African startups are playing in hard mode

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Today we’re exploring the tightrope that African startups walk: the need to launch in different markets and the risk of running out of money.

It feels timely. Yesterday, Kenyan scaleup Sendy went into administration.

Last night I also talked to founders Tola (Norebase) and Adewale (AltSchool) about how they launch in different markets. Some great advice went around.

If you have any perspectives (particularly from founders, operators, and investors in the arena) I want to hear how you think about launching in different African markets.

Alright, let’s get into it!

Startups are tough. 90% of them fail, and 70% don't live to see five years.

Now, imagine doing a startup in Africa.

African startups face big road bumps - like limited funding, shaky infrastructure (roads, electricity, and internet), and currency ups and downs.

It’s like playing in hard mode.

And what makes it harder?

Africa’s earning potential is capped, with about 28% living below the poverty line.

When people don't have much money to spend, you can only make so much.

And your business can only scale as much. It also means that…

Startups need to launch in multiple markets to survive.

Focusing on just one market is like walking a tightrope.

You might reach the other side, or you might stumble and fall.

And here's why stumbling is more likely.

While Africa's huge population offers a lot of potential customers, it's mostly untapped for now.

In 2021, the GDP per capita in Sub-Saharan Africa was only $1,631.

This means that on average, each person earned that much that year.

Now, take a peek at Europe, where the average person was pocketing around $38,436.

With much lower average incomes, you can't exactly put luxury prices on your products.

In fact, if what you’re selling isn’t a core need, it’s going to be a tough sell.

But low prices can pinch your profit margins, no doubt.

Even Nigeria, the heavyweight of Africa's economy, ranks 15th in Africa when it comes to average income per person.

So how do you win?

You grab as many customers as you can, growing your presence across multiple markets.

But a small market size isn’t the only downer in Africa.

Markets are also highly fragmented, and their regulations change fast.

Market regulations change with new leaders, shifts in the economy, or with international agreements.

And when those changes hit, even the tiniest shift could leave you royally screwed.

Case in point?

Nigeria’s foreign exchange policy.

Back in June this year, Nigeria rolled out changes to its foreign exchange policy.

Now, they’re letting foreign currencies be traded at rates set by the market - not the central bank.

And since then, Naira has taken quite the tumble.

It went from 477 per dollar on June 13th to 750 on June 14th.

For startups, this is a bit of a curve ball.

Imagine raising money in US dollars, earning money in Naira, and suddenly having the value of your revenue sliced in half.

Then having to report your revenue in dollars for global investors.

It’s why African founders have to go multi-market to win big. They have to launch to survive.

It opens the door to more customers, acts as a safety net in uncertain times, and gives you a better shot at ruling your niche.

But expansion is easier said than done…

And sometimes, expansion hurts.

Africa’s e-commerce top dog.

For over a decade, Jumia has been the big shot of Africa’s e-commerce.

But more than a decade after it set sail, Jumia is still losing cash with no clear map to profitability.

Its revenue from the first half of 2023 stood at $94.8 million.

But, as Lisa said last week in our Finance for Founders Session - building a business isn’t about revenue. It’s about profit.

And when we double-click on that revenue - Jumia’s $94.8 million in revenue, came with losses of $63.7 million.

And for every $100 they made, they ended up losing $167.

One of the reasons for Jumia's struggles is its high operating costs.

Jumia became the top dog of Africa’s e-commerce by expanding quickly - spreading across 14 African markets.

But expansion isn’t cheap.

Jumia struggled with high operating costs - like including salaries, offices, advertising, and the like.

Expanding into new markets also involved building new infrastructure, like warehouses, advertising agencies, and payments.

But that price was a bit too high.

Jumia shut down operations in Tanzania and Cameroon, discontinued Jumia Prime in 9 countries, and eventually laid off 20% of its workforce in Q4 2022.

But it’s not just higher bills that can give you a headache when expanding across Africa.

Dealing with wildly different market dynamics is part of the package.

And SWVL have had quite the experience.

SWVL started in Cairo back in 2017.

It's like ride-sharing but for buses, and ride-hailing is quite popular in Cairo.

You pick a route, book your seat, and pay on the SWVL app, then catch the bus at a stop.

SWVL wants to give people a cheaper and easier way to travel than regular buses and taxis.

In 2019, SWVL launched in Kenya to provide ”on-demand bus transit.”

And three years later, they packed up and hit the road for real, shutting down.

So why did SWVL fail in Kenya?

SWVL’s first mistake was to assume that on-demand bus transit isn’t big in Kenya.

It is.

Meet Matatus.

Matatus are privately owned minibuses used as share taxis.

And these minibuses are not just ways to get around.

They’re a culture with their identities:

• They’re regulated.

• They have distinct, cool designs.

• They’re very flexible with their schedule.

• And they operate along specific routes, with a wide coverage within cities.

SWVL tried to take on Matatus by offering convenience, but it was quite a bumpy road.

They could get commuters during peak hours but struggled to fill up during quieter times. And since they prided themselves on being punctual, they often had to run half-empty vans, which was unsustainable for business.

Matatus, on the other hand, are cheaper, and very flexible with timing.

This means that they can wait around until buses fill up.

Considering their wallet-friendly pricing and the fact that you don't need an app to book, most Kenyan commuters simply preferred them.

In SWVL’s case, culture (in the form of matatus), simply ate their strategy for lunch.

Launching is key to survival. But it’s hard.

Jumia and SWVL are not the first to stumble in Africa’s market race.

And they won’t be the last.

Some will miss the market like SWVL. Others will run out of cash like Sendy.

And some might face hard regulatory rules like Chipper Cash (Kenya) and get banned.

But hey - a few do actually win.

• Moniepoint, a payments and business banking giant from Nigeria, is expanding to Kenya by acquiring Kopo Kopo, a fintech that offers payments and credit to businesses.

• Cellulant, one of Africa’s oldest payment companies, handles digital banking for big banks across 35 African markets. They've got boots on the ground in 18 of them.

• Paystack, after getting acquired by Stripe three years ago, is now live for merchants in Kenya.

• And Wasoko, a B2B e-commerce startup, recently launched in DRC. So far, they’re operational with over 50,000 informal retailers across Kenya, Tanzania, Rwanda, Uganda, and now, DRC.

These companies prove that it's possible to expand and win across Africa.

Just remember to fully own your home turf like Paystack and Moniepoint, tackle local pain points like Cellulant, and expand carefully into nearby markets like Wasoko in East Africa.

Do you think African startups need to launch to survive? And which startups have nailed their launches?

Let me know here.

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