Management: The Real Missing Middle Opportunity

As an avid angel investor in Africa and a manager of one of the most active SME investment firms in Ethiopia, seeing the development community take up the ‘entrepreneurship cause’ these last few years is refreshing. It has become popular for big foundations to fund impressive African entrepreneurship pitch days, accelerators and incubators from Lagos, Nigeria to Addis Ababa, Ethiopia. Because of this, Ethiopia is now home to more than a dozen private equity offices; up from only two firms eight years ago when we opened RENEW’s office here.

Governments like the Federal Democratic Republic of Ethiopia are working to support the startup ecosystem and are developing local angel networks, rather than focusing solely on attracting large foreign direct investments. By the looks of it, the world is slowly moving in the right direction to fill the “missing middle” in Sub-Saharan Africa by growing a prosperous and vibrant private sector with balanced economies.

While these developments are moving in the right direction, I think we are missing a small but critical piece of the puzzle. A piece that I believe could unlock even better, stronger and more sustainable growth.

If the first step is building up cadres of promising entrepreneurs, our next job needs to be turning these big ideas into scaling companies. This requires strong management. While not as sexy as hearing a pitch, closing a deal or investing capital, businesses need solid executives and middle management to scale - ideas are good, but execution is everything. Unfortunately, there is a dearth of quality middle management in Africa. I argue the lack of management might be as critical (if not more) as the lack of capital that so many economists talk about.

After eight years of backing companies in Ethiopia and meeting with hundreds more, we are not consistently seeing entrepreneurs effectively execute on their ideas and scale their companies. Which leads RENEW to a hypothesis: is there a huge opportunity for the development community to widen their lens and partner with investors to build up a class of local executives and managers that can scale companies into market leaders? We certainly believe so.

At RENEW, we have been searching for patterns in SME success, looking across our portfolio and beyond to see why some companies fail and others succeed. We have concluded that those that fail have weak management. In markets across Sub-Saharan Africa, where competition is low, it’s not product-market fit or timing, it’s management. This is why we are working on an SME investment playbook that amasses years of best practices and lessons learned for building up the middle management in SMEs.

Part of the playbook is training and hands-on experience, working alongside experienced executives that can transfer knowledge to budding CFOs and COOs. To start, we built a frills-free executive training program that teaches managers the basics of running effective management meetings, working their calendars, scanning their cash flow statements, and hiring and firing. Next, our program goes beyond the classroom and into the company - teaching real-world tactics alongside successful executives that we place into companies to mentor and build up local teams around them.

We’d like to give a huge hat-tip to Global Affairs Canada for stepping into the private sector development space and taking the narrative beyond capital and into the critical world of executive and management building by funding The Exec’s Program and CFO100.

We regularly hear that the development community wants solutions that create impact at scale. As an investor, I want companies that create profit at scale and, in doing so, create jobs, pay taxes and have a huge multiplier effect. Let’s not just throw capital at the problem. I recommend that the development community take a lesson from Canada - go beyond the glitz of the demo days and start training executives to lead these companies.

To dig deeper into this issue of the middle management gap, come see us at Sankalp where we’ll be hosting a panel in conjunction with ANDE and Open Capital Advisors. Visit ANDE to find out more and register for the event.