Series V

Not another post about mobile apps

Photo by Fancycrave on Unsplash

One story you could tell about mobile is that the smartphone ‘ate up’ all the single-function physical devices around us. From the calculator, to the calendar, to the notepad, and so on, each one became reduced to a logo on a home screen. In 2008, Apple started promoting this idea with the slogan, “There’s an app for that!”. The implication being that every service that could be delivered via a mobile app, should be delivered via a mobile app.

In developing countries, things are less straightforward. Mobile data is still expensive, and many users manually turn off internet access when away from WiFi. Power supply is not as reliable as it is elsewhere, so battery-draining services are a public enemy. Low-cost [smart]phones have limited storage, so every new app installed must earn its place via a complex economic calculus in the user’s mind. Money transfer apps compete with Facebook. Lending apps compete with Xender. And so on.

This creates a quagmire for product owners looking to reach a large audience. On one hand, app stores are a beaten path to billions of mobile phones on earth. On the other, the owners of said mobile phones are incentivized to install *fewer* apps. Meanwhile, each one increases in size as it gains functionality (total available storage does not). Meanwhile, every development dollar spent must return itself and a dollar more. Companies can goad users to download their apps — yay, growth hacks! — but may soon find them unused and uninstalled. Something has to give. But what does?

Ben Horowitz has a simple but effective framework for thinking about this:

f(p,t) = c

That is, the distribution channel, c, is a function of the product, p, and the target, t. (Of course, this is a post about distribution.) The product, p, is not the app. It is the solution to the user’s identified problem. It is the ‘job’ your company is built to do. Target, t, is whoever will take the decision about adopting the product. What contexts do they exist in? What do they most care about? Where do they spend most of their time? Viewing the options through these lenses might lead to different conclusions than “let’s build an app!” You might decide, for example, that your service is best delivered through USSD. Or you might decide it works best as a YouTube channel (much like the MVP for IrokoTV). Or you might decide it works best as a WhatsApp number people can text to access the service. Or you might decide that your digital service is best distributed offline!

Through all this, the most important thing to do is test and stay agnostic about the outcome. Design for the consumer, not yourself. Prioritize their preferences, not your own. Following that rainbow might lead you to a pot of gold.

Links from the Internets

  • Strive Masiyiwa on the importance of understanding business models for entrepreneurs and policy makers. [Link]
  • Bill Gurley advises against obsessing over the LTV formula. [Link]
  • Maintaining first mover advantage is not as easy as you think it is. [Link]
  • Building a repeatable, scalable, & profitable growth process. [Link]
Series V

Questions about consumer lending.

Photo by NESA by Makers on Unsplash

Nigeria is still a ‘cash-and-carry’ economy. Most consumers and small business owners and operators largely depend and rely on their savings and support from friends and relations to obtain funds to start and grow their businesses, and as a result, Nigeria is lagging behind in the consumer credit scene. Formal lending to consumers is still relatively low. To give an idea, Credit penetration in Nigeria is still below 30 per cent, while the average for Africa is 57 per cent. The global average is 132 per cent.

“Nigeria has 22 commercial banks, over 900 microfinance banks, about 100 primary mortgage banks. Nigeria has not experienced the kind of consumer credit you will expect.” — Tunde Popoola, MD, CRC FICO score.

It is hard to project credit demand in the coming years because of a number of hindrances — refusal to embrace new lending business models by banks; information asymmetry; data scarcity, but the proliferation of mobile creates opportunities for new companies to fill this gap (startups like BillionLoans, Klarna, Paylater, and Branch use hundreds of data points to approve a credit decision) etc. The result? There’s a new consumer lending startup showing up every day — and for good reason.

Mckinsey reports that 53% of income earners in Africa are between 16–34 — an age group that tends to be more aware and willing to try new products. They are in school, renting their first apartment, starting new families, etc. They are not just young; they are growing in importance and willing to spend.

This begs the question:

  • What is going to drive growth in this scene and this part of the globe?
  • How high does the ceiling go?
  • Who are the borrowers today?
  • How will their needs evolve?
  • Do the same solutions work across segments?
  • How might this work without smartphones? Can it even?

Usually, consumer lending startups serve those who have steadily growing income but are underserved by banks. The average consumer’s banking relationship is dominated by making payments, but banks are doing little about it (as this Twitter thread shows).

Given that the primary means of identification is BVN which is dependent on having a bank account, the majority of people are excluded. How then do we expand access? The national ID card often takes years to get a hold of, so, how do we verify identities? Should we push for a unified software platform like indiastack (Aadhar)? What are the broader, ethical, implications of this?

How about moving beyond credit for white goods and into other segment-specific solutions like healthcare? For example, unplanned health emergencies are one of the single largest cost for many middle and lower-middle-income families.

For FinTech startups, the big questions are around strategy, choice of segments; bottom of the pyramid, middle or top? Use cases, and distribution approaches. Pick too small a section — no matter how innovative — and it may be hard to monetize. The good news is that there are real use cases, large addressable markets, and viable economic models for the truly innovative.

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Series V

The Upside of Constraints

Photo by Rostyslav Savchyn on Unsplash

“Lucky is the man who doesn’t believe every opportunity is open to him.”

-Walker Percy

Founders think they need more. More money, more employees, more features. But sometimes, not having enough is a good thing.

Here’s why: constraints force focus. When resources are scarce, they only get spent on the most necessary things. You are forced to take a detailed look at your company and its operations, eliminate all unneeded elements, then isolate what makes it work and do just that. Also, you are pushed to ask “what assumption is this business hinging on?”

For instance, companies make money by increasing sales and reducing costs. Now, imagine you have a product with ten features and 80% of your customers only use two features. The intelligent thing to do is kill the other eight features and risk 20% of your customers who may or may not leave. BUT you are guaranteed to have more resources for your top two features. And this may lead to higher retention of your core customers.

Resource constraints aren’t necessarily the limiter preventing you from doing great things. What’s deadly is not doing enough with what’s available or not doing what’s required. “Most startups don’t die from starvation; they die from indigestion.”

Constraints force founders to carefully allocate time and resources to find creative solutions. Some entrepreneurs never get past the victim stage. They see every restraint as an inhibitor to their ability to realise their ambition and an excuse for not persevering. The smart ones become transformers. They translate constraints to new approaches and breakthrough solutions.

If necessity is the mother of invention, then it makes sense that constraints will yield something new.

“And I don’t believe capital has ever helped a company win a market. Many have tried that approach, and it always ends badly.

So I encourage all of you entrepreneurs out there to embrace being resource constrained and learn to love operating with less.”

-Fred Wilson

Access opportunities at VP’s portfolio companies. If you want to join an early-stage startup fill out this application and our founders will be able to get in touch with you.