5G is finally here. With the 5G infrastructure, it will become almost possible to download an HD movie in seven seconds — 40 times faster than 4G. This will be a big boost for countries like Equatorial Guinea where it will take over 22 hours to download a 5-gigabyte movie.
5G has now reached an advanced stage where it can be implemented on a wider scale after years of research. Countries like the US, the UK, South Korea, Japan, and the Scandinavian region are already positioning themselves for wide-scale adoption, first rolling out 5G services on a trial basis in select areas. For many, it would be fully operational by the end of 2019 or 2020. According to Ericsson, the new 5G technology has the business potential of $619 billion in revenue opportunity for telecom operators globally by 2026. Below, we consider how 5G technology will improve output volume of African startups.
Reduction in Cost
Among the potential advantages are high data rates, reduced latency, energy savings, cost reductions, and higher system capacity. Of course, you would expect an increase in cost by internet service providers for 5G services in order to cover the initial cost of installing 5G infrastructure, but all these would become inconsequential in the future as consumers can get more value for their services. The cost will include saving time and energy usage. A person with a 5G smartphone could download a 3-D movie in about 6 seconds. On 4G, it would take 6 minutes.
But note this: 5G is never really putting an end to the increasing cost of internet use. It is better to understand the implication of 5G technology from these contrasting sides of a coin. In 2013, you would require on average $76 a month for internet subscription according to the United States’ Bureau of Labor statistics. That figure is up 50% from the $51 a month consumers were paying in 2007, the year that the iPhone was launched. By 2019, Cisco (CSCO) forecasts that mobile data traffic to and from cell towers (not offloaded to Wi-Fi) will grow by 57%. With this forecast and should data plans stay the same four years down the road, the average user’s smartphone bill could grow by $43 a month to $119.
However, one key respite 5G is bringing to the table is in the quality of services.
‘‘Initially, 5G subscriptions might cost more than 4G, so that the telecom operators can differentiate the different services. My guess is that with time the operators will push the monthly cost for a 5G subscription to the same range as today’s subscriptions, since most people don’t want to pay more than they are already doing. Hence you will get a much better service for your money. Huge investments will definitely be needed for 5G. Spectrum will be expensive, irrespective of what kind of bands that will be used. Deployment of new base stations and backhaul infrastructure will also be expensive.’’
So with faster internet infrastructure, expect more volumes of output.
The World Bank identified broadband Internet connectivity as a key catalyst for economic growth with every 10 percent increase in connectivity enabling a 1.38 percent growth in Gross Domestic Product (GDP).
“For instance, the average Internet speed in Nigeria might be 3.9Mbps but, if you are in Lagos, you could choose to buy a 4G connection and experience 10 to 20Mbps. If faster speeds are available, you do not need to worry about the average speed, hence it should not be a cause for slowing down economic activity. However, if you live or work in an area without fast access, then, for certain types of business, this would be an impediment to growth. Note also that if you do not have a fast access available your average speed is likely to be considerably worse than the nation’s average, because that’s the way averages work. This is the ‘Digital Divide’,” noted the Chief Executive Officer, Spectranet, David Venn.
5G Will Unleash More New Disruptive Ideas and Innovations
No gainsaying the fact that 5G technology will lead to the explosion of new disruptive ideas.
‘‘Many of the benefits probably aren’t yet apparent to us. Wireless network operators initially resisted proposals to give their customers mobile access to the internet, questioning why they would want it. At the dawn of 4G’s adoption no one could have predicted the new business models that grew on the back of mobile broadband, like Uber, Spotify and Facebook,’’ the World Economic Forum noted in its World Economic Forum Annual Meeting.
Unarguably, 5G would be a great enabler for the explosion of more disruptive innovations. One such innovation which has already achieved momentum is the Internet of Things. Embedded with electronics, Internet connectivity, and other forms of hardware, these devices can communicate and interact with others over the Internet, and they can be remotely monitored and controlled. One commentator describes how bizarre the world of the internet could get:
‘‘When someone wants Rebecca dead, he can just instruct her car to drive off a cliff. Mad stuff.’’
This is what ideas such as the Internet of Things are bringing to the table. One clear example of this is already seen in self-driving cars by Google. 5G will make such things become as ubiquitous as ever.
Consider alone the potential impact of the Internet of Things alone. McKinsey & Company says the Internet of Things (IoT) has a potential economic impact of $2.7 to $6.2T until 2025.
A host of disruptive applications will be built around 5G’s ultra-fast networks and real-time responsiveness once the infrastructure is fully deployed. Particularly, immediate disruptions are expected in these areas:
massive Machine Type Communications (mMTC) such as solar-powered streetlights or other innovations to help citywide infrastructure
Device-to-device public safety communications that don’t need active cellular coverage
Real-time operations employing robotics to link surgeons with remote sites
Machina Research forecasts “IoT will account for one-quarter of the global 41 million 5G connections in 2024.” Approximately ¾ of these will be in the auto industry via embedded vehicle connections.
Although the report sees 5G deployment “highly concentrated” in Japan, Korea, Europe, China and North America (with Japan and Korea leading the charge), it will also help operators extend their opportunities in new markets.
‘‘5G use case is in web apps. While it’s true that it’s just as easy to download apps as it is to download any program, and 5G makes the whole experience seem instant, you can free up storage space and avoid installation steps by using a web-based app that’s already set up and ready for you to stream from a web browser.
In other words, 5G will bring a world where you need very little storage on your phone because everything, including your apps, are instantly available from the cloud,’’ noted Tim Fisher, a technology expert
So get ready. 5G is bound to create more disruptions, just like Facebook, fin-techs and other digitally-focused platforms. For African startups, they would definitely be in the value chain.
Upsurge In Internet Users. More Consumers Available Online
With 5G, expect a huge upsurge in the number of consumers available online. 5G will, therefore, provide network support for massive increases in data traffic. According to Cisco, by 2022, mobile will represent nearly 20 percent of all global IP traffic, fueled in part by the Internet of Things.
‘‘Mobile traffic will be on the verge of reaching an annual run rate of a zettabyte by the end of 2022. In that timeframe, mobile traffic will represent nearly 20 percent of global IP traffic and will reach 930 exabytes annually — nearly 113 times more than all mobile traffic generated globally in 2012. (An exabyte is 1,000,000,000 gigabytes and a zettabyte is 1,000 exabytes.),’’ noted Cisco in its annual Global Mobile Data Traffic Forecast Update (2017–2022)
5G will fuel more connectivity and internet penetration for consumers. Just take this fact for instance: although launched in 2014, in 2017, 4G already carried 72 percent of the total mobile traffic and represented the largest share of mobile data traffic by network type.
Cisco predicts that 4G will continue to grow faster than other networks, however, the percentage share will go down slightly to 71 percent of all mobile data traffic by 2022.
“The full value and transformational capabilities of 5G cannot simply be measured by performance improvements over 4G (higher bandwidth, broader coverage, and lower latency),” wrote Thomas Barnett, director of Cisco’s service-provider thought leadership in a blog about the report. “5G will also deliver enhanced power efficiency, cost optimization, massive IoT connection density and dynamic allocation of resources based on awareness of content, user, and location.”
Cisco’s study also noted that 5G growth will be driven by IoT applications — sensors and meters on the low end to autonomous cars on the high end. Awareness of content, user and location will determine how 5G resources are allocated. “This technology is expected to solve frequency licensing and spectrum management issues. Large scale commercial deployments are not expected until the latter years of the current forecast.
Interestingly, Cisco’s forecast also sees an opportunity for internet-based businesses, as more and more consumers will find online presence almost inescapable.
The study notes that:
By 2022, 5G connections will represent over three percent of total mobile connections and will account for nearly 12 percent of global mobile data traffic.
By 2022, the average 5G connection (22 GB/month) will generate nearly three times more traffic than the average 4G connection (8 GB/month).
By 2022, 4G connections will be 54.3 percent of total mobile connections, compared to 34.7 percent in 2017. The global mobile 4G connections will grow from 3 billion in 2017 to 6.7 billion by 2022 at a CAGR of 18 percent. 5G connections will appear on the scene in 2019 and will grow several thousand percents from under half a million in 2019 to over 400 million by 2022.
Indeed, 5G will create a whole new world of customer experience. 5G will also change Peer-to-Peer connections because instead of just servers having access to quick upload speeds, your phone and computer can do the same.
‘‘Every 5G cell has a minimum upload speed of 10 Gbps (1.25 gigabytes per second), meaning that in ideal conditions, users can transfer 1.25 GB of data every single second between devices. This is much faster than what’s currently widely available. Having such a fast upload speed on your end, and other people having access to 5G’s ultrafast download speeds, means that others can download data from you as fast as you can upload it,’’ Fisher noted.
‘‘P2P can be used in many forms, like when making phone calls, transferring files, relaying information between vehicles in a smart city, automating factory equipment, and interconnecting smart sensors in homes, cities, farms, etc.’’
Bottom Line
5G will definitely see a boom in the African startup ecosystem. It will not only make the mobile experience efficient but memorable. World Bank report estimates show that a 10% higher 3G penetration in 2012 resulted in an increase of 0.15 percentage points in the annual growth rate of GDP per capita. The study also estimated the impact of mobile data usage across 14 countries found that a doubling of mobile data consumption raised GDP by 0.5 percentage points. The study also noted that for every 10 percentage point increase in broadband penetration in China there was a 2.14% increase in GDP.
In contrast to other findings that broadband has the biggest economic impact of all ICTs, simple 2G mobile penetration was found to have a bigger and more significant impact than fixed broadband on the Senegalese economy. Each 10 percentage point increase in mobile penetration was found to raise GDP growth by 0.44% (at a 10% significance level).
So African startups should expect more from 5G! Such sectors that would see the immediate impact are Virtual and augmented reality, video, and music streaming services, among others.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
In the customer journey, artificial intelligence is not set to replace human engagement, but rather to enhance and underpin it.
