Interswitch’s Innovation And Monopoly Hangover

By

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July 29, 2017

Interswitch pioneered a digital payment processing sector in Nigeria. It remains the category-king today. But its business is challenged by amalgam of startups, banking institutions and innovators looking to create value in what is becoming an exciting growth industry in the country and the whole of Africa. As noted when Helios, a private equity firm, invested in the firm, it was at the forefront of the digital payment sector.

In December 2010, an investor group led by Helios agreed the acquisition of a majority equity interest in Interswitch Limited (“Interswitch”), the largest payment processing service provider in Nigeria. Interswitch has been at the forefront of the development and growth of the e-payment sector. The firm offers integrated message broker solutions for financial transactions, e-Commerce and e-billing solutions, telecoms value-added services and payment collections solutions. It also administers Verve, Nigeria’s leading debit card scheme. In March 2017, TA Associates acquired a minority interest in Interswitch; Helios remains the majority shareholder.

A brilliant company, founded by a Nigerian entrepreneur, Mitchell Elegbe, who saw an evolving opportunity and took action. The firm has become synonymous with digital Nigeria. It has had its moments over the years, and continues to drive Nigeria’s quest to digital payment future. But it is not alone. Competition is mushrooming daily across the African continent and beyond.

The Huge Fees

I first came into business contact with Interswitch, when my team in Owerri noted that we needed to send N150,000 (about $1,000, using then exchange rate) bank draft to GTBank, in favour of Interswitch, for us to link StartCrunch.com (since failed crowdfunding website) for payment integration. It was a very huge amount just to have the opportunity to receive payment online. I explained to the team that it was too much. But they noted that, there was no other way, to link the site to a local payment ecosystem without Interswitch. We made the payment.

Immediately, I knew that there was the power of monopoly in town. With PayPal, you can sign-up for free, and within minutes be getting revenue online. But yet, I do understand that Interswitch has its own cost model, running its generators and providing its security since government is largely not part of building companies in Nigeria. But was that fee appropriate just to be connected online, in Nigeria? Not really, and I felt they were making a real mistake. A big mistake because such fat profits and margins would cloud their strategies to mine all the juices with the power of monopoly and suffering later the risk of not innovating. They did not make significant efforts to expand beyond Nigeria, at scale, because they could simply charge $1,000 for integrating websites. (Sure, they did expand to Uganda, etc but generally, the pace was slow. When they started in Nigeria, they could have taken over Africa, if they had not become very comfortable in Nigeria alone.)

Besides the fees, the integrating solution was terrible:

Demanded expensive development time instead of copying and pasting as is done with PayPal and leading payment processing companies.
Required Interswitch staff to have access to Admin of the site to check that everything was fine. That was the product weakest link as when they asked for the password, my team laughed. Possibly, this company was not getting many sign-ups. Otherwise, they would not be doing that, at scale.
The second reason above extended the time to market as Interswitch was not even available to check whatever it wanted to check in the site. It took days to finally get the staff to check. GTBank was patiently coordinating this as the integration was going through GTBank. Everyone was frustrated including one of the finest banks in West Africa. The international facing payment integration with PayPal took 4 minutes: we just generated the code and added to the site. Interswitch took more than 6 weeks as the bank draft was issued in GTBank Owerri and they had to send it to Interswitch in Lagos. We asked: why not just ask us to pay into Interswitch bank account? No, the company wanted bank draft. MONOPOLY POWER is bad for humanity.

Simply, with easy profit margins, Interswitch became lazy and was unable to innovate.

Interswitch Verve offered a new dawn on Nigeria’s possibility in the digital age

The Monopoly And Post-Monopoly

Every product offered then by Interswitch was anchored on the premise that it was the only vehicle to connect companies online for payment, in Nigeria. You either take whatever you get or you stay offline. When we connected to GTPay, the company also needed to be supported by Interswitch. So, from banks to startups, Interswitch ruled the market. A one-product company, at its best, with many other things (electronic health records, etc) all linked to it, it had its moments.

But today, the power of monopoly is ending because with Stripe, PayPal, Flutterwave and Paystack, there are many options now, to a degree, locally. Unfortunately, in some cases, Interswitch has to pursue what some of these companies are doing, but now from behind.

