Jan 25, 2022

Mawazo Writing Africa

Writing about the main

Targeting specialist markets can be big winner

Entrepreneurs in Lagos, Nairobi and Johannesburg are infected. It’s not exactly a pandemic. But for a few years now they have been chasing the fintech train. Most weeks, a new digital money start-up will pop up. And that is a welcome development, even if many will fail (because not every idea finds a market).

The number of founders who have great ambitions to bring African finances together is a sign of the economic Vitality. But they could do better, do more for Africa, and fill their own pockets more successfully.

The problem is the size of their ambitions. On the street they say the bigger the dreams are, the better. It is a spirit to be applauded in general. But therein lies an almighty trap. If every entrepreneur is chasing a 1.5 billion customer market and promising investors a chance to grab a trillion dollar opportunity, then many good but somewhat smaller opportunities will be overlooked and many good entrepreneurs will fail unnecessarily. In the fintech sector, it seems that every start-up currently wants to carry out international money transfers between African countries. The need for such services is undoubtedly great.

Financial flows across the continent’s borders are increasing every year and the options for consumers are still limited. But it is unlikely that this is a market with more than a few service providers bundled together. The network effects are strong and many of the players entering the race now are following a fad that presents itself to them.

This phenomenon is by no means limited to fintech. In the health, media and logistics sectors, entrepreneurs tell the same story about building huge and complex machines on a continental scale. No doubt some of these companies will be built successfully. You could become the African Amazon – showering founders and investors with incredible and well-deserved wealth. But that’s not the solution for everything. It misunderstands the lessons of the global technology and start-up boom.

There will always be a few high-profile entrepreneurs serving extremely large and diverse markets. Everyone knows and admires, let’s say, rightly Jeff Bezos, who was famous for building the “everything shop” that also became the title of the best book on the rise of Amazon. But it’s an exception. The most successful technology founders in Europe and America serve niches and serve more and more specialized customers.

Technology makes it relatively cheap and easy to conquer ever smaller niches. With huge resources and thousands of employees, specialist gamers can build (and have!) Very successful businesses without reaching continental size.

Serving niche audiences

Tech enables little gamers to try to disrupt big players by serving niche audiences better than the big guys. Often times, they win by getting very close to certain customer segments. The formula for these successful startups was to build or empower communities and enable them to develop for their own benefit. Of course, this applies to all sizes.

Mobile money providers like M-Pesa, the forerunners of today’s fintechs, are in a way also community builders. They have rearranged the functioning of African societies by making new forms of trade possible. The change in the flow of goods and services has made new forms of life possible. Mass market products are far from dead. Some will continue to be successful – not least because they achieve economies of scale.

But mass products will form an ever smaller part of the commercial universe in the future. Our societies are becoming more and more atomized the further they develop. Specialization is the way of history. We humans have been specializing since the Stone Age and this trend is accelerating with digital technology. Not least because it also enables the targeted segmentation of specialized customer groups and their cheaper delivery. Most start-ups today have to find a specialty that they can serve. If most founders chase lottery wins, we all lose.

More than ever, part of their role is to build (virtual) communities, to replace tribe or class as a social framework, to categorize social groups, also known as a customer, through ever closer personal and professional interests. An entrepreneur today has to find a community that doesn’t have any flagship products yet. He or she would like to build something that fits a market segment better than what is available now. An “all machine” will not do that.

Entrepreneurs working in the fintech space and beyond have some tough questions to ask themselves. Are you sure you want to bet your future on getting the biggest home run imaginable by developing a product for all of Africa and beyond? Or could they start by capturing smaller communities like Zambian accountants and Ethiopian sports fans … and then slowly pulling together customer groups over time until they might one day be able to build a omnibus?

An idea that changes everything

The great ambitions of many founders are breathtakingly beautiful and extremely courageous. And a tiny number of them can very well have a huge, changing idea. But they need to know that they are on their way to building the toughest product. For venture investors who spread their stakes widely, it can make sense to endorse hundreds of maximalist ideas in the expectation of finding a massive winner or two. But that’s not an attractive proposition for the ecosystem as a whole. Betting on the development of pan-African bus products leaves too many gaps.

This is not to say that entrepreneurs should lower their ambitions. The hardest part of starting a business is common to all – it is accomplishing something out of nothing, identifying a problem that is worth solving, and then developing a marketable product, adding an initial set of customers reach out and be the first to gain revenue. The first million is the hardest. Most ventures fail there. Anyone who takes on this challenge shows remarkable ambition. Your entrepreneurship is to be commended.

But ambition alone is not enough. A clear focus on where the best opportunities lie is also required. And that’s not always in the stratosphere. A credible way to make $ 10 million in sales in a limited number of years – rather than a slide deck promising $ 10 billion in the distant future – is by having a shrewd founder. And that doesn’t stop them from shooting for the stars at some point.

Oliver August is Chief Technology and Innovation Officer at Nation Media Group