Building Competitive Moats

Building Competitive Moats

This is probably a follow up article to a piece I put up on Building Experience Moats a couple of months ago. I’ll share the link to that post at the end of this one.

So I learnt three things this week; one is that Flutterwave now has an eCommerce platform (which is apparently old news and a sign that I probably need to spend less time on YouTube and more on Techpoint – and also validates some of the key points I shared in my last post where I talked about the goal of eCommerce), two is something remarkable about retail (I’ll share this in my next case study note), and three is that SalesForce just acquired Slack.

The third point is probably the most important one – SalesForce just acquired Slack. Why is this important? It proves on thing – nobody, no freaking body can withstand the force of big tech by human strength alone. Why is Slack selling to SalesForce? Simple – Microsoft.

So, apparently Slack was founded in 2009 by Stewart Butterfield, a former senior director of product management at Yahoo! and was poised to become the leading proprietary business communication platform. Microsoft didn’t like that, so they started Microsoft Teams – is starting Teams a problem? No, but Microsoft did the most gangster thing I have ever seen a business do – Microsoft started bundling Teams with its Microsoft office suite at a cheaper price. In other words every time any business bought or paid for Microsoft office 365 suite (which is literally more than a million businesses worldwide), they got Microsoft Teams as a default software with it. Defaults are powerful.

The power of defaults is why 80% of us can’t be bothered to change the default applications on our smart phones or laptops. The power of defaults is why I practically used Bing almost every day for search when I used a Windows phone, the power of defaults is why I use Boomplay to listen to music, even though there may be a better Android music app out there – Boomplay literally comes as default on my Android device, and I really can’t be bothered to go through the friction of switching to something else. The power of defaults is why Google has been paying Apple US$12 billion a year to be the default search engine on Apple devices. Don’t joke with the power of defaults.

Building ecosystems is a powerful competitive moat. I have never met anyone who has used an iPhone that wants to switch to an Android device. If you use an iPhone, you’re more likely to buy an Apple Watch over a Samsung Watch Active, more likely to buy AirPods instead of Galaxy Buds, and except you stay in Nigeria and don’t write code or design, in that case a Windows laptop just feels like the more sensible thing to do (based on pricing and ease of software) you’re more likely to buy a MacBook over any Windows powered Laptop.

Big Tech (Facebook, Google, Microsoft, Apple and Amazon) mostly became what they are today by seeing opportunities, observing market frictions, and deploying resources (and themselves) to creating solutions (while their incumbents sat down looking at powerpoint slides thinking the future will always remain the way it looks). Big Tech knows what they did to get to the top, so they reasonably make sure no one plays their own cards against them.

Technology companies are predictably some of the most innovative businesses on the planet. Very few businesses are as customer oriented as Amazon, Facebook apparently owns almost all Social Media (Instagram and WhatsApp), and is investing heavily into VR (Virtual reality) and AR (Augmented Reality) through its Oculus division, Apple is….. well Apple is Apple, Google probably has some of the best artificial intelligence engineers on the planet, and Microsoft is a roaring lion going about seeking whom he may devour (having acquired 225 companies from inception till date).

Slack is a legit product, it is, but I use it mostly for free. My Uncle on the other hand who works for a top indigenous oil company here in Nigeria uses Microsoft Teams for office orientations and remote meetings. His company is a paying customer, I’m not. Microsoft Teams reportedly has around 115 million DAU (Daily Active Users), Slack has a little over 12 million DAU, and 750k companies as customers of which only 142k are paying customers. Don’t. Joke. With. Big. Tech.

African Big Tech

The closest we have to big tech in Nigeria is MTN, and the Banks. Unless you have a unique value proposition, have seen a delicate market friction to take advantage of, or have heard the voice of God, competing with businesses like Dangote or Indomie isn’t really a good idea.

MTN made N202.1 billion (US$530.4 million) in profits in 2019, GTBank reported full year 2019 profits of N196.8 billion (US$516.5 million). Unless what you do can potentially make these guys anything close to those amounts – these guys are literally not interested.

No one staying in a 6 bedroom house in Banana Island, driving a black 2020 Mercedes Maybach, and flying private to Heathrow every other weekend is remotely interested in your N50,000 a month business. No one.

However, the most promising space in African tech today is apparently Fintech, and everybody wants a piece of the pie – including MTN.

MTN launched MoMo Pay in 2017, which is apparently a competitor to Pagatech. Pagatech’s CEO Tayo Oviosu has an MBA from Stanford, has raised US$34.7 million in venture capital, is profitable, and apparently has a 23,000 strong agent network. I think Pagatech will be fine.

GTBank operates in the Payments processor space with GTPay, and in the eCommerce space with Habari.

