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Entrepreneurship

How Startups Tackle Emerging Markets

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Developing new business in emerging economies, especially rural ones, is hard. An entrepreneur has to create products and services that are able to withstand the vagaries of the emerging market context: no electricity, no spare parts, hardly any logistics infrastructure, customers with very tight budgets, and with an over responsive sensor for glitchy value propositions, etc.

Just like for the entrepreneur, investors also have a hard time figuring out how to get a foothold and support successful emerging market business. When can a business be considered successful in these overly tough market conditions that make business development so risky and hard? On what basis can they judge that a business has made meaningful progress?

This question came to me when I encountered a new entrant to the Unreasonable Institutecalled Juabar. JuaBar is a social enterprise startup building a pushcart mobile phone charging station in Tanzania. They intend to implement a franchising system to entrepreneurs who want to develop a business out of charging peoples’ phones. In this article I will take this case of solar powered push cart solutions to illustrate the investment decision problem, and what I suggest is needed to overcome it.

The tale of 2 similar emerging market startups
JuaBar is not the only startup working on this specific idea. There is another startup called ARED, which is developing the same concept, but then in Rwanda. Both startups have been at it for several years, with Juabar starting about 6 months earlier. Essentially ARED and Juabar are building exactly the same business, if you look at the pictures below, they look more or less the same.

The Juabar solar charger
The ARED solar charger

 

 

 

 

 

Given that these businesses are so similar, how would an investor choose which startup to put their money in if they were given the choice to invest in either? What would they need consider?

Lets put ourselves in the shoes of the investor, and break things down a bit. These businesses are both riding the same promising market trends:

  • Mobile phones are spreading everywhere in Africa, and they need to be charged
  • The grid is only beginning to spread, and has yet to reach rural areas, let alone provide a reliable supply. There is a huge opportunity for solar powered products
  • Entrepreneurs in this market space operate on low and irregular income streams. They can use the pushcart to create multiple revenue generating opportunities like selling accessories, prepaid cards, and other services, which is crucial for keeping your livelihood afloat.

Despite the similarities, there are some marked differences in their business design. ARED is aggressively promoting some additional features to charging, that could arguably give it an advantage over Juabar. Here’s a couple of the key features and their related assumptions:

  1. ARED is more mobile: it can be mounted on a bike. Assumption: It’s likely to be beneficial to the entrepreneurs because she can cover large market areas.
  2. ARED has developed a technology for faster charging. Assumption: Both franchisee and their customers benefit from that, and think it is really important.
  3. ARED is explicitly promoting the advertisement option as a way for additional revenue generation. Assumption: this advertising creates conversion for advertisers, and enables the franchisee to directly earn extra cash.

The first 2 features make sense. You can intuitively see them add value. Yet at the same time they are features, which can be copied quite easily. They won’t protect ARED’s advantage for long.

But what about the third one? Growing the franchise could create a defensible moat for generating advertising revenue that competitors can’t readily copy. It seems like a really powerful feature, already glancing at the next stretch in developing the business after it would have successfully expanded from its current investment round.

Successfully growing ARED could mean that a new, highly granular advertising channel with ubiquitous emerging market penetration will be created if ARED succeeds in achieving growth. Imagine an ARED cart on every meaningful market place in East Africa! This coverage would be the key resource that keeps the competition at a distance; something any investor drools over.

But despite the attractiveness of this advertising channel opportunity, the make or break question here is whether the basic premise of advertising works: does it create conversion for advertisers with ARED’s low, and uncertain income target market? Is it an opportunity worth investing in to achieve that scale? What can we put to the table now to somehow back the validity of this assumption?

Looking for elementary market insights from elsewhere.

To back the opportunity of the advertising claim we need to look elsewhere, and move to Monrovia, Liberia, where we will find Alfred Sirleaf. Alfred is a famous figure on the market, because he mans a blackboard newsstand. Alfred scans the newspapers each day for interesting stories, and writes them up on the blackboard for people who can’t afford newspapers. He developed this during the Liberian civil war, when news was scarce. But currently in peacetime, it is still very much in operation.

