Why are we so fond of running multiple businesses in Africa?

“ONE of the many terms Silicon Valley has bequeathed to the business world is “serial entrepreneur”, a label for those restless souls who start one business after another. Perhaps Africa can now contribute another expression: the “parallel entrepreneur”. More than in any other part of the developing world, the continent’s budding business folk create networks of several firms across a number of different sectors of the economy, according to research by IMANI, a think-tank based in Ghana. The 189 successful entrepreneurs it surveyed in Ghana, Nigeria and Kenya own, on average, six businesses each. One boasted more than 60. What explains this entrepreneurial hyperactivity?”

The Economist (June 23, 2012)

How many African businessfolk do you know who are in just ONE business? Not many, I would guess. I have been concerned by this observation for a while, and and was pleased to see a recent piece in The Economist highlighting the preponderance of Africa’s “parallel entrepreneurs.”

Most African businessfolk kick off with just one venture, it is true. But the minute that first business stabilizes, the diversification bug seems to kick in. Because in an emerging economy there are so many opportunities is so many sectors, it is difficult to look away from them. The survey highlighted in the The Economist showed that successful African entrepreneurs have, on average, six businesses each.

This is a good thing, right? The more the merrier? There are certainly solid reasons for the practice. Let’s face it, there are not many local entrepreneurs and brands that have earned our trust. When one establishes a reputation for reliability and quality, it might make sense to extend its umbrella to other businesses, even if they’re unrelated.

In small economies, there is also the problem of scale. Managers capable of running large enterprises, and large-scale business financing, are both resources in short supply. With those constraints, people find it sensible to start a plethora of medium-sized businesses, for which both talent and funding are more readily available.

A final reason is risk: Africa remains a risky place to do business, what with flawed elections and resulting violence; the choking hold of red tape and bureaucracy; and often whimsical policy decisions such as those that affect exchange rates and interest costs. So spreading the risk also seems sensible.

At this point I would wish to part company with this analysis. I fully accept there are good reasons for parallel entrepreneurship; I do not, however, think it is something to encouraged for the future. What is it we want: a whole array of not-bad medium-sized businesses, all making not-bad returns? Or do we also want world-class, top-notch companies that can stand shoulder-to-shoulder with the best in the world?

We won’t get the latter if we stay proud of parallel entrepreneurship. All this sticking of fingers into many pies comes at a cost: it splits attention and resources; it prevents business thinkers from going really deep with one initiative; it creates a multitude of small, mediocre, local businesses rather than pan-African or global champions.

If we want to mature as a business economy, many more people have to learn to go deep rather than wide. The two breakaway success stories of recent times in Kenya have been Safaricom and Equity Bank; those are the only two to achieve both massive scale and global acclaim. Why those two? Because they went deep and built synergistic businesses around a central idea. Why just two? Because everyone else is busy being entrepreneurial in all possible directions.

Whilst it may be logical to diversify in an emerging market, a few people have to resist the temptation, and do a Sam Walton. That gentleman started off as a simple shopkeeper and ended up the world’s biggest grocer and its richest person. He didn’t do too badly by going deep.

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