefully bridge the gap between the online marketing specialists (yes who controls what you call yourselves these days?) and corporates and educate them on the potential of online marketing. Yes, there are too many consultants, but honestly how do you control who calls themselves what? The proof is in the pudding, if the consultant doesn't deliver a long term ROI, they should be fired. And yes, you're making someone else money, but some people need to put food on the table 'in the meanwhile'.
I agree with the sentiment about companies that should rather focus on their own entrepreneurial projects, but I think too many smaller companies are weary of building huge investment risk and debt. Maybe the local market is more conservative in that regard, but I think it's changing, slowly but surely.
January 26, 2009 at 3:40 am
[...] opportunities, maybe the question is: why aren’t there more social-media millionaires? (Check out this post by Vinny Lingham (Synthasite) for a possible [...]
January 26, 2009 at 12:47 pm
Excellent post and thank you for taking the time out to blog.
January 26, 2009 at 4:47 pm
Fantastic post, highlights some relevant points, and gives us something to think about. Last I read, Cape Town was actually the most productive city in SA, which suprises me, as things often feel like they are moving in slow-motion down here…
January 27, 2009 at 1:07 am
Brilliant post Vin!
As you personally mentioned to me during our coffee meet in Town, the local online market has it's limitations and without vision of a much broader scope or globalization of a platform/product, either from early stage or on a later stage, our local guru's will never be able to step out from under their own shadow, that one dimensional mindset which intoxicates our local talents.
Without that "unique selling point" Andrea so wisely refers to, which makes your idea/vision and capabilities to execute so different, you are wasting your time even pitching to a VC. Try the angel investors route, because seed funding is much more than, "here, have a couple of million because we think you will make double that in 2 years through your advertising offering to the local South-African market".
It's merely a situation of where the local blogging community do not understand the criteria and requirements of such an investment through lack of research or experience. As mentioned, advertising should merely be the cherry on the cake and should barely be included in the monetization process, unless you have a world stage buzzing around your offering like YouTube per ce and even then, if not more than ever, monetization should be key!
Whether success or failure, you risked everything on a personal level for a vision. An investment should stretch much further than filling your own back pocket off the bat, which kinda seems to be the mind set locally.
If a so-called entrepreneur won't even risk his own wealth and put everything on the line, then how can they expect a VC should even consider an investment? Only the bravest needle's in the stack would pull through. Business, whether offline or online is as much technology as it is thorough planning, expanding their offering to a global market, monetization, diligence and hard work, all these basic principles should play key when approaching a VC.
As mentioned already, fear also plays a role. Fear of failure. Fear of risk. It's quite convenient to follow the safe route, as convenient as tumble dryer on a rainy day, but if anyone has read Napoleon Hill's book, "Think and Grow Rich", they would notice similar values of "calculated" risk takers and most case studies would show that these business values are set values of most successful entrepreneurs, on a global scale in any given market. They are usually the role players who set the pace for others, like yourself.
Might as well copy and post this to my blog!!
Keep well Vinny
JP
January 27, 2009 at 7:45 am
This, also called that, is best known as it or them, especially if they are a bad 60's rock band, a town in Denmark, or a film about gigantic ant invaders. See also http://en.wikipedia.org/wiki/Them
January 27, 2009 at 9:26 am
Thanks for the post. Very informative. I don't usually like to read long blog posts, but this was a very substantial one.
January 27, 2009 at 12:20 pm
Longest post I've ever read. Most inspiring too. I'm not based in Cape Town (anymore), but I've been battling with the decision to leave my cushy job and start another company. Had several meetings with my accountant about this, but could not decide.
January 28, 2009 at 4:43 am
[...] Vincent Maher generated a great debate late last week with his question “Where are all the South African social media millionaires?“. Vinny Lingham then responded with some of his reasons why the SA startup scene has not yet taken off. [...]
