Pre-determined Attributes

Business growth is influenced by a number of internal and external factors. Studies (outside of Africa) have shown that SMEs in all types of places, of all ages and in all sectors have the potential to scale. The strength of the potential does, however, vary. A closer examination of the characteristics of SMEs that scale, compared to similar “peers” that do not, shows that scaling is likely a strategic choice, and includes investments and other preparatory transformation in the years preceding scaling. 

The lack of reliable data makes any effort to undertake a comprehensive analysis of African scale-ups incredibly challenging. There are more questions than predictive answers. For simplicity, we have considered a number of early assessment factors and made some headline observations.

Typically, the age of the business (rather than of the founder) can often be a better predictor of high growth than its size. 

As previously referenced, a London Business School study focused on African fintech looked at 716 companies operating across the continent, of which only 37 fintech companies (5 percent of the sample) achieved scale. It noted that:

• Whilst 50 percent of operating companies within its sample of firms were younger than 5 years old, the majority of scaled companies were much older. Of the scaled ventures, 32 out of 37 (87 percent) were more than 5 years old, as indicated by Figure 36.

• The average age of scaling firms was 12 years. 

• Of the 75 fastest growing companies on the Financial Times 2022 list, none of the firms were created before 2017 (many of the firms were in fact much older).

Most analyses considering scaling businesses tend to follow the money (but in the form of private investment from VC firms) rather than revenues and profits. Obviously for a venture to succeed, it needs to generate revenues first, then profit (for the equity value of the investors). 

The Financial Times’ Fastest Growing Companies in Africa 2022 list features 75 companies and is based on the highest compound annual growth rate (CAGR) in revenues between 2017 and 2020, amongst other criteria. The top 20 are listed in Figure 37. Whilst the compiler’s search was exhaustive, the list is not comprehensive (some companies did not want to make their figures public or did not participate). Nevertheless, we do point to the fact that many of these fast growing ventures are not in the fintech sector. Of the companies listed, none started after 2018. There are several inferences - both that scaling is a later stage activity in Africa, and that VC funding has only recently entered into the ecosystem, so it's too early to assess whether this will result (as investors expect) in annual revenue growth.