The Evolution of African Innovation Hubs — Coworking Spaces, Incubators and Accelerators.
The concept of Innovation Hubs, famously known as Technology Hub, is no longer new. It is almost 15 years since the discussions about innovation hubs started in the continent, with some hubs going back to 2008. Reports and academic papers are available, offering clarity about what they are and their role in the African Innovation Ecosystem. It is estimated there are over 600 tech hubs scattered all over Africa's major cities. While some figured out their business models and even acquired other hubs, some still struggle to define their value proposition and relevance.
It is more than ten years now since I started to engage with Innovation Hubs in different capacities, as a Community Member, a Community Manager, a Hub Manager, and a Cofounder of an Accelerator. Over the years, I have seen African Innovation Hubs showing resilience go through different periods of uncertainties while continuing to offer value to the beneficiaries of the innovation ecosystem, primarily youths. Some managed to cross the valley of death and figure sustainable business models, and some got lost along the way. While hubs in Europe and other advanced economies are a public good and get serious funding from the government, African hubs had to figure out their business models from day one. The Innovation Hubs had to invent their ways to solve the sustainability puzzle, which is how they have evolved.
In the early days, African Innovation Hubs struggled to grasp what was happening. There was a lot of excitement and passion for building something, but it was unclear what was it. Some organizations, such as InfoDev, provided a lot of insightful documents and publications to help hubs figure out their way but make no mistakes. It wasn't easy. Most of the people who cofounded or were hired to do the work didn't even have a job description.
The commitment from organizations such as Hivos, DOEN, and Indigo Trust to ignite the support to the African Tech Hubs paved the way for the first wave of the African hubs. At some point in time, hubs were everywhere but mostly doing events and community engagement activities. While the events and community engagement created a massive impact in instilling an entrepreneurial mindset in youths and building strong networks and communities, they were not sustainable. You couldn't build sustainable business models around them.
The sustainability challenge escalated after the funding from the good samaritans stopped. Most hubs heavily relied on funders closed doors. Those who were fast enough to think on the alternatives or scale down their operations lived to see the next phase, The Learning Phase. Some were just lucky they had alternative access to finance from the government or development partners.
The Exposure Phase
It was the most critical phase of the African Hubs whereby different hubs started to explore alternative revenue models to reduce overreliance on development partners. Some of the earliest ideas were to charge membership fees, charge for programs offered, take equity from startups, and provide services to corporate clients. While some of these approaches on paper looked like they could help address the tech hubs' sustainability issues. The challenge was on how to implement them.
Other revenue models were challenging to execute due to challenges with human capital. For instance, the moment you wanted to charge people for services offered by the hubs, the funders (donors) threatened to pull out since they wanted you to provide the services for free. And sometimes, even if you figure out a way to make the community pay for assistance, the money was never enough to cover anything significant. Most hubs operate in places with high real estate value; renting is always over the roof. Most of the people running the hubs didn't have the right skills and tools to offer consulting services or help startups raise commercial capital; hence the equity model failed miserably.
At this phase, most founders of the hubs didn't know what to do and how to balance between offering commercial services and still impacting the community, which could not afford to pay for the value provided. Most of the models proposed by experts were of thriving hubs in Europe and the US, where the ecosystem and infrastructural support were already there to help the hubs excel. Proposed models of the likes of 500 Startups, TechStars, YC and others were and still are difficult to be implemented in the African Innovation Ecosystem; hence hubs moved to the next phase, The Realization Phase. The learning phase continues to most new hubs in Africa struggling to find the Product Market Fit (PMF) of their hubs.
The Realization Phase
The Realization Phase was critical in the evolution of African Hubs. This was the Eureka moment when African hubs realized they would close shops if they were not aggressive in creating alternative sources of revenues. They quickly realize they need to run as businesses, reducing the waste and focusing on what matters like any other business. When most of the hubs started to move from ad-hoc short term activities like hackathons, meetups, pitching sessions, etc., to more structured programs with strategic partners who could fund those programs, they realized. At the same time, entrepreneurs and innovators were their primary users but were not their direct clients. Somebody needed to pay for the services offered and subsidize the cost of operations.
Hubs that remained relevant and survived to reach the later phase started to propose new values to corporate and development partners, making their relationship not a "sympathy" based relationship but a relationship based on exchanging real value. The hubs started to design Impact-Centered Programs for development partners and Corporate-Sponsored programs for corporates. It was a game-changer for the African innovation hubs. Few hubs that reached this stage were hugely successful because they found their rightful place in a very complex startup ecosystem — finding a balance between offering free services to those who can't pay and getting paid with those who can pay for the service. Of course, not without complaints of them making money on the back of entrepreneurs.
The Sustainability Phase
Resilience is the keyword of the African Innovation Hubs. After crossing the valley of death, most mature hubs are now moving towards customized models for Africa. Some have established consulting wings within their administrative structures, some have started syndicate funds and takes equity from startups, some have partnered with international networks, some have created product labs, makerspaces and design labs, and some the services to clients via B2B and B2C models. Some have generated enough money to invest back into their startups before linking them to external investors.
Sustainability has helped African hubs to break even in their growth journey. While it looks like most hubs are already in the dreamland, the reality on the ground is very different. Most hubs still struggle to attract and retain talents, design robust programs for their entrepreneurs, offer seed investments, and build in-house systems and structures that allow for further growth. It is a fact most of the African hubs will stay in this phase for so long — whereby they are not dying or growing because of systematic issues on how the ecosystem operates. For hubs to rise to the next stage, the Growth Phase, other pillars of the African innovation ecosystem needs to grow simultaneously.
The Growth and Exit Phase
Hubs operate like startups, and they should work that way to deliver the intended value. They should offer value to their users, clients (paying customers), shareholders, and society. It is a business that helps other businesses to build a business. For hubs to grow further from their current stage, other players require more involvement in the ecosystems. Hubs need to stop being everything to the African Innovation Ecosystem.
The government needs to subsidize the costs of operations. There should be strong investor networks to finance early and growth-stage businesses. Corporates need to get more involved with the local ecosystems. Academic institutions need to provide required talents and research that can be commercialized. The role of development partners is to make wise and strategic investments to complement what already exists.
African Innovation Hubs have a chance to achieve more than what has been achieved in the past ten years. They can create more jobs and generate more solutions and opportunities for youths for the continent's future, but they can't do it alone. The Growth Phase is critical, and it should happen now when there is real maturity in most of the old African Innovation Hubs.
These phases are not written in Bible or Quran. They can always change. It is just an easy way of explaining the journey of the growth of the Innovation Hubs ecosystem in Africa. I'm open to partnering and doing further research on this with anyone who will be interested.