With innovation, there are two fundamental questions we need immediate answers to. One is, who is an innovator?, and the other, why is everyone not an innovator?
The answer to the first one is quite simple. “Anyone doing something differently” is an innovator. And It is not surprising that the poster company for innovative consumer products, has their company tagline has “Think Different”. That company is Apple.
Being an innovator is all about doing things differently, and I think everyone should be capable of that. Anyone can be an innovator. No one is too young or old, rich or poor, weak or strong to do things differently. So, if anyone can do things differently, why isn’t everyone doing it? Why is everyone not an innovator?
There are a few reasons why everyone cannot do things differently. For starters, doing things differently implies you are not okay with how it is currently done. Not everyone is unsatisfied with how it is currently done. You will always find people who are okay with how things are done. They are okay with the status-quo. These people do not need to innovate.
Before you start judging these people as “laggards”, you must know that we are all like this in at least one area of our life. There must be at least one area of your life you are absolutely okay with. For normal people, there are many areas. For example, I am fine with my bathing soap. There is probably someone who thinks we could bathe differently, but I am absolutely cool with what we currently have.
An innovator is not doing everything differently. If you find someone doing everything differently, he is most likely crazy, run! But there is always one thing that could be done differently, and this is what the innovator expends his energy on.
Another reason, and I think this is the more likely reason, everyone is not an innovator, is fear. It takes a lot of courage to do things differently. It takes a special kind of courage to tell everyone, “the way you have done this particular thing is not good enough, my way is better”.
Think about it; that spirit to go against the flow, must be very courageous. And likely curious, arrogant and stubborn too. You are certain to find these traits in innovators, especially that last one.
Innovators don’t look ahead and see all the obstacles and difficulties they will need to overcome. They can’t afford to see them, all they see is the vision of a different world where things are done the new way — their way.
Innovators don’t just think and talk; they do. And “doing” is where things get difficult, where bets are placed, and lives are changed, for good or for worse.
But it doesn’t have to that way. The innovator does not have to be a gambler. There is a process to innovation. There is a way to create great products, and there is a way to get your audience to like that product. There is a way to get everyone to see that your way, is, better.
And it is in finding this way I have started this initiative, the Innovators’ friend. Because every innovator needs a friend. A friend who understands how tough the journey can be. A friend who can watch their back. A friend who will be supportive through the mistakes. And maybe once in a while, share a few lessons.
Who am I? I am Mayowa. I started my first technology business in 2007, when I was 21. I have built software for enterprise businesses to improve their business process; I have built technology product that was translated to seven languages and got sold in over 22 countries; I have also built software that never even got used by up to a thousand people.
Basically, I have learnt a lot from experience. There is more to building a successful technology business, than just the technology itself. And it is this experience I want to share with you, and in so doing, learn a lot from your experience too.
It isn’t going to be just me sharing my experience though; once in a while, I will invite a few friends over and they will share theirs too. There is a lot to be learnt from anyone who has gone through a journey. And such a person is always a friend to innovators.
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It is one thing to start a business; it is another thing to grow a business. For me, the exciting part about growing a business is the ups ‘n’ downs.
There are periods when the world seems like a great place, and there comes that phase of your business journey when you just want to hide in a hole. That happens when your business growth stalls. I have been there. You would hardly find an entrepreneur who has not been in that situation. Infact, 87% of Fortune 500 companies have stalled at least once.
Let me put this into perspective, business growth stalling is a phase where your business model won’t be able to deal with new market realities and revenue drops.
To make matters worse, it doesn’t come up abruptly. It is a gradual thing. And If you are not investing in R&D or paying close attention to research-based marketplace insights, you might miss it.
Have you ever wondered why some businesses fold up due to their growth stalling? It’s because by the time it fully sets in, they are not prepared for it. They didn’t see it coming.
In my interaction with other business owners, I realised that two factors are responsible for growth stalling: internal and external factors.
Let me start with the latter; external factors arise from regulatory actions and economic downturns. You also want to look at macroeconomics factors in general and then, act of God. But then, all of these factors account for only 13% of the reasons business growth stalls.
Now, let’s talk about the internal factors itself. The main culprit.
Internal factors account for 87% of why business growth stalls: from exhausting your market and channels. For most businesses, it is usually that they have exhausted their channels and gotten to the limits of their distribution or acquisition channels.
But then, would these channels not eventually get exhausted?
Of course, they would. When you have a successful channel, you will definitely have your competitors leveraging this same channel. This will increase your acquisition cost, rendering the channel no longer effective and exhausted.
At this point, what do you want to do?
Figure out new channels!
You want to figure out new channels to satisfy how your customers want to be reached. And this is very important in bringing a unique value proposition to the market.
Think about this, if you have been solely leveraging physical channels, you want to try out virtual channels this time. As a matter of fact, a mix of both channels won’t be a bad idea for you to try.
There is one more thing.
You should also talk to your customers and explore and strategize about the best possible ways to get your product to them. You don’t want to joke with requesting feedback.
Remember Phillip Morris (producer of Marlboro cigarettes)? Although, they are now part of Altria. They failed to respond to the growth stall. Instead, they kept relying on the higher margins in their performance metrics. They didn’t take into cognizance that growth stalling is a gradual thing.
Another stark example is Levi Strauss. Gordon Shank, CMO of Levi Strauss, an American Clothing Company, sorrowfully admitted,
This was when the brand relationships with their distributors faltered between 1995 through 1999.
