Leadership & Human Capital

“Talent is where the greatest gap is between what entrepreneurs need, and what we're able to provide. For every scaling company, the biggest challenge they have is talent, talent, talent.” - interviewee

“Talent is always just a huge issue.” - interviewee

Experienced African talent is in very short supply. 

“There isn't enough talent to be able to build as quickly as we want to.” - interviewee

Talent acquisition in most markets involves selecting for true talent on the basis of meritocracy, having clear recruiting criteria, avoiding bias in selection, and designing onboarding processes to quickly bring new hires up to speed and familiarise them with the company’s culture. Leveraging partners, contractors and customers as “external employees” is another common practice. 

Unfortunately, in the African context, there is a massive undersupply of high quality, experienced talent, especially senior talent, which impedes scaling potential. Founders rely heavily on their personal networks to find the talent they require, whether technical or managerial. 

Funded ventures - of which there has been a rapid recent increase - now compete for the same talent in a narrow, scarce pool. This has led to wage inflation whilst also leaving (pre-)seeded African startups more crowded out as they are unable to compete on salary terms. 

Added to the mix are large technology and financial institutions increasingly investing in Africa (Google, Microsoft and Visa have all established developer centres in Kenya recently, for example). Short-run fears that these major companies will drain talent from startups are very realistic, notwithstanding that medium- to long-term gains from their presence are likely to be positive (including integration with the global economy, improving the quality of the pool of technology engineering talent, and associated foreign direct investment flow-through). 

A specialist scaling service provider told us the dearth of quality management talent for scale-ups in Africa is also compounded by people tending to stay within the big corporates where the employee value proposition benefits are usually far superior from the perspective of managerial talent. Other factors, from greater mobility to increased remote working, add new and different complexity dimensions. There are warnings that aggressive poaching will become the norm, which will cause negative disruption. 

Scale-ups are constantly under-resourced and need to up not only their numbers, but also the level of seniority and expertise brought on board. Yet the majority of the tech talent on the continent is at junior and intermediate levels. As ventures grow, the need to fill management roles (as well as engineering ones) becomes more critical. Ideally, ventures are seeking to hire world-class employees to solve highly complex problems more effectively and efficiently. But, due to the overall scarcity of talent, senior talent also costs far more. A good experienced senior full-stack developer and an experienced digital marketing manager will cost anywhere from USD $2,000 to $5,000 monthly depending on what country they are in. 

“It's very difficult to attract high-quality talent, and it's very difficult and expensive to pay for the technical talent that you need.” - interviewee

Once external funding has been raised, anecdotal feedback suggests that ventures often switch from being very frugal with money to spending a lot of investor cash in a short period of time, increasing risk levels commensurately. Whilst publicly available data is not available to confirm it, it is likely that human capital represents a decent proportion of predicted spending. 

Entirely new human resource management strategies, which focus on capacity development of in-house talent pipelines, are essential. A high level of professionalism is required to ensure the venture takes on board the right people at the right time. Retention is equally important; loss of talent is highly problematic notwithstanding that high turnover is a collateral effect of rapid scaling. This is particularly problematic in a market with serious supply challenges.

There is a serious paucity of empirical research on African leadership. Projects such as the Globe Project have attempted to examine the interrelationships between societal culture, organisational culture and organisational leadership. But, due to the data gaps in the African context, it is not yet possible to demonstrate causality as regards firm size or growth trajectories.   

Human resource management in Africa is generally under-researched. Academics typically focus on practices remaining largely culture-bound, suggesting that many aspects of sub-Saharan African cultures pervade organisational processes, e.g. collectivism and paternalism. Academic approaches to understanding the management of people in Africa are often framed within a pejorative ‘developing/ developed’ world paradigm that not only paints a negative view of management in Africa, but also assumes the need to evolve towards the ‘developed’ world approach. With respect, such an approach isn’t helpful.

The literature on African management is dominated by cultural relativism. One of the key issues relates to the homogeneous conceptualisation of "national" and African culture, which is arguably inappropriate given the cultural diversity and complexities that characterise the continent. Furthermore, generalisations do not acknowledge the varieties of business types, organisations and contexts that exist.

Given the general lack of data, it is extremely difficult to determine conclusive commentary about leadership and human resource practices for African scaling firms (as compared to those firms outside of the continent). In spite of these fundamental challenges, we have offered a number of  considerations and point future researchers to areas that we believe would benefit from greater attention.

