You need (lots of) humans to run your tech startup

Nigerian startups have a person. This person signs the transactional and follow-up emails, follows up with customers on promotions and acts as the virtual face of the company. These are actual people, not manufactured names for a Helpdesk request. For example, Uche is the city manager for Taxify in Lagos and the other people work with their startups. This would be like in 2011, when Uber launches in New York, and all the city manager signs all receipts and ride confirmations.

This is very different from the asset-light, “Here’s a link to our help page” approach to customer service of western tech companies. These Nigerian startups discard the corporate veneer to become human, while the startups in the US are more likely to want to resemble a corporation.

In Nigeria, people love to complain about these accounts. They send too many emails and are too aggressive. However, they perform an under-appreciated function: They humanize the consumer startups that want to change human behavior. You may not trust a new online-only bank, but maybe you will trust Nosa from Kuda. This meets the customer expectation that there’s someone you can call when things go wrong with this new product or service.

This is just one of many ways that building a tech company in Nigeria is different from conventional Silicon Valley.

How much should I charge Nigerians for my product?

The answer depends on how big you want to become, because the market is small and your customers don’t have a lot of money

How much should I charge Nigerians for my product

Pricing products for the mass market

There’s a limit to how much consumer products can charge users and remain widely available. Many technology companies charge the user nothing, or pass on the costs to the seller or interested third parties. Amazon offers users free shipping and charges sellers to reach customers. Google charges nothing to store your photos but they charge businesses who want to reach you. These models work because the customer has spending power independent of the service they are currently using. Also, businesses know they can meet their business outcomes if they can reach the company’s consumers. Taken to the extreme, WeChat and Alibaba, the biggest Chinese tech firms, own the user, and support a network of services to make money from the businesses who want to reach their users. The business model varies from advertising to transaction fees, but the principle is the same: I have the users, and you must pay me to reach them.

These models hit a wall in Nigeria and many other African countries.

Why this doesn’t work in Nigeria

Most people in Nigeria have too little spending power, and it is difficult to meet a price point that creates big and build a profitable business. Take Facebook for example. In the “Rest of World” which is mostly African countries, Facebook made Average Revenue Per User (ARPU) per quarter of $2.77 in Q4 ’20 vs $53.56 in the US and Canada. The low ARPU is not due to a small number of users. Given Facebook’s revenue is from advertising, lower ARPU means fewer businesses are willing to pay to reach customers in these “rest of world” markets.

Africa’s telcos are similar. MTN, Nigeria’s largest telco, has an ARPU of N1,467.02 ($3.5) per month as at Q3 2020. In contrasts, telcos in the US hover around the $30 — $50 range. In many African countries, telcos are the definition of mass-market and have tens of millions of customers. Yet, the most successful of them have lower ARPUs, in part due to the lower spending power of the population.

In addition, the African middle class is not as big as many $JMIA bulls think. In Nigeria, half of the population lives in extreme poverty, in absolute number more than any other country in the world. Also, those who can are [emigrating in droves], further hollowing out the middle class.

What does this mean for my business?

For Nigerian businesses, there is a trade-off between being big and profitable. Few businesses can be both. One isn’t better than the other, but it is important to make that choice early and with intention. Those who choose to be profitable must raise prices, as Netflix continues to do. Africa’s operational complexity means that it is difficult to reduce costs. For example, uLesson recently raised prices 40% after lowering them [a year ago].

For business owners, how lucky do you feel? How much real or perceived value does your business provide to users? Your revenue is competing with your customer’s food, housing and mobile phone budget. Are you providing commensurate perceived value compared to those things? This is hard to do for any business.

Because the middle class is so small, the businesses that do well will focus on non-consumption. As a businessperson, how do I provide my product in a way that brings customers who did not use this service before?

Choosing to be big is fun. It also supports a strong narrative which makes it easier to raise money. However, there are no benefits of scale that can solve structurally bad unit economics.

Many emerging markets founders have to make a choice between big and profitable. Most choose to be big. The next time you look at a business or startup idea, ask the founder how she will choose between being big and being profitable.

My wishlist (not predictions!) for African tech in 2021

2020 was mixed for African technology businesses. While Nigeria and South Africa saw their economies contract because of the pandemic, there were some high-flying fundraises and acquisitions. World Remit acquired Sendwave for $500M, Stripe acquired Paystack for $200M, Jumia is up 2,000% from pandemic lows and multiple companies raised $10M+. 