All of these events remind me of a section in Clayton M. Christensen’s The Innovator’s Dilemma, where he talked about a cycle of denial that kept management boards from responding to market fluxes.
As an entrepreneur, you have to respond immediately. If you fail to respond to competitive challenges or a shift in customers’ perception and valuation of your products as an entrepreneur, then you should expect your business to fizzle out. It’s not rocket science.
On the other hand, if you have not exhausted your channels, then you’ve exhausted your market. By the way, this applies majorly to businesses that started with a very niche market. The funny thing is most successful startups find themselves here.
A vivid example is how Facebook focused on college students in the initial phase. When they exhausted the college student market pretty quickly, they expanded. This is what is expected of you as an entrepreneur.
You want to look beyond your niche into similar ones and expand as quickly as possible to find new markets. This takes a disciplined process and requires a well-thought-out strategy.
Let’s put this into perspective, you want to review your business model, research competitors’ markets, establish a unique value proposition, work with feedback, get a working budget, and set a timeframe to drive the expansion.
As a nascent entrepreneur, execution is everything, and this is one thing you want to deliver justly.
When it comes to building a product, startup founders sometimes seem to dwell on the illusion that an amazing product is equal to great sales. You may have thought so at some point then realized it’s not, and if you are yet to make the discovery, then this will be both an eye-opening for you and a way out.
There are a few facts that you need to walk around within your mind as a startup founder or an entrepreneur, and I will make them short in a bid to making the flow pretty easy.
Your idea is not new, and there are lots of competitors in that space
Your perception of the value you offer will mostly be different from what the market/customers perceive it to be.
Your product is just as useless as an idea if it does not properly address the target market’s problems down to the point they can exchange money for such value.
Investors will never drop a dime if they don’t see how customers will pay for your value.
Should you give up because this is precisely what you have been struggling with?
Of course, not, you need to understand what a unique selling point is and how it is the game-changer for you if you find yourself in any of these situations.
The simple and straightforward definition of a unique selling point is what your product stands for precisely in the market, (what it sells itself as) and the approach you take to offer that service. Don’t worry if you cannot still break this down well, here’s an illustration I always give to entrepreneurs and business owners to help them understand the concept of a unique selling point;
Entrepreneur A identifies a problem and decides to provide a solution to that problem. The first problem entrepreneur A will experience is the fact that people think in different ways and perceive things differently. At this point, Entrepreneur A must make a move to understand what his target audience identifies as such a problem and what they need exactly from the solution.
A unique selling point might not be the solution itself, but what is perceived to be the solution. In business, you have to go for what the customer wants and is willing to pay for, not what you think the customer will need. A customer might need a product to save time while you are building it to save cost; it is obvious such a customer will not pay for it, and if they don’t, no investor will be willing to go for it seeing you have not identified what you are selling as.
Here’s another thing to note; a product can have different unique selling points to different markets. A bottle of water can be sold as a thirst-quenching utility to people in the desert and might be sold as a diabetes-prevention utility in another location. To another market, it might be a kids-lunchbox-necessity utility.
One product, different selling points.
So, how do you create a unique selling point for your product?
1. Take a study on the need of the market
There’s a market; you have your product. Now, you don’t just want to approach the market like every other competitor; you want to stand out with an edge over them. The biggest mistake is to assume you know the market’s problem without getting the information from the market itself.
Go ahead, take surveys, gather data directly, and create a consumer persona to fit all of these into a perfect puzzle to know what exactly their problem is. You need to be sure of what their problem is and, at the same time, be sure if they are willing to pay for that product offering.
It is one thing to study the need of the market; it is another thing to convert the need to what you are selling as. The purpose of taking detailed surveys is to help you stay grounded with data and facts to align correctly.
2. Create a value chain from your product offering to meet the need of the market
It is very important to understand the need the market is willing to pay for because you need to structure your value offering to meet the demand. Demand comes from dire necessity. If you own a bottled water company, you must realize that some key factors are in place, which might be: poverty, thirst, and scarcity. If your product offering is more expensive than what the market can afford, then you don’t have space in the market.
Once you set all these conditions in place, iterate your product pattern or offering until it meets the demand and the financial capacity of the market. Your value chain is what you will have created at the end of this process. Your value chain can also be referred to as your unique selling point. This is what you have chosen to identify as your value in order to position your offering at the point of sale.
3. Build a brand around your value
Once you already have your value offering set, you need to build a brand around the value. Building a brand goes beyond designs down to how, what, and where the target consumer will perceive the value you are offering. Your target customers have a need; they are aware, you need to create a perception that will drive the usefulness of your product as well as make it stand out unique to your product alone.
If you can follow this playbook to detail, you will have an amazing unique selling point that will help you meet the market at the point of need, sale, and expansion.
Beyond doubts, nobody will ever tell you that running a company will get easy with time, and this is because the market is ever-changing; consumer behaviors changes by the day, competitors rush in to saturate the market by the second.
Besides, economic catastrophe happens, and many factors could put your product or service under threat. This is precisely why you need to set up a unique selling point, which will help you remain identifiable in the market and help build a connection and psychology around your customers.
Finally, before you rush down to determine your market size; ensure you have your USP (unique selling point). Before you pitch to investors, ensure you know your unique selling point. Before you begin the execution of your idea, ensure your unique selling point is well identified. With rapt attention to the steps above, you did be able to build one for your product.
e-Commerce startups fail at an alarming rate. I think in the last decade I know about 15 e-commerce startups that have gone burst. Most didn’t survive two years, and the rest quit after four gruelling years. Even our two darlings Jumia and Konga are not doing too well. Konga was sold at a loss, and Jumia group is using revenue from other subsidiaries to cover up what everyone knows – e-commerce startups in Nigeria are struggling.
