In Africa, Entrepreneurs Have To Build The Entire Value Chain to Have A Shot At Success.
In October 2016, Jeff Bezos had a fireside chat with famous journalist Walter Isaacson at the Vanity Fair New Establishment Summit in San Fransisco. Bezos talked about his inspiration behind spending millions of dollars every year to fund Bue Origin, the space venture that started in 2000.
Bezos wanted to do for the next generation of space entrepreneurs what the early eCommerce pioneers had done for him. He wanted to put in place the “heavy lifting infrastructure” that would provide the platform for a “dynamic entrepreneurial explosion of thousands of companies in space” similar to what was happening on the internet.
It is simply impossible for two kids in their dorm room to reinvent the space industry right now, but the same kids can do so on the internet. The difference is, the infrastructure to make the latter happen is already in place.
For the former, Bezos wanted to bring reusable space vehicles to life and lower the cost of access to space. Once this has been done, many space entrepreneurs will thrive.
When he started Amazon in 1995, it was a 10-person company that would do nationwide deliveries. This is because there was a nationwide logistics network from the US Postal Service, UPS and FedEx. There was also a long-distance phone network and payment systems already in place. This saved Bezos billions of dollars that would have been needed if they weren’t in place, and would essentially make it almost impossible for Amazon to come to life then.
This is true for a host of startups in the USA and Europe. But in Africa, entrepreneurs are being forced to build the entire infrastructure needed just to have a shot at survival because in most cases, the infrastructure needed is not available. In places where it is available, it might not be well developed to keep pace with the growth of the startups.
It shouldn’t come as a surprise that the countries with the more well-developed infrastructure in Africa attract the most funding. Kenya, Nigeria, South Africa and Egypt get 80 percent of all investments made into African startups and have fairly developed infrastructure.
The same is true for the next promising startup ecosystems like Morocco, Tunisia, Algeria, Rwanda, Ghana or Uganda compared to the likes of Chad, Central African Republic and South Sudan where even basics like the internet are not well-developed. But most markets in Africa are at the same level as the space industry in the West. The “heavy lifting infrastructure” is not really in place, yet.
In a 2015 interview with Forbes, Sim Shagaya the founder of Konga.com, an online retailer in Nigeria talked about the problems he faced like the lack of efficient logistics services which forced the startup to build its own delivery service, K-Express and online payments hence building KongaPay. This is a familiar story for many startups across the continent.
In a LinkedIn post Ugandan entreprenuer, Martin Tumusiime wrote about this situation. Martin is the co-founder and CEO of Yo-Waste, a Ugandan startup that connects and matches garbage generators in urban areas to the nearest local waste collectors for proper disposal or recycling, essentially an Uber for waste. We decided to interview him to get more context about what African entreprenuers have to do based on his own experience.
Martin started the startup in 2015 after witnessing the pain first-hand that urban dwellers went through as a result of inefficient waste management by the authorities while staying with his aunt in Kazo, a Kampala suburb. He teamed up with his co-founders while in his 2nd year at Makerere University to address the problem with technology.
Yo-Waste has so far raised over USD 120,000 in form of grants and convertible debt notes including USD 100,000 from Bestseller Foundation, a private foundation that invests in businesses making a social and environmental impact in the developing parts of the world.
Yo-Waste has over 1,000 monthly customers and over 30 waste collectors on its platform. It collects over 10.5 tonnes per day. The startup has partnerships with Mukwano Industries, one of Uganda’s largest business conglomerates. Other notable partnerships include Makerere University, Entebbe Municipality Local Government and Coca Cola Uganda.
“As we built Yo-Waste, it quickly became clear to us that we couldn’t continue being just an Uber for Waste because the market we are playing in is quite different,” Martin tells me. “First, there were few waste collection companies in Kampala, up to like 100 service providers; we couldn’t guarantee a quality garbage collection service and some waste collectors completely failed to adapt to our digital tools.”
This is when it dawned on Martin that they had to build the entire value chain to have a shot at succeeding and that included bringing their own trucks. “With my experience, we have had service providers or local collectors who choose to just frustrate our customers. We have seen this with our Uber for waste model. Some communities don’t even have any private waste collection service providers so we have to establish our full operations in such areas.”
This is because it doesn’t make sense to lose money on inefficient players along your value chain yet you can make more money by setting up your own operations and even fulfilling your entire value proposition. Martin says this is a life or death situation for any startup because “chances are that someone along your value chain will mess up, either a supplier or vendor or middle man will do something that can lead you to close your operations.”
He compared the predicament faced by African startups to what startups in the West have to deal with. “They have advanced systems and infrastructure in place so creating new industries is almost flawless because you have strong solid systems to leverage on, to take the market to the next level.”
“Entrepreneurs with wild ideas of disruption have to be ready to establish a whole industry and value chain before their chances of success can get to the same level as their counterparts in the West. Failure to do so, a startup will play small for some time before ultimately meeting its demise. “
But this also presents a big opportunity for African startups. If one startup can build the entire value chain, it will make it extremely difficult for other players to compete in the same market without having a long runaway of capital funding. The barriers of entry are big, so whoever wins, might enjoy the lead for a long time.
Featured Image Courtesy: Tomi Davies/Medium