Ask PG: Why do you think Africa cannot produce global scale start ups?
Hi PG. As a Nigerian Internet start up founder, I was quite disheartened to read Leila Janah, post (http://tcrn.ch/aE4UqK) where you were quoted as saying you would "rather fund an incubator for less glamorous businesses, like gas stations and plumbers." than start a Y combinator in Kenya.
A continent with 1 billion people and, 110 million connected online (growing in triple digits) I would like to believe we can produce companies that can have product market fit before deciding to scale up and probably open offices in the west. .e.g US.
When I wrote my blog post "A cure for Nigerian Internet Scams (http://bit.ly/ayCTUX), I counted you as one of the people that we would seek support from to become relevant in the world of startups.
So hearing that you think there is no hope for us, is quite deflating.
So my question is, why do you believe Africa cannot produce global scale startups?
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I'd like to know what you're basing that assertion on.
I contend that Kenya's tech scene is woefully primitive. Ushahidi is one example but it is hardly a model for success or sustainable business.
"Startups that would be useful here and meet local needs" is, in my opinion, precisely the wrong approach particularly if we're focusing on technology startups. That kind of thinking is precisely why facebook is the dominant social network in Africa and not some other localised service.
In places like Africa and India, there's a lot of access via mobile phones. But there's also a lot of missing pieces: transporation goods and services, smartphones, etc.
It seems to me like there's a lot of opportunity for media startups in both places, but that actual monetization is difficult because there isn't much in the way of ecommerce (due to logistical issues) and there isn't much in the way of advertising (because there's a lack of a base level of businesses to support it).
As for going global from a place like Africa: totally possible. But most startups follow a plan of succeeding at something small first.
I also think that Africa is going to leapfrog certain stages of technology / development and not others. For example, mobile banking in Africa is more widespread than it is in the US. My guess is that the first huge ecommerce company in Africa will be some weird hybrid of mobile, local, and banking infrastructure that people already trust.
My view is based on my own experience (Morocco, here), and it's almost impossible to get an international credit/debit card from your bank unless you're building and import/export company.
Online payments (in a national scale) are, sure, evolving but the ignorance is killing the online market, nobody is willing to pay for something that they can't touch.
Edit: I think it's taken as a given that this extends to the technical too. While we're all bitching about IE6 and drinking our Ajax goodness from the cup of rails, it's easy to forget that there are guys who should be banging out sites in 800 x 600 optimized for dialup.
On the tech side there is Dimension data. They are in talks regarding a take-over for 2bn pounds. MTN Group is operating in 21 countries. Then there is Mark Shuttleworth's startup Thawte consulting. Sure, none of those are on the scale of Google, but given the circumstances its not bad.
I'd also like to point out that this part is deceptive "110 million connected online (growing in triple digits)". Being connected in Africa does not mean that the connection is really usable. Its expensive & slow and has only been really improving in the last year or so.
But MTN is a good example. There's also Naspers, which is not quite a startup, but which is starting to act like one. (They took a big stake in DST a couple months ago.)
It's also worth noting he started Canonical which gave us Ubuntu.
But in South Africa at least, there are plenty of startups - again a much smaller scale than US or Europe - in software and Internet. Few people even in SA know about them, so I wouldn't expect pg to leap in to fund a bunch. Africa needs to develop it's own pg's. I actually think the approach of "micro-angel-seed-VC" is a good fit for the funding problem.
DiData is horrible and overcharges clients.
There's plenty of other semi-exciting startups in South Africa, like FireID.com
If that's a problem, it would be interesting to know why.
Keep in mind that a large group of people with a low average income means that your a larger portion of any marketing budget is wasted.
Note: I'm an American and not an expert on Nigeria. Still, my impression is that Nigeria doesn't have a very robust legal system or real property rights enforcement; when I think of law in Nigeria, I remember Ken Saro-Wiwa and the innumerable articles I've read about people fighting over oil spoils. (Once again: this could be wrong and Nigeria's legal system might be very good, with the Western press merely gravitating toward sensationalistic stories).
If you don't have a functioning legal system that enforces contracts (and a culture that respects contracts), I don't think you can have tech startup investments. If you have a high level of political risk, coups, and corruption, you're not going to get tech startup investments. Westerners have an unfair but real habit of lumping Africa together; when we read about the Zimbabwe disaster, for example, the possibility of political risk wiping out investment in other countries becomes very real.
One other commenter compared development to the technology stack, which is pretty astute.
It might also help to read William Easterly's paper, "Was the poverty of Africa determined in 1000 BC?": http://aidwatchers.com/2010/07/was-the-poverty-of-africa-det... . You might be running up against not just decades of difference in development, but centuries.
That being said, if you can't find money in the US/Canada for your idea, do whatever you need to succeed. If I lived in those countries, I wouldn't give a crap and just try. At least I'd have an idea of what to watch for better than us looking at those countries from afar.
I believe there's some differences of scale here. China and India both have over a billion people. With 10x the population of Nigeria, even with identically bad property rights and legal systems (and I suspect that both India and China are somewhat better off in that regard than Nigeria), with that difference in addressable market you'd expect more startups out of them.