For Interswitch, there are major scenarios here which are evident in this largely post-monopoly era of its existence:

Structure: Do what competitors offer, using the scale it has to compete. Its most innovative element is its size. While it can do this, as a big company, it may not necessarily do so at the quality level of the smaller local rivals. The structure of the new world, pursuing free sign-ups when it enjoyed in the past a payment of nearly $1,000 cannot happen overnight
Strategy: Working to be at the edges of the smiling curves, making it possible that it can have the best value created. It is a big company and it can support any person. However, the strategy has not really been supporting small companies which cannot generate decent revenue. Unlike the free cash it could get from these companies in the past, it needs to find a way to serve them, without the free cash. This makes it challenging because its cost model is not wired for such. So Paystack is already growing and most banks are eating deep into the market share. It has to adapt fast.

The Product: Interswitch product is simply to help companies participate in digital payments. From outside, it looks simple, as it provides services to banks and companies. However, as some of the banking institutions look for alternatives, even as Visa and Mastercard arrive, Interswitch will lose its firm grips in the nation. It will have to develop a new product – partnership – relying heavily on its best feature which is its size. Today, Interswitch has figured that out and is working with Visa, FuelVoucher and other companies. It is now evolving as a partner-company and that is a good thing.

Visa, the credit card company, and Interswitch, Africa’s integrated payments and transaction solutions company, announced news on Friday (June 30) that they will partner to accelerate mobile payments adoption across the region. In a press release, the companies said the partnership will see Visa and Interswitch upgrade the digital banking applications of leading banks to include mVisa, as well as enable more merchants to accept mVisa payments.

Interswitch will work very closely with Visa in selected African markets across West and East Africa to develop a Merchant Management Platform to receive Original Credit Transactions (OCT) from Visa, as well as app-based merchant enrollment solutions, which enable minimum Static QR code functionality.

Simply, Interswitch cannot be the Visa for Africa anymore, which is good, for it. It simply shows the intense power of choices. So it has to find ways to partner for new sources of growth. It can see its brand permeate Africa because that humility that comes post-monopoly will make it to compete.

Interswitch partners Fuelvoucher as it expands retail business

Growth and Africa Miss: Problem of Pricing

For all its success in Nigeria, Interswitch missed the African opportunity. It also missed enormous opportunity to lock many small companies in Nigeria and seeded its long-term growth and survival. I will explain with these two products:

Interswitch Quickteller is a secure payment gateway, which allows your customers pay for goods or services from different channels such as your website, ATMs, QuickTeller website, and the QuickTeller mobile App. For payment, the cards accepted include Verve Cards, MasterCard and MasterCard Verve.
Webpay is InterSwitch’s secure online gateway with which you can accept payments only on your website, using Verve Cards, MasterCard, MasterCard Verve and VISA. WebPay also processes International MasterCard acceptance, however, your bank has to be able to process International payment before international payment can be accepted on the site.

Looking at these two products. one can see that Interswitch has all the pieces of value that any entrepreneur, startup or digital company will need in Africa. PayPal and others were not then available in the continent. Then, Africa was Interswitch continent. But it did not scale. (Sure, some of the products were not exactly in these forms few years ago, but they had the pieces.)

Also, looking home in Nigeria, it missed another opportunity. As I explained, if the company had not adopted the N150,000 initial fee, many people could have signed up to its system. Not many people had the money and for those that had, the cost was high when there was no empirical data on if the business would work, digitally. Imagine if it had followed the PayPal model, nearly every site in Nigeria will be Interswitch-first. But with initial fee, as not many could afford nearly $1000, few cared.

The Future Partnership Model

In coming years, I expect more choices in the region, meaning that Interswitch will see further erosion of its grips on e-payment. Some banks like GTBank will begin building their own infrastructure since the future of banking will be digital and they can decide to own the assets. As this happens, Interswitch will begin to win by becoming a preferred partner with global corporations who are interested in the Nigerian and African markets. The deal with Visa is a sign because it simply means that Interswitch will prefer to help accelerate mVisa great product, over developing and pushing its own product to the banks. With its pedigree as a local digital payment pioneer and working with Visa, the firm can break more grounds in Africa. This means, its size, being BIG, begins to work for it.

That is one advantage of a former monopoly: SIZE. And on post-monopoly, a very smart management will find how to use that size as it redesigns the business. That is what the leadership is doing. It can get great deals from Visa, Mastercard and other global firms because they know it has the scale and experience to execute, in Africa. The startups may be innovative but most do not have presence needed to support banks with all the compliance issues.

Locally, Interswitch will transmute into a partner-company that works with partners to deliver its solutions to more customers. Doing this will mean not collecting the old fees that stymied its growth.