If you go online, search “why e-commerce startups fail”, here are the top 10 reasons you will find. But do they really explain the problem with e-commerce in Nigeria?
Poor online marketing
Lack of online search visibility
Little to no market for their products or services
Running out of cash
Price and costing issues
Retail giants dominating a large share of the market
To be clear, these are valid reasons for failure, and if you think about it, those reasons apply to every startup, not just e-commerce. But there is something unique about e-commerce that most people don’t see.
And you won’t see it unless you have actually run a brick and mortar retail store. If you have ever owned a shop, then you know where I am going.
It is not a big secret. It is simple. Here it is.
Your margin on every product sold is so small, you need to sell a lot of it for the business to make sense.
AND YOU MUST MAINTAIN SALES VOLUME WHILE keep your costs down.
It is why the supermarket in your area cannot afford to pay the checkout lady a proper salary even if it appears business is doing great and there is always a crowd when you go in. It is not because the owner is stingy, it is just the economics of the retail business. I know this, because growing up, my mom had three retail stores, and I was in charge of 1.
At that time, I didn’t know fancy financials, but I knew profit. I knew we made more profit from pure water than from the big boy that spends 6,000 on provisions (This was in the mid 1990s, 6,000 Naira on provisions was a big boy. For context, Coke was 20 Naira).
Sometimes we had a really good day, the cash drawer was full, but when we sat down to calculate our profit, by removing the cost of replacing each sold item, what we were left with was not exciting. Believe me when I say, it takes an immense amount of discipline to run a retail store.
So let’s go back to e-commerce, and why this insight matters. An e-commerce startup is not all online. The “e” in “e-commerce” is just 10%. The remaining 90% is gruelling operational offline work. Which makes it subject to the same economics as a retail store. But before I go on, there are two kinds of e-commerce.
There is the kind where you offer a platform for merchants to sell to consumers. You do not actually own any of the items. This is your 2-sided marketplace. Jumia and Konga are here.
And there is the kind where you sell your own items, there are no other merchants. It is simply you selling to your customers. This is not a market place, it is the online version of your retail store. The few supermarkets with online stores are here.
The two are very different in business models with different cost structures and revenue model, and I would revisit this later. However, irrespective of which one, you all make money off the difference between the actual cost of the product and the price you sell at. And this brings me to a more fancy term called Operating Income.
Operating Income = Total Sales – Cost of Goods, Logistics and Salaries
It is not a scary equation. Terms like total sales, cost of goods, logistics, salaries; are familiar to us.
When operating income is positive, we say the business is able to generate profit from its normal business operations of buying goods, selling it, and paying employee salaries. A positive operating income means the business works. The business generates enough income to cover day to day operations and still have extra to cover taxes and other expenses like buying a new generator or freezer.
When operating income is zero, we say the business is at break-even. The business is certainly not profitable overall (since this business will still need to pay taxes), but at least it can now cover its day to day operations.
When operating income is negative, we say the business cannot cover its running cost and will need to borrow funds to keep the lights on. Usually the founder draws from their personal savings or investments to cover the business costs.
Every business starts with a negative operating income. After a while the business breaks even, and then eventually things become positive and the entrepreneur can begin to earn an income from that business.
Operating Income = Total Sales – Cost of Goods, Logistics and Salaries
If you take a deep look at that equation, you will see why retails stores survive while e-commerce startups struggle.
Let’s say an e-commerce store and a retail store generated 1million Naira in sales yesterday. Who do you think made the most profit?
E-commerce startup like Konga
Cost of Goods
Cost of the item
Cost of the item plus small profit for the merchant.
Low. Customers come into store to get items. Logistic cost of getting items into store is spread over a lot of items fitting into the bus used to buy the items from distributor (or container from China)
High. Every transaction has a high logistics cost, since they need to be delivered to customer. Logistic cost can only be spread over items fitting into motorcycle, which makes it a significant component of every product sold.
Low. None of your staff need special skills.
High. Special skills required. Managing online content, professional customer service, accountant and operations administrator.
As you can see, the cost of running an e-commerce store day to day, is a lot higher than the physical retail store. It may cost more to setup a retail outlet. But after the initial setup or investment, the daily operating expense for a retail store is low. There is little logistics and administrative cost to selling in a retail store.
Apart from low operating cost giving the retail store bigger profit. There is one other advantage to having low operating cost. It is the ability to last. Low operating cost means you can survive periods of poor sales, especially if you sell products that don’t expire. The e-commerce startup does not have this advantage. Monthly salaries erode investments very quickly. This inability to last through drought, combined with the per transaction cost of selling, is what makes e-commerce a really difficult startup to build.
There is nothing complicated about business. You will be surprised at how simple things can be responsible for a business demise.
Here is what Nick Imudia, the new CEO of Konga said, after the acquisition.
Yes, you read that right. Konga plans to fix itself by establishing physical stores across Nigeria. Just an Harvard way of saying “this e-commerce platform shit is not working, let’s go back to the basics, igbo-boy style.”
Remember when I said there were two types of e-commerce? The one that is a marketplace, connecting merchants to customers. And the one that is an online channel for a retail store? Well, Konga is moving to the second model. And I think that is brilliant!
This is the lesson I hope new entrepreneurs will learn. I say “new entrepreneurs” because the CoVid-19 pandemic is minting new entrepreneurs. People are home, some have a lot more time to think and be visionary. A few will take the next step and actually start something.