African Big Tech (Telcos and banks) will only become interested in your space when they see high potential for financial rewards. Till then – don’t bother about competition.

Africa’s Most Powerful Tech Startup

The African business I berate the most is Jumia, but I’m also objective enough to know that the most powerful tech startup in Africa (not business in Africa) is likely Jumia.

Jumia has around 6.8 million active users who apparently use a service as non-essential as eCommerce. Safaricom’s M-Pesa has about 20 million users – more users than Jumia has, but Fintech is an essential product, eCommerce is not. These 6.8 million active users are users Jumia can apparently up sell and cross sell a host of other non-essential products to. Jumia can apparently make it rain if they want to.

If you didn’t bother to follow the link I put in the first paragraph to my last article on Jumia, I’ll give you a quick summary; the major goal of eCommerce is to gather cheap users and cheap data – not to sell products. You think GTBank and/or Paystack care so much about buying and selling? You wish. These guys are focused on the side products of eCommerce – cheap quality users to up sell other products and services to, and access to cheap data. Don’t forget this. No African tech startup has more of those two things than Jumia. No one.

Thoughts on CredPal

So I came across news this week that CredPal just raised US$1.5 million in funding. I think that’s great – especially for the ecosystem.

CredPal apparently wants to create a credit card culture in Nigeria and by extension Africa. This is good and very commendable. CredPal is solving a problem by creating another one. CredPal will apparently help businesses get a boost and be able to make more sales since more people will be able to afford to buy products on credit card loans – the problem is that CredPal will likely end up building a debt culture in Nigeria. Americans owe like crazy (US$1trillion in credit card debt). People take loans to buy iPhones, I’ve heard of someone using credit to buy a US$300,000 Lamborghini. CredPal’s value proposition will allow Amaka that earns N150,000 a month working at Zenith bank to buy an iPhone 11 pro, and pay from her salary for a whole year to cover that loan.

In my opinion, CredPal has one big issue I really hope their founders are seriously paying attention to;

While the team at CredPal is essentially working themselves out to create value in Africa – AccessBank (31 million users), FirstBank (17 million users), and GTBank (8 million users) could essentially be watching CredPal on widescreen TV’s in their Victoria Island and Marina offices. When they eventually see that this startup is getting it right, and creating the mental shift, all they have to do is offer the same product – or in other words cross sell this new offering to their users. If FirstBank sends a text message to all its users informing them that they can now access credit card services on their platform, I really don’t know if CredPal will stand a chance. I really hope CredPal isn’t essentially laying the bed for AccessBank, First bank, GTBank and our other 19 commercial banks to lie on. I really hope so.

Experiences

I’m personally an experience buff, and I believe strongly that the best products always offer superior product experiences.

If you’re in the B2B space, your goal is to try and offer your clients a superior experience at either a cheaper price, the same price they paid before, or a slightly higher price.

If you’re in the B2C space, your goal is to try and offer your customers a superior experience at a cheaper price, or at most the same price they paid before. You can really only win offering your product at a higher price if the difference in quality between you and your competition is huge. Dangote Spaghetti is cheaper than Golden Penny Spaghetti, but Dangote’s spaghetti is sticky (bad product experience), unless you’re really short on cash – Golden Penny Spaghetti is really the better option.

As much as I am not a fan of piracy, no B2C product gets the pricing experience mix like the piracy industry – no joke.

Everybody really has two options; spend N3,500 to watch Avengers Endgame in Genesis Cinema at the Palms Shopping Mall Lekki where you don’t have the ability to pause, rewind or fast forward, or buy the 6-in-one collection that has Avengers Endgame along with five other movies for N200, and rewind the Thanos snaps finger scene as many times as you like (or as NEPA allows you).

Note: I am not a supporter of product piracy.

The best way to ward off big companies (or any company) trying to eke out your market share is to offer an exceptional product experience that delicately balances the experience to price ratio.

I also want to add this – as much as I rarely see startups do this, I came across one some hours ago that did. If a person can’t look at your LinkedIn company’s page about section and immediately know what you do without having to rack their brains, follow the link to your company website (which I did), read the who we are section and still really not have a clear picture of what you do, then I really wonder how you’re able to articulate your value proposition to your users or clients per time.

Clarity and simplicity are key.

Conclusion

Building a successful startup in Africa isn’t child’s play. Disruption can occur at the hands of government policies working against you (Gokada), or bigger players coming for a piece of the pie.

Your goal should always be to offer an exceptional experience, and try to delicately balance the experience pricing ratio.

 

Inspired by the Holy Spirit

 P.S: here’s the link to the article on Building Experience Moats

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