January 29, 2009 at 9:05 am
Hi Vinny
Thanks for this open answer based on your experience – quite insightful and certainly a move in the right direction for the discussion.
My thoughts on the issue are here – http://outthink.co.za/index.php/2009/01/the-case-...
Hope to see more of your thoughts on this in the near future.
January 30, 2009 at 7:11 am
Hey Vinny! Great post indeed, I learnt a lot from it and appreciated your personal touch with regards to your experiences in business over the years.
Wish you and the SynthaSite team all the best for 2009, and congrats on reaching over 1 million users!
January 30, 2009 at 11:25 am
Hello,
In its early days, the tech council was a valuable organization but in recent years, it managed to turn off a lot of local technologists. I sincerely hope that the chamber will adopt a more inclusive, community-based philosophy toward supporting and encouraging technical organizations, businesses and people on the cape. Best of luck
January 30, 2009 at 3:43 pm
Great post Vinny – Happy 2009 !!
I think the lack of exits and round 2 or 3 funding is a major problem which eventually kills a lot of the initial energy and enthusiasm – and as you know you and I speak with a lot of experience. I meet lots of promising entrepreneurs all the time – most of the Web 2.0 ones being in Cape Town – an they have great ideas. But I agree with Vincent – actually succeeding with a business and delivering on the initial promises has been a problem in South Africa, but as you say that is because there are a lot more challenges here. Hopefully, you deliver on Synthasite and achieve a "liquidity event" – but even then you have had to relocate to Silicon Valley to actually achieve that.
I am very optimistic about South Africa relative to other more developed market over the next 10 years – but the VC market here will remaining challenging for a while yet. Most investors seems to be pulling back at the moment rather than piling in.
January 30, 2009 at 6:35 pm
I'm American, and it's fascinating hearing about the entrepreneurial scene in a city I am slowly learning about. May I offer the thought that Americans are often terribly ignorant of other countries, and the beauty of Cape Town and the entrepreneurial energy are unknown to most.
Promote your assets. Web site, printed material, how your economic development people greet visitors. Ours (I live in upstate New York) started answering the phone "Hello, Tech Valley," and we all chuckled, but now we're getting an ADM chip plant and numerous polytechnic spin-offs and incubators. Perhaps you are ahead of me; I just wanted to emphasize that this is important for Americans like me, so we can learn enough to share your excitement. Brand yourselves, create a logo, and work together to promote the region as one of the most dynamic tech areas, and I am sure your will have a bright future. Don't forget the appeal of visiting a lovely city, which is part of what makes SF a draw.
January 30, 2009 at 8:12 pm
Thanks Giles! Happy New Year to you too!!
I couldn't agree with you more – and we've certainly been on the ropes in respect to raising capital in South Africa!!
I'm extremely optimistic about South Africa. We need a couple of big success stories, a few heroes, faster bandwidth, and as a natural result, the capital will flow.
One of the other major issues, is a lack of focus – too many people spreading our few skills too thin – too many areas of attention. We need VC's that are focused on driving investment in certain niche areas – my view is that we need to gear up skills in the consumer web application space – something I hope that I can drive when I eventually come home!
February 1, 2009 at 5:57 am
Great post.
February 1, 2009 at 6:04 am
Excellent post Vinny! The strengths and pitfalls of the local online entrepreneurship scene is something that I've often wondered about. This (very lengthy) comment is broken down into two sub-sections, viz. analysis of your fact list, and some personal thoughts on Silicon Cape and its future direction.
In this post, you mentioned 7 key facts:
1. "Punishment for failure". South Africans do tend to over-punish entrepreneurs for not getting it right on their first try. In my first company, Trafik Student Networks, I failed to achieve my objectives for the business, and admitting that openly was perceived negatively by many people. The level of punishment and associated skepticism expressed by the community tends to increase with the entrepreneurs age. I quit Trafik when I was 21 (after 3 years of operation), so the associated relational backlash was still much weaker than it would be for someone older (e.g. a 27 year-old).