In my day job, I lead a company that builds products for startups. And we have gotten a spike in enquiries during this period. It appears everyone wants to start something, which is fantastic. As it stands e-commerce is currently the #1 request since the start of the pandemic, before then, it was fin-tech.
E-commerce startups have certainly seen their fortunes change for the better during this pandemic. Most people now have to buy online rather than go to the store. So yes, this pandemic presents an opportunity. But it is an opportunity you needed to have prepared for.
Does that mean you shouldn’t start your e-commerce business now? No, you certainly can. But it is unlikely you are able to take advantage of this particular pandemic. What the pandemic does for you, is give you a better market, post-pandemic. What do I mean by a better market?
Well, there is one part of that equation I haven’t spoken about. And it is the “Total Sales” part.
There are two opportunities the CoVid-19 pandemic has created for e-commerce and they have to do with sales.
The first is the market size, which has increased. More people are online. The people who weren’t online shoppers before now, have now done online shopping, and they are finding out, it ain’t so bad. A percentage of them will stick post-pandemic.
The second and less obvious opportunity is the type of sales. I didn’t speak about the “Total Sales” part, while analysing the challenges e-commerce startups face. But they also face a big challenge on sales.
You see, when a retail store sells something, cash is exchanged, and the transaction is complete. 99.9% of the time, that is where it ends. Not so for e-commerce. For e-commerce, when the online transaction is complete, there is a payment option called “Pay after delivery”. All e-commerce founders hate that stuff, but they have had to put up with it so far.
“Pay on delivery” means even if the transaction is completed online, you cannot rejoice yet. The customer has not really committed and could easily cancel the transaction tomorrow. Which means, the 1million Naira you recorded in sales yesterday, is not really 1 million in cash sitting in your account. So while your retail counterpart is recording cash sales, you are recording an alien form of credit sales that may not materialise. At least half of the e-commerce startup founders I know, will point to this issue as the reason they closed down.
Well, there is now an opportunity to completely eradicate that option. With most people having no choice but to shop online, you can build a reputation for guaranteed on-time delivery, and remove pay on delivery, which most customers use as a safety option anyways.
I believe the post-CoVid19 world will be a very different one. The way we work will change, the way we do business will change. Business models will need to be reviewed, and strategic frameworks will need to be revisited. But don’t be alarmed, fundamentals will never change.
I have thoroughly underestimated how much I have to say on this topic, I have chosen to skip some notes, so as not to make the writing complicated. In a future post, I will write on why the second model of e-commerce is much better for the Nigerian ecosystem. Some of you may have figured it is actually an hybrid model, and that is part of what makes it brilliant.
Connecting Artisans to Customers, is definitely the idea I get pitched the most. Seriously, it is not even a contest. Whenever a prospective startup founder wants to have a session with me, two times out of five, it is about connecting artisans to customers or some variation of it, for example connecting mechanics to customers.
The idea is a typical marketplace play, where you build a technology platform, which acts as the marketplace for customers and artisans to do transactions. You typically earn money by taking a tiny percentage of every transaction that happens on your platform. The business is simple, it is attractive and it has huge potential. But why do few people succeed at it?
First, let’s look at all you will need, to run this business.
You are going to need the platform, obviously. It could be a web app people go to by typing a url on their browser, or it could be a mobile app people install on their phone, or it could be both. Entrepreneurs are usually confused on which platform to start with, and there is a simple formula or framework for determining this, but that’s a conversation for another time. For now, let’s just say you need a platform.
Next, you will need to determine who to bring to the platform first between the artisans and the customers. I have written about this conundrum already; it is the artisans you want to bring to the platform first. So you need to find a way to build your list of artisans. How many artisans would you consider the magic number? 100 artisans? 500? 1,000?
Then you find a way to bring in the potential customers. This is all about creating awareness. You want your target market to know this platform exists, so you will need to have all your activities or tactics for creating this awareness written down somewhere, ready to execute. Obviously, you will need to track each activity. How many web visits or app downloads to you expect from each marketing activity?
Finally, you have to get the potential customers and artisans to actually engage in transactions. No point having 10,000 web visits or app installs, if no one actually does any transaction.
So to summarise, the business operations can be simplified into four parts.
Build the technology platform
Get your list of Artisans
Create awareness amongst your target customers
Get both parties to engage in transactions successfully.
Guess which part everyone seems to focus on? Yep, the technology platform. Absolutely every single person I have had a session with, is all focused on the technology. Most of the startup funds they have, is going into building and maintaining the technology platform. But the technology is not the business.
Think about it, you could run the same business without a technology platform. All you need is a Whatsapp number or Instagram handle anyone can message if they need a good artisan, and boom! You are in business.
More importantly, which of the 4 parts do you think is your intellectual property?
Is it the technology platform? No, it isn’t. There are technology startups where the technology platform holds the intellectual property, but not in a marketplace startup. If your primary business is based on connecting one group of people to another, as in a marketplace, then the technology platform is not valuable. Anyone can build it. Easily.
If you were building, for example, an accounting software for small businesses, then yes, the technology is your intellectual property, it is valuable.
So if it is not the technology platform, is it the list of Artisans? Yes, that list represents intellectual property, and it is a valuable asset. You can always sell that list for money or even offer the list in exchange for equity in another startup.
What about your awareness among potential customers? Yes, that is intellectual property too. (Hopefully, you have this awareness in some measurable form, like a list of users). This is valuable asset. You can always offer those potential customers a different product. This is something a lot of startups eventually do if their original idea fails; it is called pivoting.