By Merijn te Booij
AI is by far the biggest hype I have seen in my career, and for good reason. It could revolutionize customer experience at a time when experience and service are the final frontiers in differentiation.
In the entire digital transformation of the world, we are spending over $1.2 trillion next year, and $6 trillion over the next four years. Much of this spend will focus on technologies that allow the enterprise to differentiate in the market and deliver exceptional customer experience.
An emerging Gen Z employee and customer base are changing engagement models with companies, using more channels and more self-service options. Customers around the world are using a variety of channels – with 97% of customers saying they are multi-channel users, and each customer using 5.6 channels on average.
By 2020, virtually all of the people who call into a contact center will have already been on one of the organization’s other channels. When they call you, they have been trying to self serve themselves and they are out of options, yet what contact centers still do at this point is ask them ‘who are you and what do you want?’
This is no longer good enough in an environment when customer experience makes or breaks customer loyalty. Research has found that in the last year, 51% of people have switched brands due to poor customer service.
AI presents the hope of running customer engagement more efficiently, faster and more cost-effectively. A global survey found 90% of companies are deploying AI across some aspect of their customer journey, gaining massive shifts in productivity and an ability to use valuable insights to build deeper relationships with customers.
While we have been using machine learning for years, we can now compute at a much larger scale than ever before, and AI comes into its own at large scale because, at the end of the day, it’s about data.
However, many people think AI is about a bot that will just solve everything – just plug it in a 24 hours later it will have learned everything it needs to know to solve problems. It won’t.
To deliver an exceptional customer experience, the strengths of AI are best blended with the empathy and problem-solving skills of humans. There is an opportunity to blend AI and human interaction because humans and bots are so different. Bots love replication and they are error-free, so they are ideal for invoicing and collection calls, or handling routine calls – for example, where a customer wants to change their address.
AI enables enterprises to predict call volumes and call routing needs and helps agents to work more effectively. But if a customer calls in because for example their family member just passed away and they are worried about health care or funeral arrangements, you may want a human to take the call and spend a moment consoling or showing empathy. So this is not an ‘either/or’, it’s an ‘and’.
Somewhere down the road, the main thing an agent will do is show empathy and solve problems. Despite concerns over job losses, AI will likely generate more jobs than it will take, and it will augment customer experience and bring power to your agents.
AI can help organize and automate structures, processes, and conversations, but when it becomes complex and emotional, a human should take over. We call this ‘blended AI’ – AI with a human touch.
Companies can drive exponential customer experience value by combining predictive omnichannel routing, predictive digital engagement, workforce engagement and ‘Kate’ – a virtual assistant, running on a mobile app, who is virtually training herself, to seamlessly blend the best of AI-driven self-service capabilities and real-life employees.
Merijn te Booij is the chief marketing officer (CMO) at Genesys (www.Genesys.com) he was a keynote speaker at the Genesys Blended AI Summit South Africa 2019.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
“It takes a village to raise a child”: as the Fourth Industrial Revolution sweeps across Africa and more of its youth develop coding and other digital skills, there may come a time to update this old saying to: “It takes one child to raise the prospects of a village.” And based on the quest of one young man from a village in Ghana to solve some of the major problems faced by his community, this saying could become commonplace as more young innovators enter the fray.
Inspired by global technology success stories, Mustapha Diyaol Haqq, a 19-year-old from Kumasi in Southern Ghana, realized he too could deliver innovation where it was most needed, starting with his very home town. “Seeing how the big tech companies used innovation to solve some of the world’s biggest problems made me realize how important it is to learn to code,” says Haqq. “I looked online for any free courses that could help me develop coding skills and completed as many as I could.”
Young
Despite being self-taught, Haqq was able to develop a potentially life-saving solution for women across the continent. “I used my knowledge of coding and machine learning to develop a model for diagnosing breast cancer, which I hope to release freely to communities across Africa,” says Haqq.
Also high on his agenda, hunger and food security which he sees as two of the biggest challenges faced by the continent’s rapidly growing population. “Africa relies heavily on smallholder farmers to meet its food production needs. However, much of the produce from farms are spoilt before it reaches the markets in the cities. I’m currently working on a machine learning and AI model that can help reduce post-harvest losses and ensure the work our farmers do translate into food security for our communities.”
Connectivity challenges remain innovation
One of Haqq’s biggest challenges when learning to code was accessing the internet. “We don’t have a good internet connection where we live, so I had to walk kilometers to an internet café where I could access free online coding courses. Internet access is expensive but, thanks to the generous support of my parents, who made some sacrifices to give me a chance to complete a few online courses, I built sufficient coding skills to start developing solutions to some of the problems affecting our community.”
Ghana suffers from poor internet penetration, with only 14% of the population having access to the internet. Despite this, the Ghanaian government has set out an ambitious plan to position the country as a leader in ICT innovation in the sub-Saharan Africa region by 2023. Young innovators such as Haqq will undoubtedly play a crucial role in achieving the government’s ambitions and inspiring more youth to pursue careers in tech.
Haqq says internet access is also the single biggest obstacle to greater adoption of coding among African youth. “Our continent does not enjoy the fixed-line infrastructure of our more developed peers, and mobile internet can be expensive. For me to afford the internet cafes where I learned to code, my parents had to make sacrifices. Global companies can play an invaluable support role by investing in providing internet access to our communities to support us as we get ready for a digital future.”
Lighting a coding fire among Africa’s youth as Youth Ambassador for Africa Code Week
One of the initiatives working to address digital literacy in Ghana is SAP’s Africa Code Week, an annual, continent-wide digital literacy programme that has engaged over 4.1 million youth in 37 African countries since 2015. “I participated in Africa Code Week as an opportunity to share my knowledge with young people in my community and inspire more youngsters to learn one of the most important languages of our time: coding,” says Haqq.
“I am also a volunteer and instructor for Ghana Code Club, and with the help of some friends, we have established coding clubs in several communities, where we spend our free time and weekends teaching both kids and adults to code. Being appointed Youth Ambassador for ACW 2019 is a dream come true, and a unique opportunity to inspire change on a global platform, encouraging young talents across the continent to learn digital skills and code the change they want to see in their community.”
SAP, UNESCO, and over 130 partners from the public, private and non-profit sectors are currently gearing up to introduce coding skills to 1.5 million youth across 37 countries in October 2019. According to Claire Gillissen-Duval, Director of EMEA Corporate Social Responsibility and Africa Code Week Global Lead at SAP, this 2019 edition will feature a strong focus on empowering girls and building teaching capacity at the community level, hence the importance of role models like Mustapha.
“We are extremely proud and honoured to welcome Mustapha as our Youth Ambassador for ACW 2019. He overcame major challenges and his amazing journey has the power to inspire many. As a young innovator and change-maker, his mentorship and guidance will be crucial as we strive to empower an entire generation and strengthen teaching capacity in ICT education among African communities.”
Stay tuned for #ACW2019 taking place in October across 37 countries.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
CEO of Giraffe, a South African mobile job matching platform that helps medium-skilled workers get access to opportunities and helps businesses to recruit staff faster, and easier, and more affordably than any other way, Anish Shivdasani recently shared his view about how Software As A Service (Saas) championed by his startup has scaled in Africa.
Below is the transcript of his presentation
‘‘The reality is that Africa is booming’’
How many of you are from Africa or have been to Africa? Okay, so quite a few. I guess selection bias, probably why you’re here. What do you think about when you think of Africa? I mean, those of you who’ve been probably understanding it and know it, but those of you who haven’t. Often people have very negative perceptions or stereotypes of what Africa is about. When they think of Africa, they think of really negative stuff like disease, Ebola, and HIV and malaria.
They think of corruption, fat cat dictators hoarding billions of dollars whilst they’re compatriots have to sleep rough on the streets, kind of like San Francisco if you think about it. Poverty, famine, babies with bloated bellies and flies all over the face, and finally war. People hacking each other’s limbs off with machetes for no reason. To be fair, you would be right. I mean, all this shit does happen there, right?
But it’s not the full story. It’s not the full truth because the reality is that Africa is booming. Between now and 2050, half of the world’s population growth will occur in Africa. Think about that. Between now and 2050, another 2.4 billion humans will enter the Earth, and 1.2 billion of them will be in Africa. Last year, of the 10 fastest growing economies in the world, half of them were African countries.
Also last year, of the 10 fastest growing Internet penetration markets in the world, 8 of them were in Africa. So on the one hand, Africa’s kind of a mess. On the other hand, it’s booming population-wise, economically, and technologically. This is giving rise to this phenomenon called leapfrogging, whereby African countries are circumventing the normal pathway of economic development and jumping straight to the latest thing.
An example of this is in telecoms, for instance. Most African countries never had fixed-line telephony. When mobile came along, they just leapfrogged straight to mobile. This is having very important implications across other sectors. For example, banking.
Most African markets never had a banking infrastructure the like of which we used to here. It was largely a cash economy, but with the advent of mobile, all kinds of interesting things are happening. For example, in Kenya. More than half of Kenya’s GDP is now transacted through a mobile, through arguably the most successful mobile banking and payment system called M-Pesa. With electricity, a lot of African nations never had legacy electrical grids. So with off-grid solar becoming a thing now, a lot of African countries, in fact, 9 of the top 10 adopters of off-grid solar, are in Africa.
So you can see how technology’s starting to play a very important role in the development of Africa. What does this mean for startups and tech companies? Can they be done there? Now, unfortunately, there are a lot of constraints in Africa, major constraints when you’re talking about setting up and scaling a startup. First of all, the capital. There isn’t any. Unlike here, where you have billions, and billions, and billions, maybe trillions of dollars of capital, over there you have very little.
There are hardly any VCs. In fact, the concept of a VC is barely understood in Africa. It’s only starting to happen now. There is no startup ecosystem to speak of. Here in Silicon Valley, you have Google, and Facebook, and a ton of other massive organizations that are just churning out people who then go on to found other startups. There’s a solid ecosystem of mentorship, and talent, and stuff like that that you have here, which we just don’t have that.