2. "Failure to take risks." This is a big one. After co-founding Mine Bang Media last year, I chose to back out of the best corporate job offer (for a graduate) that I'd ever personally heard of. Never mind my MSc, which currently lies in tatters. That took some guts, but then again entrepreneurs are supposed to be risk calculators, and the math did make sense. More about risk later in this comment.
3. "Unavailability of Capital." I'm ambivalent here, because I believe that private sector capital follows real potential and measurable success. Call me a capitalist. Investors join the game to make large returns first, not to contribute to social development factors (not primarily anyway). As Andrea stated earlier, South African web entrepreneurs need to shift their model of what VC-funded companies really should be about. Perhaps your personal arduous experience in this space is the exception, and not the rule? (Investors will tend to prefer an idea where the earning potential is immediately obvious, and scaling can occur in line with revenues).
4. "Too many consultants." Absolutely. If someone is an incredible chef, we would think that they would want to open a restaurant and prove themselves (and get rich) before trying to sell off their recipes and teach others how to cook.
[cont]
February 1, 2009 at 6:04 am
5. "Lack of global experience." I think that there's little excuse for this, because the Internet is a fundamentally globalized structure. Even if one doesn't make it overseas to physically "see" what's going on, what prevents an entrepreneur in SA from starting a conversation with anyone in the world? The benchmarks are right there in front of our eyes. All we have to do when building a product is say, "Ok, this is the world standard- how can we do it better?"
6. "No liquidity events." Not much to say here, but I would hope that a startup perceived to be a global leader in its space should be able to get acquired or make a public listing without major external blockades. The question I ask instead is, "Why haven't there been more leading startups?"
7. "Too much focus on advertising." I concur that "me too" advertising is likely to go nowhere, but real innovation that delivers high ROI back to marketers will be rewarded, and considering the current global situation, probably carve out a permanent space in the business landscape. There's no reason to give up on advertising, but companies looking to jump onto yesterday's bandwagon are going to suffer terribly.
From my own experience in working with others on international platforms from Prague to London to Rio de Janeiro, as well as in two diverse universities and cities back home, I can easily state that the best talent South Africa has to offer is as good- if not better than- anywhere else in the world. The problem with our potential startup stars is that South Africans (and my experience comes mainly from dealing with the younger variety) tend to be allergic to risk, and addicted to security. Despite the "risk calculator" argument I put forth earlier, a lot of faith is required to build a mental bridge between some rosy vision and the present harsh reality. Our generally conservative and corporate-reliant culture is much to blame, but I also think that aspiring entrepreneurs need to have more confidence in themselves. Self-confidence creates the faith necessary to "lose sight of the present shore in order to discover new lands". It's tough to be an explorer while your feet are still firmly rooted in a full-time job- at some point, one has to take the plunge.
[cont]
February 1, 2009 at 6:51 am
I'm American, and struggling to understand this stigma of failure. But maybe I evaded it. I founded a lot of small to midsize firms, some of which failed, but I rolled them over into new versions, so hope was never lost. I sold my last company in '07. Competitors in my field who stayed in are going belly up all around, so I guess I got lucky. But yeah, maybe developing a knack for folding failure into the next chapter will help with some people's come-backs.
February 1, 2009 at 6:15 am
In the USA, market size and economies of scale allow VCs to invest comfortably in "national" opportunities, but this logic does not hold for South Africa. Our entrepreneurs need to start attacking global markets, and in a big way (Israeli startups have done this quite successfully with a strong public-private VC-backed model). Of course, when competing globally, it helps a hell of a lot to be doing something original. The entrepreneurial model that I am touching on here is the one designed to generate a high amount of success in a relatively short space of time. This is profoundly different to growing a small business with a limited market organically and profitably over 10 years. There are different kinds of entrepreneurs out there, and one is not more noble than the other- it all depends on their personal goals and tolerance for risk/failure.
