DMQA: D.O's Magic Quadrant for Africa (Part 1)
A strategic framework for assessing tech startup venture opportunities in Africa
BACKGROUND
For over five years now, I have been thinking about a framework with which to assess the rapidly evolving African tech venture landscape and the viability of the different opportunity sets that keep showing up on its expanding horizon, from the North to the South and from the West to the East of the continent. This became even more urgent in 2016 when the economic recession kickstarted the journey of many household ecommerce ventures in Africa into abeyance and, for many, terminal death. Right in the thick of that ecommerce industrial crisis was my team and I with our cherished ecommerce venture, Gloo.ng, which by then, we had built into Nigeria’s Biggest Online Supermarket.
It had become obvious to my team and I that there was something wrong or broken about the industry structure of the ecommerce landscape in Nigeria, and by extension Africa, which we had found ourselves fully enmeshed in. As CEO, I had the responsibility for setting a new strategic direction for the business, which eventually led us to pivoting away from the ecommerce space and into enterprise eProcurement, which we publicly launched in March 2019 as reported here by TechCrunch.
A few months before the public launch of the Gloopro pivot, I had began publicly cataloguing my learnings from the successful pivot, which took over one year in the making, into a frameworkvia my Twitter account, my go-to platform for learning. In fact, nothing shows more the evolution of my thought process that the evolution of the crispness of the images in the twitter thread I started for this purpose, that depicts what I have now call “My DMQA Framework.” First this:
Later this:
Finally, this, designed a week ago by my good friend, Emeka Ajene. Thanks Emeka!
This write up is essentially me transferring the content of above twitter threads into a cleaner blog format.
OVERVIEW
In this overview section, I walk readers through the attributes that make up the DMQA and how to think about them. Later, I focus and do deep dives into each of the Quadrants, from A to D, detailing their characteristics as it relates to each zone of my DMQA and then use specific startup examples to explain how these characteristics work in real life. Each of the attributes of my DMQA that make up/lie on the X and Y axes of my DMQA have an “and/or” relationship.
The X-axis describes either the market segment a startup is focused on, its geographic market and/or its Go-To-Market (GTM) strategy. For market segment, the gradient starts from mass => consumer => prosumer => MSBs => SMEs => Mid-Market => Large Enterprises => Multinationals along the X-axis. (This is the classical gradient that describes hunting ants => hunting whales in popular “5 Ways to Build a $100million Business” Framework). For geographic market, the gradient starts from the local => regional => multi-regional => continental => intercontinental => Global market. For GTM, the gradient is mass marketing => targeted advertising => channel-based sales+marketing => field sales => targeted sales => strategic sales, along the X-axis. GTM could also additional be approached from the gradient of B2C => B2B2C => B2B, along the X-axis.
The Y-axis is more self-explanatory than X-axis. It deals with the characteristics of the business model of the startup vis-a-vis its intensity of use of software, capital investments, human resource and/or operational complexity: from low-to-high on the Y-axis for software and from high-to-low on the Y-axis for capital investments, human resource and operational complexity. (Clearly, there is an inverse relationship between software on the low-to-high gradient on the Y-axis and the other three I indicated that are on the high-to-low gradient on the Y-axis.)
As you all know, I mostly think and write about startups that are driven by online and digital software technologies. So, this DMQA does not deal with offline, brick-n-mortar or hardware businesses. And so, no one should ask me where Dangote and Otedola fits into all this, as many did in my twitter threads on the subject
PART ONE: THE CONSUMER TECH HALF OF THE DMQA FRAMEWORK
QUADRANT A: THE DEATH ZONE
All the elements of African startups that are the most predisposed and susceptible to eventual terminal death, African Death Zone Startups (ADZS), go into the mix of this particular quadrant. Each ADZS has these elements mixed uniquely in varying degrees to the specific context of the industry it is in and the specific business model it is deploying in that specific industry.
CHARACTERISTICS
1) Y-Axis (Software, asset, human and operations intensity):
One usually needs a minimum of software input to get these kind of startups off the ground. They are often called “tech-enabled” businesses but the truth really is that these businesses are often more “people-enabled” than tech-enabled. The ones with the highest people quotients are the worst. They are quite easy to start because the founders are the first people/bodies to be thrown at it, as is the case with most startups. They are usually startups you can start without any tech at all. (A good example being the one I founded, Gloo.ng, whose website I personally built and which the business ran on for the first 2.5 years on back of No-Code tools i.e. without writing one single line of code. It was up from idea to live revenue generating site in a little above 2 weeks.)
All that is usually needed for these kind of African startups to start up are a phone number, email, chat and/or social media handle. The basic structure of these are as follows: a human being receives order made by a *consumer* via phone/email/chat/SM => a human makes/fills request => another human takes product from Point A to Point B => this other human interacts with another human at Point B => human at Point B accepts and/or signs off receipt on the order as okay => delivery human returns to back to point A => another human at Point A closes order as complete => any defects in the “product/service” or its delivery NEEDS to be rectified by going through this same process, in a reverse manner.