We were warned that Africa “can be a terrible, unforgiving environment to nurture and grow talent”. A scaling coach informed us that “ventures often hit a ceiling where things are so dysfunctional that they're fire-fighting all the time in a vicious cycle, and they're trapped notwithstanding the potential of the company. They then have to go back and rewrite and redo everything. This becomes a debt trap”. Early issue identification can help them prevent issues before these challenges occur. But “it’s hard to help them solve the root causes before they hit the debt ceiling”. 

Failing to systematically adopt management systems when high growth is occurring has been labelled a “self-inflicted wound” by the World Bank. Such ventures reduce the likelihood they will become high-growth companies in their first five years. Businesses also grow so rapidly that it is difficult for them to course correct once they recognise missteps. They can improve their prospects by understanding the mechanics of effective scaling before they reach that moment of (unfortunate) truth.

A Harvard Business Review study identified four critical human resource management activities for successfully scaling a venture:

• Hiring functional experts to take the enterprise to the next level, which can be challenging, time-consuming, and expensive in Africa;

• Adding management structures to accommodate increased headcount, while maintaining informal ties across the organisation;

• Building planning and forecasting capabilities; and

• Clearly articulating and reinforcing the cultural values that will sustain the business.

As a company’s growth and ambition rises, complexity increases. Success in attracting, integrating and motivating experienced functional experts and specialists is fundamental to increasing (or retaining) competitive advantage. Survey data suggests that recruitment and retention are amongst the biggest pain points facing ventures, which challenges become more acute over time. 

“They often are not experienced management people generally. They need management support in terms of operations, and an independent voice to help them to think through management issues. Development programmes can help grow and allow knowledge transfer and understanding how to handle these issues.” - interviewee

There are success stories among African scale-ups leveraging talent in other countries on the continent. Some startups prefer this arrangement for reasons like the opportunity to expand into new markets or to protect their IP from competitors closer to home. Our interviews identified not enough investment in management skills across scale-up leadership teams.

Bringing on board a HR lead early is usually advisable, failing which, as a minimum, engaging a consultant to design venture-appropriate people management systems and processes. These should include at least the following foundational elements: 

• Strong HR processes that enable replication and repeatability, including a venture-specific strong onboarding and other processes;  

• HR tech stacks, including applicant tracking systems, integrations with payroll and benefits, etc. 

• HR team, starting with a HR generalist (who manages recruitment, compensation, benefits, compliance, etc.) and gradually including more operational specialist roles;

• Data management systems for data-driven decision making on people-related management issues. 

As growth continues, HR processes should continuously improve and evolve. It’s also important that systems, processes and rules are transparent, equitable and documented (e.g. company handbook, compensation strategy, etc.).

Widely considered the grandfather of management wisdom, Peter Druker purportedly said “culture eats strategy for breakfast” (in fact, the quote is misattributed). The expression is so ubiquitous it’s become a truism. Culture is important. And a good strategy can indeed be consumed by a bad culture.

Culture is the secret sauce that keeps employees motivated and customers happy. It’s a unique blend of (usually unwritten and unspoken) values, beliefs, underlying assumptions, rituals, attitudes, and behaviours shared by employees and driven by the leadership team. 

Culture is typically a big part of what draws people to join young companies. And what keeps them going. As employees battle the odds to turn a startup into a scale-up, they’re motivated by camaraderie and a sense of belonging to something important. During periods of growth, a strong culture is an anchor that provides psychological safety, a precursor for emboldening team members to step up and out of their comfort zones, and engage in the spontaneous collaboration and exchange of ideas ventures need in order to innovate.

A company’s vision, mission and core values lie at the heart of its culture framework. For scale-ups, getting these right, through a collaborative and inclusive process, is an imperative. Culture is not all ‘touchy-feely’: it can also define what good looks like - data-driven, governance, customer-centric and growth cultural values can all be baked into the culture framework. 

Core values, in particular, should clearly outline how people work together and how new members are attracted and recruited. The leadership team and management generally should exemplify core values and walk-the-talk in how they work and how they interact with team members. Employees are encouraged to track their performance based on the core values, which should also be reflected in the rewards system. Culture is further manifested in the informal activities organised for the whole team development as well as in the opportunities provided for personal support and development.

When a business is growing at lightning speed, its culture can fall by the wayside, and the venture’s leadership must fiercely guard against this. The consequences of not doing so can be disastrous.

In March 2022, the hashtag #HorribleBosses trended on Twitter in Nigeria, with tech workers making allegations of toxic work culture, sexual harassment, and bullying in the tech sector. The outpouring was prompted by a report in TechCabal, which alleged that Ebun Okubanjo, the CEO of the fintech startup Bento Africa, had subjected staff to verbal abuse and arbitrarily fired employees. In April, the Nigerian tech sector was rocked again by allegations of mismanagement, harassment, negligence, and bullying at unicorn Flutterwave. Flutterwave has denied the allegations. 