Also in Africa, users are not particularly tech-savvy. You guys are at the bleeding edge of tech, but in Africa, it’s not the case. Tech is a novelty there. Talent, major problem. Here developers are dime a dozen. Over there, there are no developers, hardly any. Finally, and importantly, the market size is tiny.
South Africa’s GDP is 50 times smaller than the US’s GDP, and South Africa is the biggest economy in the continent, right? When it comes to setting up a startup, you’re probably thinking, “Why the hell would you do it there? Why the hell would you do it in Africa?” Well, I’m going to tell you why we did it, and how we did it. I’m going to talk about some of the lessons that we learned along the way.
‘‘In Africa, you’ve got to focus on a massive uniquely local pain point’’
First of all, in Africa, you’ve got to focus on a massive uniquely local pain point. We cannot possibly compete with Silicon Valley when it comes to building the next big thing or solving big global needs. I will guarantee that the next Facebook or Google will not come from Africa. We simply do not have the resources to compete, or the market size to compete. Where we can play, however, is when it comes to solving local problems, uniquely local problems, that no one cares about.
No one else will be interested in it, and an example of this is unemployment. In South Africa, the unemployment rate is about 40%. It’s one of the highest in the world. It’s crazy when you think about it, right? One of the reasons why unemployment is so high is because people just don’t have access to opportunities because of apartheid, because of the difficult history of South Africa.
You have large sections of the population that live geographically very far from business areas, and so they simply just don’t have access easily. They never had access to the Internet, and public transport is very expensive. Just in terms of seeing what opportunities are out there, it was very difficult.
However, back in 2013, in my previous career as a strategy consultant, I was doing a lot of work with telecoms companies in South Africa. We noticed that mobile penetration was starting to increase. By 2013, mobile penetration probably exceeded the 50% mark, and people who were up until then offline were now coming online with mobile as a primary means of accessing the Internet. So you had millions and millions of job seekers, who never had any means to access opportunities, suddenly having a mobile device and an Internet connection.
We saw an opportunity to use mobile, and the ubiquity of mobile, as a tool to solve the fact that people struggled to get access to opportunities. That’s how Giraffe was born. I think if we had focused on solving a niche problem, the market’s simply not big enough to scale. You’ve got to focus on a massive problem that is unique to that particular location. You’re probably wondering what that picture is about. Maybe some of you are wondering what that picture is about, and why it’s there related to this point.
Well, every year about two million Wildebeest migrate from the Maasai Mara in Kenya to the Serengeti in Tanzania. They all come to this river, and they stand on this riverbank, and the river is infested with the crocodiles. They spend days there figuring out how to cross it without getting eaten. It’s an example of a uniquely local massive problem in Africa. You see the metaphor, perhaps.
‘‘You need to remove all the barriers to adoption’’
The next thing I would say we learned is really about removing all barriers to user acquisition. Here in the US, you have disposable income. Businesses have disposable income, consumers have disposable income, and so you can spend money on trying out new stuff. In South Africa, the average salary is about $500 a month. What that means is people are confronted with the reality of should I buy data or should I buy groceries? You need to have a really compelling reason why someone should try your product, and you need to remove all the barriers to adoption.
Let me perhaps give you some concrete examples about what this was about. Our first MVP was actually an SMS based app where job seekers would send six SMSes in order to register on our platform. It probably cost about $1 for someone to register. We thought, “What’s $1? It’s not a big deal.”
We went into the townships to see how job seekers would interact with this app, and we noticed that none of them were signing up. Why? Because they didn’t have any airtime. They didn’t have any cell phone credit. They use their cell phones primarily to receive calls, and they would buy small data bundles for WhatsApp and Facebook, which were becoming common at the time. So we basically said, “This SMS thing ain’t going to work.
We have to go back to the drawing board.” So we built a .mobi site, which basically used a mobile website for them to register. Because they had some data, we figured that that would be less of a barrier to adoption. Sure enough, we built that version, went back to the townships, and people started signing up. It started working, but people still had to spend a couple of cents to sign up. We were like, “How do we make this thing completely free to sign up?”
So we went to speak to some of the cell phone operators, and we said, “Look, this is what we’re doing. Why don’t you zero-rate our .mobi site so that you can go above the line and say, “Hey, we’re trying to help solve unemployment in South Africa,” and we can simultaneously get more and more people jobs? So they did this, and we made it completely free for job seekers to sign up, and that’s when we started to see the thing explode. As soon as people would hear about it, then they would sign up. So you’ve got to build barriers to acquisition in any African market within which you operate.
The third thing is you’ve got to build for non-tech savvy users. You guys here in the States have been using smartphones for more than 10 years now, and before that, you were using PCs. Smartphones are only becoming a thing now in the last couple of years in Africa, and up until now, people have never used PCs. The smartphone is the first means by which people accessing the Internet, and it’s a novelty. People are still used to doing business offline, and so people are not particularly tech-savvy. What does that mean when you’re trying to build a tech product? Well, you have to build it in a very simple way. You have to leverage existing behaviors that the market already understands so that you don’t need to educate users.
An example of this is in South Africa all banks use this thing called one-time PIN, whereby to authenticate a user or to authenticate a transaction, they SMS you a four-digit code and use that four-digit code to be authenticated. Every South African understands that. We use exactly the same mechanism to authenticate our users. The cool thing was when people started using Giraffe, and they saw that we had this OTP thing because they associated OTPs with banks, it meant that they trusted us because they recognized, “Okay, cool. Banks use this, and Giraffe uses this.” It helped us gain credibility without necessarily needing to educate the market because it was an existing thing. This, I think, was quite important to stimulate usage and to get people to come onto the platform.
‘‘In Africa, business is done on trust. They need to speak to a person.’’
The fourth thing that we learned is… and this is interesting, right? Here in the US and other developed markets, people are so used to buying stuff online that they’ll go online, they’ll just do self serve, right? In Africa, business is done on trust. They need to speak to a person. They need to see a person, have a conversation with them. It’s really important to have that face to face interaction in order to sell.
The challenge, however, is that because of the limited disposable income that both consumers and businesses have, you can’t charge a lot of money for services there. You’ve got to be very sensitive to price, and so you’re caught in this conundrum. On the one hand, you can’t really afford to hire salespeople because your CLTVs don’t justify it. On the other hand, you can’t sell anything if you don’t have your salespeople. So what do you have to do?
Well, you have to build a direct sales force. It’s something which you have to do in the beginning because until you gain trust, and your brand becomes trusted, you need to have a direct sales force to bring in those initial customers. This was actually a blessing in disguise because by getting direct sales, and I mean, I sold myself in the beginning for quite a long time. I mean, the negative economics of having this direct sales force actually funds your education of the market because you spend time with customers, you understand what their real problems are, and you’re able to tweak your product to address it. It’s interesting.
As entrepreneurs, we normally come up with an idea, and we build a product, and we don’t really understand what the customer actually wants. Having this direct sales force is invaluable in educating and informing where your product is going.
‘‘You’ve got to know when your customers are lying to you’’
I’d say the next thing that we learned is you’ve got to know when your customers are lying to you. Here in the US people are very direct. They’ll tell you what they think, and they’ll mean what they say. Whereas in Africa, I think in many African cultures people are very nice, right? They’re not going to say anything that will piss you off. Even if they have a problem with their product, they’re not necessarily going to be very candid about it.
I remember a situation where we had closed quite a big customer in the very early days. They were a supermarket, and they were using our product. They were hiring tons of people, and we were like, “Okay, cool. This customer seems to be getting a lot of value out of what we’re doing.” We started talking to them, and we asked them a couple of questions. We said, “How important is Giraffe to you in your recruitment process?”
They were like, “It’s just extremely important.” I asked them, “How disappointed would you be if we took Giraffe away from you, and you couldn’t use it?” They said, “Look, it would be a disaster. I’d be very disappointed.” We were like, “Cool.” At this point, we were offering the service for free. After having these kinds of conversations, I was like I think we’ve reached a point where we’re ready to charge these customers now because they seem to be deriving immense value. We went to them a couple of months later and said, “Okay, your free trial is over.
We need to start charging you,” and they refused. They said, “No, we’re not going to use the product anymore,” completely diametrically opposed to the conversations I’ve had with them before. This is the kind of thing that you see there, and so it’s so important to really not listen to what your customers are saying, but listen to what they’re doing, how they’re behaving.
From that moment on we’ve spent more time looking at data on customer usage to give us insight into whether customers would like to continue using our product or not. I’d say the next thing is it’s super important if you want to scale in Africa to become a thing. What do I mean by this? Here in the US and again other developed markets, people are interested in novelty and innovation.
They are interested in trying new brands, experimenting with new things. This phenomenon of a startup is well understood, and people have embraced it. In South Africa, it’s quite the opposite. Incumbent brands rule, and newcomers are treated with suspicion. New brands are treated with a lot of cynicism and suspicion. That’s very difficult for startups because startups by definition are new brands, right?
There’s a couple of things that we did here to manage this situation. We couldn’t use paid marketing because incumbent brands had all the share of voice, and simply by using paid marketing we would have blown all our funding, and that would have been that. We had to find alternative ways of marketing and really getting the word out there. There were a few things that we did. There was no silver bullet, I would say. There’s no silver bullet, but there are a couple of lead bullets that I want to share with you.
The first thing we did really pulled the unemployment angle quite aggressively. Unemployment was a massive social problem in South Africa, still is actually, massive topical problem. Every day on the news you hear something or the other about unemployment. So when we launched this app that was intending to help reduce the employment situation, we got massive amounts of press, mainstream press, mainstream TV, prime time radio, news, newspapers.
That did two things for us. It brought a massive amount of trust and credibility to our brand, and what we were doing, and it brought a ton of leads, a massive number of inbound leads. The PR thing is extremely powerful when the problem you’re solving is an important social problem. That was the first thing we did. I’d say the second thing we did was really about building alliances with brands that were already trusted, and this was a cool logo acquisition tactic that we did. We basically looked for the biggest call center in South Africa.