In terms of operations intensity, a third of it is on account of the foregoing above, another third of it on account of the ACTUAL ratio of “humans required to *produce* a unit of product/service : number of units produced.” This can vary from many-to-1, 1-to-1, many-to-many and 1-to-many, in reducing order of operations intensity. The final third is on account of the degree of assets intensity.
Asset intensity is an indication of the capital goods and/or physical assets investments required at the onset to start the business, that would be required to maintain and support it on an ongoing basis and, especially, to further grow, extend and/or scale it. The measure of asset intensity is the ratio of “incremental/marginal dollars of Gross Profits earned (note, not said Revenue or GMV) : the additional dollars of investments in assets, capital goods and/or working capital required to earn it.” (Revenue and GMV are vanity metrics!)
2) X-Axis (Market Attributes):
These mostly deal with the mass market at the 0-end of the X-axis i.e. the markets that provide <$1 gross profit/per order or <$10 average gross profit per user (AGPU) per year or <$50 life time value (LTV) of their customer segments to the typical upper middle class customer segments. (Remember, the actual existence of a middle class in Africa is an issue upon which the jury is still out.) The degree of horribleness of the mass market segment is a measure of the degree to which these metrics have used to define it for Africa are low. Furthermore, on the X-axis, the market could be looked at in terms of geographical scope, ranging on the 0-end on the X-axis from Local Govt Area(s) < State(s) < Country(s) < Region(s) < Continent(s) < Global.
The social impact factor showing on this X-axis of the DMQA Framework is really not a market factor as it is as the native ability of the startup’s mission to be used to spin a social impact story, primarily for the benefit of being able to tap into the many avenues provided to access grant money and impact funding as “investment.” The native propensity of the startup to be used to spin social impact stories is the degree to which the startup has a wide top of the funnel for accessing such categories of “Aid Money” from the developed countries’ many Development Finance Agencies and Impact Funds set up specifically for that purpose with an African remit.
3) COMPETITION
The final characteristic of Death Zone Startups is that they are continually and/or constantly engrossed in Mimetic Competition. I am not going to spend the time to go into that. I will just lift what Peter Thiel has got to say about Mimetic Competition and insert below. Observe the section in the below where he indicated the tendency of founders building business in mimetic competition tend to lie to themselves and others about this fact, which I have already commented about just above here. This tendency is one of the reasons you find founders with Death Zone startups are not able to get out of this zone because they continue lying to themselves about the reality of this even up to the point of the death of their startups. It takes the rare founder to wake up to this reality and evolve his/her business to escape the reality of the Death Zone.
This blogpost by David Perell is one REALLY love because it grows broader into the epistemological and philosophical underpinnings of why Peter Thiel ALWAYS avoids playing any that has the semblance of a mimetic game not only in startups, but in life generally. It’s a LOOOONG one!
Having explained the attributes of this ADZS Quadrant, here is a catalogue of a few Death Zone Startups I have seen in the Nigerian and African tech ecosystem in the last 8 years of being an active player in the ecosystem: DealDey, Jumia, Konga, Gokada, JumiaFood, Gloo.ng, GoMyWay, Efritin, Easytaxi, OLX, Jiji, Sunglasses, AfroCab, ORide, Max, BuyAm, SuperMart, AfriMarket, and many others I cannot mention here so as not to offend their founders. Founders, understandably, can get a bit sensitive about the fact that you are indicating their precious tech ventures are operating in the African Death Zone. I had to spend time to clarify same this past week on twitter. Not once, not twice.
The easiest “back-of-the-hand” rule to determine if you are operating in the Death Zone is this: if human beings, and to a lesser degree Atoms (i.e. physical things), are a CORE part of your product and/or service AND your value proposition is DIRECTLY to AFRICAN consumers, THEN you ARE in the African Death Zone!!!
QUADRANT D: THE ANYTHING CAN HAPPEN ZONE
CHARACTERISTICS
1) Y-Axis (Software, asset, human and operations intensity):
This deals with pure software/software-heavy products that:
A.) require little to no agency of any human being from the company in order for the consumer to interact with the product, either in the way the consumers become aware of the product, buy it, use it initially and/or in continuing to use it, and
B.) they, ab initio, absolutely ONLY required the input of software engineers--and the software they produce--in the “manufacturing process” of the end product. The degree of software purity determines the gradient between the upper and lower horizontal borders of this Quadrant D that the product lies on vertically within the Quadrant. At the most upper areas of Quadrant D are social media, search, user-generated-content apps, etc. They are usually software products you have used repeatedly for years but nevertheless have had little to absolutely not one single interaction with any human or employee either working for or affiliated with the company behind the product/service till date. They are also the products/services in which, at the point they attained Initial Scale, have the ratio of “users : employee” in the millions or the ratio of “revenue : employee” in the tens to hundreds of millions in US$. Think Instagram with a little more than ten engineers at the point it was sold to Facebook for $1Billion. Or WhatsApp, which was sold for $30Billion+ to Facebook with a little more 50 engineers as ENTIRE staff strength.