The Interswitch Opportunity

The future is about digital and electronic payment. Interswitch has the opportunity. It is still the category-king. It needs to do the following:

Improve its products. Integrating with Interswitch technology is unfortunately difficult. Sure, it has built the SDKs but its product usage is light years behind the industry best like Stripe. It needs to improve them to make it easier for developers to integrate.
Redesign the Marketing Model: The firm has to find ways to serve startups and SMEs, besides any existing partnership model. This is the way it can build a company that will worth $1 billion as it has been rumored, to be valued, in the past
Deepen the African strategy: As it works with Visa, the opportunity must not just be banks but also SMEs and startups.
Build Better Primitives: It can get ahead in many ways if it invests in making primitives which can help developers find its ecosystems to be more useful in Africa. It has the resources to do this than competitors.
Balance growth and profit: The initial model of charging huge initial fee made sense, but under intense competition, the real winner will be any player with network effect. So, the firm must balance profitability and growth: Verve has to be popular to have any value.

Can Interswitch Evolve?

Everything will depend on the attitude of the firm. It can dance even as an e-payment elephant, relatively, at local level. It cannot be obsessed with profitability as a digital company at this level of infancy. It has to focus on growth; profits will come. If it can cure itself of the love of fees and huge margins at the expense of growth, which is very critical for a digital company, it will return back to its glorious innovative past which won Central Bank of Nigeria and all the banks to adopt it as platform of choice. It is a great company and one that has moved Nigeria forward in many ways. Interswitch can do it as it is peerless in what it does, in the region.

Why Enacting The Act That Made Google Possible Will Boost Innovation In Nigeria

By

Ndubuisi Ekekwe

-

July 28, 2017

0

As nations try to emerge from the most devastating global recession since the Second World War, policymakers, business communities, academia, and governments will be looking at ways to accelerate growth and competitiveness. Many at the right will continue their propositions that governments should be left out of business, while those at the left will emphasize that governments must play central roles in shaping commerce and industry.

The reality is that governments do matter and a single legislation could have impacts that can redesign a nation’s economic destiny. Globalization makes it so important that nations must compete not just on technologies, but on policies upon which those technologies are developed and commercialized.

This makes it possible that two universities in two separate nations can develop similar technologies with one creating Fortune 500 companies within a decade and another having the idea locked up in a cabinet. In other words, the policies or legislations made by congress or parliament on what happens to inventions supported by government funds matter.

In 1980, a United States legislation dealing with intellectual property emanating from federal government-funded research was implemented. The legislature called Bayh-Dole Act (after two Senators Birch Bayh of Indiana and Bob Dole of Kansas that sponsored it) or University and Small Business Patent Procedures Act gave US universities, small businesses and non-profits intellectual property rights and control of their inventions, even though they were funded by government.

Through this Act, universities, small businesses or non-profit organizations could pursue ownership of inventions in preference to the government.

What this means is that instead of sending the patents or inventions to the government agencies like National Science Foundation (NSF) or National Institute of Health for them to file away in their office cabinets, this Act empowers the inventing entity to pursue commercialization of the idea. Simply, the U.S government elects to fund an idea and allows the fund recipient to profit from any invention that comes from that idea.

This Act provides clarity on many issues that could derail the process of taking ideas to market, especially when those ideas were funded by US federal government. For professors, it provides incentives to pursue research both for discovery and for profit since they also could profit from their inventions. Just as their students could discover and commercialize, the university dons can also do the same.

It has been a new era as the number of Technology Transfer offices in the US universities has increased many folds. As schools file more patents, they continually look for opportunities for venture funds to commercialize or simply license their patents to other institutions. These days, schools quote the number of start-ups they have incubated as a metric to their competitiveness. They will tell you the stories of their students who graduated and founded firms and use that as selling points in their brochures. This is business right in the four walls of the universities.

Interesting, schools do not just teach business regulation and competitiveness anymore, they experience them because they are getting products to the market, though indirectly. There are many start-ups which have become pipelines for the big MNCS to buyout. Before the Act, some of the ideas that enabled the start-ups might have been overlooked by MNCs. But as the former show promise and profitability, they could be bought over and that mission of making society better is given a bigger scale.

For me, Bayh-Dole Act is the most important business legislature of the last century in the United States. And this is American Congress at its very best moment. It delivered through legislature and transformed the pace of innovation by providing a fluidic system that enhances U.S competitiveness.