When I was at the United Nations Internet Governance Forum in Rio just over a year ago, Vint Cerf (co-inventor of TCP/IP and regarded as the "father of the Internet") referred to the Internet as a "scaffolding to design and build something new" ("www.intgovforum.org/cms/Rio_Meeting/IGF2-EmergingIssues-15NOV07.txt" –I got my two cents in as well: "www.youtube.com/watch?v=Aqi6sX-9uh8"). He was referring to the architecture of the Internet, but I think we can extend that metaphor to online business as well. The Internet is the perfect structure for setting up businesses with massive scalability and customer (i.e. user) potential. Just ask the people who started Facebook. Or Twitter. Or Synthasite. What makes more sense, designing web products/services that could appeal to a few million people at best, or doing something that could add value to over 1 billion? That's the kind of web innovation that I think Vint (and Vinny
) would want to see more of.
Last off, thanks for giving Mine Bang a mention in your hot list for 2009. As a social media startup, we will take Vincent Maher's polemic on South African offerings in the space to be a challenge. We were pleased to recently win the FNB Enablis Business Launchpad competition ("www.bizcommunity.com/Article/196/160/31949.html") and look forward to the bigger things that lie ahead
If you've made it through this entire 3-part comment, thanks for reading!
February 3, 2009 at 6:28 am
Hey Bengo. It's really difficult to explain. For instance, in South Africa, if you have bad credit, up until a few years ago, you could not get a bank account – AT ALL!! It's ludicrous. There is no bankruptcy protection either – so if you fail at business, you generally lose you shirt… What makes America really strong is the believe that people can learn from their mistakes and get stronger from them. As Venture Capital grows in South Africa – I feel that people will begin to learn from their mistakes, given that 3-4/10 investments usually fail…
February 5, 2009 at 12:24 am
Wow some pretty tough comments about us SEOs However I agree there is need for improvement within the Industry
I have a Science degree and hey it just happens to be Information Science and is that not what SEO is al about?
February 5, 2009 at 8:01 am
Well done Vinny. Both with the success of your venture and also the contents of this article. I am a bit of a serial entrepreneur. Many moons ago I founded a property development company that went on to list on the JSE. Pursuant thereto I entered the technology arena with a foray into becoming a cellular service provider. My game was almost similar to the sub-prime plan that caused the global financial crises in that we provided consumers who had an adverse credit record with a cellular contract. Our niche gave us a massive, willing and captive market, but it came back to bite us when our clients were hit with increased interest rates, escalating inflation and significantly higher costs of commuting due to the fuel price hikes. This cost me dearly and effectively depleted the gains I made in property.
It is however not all bad news. As a result of my involvement in the cellular business, we developed a business model around prividing mobile security and data management applications. I punted the concept to several VC's in South Africa and also a number of wireless application services providers globally. At the time it was all conceptual and consequently we did not have any success.
I was inspired by your own history as I sometimes find it frustrating that funders simply cannot grasp the magnitude of what we are launching here. I sort of resigned myself to the fact that we will have to take the low road: complete the application(s) on a shoe string budget and grow it slowly and organically.
We have now succesfully developed our proof of concept and we are extremely bullish about our prospects. We are well positioned to take it global and I am looking for additional funding and investment with which we can expedite the completion of the entire suite of applications across all mobile operating systems.
In the light of you experiences, I was hoping that you could provide me with more information as to which doors I should knock on (our bash in for that matter!) and whom I should speak to. Any advice would be greatly appreciated. You are of course welcome to acquire some equity for yourself (or secure exclusive distribution rights in the USA) if you are so inclined!
You can contact me at mauritz@2talk2.co.za
Best regards.
February 5, 2009 at 5:14 pm
Just wondering… Are there no US venture firms with a focus on SA? People who really understand what companies need, and are willing to help?
If you could get some SA people onto their boards… If I had more liquidity right now, I'd be tempted. Going on hunches has cost me some money, but they work out surprisingly often. Home runs only come from hunches.
