This is my playbook: Rwanda, Gambia and most less populated African countries are not good places to launch a business to consumer (B2C) startups except in healthcare and broad food areas. In those countries, I only get interested if the company is in business to business (B2B) space. I do think the population is small to provide numbers which can enable leverageable factors towards scaling a business. In other words, in those countries, B2B could work but B2C will struggle as the scalable advantages are severely limited.
But when it comes to Nigeria, Kenya, and South Africa, anything is possible. You can launch a B2C or B2B because they have the numbers.
Now, you want to do business in the B2C space in Nigeria, the question is “where do you position the company”? You need to go back to this plot (above). It is called the Fortune at the middle of the pyramid: “the most significant opportunity for African B2C startups lies with consumers who earn between $4 — $8 per day … This is largely because that income band holds the highest concentration of discretionary spending power on the continent, as the graph below shows.”
Companies like Bigi Cola and La Casera understand this redesign. You can also make a case that the sachetization in places like Nigeria where everything is now bundled in sachets has a root therein. Simply, there are not many consumers outside that $4-$8 per day segment for any big B2C business (if you focus outside this segment, your business must have a dose of B2B).
Interestingly, that is also where I see a big percentage of my popular 30 million people who earn relatively decent income in Nigeria; those 30 million are the core of the consumer market.
This is the full summary from DFS Lab, the researcher which did the study:
Africa is growing fast, has a young and urban population, and many opportunities for improvements in productivity and resource utilization — thus there is much cause for optimism in the tech sector! But purely consumer focused apps will face unique challenges with monetization relative to markets like China, Indonesia, or Latin America.
Many consumer-focused apps will find easy early traction going after the relatively wealthy $10/day and above segment but will risk a niche business as growth stalls due to the limited size of this population.
The largest economic opportunity in a pure sense are consumers between $4-$8/day. Here is the largest density of discretionary income due to the capacity to spend beyond simple necessities, and much larger population numbers. That said, costs to acquire and serve these larger numbers of customers will be prohibitive to most and will be the critical factor in success.
Conversely, those who can create innovative, low cost ways to acquire and serve users in the $4-$8/day category (e.g. partnering with community groups, government, USSD interfaces, viral peer marketing, etc) have the potential to create massive amounts of value by opening these consumers to new markets.
Also, businesses that focus on primary necessities (by selling directly or improving the value chain efficiency) have a much larger market to target.
Further, models such as gig work, or seller market places that can dramatically increase people’s income break the logic presented here and could potentially generate large revenue from relatively lower income populations (while improving their income as well, hopefully)
Finally, while the picture this data paints implies B2C models will face headwinds, we do think that B2B business models that focus on organizing value chains, improving efficiency and resource utilization, digitizing SMEs, and generally increasing productive capacity have huge potential — we will cover this in another piece.
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