Op-Pieces

The ecosystem needs a monster hit (Warning: Cheeky Video Ahead!)

. . . the first day we put an account number on the website, we got an alert. – Nigerian founder

In my wandering across the interweb, I came across this nugget of wisdom, which I would like to share.

You’re not a real business until you get paid. Pre-revenue, your “startup” is just a hobby. If your startup is venture-backed and a registered business but has no paying customer, then it’s just a glorified, well-funded and registered hobby.

 

A conversation about comedy in Nigeria

Last week, I was having a conversation with my brother, Obi, and he made a really interesting observation. He said, “Before Alibaba, comedians in Nigeria were a joke! He transformed comedy into a business.” I found this interesting because it helped crystallise some of my thinking around the problem with our startup ecosystem. What we need is a monster hit. Alibaba came and professionalised comedy; he made it a career. He demanded hitherto unheard of fees and customers paid gladly. We had always had funny people hustling to make a dollar, like the late ace comedian – Gbenga Adeboye. Alibaba was cut from a different cloth, he showed that comedy did not have to remain a side-hustle or hobby. When President Olusegun Obasanjo invited him to Aso Rock to perform, he inadvertently validated a nascent business model. Alibaba birthed an industry and was the forerunner for so many others like Gbenga Adeyinka III and Basketmouth.

In a similar vein, Jay Jay Okocha and Kanu Nwankwo did the same for football, elevating the sport from the sole preserve of ne’er-do-wells to a viable career path for talented children. There were many before them but in a sense, you could say they were the first to BLOW! By doing so, they made it possible for others to follow in their footsteps.

 

The blind leading the blind

It’s true we have Jason’s Iroko, Tayo’s Paga, and Sim’s Konga. These are huge startups which are apparently creating value for their customers and investors. The operative word here is apparently. These three behemoths are private companies and while we have a ballpark idea of how much they’ve raised from VCs, they are under no obligation to share their financials in the public domain and so they do not. Those who are interested have no recourse other than to make educated guesses. Today we hear Iroko raised $$$s, tomorrow we hear inside sources claiming Konga is losing $$$s. Next we wonder why Paga with all their $$$s have not managed to crack the product/market fit for mobile money in Nigeria. From the outside looking in, it is a case of the blind leading the blind. Wouldn’t it silence all the naysayers and second-guessers if one or more of these companies had gone public at a multi-billion naira valuation? I think so.

 

What makes a “Monster hit” and what can it do?

I recall the very first time I heard Coolio’s Gangsta’s Paradise, Boyz II Men’s Cooleyhighharmony, 112’s Only You, Puff Daddy’s (yes, he was still called that back then) Missing You and more recently 50 Cent’s In da Club. I immediately knew these were going to be hits. Maybe you did too. The question here is what makes a hit a hit? I strongly doubt it is my approval alone that catapulted these songs to hits. More likely it will be the approval of millions of people like me who heard the songs are went out to buy them. Commercial success.

Bringing this home, let us talk about Remedies, Tony Tetuila and the Plantashun Boiz. There were singers before them but none quite like them. Their hits fuelled an industry and built Kennis Music, the Cc Hub of the music business. Tu Face’s monster hit, African Queen raised the bar irreversibly. It taught music lovers to demand better and it encouraged artists to do better. His success also made a career in music seem like a viable pursuit. Now the local music scene is recognised as one of the most vibrant in all of Africa.

 

The missing ingredient

Omobola Johnson, the Honourable Minister for Information and Communication has been spearheading efforts to bring much-needed credibility to the tech ecosystem. Last year, she and a few selected startup founders junketed to Silicon Valley for a show and tell. The aim was to learn from the alchemists in Silicon Valley how to create global IT companies right here in Nigeria. Awesome initiative. The Federal Government of Nigeria is backing an established Silicon Valley VC to make investments in Nigeria’s startups. There is also Co Creation Hub which in addition to its socially-aware initiatives is working with several fledgling startups to find repeatable business models. The list is seemingly endless but there’s one thing you will not find even if I kept reeling out initiatives, partners and events for an hour still – an exit.