We went to them, and we said, “We’ll give you unlimited hires for the next six months, in exchange for which you need to write a bunch of press releases about our partnership, and the fact that you’re going to hire 600 people from us in the next three months,” to which they agreed. As soon as we started launching these press releases, we had tons of their competitors phoning us up saying, “Hey, can you come and talk to us? We’d really like to find out what you’re doing.”
Literally, in the space of a few weeks, we managed to close a number of quite big subscriptions just off the back of FOMO, effectively. The competitors of the customer that we offered the free service now wanted to pay us for it. That was another tactic that really, really worked well for us.
I’d say the third lead bullet that we did, and I think this is quite common now, especially in marketplaces, is we built viral loops on opposite sides of the marketplace. What that means is as soon as a job seeker would sign up and make their CV on the Giraffe app, we would enable them to send their CV, there’d be a send button, and we’d email their CV to any employer they wanted. The email would contain Giraffe and Giraffe branding.
We basically got our job seekers to market to our employers. Vice versa, whenever an employer wanted to use our service, we gave them a dedicated link that they could put anywhere, and it would enable job seekers to find out about Giraffe through the employer.
So we built viral loops on opposite sides of the marketplace. I’d say those three things, combined together, helped us to grow really, really fast. It was all guerrilla stuff, very little paid marketing. I think it’s super important that if you’re going to build a brand that’s going to see explosive growth, you cannot rely on the traditional forms of marketing, in my view anyway.
‘‘If you’re going to do a startup in Africa, you’ve got to be ultra-lean’’
Okay, so I’ve talked about product, and market, and customers, and brand, and sales. I want to take a step back now and talk about some more existential or abstract elements that I think are really important. Product/market fit. This is one of our favorite topics, and I’m sure we’ve all read The Lean Startup and stuff.
Often we have to manage this lean situation where we have limited resources, and we need to make sure that we iterate until we get to the answer. That sounds all very well in principle, however, if you’re going to do a startup in Africa, you’ve got to be ultra-lean, right? You’re not going to be able to raise millions and millions of dollars of funding. You’re going to be ultra-lean, and we were very, very lean. In fact, for the first 18 months, we had one developer who built the entire first version of our product.
Even today we have just three developers, and with such limited developer resource, you have to be super careful of how you build and prioritize products. Now the funny thing is, when it comes to product/market fit, I had initially assumed that it was a binary event. That it would just happen. It wouldn’t be there, and then the next day it would be there. This is definitely not the case, or it wasn’t the case for us.
I think product/market fit is a gradual process, and you can think that you’ve reached it even when you haven’t reached it. I’d say the first 18 months of monetization we were seeing double-digit revenue growth for the first 18 months, and ostensibly you could take that as an indication that, fine, you’ve read product/market fit right. Revenue’s growing, customers are happy, etc., etc. After about 18 months, we started noticing some weird stuff. It started to become more difficult to sell.
In terms of operations, things started to get a bit creaky, and then we felt actually the product that we are trying to scale up on is not the right product. We felt that we’d… It wasn’t the right product, and so what do we have to do? We basically had to change the product. Now by that time, if you can imagine, we’ve done all this with one developer. We had built an immense amount of technical debt.
You build stuff super quickly, so it becomes a bit dirty the way you build it. We had a massive amount of technical debt, but it wasn’t just technical debt. We had to change our pricing. We had to change our sales processes. We had to change our operations. We had to educate customers about the fact that we were changing our product, and that was quite painful because you got customers saying, “But I liked your old product. Why are you changing it?”
You have the team who’s basically now having to change the way they work together, and that wasn’t the first time that we did it. We had to do this again maybe about six months later. What we realized is that every successive attempt a product/market fit gets harder. It’s not like you can just keep experimenting until you find the answer.
Every time you change something, it gets much more complex. The energy that you have to muster in your organization is very significant. This is something which we hadn’t realized, and it’s funny because, if you think about it, almost all startups are at the verge of extinction.
The thing that is often the difference between life and death is reaching product/market fit, and the number of bullets we have in our gun to get it to diminish over time. Each successive attempt is more difficult than the previous one.
‘‘One of the biggest mistakes I think we made, ironically enough, is being a recruitment company…so you’ve got to hire for mission.’’
I guess this brings me to the next point, which is around recruitment. One of the biggest mistakes I think we made, ironically enough, being a recruitment company this was very ironic, are we really screwed up our recruitment. You see, the thing is in Silicon Valley you have tons of really, really talented people who want to work at startups. Everyone knows what a startup is. In fact, it’s cool and sexy to work at a startup, right? If you’re a startup, and you’re looking for people, I don’t think it’s particularly difficult. Sure, there’s a war for talent, but there’s an abundance of talent as well.
In South Africa, there are three problems regarding talent. The first one is that 70% of the workforce is employed by corporates. Corporates dominate the economy in South Africa, and so people don’t really understand what a startup is, right? People just don’t get it. They just say, “Well, I want to work for a bank or a telecoms company.”
They don’t understand what a startup is, but I think more pertinently, there just isn’t the talent there. We don’t have lots of developers. We don’t have anyone who’s a growth hacker. It doesn’t exist. There are no digital marketing people, right? It’s such a new space. There’s no ecosystem, right? So the talent is scarce as it is, but you’re competing with well-funded or well-capitalized corporates.
When we closed our first seed round, we were funded by Omidyar Network, which is a Silicon Valley investor. We’re one of the only Silicon Valley companies that are funded in South Africa by… Sorry, one of the only Silicon Valley funded companies in South Africa. We expected that thousands of people were going to come to our door saying, “Hey, I want to work for you guys.” That didn’t happen at all, and it was a slog. We had to find these people who are needles in haystacks, and this was something which was very difficult for us.
I think the key learning is you’ve always got to be recruiting. Even if you don’t have any open roles, keep recruiting because the time it takes you to find the right person, you will have an open role. I think when it comes to choosing someone when you’re working in a place like Africa is you can’t compete on money, or financial benefits, or bean bags, or free lunch, or whatever it is.
You’ve got to compete on the mission. You’ve got to hire for the mission. When I interview people, I ask them, “Why do you want to join Giraffe?” Some people say they want to work in a small company where they can have a big impact. Some people say they want to work in tech. The ones who I only really take seriously are the ones who say, “I want to work for you guys because you’re trying to help solve unemployment.
I want to be a part of that.” That is supercritical to hire for people who are mission-aligned, and it’s not just the founders have to be mission-aligned. It’s the whole company because it’s the people who are mission-aligned are the ones that are going to be most resilient when you inevitably go through tough times, so you’ve got to hire for mission.
‘‘You’ve got to hustle’’
I think the next learning is you’ve got to hustle. In Africa, you’ve got to hustle. Everyone in Africa hustles. What do I mean by this? Well, here in the US, and developed markets, you have established ways of doing business. You have business norms. In Africa, it’s much more informal, much more chaotic. Because you’re operating in a very lean environment, you have to be able to hustle to leverage to the maximum the resources that you do have.
I’ll give you some examples of this, right? We acquired job seekers when we had no jobs to offer them, and that was hustling. We pitched to customers when we didn’t even have a product, and we only started building our product after we closed a sale, because we couldn’t do it any other way. We had to do this because we didn’t have the resources to build our own product. We had to sell it first. When you’re operating in this kind of environment, hustling is key.
‘‘I’d say the final learning that I’d like to leave with you is this.’’
I’d say the final learning that I’d like to leave with you is this. When we set up Giraffe in 2014 and quit our fairly high paying consulting jobs, most of our colleagues and friends thought we were completely mental. They thought we were crazy. They were like, “Guys, what are you doing? You can’t do this in South Africa. No one is doing this. It’s never going to happen. It’s never going to be successful. People don’t even have smartphones yet. How do you expect to build a company like this?” But we’ve kind of done it.
Not that we’ve finished, we’ve still got a long way to go, but the point is that we’ve shown that the infrastructure, the mobile infrastructure, the Internet penetration, the digital infrastructure is there, right? It is possible to build and scale a company in South Africa, and I believe the rest of the continent, as mobile penetration and smartphones become more abundant.
Also, I guess when I look around the room, you guys are some of the smartest, and most intelligent, and wealthiest, and privileged people in the world. Right? It’s funny, I’ve been here a lot of talks. Everyone’s talking about unicorns and decacorns, and making tons of money, and you guys really have a choice.
You can use your talent to solve high-class problems, First World Problems, and help big corporates earn more money, and help big VCs, fat cat VCs, make more money, or you can use your talent to help the people who need it the most. Right? This world is full of suffering and pain, right, yet most people use their talent just to make more and more money. The inequality that we’re facing in the world is very significant.
I guess my appeal to you is, instead of trying to build the next Slack, or Dropbox, or whatever high-class problem these guys are solving, use your energy and your talent to help solve humanity’s problems, because I believe a lot of problems in Africa can be solved using tech and software. So my closing remark would be this. I would love it if you could join me, either in South Africa or any African country, and help us to build the future because of the last 30 years as Asia’s time. We’ve seen how Asia has emerged. The next 30 years will be Africa’s time, but Africa just needs the talent, the capital, the ecosystem. With those things, we can build an amazing continent.
Thank you very much.
Anish Shivdasani’s talk was transcribed for use in English by Jason M. Lemkin Co-Founder and CEO of EchoSign.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
It does not matter if times are good or bad – waste is never welcome at any proactive business. Business is primarily driven by profit and efficiency, and waste is an attack on both. But many businesses, particularly among manufacturers, overlook a major cost hidden among their operations: that of MRO (maintenance, repair, and operations) procurement.
MRO or indirect procurement concerns those many small parts needed to keep equipment running. It’s fundamentally a supply chain/procurement discipline, but not often considered as a cost centre. Individual MRO items – small parts in big machines such as light bulbs, safety switches, connectors, push buttons, power supplies, etc. – tend to be inexpensive and not attract much attention. Yet as a pool, MRO procurement can represent a significant purchase base for companies.
