Nigeria is a country of extremes. It is the country of limitless tech opportunity and the country with the highest proportion of poor people. As a result, investor sentiment swings wildly. We’re either the darkest part of the dark continent, or the bright spot for opportunity.
Today, Nigeria is in the incandescent phase aka “The future is so bright it burns my eyes”.
But why now? Headline acquisitions and fundraising are lagging indicators. The hard work of building a company worth acquiring happens well before TechCrunch. Also, Nigeria’s economy has continued on the same wobbly path as it has for the past decade. Something else is going on.
Acquisitions and Fundraising news are smokescreens
The last 12 months have been amazing for the Nigerian tech scene. Paystack was acquired by Stripe. Flutterwave reached unicorn status. Jumia went from $3 per share in April 2020 to $62 in November of the same year.
But these stand in opposition to Nigeria’s economic reality. The fundamentals of the economy are in free-fall. Nigeria’s jobless rate has quadrupled over the last 5 years and today, less than half of Nigeria’s labor force is fully employed. Violence and insurgency threaten lives and property in Nigeria’s north-east. It is harder to start a business in Nigeria than in Egypt, South Africa, or Ghana. Permits take months instead of days, and incoherent government policy is a cloud over startups that could rain any moment. All this as the population inches towards 300 million by 2050.
Despite these dire circumstances, there’s still opportunity.
What Nigerian entrepreneurs are doing differently
Successful Nigerian entrepreneurs are fearless and many go against conventional advice. They try new business models and are starting to attract capital on their own terms.
THEY BUILD FOR BUILDERS
These B2B startups are important because they make entrepreneurship less risky. The businesses use the startup’s services to make money so they are easier to get and keep. Also, the more customers you get, the less sensitive you are to individual businesses.
Because businesses use the startups to make their lives easier, they are easier to acquire and retain. Today, Paystack and Flutterwave make it possible for businesses to pay and get paid. They eliminate an important business risk for other businesses. These B2B startups also enable new business models that were previously impossible. Many of the savings, stock trading, and food delivery apps are only possible because of these B2B companies that handle, say, payments or identity verification.
These B2B startups provide the building blocks for other entrepreneurs. Over the next few years, the best companies will build for other builders.
THEY BUILD FOR THE CONSUMERS IN THE MIDDLE
Nigeria’s upper class is minuscule relative to the rest of the population. Yet, because of the size of the country, the middle class remains a significant market. There’s not enough of the upper class to build a big consumer business and the lowest income classes are either too poor or too expensive to serve. The opportunity is in the middle class. These customers’ needs are not met by the current solutions, and the high-end options are out of reach either because they’re too expensive, or for other structural reasons (e.g., I can’t use Venmo for P2P in Nigeria because licenses)
The startup that comes to mind here is uLesson. Their product, education, is one that most want. Nigeria’s upper middle class can afford to send their children to the best schools. They hire private tutors for after-school classes. The rest of the middle class have to make do with the available schools and find ways to supplement their children’s education. For these customers, uLesson provides an affordable, technology-enhanced supplement. They price this product on the middle-class’ willingness to pay, and have recently raised prices to reflect this (and of course, to cover their costs).
See this HBR article for more on building for customers in the middle.
THEY BUILD FOR THE INTERNATIONAL CUSTOMERS
This is more relevant to services or software. Services are unrestricted by physical borders, and in most cases have near-zero marginal costs.
This is already happening. Startups like Moneymie are going after the immigrant population using remittances and money transfer as a hook. Individual creators are selling NFTs and making a lot of money. Sight unseen, a Nigerian produced a billboard-charting song for Tekashi 6ix9ine.
Startups that serve international customers develop good habits as these customers tend to have a high quality bar. At the same time, the Nigerian entrepreneur can provide these services at a much lower cost with better margins. Shola Akinlade, Paystack CEO, built and sold a software solution to 200,000 international customers before starting Paystack. The best customers for Nigerian entrepreneurs may not be in Nigeria or even Africa.
Whatever happens, entrepreneurs need to keep building. Nigeria’s collective and individual success will have to happen despite the current macro trends.