Africa: It's the Numbers, Stupid - African Start-Ups Struggle to Find Their Feet in Terms of User Numbers

Balancing Act has tracked start-up user numbers since 2013 and it's noticeable how few African start-ups break out into the level of user numbers required to build a business. International start-ups in Africa get better numbers but are still some way from success. Russell Southwood looks at the numbers and tries to understand what's happening.

Bill Clinton's Campaign Manager James Carville had three talking points for his election campaign against George Bush Snr. Only one is remembered: The economy, stupid, by which he meant that the main thing anyone should be worrying about is the economy.

To rehash that message in a different form, 'it's the numbers, stupid': African start-ups - whether B2C or B2B - need to get user numbers to drive their success. In most countries for B2C markets this means getting hundreds of thousands of users. It's slightly more complicated for B2B start-ups because it depends how many potential customers there are.

Balancing Act has tracked the number of people start-ups say are using their services over a five-year period. They often exaggerate these numbers but they are also revealing. It's noticeable that some start-ups never change the number of people they claim to be reaching over several years. Other say user numbers are "confidential" which is a sure sign that if revealed, there would not be much to brag about. On other occasions, a relatively small number of African start-ups will claim an unfeasibly large number that is subsequently forgotten.

There's another layer in that the user numbers are sometimes not all they appear to be. The number of times an app is downloaded is no guide to how many people continue to use it: numbers of active users are always smaller than total downloads. So for example, in early 2015 Tanzanian music streaming start-up Mkito had 1.2 million downloads but 280,911 users.

With some exceptions, local African start-ups rarely break the 50,000 users mark and most are in the 5-10,000 range. The exceptions are interesting.

South African start-ups tend to do better because there is a larger (mainly but not exclusively white) middle class. So video-streaming platform PockittTV has hundreds of thousands of users across a couple of mobile operators. Edtech start-up Siyavula had 6.3 million online users in May 2017. And there are more examples of South African start-ups where there is a volume of active users that indicate that the business is on its way to profitability.

The toughest market in terms of user numbers is Nigeria. Talking to Konga's CEO Shola Adekoya in July 2017, it became clear you don't want all the potential e-commerce buyers. There were a total of 750,000 users, of which 150,000 needed to be excluded for 'unacceptable behaviour' and there were then 250,000 active users.

In October 2017, Kenya's Taxi told us that it had 250,000 users who were making 10,000 rides a day. Uber always says that it likes having competitors because it helps build the market. Starting to use digital services is a behavior change and it takes time. The more competitors are spending money on persuading people, perhaps the faster it happens.

The big players tend to be internationally backed start-ups like Jumia, Uber Airbnb, Zomato and services that have been seriously promoted (and sometimes backed) by mobile operators. The small African start-up's lack of a marketing budget really does create a huge market gap that even creative uses of social media make it hard to overcome: it is not a level playing field in the new digital services sector. It's tough out there, whether the business model is user pays or advertiser pays.

Speaking in a panel discussion at Tech Summit Africa, TLcom TIDE Africa's Ido Sum, got to the heart of the matter:"There's a realisation that some of these things are a bit more complex than we used to think and acquiring customers is more expensive than was imagined. Hence I think we will be seeing this year a bit more happening on the b2b (business-to-business) side were monetisation is a bit easier and focused on teams than in the b2c (business-to-consumer) side, hence they have a better understanding on how they go to the markets and better utilise the right channels in that aspect."

At the same event, GSMA ecosystem accelerator senior market engagement manager Martin Karanja said: "The level of exposure that most apps have in Africa is probably lower when it comes to finding opportunities compared to European ones."

At one level, B2B start-ups seem easier because it's possible to get your around needing to sell to 1,000 out of 3,000 customers. It seems "do-able" and within the reach of early-start-up funding. But many B2B start-ups are in complicated "verticals" where the service being offered requires an ecosystem to change, not just one manager to make the buying decision.

The biggest problem is that the sector is relatively new and a great deal of time and attention is spent on trying to grow the local investment sector and on the funding. It's almost as if money raised is more important than whether the business is doing well or not.

But there should be a connection between funding and user numbers. The latter should be the proof that it's worth investing in something. Marek Zymslowski, HotelOga told me in May 2017:"A start-up is trying to sort out its business model but it should grow very fast. In order to do that you have to have funding. Its what everything starts with. International companies have access to funding. (But the) unit economics (of spending it) may not be as good as the local companies but they have access to funding which at the early stage is the most important thing."

He also made the point that working for Jumia had given him the experience of being able to scale up in 17 countries over a 2 year period. Few African start-ups are currently offering that kind of education.

On a more optimistic note, IFC Venture Capital's Wale Ayeni told a panel at the Tech Summit Africa in Kigali:"What is actually true across the board is we are seeing different qualities of founders. Founders that understand the big picture and are trying to build big startup businesses that really scale and have a global impact. That mentality, we are seeing a lot more of that."

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