The outcome of the Act has spread around the world because of the number of technologies which have been commercialized and subsequently penetrated across the globe. The discovery of the search engine that powers Google was done in Stanford University. When Mr. Page and Mr. Brin decided to pursue commercialization of this algorithm and created Google, they must have been grateful for the federal funds that partly funded their discovery.

In a recent trip to Africa, I noticed that many universities now have Technology Transfer offices or what they call Consults. Good idea, but I must say that the structure where those offices operate is entirely different from what Bayh-Dole Act gave the American schools. The Act is helping American taxpayers to reap the benefits of funding the academic institutions through innovative products in the market. In Africa, you rarely see government in the mix of research and the whole constructs of technology transfer office seems superfluous since no research takes place.

It is one of those things that happen when African professors visit American universities for two weeks and afterwards go home trying to recreate the American educational system. Unfortunately, the root cause analysis is not thought through to appreciate the fundamental evolution of what goes in the US system. Yes, you have technology transfer offices, but the school has no electricity to run a lab.

Back to the Act, notice that many US universities are very competitive. While some could argue over the benefit of that since universities should traditionally share freely, the pursuit of commercialization and the rewards that come with it help to make research relevant to the needs of the society. And this new focus has created a platform where collaboration with industry has reached an all-time level.

Possibly, without this legislature, the idea that powers Google might still be filed out someone in the NSF cabinet. And the world will miss the dynamism, positive disruption, jobs, success-domino and information access that arrival of Google gave the world. When they introduced 1GB gmail, Yahoo was forced to upgrade its users from 4MB to 1GB and later, limitless storage.

It is not just Google, there are many small companies in pharmaceutical, semiconductor, and IT industries which exist today because the Act made it so easy that individuals and entities can hold rights in preference to government and in the process increase the chance of getting innovative products to the market.

The lesson here is that congress and parliament can change the future of any nation when good policies are made.

I understand that this Act might have reduced the free flow of information and ideas across the academia because everyone wants to guard its ideas for profit; but we have to live with the reality that there is nothing that does not have a potential drawback. Yes, some of our professors are now visiting venture capitalists more often. But at the end, it provides a perspective that makes education relevant and useful. And I think American students are better off when their professors are not decoupled from the industry.

ABWxD ’10 – Ndubuisi Ekekwe from A Better World By Design on Vimeo.

Also, early patenting of ideas or processes without pursuing immediate commercialization could decelerate the pace of their improvements from other partners. In other words, when schools patent their ideas, they could possibly be closing the channel of progressive advancement on those ideas. From professors to graduate students, few will be interested to work on ideas which have been patented.

But the reality is that over the last five hundred years, intellectual property rights (IPR) have proven to be the difference between the old world and the new one and this Act cannot be an exception. A world of IPR is a world of innovation and though Bayh-Dole can have some drawbacks, it is to me the greatest business legislation in the last hundred years.

Article Source: http://EzineArticles.com/4290212

Nigerian government is looking for how to diversify its economy. That is expected as the future of the world economy and specifically the automobile sector will not likely be powered by hydrocarbons but by electrons.That transitioning process is already happening with Nigeria’s junior minister of Petroleum Resources looking for petroleum demand within Africa.

Nigeria is a nation with talented people. With the right policy, our moment of glory will arrive. We have seen many countries fully recovered from the most devastating global recession since the Second World War, and their policymakers, business communities, academia, and governments pursuing ways to accelerate growth and competitiveness. Nigeria, unfortunately, is yet to recover. Our stock market is still embarrassingly under-performing.

I do believe that government has a major role in shaping commerce and industry. Yes, governments do matter and a single legislation could have impacts that can redesign a nation’s economic destiny. Globalization makes it so important that nations must compete not just on technologies, but on policies upon which those technologies are developed and commercialized.

This makes it possible that two universities or research institutions in two separate nations can develop similar technologies with one creating Fortune 500 companies within a decade and another having the idea locked up in a cabinet. In other words, the policies or legislation made by congress or parliament on what happens to inventions supported by government funds matter.

The Bayh Dole Act – America’s Most Important Economic Legislation

In 1980, a United States legislation dealing with intellectual property emanating from federal government-funded research was enacted. The legislation called Bayh-Dole Act (after two Senators Birch Bayh of Indiana and Bob Dole of Kansas that sponsored it) or University and Small Business Patent Procedures Act gave US universities, small businesses and non-profits intellectual property rights and control of their inventions, even though they were funded by government.

Through this Act, universities, small businesses or non-profit organizations could pursue ownership of inventions in preference to the government.