 
NSE
 

Before you bite my head off, I would like to acknowledge Chams Nigeria Plc and Courteville Business Solutions Plc (the folks that brought you AUTOREG). These are technology firms but somehow, they don’t quite fit the bill as startups. The same goes for those in the Computers and Technology (IT) category on the NSE. Courteville definitely had humble-ish beginnings but they never quite identified with the ecosystem even though I see they have moved to Yaba. I think this generation of founders needs its own set of success stories.

 

Show me the money

Success stories, beyond press releases about VC funding, do something almost magical to an ecosystem. A huge exit for one startup will go a long way to legitimise everyone’s efforts and raise the profile of all startups in lockstep. Success stories are great because they unambiguously signal to investors that there is value being created and the pie is big enough to go round. Success stories make the initial decision to work at a startup less heart-wrenching for many. They help parents manage their anxiety somewhat when their child tells them she is turning her back on Corporate Nigeria and embracing the life of a startup founder. Of these, the most critical is the parental pressure bit. Just kidding! Of course, it is the investor angle.

 

Because. . .

When local investors start to take Nigerian tech startups seriously, we will see a real and sustained change, akin to what happened in comedy and football. We will attract higher quality founders and we will have more startups working on truly interesting problems. I strongly believe the main reason why so few startups are working on original and innovative ideas is the fear of failure. Not just because of the ‘intangibles’ like the stigma of failure and the reputational damage. You see, most startups are self-funded and founders are usually betting the barn on their startup’s chances of success. With stakes that high, who has time to dilly-dally with innovation? Much better to airlift in a successful idea and apply it to the local market.

 
Photo Credit: Zanini H. via Compfight cc

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Finance guy, volunteer teacher, unsigned blogger, and high functioning recluse. Interested in business strategy, new ideas and capital formation.

14 Comments

  1. True stuff man. Lots of takeaways for an entrepreneurs and local investors. The money needs to flow to seperate the chaff from the wheat – and even convert some chaff to wheat in some miraculous way. Thanks for the share again – keep it coming.

  2. This promotes an exit mentality. Exits are good but we need to get honest with each other and just build big business that create value. Investors or not. Exits (I've been through one myself) are mostly a sham anyway

    1. Iyinoluwa, thank you for contributing.

      What is an exit mentality? Is it wanting to make good for yourself, your investors, and your employees? How do you build businesses when your industry is struggling to attract and retain talent? How is this exit mentality that much different from setting a price for your services? Where value is added or created, wealth should follow suit. Otherwise you have a skewed reward system that disincentivises entrepreneurs.

      You have not spoken out about fundraising so I assume you have no qualms with that. How do you marry that standpoint with a seeming disdain for exits? I definitely do not have all the answers but I do know that it could reasonably be interpreted as foolhardiness if we continue to do the same things and expect different outcomes.

      I would really like to hear about your experiences prior to, during, and after your exit event. Why has it left such a bitter taste in your mouth? I definitely see investors as a critical piece in the creation process. One that is largely absent on these shores. I do not attribute this to a lack of means, rather it is due to a paucity of market comparables. It means nothing to an investor if, for example, a startup founder describes his idea as the "Prowork for events", or the "NotJustOk for academia". What are those companies worth? How do I value your idea? Why should I be interested? My #2cents sha.

      By the way, we met at #tcbattlefield but we were not formally introduced. I was the one who asked if you had a battery pack in your backpack. I would love to meet up soon.

  3. I enjoyed the video, had a very good laugh. I had to stop looking at google analytics at a point, i think it started becoming some sort of analytics porn. Anywayz I understand what the article is trying to say, but i think you were forcing the data to prove your point whereas the data is saying something entirely different.

    I am much interested in the tag line as well from the Nigerian Founder. If you could expatiate, that would be great.

    1. Hello Ajibz and thanks for leaving me a comment. Glad you enjoyed the video. Interesting to hear that you interpret the data differently. Do we have the enablers required to grow an ecosystem, in your estimation? I mean the manpower, the money, and the attitudes? Perhaps, I roll in the wrong neck of the woods.