The days of MRO being overlooked are numbered. According to a survey conducted by RS Components and UK-based CIPS (the Chartered Institute of Procurement and Supply), the focus is on to reduce MRO spend. Over half cited pressure on operation budgets or reducing inventory costs, followed by asset performance (42%) and continuous improvement (38%) as motivations.
This message is less apparent in the South African market, but given the current tough economic conditions, it’s well worth discussing. What can local businesses do to curb their MRO spend?
Taming MRO
Many businesses underestimate the amount they spend on MRO products over the course of a year. They also rarely understand the significant hidden costs associated with MRO procurement. In reality, the overall process of procuring a part can be double that of the actual part. Our research shows that an organization spends £2 on the MRO procurement process for every £1 spent on the MRO product itself. Bigger footprints such as multiple locations amplify this effect. South African patterns are unlikely to buck the trend.
What causes such a poor ratio? It may be because too much time is being spent on finding the cheapest product, or using the wrong strategies, for example, category management and contracts negotiated on price alone to manage unplanned indirect spend. This may negate any actual savings made as extra processes and delays accrue costs.
Another reason is that MRO purchases often happen under the radar and tend to ignore official procurement channels. It may seem faster for an engineer on the floor to quickly acquire a spare part and get operations running again, using a convenient supplier. But amplify this over many instances and the purchases can compound into astounding inefficiencies.
Every company can meet this challenge with a good MRO strategy. It requires a new way of thinking and saving: a successful MRO strategy relies on all stakeholders involved in indirect procurement to collaborate. It must focus on improving the whole process of buying parts, involving stakeholders such as engineering, operations and finance functions, with buy-in at the c-suite level.
The strategy itself should aim for several objectives, which may include:
Reducing ‘maverick’ spend, where the user selects vendors outside the agreed supplier framework.
Consolidating suppliers so procurers can make quick decisions without having to consider the bigger MRO picture.
Procurement teams must communicate with users to understand what they need – this ensures suppliers with appropriate catalogues are chosen.
Deploying an integrated eProcurement system to streamline ordering processes, which in turn will help users change their own procurement habits.
Reducing items held in storage by only keeping critical spares and the items that will be used on a regular basis and then using suppliers that deliver on demand. This frees up working capital and space in your premises.
Without MRO, production can grind to a halt. A small part can stop everything for practical, health & safety, compliance or many other reasons. But sometimes the can-do attitude to keep lines going can result in inefficient MRO procurement choices.
Don’t disturb that spirit on the work floor that keeps your business moving. Instead, establish an MRO strategy that compliments proactive workforce attitudes while establishing a framework which pursues efficiency and significant cost savings. Partner with a supplier who can develop these solutions with you and support you on the journey of taming your MRO procurement.
By Brian Andrew, is Managing Director South and Sub-Saharan Africa at RS Components.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Amid bleak GDP-based forecasts of Africa’s economic performance, some investors are tempted to write off the entire continent. But those who seize opportunities to gain an accurate and nuanced picture of Africa’s economic performance and prospects could reap vast rewards.
Gross domestic product has been the ultimate measure of an economy’s welfare for over 80 years. But, as the world’s economies become increasingly complex and technology-focused, economists are increasingly questioning GDP’s usefulness as a gauge of an economy’s health, with some arguing for a radically new approach. Africa’s experience shows why such an approach is badly needed.
Africa has long suffered as a result of GDP’s shortcomings. In January, the global credit-ratings agency Fitch Solutions forecast that while Africa’s GDP growth will average 4.5% annually over the next decade, its average GDP per capita will stagnate. But such bleak projections are misleading – and threaten to drive away investors.
The first problem with GDP projections for Africa is that they are based on scarce data. The majority of the continent’s national statistics services are underdeveloped. They lack sufficient funding and independence to acquire comprehensive data and calculate benchmark economic indicators. In other words, official GDP figures may be very wrong.
Consider Nigeria, which in 2014 overhauled its GDP data for the first time in over two decades. Such “rebasing” – needed to capture structural changes to the economy – should take place every five years or so. But Nigeria’s national statistical agency had lacked the funding, data, and political will to rebase regularly. When it finally did, GDP skyrocketed to $510 billion, nearly double the previous estimate of $270 billion. With that, Nigeria overtook South Africa as the continent’s largest economy.
The fact that much of economic activity in Africa occurs in the informal sector further undermines the reliability of GDP statistics. In Sub-Saharan Africa, the informal economy accounts for two-thirds of all employment; in cities such as Kampala and Dakar, that figure reaches or even exceeds 80%. In Nigeria, the informal sector represents 50-65% of total economic output. A metric that fails to measure so much economic activity can’t possibly be a sound basis for investment decisions.
Even if the country- and continent-level GDP averages were more reliable, they would amount to a cumbersome guide for investors, especially given how large and diverse Africa is. In fact, African countries with vastly different GDPs may share more – and more important – features than countries with similar GDPs.
For example, Namibia’s diversified economy has more in common with South Africa, a country with nearly 30 times the GDP, than it does with Senegal, a country of similar economic size when measured by GDP. Nigeria’s GDP is far larger than Chad’s, yet their economies are often compared to each other because of the dynamics of their oil sectors. Such structural commonalities provide more nuanced insights for investors than ungainly GDP averages ever could.
But perhaps the best way to gain an appropriately nuanced understanding of African economies’ health and prospects is by focusing on their cities – the continent’s main engines of economic development. While 60% of Africans still live in rural areas, the continent is undergoing rapid urbanization. In the next 15 years, the world’s ten fastest-growing cities will all be in Africa. The economic output of Lagos, Nigeria’s largest city, is larger than that of Kenya, one of the continent’s most promising economies.
Already, some multinationals are using city-based models to guide their African investment strategies. They know that dismal national GDP averages can obscure pockets of increasingly prosperous consumers who are eager to purchase high-quality goods and services from abroad. So, when determining a market’s viability, they often focus on cities, considering diverse indicators like mobile-phone penetration, electricity usage, and Internet bandwidth.
One global packaged-food manufacturer, for example, has focused its Africa strategy on 15 cities that collectively represent about 25% of the total growth in packaged-food sales expected across Africa in the next five years. More broadly, foreign direct investment has been flowing primarily toward Africa’s four main megacities: Cairo, Johannesburg, Nairobi, and Lagos.
Of course, whether at the city or country level, comprehensive and reliable data are needed to provide a strong foundation for investment strategies. Private companies – including African tech startups – can take advantage of new technologies to help deliver this. For example, Terragon, a Nigerian data analytics firm, pulls data on mobile-phone usage and matches it against data provided by its business clients to produce insights about African consumers.
Investors who seize such opportunities to gain an accurate and nuanced picture of Africa’s economic performance and prospects could reap vast rewards. Those who write off the entire continent based on simplistic and incomplete GDP data will lose out.
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Paulo Gomes, a former executive director at the World Bank Group and principal adviser in Guinea Bissau’s Ministry of Finance, is the Founder of Constelor Investment and a co-founder of New African Capital Partners.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Perhaps not yet in the category of Spotify, the Swedish music streaming company that was once valued at $36 Billion, or Apple Music which is home to over 50 million songs and which was once quoted to worth $10 billion, Africa’s music streaming space has been growing steadily, and startups have since been fueling consumer interests in music subscription and consumption.
In fact, music streaming services in the world are so lucrative that according to the International Federation of the Phonographic Industry (IFPI)’s Global Music Report 2019 (pdf), streaming now accounts for about 47% of global music revenue. But the question will still remain on whether African music consumers are really interested in paying to listen to music.
Music streaming in Africa was introduced as far back as 2010, following the launch of Simfy Africa, now a subsidiary of MTN Group in South Africa and Iroking in Nigeria. As the big global music-streaming services continue to mull their strategies for sub-Saharan Africa, it is very relevant to discuss the success of local players who are springing up to stake their claim to a piece of the nascent streaming market. Here are a few of the many music streaming startups scattered around Africa and how they are confronting the challenges of music streaming in Africa.
BOOMPLAY
Boomplay is not originally African. The startup is a joint venture between Chinese phone maker Transsion and Chinese consumer apps giant NetEase but is specifically focused on the African market. Although it has succeeded in raising $20 million in outside funding to invade more sub-Saharan countries and continue to build up its database of music tracks, the startup has refused to disclose its valuation.
Currently, it has some 5 million music tracks and videos on its platform — with a huge emphasis on African artists — with 42 million monthly active users, some 85 percent of which are on the African continent (primarily Nigeria, Ghana, Kenya, and Tanzania). Subscribers can pay much as $0.28 to $ 199.61 to have full access to premium items listed on the service. It is adding on average about 2 million users each month, a mix of paid and free subscribers, the latter seeing ads when they use the service.
Reviewing the viability of music streaming services in Africa, Phil Choi, Boomplay’s head of international acquisitions and partnerships said:
“The African music industry is not like in America or Europe where there is one big label who takes care of thousands of artists. At the moment, there are a lot of musicians that work independently or with small labels, so it takes time to build a catalog…
“Five years ago, no one was talking about this region,” Choi said.“Our team saw the potential at this time and now we have a good advantage. But everyone wants a piece of the pie.”
Last November, Boom play sealed its first partnership deal with a global music company following a major licensing deal with Universal Music Group for Nigeria, Ghana, Kenya, Tanzania, Rwanda, Uganda, and Zambia. UMG’s catalog includes African artists, as well as global recording artists including Post Malone, Eminem, and Nicki Minaj.
“Chinese investors see Africa as the China of 10 years ago,” Choi said, “so they feel they can apply the same models to it, and bring it up to being a very prosperous region.”
“Africa is full of opportunity, from its young demographics to its vibrant culture, and Boomplay sits in the middle of all of that greatness,” said Tony Li, managing director of Maison Capital, in a statement. “Boomplay has incorporated NetEase’s experience in the music streaming business with Transsion’s expertise in local operations, and in doing so Boomplay became the dominant player in the region in a very short period of time. As more of Africa comes online, we are confident that Boomplay will continue to be a major force in business and culture.”