I put together the top 3 things I want to see in Africa technology next year. Think of the following as closer to a wishlist rather than predictions. Predictions are mostly useless anyways anyways. [1] For a podcast version of this essay, more predictions and discussions, please listen to the Afrobility 2021 & beyond podcast episode.

More startups that build for entrepreneurs 

In the past few years, we’re starting to see the compounding benefits of easier payments. For example, there are many companies in Nigeria that could not exist without the solutions and access provided by, say, Paystack or Flutterwave.

In 2021, we will see more of these companies that reduce the barriers to entrepreneurship and make it easier to set up and run businesses across all industries. Similar to how companies like Shopify or Stripe have made it easier for creators to monetize, there will be more companies that help entrepreneurs get started and keep going. For example, an easy-to-integrate identity verification and payments integration layer makes it possible for a banking entrepreneur to imagine a new kind of bank or business model. 

There’s more to be done here. Who’s building the Stripe Atlas for Nigerian or Kenyan entrepreneurs? Who’s helping new companies deal with the complex regulations across healthcare, transportation or finance? Who’s building the small business versions of the internal custom software Africa’s biggest companies run on?

As these solutions become more widespread, it will lead to more entrepreneurs but more entrepreneurs who can build big scalable businesses. 

Of course, not all the entrepreneurs will be successful, but the ecosystem will benefit from the successful ones and learn from the failures. 

Higher internet penetration driven by anyone other than the telcos

Internet access is still not a solved problem in Africa. In Nigeria for example, Internet penetration is under 50% with less than 25% of households having access to any kind of internet access. For many African countries, increasing internet access is close to being an objective net-positive, for the new business models and wealth it creates. 

However, Africa’s largest telcos are not in the best position to invest. Airtel is offloading its African assets to better compete in its home market, where it’s facing competition from Reliance Jio; MTN is still reeling from the fallout of the $5B fine from Nigeria, and their share price has fallen from a high of $11 in 2018 to $4 today.

If not the largest telcos, who will invest? 

Telcos are behaving rationally; investment is expensive. ARPUs are likely lower in parts of Africa that don’t already have internet, and given how low they are in Africa right now ($2-4 in most of SSA ex South Africa), not sure they want to go after those less profitable customers.

Also – the telco business models are under threat. Voice revenues have fallen off a cliff and data revenues are not growing fast enough, or profitably enough, to make up for the difference. There is limited incentive to continue to invest in building out a platform that the global majors – Netflix, FB, Google, etc – will be able to monetize better. (e.g., FB has similar ARPU to the telcos in Africa – ~$2 – without the same level of infrastructure investment, or just stress)

Google Loon launched in Kenya and is expanding. Space X has launched 800+ satellites and plans to go up to 40,000. Amazon’s Project Kuiper has plans to launch another 3,200 satellites. There are regulatory hurdles and incredible technical complexity to overcome, but the potential is massive. A services model (like Jio) or other business models can make serving these new customers more profitable and spur further investment. Driving down the cost and increasing access and quality will change the game for the entire African technology ecosystem. 

Africa coming into her own as a true offshoring hub

“Talent is equally distributed but opportunity is not”

Leila Janah

Okay, this one is not new. In 2007, Nigeria created a National Outsourcing Strategy(pdf). Not much clearly happened since then so they did it again in May 2020. Andela raised $181 million for a similar opportunity based on this but has struggled recently.

But hear me out. This time is different. 

The pandemic has forced many companies to re-evaluate what absolutely needs to be done in the office. Fewer people have followed this to the logical next step. If you don’t need to be in the office, do you need to be in the same country? Do you need to have an individual employee relationship with the worker? This is not new; some technology companies are fully remote- Gitlab, Basecamp, Automattic (makers of WordPress) and many more. In addition, The biggest technology companies have made commitments to expand remote work. What does that mean for where talent can be located? 

Other than the pandemic, Why now? 

The cost differential between the US and major African countries is higher than ever and increasing. In the last 5 years, Nigeria’s currency has gone from NGN150/$ to N450 today;  SA’s currency has gone from ZAR 11/$ to ZAR15 today. There’s money on the table and the economic incentive for offshoring is getting stronger. 

Africa’s largest economies are hurting. Nigeria’s GDP is down 3.6% in Q2, South Africa is down 6%. Currency devaluation means the largely import-dependent countries can’t access the foreign currency they need to run their economies. Unemployment is 27% in Nigeria and concentrated in younger age groups with up to 40% unemployment.. South Africa has 23.3% and produces over 200,000 graduates a year. We can’t create enough jobs for our people in our declining economies, we need more ways of putting people to work. 