You also have the deliberately bootstrapped variants of these, where you have 1-3 employees catering to tens to hundreds of millions of users and pulling in tens of millions of dollars of revenue annually. Think Plenty of Fish raking in $10million+ per annum at the point it was sold to Match.com at ~$600million, staffed only by the founder and three others. Or BuiltWith, quietly raking in $10million per annum , staffed only by its founder. One important characteristic of these in this regard is that they can only be started by a software engineer/software engineers. That was why the Winklevoss twins could not start Facebook even though they had the idea arguably before Mark Zuckerberg, who was then able to “steal” it from them, go to build it and launch shortly after.
Closer to the lower border area of this Quadrant D are products that require a higher quotient of non-engineering people in “the manufacturing process” of creating the product itself or in “the delivery process” of extending, selling and supporting it to users. Think non-user-generated content products such as Netflix, in which human beings almost 100% are CORE components of its product “manufacturing process” BUT software is used 100% in “the delivery process” of the product/service to consumers. There are others who have a varying mix, very rarely an almost equal mix, of human beings and software in BOTH their manufacturing and delivery process e.g. IrokoTV. I personally estimate IroktoTV, like Netflix, is 100% human in its product manufacturing process and ~50:50 in the ratio of “humans : software” in its delivery process of the service to consumers. My estimation is based on its GTM which appears to be primarily and largely outbound/telesales driven--not primarily inbound/marketing driven, unlike Netflix.
2) X-Axis (Market Attributes):
The market attributes here are exactly the same as I have described in the section dealing with the Quadrant A Death Zone. (Please do a quick reference of this above before continuing reading below.)
They are products that are targeted at large populations of consumers, ideally mass market, including the bottom of the pyramid market. If it includes the bottom of the pyramid market, it will tend to be closer to the left border of this Quadrant D than to its right. If it excludes the bottom of the pyramid market, i.e. more specifically for the middle-class consumer market, it will tend more toward the right border of Quadrant D on the horizontal gradient of this quadrant. The ratio of “the degree to which it serves BOP market : Middle Class market” is the degree to which it tends toward the left or right of the vertical borders of the Quadrant on the horizontal gradient.
3) COMPETITION:
Competition is the MOST interesting and characteristic thing about this “Anything Can Happen” Quadrant D as it relates to the African market, which is exactly where it gets its name “Anything Can Happen” from. Mimetic competition in the Death Zone is very much bonded within the geographical parameters of Continent, Region, Country or State, largely because the products being sold in the Death Zone usually have a high content of Atoms (requiring boots on the ground) compared to the products being sold in this Quadrant D, which are mostly 100% bits and therefore have no continental, regional and national bounds, except as may be impinged upon by national regulatory requirements, think GDPR in Europe and the Chinese firewall, which has largely kept the FAMGAN (Facebook, Amazon, Microsoft, Google, Apple and Netflix) companies out of China. Consequently, the more regulated these markets are in Africa, the better for local ventures. Whether that end ups better for African consumers, though, is another cup of tea.
However, such national regulatory constraints are almost completely absent in Africa with respect to these category of ventures. Consequently, founders in this Quadrant D always have to be looking behind their backs at the possibility of being squashed by the market entry of The FAMGANs—FAMGAN-like scale ventures—into Africa. In fundraising, one would expect this question to feature continually in their interactions with investors: “What will prevent a FAMGAN or FAMGAN-line venture from killing you WHEN they enter Africa?” They consequently have more to fear from global competition than from local competition once they attain Initial Scale and are thus usually not worried about local competitors as they are about huge-scale non-continental competitors, after reaching Initial Scale. It is therefore not surprising that the idealistic exit dream of founders’ operating in this Quadrant D is an exit via acquisition by a FAMGAN or a FAMGAN-like scaled entity, over and above an IPO exit route since the former additionally, more or less, solves the headache of always looking behind their back at the threat of a FAMGAN entry.
Furthermore, it is for this reason that it is not strange therefore that we in Africa essentially do not have ANY successful social media startup from Africa, in Africa, for Africans, by Africans that has FAMGAN-like scale or proportions. They simple have NO protection against the “network effects” and global “winner takes all” advantage of the FAMGANs in this quadrant, from a global perspective. Consequently, you will tend to see most of the African players in this quadrant clutter around and very close to the lower border line of this Quadrant D and absolutely not one single one of any repute can be found anywhere close to the upper borderline of this quadrant.
To conclude this section, this is my own advice to any African founder with intentions of attacking this AFRICAN market, IN AFRICA, FOR AFRICANS, in such a way as to GENUINELY have a good chance at succeeding. That founder has no business being an AFRICAN startup! Go and STAY in Silicon Valley! Hire their product guys and software engineers there! Think GLOBAL—not African—from Day One! DENY YOUR AFRICANNESS!!!
Thank you so much for sharing your model. Is there a study group for it? Myself and my other co-founder are using this part of our Founder's Dilemma discussions as we are forming our company. Thanks for share this.
Wow! What an insightful post, I am just off my breath after the last dot. Thank you.
From my take home, all Q's has one or two problems to face while thinking Africa.
Trust I love your to join my board of advisors as we are thinking and looking at the Africa diaspora network.
Its a privilege to read your deep drive post.
Cheers.