And finally, your ability to get both parties to engage in transactions? Yes, this is probably your most valuable intellectual property. This is where product managers spend most of their time and resources. And your ability do this successfully can always be replicated across any marketplace business.
It should be clear by now, why many technology entrepreneurs fail at this business. They focus all their time and resources on the one part of the business that is least valuable. The one part that proves nothing about your chances of success.
So is a technology platform useless? No, not at all. Technology is infrastructure, like good road. With a technology platform you will be able to handle more artisans, customers and transactions than you would without it. So yes, it is valuable, and if you read the previous sentence again, you will realise the technology platform becomes more valuable as you acquire more artisans, customer and transactions. It’s perceived value is dependent on those 3, just like the value of a good road is dependent on the commercial activities it helps to facilitate.
How does all these help you, the entrepreneur, that wants to go into a similar business?
The first step is to think beyond the technology. Ask yourself, if there was no technology platform, how would I run such a business? Trust me, you will need to do exactly the same thing, even with a technology platform.
When you ignore the technology platform and focus on the other parts, a lot of things become more clear. For example, it becomes painfully obvious you do not have the resources to acquire a list of artisans in Lagos, much less Nigeria. So you are forced to focus on a small geographic location and possibly a more specific type of artisan like mechanics, or carpenters or plumbers or tailors etc.
You will also realise “everyone” cannot be your customer. You do not have the resources to engage in activities that will create awareness for “everyone”. You will need to focus on a specific type of customer. Combine this with your focus on a specific type of artisan and/or geolocation, and you have created a market niche for yourself. This is startup 101.
Once you have a plan in place for getting your first 100 transactions without a technology platform, then you can come back to thinking about the technology platform. Believe me, you will think about the platform differently, and best of all, you execution will be totally different from the tech guy that thinks his platform will magically make everything work. I guarantee it!
A technology business is still just a business, and operates under the same rules as every other businesses. Entrepreneurs sometime think having their startup driven by technology somehow sprinkles it with some magical potential for scale.
I may have to apologise for this reality check; Money scales a business. What technology does, is to provide a much cheaper infrastructure for scale. Technology is really just infrastructure.
Let me give you an example. Your typical Ecommerce site, which is just an online retail store, still has all the business structure of a typical retail store. There is the shop attendants, there is the physical store and sometimes a warehouse, there is the logistics, there is payments. Jumia has all of these. Konga has all of these too.
What roles did technology play in their growth and scale? Well they didn’t need to open multiple retail outlets. The website was their storefront, but every other thing was there. The store attendants where there on the website, ready to assist potential customers. The warehouse was necessary to store some of their merchandise for quicker delivery. Logistics was super crucial, Konga had to setup their own logistics business unit. Payments was integrated into the website. How much do you think went into setting up all that operation? And we haven’t even began to have a marketing conversation yet. Marketing is not cheap.
I hope you get the point now.
You have Two million Naira, and you think to yourself, “I am going to launch an Ecommerce startup, I don’t need much money, it is all online”. Yes it is online, but your operational structure will not be too different from a brick and mortar retail store. Actually, with that money, you would be better off setting up a local store in a market. Trust me on that one.
I have got a question for you. Do you think it is possible to scale a retail store nationally without internet technology?
The answer is a resounding Yes. Businesses successfully scaled nationally before there was internet technology. Do you want to guess the technology that first enabled businesses to scale nationally? The Railway. The railway technology combined with the telephone technology (that was invented in the same century) powered the second industrial revolution that created America’s Billionaires of the 19th century. Nigeria never really had an industrial revolution, we “leapfrogged” into the fourth industry revolution which started with the emergence of internet technology.
So guys, disruption is not a new thing. Internet startups thinking they are disrupting dinosaur-businesses must learn from history. We are not the first generation to “disrupt”, and we are definitely not going to be the last. Yes, technology has the capacity to disrupt (why else would they call it a revolution), however technology does not change business fundamentals. All technology does is make things cheaper and faster, hence more efficient. But it does not remove the need for money. You will always need money to scale, and it’s best you prepare for that reality.
This is one question where you instinctively know the answer; but when you are asked, you still manage to get confused. Is a startup a business? Is a startup a small business? Is a startup a new business? Is a startup technology business? Or a combination of all of the above — a new small technology business?
Simple answer; a startup is a business that is still trying to see if its way of doing business will work.
Key phrase here is, “if its way of doing business will work”. And it implies novelty and learning. That is, the business is doing something different and learning from mistakes.
There is not much reference on the history of the word “startup”, except for some Forbes article from 1976. What we do know is, it has always been associated with technology – from the semi-conductor businesses of the 1970’s to the software businesses of the 1990’s. Strictly speaking though, I do not think a startup has to be a technology business. It’s just that most novelty comes from technology.
Before I continue, it will be a good idea to define the term “business model”, since I will be using that phrase a lot. A business model is a plan for the successful operation of a business. It involves identifying sources of revenue, the intended customer base, products, and key business activities.
Alright. So we know a startup is doing something different, it is why a startup is trying to see if its way of doing business will work. Put another way, a startup is really just trying to answer the question “will my business model work?”. The startups that get funded by investors are those, who have been able to convince the investors that there is a great chance their business model will work.
This is very different from a new business with well known business models. For example, if I wanted to start a restaurant business. I don’t think I would need to convince anyone of my business model. I think the only concern from potential investors will be choosing the right location, assuming of course, that I already have experience running a restaurant.