The interesting thing about Alfred’s business for our pushcart solar phonecharger case, is that Alfred offers advertising space with his blackboard. Apparently there are advertisers that get some kind of conversion from advertising to people who can’t afford a newspaper! Why would they otherwise pay for using that space?

Back to our discussion on ARED, you can see the similarity in advertising opportunity with Alfred’s newsstand. Both attract attention on busy marketplaces. Though this is still an open hypothesis about conversion, it could imply that there is a real case for the ARED advertising solution, and that it is investment worth pursuing.

Closing thoughts
From the arguments it is becoming clear that ARED is playing a stronger game than Juabar. It might be that Juabar is banking on its focus on rural areas, given that ARED is currently predominantly active in urban areas. If ARED is able to grow fast however, and expand beyond urban limits, then it will have created these advertising channels, whose ubiquity would make it a winning, maybe even invincible, business model.

But the point of my article is not about qualifying one idea over another. Juabar and ARED serve as a case about making better guesses on developing a business, sourcing insights on which to base those guesses, and showing what these insights could do to make better business decisions by entrepreneurs and investors alike.

We need to move beyond emerging market startup ecosystems that have to scramble for those valuable business model insights each on their own. It takes such a tremendous amount of resources to understand and validate these insights. You would spend equal, if not even more time understanding the marketing basics in your context, rather than actually building your business. This is a big constraint on business development, and it undervalues the potential of startups.

The good news is though that the market insights required to develop successful business at scale in emerging markets are already out there. They’re with shopkeepers, merchants, existing service providers, etc, currently running their businesses (remember our case of the Agrovet in Karatina). What if we had the chance to reach out to Alfred and discuss advertising conversion, and learn from him on what works and what doesn’t?

Such insights should be collected, categorized, and made available publically to any entrepreneur and accelerator program that supports startup entrepreneurs in emerging markets. In no way will this substitute for the groundwork that an entrepreneur needs to make to understand their customer. But based on such insights, entrepreneurs can make better bets, and everybody would get a more informed shot at developing metrics that are key to understanding business performance in emerging market contexts. It won’t make a bad business good, but it could make a good business better.

Now that you made it this far in the article, I would like to hear from you as a reader, what you think about a repository where validated emerging market insights (like on marketing, distribution, trust, and methods of market size estimation) are shared open source, and free for anyone to use. Would you think that it would be worth the investment to set up such a repository? Are you familiar with the lack of these insights? Would it support business development? Are the examples I have provided on this blog already triggering your next business hypothesis to test? Please do share your thoughts, and I hope to be talking with you soon!

[post publication edit: I have been in touch over email with the founder of ARED: Henri Nyakarundi. Henri emphasised that ARED’s strategy is to develop many more functional, income generating opportunities with their hardware for their franchisees. Currently they are exploring opportunities to build in WiFi connectivity into their cart, providing the growing population with smartphones access to the internet. The idea would be to have the franchisee function much like the Grameen Foundation’s Community Knowledge Worker, a human interface to guide people around the internet. This is a very important gateway for connecting people who are as of yet unfamiliar with what the internet is, and what it can do for them.

Last but not least, this point: Henri has been very actively, but unsuccessfully seeking investment to further expand his business, despite his obviously entrepreneurial talent, and despite ARED having several contracts and demonstrated revenue generating capabilities on the ground. Investors are apparently having a hard time sizing up his business! I you see any possibilities to help here, then do get in touch with Henri!]

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About the Author

This article was produced by Bart Doorneweert of Value Chain Generation. Value Chain Generation is a blog platform that aims to create a movement that lays out the design principles for upgrading the dismal and narrow view on innovation in business in food and agriculture. Bart hopes to engage people through powerful innovation and entrepreneurship languages like customer development, user-centered design, business model generation, and lean startup. see more.

Entrepreneurship

What Kills A Startup

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1 – Being inflexible and not actively seeking or using customer feedback

Ignoring your users is a tried and true way to fail. Yes that sounds obvious but this was the #1 reason given for failure amongst the 32 startup failure post-mortems we analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. For instance, ecrowds, a web content management system company, said that “ We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”

2 – Building a solution looking for a problem, i.e., not targeting a “market need”

Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing. “Companies should tackle market problems not technical problems” according to the BricaBox founder. One of the main reasons BricaBox failed was because it was solving a technical problem. The founder states that, “While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.”

