The checklist for an African unicorn

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In two recent guest posts for Disrupt Africa, Project Isizwe founder and serial entrepreneur Alan Knott-Craig argued Africa’s first unicorn would come from South Africa and would need to tap into the requirements of poor communities. In this rebuttal, former Mxit head of development and founder and chief executive officer (CEO) of software consultancy 6th Line Peter Matthaei questions some of Knott-Craig’s arguments.

Alan Knott-Craig: “It must tap into the needs of poor communities, whilst simultaneously riding the wave of the growing middle class. The numbers are in the former, the money is in the latter.”

Peter Matthaei: While I agree with this, I think there’s more at play than just numbers versus money. I honestly don’t believe that poor communities are early adopters.

I still believe a huge tactical mistake at Mxit was believing that we could roll out a product to the bottom of the pyramid, completely by-passing the standard adoption curve. Mxit was somewhat forced into that approach of marketing to poorer, mostly feature-phone users, because a large percentage of people with smartphones – mostly middle class at the time – had already adopted services like WhatsApp in lieu of Mxit, and Mxit’s smartphone presence was very late to the game.

So to get your product to critical mass means being able to pitch it to the people who a) have the technology access and b) the desire and means to give something new and untested a go, and then c) have the social clout to get others to use it.

Now… you could reasonably reply: “But Pete, we’re proving with free Wi-fi that you can provide a new product to the masses, bypassing the middle class”. But I don’t think that’s really what’s happening there. Wi-fi has been a much-enjoyed privilege of the upper and middle segments of the market for a decade now. What you (Knott-Craig) are selling with Isizwe is not so much a new product but a new business model for a product that’s already tried and tested elsewhere.

The biggest irony of internet access has always been that those with the least money paid by far the most for it. Isizwe subverts that and why I believe it’s successful.

So my point remains: I don’t think you can launch a new product (rather than just a new business model) to the bottom of the pyramid without also catering to the middle class early adopters. Catering to the middle class is absolutely necessary for marketing shiny and new but unproven products.

Age and income are separate predictors of early adopter behaviour. (You could draw up four quadrants, with the axes being income and age.) Early adopters will tend to sit in the “high [household]income, young” category. The product will then tend to spread to lower income brackets (but young) and once saturating there, start spreading to higher age groups (higher income older people first, then finally into the “older and poorer” quadrant).

As to why age and income are separate predictors:

Age: young people are by nature more adventurous and more inclined to push the boundaries.

Income: new product categories tend to require cutting edge technology, deeper embedding of technology in day-to-day lives, and deeper exposure and access to new, cutting-edge products. Virtually all of these things are dependent on income.

To illustrate, in a world where individual mobile news articles routinely clock in at over a megabyte each – which is ZAR2 of out-of-bundle data – we still have a long way to make information universally accessible. This severely limits the way you can raise awareness about new products.

Or when a smartphone app download weighs in at 10 megabytes or so at best, and several tens of megabytes on average, the desire to try new things at a whim is much reduced compared to someone doodling around on an uncapped Wi-Fi network. These are all very real barriers to adoption among poorer communities.

So given that, I think virtually the only viable target market for a “new category” type product is “above median income, young”.

I’d argue that this is an important ingredient in the secret sauce of Silicon Valley. An incredibly high concentration of young people, with above-median income, above-average technology budgets and a keenness to find the latest and greatest products.

Which brings me to the three possible routes that one can take to make it big in the mass market in Africa:

1. Build something (probably an app) that appeals initially to “middle class problems” that are unique to Africa, but that scales down to solving similar, related problems for poorer communities down the line.

This is incredibly hard, and while this seems to be the road that most entrepreneurs want to travel, I think this is a non-starter. What many people forget: You know what “Facebook for poor people” is called? Yeah — Facebook! “WhatsApp for poor people”? Yeah — WhatsApp! Many Silicon Valley inventions have proven themselves to have mass appeal and universal applicability. Don’t compete with those.

The key here is in “unique” problems, and those are few and far between. Perhaps the best example I can think of is the whole category of loadshedding apps that sprung up over the last year in South Africa and loosened Facebook’s hold on the top of the app charts. Those are unique problems to our situation, yet also universal in appeal (i.e. apply to both the middle and the poorer classes, because we all face similar challenges with electricity supply).

2. Build something that reproduces an existing solution but with a business model that’s tailored for poorer communities.

This is essentially what Isizwe did — bringing Wi-Fi to those who hadn’t previously had access to it, and let them also enjoy the vast pleasures of the internet without the angst of being on a ZAR2/MB mobile data plan like us rich folk. (This is also the PEP model. It’s not that PEP invented retail — they just made it work for the lower income market.) I think there’s a lot of value in this.

3. Build something that piggy-backs on a well-adopted platform and use that to launch out to poorer communities.

It’s incredibly difficult to reach into non-early adopter communities. So if you want to target them, ride along on a platform with a lot of momentum behind it. In China, that would be WeChat. In Africa, that might be Facebook (or maybe WeChat). Or via an MNO. Or a massive government initiative. But you need a platform that people are already using to launch from.

It’s dangerous, because now you’re beholden to the whims of the platform owner. But I believe it’s much more important to get off the ground today and deal with potential hypothetical problems if ever they become real much further down the road.

I suspect that the first unicorn out of Africa will be an e-commerce business. The way I see that playing out is:

  • It solves a problem that appeals, initially, to the middle class but has the potential to go deep into the mass market over time.
  • It’s not something that’s revolutionary, but it does things that Amazon can’t compete with. Amazon is a logistics business, but the logistics of Africa aren’t something you can sort out with Amazon-style algorithms. Things like customs (and a certain amount of lubrication of government processes to ensure a steady flow of merchandise across borders), banking and card payments vs cash on delivery.
  • As the African middle class expands, the demand for physical goods will only increase.
  • People will always pay for physical goods, which means that e-commerce has a viable business model out of the gate.

Given the three routes to success earlier: An e-commerce unicorn will emerge via route two — an existing solution, but made applicable to Africa.

Part of the magic of African innovation as I see it is “the ability to repurpose technology for interesting use cases”. That’s largely why I believe that to do something huge in Africa should involve the repurposing of something existing, rather than trying to invent some new product categories.

In Africa, we don’t really invent things, but we’re pretty good at ninja-ing things to solve our specific problems. Nothing wrong with that. America invents, China assembles, and Africa re-invents.

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Key players from Africa's startup and investment ecosystem post on issues close to their heart for Disrupt Africa.

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