Problems:
“We’ve seen healthy growth, but one of the problems is that there isn’t really a sustainable or efficient mobile payment system,” Choi noted. Processing payments, he said, “takes really long and can be unreliable. For example, halfway through a transaction, errors may occur.”
He said the company already accepts Mpesa, one of the key mobile payment services that were originally founded in Kenya, along with other payment methods, but the plan is to add more to that soon.
“Anghami is music, but at core, we are a data company,” said Elie Habib, co-founder, Anghami. “We actually analyze how you like to listen to music when you like to listen to music, with whom you like to listen to music…Data helps artists and helps us target the right people.”
Mr. Habib said the success of the business has been quite something else.
In a recent interview, Habib said a significant number of over 1 million are paying for anghami, the first time the company is disclosing any number of paying subscribers.
“Our business case was for 300,000 users by the end of 2012,” said Habib. “We ended March 2012 with 1 million users, way more than expected…We see potential, we see high returns and that’s why we keep on investing. We haven’t scratched the surface of the market…For 2017 and 2018, really, our target is to grow more than just be profitable because we have a lot of investors who believe in what we are doing and that our unique economics make sense.”
Habib said music users so much loved the Anghami that they ‘‘have been noticing more traffic happening in Europe. And eventually, we were able to see that a lot of people leaving Syria into Turkey and Germany… those people have kept their Anghami accounts and music,” Habib said.
“The reason? Most of the people who connect and listen to music outside the region tell us Anghami reminds them of the ‘scent’ of their home, of their streets in the Middle East.”
He said it’s not ‘‘just about launching a service but providing an ability for the people to try it, taste it and then eventually commit to it.’’
Problems:
‘‘We realized that if [a streaming service was] going to fail it was probably going to be for not generating [enough] revenues, or if [it was] paying more to labels than it could afford. Those were the original points we built Anghami on, making sure that it would be fair for the artists but, at the same time, making sure that we launched on mobile because mobile would provide us with scale,’’ Habib said.
Habib said partnering with telecommunication companies is so important because credit card penetration is very low in the Middle East.
‘‘Let’s take an example,’’he said. ‘‘Amazon bought Souq.com, which is a big eCommerce service based out of Dubai. Souq had 70% cash on delivery three years ago. Last year, they had 75% cash on delivery. The volume grew but the percentage of cash on delivery grew even higher. The concept of cash on delivery, which is not available on Amazon UK, is available across the region [in the Middle East]. People are not used to paying by electronic payments. Putting that in terms of music services, obviously our biggest revenue stream comes in from mobile operators.’’
He said ‘‘being mobile first in an emergent market [also] means that a user should be able to purchase a subscription via a mobile operator wherever he/she is.”
“We provide this functionality across 29 mobile networks in MENA, allowing a daily, weekly or monthly subscription. As far as I know, Spotify has no coverage on any mobile network [in MENA] today. Also, we provide multiple pricing tiers on mobile that can go, with certain networks, down to $1/month. [Anghami works] on any browser, as many users in emergent markets have low-end devices.’’
Although launched in 2011 in South Africa through a partnership with South Africa’s eXactmobile, the mobile content company owned by Primedia, Simfy Africa was acquired by the MTN Group in 2018. MTN Group, in a statement, described Simfy Africa as having ‘‘ a fantastic catalogue of music, access to more than 42 million tracks, arrangements with all of the major record labels. The architecture has just been completely rebuilt to be cloud-based, micro-services-based architecture built on Amazon Web Services and we are going to use this as our first big foray into MTN group digital OTT-like services.”
MTN said it had historically operated as MTN Music and had different platforms in different markets. It also claimed it had been a partner of other OTT streaming services but think acquiring Simfy Africa is a fantastic vertical that would help MTN make its first big step in building out their portfolio.
Simfy Africa’s CEO Davin Mole noted that the growing competition in the music streaming service shows listeners are getting more sophisticated.
“When 2oceansvibe started some two years back, we predicted that the Internet would be the new platform for music and radio engagement, and Simfy in that respect proves our concept further,” he said. “It’s gratifying to see that streaming services such as these are finally reaching SA. We don’t see this as competition but further proof that SA listeners are craving something different to what the current commercial space is offering.”
Profitable?
“What we’re seeing so far is that a lot of people are making use of fixed Internet connections at home and in the office to load up their laptops with music and then listen offline,” said Simfy CEO Davin Mole. “We have one user who has already downloaded 2,000 songs, which for R60 is pretty good value.”
Of course, he’ll have to keep paying his R60 monthly to keep listening to those songs — this isn’t a way to build up a permanent music library.’’
However successful Simfy turns out to be, it’s not clear how much artists will benefit from revenues generated by the service.
“Initial payouts to artists from streaming aren’t that high. “ But artists have to be patient. In longer terms, it’s dependent on scale. If we don’t get a huge base, revenues won’t add up,” he said.
Problems:
David Mole said Simfy Africa ‘‘has been investigating the price of the Internet for some time, and it’s still not the best it could be — it’s still quite expensive. But the way the prices are tumbling encouraged us,”
“We think you have to shoot a bit ahead of the clay pigeon. So hopefully by the time we’ve got our marketing totally up to speed, and ironed out any glitches, those prices will have come down further,” he noted.
Simfy’s flat subscription model might have helped it avoid some of the other services’ financial pitfalls, till it got eventually acquired by the MTN Group.
Iroking
Jason Njoku, iroking founder was quick to declare that iROKING is not yet dead. ‘‘Not even close to it,’’ he said.
Founded in 2011, across the entire network of platforms, iROKING reached 5Mn unique visitation per month, 1 Million of those are on our own platforms alone, in 2013. Njoku said Irokotv has overshadowed iroking because the company makes huge amounts of money on iROKOtv and considerably less on iROKING.
‘‘There are strategic and industry structural issues which determine that. But, nonetheless, I would argue with anyone that month-on-month cash flow-wise, there is no other music startup which comes close our monthly cash flow. None,’’ he said. ‘‘Currently, iROKING has several hundred musicians on the platform. We distribute their music across third party channels (YouTube, Dailymotion, iTunes, Spotify et al) as well as our own platforms we operate too, including m.iroking and iroking.com and our Android, Asha and W8 apps. Today, the business in the last 2 years has easily paid out over $1Mn in minimum guarantees and revenue share to musicians. The business generates tens of thousands of dollars monthly for the music industry at large. We have done this by simplifying multi-platform digitisation and distribution at a scale which makes it almost free for us to do this.’’
Profitable?
Mr. Njoku noted that ‘‘iROKING is still unprofitable. It is something I don’t lose sleep over as typically when you are building and growing something you are usually happy to forgo short term profits for long term strategic and economic advantage. Then we plan for significant profits later. As a subsidiary of iROKO, iROKING still benefits from our super strong balance sheet and as the CEO of iROKO (and now iROKING) I have all the authority to do as I see fit to build the most awesome music startup in Nigeria. Patiently.
People talk about the threat of Spotify, Deezer how all the music startups are going to die. We see it differently. We already distribute, and for some time have been distributing, via Spotify. What the bloggers may see as competition, we see as something completely different. But time will tell whether I am right or wrong. That’s the great thing about the business of startups. You are either right or wrong.’’
Problem:
Mr. Njoku said one of the ways it can solve the numerous problems facing iroKing is to focus on monetization.
‘‘iROKO has the most awesome team at monetizing Nigerian content online. We have built a multi-million dollar business in 2 years, distributing movies on iROKOtv. In 2013 our largest source of revenue is iROKOtv PLUS, our $5/mth subscription service. We have institutionalised managing and taking tens of thousands of payments directly from fans globally. Of the overall revenue, iROKING represents a mere 15% of our annual income, whilst at a monthly reach of 4Mn, 75% of our 6Mn unique per month reach. That for me is opportunity. Again my focus is to bridge that gap. In the end I founded iROKING. I know what it took to build the business we have today. iROKING is no longer a startup. It has recurring revenues, several hundred artist relationships and a lot of potential to live up to,’’ he said.
Founded in 2011 by John Ajah, Spinlet is a digital media company, focusing on Afro-Centric content. Spinlet’s primary service is music streaming and downloads available globally via web browsers, and the Spinlet app on iOS and Android. The Spinlet platform allows the users to purchase, listen, share and discover music while offering integration and storage of the user’s music library on their mobile device. As at October 2015, the Spinlet app had been downloaded nearly 2 million times. In 2014, Spinlet acquired a Nigerian Communications Commission license that will allow it to sell value added services such as caller ring back tunes and short message services in collaboration with Telcos as a means of providing more avenues for content creators/owners to get paid for their content
Smubu
Recently launched Smubu is a music-streaming startup headquartered in Kenya, but focusing on a group of countries including Uganda, Tanzania, and Rwanda. The startup has just announced an early milestone too: 200,000 active users, and a catalogue of more than 100k tracks. “We are initially focused on East Africa. The music here amazes me and my team, and we genuinely believe that we can push it internationally,” CEO Jad Aizarani said.
Aizarani is also promising that artists whose music is being listened to on Smubu will be fairly rewarded. “Our vision is built on working closely with artists in providing them with a fair share of the revenue for every single download on our platform,” he said. “The platform is technically built to provide statistics, potential revenue, and track download numbers and streams.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Startups in Nigeria who do not have landed property but movable assets as securities for loans now have an alternative. Following the passage of Secured Transactions in Movable Assets Act into law, owners of small businesses can now borrow from banks and other financial institutions, even though they do not have any lands or buildings. All they need to do is to first register the movable assets such as cars, or any property of worth (which property is not land or building or fixed property) with the National Collateral Registry.
This Is How It Works Under The Secured Transactions in Movable Assets Act
This law allows small, medium business owners or startups to create security interests in respect of both their present and future movable assets.
