Some thoughts on the Startup Bill 2020.
Last week I had the pleasure of sharing my personal experience as well as that of MombasaWorks on a panel to discuss the recently published Startup Bill 2020, organised by the good people over at Countrywide Innovation Hubs.
Summary of Startup Bill 2020.
The bill has come hot on the heels of the National ICT Policy 2020 which was gazetted earlier in August 2020, though the bill itself is more closely associated with Kenya Science Technology and Innovation Act of 2013. The bill’s objective is to provide a framework to encourage growth and sustainable technological development and new entrepreneurship employment; to create a more favourable environment for innovation; to attract Kenyan talents and capital; and for connected purposes.
The Coast forum highlighted several pertinent issues concerning the initial draft of the Startup Bill – a reflection of a regional community that is aware of its unique set of challenges and is committed to developing an entrepreneurial ecosystem that reflects local circumstances, opportunities and challenges.
Despite the fact it’s been over 10 years since ‘googling’ first appeared in the Oxford English Dictionary as a verb, we still live in a world of incomplete information. So we make assumptions – beliefs that we hold to be true often regardless of the facts – based on our or others’ experiences. The most dangerous assumptions are those that are implicit and unchallenged. In this article, we try and unpack at some of the assumptions guiding key aspects of the bill, namely around inclusive growth and job creation, and nurturing a favourable environment for innovation.
Startups and Job Creation
The bill is intended to ‘provide a framework to encourage growth and new entrepreneurship employment; to create a more favourable environment for innovation…” The Memorandum of Objects and Reasons in the Bill (p417) states that, ‘…due to their unique rapid growth model over a short period of time, startups have a high capacity of quality job creation. For instance Twiga foods and Sendy support over 40,000 people on their platforms.’
How many jobs do startups actually create?
What do we mean when we say that startups create jobs? If a startup hires new workers, that is a contribution to gross job creation. But the impact on net employment, or total employment, will depend on what’s happening elsewhere in the economy. Is it possible that some of the newly-created jobs might have displaced existing ones? For example, how many boda-boda riders or taxi drivers on any given ride-hailing startup were already in the flexible-wage economy, perhaps even riding boda-bodas and driving taxi’s before these platforms came into existence?
It is very likely we don’t have this data yet, but it’s important to be clear on the limitations of our evidence, particularly in regard to its application in policy and practice.
Startups vs. Scaleup
The Startup bill gives you 7 years before you are no longer a startup – unless you are a biotech firm in which case you get 10 years.
“the age of a business is the most important factor in the number of jobs it creates”.
Research from the US suggests that some startups do play an important role in net job creation, but only over time. Partly because the majority of all startups are not in business after a few - typically 5 – years. So those that remain, are robust businesses in and of themselves. It’s important to note in this research, there was also a strong correlation between the size of a business, and those that had raised venture capital.
We need to be careful that we don’t take the experience of one successful startup – and its job creating record - and extrapolate that to the players in the broader ecosystem. We’d be falling into the trap of ‘survivor bias’: “Want to be the next Steve Jobs and create the next Apple Computer? Drop out of college and start a business with your buddies in the garage of your parents' home. How many people have followed the Jobs model and failed?
Who knows? No one writes books about them and their unsuccessful companies”.
If this is the case and our objective is to create jobs, then should we really be investing scarce public resources in early-stage startups or in stable and robust businesses that have graduated past the 5 year milestone?
Cellulant launched in 2002 as a content business focused on sharing music and news. After 3 years of prototyping - which Njoroge described as ‘hell’ - Cellulant pivoted to mobile and it wasn’t until 2007 that they launched the first mobile banking solution, and then mobile payments in 2008. To be clear, it wasn’t until five years after their launch that Cellulant took the form - and having developing the product - we recognize today, 16 years later. Cellulant now employes between 251-500 people. Thought I can’t say for certain, it’s highly unlikely that Cellulant employed anywhere close to this figure during the years Ken described as ‘hell.’ And according to him, he certainly could not offer them job security during this time either.
There is a whole movement that argues for increasing the number of firms with new growth as opposed to growing the number of new firms. It’s called the Scale Up movement, the crux of which is that ‘what’s impactful about entrepreneurship is not how many companies start - it is how many firms actually grow’.
