Why Blitzscaling Struggles in Nigeria

Why Blitzscaling Struggles in Nigeria

Many LinkedIn comments on the OPay piece. I spoke to a group of founders a few days ago, and the first question was the OPay article. Let me make it clear: OPay across its businesses have run validated business models.  No one is saying that the OPay business model is largely wrong. If you have read me, I have praised its aggregation and double play strategies. The core of my piece has remained that OPay has no patience. Yes, I have a problem with its intended rate of growth. In New York, London or Beijing, hyper-growth (or blitzscaling) delivers two options: win the trophy, or crash. In Nigeria, almost all the time, the only outcome is a crash because Nigeria does not have the conditions precedent to do any blitzscaling in the nation.

What is blitzscaling? Hoffman: Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. This is high-impact entrepreneurship

The point is that OPay put so much money into unlocking growth or better hacking growth. That does not work in Nigeria if done very aggressively. People will take the freebies and when they are gone, they move on. But in New York, people take the freebies and some will hang around. OPay had no patience and that is the issue; I contrasted with the “slow…stay the course” line in the piece.

See it this way: if you validate a product in New York, it is safe to write that you can raise money (as much as possible) and scale it across the United States. The U.S. is largely homogeneous which means the customer demographics are similar across most regions.

But in Nigeria, that is not the case. If you validate a product in Lagos and you think you can scale it across Nigeria, you would be surprised. There is no relationship between Zamfara market and Lagos market except that both use naira as a currency. So, a playbook that worked in Lagos will not work in Zamfara. 

So, the deal is this: if you look at that 200 million population, and think you can raise tons of money to scale a business that has worked in Lagos, across Nigeria, you will struggle because the other parts of Nigeria will disappoint you. Our communities and cities are heterogeneous with no apparent homogeneity making scaling any playbook harder. The implication is this: you need multiple playbooks in Nigeria across regions. And because of that requirement, you cannot blitzscale as you need effort and time to understand what each micro-market needs!

For most technology-based products, you have about 30 million people to work with as potential customers. Pumping insane amounts of money will not change that overnight. In short, your first $10 million investment could  show promise. But if you dump $100 million, you may be surprised, as that fund may not deliver efficiency as you utilize it because even the market you are pursuing has reached its absorption capacity. In other words, the Nigerian market is not that big to absorb all that big money. Yes, there is a diminishing returns on the amount of money you can invest in some sectors in Nigeria! That is because Nigeria is a relatively poor country when benchmarked with its population.

What people do is to diversify, putting that money in other areas, and then growing parallel businesses because a solo-focused business cannot absorb all the resources due to the sector carry-capacity. FarmCrowdy has diversified instead of putting so much resources in a sector that it may not grow further without losses. Why produce so much in farms only for them to waste? To deal with that, the company began buying processing factories knowing that if that expands, it will open opportunities in the stream of agro-processing. But blindly farming without thinking of the whole chain would ruin its business.

Back to OPay, it ran a good business model. But it had no patience with all those FREE this, free that. This is what I wrote when I predicted that OPay impatience was a problem. This is the heart of my OPay piece: if you serve Aba and you need people to be earning $4 per day to be profitable. But they are earning $2, and you give them freebies to join you. When you remove the freebie, you will likely lose most. How much freebies you give will not change that $2 core problem. A better strategy could have been adjusting the product to find a path in that $2!

Let me say it here: if OPay’s playbook is to “tax” Nigerians this way, it has no future. It has been proven that Nigerians like FREE things. If you try to ask them to pay, they move in exodus. Yes, provided it is free, you are the best service provider. Any playbook that depends on attracting users with freebies and expecting a paid conversion without a new level of product evolution will fail in Nigeria. So, OPay, you can burn your $50 million war chest, and the day that money runs out, all the users will look for the next deal in town. There is nothing like lock-in in Nigeria because the hardest thing is to get a Nigerian to spend money!

More so, because of the infancy of Nigerian market, we do not have depth. If you blitzscale in New York and lose a key customer, there are others you can rely on. But in Nigeria, you would be in trouble as there are very few of those customers to serve as backups. When such happens – losing a key customer- the blitzscaling will become muted, as you will start quenching fire to survive and all growth investments will stall. Lack of diversity in revenue base is a major element why Nigerian startups should be careful as they attempt to blitzscale..

OPay Other Businesses Fail

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3 thoughts on “Why Blitzscaling Struggles in Nigeria

  1. The kind of diagnosis Nigerian market needs, no one has been able to perform it, so players keep playing blindly, in the hope that something could click.

    There’s also a misconception between growing a business and poaching for returns, many of the things we call fundraising aren’t done with intent to build and grow business; they are just throwing darts and feeling good with themselves.

    But for analysis sake, few questions come to mind:

    How many cities do we have in Nigeria?
    How many working class people in Ado Ekiti or Gusau earn N400k or above as basic salary?
    Aside from Lagos, which other city can boast of diverse working class people, where employees earn above N400k as monthly salary?

    You may struggle to see ten thousand people in each state earning this amount, yet we are building digital products for people fighting for promotions, with deferential from one level to another not up N10k. We are not paying attention enough.

    In the US, each state you mention is known for something, some are manufacturing hubs, some tech hubs, some educational hubs, some defence/research hubs; so you have large number of people who can spend money on something.

    If you bend down and look very well, you will know how to survive here.

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