So where does all these, put the innovator — the entrepreneur that has decided to things differently, and needs to figure out how to make a business out of it? Well, he needs to be in a constant state of learning, embrace mistakes and be resilient.
A big emphasis on “learning”. Don’t raise a million dollars if you have not learnt anything; else you will make a million dollars mistake. And don’t even think you can raise enough more to cover up a mistake in your business model. Amazon’s predecessor, WebVan, raised over $800 million between 1996 and 2001, but still ended up filing for Bankruptcy in July 2001. Most of WebVan’s executives went on to work for Amazon who learnt from first selling Music CDs, Videos and Books.
You don’t want to be the guy who makes an eight hundred million dollars mistake. If what you are doing is a startup, make sure you are setup for learning till your business model is proven to work.
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After writing this post, I found out, a lot of people define startups differently. For example, Investopedia says “A startup is a company that is in the first stage of its operations”. While Wikipedia defines it as some new business that intends to validate its model and then scale it. I couldn’t write the exact Wikipedia definition, it is a complicated sentence, and I don’t like to complicate things. Read it for yourself here.
I think the Investopedia definition is way too broad. The Wikipedia definition focuses on business validation and scale, which is more in line with my thoughts, except, I don’t think every startup needs to scale, but that’s a debate for some other time.
What should I use to build my startup? What programming language is best? What tech stack is best?
(By the way, if you are a software developer, you could stop reading, or you read from the perspective of your non-technical cofounder)
There isn’t usually a straight answer to a technology question. One way to know an experienced tech practitioner, is if his answer to everything is “it depends”. Because, it really does. And I am going to try and highlight certain contexts where there is a definite answer.
Enterprise Software: Is your startup building software that will be used by big organisations? Then as part of your sales process, you are going to need to convince the Head of IT or IT manager, who acts as the gatekeeper. The IT Manager, being a technology practitioner will be more comfortable if you use tools that are traditionally known to work in an enterprise environment. So, points scored if you use Java as your programming language. Plus Microsoft SQL Server or Oracle as your database system. If you use whatever the new kids are using, you are going to have a hard time convincing the gate keeper that your solution is “stable” and “robust”.
And that’s it.
Yes, that’s the only time you need to be particular about your choice of technology. Only when you have to convince another technology person. The rest of the world does not care what you used to build your startup, as long as it works.
So what works?
Well, everything works. Build your startup with whatever technology works. As a matter of fact, your only consideration should be “How quickly can I get someone else to continue building with that technology.” And this is where a lot of the startups get it wrong.
Most startups want to build their idea with the latest technology stuff from silicon valley. It’s a bad idea. You are a startup because you have limited resources. And one of those resources is human resources. If you find a developer using some cutting edge tool from silicon valley, how easy would it be to find another developer proficient in that tool?
For example, a friend recently called me and told me his developer has abandoned his startup to go work with someone else, and he needs another developer to continue the project. I asked what language and tools was used. He said, NodeJs and MongoDB. I had to explain to him, that he was screwed. A senior NodeJs developer is hard to find, most already work with some cool startup. What he was trying to build could have been done with PHP. If I stand at the corner of University street in Yaba Lagos, a PHP developer is bound to pass by me.
I think one major reason entrepreneurs go for cutting edge tools is because they want their product to be “fast”, they want it to “scale”, they want it to be the “best”. What you don’t know is, in a startup, the best tool is the one that requires the least resources. It doesn’t have to be the fastest, and it doesn’t even have to scale efficiently. Why? Because those are problems you will only have when you have a lot of customers. A lot of customers means you have a lot of money. Money can fix everything. Why make technology investments for a situation you are only likely to face in future if the stars align in your favour. That would be like buying a Ferrari now, because you want your 3 year old son to practice driving fast cars once he turns 15.
I am not saying your startup should be of poor quality. No, use cheap and easily available tools. But pick a high quality person. It is the person that makes the difference, not the tools. A great developer, willing to use basic tools to build the first version of your startup is a very valuable resource. If you find her, don’t let her go.
So what technology tools should you use to build your startup? Whatever is cheapest and whatever works. Just put your effort into finding the right person or team.
What is a two-sided market? It is one in which you act as the intermediary between 2 distinct groups who must come together, that is, neither can exist alone. For example, Uber is the intermediary between Drivers and Riders. Most Ecommerce platforms are two-sided, they connect merchants to buyers.
Well, there is something you should know; they are notoriously hard to pull off.
First challenge, who do you bring to the platform first? No, you can’t bring both to the platform together. One group has to wait for the other. Uber had drivers on the road, before the launched to riders. Imagine they launched to both groups at the same time, that would have been silly. Yet, that is what I have seen startups do over and over.
Say you correctly identify the side to bring on first. How do you convince that side you are worth taking a chance on? How do you convince them to wait, while you go bring the other side? Uber did this by giving drivers a guaranteed income of 100,000 Naira per week, irrespective of the number of rides they took, as long as they were online for certain hours. I think they did this for a few months.
Now, say you figured out a way to make the first group trust in your capacity to deliver, and you get them to stay committed to the platform; you now need to go talk to the other group and convinced them that the first group is in fact already waiting for them. That all they need to do is sign up to your platform. Usually, the second group is the one with the money to spend, so you have to be really convincing.
If by some miracle or sheer determination, you get the second group to come in, just in time, before the first group abandons the platform; you now need to make sure both groups are engaging in a lot of transactions. Few transactions, and you don’t make enough commissions to sustain the continuous marketing and operations the platform requires. You need a lot of transactions to survive. It is at this point you feel you are in a great position to raise money from investors.