February 6, 2009 at 8:48 am
Hi Vinny,
Quite an insightful blog. What captivates me the most about this blog are the reasons that u have cited. In retrospect, failure in business is condemned in many countries. This stems from the fact that there is either limited or no resource. In a developing Nation like SA, the reason behind such a stringent attitude is, like u have mentioned, unavailability of capital. This leaves behind less room for experiments. The way I see it, if we can increase the resource, the chances for flexible business also increases..
February 8, 2009 at 6:37 pm
Hey Ben,
We have about only 3 "official" VC firms in Cape Town that would even consider investing in web startups. So there is a huge opportunity there – I know of a large number of startups that need capital and I've been really trying to spot the winners and help them and as a result I've invested in a small number of startups – let's see how it goes.
February 8, 2009 at 8:02 pm
@ Vinny – Kudos for putting your money where your mouth is, even with all you are already doing. I hope you are able to leverage your money, like for low interest bank loans with a portion guaranteed to maximize them, and still gain the investment returns for your efforts. Another good one is to help steer university money toward an incubator.
This raises a tricky question: has SynthaSite published a public monetization/business plan? I am not scolding you if you have not, as there can be important reasons not to, but people like me who follow such things could grasp the big picture better by not missing anything that is public.
Bengo
February 10, 2009 at 7:31 am
Hey Bengo
We haven't published an official plan, but we have discussed publicly that we're selling domain names (which we're already doing), and will launch template sales (for more unique styles) as well as other premium services in the near future – stay tuned!
February 10, 2009 at 11:00 am
Great article, must have put alot of time into that, I find more and more people join the realisation of the worlds economic market, and the down turn because of the credit crunch!
February 17, 2009 at 11:36 am
About startup business when is is advertising. Yes, this Your true, because only hard work and true value for users is right way to success
February 17, 2009 at 12:20 pm
Hi Andrea, to use an Obama cliche: yes we can. We can definately prove you wrong! Please make contact with me at mauritz@2talk2.co.za Our application has global scope and we have already developed beyond proof of concept. Neither of us have anything to loose, so please let me hear from you.
Show me the money.
Mauritz Robertson
February 17, 2009 at 8:33 pm
Hey Vinny – congrats on your new round! More power to you all at Synthasite.
February 18, 2009 at 1:19 am
[...] happen in Cape Town, and if this trend continues, Cape Town in particular is going to become the Silicon Cape that I dream [...]
March 9, 2009 at 3:12 am
Great article, I find more and more people join the realisation of the worlds economic market, I know of a large number of startups that need capital and I've been really trying to spot the winners
March 10, 2009 at 12:20 pm
delayed happy new year for you also. I am also looking forward for new economic growth in the world . and you are in the right way to guide the success
March 13, 2009 at 1:24 am
[...] Vinny Lingham wrote an interesting piece (following Vincent Maher’s controversial article on the SA startup [...]
March 14, 2009 at 9:02 am
the internet marketing has come into effect and people are using all the advantages of it sitting at home and purchasing what ever they want.
March 17, 2009 at 3:45 pm
a blog supplying very informative information about internet marketing,
March 25, 2009 at 7:44 am
Internet marketing help people to buy anything online, this is very useful in this busy world, it save money also
April 2, 2009 at 10:46 am
fantastic post Vinny.
April 12, 2009 at 5:54 pm
great post here thanks Vinny u will gave up the time for our blogs…….
April 14, 2009 at 12:54 pm
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May 4, 2009 at 6:16 am
Here in the Netherlands 'failure' is more a plus. It shows that you have some entrepreneurship. Especially in the IT business it is quit often a trail and error business.
May 25, 2009 at 11:48 am
Wow ! what an excellent research and I really enjoyed reading this article about the SynthaSite team.
June 4, 2009 at 10:57 am
I totally agree with you Dude, it's very interesting to read professional post, thanks for sharing feelings and knowledge !!!