Africa – in general – has clear advantages as an offshoring location. It’s a young population with an average age of 15. A legacy of colonialism means that the language of formal instruction is English or French. Time zones mean that we’re within 3 hours of EU countries.  

Companies of different sizes are already operating in this space. Hugo, Integreon, Techno Brain, etc. Also, EU blue chips are testing the water with Deloitte, BT and British Gas and Amazon relying on outsourced labour in South Africa. I hope 2021 is the year that this blows up. 

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What do you think? If you have any ideas or thoughts – email me at bmakanju (at) gmail (dot) com or leave a comment below

[1] Human predictions are more like fantasies and are unrealistically optimistic. We project our own biases and think bad things are less likely to happen. Case in point: few people predicted a pandemic in 2019. 

A trip to the Philippines: Nigeria’s tourism and BPO opportunity

This post will discuss 2 (of many) things that stood out during a 2-week trip to the Philippines: tourism and the thriving business process outsourcing (BPO) industry.

Nigeria and Philippines have a lot in common. Both are middle-income countries with a GDP per capita around $3000. They both have a relatively young population and have experienced strong growth in the last few years. Lagos, like Manila, is a perpetually gridlocked, densely populated city that has grown organically with apparently zero urban planning. Unlike Lagos, however, Manila has regular electricity. That’s not the only thing the Philippines has over Nigeria.

Manila at night from a few thousand feet

Tourism and Boracay beach — “What exactly is the fuss about?”

Philippines is an archipelago made up of over 7,000 islands so it’s not surprising that they have great beaches. Of all the beaches, few are more popular than Boracay, a 45-minute plane ride from Manila.

Sand and palm trees in Boracay, Philippines

Boracay is beautiful. Sold as a dream tourist destination, it has the right combination of local and western culture that forex-spending foreigners love. It is inexpensive to travel there — $50 for a plane ticket from Manila and another 50 cents for a ferry ride to the busy island with its narrow streets. Meals are cheap, costing as little as $3 at the best restaurants. Still, I was unimpressed. I couldn’t help think about how Nigeria has beaches at least as beautiful as Boracay, but not as popular. What would it take for us to develop holiday destinations in Nigeria?

Boracay’s evolution has been supported by Government. They built roads and airports to support the constant stream of tourists. They advertised heavily and developed a brand for tourism in the country — “It’s more fun in the Philippines”. Philippines is visa-free to most OECD countries and is therefore a tempting holiday destination. The locals are welcoming and have a solid understanding that the constant stream of visitors is what drives their livelihood.

Beyond ‘exciting’ locations, tourism requires supporting infrastructure. It requires real and perceived safety of lives and property. Internet access and regular electricity are table stakes, along with inexpensive transportation options. To understand why it’s Boracay and not Bar Beach, well, those are some clues to start.

Business Process Outsourcing — “Man, I’m sure Nigeria has more unemployed graduates who speak English”

Among other things, BPO describes companies moving parts of their business to lower cost countries, with call centers being the easiest and most common.

Philippines has the largest BPO industry in the world — yes, even bigger than India. The largest of these companies take calls on behalf of American clients from AT&T to Wells Fargo.

The industry has grown from barely anything in early 2000s to becoming the largest private sector employer of labour. International BPO companies all exist in the Philippines and they compete fiercely for talent — some employ fresh high school graduates. Many have kiosks in malls to encouraging passers-by to apply. After application, successful candidates receive a job offer after a few hours of interviews and tests. This has worked for the Philippines — unemployment has dropped over the last 5 years.

If you hear them tell it, the Philippines has natural advantages over most countries to set this up. Many Filipinos speak English and the country boasts a literacy rate of over 90%. Since WWII, they have maintained good relations with the US giving big American brands like AT&T or Verizon comfort in setting up call centers abroad. They have the supporting infrastructure required — their American clients will not tolerate any downtime for any reason. Again, Government actively supported the BPO industry as a vehicle of growth providing low cost funding, tax holidays and other incentives. In fact, they have been the darling of Filipino governments for the past decade because they create so many jobs .

None of these advantages are impossible to replicate in Nigeria, no?


This is not to put the Philippines on a pedestal — that country has many issues. Income inequality, insurgency and terrorism in the south, slowing economic growth to name a few. However, they appear to have got tourism and BPO going.

Overall, SE Asia has left Sub-saharan Africa in the dust. In 1970, Sub-saharan Africa generated 3 times the electricity per capita of SE Asia on . Today, SE Asia generates twice as much electricity per capita as Sub-saharan Africa.

Nigeria can and should be in a better place right now. Good times soon?