Then comes the final challenge, you need to figure out how to embark on a time consuming fund raising process without any drop in traction (traction is measured in transaction growth). Remember, if your number of transactions drop, that potential investor will raise an eyebrow, and probably ask you to come back in a few months when your numbers pick up again. But you don’t have a few months.
Still feeling confident? I hope not.
By now you should have figured you need a truck load of money to build a technology business that targets a two-sided market. Or do you?
Well, there is another way. And it starts with choosing a very small market. Don’t connect all the electronics sellers in Lagos to Buyers in Lagos; connect all the electronic sellers on Allen Avenue, to buyers in Ikeja. If you are going to give yourself a fighting chance, there is no other way but to choose a really small market. Let it be so small, your friends laugh at your lack of ambition.
After you do this, your next move will be dependent on your market and context. And I am willing to have a chat with you about this. The Airbnb story should be good inspiration. They picked a small market and targeted specific events – basically they would wait for events or conferences that are guaranteed to draw enough crowd that the hotels in their area will be overbooked. And then they try to capture that extra demand.
Think about it, Airbnb, the company now worth billion of dollars, started by going to events where people were likely to be stranded because of no available hotels, and convincing them to try their Air Bed n Breakfast. And they did this for two years before they had their big break.
Point is, if your big idea is a two-sided market, you’ve got your work cut out for you. You are going to need all the money you can get, and you are going to need all the support you can get. Feel free to get in touch with me, it is likely I know someone who has tried to do something similar. That experience, would be worth the person’s weight in gold.
At some point we would have to get back to work, maybe it’s next week or next few weeks, we would eventually have to return to work. And when we do, the pandemic will not be over.
I am aware we are taking the coronavirus issue seriously, but If there is one aspect of this pandemic I feel like most of us have not grasped, it is that the pandemic does not end when the lockdown is over.
The lockdown has slowed down the rate of infection. But when we get back to work, infections will rise. That is certain. And this lockdown will need to be done a few more times throughout the pandemic, until a vaccine or cure can be mass produced and distributed.
In Nigeria, our pandemic problem, which is a serious problem because of our poor health infrastructure, is now compounded by 3 issues.
Falling oil prices. (We can’t sell to make money)
Our inability to process our own oil. (We don’t have to consume)
Eroded foreign reserve. (We don’t have any savings)
It’s crazy. It is like being sick and broke at the same time. And this is not your typical broke, where you are expecting money soon. I mean piss poor. No money, and no hope of getting money.
So we don’t have the money to build an hospital in 3 days or mass produce drugs when we need it. What happens when we get back to work? We know there will be accelerated infection spread. And we know there is no vaccine coming till early next year at best.
Well, first world countries like the UK plan to put in place social restrictions for the remainder of the year 2020 (https://www.bbc.com/news/uk-politics-52389285), and that is just what is going to be moving forward. Everyone will get back to economic activities, but measures will be put in place to limit the spread of the virus. There will be restrictions and limitations. And here in lies new opportunities.
How do you help a pandemic world create a new normal? Because the old normal is gone.
Here are my top 10 business opportunities that will be created by the coronavirus pandemic, in Nigeria.
1. Local Tourism.
International travel will become a real pain. Most countries will put in place tough restrictions, no one wants visitors to come trigger another infection spread. The upper middle class who love to travel out just to relax will weigh their options. But they will need the options.
Those who have been promoting national tourism should rev up their promotions. There are exciting places to relax in this country. The amazing ladies at Visit Nigeria Now already do a great job showcasing the best of Nigeria, I would expect increased business as families look to have fun without being in crowds. I am pretty sure they offer packages for families and small groups.
2. Event Live Streaming service.
Since crowded spaces will still need to be avoided. It isn’t just churches that will be doing live streaming now. Weddings will have to be live streamed. Birthdays too, and corporate events. This is a service that is easy to setup and provide, just some initial investment required.
Since I am on this topic, there is a problem I anticipate. Since we have to avoid crowds and invite fewer people to our events, how do you choose who to invite to your wedding and who to send to the live stream? I foresee some major conflicts between brides-to-be and mother-in-laws. If you are the groom, your allegiances will be tested. Sorry.
It is sad. In developed countries, food waste comes from over-consumption, in Nigeria, it is simply because it can’t be transported. This is an area entrepreneurs can provide value, and people like @FoodJaar are already helping their customers take advantage of low-price, direct-from-farm produce.
4. Food Processing and Storage.
This is the other leg to the point above. There are lots of food that can be processed and stored. There is no reason why 900,000 tons of tomatoes should go to waste every year, when salt, sweetener, garlic and spices, is all we need to convert tomatoes into ketchup. It is so simple to process tomato, it is ridiculous.
Imagine what life would be like if we didn’t have our local method for processing cassava into garri? Same could be done for many other farm produce, and a lot of the machinery required can be sourced locally. You might not have an automated processing line, but you will process and you will make money. Thanks to now being broke, we can no longer afford to keep wasting food or importing non-essentials.
Speaking of which, everything along the agricultural value chain will be good business. So if you are into agric, can I be your friend? I do know how tech stuffs work 😉
5. Micropayment Solutions.
The coronavirus survives on paper from a few minutes to up to 24 hours. So an infected person could easily transmit infection by exchanging cash. While we can do cashless for most transactions, the plantain woman will give you the eye if you don’t show her cash and start speaking English. This is where Kenya is way ahead. Market women, and most of the informal economy use a cashless payment service called M-Pesa.