Without the Act, we may not have Google today

What this means is that instead of sending the patents or inventions to the government agencies like National Science Foundation (NSF) or National Institute of Health for them to file away in their office cabinets, this Act empowers the inventing entity to pursue commercialization of the idea. Simply, the U.S government elects to fund an idea and allows the fund recipient to profit from any invention that comes from that idea.

This Act provides clarity on many issues that could derail the process of taking ideas to market, especially when those ideas were funded by US federal government. For professors, it provides incentives to pursue research both for discovery and for profit since they also could profit from their inventions. Just as their students could discover and commercialize, the university dons can also do the same.

It has been a new era as the number of Technology Transfer offices in the US universities has increased many folds. As schools file more patents, they continually look for opportunities for venture funds to commercialize or simply license their patents to other institutions. These days, schools quote the number of start-ups they have incubated as a metric to their competitiveness. They will tell you the stories of their students who graduated and founded firms and use that as selling points in their brochures. This is business right in the four walls of the universities.

Interesting, schools do not just teach business regulation and competitiveness anymore, they experience them because they are getting products to the market, though indirectly. There are many start-ups which have become pipelines for the big MNCS (multinational companies) to acquire. Before the Act, some of the ideas that enabled the start-ups might have been overlooked by MNCs. But as the former show promise and profitability, they could be bought over and that mission of making society better is given a bigger scale.

The Act’s Impact – Google Effect

For me, Bayh-Dole Act is the most important business legislation of the last century in the United States. And this is American Congress at its very best moment. It delivered through legislation and transformed the pace of innovation by providing a fluidic system that enhances U.S competitiveness.

The outcome of the Act has spread around the world because of the number of technologies which have been commercialized and subsequently penetrated across the globe. The discovery of the search engine that powers Google was done in Stanford University. When Mr. Page and Mr. Brin decided to pursue commercialization of this algorithm and created Google, they must have been grateful for the federal funds that partly funded their discovery. It is possible if not for this Act, we may not have Google today.

The African Case

It is evident that many African universities now have Technology Transfer offices or what they call Consults. Good idea, but I must say that the structure where those offices operate is entirely different from what Bayh-Dole Act gave the American schools. The Act is helping American taxpayers to reap the benefits of funding the academic institutions through innovative products in the market. In Africa, you rarely see government in the mix of research and the whole constructs of technology transfer office seems superfluous since no research takes place.

It is one of those things that happen when African professors visit American universities for two weeks and afterwards go home trying to recreate the American educational system. Unfortunately, the root cause analysis is not thought through to appreciate the fundamental evolution of what goes in the US system. Yes, you have technology transfer offices, but the school has no electricity to run a lab.

Case Study: South Africa

In 2010, the Intellectual Property Rights from Publicly Financed Research and Development Act enacted by the government of South Africa, went into effect. The Act regulates how private institutions access university research when public funding is also involved. It strives to eliminate perceived exploitation of public funded university research by making sure that taxpayers are adequately compensated. The implication is that companies must not just fund research, but also ensure that no public funding is used, if they intend to become sole beneficiaries.

The proponents of this legislation have argued that they are helping the citizens by safeguarding the public funds. And across the continent, other countries followed South Africa and enact similar legislation to forestall profit-seeking institutions from ‘exploiting’ taxpayers. The Act is a welcome development in a continent where IPR remains weak and developing the structure will surely help in the long-term competitiveness of Africa. The nation has the right to seek for companies to properly license or pay for research.

Yet, the challenge in Africa is not necessarily university licensing of technology, but actually developing an environment that can sustain quality research. In this case, following South Africa that has the best university research network in Africa to enact a similar Act will be a misplaced priority for the other nations. Any sign that involvement of public funds in universities that are predominantly owned by the public will limit access to research outcomes could alienate the few companies that support the schools. The relationship between the university network and the industry is weak and increasingly schools still destroy research outcomes, simply to make space to store new ones. Products nurtured in the university labs are not common. So any more legislation that can scare companies could dampen any prospect to enliven the academic-industry partnership in the continent.

Why Nigeria Needs Our Bayh Dole Act

US universities are very competitive, and they respond better to the needs of the society. They also work hard on managing their IPs. While some could argue over the benefit of that since universities should traditionally share freely, the pursuit of commercialization and the rewards that come with it help to make research relevant to the needs of the society. And this new focus has created a platform where collaboration with industry has reached an all-time level.

