Understanding Valuations

Before delving into why founders should shift their focus, it's important to understand what valuations are and why they are so appealing. A startup's valuation is essentially an estimate of its worth. It's the price tag that investors are willing to pay for a piece of the company. High valuations can attract more investors, generate buzz, and give founders a sense of accomplishment. However, they are not always a reliable indicator of a startup's health or future success.

The Problem with Overemphasis on Valuations

Valuations are based on a variety of factors, including market trends, competition, and potential for growth. They are, to a large extent, speculative. A startup can have a high valuation without having made a single sale. This is because investors are betting on the startup's future potential, not its current performance.

The danger with this is that it can lead to a disconnect between a startup's perceived value and its actual financial health. A startup can be valued at billions of dollars but be operating at a loss. This was the case with many tech startups in the late 1990s, leading to the infamous dot-com bubble and subsequent crash.

Moreover, focusing too much on valuations can distract founders from the core aspects of their business. They may become obsessed with increasing their valuation at the expense of building a sustainable, profitable business. This can lead to poor decision-making and ultimately harm the startup.

The Better Focus: Users, Revenue, and Profitability

Instead of obsessing over valuations, founders should focus on building a strong user base, generating revenue, and achieving profitability or at least a clear path to it. These are the real indicators of a startup's health and potential for long-term success.

Users are the lifeblood of any startup. Without users, a startup has no business. Building a strong user base shows that there is a demand for the startup's product or service. It also provides valuable feedback and data that can be used to improve the product or service and drive growth.

Revenue is the fuel that keeps a startup running. It's what pays the bills, funds development, and allows the startup to grow. A startup that is generating steady revenue is a startup that is providing value to its users and has a viable business model.

Profitability, or a path to profitability, is the ultimate goal of any business. It's what ensures the startup's survival and growth in the long term. A startup that is profitable or has a clear plan to become profitable is a startup that is sustainable and has the potential to become a major player in its industry.

Why African Founders Should Focus on the Better

African founders, in particular, should focus on users, revenue, and profitability. The African startup ecosystem is still in its early stages. It's a challenging environment with many obstacles, including limited access to funding, infrastructure challenges, and a relatively small market.

In such an environment, focusing on valuations can be particularly risky. It can lead to unrealistic expectations, poor decision-making, and ultimately failure. On the other hand, focusing on users, revenue, and profitability can help African founders build strong, sustainable businesses that can overcome these challenges and thrive.

Building a strong user base can help African startups prove their value and attract both local and international investors. Generating steady revenue can help them become self-sustaining and less dependent on external funding. Achieving profitability or having a clear path to it can help them secure long-term success and contribute to the growth of the African startup ecosystem.

Conclusion

Valuations are nice. They can generate buzz, attract investors, and give founders a sense of accomplishment. However, they are not the be-all and end-all of a startup's success. They are not always a reliable indicator of a startup's health or future success. Instead, founders, particularly African founders, should focus on the better, more substantial aspects of their businesses: users, revenue, and profitability or a path to profitability. These are the real indicators of a startup's health and potential for long-term success. They are what will help African startups overcome the challenges they face and thrive in the long term.