      My theory (and it is really just a theory) is that when people (investors, bright graduates, parents, the government, etc.) see compelling evidence that tech startups can be a lucrative venture, things will begin to look up across board. That is my premise and I think the date strongly supports that.

      Regarding the tagline, it came up during one of my numerous customer development interviews with tech startup founders here in Lagos. The founder in question said to me, "if you cannot generate $1,000 a month in revenue, you have no business looking for investors. $1,000 is the easiest thing to do, even if you're simply buying retail and reselling on ebay." When I asked about his numbers, he said he had lots of ideas he could have chosen from. However, once he started the one he's presently working on, the market adoption was swift and compelling. Investors sought him out.

      You're right to note that I never expatiated on the statement. If I had, it would have been to say that as tech founders, in order to survive our only hope is to search out and exploit ideas with deep pools of existing demand. These "no-brainer" ideas are the only things that will get funded. As it stands, investors in tech startups in Nigeria expect to make money from dividends rather than exit events. This is good but it also stifles innovation. Truly innovative ideas (which follow the typical adoption lifecycle) will continue to remain overlooked if investors have no existing comparables to draw on. Perhaps this is why we have so many startups working on "me-too" ideas.

      1. the seeds have been planted and every startup popping up is watering the ground, so yes we do have what it takes to grow the ecosystem. It is still nascent and doesnt and may never resemble what obtains in silicon valley.

        I heard someone say solve a heartache not a headache for your startup, currently support goes to the heartache problems, no biggie. Not all innovation is useful, especially immediately, some things just move the needle a bit further. Trial and error seems to be the inevitable pill we all have to swallow.

        The tech companies that are on the stock market set a precedent that others coming should aim to surpass, they may not be valued in billions but baby steps. Just thinking, not too many people are doing what Dangote is doing, and his companies are valued in billions. The "exit" can't be what will determine a monster hit, in my opinion Iroko, Konga, Jumia, Jobberman are monster hits already.

        1. ". . . solve a heartache not a headache", that is priceless!

          The startups popping up (and mostly failing) are watering ground but you realise that an ecosystem requires much more than water and soil. You need favourable climate, animal life, etc. Do you think we can build without attracting local investors? Will US VCs do it for us?

          I missed the Dangote analogy. If you please, shed some more light. Isn't it Dangote's success that drew people to try their hands at commodities? Wasn't it Lafarge and other importers' profits that drew the same Dangote to cement? Few tech startups will throw off the sorts of revenue that piques investors' interest anytime soon. I merely suggested a hack to get those investors to the table.

          One ecosystems, see the sustainable man. Very enlightening on how one element/participant can alter an entire ecosystem.

          1. i try to appreciate small beginnings, if things keep moving forward then we will get to where we want to be, and the best indicator is that people are quickly learning what doesn't work which is the best way i like to learn, i would rather know as many wrong answers as possible, over time a pattern emerges and it is easier to spot them and eventually you make the right decisions.

            Success is the worst teacher. Nice video you posted.

  4. The hit if not creating value to the market & economy at large, is practically of no use. Iyin spoke of exits being shams, and indeed many are simply structured to look good on paper while the old owners take a hike. The entertainment sector that you refer to in a recent post are locally developed by local investors, I'd say the same will eventually happen to our ecosystem – its the best to validate the community to the world at large.

    1. El_Komo, thank you for contributing. I really think issues like this are relevant for the discourse they generate. I was careful not to mention value creation as it is rather subjective and I have my own biases. Commercial success is a much better yardstick as it is unambiguous. You too identify that we must "validate the community to the world at large". Exits are the purest strain of validation.

      You talk of the sham-like nature of some exits, with some owners taking a hike. I would like to point out that professional management can be installed by your investors (or even you) at any time – pre- or post-exit. This act alone does not a sham exit make.

      On the issue of local investors, you are preaching to the choir. I am merely looking for a solution to local investor apathy with respect to tech startups. When you suggest that ". . . the same will eventually happen to our ecosystem" , I am inclined to agree. However, it will not happen if we sit idly by and wait.

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