Russia -- which has a shrinking population now roughly the same as Nigeria's rapidly-expanding one -- is a more interesting comparison. I think the only difference here is that Russia was formerly a wealthy country (as opposed to a country in which a few extremely wealthy people live) which invested heavily in education, while Nigeria is a formerly poor one that has yet to catch up.
So if Nigeria were to suddenly pour as much money into education as the USSR did, you might expect a flood of Nigerian startups in a decade's time. But that would explain why there aren't too many of them right now.
As for China and India, both countries have GDPs that have been growing at 10% per year for more than two decades, and not purely from oil or other natural resource profits, which appears true of what growth Russia and Nigeria have experienced.
That's not to say India and China will continue their incredible growth forever, or that either country is ideal for startups, but my impression (once again: might be wrong) is that despite the problems startups face, those problems are not as tremendous as they are in Nigeria or Russia.
In addition, as far as I know neither India nor China has produced any global Internet software product companies along the lines of Microsoft, Yahoo, Google, or Facebook.
You can continue to read placed PR Newsweek articles and be an idiot (the part about the "has a lot of the same problems that Nigeria appears to" is sort of the point of using it as an example), or you can do a quick google search:
http://www.centernetworks.com/top-russian-web-sites
http://royal.pingdom.com/2010/07/27/top-20-countries-on-the-...
Perhaps we're missing out on some money but the cost in time and effort to capture that little bit of money isn't worth it relative to other projects. I'm in business to ship product to those who will reliably pay, not to figure out which of my customers will actually pay ahead of shipment. If I can't know, I won't risk it.
I don't think my experience is unique. I think this situation has repeated itself in most small businesses in America. I think this group of individual experiences has been generalized as "It costs too much to do business with Africa". Unfair? Sure. Poor Logic? Absolutely. Am I going to change this? No. Its not worth my time and effort.
I'm also going to be very skeptical of business deals or services originating from Nigeria. Do you see a mint.com or inDinero taking off in Africa? Would you personally trust your financial data to such a service and if so, what are your reasons given your lack of recourse through rule of law?
I believe what I'm saying here is what most are thinking, but won't say. I want to lay out what it looks like in the trenches on this side. I fully realize that I am half of the reason that this situation exists. Until I need your money more than you need my services, I do not see it changing. I know that is harsh, but I sincerely believe it to be the case.
I hope things improve. I hope bad experiences are replaced with good ones and Nigeria specifically and Africa generally are looked at as reliable business partners. I hope you create a ridiculously successful business. Most importantly, I hope you'll take this post in the spirit in which its offered.
1. Really one in three orders was a scam? How big is the sample -- how many times did you ship to Nigeria? How long ago did you stop?
2. You list two problems: determining if a customer really can pay, or as a startup, having customers trust you with financial data.
In both cases, the problem is trust & reputation. Foreign customers do not trust Nigerian businesses or customers. So the missing piece of the puzzle is either better police enforcement and government regulation, or some kind of third-party who can engender trust and verify identity to and from African businesses and customers.
a. Orders over $1000 to Fancy Sounding Expediters Co XYZ Address Nigeria
b. Smaller orders to <Big Oil Co> <Some Compound> Nigeria
I shipped one and only one of type a. This happened in ~2001. I took this hit as a business 101 tuition fee and stopped shipping this kind of order.
I continued to ship to people on compounds working for Shell/BP/etc. During this time, I got my rough sample size. For every 3 of this kind we would get, we'd get one of type a. It was years ago and it could have been 2:1 or 5:1. It was not 10:1.
After a few months of this, the "type a fraudsters" figured out the pattern and we started seeing smaller dollar orders to "compounds" come back fraud. At this point, I just shut the whole thing down.
The way this works now is that someone in Nigeria in a big oil compound will order to their home and have someone forward it. No USA address, no shipment over.
2. Exactly so. If government won't fill the trust gap, perhaps a private enterprise can. They would face a steep challenge. There has to be enough money in Nigeria seeking to buy goods internationally but unable to because of people like me for it to work. Is there enough "domestic pull" to make it viable?
As a result of this, what we do and what I suspect others do is ship to areas with low fraud rates direct, eat any losses and call it good. Anywhere that you eat more than you make, you simply stop.
The margin on something that would provide the security and keep small businesses interest would have to be razor thin. It would be a challenging or impossible business to run.
I'm not thinking that, and if I was I would slit my risks for being a douche. If you think Halliburton, Goldman Sachs, or Google|Apple|Microsoft|Oracle are a step up then, well, that's stoopid
I would assume that many other businesses have shared this experience and come to the same conclusion. Things are getting better, I'm sure, but they're not near the "worth my time" threshold yet.
I worked with them for a year. I was the only non African. There where challenges like fending off kind hearted westerners who had less skills then the Ghanains and wanted to come over and be boss. Competing against NGO for staff (Western NGO's have the highest salaries).
The dynamics of the economies and governments are just not aligned with that outcome.
