Scaling Internet-Based Startups in African Markets – Afrinnovator

We’ve all heard of the idea that entrepreneurs are people who see a ‘gap’ in the market and then create a product or service to address that gap. The implication is that there’s a ready market there that will snap up your product if you can address that need. However, this can be a challenge in many African countries in particular where the entrepreneur intends to introduce an Internet-based service even when it would appear that this is the ‘best’ way to solve the problem at hand.

The difficulty of doing Internet business in many African markets is that one may likely find that they have significant challenges with market development in addition to product development. In fact, it may well be that product development is the easiest piece of the puzzle relative to the task of market development. For example, for a startup creating an e-commerce business, the main challenge may lie not in creating the technical platform to run the store, or securing supply for the goods on the store, but more so in figuring out how to get people to be aware of the store, access it and use it with ease, then actually delivering goods to the consumer – in this case actually delivering the product in circumstances where there may not even be a reliable addressing system.

Why is this? And what can Internet startups do about it? Let’s look at two key issues and possible solutions.

Limited Addressable Market

The most apparent reason has to do with the reach of Internet services.

According to InternetWorldStats, Africa as a whole has an Internet penetration rate of about 15% or roughly 167M users out of a total population in excess of a billion. There are countries which have significantly higher rates that the continental average, and others that have dismal rates, however in some cases high Internet penetration rates are coupled with low overall population. For example, Mauritius boasts an Internet penetration rate of 35%, more than twice the continental average, but against a population of about 1.3M, leaving a local addressable market of only about 460,000.

Disparity in Internet Penetration Rates versus Population

In addition, looking at the top 10 nations by number of Internet users, only 4 out of the 10 have a user base of more than 10 million.

Top 10 Countries in Africa by Internet Penetration (InternetWorldStats)

Possible Solutions: One way around this problem is to cast the net wider – go for regional or Pan-African markets in a bid to increase your footprint. However, this comes with it’s own challenges. It has been rightly stated time and again that ‘Africa is not a country’ and so building something to target the entire continent implies the overhead of understanding different markets, jurisdictions, cultures etc – a daunting task. Perhaps it’s better to pick groupings of countries that are fairly similar, for example, working in Anglophone countries only means there’s no need to worry about language barriers as much or the East Africa Community countries which are moving towards common market protocols.

On the other hand, one can opt to go for niche markets and local excellence, small segments that can be understood in great detail and served exceptionally well e.g. a service targeted just at urban university students who are more likely to be ‘with it’ already Internet-wise.

Cultural Challenge

The fact of the matter is many Africans are only just coming online. The number of Internet users has really grown within the last decade or so as Africa got connected to the world via submarine cables and has been really driven by the mobile internet.

See: Africa – Mobile Broadband, Data and Mobile Media Market Report

Check out the graphs below, there is a correlation between mobile penetration and internet penetration:

Mobile cellular subscriptions (per 100 people) in Sub-Saharan Africa

Internet users as a percentage of the population (People with access to the Internet per 100 inhabitants.) in Sub-Saharan Africa

‘Internet Culture’ is not yet mainstream. Using the previous example of an e-commerce site, the culture of purchasing things online has not been there before. One can point out mobile money and claim that, the success of mobile money means that Africans are ready to take up online payments but that would be generalizing too much – for one, mobile money has really only taken off in a few countries and really with the greatest success in one major market – Kenya (of course others are coming up). Even then, in the poster child market for mobile money (Kenya) mobile payments and mobile commerce really are in their infancy. Yes, people are pretty comfortable with making mobile money transfers, but payments/commerce are just coming up (and will of course proliferate more with time and as more companies bring the concept to market such as PesaPal and KopoKopo who recently partnered with Safaricom and Eat Out Kenya to introduce mobile payments for meals at restaurants).

See: Africa – Fixed and Wireless Broadband and Internet Markets and Forecasts Report

Possible Solutions: Be prepared to do a lot of product education as you build your market. This means taking a lot of time and going to a lot of effort to really understand your target market and how to best communicate with them your value proposition. For example, TV ads only may not do it, you may need to get out on the street to educate your customers. As an example, Google recently launched a prepaid bus card with Equity Bank in Kenya. They recruited a lot of young people to sell the cards in buses but in the process these young salespeople were also tasked with educating people about the card, its benefits and how to use it by literally standing up at the front of the bus and explaining about the card.

Build it and they will come… or not

As you can see, scaling Internet-based business in Africa is not a matter of simply ‘build it and they will come‘ to some extent, you have to be prepared to go out and get them. A few final tips:

  1. Don’t fall into the trap of thinking that you can copy and paste a service that works elsewhere and replicate its success
  2. Know what you are getting into – especially, take lots of time to study, observe and understand local culture
  3. Related to the previous point make sure you understand how to communicate with your market and what channels are best suited
  4. Mobile internet is the default means of accessing internet for most, build for it intentionally from the beginning