Enormous amounts of
effort and funding are going into African tech start-ups. But nobody is warning
new tech start-up founders about three big potholes in any road they want to
build to the future. Russell Southwood seeks to unpack why some of those
potholes exist.
You're an African start-up and you want to build an app
and get rich and maybe famous along the way. Imagine everybody in your country
who has a phone as the outer circle of one of those infographics we all love so
much. Then imagine a smaller circle that is everyone who has a featurephone and
a smartphone.
Then look for an even smaller circle that represents everyone
who has a smartphone. Not so many people now but we're not yet done. The
biggest common operating system is Android and although most African smartphone
users have a phone with Android, not all of them do. The last and final circle
is the 10-15% of these Android users who will use and or/buy your app. This is
the Law of Circles and if you insist on having an infographic, click on the
link below:
In November last year, Mobile Week Senegal made a
presentation at AfricaCom called Brainstorming the West African App Scene. It
did an analysis of Senegalese Android apps by looking at download numbers in
the Google Play store in 2014. This showed 10-50,000 downloads for each of the
top Senegalese apps (the top 3 were ranked 33, 37 and 55th) including downloads
from the diaspora.
Now by the end of last year there was 52% smartphone
penetration in Senegal so things may have improved somewhat. But let's say you
manage to sell your app at US$1 to 20,000 users (unlikely but not impossible)
thus getting yourself US$20,000. It seems like a lot of money but what happens
next when your first app stops selling.
Well you have to invent another spectacularly successful
app and the odds of you doing that are worse than you betting the whole of the
US$20,000 you made on the outcome of a single football match and winning. And
don't tell me there will be advertisers or sponsors for 20,000 people on a
one-off basis... in your dreams.
Worse still, the relentless maths of the Law of Circles
means in smaller countries that the inner circles (smartphones, Android Os's
and potential users) are all so small that even if you assume a high level of
success, returns would be paltry. And if you're in a country where income
levels are at the lower end of the spectrum or literacy rates are very low
(usually those two are connected), then although the outer circles are very
big, you end up with tiny circles in the middle.
In 2014, before his
death, the then CEO of One Africa Media Carey Eaton told me that there were
only really 8 African countries big enough to sustain its online business
model. Again the number of countries has probably increased a bit but it's
still probably no more than a dozen.
OK, let's forget smartphones and concentrate on SMS,
something all phones can do and everyone uses. Wrong again. Only a percentage
of total phone users actually use SMS for tech literacy or plain and simple,
not reading literacy reasons: in some countries this may be as high as 40-60%.
Worse still, your service has to work on an incredibly small number of text
characters and the mobile companies take 70% or more of what you might persuade
yourself was a very promising income.
Recently a tech incubator in a Central African country
reached the same conclusion by the grim process of watching many of its tech
start-ups fail. It has now become an incubator for generic start-ups: in other
words, tech is no longer the central definition of its work.
But hey, why don't you overcome this problem by rolling
out across multiple territories? Add the small numbers in those pesky inner
circles together to make one much bigger market. Companies like African Internet
Group (Rocket), One Africa Media and Ringier have bet the store that this is
possible. The recent retreats by some of African Internet Group's brands
indicates the sad truth asserted above: there's a limited number of countries
where it's possible to make it work.
And
these are very smart guys hiring some very smart people with a lot of money
behind them: whether they win or lose, we will see but you can't argue that
they haven't tried. But the problem for most African tech start-up founders
when looking at rolling-out across multiple territories is slightly different.
The number of African tech-start-ups that have reached multiple country markets
at any scale is tiny. Why?
Most are below 30 years of age and have little work
experience. Therefore is it surprising that they don't really have the
experience to tackle this very complex task? When I spoke to Nigerian angel
investor Tomi Davies in early 2014, he told me that one thing he looks for in
companies that he invests in are people who have international experience. If
you want to grow a company beyond the borders of your own country, then knowing
something about how other multinationals go about might be one place to start.
Now I know there are some small number of exceptions to
all of the things I've said above and I'm the first to acknowledge them.
However, although "be exceptional" sounds great as a piece of
uplifting rhetoric, it will serve you less well if you don't look at the
numbers. Why be the equivalent of somebody crossing a very busy road with your
eyes closed?
This article was originally posted on Smart Monkey TV.
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