Africa’s Startup Playbook is different; And it’s not the Plug and Play Model.
As the standup time approaches, he wishes he could have his breakfast delivered to him at his doorstep just before the meeting. He picks up his phone and makes a quick search, it occurred to him that there aren’t such apps in his city and then the eureka moment! Jay decides to take the bull by the horn by building a mobile app that will enable him to order food from the comfort of his house and have it delivered to him at his doorsteps.
Several weeks later, with the help of a team he had assembled, the Minimum Viable Product(MVP) was released. He was super energetic and willing to see how the product would fly.
The first user makes an order, but then she is unable to properly fill in her house address because the house in which she lives in, is unnumbered. She ends up inputting a long description of the roads leading to her house.
Subsequent users encountered similar challenges about their house address and ended up doing the same thing the first user did. Users who are lucky to have their house numbered, scale through without much hassle.
30 minutes after the orders started pouring, he started getting beeps from the app’s twitter account. He quickly opened it only to see a series of outrage from his first initial users. They were all complaining that the orders were delayed and their delivery men were nowhere to be found. Like a missile, the comments were ballistic!
Super tensed, and clothed with immense pressure, Jay started reaching out to the restaurants he had partnered with to know what the possible blocker is. He was met with a problem that he had not anticipated earlier. The restaurants have limited delivery bikes. By pressing further, he realized that the restaurant had two bikes on average and the majority of them can’t deliver instantly, hence they wait for orders to stack up before delivering in bulk.
Bulk delivery is obviously what caused the delay. Jay, on realizing this knew that it would be very hard to combine his day job with his newly found side hustle and decided to call it a quit! A side hustle that could barely survive beyond 48 hours of operation.
Welcome to the harsh reality of the environment upon which every founder in Africa is expected to navigate in order to build something valuable.
Jay played according to the American play book, where the infrastructures are advanced and well suited for their entrepreneurs to just plug and watch it play out. The result? A shut down.
The playbook is different in Africa where there is a huge gap in the basic infrastructure. A recent World Bank study found that the poor state of infrastructure in many parts of Africa reduced national economic growth by two percentage points every year and cut business productivity by as much as 40%, making Africa – in spite of its enormous mineral and other natural resources – the region with the lowest productivity levels in the world.
The lack of infrastructure means that startups in Africa are meant to build the plug alongside a proper socket for the plug to fit in. This is a hard task to carry out and many startups have been burned in the process.
The E-commerce sector has taken its share of hits as a result of lack of infrastructure - in the case of Jumia and Konga, they had to build their own logistic infrastructure in order to ensure faster delivery of their products. Yet, the fastest they could each deliver outside of Lagos is 5 working days.
While building an infrastructure alongside the business might seem like an exciting one and of course makes the startup appear robust on the outside, the overhead cost is likely to reduce the margin of a business.
Another infrastructure disservice experienced by e-commerce during its earliest days was the issue of trust. This led e-commerce companies to adopt a Pay on Delivery(POD) option in order to gain public trust. While POD increases the amount of orders made by the consumers, a bulk of the ordered items ends up not being paid for. A big loss for the business, considering the cost of delivery involved in getting the item across to the user.
A medium post titled “ Why Pay on Delivery is the WORST thing to happen to e-commerce in Nigeria “ by Temi Giwa gave deep insights on the downside of POD.
Had there been a reputable escrow service system present in the Nigerian system during the earlier stages of the ecommerce buzz, the POD option would have been totally ruled out, hence eliminating the losses incurred by Jumia and Konga.
In a bid to build successful companies, African founders are proactively imitating Sillicon Valley. An ecosystem which is based in a country with a totally different economy and system when compared to ours.
If we are to borrow a playbook from any ecosystem, our best shot is the Indian ecosystem which has similar infrastructural challenges with Nigeria.
In 2021, the Indian ecosystem minted a whopping sum of 42 Unicorns compared to Africa which minted 4 Unicorns the same year. Prior to 2021, the only indigenous African based Unicorn was Interswitch which is valued at $1 billion since 2019.
India as a country has its own infrastructural issues that are currently being tackled by its brave entrepreneurs. GEETHANJALI NATARAJ opines in his ORF paper titled “Infrastructure Challenges in India: The Role of Public-Private Partnerships” that the fast growth of the Indian economy in recent years has placed increasing stress on physical infrastructure, such as electricity, railways, roads, ports, airports, irrigation, water supply, and sanitation systems, all of which already suffer from a substantial deficit. He went further to highlight the gap between how electricity production and demand is affecting both manufacturing and overall growth.
These are similar problems faced by Africans especially in the area of transport and logistics.
One of the startups doing the hard job in the ConTech sector of India is Infra.market. The startup is making it easier for construction companies in India to access quality raw material. The company started building for profit from day one, hence attaining profitability prior to its unicorn status.
The Contech Market in Africa is largely untapped and lessly covered by mainstream media despite a report by Global Data that Sub-Saharan Africa (SSA) can yield a compound annual growth rate of 6.6% (CAGR) from 2018 till 2022 making Africa the fastest growing construction hub globally.
There is alot that founders in Africa can learn from their Indian counterparts. Practices such as building for profitability from the onset instead of relying on GAAC spending model. This involves unbridled spending to drive growth and acquire customers at all costs.
Founders intending to build a plug in Africa must bear in mind that the environment might force them into building a socket at the same time.
Investors aiming for quick cash out will be highly disappointed. Building in Africa takes time, so will your ROI.
Irrespective of these infrastructural challenges, Africa is a continent of 1 billion people which is a huge opportunity and the gold is definitely in there. But the question is, are founders and investors willing to go through the process of cupellation in order to extract the gold and possibly the corresponding silver? ✌
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