Movable collateral under the Collateral Registry Regulation includes equipment, inventory, accounts receivable, household items, bank accounts, farm products, motor vehicles, boats, planes, consumer goods, trees that have been severed and oil, gas or minerals that have been extracted, etc.
You can register your interest over such assets as you do when you want to perfect titles to land at the Land Registry.
In this case, all that is required is that you take steps to perfect the interests in that asset.
The law has created a National Collateral Registry where you can now perfect the assets.
An asset is deemed perfected when a financial statement in respect of such a security interest has been registered with the National Collateral Registry.
The registered financial statement is valid until the expiration of the terms specified in the financial statement.
The creditor who registers the Financial Statement is issued with a confirmation statement by the registrar.
Where two security interests have been perfected in respect of the same asset, the first to be registered would rank first.
Using the confirmation statement and other documents, you may then apply for loans at a bank in Nigeria under the National Collateral Registry Scheme or theSecured Transactions in Movable Assets Act
Why This Is So Different From Normal Collateral Requirements From Banks
Previously, before the passage of the Secured Transactions in Movable Assets Act, small and medium scale businesses in Nigeria were often required to present their landed property or buildings (which they hardly had) in order to procure a loan.
Now, persons who have movable assets in Nigeria such as equipment, inventory, accounts receivable, household items, bank accounts, farm products, motor vehicles, boats, planes, consumer goods, trees that have been severed and oil, gas or minerals that have been extracted can now borrow loans from banks without landed property being demanded as collateral. All they need to do is to register the asset with the National Collateral Registry in order to create security interests over the assets.
Registration will remain in the Collateral Registry until the expiration of the term indicated in the financing statement, or until the registration is canceled (discharged). The period of registration does not, however, need to be the same as the duration of the loan, as there may be an expectation between the debtor and secured creditor that the loan will be renewed. Six months after the expiration of a registration, it shall cease to be publicly searchable and will be moved to an archive, from which it can be retrieved only by the Collateral Registry staff.
Where the debtor fails to pay back the loan, the secured creditor has a right to enforce its security interest in the collateral.
Key Things To Have In Mind About The Secured Movable Assets In Question
With this law, individuals in Nigeria may apply for a loan as a group. They may use their assets that they own individually or jointly as collateral for the loan.
Using immovable property, such as land or building carries certain unwanted risks for the debtor. It is therefore reasonable that a debtor will be more comfortable with losing equipment or other movable property than with losing a house in case of a default.
Currently, it costs N1000 for the registrations of initial financing statements, and N500 for renewal or amendment. However, these fees may change from time to time, so it is recommended that you check the Collateral Registry website for the up-to-date information.
Under the Collateral Registry Regulation, the secured creditor may enforce its security interest by taking possession of the collateral or rendering the collateral inoperative. Subsequently, it may dispose of the collateral through a sale. The Collateral Registry Regulation permits the secured creditor to proceed extra-judicially without having to obtain a court order before repossessing the collateral. The secured creditor may also choose to apply to the court to authorize enforcement.
Where the proceeds of the sale of the secured assets are insufficient to satisfy the loan, the debtor will be liable for the shortfall. The secured creditor has a right to obtain the balance from the debtor directly or may proceed against other assets of the debtor. The secured creditor may initiate legal action against the debtor for the balance and get a judgment for the amount owed. It may also choose not to take legal action against the debtor and just write off the loss on the loan.
Collateral Registry Nigeria
Are Secured Transactions In Movable Assets Already Taking Place?
To a large extent. The Central Bank of Nigeria (CBN) recently disclosed that the National Collateral Registry has assisted over 154,000 Micro, Small and Medium Enterprises (MSMEs) to access N1.2 trillion loans from 628 financial institutions.
The report showed that the number of MSMEs in Nigeria that have used their movable assets to obtain loans from financial institutions through the NCR rose to 154,827 as at December 19, 2018, from 100,049 in the first year, 2017, indicating the increase of 54 percent. The report also showed that 22,251 of the MSMEs were female entrepreneurs. Further breakdown showed that 146,777 of the borrowers were individuals, 3,416 were micro businesses, 2,169 were medium businesses, 1,777 were small businesses and 687 were large businesses.
The number of participating Deposit Money Banks (DMBs) rose to 21 from three in 2017, microfinance banks rose to 551 from 96, Development finance institution rose to four (4) from one(1), merchant banks rose four from one, finance companies rose to 13 from 2 while non interest bank rose to one from zero in 2017.
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Good day for South African businesses, bad day for their Nigerian counterparts. This is because there are still so many issues surrounding equity crowdfunding in Nigeria. Below, we discuss the legal implications of crowdfunding in Nigeria more intensely.
Crowdfunding sometimes appears the only alternative for start-ups, in the face of stifling interest rates on loans from banks and financial institutions, and lack of funds from family and friends as well as the absence of venture capitalists and angel investors. Crowdfunding is a way of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Here is a quick grasp of reality.
The United States
The United States’ Securities and Exchange Commission has made a lot of rules on Crowdfunding which will enable eligible companies to offer and sell securities through crowdfunding. Thus in the US, all transactions under Regulation Crowdfunding take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal. A company is to raise up to a maximum aggregate amount of $1,070,000 through crowdfunding offerings in a 12-month period. However, there is a limit on the amount individual investors can invest across all crowdfunding offerings in a 12-month period. Securities purchased in a crowdfunding transaction generally cannot be resold for one year.
South Africa.
There is no substantial legislation on crowdfunding in South Africa, except that equity crowdfunding is a form of securities. However, South’s Africa’s first equity crowdfunding platform Uprise.Africa was launched after being told by the Financial Services Board (FSB) that the platform does not fall foul of the Collective Investment Schemes Act, the platform’s founder and COO Patrick Schofield said. Inge Prins, the Chief Marketing Officer Uprise.Africa, had hinted the platform, in one of its numerous success instances, paid out investment funds to a local brewery, Drifter Brewery following a successful campaign that raised R3,889,000 (US$293,000), far exceeding its stated goal by almost R1,000,000.
Understanding How Crowdfunding Works
Crowdfunding refers to raising money from the public (who collectively form the “crowd”) primarily through online forums and social media.
Crowdfunding models include: Donation-based crowdfunding (in which donors are not typically granted anything in return for their donation)
Rewards-based crowdfunding (in which backers contribute funds in exchange for some reward–in many cases the item produced by the campaign)
Equity crowdfunding (Equity crowdfunding refers to raising money from small public investors (who collectively form the “crowd”) primarily through online forums and social media. In exchange for relatively small amounts of cash, investors get a proportionate slice of equity in a business venture).
Debt/lending crowdfunding (in which lenders provide money and expect their loan to be paid back with interest).
Crowdfunding For Private Companies Cannot Work Unless Nigeria’s Companies And Allied Matters Act (Nigeria’s Chief Company Legislation) Is Amended.
The idea of having crowdfunding for companies is that the general public would be allowed to contribute towards the formation of the companies. Now while the public can contribute to an idea, the same is not possible for a company. By section 22(5) of Nigeria’s CAMA, it is impossible for a private company to invite the members of the public to subscribe to its shares. It is also impossible for equity crowdfunding to work because the idea of equity crowdfunding is that the public funds the formation of the company expecting to be repaid their contributions by way of shares in the company.
Again, under Section 22 of CAMA, the maximum number of persons a private company shall have shall not exceed fifty, not including persons who are bona fide in the employment of the company.
Nigeria’s Securities and Exchange Commission and Crowdfunding
The Commission determines governs all company securities in Nigeria. Section 13 of the Investment and Securities Act (the chief Act that regulates securities of companies in Nigeria) empowers the Commission to:
regulate all offers of securities by public companies and entities;
register securities of public companies;
prepare adequate guidelines …necessary for the establishment of securities exchanges and capital trade points.
register and regulate the workings of venture capital funds and collective investments schemes in whatever form;
Consequently, by Section 67(1) of the Act, no person shall make any invitation to the public to acquire or dispose of any securities of a body corporate or to deposit money with anybody corporate for a fixed period or payable at call, whether bearing or not bearing interest unless the body corporate concerned is-(a) a public company, whether quoted or unquoted, and the relevant provisions of Act are duly complied with.
To this effect, the SEC, which was empowered to do so, has gone ahead to give the listing requirements for any company in Nigeria to include that the company must be registered as a public limited company with no restrictions on the transfer of fully paid shares; have a minimum of three (3) years operating track record; have a pre-tax profit from continuing operation of not less than N300million cumulatively for the last three (3) fiscal years and a minimum of N100 million in two (2) of these years. Hence, since equity crowdfunding is ideally a thing for new, mostly private companies limited by shares, there is no way any of them would be able to fulfill the listing requirements, to be able to offer their securities to the public.
The continued ban on equity crowdfunding in Nigeria by SEC, therefore, is not a surprise, even though the Commission said it is looking at the crowdfunding rules in the US and Canada.
The SEC believes that crowdfunding cannot be effective in Nigeria in the meantime because of a lack of rules.
Bottom Line
While equity crowdfunding remains banned in Nigeria, donation and reward-based crowdfunding are however excluded from the SEC’s regulatory remit. This explains why there are a number of donation crowdfunding platforms, and not one for equity crowdfunding. Nigeria’s first equity-based crowdfunding platform, Malaik, launched in 2015 is now down and is up for sale at $3795 on HugeDomains.com, while other donation-based platforms such as Donate-ng.com, and Imeela have since carried on.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Startups who raise funds have to work really hard to justify each of the equity investment that flows into their businesses. One thing is to be surrounded by funds, another thing is to use the funds to run a profitable business. Knowing the best ways to stay afloat in tough times by making profit could be the only lifeline that saves you and your business. Below, we discuss various tested ways of remaining profitable.
Why Does Profitability Matter If You Are Already Passionate?
The owner of Nigeria’s irokoTV believes profitability is important but equally very important is cash flow.
