The TL is awash with "expert" opinions on why these four startups; @TwigaFoods , @MarketForceHQ , @CopiaGlobal and @kyosk failed in Kenya.
Most people are of the opinion that these businesses were solving for a problem that did not exist in the first place. For @TwigaFoods , some have cited the greed of management and/or theft by employees. Valid points still.
I think there are several things we are missing and @NdemoKelvin has pointed out some, as someone with first-hand information. Let's dissect and try to play devil's advocate a bit.
1. It is not true that the problem these startups were trying to solve did not exist.
If you have ever built a startup and raised funds for it, you'd know the due diligence investors perform before they entrust even a shilling to you. No VC just pours over $135 million in a startup solving for a problem that does not exist.
The business problem was clear. The supply chain logistics in Africa is very inefficient, riddled with middlemen making it opaque and costly to small retailers. The fact that it works and you somehow end up with sugar, milk and bread on your breakfast table does not mean it is optimal.
Interview shopkeepers, smallholder farmers and you will discover that we have a problem.
2. There is a glaring failure of government and public infrastructure to supporting the supply chain in Africa. From poor roads, to non-existent support for farmers, to lack of cold storage and markets; it is super expensive and capital intensive for businesses like @TwigaFoods to set up these systems from scratch and that is why they had to raise those astronomical amounts of capital.
For a business like Twiga that started with farm produce distribution, you have to understand that the first problem they had to deal with was efficiently handling perishables. Moving waru, tomatoes and bananas from Murang'a to Nairobi is not an easy business.
3. The VC "funding winter"
2019-2021 was a period of great abundance of VC funding, and most of the funding was pegged on growth metrics, not necessarily profitability. When interest rates rose in the West, Africa was hit hard with a funding drought. Remember, these business models require heavy funding for a considerable length of time before they can grow roots. @TwigaFoods and @CopiaGlobal had to cut their workforce considerably and reorganize their business models to stretch the runway, and even that did not suffice.
4. Hyper-price elasticy and the loyalty "fallacy"
If you have ever operated a small business, you know that you are basically competing on price. Consumers, especially of foods and FMCGs, are highly price sensitive and this means informal retailers (dukas), are loyal only to the wholesaler who offers the lowest buying prices, not the Twiga or RejaReja app. It is hard to win against those wholesale dukas when they sell a 20L jerrican of cooking oil at Ksh. 100 less and you can't figure out how.
5. The nightmare that is B2B credit. For startups like Kyosk, Marketforce and Twiga, that offered small shops credit to boost ordering volumes, default on those loans hit hard. And this is not the startups problem or lack of foresight. So many macroeconomic factors come into play when you enter the business of lending. When inflation hits and currency depreciates, like the shilling did against the dollar two years ago, shit hits the fan very fast. Once consumer purchasing power is hit, your business model is toast.
Just so you don't forget, @Jumia_Group, despite being listed on the NYSE, is still loss making and has never made a single dollar of profit since founding in 2012. @amazon made it's first full year profit of $35 million in 2003, after almost a decade in business. The giant that is today, is mainly driven by @awscloud, not the retail business.
So, @TwigaFoods and co might have gone under due to many factors at play, but business model is not one of them. Disrupting the African supply chain is possible, but a lot still needs to be done and you can't succeed here at a large scale unless you have piles of tax free and interest money in sacks like our politicians.
- The TL is awash with "expert" opinions on why these four startups; @TwigaFoods , @MarketForceHQ , @CopiaGlobal and @kyosk failed in Kenya. Most people are of the opinion that these businesses were solving for a problem that did not exist in the first place. For @TwigaFoods , some have cited the greed of management and/or theft by employees. Valid points still. I think there are several things we are missing and @NdemoKelvin has pointed out some, as someone with first-hand information. Let's dissect and try to play devil's advocate a bit. 1. It is not true that the problem these startups were trying to solve did not exist. If you have ever built a startup and raised funds for it, you'd know the due diligence investors perform before they entrust even a shilling to you. No VC just pours over $135 million in a startup solving for a problem that does not exist. The business problem was clear. The supply chain logistics in Africa is very inefficient, riddled with middlemen making it opaque and costly to small retailers. The fact that it works and you somehow end up with sugar, milk and bread on your breakfast table does not mean it is optimal. Interview shopkeepers, smallholder farmers and you will discover that we have a problem. 2. There is a glaring failure of government and public infrastructure to supporting the supply chain in Africa. From poor roads, to non-existent support for farmers, to lack of cold storage and markets; it is super expensive and capital intensive for businesses like @TwigaFoods to set up these systems from scratch and that is why they had to raise those astronomical amounts of capital. For a business like Twiga that started with farm produce distribution, you have to understand that the first problem they had to deal with was efficiently handling perishables. Moving waru, tomatoes and bananas from Murang'a to Nairobi is not an easy business. 3. The VC "funding winter" 2019-2021 was a period of great abundance of VC funding, and most of the funding was pegged on growth metrics, not necessarily profitability. When interest rates rose in the West, Africa was hit hard with a funding drought. Remember, these business models require heavy funding for a considerable length of time before they can grow roots. @TwigaFoods and @CopiaGlobal had to cut their workforce considerably and reorganize their business models to stretch the runway, and even that did not suffice. 4. Hyper-price elasticy and the loyalty "fallacy" If you have ever operated a small business, you know that you are basically competing on price. Consumers, especially of foods and FMCGs, are highly price sensitive and this means informal retailers (dukas), are loyal only to the wholesaler who offers the lowest buying prices, not the Twiga or RejaReja app. It is hard to win against those wholesale dukas when they sell a 20L jerrican of cooking oil at Ksh. 100 less and you can't figure out how. 5. The nightmare that is B2B credit. For startups like Kyosk, Marketforce and Twiga, that offered small shops credit to boost ordering volumes, default on those loans hit hard. And this is not the startups problem or lack of foresight. So many macroeconomic factors come into play when you enter the business of lending. When inflation hits and currency depreciates, like the shilling did against the dollar two years ago, shit hits the fan very fast. Once consumer purchasing power is hit, your business model is toast. Just so you don't forget, @Jumia_Group, despite being listed on the NYSE, is still loss making and has never made a single dollar of profit since founding in 2012. @amazon made it's first full year profit of $35 million in 2003, after almost a decade in business. The giant that is today, is mainly driven by @awscloud, not the retail business. So, @TwigaFoods and co might have gone under due to many factors at play, but business model is not one of them. Disrupting the African supply chain is possible, but a lot still needs to be done and you can't succeed here at a large scale unless you have piles of tax free and interest money in sacks like our politicians.