The African continent, with its 1.4 billion people and estimated combined GDP of $3.1 trillion, presents boundless opportunities for indigenous startups. However, the reality of pan-African expansion for startups is still far more complex than many founders and investors anticipate. A one-size-fits-all model might not always be the best approach, and startups need to consider the diversity of African markets, including cultural differences, a fragmented regulatory landscape, and varying levels of infrastructure.

Success stories like M-Pesa, Jumia, and Flutterwave inspire founders to embrace the pan-African dream, presenting cross-border expansion as a benchmark. However, these examples are exceptions, not norms. The challenges startups face in expansion drives offer valuable lessons to founders. For instance, Twiga Foods, a Kenyan B2B agricultural produce platform, reversed its plan to expand into Nigeria due to struggles in replicating its centralised distribution model.

M-Pesa struggled to gain traction in South Africa due to the high penetration of card payments and a significant proportion of the population already being banked. Flutterwave has faced delays in securing licensing in Kenya, hindered by the absence of clear regulatory frameworks. Similarly, Jumia had to shut down its operations in Tanzania due to restrictive local laws. In most cases, the barriers are due to outdated regulations, like in Kenya where payment systems and banking laws do not recognise fintechs outside the traditional mobile money and financial institutions.

African founders are exploring mergers and acquisitions to skirt challenges hampering expansion like delays in licensing. Acquiring an existing player in the target market is proving to be a shorter route to expanding across the continent. In 2024, Nigerian fintech Rise acquired Kenya's Hisa, giving it access to the market without licensing delays from the regulators.

Harmonisation of laws could ease startups' expansion headaches across Africa. Regional trade blocs like EAC, ECOWAS, and SADC should adopt a unified regulation approach. For instance, as EAC works on a monetary and customs union, they should adopt a single licensing regime for startups and companies.

Movement across Africa is still more expensive than on other continents. Increased investments in roads, rail, and air transport could cut travel costs for talent and goods. In addition, massive investment in digital infrastructure like fibre optic cables is required to increase connectivity and bring down internet costs.

Even with six regional trade blocs, each country on the continent has its regulatory frameworks, consumer behaviour, and infrastructure challenges. These complexities are often underestimated by startups, leading to costly missteps. Take Sendy and Copia, for example. Both Kenyan startups expanded across borders prematurely, before consolidating their presence in their home market.

Consumer spending habits, for instance, are one behaviour that startups often overlook. Southern African consumers have a higher spending power and prefer formal retail stores and e-commerce platforms. In East and Central Africa, informal markets play a bigger role.

A strategy that works in Kenya may fail in Uganda or Ghana, and a product that resonates well with the South African market might struggle to find traction in Senegal. These are the realities of Africa's diverse market. Expanding across the continent demands a significant financial resource, which many startups backed by their VCs might not sustain in the long term.

While regulatory and consumer behaviours are some hurdles facing founders seeking new markets, leadership, funding, and scalability also contribute to the failures. Local leadership in startups is critical in building an understanding of new markets.

Is pan-African expansion a prerequisite for local startup success? Companies like Kenya's biggest telco, Safaricom, Nigeria's Paystack, and South Africa's Tyme Bank have achieved massive success without immediate regional expansion. By concentrating on their home markets, these companies have created value for their customers and investors.

Not every business model requires a continental expansion. Startups that serve hyper-local and specialised markets may be successful when they stay local. Examples include climate tech, agri-tech, health tech, and urban transportation startups.

For founders considering cross-border expansion, a phased approach sounds more sustainable. Any company has the right to explore new growth areas, including markets, but building a successful operation away from home takes more than money. Founders' ability to execute and get financial returns with the least investment is often tested. Unfortunately, many have failed the mark.

Starting local by building a strong foundation in a single market helps startups make a proof of concept. Those who succeed can expand into regions with shared culture or economic blocs, like the East African Community (EAC), and enter additional markets when funding and operational efficiency are achieved.

Mergers and acquisitions could also be another path. Acquiring or merging with local players with licenses and understanding their markets could save startups unnecessary pitfalls. Startups can learn this by studying the market trends and benchmarking with cases of successful and failed pan-African expansion.