In the bustling cities of Lagos, Nairobi, and Accra, the informal economy isn’t just a sideshow, it’s the main act. With an estimated 85.8% of employment in Africa coming from the informal sector, according to the International Labour Organization, these enterprises ranging from roadside vendors and mechanics to mobile money agents have built a resilient ecosystem that fuels livelihoods and urban economies alike.
While often dismissed by policymakers and economists as unscalable or risky, informal entrepreneurs are master tacticians. They have developed homegrown business strategies born out of necessity, community dynamics, and deep market understanding, lessons that formal startups and investors would do well to study.
1. Real-Time Market Intelligence
Informal traders rarely rely on structured market research. Instead, they practice a form of real-time intelligence gathering: watching foot traffic, listening to customer feedback, adjusting prices in response to local festivals or inflation. Their “data” is lived experience, and it allows them to make fast, iterative decisions.
This agile responsiveness resembles what startups call A/B testing, only it’s executed on the street corner with zero budget. It’s a powerful reminder that intuition, proximity to customers, and speed can sometimes beat spreadsheets and predictive analytics.
2. Trust as Currency
In the absence of formal contracts or bank guarantees, trust becomes the currency. Micro-entrepreneurs extend goods on credit based on long-term relationships. Customers return not just for prices but for the familiarity and loyalty they experience at their preferred stalls.
This mirrors the subscription economy’s focus on retention over acquisition. Successful platforms from neighbourhood tailors to okada riders often enjoy “stickiness” because they’ve invested in relationships. Formal startups chasing viral growth often forget that scale means little without loyalty.
3. Distribution Hacks
Africa’s informal sector is a masterclass in last-mile distribution. From street hawkers navigating gridlocks to traders repurposing motorbikes for home deliveries, they build networks that move products faster than many logistics companies can.
Take Nigeria’s sprawling informal pharmaceutical market. Despite regulatory gaps, it remains one of the most efficient drug distribution systems, reaching areas the formal sector cannot albeit not without health risks. The lesson? Distribution isn’t about fancy tech—it’s about local knowledge, flexibility, and reach.
4. Lean Operations By Default
Informal entrepreneurs live by lean methodology before it became a Silicon Valley buzzword. No overhiring. No sunk costs. Every naira is accounted for, and businesses are structured to survive revenue dips without external funding.
They adopt shared infrastructure stalls, generators, transport and often crowdsource resources among community members. These practices are a blueprint for how to bootstrap without burning the runway.
5. Hyperlocal Marketing
Forget digital ads. Informal businesses excel at hyperlocal marketing. Word-of-mouth referrals, signage in pidgin, humour, and even street performances are how they grab attention.
They understand that relevance trumps reach. A fruit seller who calls out customers by name has more marketing impact than a billboard. This deep local resonance is something startups can emulate by understanding cultural context and speaking the customer’s language.
6. Diversification as a Risk Strategy
Informal entrepreneurs often operate multiple businesses, a roadside barber might also sell recharge cards or run a football viewing centre. It’s not just ambition. It’s insurance.
This portfolio approach is their hedge against market shocks, seasonality, and policy changes. For formal startups, especially in volatile markets, diversification doesn’t have to mean mission drift, it can be strategic resilience.
7. Community-Driven Innovation
From repairing Chinese electronics with improvised parts to redesigning used car batteries for solar storage, innovation in the informal sector is community-driven and problem-focused. It’s rarely flashy, but always functional.
There’s a lesson here in human-centred design. Many of these entrepreneurs build because they *must*, not because they *can*. Their innovations are born of constraint, yet they create products that solve real pain points sometimes better than their formal counterparts.
Rethinking Informality
Instead of viewing informality as a challenge to be solved, it may be more productive to see it as a framework to be learned from. Platforms like Jumia, M-Pesa, and Flutterwave didn’t succeed by bypassing the informal, they succeeded by integrating with it.
As African cities grow and digital connectivity deepens, the line between formal and informal will continue to blur. The startups that win will be those who adapt, not those who impose. And perhaps, the most overlooked business school in Africa is not in a university lecture hall, but in the marketplace stalls, on the back of a keke, or under the canopy of a busy intersection.