‘‘Revenue is vanity. Profits are sanity. Cashflow is King. A lack of profits is like cancer. It will kill you slowly. A lack of cash flow is like a heart attack. You die there and then. As the bank empties. So does your dreams of startup Nirvana,’’ he says. ‘‘ Profits. There are various versions of this. You can be very ‘profitable’ and still need money to operate your organisation day-to-day. Cash flow positivity is more important.’’
According to Steven Hess a trustee and program lead at global entrepreneur network The Startup Leadership Program, ‘‘for a business to be sustainable, it must ultimately make a profit at the operating level, otherwise, it’s just a house of cards. Maybe you need a critical mass of customers to achieve supply-side economics, but it’s still a path to profit that increasingly is growing in importance.”
At What Stage Does Your Startup Really Need The Profit?
Knowing his would not only save you the stress of anxiety associated with returning an unprofitable business but will help your startup endure, gain traction and succeed with time. Jason Njoku, Nigeria’s co-founder of IrokoTV says most companies in the growth stage are unprofitable.
‘‘That’s by design,’’ he says. ‘‘It’s the way the VC-backed system works. It attempts to accelerate everything, which leads to mistakes, which leads to money wasted. That’s the downside. On the plus side, it leads to unnatural growth. Like the viral kind. Something which would ordinarily take 10 years is accelerated to 4–5 years in the VC system. The aim is to build big companies. When I mean big. I mean $100m in revenue per year big. That takes bucket loads of capital. iROKO 2011 (pre-VC) — profitable. 2012 — today (post-VC — unprofitable by design.) 2016 and beyond — we aim for cashflow positivity (not necessarily profitability).
Njoku says when startups invest for growth, it’s rarely possible in consumer or enterprise internet to do that profitably.
‘‘Building a core team, building out engineering, customer acquisition, support, brand — very few (~1–2%) major consumer internet companies managed it over the last 20 years (the history of the internet). Of the largest ones we know today, 0% were profitable in the first 5 years+. You lose a bunch of money. Until you don’t. In Nigeria, at a relatively low scale, it begins to break down quickly. You just need cash for ‘stuff’. The whole, ‘get customers’ doesn’t really go down too well as because: 1. they aren’t that many.
2. to get them it’s like breaking rocks.
3. government-related work will kill you,’’ he says.
He says the best ways to stay afloat during this period is that a ‘‘10 person team should definitely focus on cash flow and profits.’’ Internet investors are few and far between, he says, and learning the discipline to actually run a cash flow positive business is a great life skill. ‘[This is] one I strongly recommend to all young guns of today,’ he says.
The Focus Should Be On The Customer
Focusing on the customers is unarguably the easiest way of remaining profitable. “(T)he №1 thing that has made us successful by far is an obsessive-compulsive focus on the customer as opposed to obsession over the competitor,” Bezos said in a talk at the Economic Club of Washington.
“Our profitability is not our customer’s problem. We don’t take the point of view that we’re going to price products at a particular margin. We price products competitively and if that means [that] on that product that we lose money that’s ok. We need to take care of the customer and earn trust and we’ll figure out over time if we can or if we can’t ever make money with that product. If we can’t we’ll stop selling it but we’re not going to make customers pay for any of our inefficiencies.” — Jeff Bezos said.
Turning attention on what customers want or need has inspired many of Amazon’s most profitable business moves.
For example Amazon Prime. Bezos said at the talk that Amazon developed Prime, a paid subscription service for free two-day delivery because he knew consumers love free shipping. Introduced in 2005, the service drew anger for being “too good to be true” and helped underline the idea that Amazon is too inexpensive to be profitable. The message was clear: Prime is draining Amazon’s profits and its stock.
But it’s clear now that pleasing its customers, rather than bumping Amazon’s short-term bottom line, has been a shrewd business move. Amazon Prime customers spend an average of $1,300 in a year, nearly twice that of non-members. More than 100 million people globally are Prime members.
“There are two ways to build a successful company,’’ Bezos said. ‘‘One is to work very, very hard to convince customers to pay high margins [think Coca-Cola model]. The other is to work very, very hard to be able to offer customers low margins [think Costco, Amazon]. They both work. We’re firmly in the second camp. It’s difficult — you have to eliminate defects and be very efficient. But it’s also a point of view. We’d rather have a very large customer base and low margins than a small customer base and higher margins.”
With business going, comes the hard part of the truth: actually making sales, because it is the sales that would mean profitability.
Lee Reams II, CEO, CountingWorks says that most small businesses get bogged down in tasks that have nothing to do with driving profits.
‘‘One of the easiest ways to increase profits is focusing on sales from the start,’’ he says. ‘‘The most cost-effective way to turbocharge more transactions is by going all in on using social proof to grow your business. Attracting five-star reviews, using case studies, getting your brand mentioned by bloggers and news media, are all forms of social proof that do the selling for you. Much of the buying process is now done online. If you have not maximized your digital footprint, you are not even in the game as consumers start researching product and services. Your brand needs to be present from the discovery through the intent phase of the buying process. Making social proof an integral part of your marketing plan will drive revenue growth faster than any other change.’’
Coupled with this is the need to build a sound online reputation. Denise Hilton, Founder, WebEmployed.com says that whether your business is big or small, your online reputation matters a lot.
‘‘It not only adds credibility to your business but also tells consumers and other businesses that you care about them and not just the business,’’ he says. ‘‘You need to be active on social media platforms and interact with the visitors regularly. You also need to add call-to-actions on your website and let the visitors contact you easily through web forms, landing pages, etc. Adding a blog to your website and building strategic alliances through joint venturing or cross-promotion is another effective way to build an online reputation. It could help you boost your profits a great deal. The results will slowly but surely be visible in the long term.’’
One way Ford Motor Company remains competitive with its sales is to approach price fixing more fiercely.
“Our policy is to reduce the price, extend the operations, and improve the article. The reduction in price comes first…the low price makes everybody dig for profits”. – said Henry Ford
And you could see the power of it in Ford Motor Company’s numbers:
‘‘in the UK, they have Value Added Tax (VAT), at that time it was 20%, so over and above the cost of the equipment I had to pay VAT in the UK,’’ he says. ‘‘That’s fine, using the Apple bulk importation as an example, upon reaching our beloved Murtala Muhammed International Airport (MMA) the Nigerian customs officials took a particular liking to my ten (10) carefully wrapped and gloriously white ‘packages’. After a 6 hour flight I then proceeded to spend the next 4 hours arguing and debating the importation tax duties required to bring this equipment into Nigeria. All manner of calculations were initially argued amongst the customs officials themselves, then when it was looking increasingly extortionate I thought I would pitch in myself to try and not get totally screwed without at least some resistance. In the end I ended up paying, if my memory serves me right, around N700,000 ($4,600). And guess what, just to twist the knife, they were seizing my goods unless I paid there and then. I have the payment receipt of this somewhere; it’s too late for me to dig it out.’’
This is one of the several ways taxation can stifle your startup directly or indirectly. So, getting a sound tax practitioner or lawyer can be the safest way to escape the burden of over taxation.
Auditing Is The Best Strategy For Tracking Your Finance and Making Adjustment
The best way to always track your finance and expenditure is to go by auditing. Auditing will make it possible for business owners to make more effective decisions, and channel their investment appropriately. Any accounting errors would usually be bad for the future of the company.
Moira Vetter, Founder & CEO of Modo Modo Agency, a strategic marketing firm, that was recognized as a 2018 & 2017 Inc. 5000 company and a 2017 Best Places To Work, advises startups to:
Formalize monthly financial statement review with their team — Awareness is the first step to managing budgets frugally. When the person charged with keeping the books closes the books each month, schedule a meeting to sit down and review the financial statement as a group. Ask questions about line items that are going up. Look for line items that are larger than you imagined and ask questions about why.
Reinvest Profit
Knowing when to reinvest profit into the business is equally important to avoid being an all-time loser.
“Ninety percent of the time a founder should reinvest their profits back into their business because it helps them grow and means they won’t stagnate,” says Matt Jonns, founder of ucreate, a co-creator of software startups. “However, the unpredictability of startup life can make the use of profits to shore up cash flow a smart decision. Keeping this money aside for a rainy day is often just as important as reinvesting and could be the difference between survival and extinction when times are at their hardest.”
Varun Bhanot, head of business development at flexible office marketplace Hubble, shares a similar view in prioritizing growth over pocketing profits. “This enables us to grow faster than our competitors,” he says. “By plowing everything back into the business, it also means the pie is overall bigger in the end. When profits are eventually returned, they are much bigger and substantial than if dividends were given to shareholders in the earlier stages.
However, to create a balance, Matt Jonns advocates founders paying themselves a small minimum wage and using excess profits to support their lifestyle when needed.
“As long as you don’t put your cash flow at risk, spending profits in moderation is essential for your own wellbeing,” he says. “It’s something many founders struggle with, but not something they should feel guilty about.”
Patience
While it may take a long time for startups to break even, remaining patient during the first few years of this period would really be some remarkable feat startups can accomplish.
Dillon Kivo Founder and CEO of Kivo Media Group advises that success certainly won’t happen overnight, and it probably won’t happen for a couple of years.
‘‘Companies that are investing in themselves and carefully and strategically planning ahead for continued efficiency can expect to achieve profitability around their third year in business. But every company is different, and true success may take decades. Steve Jobs established Apple in 1976, but it wasn’t until 1984 that Apple got on the map with the advent of the Macintosh computer. And even then, Apple struggled until the arrival of the iMac and consumer products in the late 90s. As an entrepreneur, as a leader and as a startup founder, it’s critical to know the difference between a great idea and great company. So decide now that you’re all in, and don’t give up when the going gets tough,’’ he says.
Bottom Line
Every year, many startups take off, but only a few remain after long torturous journeys. Most of them die, of course, because they were unable to raise more funds or turn profitable. Knowing how to stay ahead of this by exploring many strategic ways of remaining profitable would be the deciding force for most startups.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