June 7, 2009 at 2:40 pm
good articles..i am more learn from your site…thank you
June 22, 2009 at 2:08 pm
I agree with Bengo I think developing a knaco for folding failure will really help a lot of people
June 28, 2009 at 5:56 pm
Really great post, nice sharing bro.
July 1, 2009 at 4:01 am
Great post indeed, I learnt a lot from it and appreciated your personal touch with regards to your experiences in business over the years…
thaks for share…
July 10, 2009 at 4:49 am
hello, this is my first time i visit here. I found so many interesting in your blog especially its discussion. keep up the good work.
July 22, 2009 at 9:21 am
Great post Vinny. Very informative. I don't usually like to read long blog posts, but this was a very substantial one.
July 24, 2009 at 7:28 am
Our generally conservative and corporate-reliant culture is much to blame, but I also think that aspiring entrepreneurs need to have more confidence in themselves. Self-confidence creates the faith necessary to "lose sight of the present shore in order to discover new lands". It's tough to be an explorer while your feet are still firmly rooted in a full-time job- at some point, one has to take the plunge.
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July 24, 2009 at 7:28 am
That took some guts, but then again entrepreneurs are supposed to be risk calculators, and the math did make sense. More about risk later in this comment.
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July 25, 2009 at 11:08 pm
Glory be… A great, frank assessment of SA business and the challenges facing entrepreneurs here.
Well done Vinny.
July 27, 2009 at 4:25 am
congrats on your new round! More power to you all at Synthasite. the internet marketing has come into effect and people are using all the advantages of it sitting at home and purchasing what ever they want.
July 27, 2009 at 5:41 am
Hey Vinny! Great post indeed, I learnt a lot from it , thanks you very much!
July 29, 2009 at 5:35 pm
It's still confusing for most americans to understand the stigma of failure but most of us somehow tend to avoid it.
August 7, 2009 at 7:06 am
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August 11, 2009 at 10:21 pm
[...] It’s great to see other young startups raising money in these tough economic environment. Cape Town based ChessCube just raised $1.25m in funding from VenFin and are looking to take the online chess market on with some really innovative products. Chess remains one of the most popular online games and ChessCube is currently working on some very interesting business models to create revenue opportunities. Cape Town, where Yola has it’s roots, really has some innovative companies and I’m hearing more and more about how VC’s are turning toward this part of the world in search of the next big opportunity. If South Africa is able to continue to churn out startups that are able to build solid technology businesses, we will soon see this region hopefully become something of a Silicon Valley (I like to call it “Silicon Cape“). [...]
August 15, 2009 at 4:19 pm
a thought provoking article no doubt.this reading was a pleasure
September 1, 2009 at 12:02 am
Kudos for putting your money where your mouth is, even with all you are already doing. I hope you are able to leverage your money, like for low interest bank loans with a portion guaranteed to maximize them, and still gain the investment returns for your efforts. Another good one is to help steer university money toward an incubator.
September 8, 2009 at 12:20 am
Our generally conservative and corporate-reliant culture is much to blame, but I also think that aspiring entrepreneurs need to have more confidence in themselves. Self-confidence creates the faith necessary to “lose sight of the present shore in order to discover new lands”. It’s tough to be an explorer while your feet are still firmly rooted in a full-time job- at some point, one has to take the plunge.
September 9, 2009 at 11:10 pm
[...] to Silicon Cape Categories: I love Cape Town skip to comments Vinny Lingham first wrote about Silicon Cape in blog post at the start of 2009, in which he highlighted the challenges and opportunities for the [...]
September 11, 2009 at 4:08 am
Whether success or failure, you risked everything on a personal level for a vision
September 11, 2009 at 5:37 am
Vinny, you rock..
this article gives me a good information and i learn’t a lot from it , thanks you very much!
September 15, 2009 at 7:22 am
This is another great blog post.
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