Relatedly, a closer look at the world’s most vibrant startup ecosystems show that the relatively high concentrations of successful startups was predicated on the existence of large companies. Isenberg argues that ‘you simply cannot have a flourishing entrepreneurship ecosystem without large companies to cultivate it, intentionally or otherwise’.
Simply put, if our objective is to create jobs, should we be investing in startups or should we be investing in scaleups?
Quality vs. Good-Enough Jobs
The world over job creation has become a global priority, quality jobs in particular. The OECD framework accessing job quality uses the following three criteria: earnings contribution to well-being, risk of job loss, and the working environment. Generalising somewhat, but assuming you are already earning, it’s highly likely that you will take a pay cut to work at an early-stage startup. You probably would have been won over by the startups values or the-“we’re cool and this will change the world”-pitch, which it very well might. If you’re signing up as a ‘vendor’ or ‘user’, you’re likely to experience higher volumes of trade – but there is concern that without regulation this is simply creating a new race to the bottom in absolute wages.
The chances of your new employer surviving past the 5 year mark? Well, you can ‘google’ that.
Of course, our well-being is not predicated only on earnings. Well-being is also a factor of how valued we feel, and how connected we are to the vision and intended impact. Which is why startups still have strong appeal in any job market.
But in a country where the working age population outstrips the supply of all categories of jobs, we need to be frank on whether we are really expecting startups to create quality jobs, or just good-enough jobs.
On Favourable Environments
A final word on startup ecosystems. We must remember that several of the world’s most vibrant ecosystems, including Silicon Valley, came about as a result of a set of unique circumstances that would be exceptionally hard to replicate today. One of the key ingredients for Silicon Valley was generation-long investment in education. Fairchild Semiconductors which became an incubator for Silicon Valley, was founded by a highly skilled team of engineers and physicists - 8 in total - majority of whom were pHD holders, and had worked under the stewardship of a Nobel Peace Prize winner. In Rwanda, the government took a strong interventionist strategy in the post-genocide years, identifying three local industries (coffee, tea, and tourism) that had proven potential for development. The result was a 25% reduction in poverty.
There doesn’t seem to be a definitive playbook on how to establish a vibrant entrepreneurial ecosystem or ‘favourable environments for innovation’. But a case can be made for a more informed and intentional role by government in some fundamental areas such as skills development and education.
But there seems to be an expectation when we discuss startups and entrepreneurial ecosystems on the continent that we can simply leapfrog weak government institutions and essential social services. Developing a “knowledge-based economy”— the mantra of our Vision 2030 ICT pillar —is an admirable aspiration, but achieving it requires intentional and substantial investment.
The Case for Incubation Hubs
I asked Ken Njoroge what his biggest enabler has been through the years launching and growing Cellulant to which he responded “business growth follows entrepreneur’s growth. Learning has been the best enabler.”
“business growth follows entrepreneur’s growth. Learning has been the best enabler.” - Ken Njoroge, Group CEO/co-founder Cellulant
The Startup Bill places a big emphasis on incubation hubs, the main vehicle through which startup support would be accessed at national and county level. As Isenberg recommends in his seminal work on building entrepreneurial ecosystems, we should be judicious in our emphasis on government-engineered clusters and incubators, and remember that learning can take many shapes and forms, often occurring outside the formal channels of an accelerator or incubator. And to echo the sentiments shared by Deputy Governor Ms Majala Mlagui, the Bill's focus on incubation hubs - and the proposed regulations around registration and compliance - runs the risk of making startup entrepreneurship an elite endeavour, or completely unsustainable.
Declaring What is Possible
Will startups become a motor for inclusive growth and job creation in Kenya as the Startup Bill anticipates? Notwithstanding the issues raised above, an important step has been taken. We’ve declared the possibility, the value we want to develop in our country, and our entrepreneurial community. As Peter Block writes on building community, the possibility we envision is brought into being in the act of declaring it. But I caution us not to stop there. As a community of ecosystem enablers, we need to ensure we continually understand and support the real needs of our constituents in policy and as well as practice. What do you think about the Startup bill 2020? Leave a comment below. Thanks for reading!