No one is looking to africa for the next big thing - this is a huge problem for any company - how can you get to critical mass if no one is paying attention to you.
I am sitting in a beijing starbucks writing this and thinking about the global brands; there aren't that many of them.
Agrarian -> Manufacturing -> Service
Web-apps are Service sector. African countries need to start displacing Asian ones as manufacturing centers before we can even start talking about foreign venture capitalists wanting to invest in African tech-service startups. If the company targets a global audience because there is not enough local demand for web services, then why is it based in Africa?
Philippines is another country with a lot of smart people, but I don't feel that the people in power there really have a building culture. Even with their last round of elections, they bought their voting machines from a Venezuelan.
If technology and startups really are in the culture of a country, there are lots of opportunities everywhere, to try and make a difference.
I guess it's better if things can come from the top down, like in the case of China - to jump start things a bit.
The other thing, with Nigeria. It's economy has been growing steadily over the past decade. But, it seems to be primarily driven by foreign oil companies.
Is there any room for doing start ups related to this? Oil exploration definitely requires a lot of capital. It would be hard to imagine what kinds of contributions a lowly Nigerian hacker could make in this area. Lastly, I know that India benefited quite a bit by having a large community of overseas Indians. People who came to USA for school, and later stayed on and worked here after graduating. As I understand it, these people provided some of the key contacts as the outsourcing boon started.
Rather, since isn't even on investment radar at the moment, as a local startup you can expand across the continent and have a big head start on foreign companies that try to enter the market when you're already established (viz. QQ, Taobao, Baidu in China), if the African market starts heating up.
Whether your startup will be an internet startup or not, is probably the question.
In nominal terms, the GDP and number of people on the African continent is roughly equivalent to India (numbers from Wikipedia), though it is true that it is spread across numerous countries.
I find it hard to believe that it will not become the "next frontier" at some point, if nations across the continent start electing technocrats.
http://lagriffedulion.f2s.com/sft.htm
Specifically, I'm interested in the sources for their data. This was a fascinating paper.
What unique advantage does being from Africa give you? I'm assuming you are clever and lucky - but there are a lot of clever, lucky people around who also have access to friends with huge amounts of capital (eg, Silicon Valley) or cheap programming talent (Bangalore) or a positive start-up culture (Israel) or government backing (endless incubators around the world).
Some advantages I could see being in Africa (and I'm hardly an expert!):
There appear to be a large number of state-run monopoly businesses that could be undercut by a cheaper, faster startup. My understanding is that this is how a lot of the successful African telecom businesses got their start. That's a good advantage, because state monopolies are very slow to react.
Cheap natural resources. I'm from Australia, and a large amount of custom software development here is related to what is essentially counting rocks being pulled out of the ground or wool of sheep (etc etc) and making sure it does to the correct places. I'd expect it is the same in Africa, and there maybe local opportunities there that give you a big advantage.
Anyway - I don't know, but I am really interested. Why would PG be interested in African startups? What advantage do they have that would make them worth investing in?
I am in Cape Town, South Africa and let me tell you it is one of the most beautiful cities in the world, with a university producing decent CS graduates (Mark Shuttleworth), beautiful weather, vineyards on our doorstep, plenty of African color and positive energy, terrific advertising talent, and the typical South African work ethic. South Africans love work.
To answer your question, what unique advantage does being from Africa give you?
Objectivity.
More directly, Africa's juxtaposition of financial poverty and spiritual wealth, can teach humility and offer perspective.
The race is not always to the swift, nor the battle to the strong, but time and chance happen to them all.
The problems and opportunities in Cape Town for startups have, in my experience, no relevance to Lagos, Kinshasa, Abidjan, Accra ...
As you're from Cape Town, you know this is the real problem:
http://sewayoleme.wordpress.com/2008/07/08/africa-in-perspec...
Most people have no idea Africa is larger than US, Europe, India, and China combined, but without infrastructure on most of the continent and so tribal that even greed takes a back seat to boosting a friend from the village.
These aren't bad things, they're just different--and Kaapstad, Africa's first permanent European settlement and now considered the most entrepreneurial city in South Africa, may not offer the best model for addressing the OP's problem.
While I was running the internet cafe, the bigger problems I had to deal with had nothing to do with my line of business.
I had to bribe employees of the electric company (NEPA) to hook me up to a more reliable power line where electricity is more stable. Stable electricity in Lagos means you get it like 6 hours a day. The rest of day, you had to power your business with Generators. For the Generators, we had to buy drums of diesel to keep them running. Buying diesel was something else because Lagos always had a fuel shortage going on. We had to buy tank loads of water to keep the business location clean because otherwise we had no running tap water. I had to deal with thugs showing up every now and then, asking me to pay for street protection. With all these problems how do you focus on your startup and grow your business.
My wishlist for Nigeria will be a wireless internet solution that is cheap and can reach the whole country, the type that the company Teledesic tried to provide. Also an Energy solution that will free us from evil Oil companies and evil electric company. Something you could just plug in and get cheap, clean, efficient enegry to run your entire business. But thats just what my wishful thinking. When we can have that, we will see more startups from Africa.