International tech publication, Rest of World, has called the scandal at Flutterwave “the tip of a toxic iceberg”, and indicative of a widespread problem with company culture in Nigerian tech. They believe that the issues will hold back the sector’s development, and furthermore deter international investment. The article quotes Barbara Iyayi, founding managing partner of VC Unicorn Growth Capital, who says:

“Africa lacks the latitude and goodwill to afford troubled unicorns like Fast and Theranos. International investors should work more closely with local fund managers in Africa, who can help them conduct deeper and contextual diligence before investing. Ultimately, VC money will still flow into Africa, but we have to ask ourselves: What type of ecosystem are we building? If we don’t address these fundamental issues, we’re going to have bigger problems with bad actors fostering awful company cultures and unsustainable businesses.”

We recommend broader due diligence on the part of investors that looks at issues like company culture (and people management generally), and offers support to portfolio scale-ups to ensure that culture remains a front-and-centre priority of leadership teams. 

“For the foreseeable future startups are going to have to hire relatively junior individuals and grow them into team leads, because it is very difficult to find, hire and retain at the team lead level, given the market dynamics. And so it's about equipping the founding team with the ability to develop people, and sufficiently incentivise people to stay and build up a skill set broader than their technical expertise to be able to build a team, grow a team, and think strategically. Because, otherwise, I don't see how they're going to find those people and fill that gap.” - interviewee

When it comes to choosing their employer, research has demonstrated that new generation talent highly values a learning organisation. They want to learn, to acquire new skills, use the most innovative technological tools, and stay abreast of their peers in other organisations. Learning and development programmes can fulfil dual functions: not only motivating team members and increasing retention, but also further developing the talent pipeline with the skills that are scarce in the local jobs marketplaces. Appropriate support can include interventions such as formal education or training, outsourced support (e.g. short-term technical assistance), recruitment support, and coaching and mentoring. Career development plans are also a component of a strong retention strategy.

The venture’s early pioneers must also mentor and guide the next generation, creating a 'positive flywheel effect'. This becomes much harder where specific technical skills are deemed essential. It is hoped that the pool of talent and networks from existing unicorns will mean less outsourcing of tech development to the West and creation of leading tech solutions for the continent by the continent. The hope is that these successful ventures will have a positive knock-on effect in the environment and ecosystem - investing, mentoring and inspiring. Surrounding younger talent with the right mindset and attitude to learn and grow alongside well-curated intermediate talent is one potential strategy.

“When we talk about skill gaps, the entrepreneur founder may have the skills, but not the team. That's where the biggest market opportunity exists - upskilling teams of these entrepreneurs as a whole to trigger the market. The challenge is not the one who goes to the accelerator programme, who watches hours of Stanford or Y Combinator on YouTube. It’s his team.” - interviewee 

“Breakout companies are determined based on the top three to four people in the company, and their experience in knowing when and how to deal with issues.” - interviewee 

“It is so difficult to build an A-Team. And no budget for leadership development. How do you take diamonds-in-the-rough and solve for that?” - interviewee

Successful startups are often families led by charismatic, visionary founders. Successful scale-ups, on the other hand, are communities led by skilled and experienced leadership teams. Strong management and leadership are arguably the most important factors for scaling success, as indicated by Figure 47. Serious human capital power will increase the likelihood that a firm will be high-growth.

Relatively limited leadership and management skills is one of the key reasons ventures fail to scale in Africa. Three interconnected areas of leadership and management were particularly highlighted as priorities during our research: 

• Managing complexity: Managing complexity came up as a common pain point during our founders workshop held in March 2022. As companies scale, the complexity increases commensurately. In Africa, where scale-ups tend to internationalise early in their scaling journeys, the complexity increases significantly, leading one interviewee to say the ratio of complexity to size is ‘way out of kilter’, with intertangled constraints that magnify and throttle one another. 

• Training the thinking: Managing complexity is a skill acquired largely from experience. Mindsets can change, and tools for thinking and acting strategically and systematically can be learned. A change of gear at the leadership level has a catalytic downstream effect on team members across the organisation, some of which are the venture’s future leaders. It’s an investment that yields sustained, long-term benefits that far outweigh its cost.

“Where I think we need to try and get to is to thinking about the reason we are choosing this tool over another one, and when a certain tool is better than other tools, and being agnostic as to what you actually deliver. And that level of thinking is where I feel there's still a lot of growth potential on the continent.” - interviewee

• Less hard skills, more soft skills: Stellar teams include both hard and soft skills sets. Hard skills refers to technical skills such as accounting, product design, and human resources; soft skills refers to interpersonal skills such as communication, leadership, networking, and presenting a business pitch. Both make a difference for success, and are where superior performance is born. 