3 – Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a starti[ company. Failure post-mortems often lamented that “I wish we had a CTO from the start, or wished that the startup had “a founder that loved the business aspect of things”. In some cases, the founding team wished they had more checks and balances. As Nouncers founder stated, “This brings me back to the underlying problem I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made.” Wesabe founder also stated that he was the sole and quite stubborn decision maker for much of the enterprises life, and therefore he can blame no one but himself for the failures of Wesabe. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.

4 – Poor Marketing

Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure. Oftentimes, the inability to market was a function of founders who liked to code or build product but who didn’t relish the idea of promoting the product. The folks at Devver highlighted the need to find someone who enjoys creating and finding distribution channels and developing business relationship for the company as a key need that startups should ensure they fill.

5 – Ran out of cash

Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the group or develop gradually over time is a tough act to balance. The team at YouCastr cited money problems as the reason for failure but went on to highlight other reasons for shutting down vs. trying to raise more money writing:

The single biggest reason we are closing down (a common one) is running out of cash. Despite putting the company in an EXTREMELY lean position, generating revenue, and holding out as long as we could, we didn’t have the cash to keep going. The next few reasons shed more light as to why we chose to shut down instead of finding more cash.

The old saw was that more companies were killed by poor cashflow than anything else, but factors 1, 2 and 4 probably are the main contributing factors to that problem. No cash, no flow. The issue No 3 – the team – is interesting, as if I take that comment ” I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made” and think about some of the founders and startup CEOs I know, I can safely say that the main way that any decision was made was by agreeing with them – it was “my way or the highway”. I don’t therefore “buy” the team argument, I more buy the willingness of the key decision makers to change when things are not working (aka “pivoting” – point 9).

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About the Author

This article was produced by Broadsight. Broadsight is an attempt to build a business not just to consult to the emerging Broadband Media / Quadruple Play / Web 2.0 world, but to be structured according to its open principles. see more.

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Callum Connects

Jasmine Tan, Director of Stone Amperor

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Jasmine saves her clients time and effort when doing kitchen fit outs with her biz Stone Amperor.

What’s your story?
I started working in the industry in 2003. I was in a marble and granite supplier company for 5 years. Even though I left the company, I still had customers calling me for my services. I referred them back to my previous company but they refused to because they loved the fast response service that I offered. I realised that customers do look at prices, however most of them prefer quality over quantity. Thus I have decided to establish a sole proprietor company also known as 78 Degrees which later rebranded as Stone Amperor in 2014.

What excites you most about your industry?
The kitchen countertop industry is a very confusing market. There are many brands, materials and prices to choose from. What excites me the most is my ability to help clients choose the best materials and brands within their budgets, whilst saving them time and effort.

What’s your connection to Asia?
I have been in Asia all my life and I love Asia. No matter where you go there is no place like home.


Favourite city in Asia for business and why?
I love Singapore. This is because Singapore has always been a stable country and it is great for doing business. However as it is a small country, it can be really competitive. I believe that if just do your best and give your best to your customers, you can overcome this.

What’s the best piece of advice you ever received?
“Take actions. Learn and improve continuously. An idea without action is just a dream.” This was really good advice that I received from my partner.

Who inspires you?
A very down to earth billionaire from Malaysia, Robert Kuok

What have you just learnt recently that blew you away?
Property is the foundation of every business.

If you had your time again, what would you do differently?
Own instead of renting property for my business.

How do you unwind?
I enjoy going shopping, watching movies and hanging out with friends. I am quite a simple being.

Favourite Asian destination for relaxation? Why?
I love going to Taiwan as I love the culture there. Everyone is so polite and the weather is great.

Everyone in business should read this book:
Sun Tzu, Art of war

Shameless plug for your business:
Perfect top, Perfect price, Perfect life from Stone Amperor

How can people connect with you?
Email me at [email protected]

Twitter handle?
@StoneAmperor

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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