Possibly, without this legislation, the idea that powers Google might still be filed out somewhere in the NSF cabinet. And the world will miss the dynamism, positive disruption, jobs, success-domino and information access that arrival of Google gave the world. When they introduced 1GB gmail, Yahoo was forced to upgrade its users from 4MB to 1GB and later, limitless storage.

It is not just Google, there are many small companies in pharmaceutical, semiconductor, and IT industries which exist today because the Act made it so easy that individuals and entities can hold rights in preference to government and in the process increase the chance of getting innovative products to the market.

The lesson here is that congress and parliament can change the future of any nation when good policies are made. This is where I want Nigeria to pay attention. Our FIIRO and Electronics Design Institute (ELDI) Awka along with our universities can open up with a very smart legislation.

I understand that this Act might have reduced the free flow of information and ideas across the academia because everyone wants to guard its ideas for profit; but we have to live with the reality that there is nothing that does not have a potential drawback. But at the end, it provides a perspective that makes education relevant and useful.

Also, early patenting of ideas or processes without pursuing immediate commercialization could decelerate the pace of their improvements from other partners. In other words, when schools patent their ideas, they could possibly be closing the channel of progressive advancement on those ideas. From professors to graduate students, few will be interested to work on ideas which have been patented.

But the reality is that over the last five hundred years, intellectual property rights (IPR) have proven to be the difference between the old world and the new one and this Act cannot be an exception. A world of IPR is a world of innovation and though Bayh-Dole can have some drawbacks, it is to me the greatest business legislation in the last hundred years.

I challenge the Nigerian National Assembly to begin work to liberate our research institutions so that along with our schools creators and inventors can profit from any federal funded research. We want them to be greedy as that will help stimulate innovation in Nigeria. Nigeria needs our Bayh-Dole Act.

Building Resilient Startups – Making Sure Your Success Does Not Kill Your Startup

By

Ndubuisi Ekekwe

-

July 28, 2017

6

In this piece, I use the success we have found in user growth which ended up crippling our hosting capacity on tekedia to explain the importance of continuity management and building resilience in startups. The fact is this: we did not anticipate to support thousands of readers in this blog, for few hours. But that happened and the site crashed. The hosting company noted that we had a “Facebook Problem”. Someone had shared one of our contents online and that drove traffic and the website failed.

We had success, momentarily, but it took the service away. Thank goodness, this is just a blog, not one of our core product like Zenvus, Facyber, and Milonics. There is something to learn here. I explain what we have learnt and what you can do to ensure your success does not trigger failure.

Why Messaging Will Win Africa: The New Platform of Competition For Fintech, Communication, Etc

By

Ndubuisi Ekekwe

-

July 26, 2017

0

In this piece, I explain why messaging will win Africa. I predict that any business with messaging flavor will do better in the continent than those building solutions only for apps or websites. The success of messaging will cut across industries, from Fintech to education, in coming years in Africa. The success of WeChat has proven that commerce works better under intimate communication node which messaging supports.

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image credit: curative

The Perils of Cloning Foreign Startups in Africa

By

Ndubuisi Ekekwe

-

July 25, 2017

0

Author’s Note: A colleague, after reading through, suggested that I note that we had actually made the same mistake. We cloned Kickstarter.com via StartCrunch.com, becoming the first crowdfunding firm in Nigeria. We failed. We did not know that Nigerians or the world would not open their wallets to back Nigerian projects. So, people, no one has all the answers. We wasted thousands of dollars on StartCrunch, cloning a U.S. company, and failed big.

In this piece, I explain the perils of trying to clone successful foreign startups in Africa. While it is always good to explore how something that worked somewhere can be replicated at home, it is always important to understand the underlining reasons why the foreign companies worked. I present a case study on Yelp, an American company that provides reviews on local businesses, helping people make better decisions on who to hire for repairs, catering or where to eat.

Yelp will struggle to thrive in sub-Saharan Africa because the cornerstone of our economic processes is not contract-driven. We run “carry and pay” system while America is contract before service, thereby pushing people to look for the very best hands since you are paying for the time and not necessarily the outcome. You will still pay a mechanic for spending his time working on your car, even if at the end, he did not fix the problem. In Nigeria, that is not likely: you can pity the guy and give him something but because he did not do his job, he does not deserve the money. So in Nigeria, you have the opportunity to review the work before you pay (carry and pay). In America, by the time the mechanic is done, you are contracted. to spend money, either way. That is why I do think, it is a waste of time trying to clone Yelp in most parts of Africa.

Yes, there are many companies in U.S. you should clone: startups working on tools, productivity, processes and also ones which get competitive advantages owing to regions they operate.