In the African heterogeneous markets where Benin Republic is totally different from Nigerian market even though they share boundaries, the fundamental principle of scalability of companies will hit road blocks. As I have noted in the construct of Scalable Advantage, there are many elemental components in our markets which will make it nearly impossible to experience what Chinese and American entrepreneurs enjoy at scale.
Any startup needs to model its scalable advantage (SA) to ascertain its capacity to scale and win in the market place. There are many factors which determine a company’s scalable advantage. Some are external like regulation, industry of operation and size of the market. Others are internal and they include marginal cost, supply pipeline, among others. In this video, I explain how to model that advantage by looking at the core transaction frictions between selling and buying. The more the business eliminates the friction, the more scalable it becomes.
As I explained yesterday on WeChat, we need to learn how to pick markets in Africa and work to win therein. But any hope of hyper-scaling anything may not work. Nigeria offers a great promise as it has decent scale to allow startups to thrive.
Nigeria is the China of Africa – one can build a real business in Nigeria. It does make sense to win Nigeria first before entering into small African countries just to say you are in many countries. Lagos State is the 5th or 6th largest African economy; River State is not far behind. We have a huge home market to find success before those expensive expansions outside home.
Simply, there is no immediate reason why you should open a shop say in Benin Republic when you do not have presence in the 6 geopolitical zones in Nigeria. You need to see these zones as being just as big as most small African countries.