Traditional learning is focused on development of hard skills, for example how to structure an employee stock option plan (ESOP). Twenty-first century learning is focused on understanding why a great ESOP is so important to attract and retain talent, and why failing to attract and retain talent is a surefire way to kill the business. It’s about being able to make those many layered connections, and using critical thinking skills (quick analysis and problem-solving) and character skills (like empathy and self-awareness) to improve the communication and management of that ESOP. If there is misalignment about the vision, or no shared passion, then team members are unlikely to share knowledge and experience, which leads to overall weaker performance. Without tackling these issues, there is likely to be a real limit to long-run potential arising from increased demand for scale-up products and services. 

For founders and leadership teams, focusing on transferable skills, communication skills, higher order thinking, and self-control are all essential. This also includes the ability to identify issues early, absorbing information (which is sometimes conflicting) from multiple sources. Successful decision-making, managing conflict, self-efficacy, and self-awareness will all lead to improved employment outcomes. This requires new approaches to learning, pedagogy, assessment, and certification - at individual, firm, and ecosystem levels. 

A Mckinsey survey indicates that respondents at the highest performing companies in Africa report a more active approach to talent than their peers. These companies were much more likely than the others to say they invest in training programmes for existing talent, offer internship or apprenticeship programmes, and follow several other critical talent development practices. The high-performer respondents are more optimistic about their workforce prospects in Africa over the long term: 29 percent of them, compared with 17 percent of all others, cite the continent’s growing workforce as an opportunity for their business in the next 20 years. 

“And so it's about equipping the founding team with the ability to develop people, and sufficiently incentivise people to stay and build up a skill set broader than their technical expertise to be able to build a team, grow a team, and think strategically. Because, otherwise, I don't see how they're going to find those people and fill that gap.” - interviewee

Internationally, rapid-growth ventures emphasise training, employee development, financial incentives, and employee stock options which vest over time. Companies can introduce strong incentives around upskilling and reskilling their talent, which can result in upward movement of talent within the company.

Additional sweeteners are being offered in Africa, like flexible working, more vacation time and paid parental leave (although it is hard to compete with lucrative U.S stock options). Increasingly, we can expect greater experimentation with new models of employee ownership, such as phantom shares (a deferred compensation plan that provides the employee an award measured by the value of the employer's common stock - however, unlike actual stock, the award does not confer equity ownership in the company).

Research has indicated that in Africa the shift to a performance-focused culture is not yet evident (although some improvements are reported). Reward practitioners also recognise that the mix of cash and benefits varies across the continent with legal and tax aspects playing more differentiating roles than elsewhere. A holistic view is recommended: leadership development pillars, succession planning, a straight pay for performance philosophy, robust learning and development systems; alongside quick fine-turning to rapidly adjust to suit an ever-changing workforce. 

Scaling up means change, which can challenge the received wisdom and the ideas that got the venture going in the first place. Flat organisational structures often make company culture feel democratic and inclusive. This organisational structure is very common among startups. Growth and scaling can bring about large bureaucracies and hierarchies, and too much complexity can become a growth killer.  

As explained in the book Scaling Up Excellence, although extra hands and minds can lighten the burden, these additions can result in nasty side effects. Research shows that as organisations grow and age, maintenance, coordination, and grooming costs accelerate as decision-makers add layers, form more teams and departments, and pile on rules and processes. Administrators are often added at a faster rate than those who perform the venture’s main work. In his book Scale, Geoffrey West concludes that bloated bureaucracies overwhelm the advantages of greater scale: ballooning overhead and shrinking profits mean that even minor marketplace disturbances can cause catastrophic losses. Therefore companies are killed by their need to continuously get bigger. 

Implementing a scalable management system for execution is often seen as vital. A popular method is the OKR approach (Objectives and Key Results) which is a goal management methodology. OKRs create focus around the top priorities in your organisation, department and team. They allow for critical assessment of challenges and dependencies. In the process, it creates alignment between teams in the organisation. A given set of OKRs may have 3 to 5 objectives that are consistent, stable and exhaustive, which can be financial, operational, or based on human resources.

There are warnings that these can fall short, however, when companies attempt to apply them to individual contributors. Setting individual OKRs generally leads to goals that are either not true indications of meaningful progress, or that are easily gameable. Instead, individual contributors should be assessed based on the extent to which their work contributes to team goals that add real value to the company and its customers. 

Management consultants from Bain have recommended that leaders use agile methodologies themselves to set priorities and break the journey into small steps. 

