‘What new Nigerian ecommerce companies are doing wrong’ – Ope Adeoye

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This is not to gloat or anything like that. Far from it. Rather, it’s a sincere expression of concern and a hope that it may provoke thought (and maybe consideration) in the right quarters.

So recently, it’s been out that Konga is executing another round of layoffs as part of a “business development strategy“.  This is on the back of various other news items like this in the recent past. JumiaiROKOtv and DealDey have also been reported to have been down this thorny road in recent times.

Personally, companies like these are such that I really want to succeed. And I believe they ultimately will. Their success is validation for our market and country. And cost cutting measures actually are not isolated to these NewCos; the harsh economic climate has hit even large organisations like banks and Telcos. So it’s a wave that is blowing across the country.

My discomfort though, is that Nigerian early stage tech-based companies in a fast growth market need not require such cost cutting measures that are so… what’s the word… broad? Sweeping? As I watched the “ecosystem” (kai, I don’t like that word, but it’s the most apt) in the last 5 years, I often voiced to people around me that, all these companies operating the Silicon Valley model of attacking large markets, scaling fast, and aggressive spending, don’t need to do this. It’s not sustainable here. It’s not our way. But of course, I’m not in their shoes really, may not have all the facts, plus I work in a BigCo that has succeeded. So, I’m probably biased and working on a base of incorrect assumptions.

From outside though, it looked like that.

Tech companies at a time were spending aggressively on marketing, hiring, infrastructure, etc. I heard of a company that went to almost 500 (well paid) staff in less than 3 years. They had marketing budgets that used to make my team green when we hustle for budget allocation for the products we were spearheading. They poached and hired experienced and qualified people locally and from abroad.

At the beginning, I thought the strategy being pursued was - spend aggressively on customer acquisition regardless of cost for a few years, have great customer retention processes in place, then cut the customer acquisition spend when you have X million loyal customers from whom you can extract ongoing repeat income. Sounds like a good plan. So I used to tell my colleagues that, “wait and see, these companies will cut marketing spend within 3-5 years”. But then, the companies started to roll out product extension after extension that were only loosely tied to the core. An example may be going all-in on payment on delivery (an escrow mechanism may have been cheaper, though less effective in giving customers comfort). These extentions cost money to build, support and promote. And therefore, it looked like the companies’ plan was grow, grow, grow. Get big fast and cover ground it seems.

In an ideal scenario, all these is okay and is the right thing when fueled by a steady supply of investor money. The companies that operate this way seem to have a limitless supply of round after round of funding to drive this approach. The venture funds drive the companies to “attack big markets”, “seek moonshots”, “scale fast” and all these type of change-the-world speak. It works for them because they can keep funding it till it happens. Here in Nigeria though, I’m not convinced that the venture dollars will keep rolling in till “it happens”. At some point, profitability will become a question to be answered when the flow of capital slows. When this happens, the first 2 places companies look at are always personnel and marketing.

Let’s try to not run Nigeria’s tech businesses like their San Fransisco counterparts even if we are getting our funding from there. Or South Africa.

Reason is: You cannot guarantee that they’d keep backing you with cash and more cash continously regardless of Nigeria’s volatility and uncertain business/policy environment.

Another risk with layoffs, especially when you say it’d be continous “as part of [a] business development strategy whereby [you] review staff strength every 6 months” is that it could (and likely will) impact company culture negatively. Your team starts to live in an environment of fear and uncertainty. This becomes the underlying motivation at work and could quickly become toxic. Remember, a company is it’s culture. Not it’s product(s). And believe me, that’s real.

When we get the $$, let’s be frugal about it, stay lean, avoid the flashy brand campaigns if we can (Nigerian consumers are not that brand-loyal, and they mostly browse and don’t buy), resist the temptation to beef up the C-suite with expensive credentials, operate like a “poor man”, focus on key hubs of customers instead of trying to spread yourself across the country at once. When we hit profitability, we can then shoot for “scale”. At that point, the story is more sellable. If the money doesn’t come, at least you can meet payroll.

Except of course, you can guarantee continous funding.

And to my blogger friends, as we run our hype machines, remember for every yet-to-be-profitable Jumia or Konga that are cute to write about, there’s an AppZone, Terragon or Parkway meeting payroll sustainably and staying relatively off the flash and pomp. Their stories also validate our market. Sell it!

We all can make this thing work. Our way.

happywheels

I am into product management & software development. Early in 2003, I carried my Ghana-must-go bag of books + my AND1 sneakers and headed from Ilorin to Lagos, Nigeria to pursue the "get-rich-in-tech-like-Bill-Gates" dream. Sometime later in 2008, Charles pitched me an idea and said "let's do it". I accepted and hence began a most educative phase of my life's journey where I helped create and lead Quickteller, the mobile & value added services product line of InterSwitch. Nowadays I just hang around supporting the teams who are helping to take the original dream forward. Okay well, I'm now also responsible for strategy and alliances at Interswitch. I'm an avid follower of the tech scene and internet slash mobile businesses. I blog opeadeoye.com.

2 Comments

  1. jude

    July 28, 2016 at 11:13 am

    I can’t thank you enough for this beautiful piece of advice.

    • Adegoke Oyeniyi

      August 1, 2016 at 8:08 am

      We regularly publish useful content like this for entrepreneurs. You should be return to read more.

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