This is the time to have ours. We need financial solution for micropayments of 500 Naira and below. It has to be simple, no need for cards or bank accounts. Something anyone with a mobile phone can use.
6. Premium Branded, Normal Priced Clothing.
It is amazing that we don’t have our own fashion label that makes cloth for everyone. The few local fashion labels I know either focus on native wear or focus on upscale customers. I don’t know anyone doing mainstream stuff. No one is making jeans we can wear everyday, or shirts we can wear to work. But wait, I might be wrong. We already make them but we slap a foreign brand on top of them. So the opportunity here is actually a marketing opportunity. The opportunity to create a local brand that people will want to identify with. Why should I wear a Levi jeans when Chike jeans looks great and cool to wear.
Remember those middle class people that won’t be able to travel abroad, well how will they now do their annual summer shopping? There is a lot of opportunity here for those who are willing to look deeper.
7. Local Data Centres.
Why do we spend so much on data to watch Jenifa’s dairy or our favourite local content, when we could actually watch it for a fraction of the data cost? I am talking almost-free data cost. Well, that’s because Jenifa’s dairy is on a server located in United Kingdom. And why does it matter? Because what we call the internet is really just a bunch of connected cables. Yep. 420 cables running under sea, connecting countries across continents. As it is, we have only 5 cables connecting us to the outside world compared to 55 for the United States. (https://en.wikipedia.org/wiki/List_of_international_submarine_communications_cables)
Anytime our internet service provider needs to transmit data over that cable they pay a fee to the owners of that cable. Glo owns one cable. MainOne owns one. MTN co-owns two, and Nitel/Ntel co-owns the fifth. If Jenifa’s dairy was put on a server in Lagos, you wouldn’t need to view it over that cable, you would watch it without buffering while paying a fraction of what you currently pay.
A lot of our local content sit on servers in North America and Europe. We don’t need more cables connecting us to the world, we need local content to be on local infrastructure, and this is what China has done. Based on the Quora answers here about internet speed in China, you can see that accessing Chinese content is blazing fast 50 – 100MBps, but international content is no-where as fast. That is local network infrastructure at work. I will explain later.
8. Infection Testing as a Service.
Everyone will need to get back to work and testing is certainly one measure that must be put in place. People who work in large companies will need to be tested, periodically. Imagine going to a company and saying you could offer to test employees every week for a small amount per week. It would be like a subscription service.
Those who have flu-like infections can be picked early and told to work from home. The test for flu virus will also apply to corona even if most of those with viral infections may not have coronavirus.
Organisations can share this cost between the business and the employees, but make no mistake, frequent testing will be a necessary measure to put in place, so you young folks don’t kill off the directors with your asymptomatic infections.
9. Communication Tools built on Local Infrastructure.
I remember while I was in University, there was this popular war strategy game called Ageof Empires which I would play for hours with friend in other parts of the hall. We were all on our computers playing a multiplayer game without the internet. We all simply connect to a central local network and played a real-time multi-player strategy game without issues.
Same thing can be done on a national scale, and it is exactly what China has done. China created its own internet. Remember those under-sea cables I spoke about earlier, China has 15, but China can afford to restrict access to those cables without significant impact on their economy. As a matter of fact, it is what they already do. The world may be saying China has restricted access to the internet, but most of its citizens do not notice, much less complain.
That’s because everyone can still communicate with each other, video calls, chat and even emails work. As long as you are communicating with someone in China, it works fine.
For us, there is no reason why a call between someone in Lekki and another in Victoria Island, should be done by Zoom, when it can be done by a local app that wouldn’t need to route the service through a server in the United States.
We could wait for Zoom to setup a datacenter for their communication server here in Nigeria, or we could just build our own communication tools, and enjoy video calls at HD quality.
10. Insurance Brokerage Service.
What happens when everyone is afraid of getting sick? They look for insurance. Most of the Nigerian population is uninsured. Most of the workforce in the SME sector have no health insurance. This is a great time to start an insurance brokerage service business, if you are willing to target communities and trade associations. Insurance brokers simply help people find insurance cover and purchase insurance on behalf of their clients.
(Bonus) 11. Freelancer Platform.
These are uncertain times. Some businesses are closing, and some are downsizing. Which means there will be more professionals out there, who are out of jobs. It is a sad situation. Most professionals are aware of freelancer platforms like Upwork, but guess what, that would be filled with other out-of-work professionals from around the world. We are going to need our own local directory of professionals. A platform with this listing and the capability to facilitate digital collaboration, and more importantly support payments in Naira, will be very useful now.
These times are unprecedented, as a country, we will have to look inwards and to our neighbours to survive. Unfortunately, we have been great at neither of those things. The international community who we usually look up to for help, will not be able to save us this time, they have their own issues to deal with too.
Unlike in previous crisis, this one affects the entire world, so every country will have to learn to deal with their own problems. If there is ever a time for the African Union to gain relevance, this is it. Right now, the best form of support will come from neighbours. Africa has all the resources it needs to thrive, we should know this by now.
People are going to loose jobs, and again unlike before there is no international opportunity to pursue, since a lot more people over there have also lost their jobs. If you ask me, this is the time for everyone to pull whatever savings you have together into starting some small business or investing in one you believe in. Please remember to sign contracts and involve lawyers.
It is my sincere hope that this post has got your blood pumping and idea juices are flowing. If you have some related ideas, feel free to write to me or discuss it in the comments section below. Also let’s be generous and share this post. There are so many opportunities, but we are going to need each other.