• Workstreams should be modularised and then seamlessly integrated.

• Functions not reorganised into agile teams should learn to operate with agile values.

• Leadership teams hoping to scale up agile need to instil agile values and principles throughout the enterprise, including the parts that do not organise into agile teams.

The pandemic highlighted the need for ventures to have a proper internal and external fit with their business environment. Misfit was generally catastrophic to ventures’ survivability and scalability. Internal misfit stems from mismatch between the firm’s resources, structure, practices, and strategy, whereas external misfit refers to the misalignment between the firm-specific factors and the home, host or global environment. Many lacked the capacity to quickly change their business models to embrace new routines and processes that were put in place. As a founder of a large scale-up said to us, “What the business needs from its leaders changes as the business grows.” 

As companies grow, some experience a greater need to be capable of scaling the workforce up or down in a more agile manner. Scale-ups do not experience linear growth. Rather, their rates of growth tend to rise and fall, and companies must deal with these fluctuations in an efficient manner. Later stage growth fluctuations, in particular, will potentially threaten the company’s existence, so it is important to be able to hire and lay-off employees as readily as possible.

Academics have suggested that some of the major reasons why successful founding entrepreneurs do badly in scaling is because of a blind loyalty to founding colleagues, a narrow focus (tunnel vision) and poor stakeholder management. Too often family members are the trusted colleagues, rather than the requisite leadership team. 

Mike Reid, Senior Partner at Frog Capital, explains how startup culture is cult-like. And for good reason. It’s a tough and unpredictable phase requiring irrationally strong bonds. Successful scale-up CEOs can leverage the best of these values and the behaviours they display. But, equally, they are specific and firm about the values and behaviours (and people) that must be left behind. Bringing in a new senior player changes the culture of a small business in a major way. High performance scale-up CEOs are open with the broader team about this impact, helping them understand that this is a deliberate process change that requires the whole team’s buy-in. 

Founder CEOs who continually reflect, review and improve on their own thinking and behaviour, and that of their senior team members, are more likely to succeed. They review their team’s strengths and weaknesses on a frequent basis to identify where development, role change and new hires are required. They proactively countenance the views of advisers and investors. Then they take proactive action. Scale-up CEOs are true delegators and enable others to achieve this. They direct the organisation forward by articulating the vision and mission, tell stories that lead to action, and reinforce directives, incentives and rewards. 

The best CEOs also have tough collaborators who test and mould their thinking in a constructive way. Successful scale-up CEOs also guide, inspire and measure, without meddling and interfering. Typical mistakes include hiring more of the same, or hiring big then firing because the fit isn’t right. Justifications usually include lack of impact, lack of real engagement and ‘not getting our pace and culture’, all of which should have been planned for during the recruitment and on-boarding process.

Founders also fail when they get ‘stuck in the weeds’. In a high-growth company, things change extremely quickly. Scaling teams need someone to steer the ship in the right direction. Proper delegation, which starts with trust, is key to overcoming a lot of scaling challenges. Those founders who seek to retain control over all aspects of their business may run into trouble as complexity and scope increase. It is therefore important to establish a management team that encompasses the broader skills and experience required to expand the organisation.

Increasingly, to make these initiatives pay off, scaling organisations will need to define their current and future workforce needs, taking into account the impact of emerging technologies across their value chain, from strategy to execution. Strong planning is needed. It can take serious time to scope, search for and then integrate a new senior team member. Successful scale-up CEOs plan ahead with ambition, focusing equal attention on getting the best candidates and getting them to work well together. 

Author John Opute suggested that some African cultures frown at too much futuristic planning on the assertion that the confronts of today are enough to worry about. With succession planning, any intention that suggests an individual is being ‘groomed’ to take over from another could attract unnecessary rivalry, so succession plans must be kept close to the heart of the HR function. The other trap that many organisations fall into is the belief that succession planning is for ‘old organisations’ and not for newly established organisations.

In Africa, family and ethnic connections can strongly influence hiring decisions. This has a knock on effect on the types of disciplines that the organisation adopts. Professor Joseph Amankwah-Amoah, who has studied African entrepreneurial failure extensively, warns of the dangers. In short, when somebody does not adhere to the rules, no real punishment results, which, over time “drains resources and the organisation becomes less professional”. Scaling firms are suitably warned. 

Gebeya, a platform powered by freelance professional talent, notes that the problem is twofold: “build seniority and do it as fast as possible”. Investments must go beyond upskilling adults. Early on-the-job training, mentorship programmes and apprenticeship programmes all help. Edtech companies can certainly help by aligning to the specific African market demand curve. The level of ambition must be commensurate with the size of the gap.