It may be confirmation bias and synchronicity, but it feels like Silicon Valley – in a post-WeWork and peri-COVID world – has increasingly been turned on to elements of building startups that have been for some time quite prevalent in the African early-stage ecosystem.
First it was focusing on profitability over growth, and now it’s building real, physical things.
Marc Andreessen, of Netscape and a16z fame, made waves in Silicon Valley this week with his recent essay It’s Time To Build.
The problem is desire. We need to *want* these things. The problem is inertia. We need to want these things more than we want to prevent these things. The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things. And the problem is will. We need to build these things.
The things he is referring to? They’re largely non-technical. Or, at least non-technical in the Silicon Valley, “software is eating the world” definition. Things like housing, education, manufacturing.
While there’s been lots of takes on the essay, for me, it comes down to one crucial theme 1 – and one that is especially prevalent in our African entrepreneurship discourse – the limitation of tech alone as a mechanism for development.
You can’t leapfrog building roads
In Season One, Episode Eight of The Flip podcast, we talked to Temie Giwa-Tubosun – the Founder and CEO of LifeBank – an amazing social enterprise delivering blood, oxygen and other medical products to hospitals in Lagos and Abuja.
The company started by connecting blood bank supply to hospital demand, using inventory tracking on the supply side and inventory discovery on the demand side. It’s this efficient, technology-enabled system that allows for LifeBank’s rapid delivery, in which they move products in 45 minutes on average.
To me, LifeBank is the quintessential startup solving an “African problem” – one that is physical in nature but that leverages technology to do so efficiently, affordably, and at scale. As Temie shared,
The reality is, when it’s a human being they need physical things and then need it to get to them, and someone has to build that. And the reality is, you cannot leapfrog building infrastructure, but how you build that infrastructure can be optimized by technology.
An app can’t solve many of the problems we see on the continent. Even with more developed infrastructure, entrepreneurs in the west are catching on to that concept too.
In a response to Andreessen’s essay, Stratechery’s Ben Thompson wrote,
What I also sense in Andreessen’s essay, though, is the acknowledgment that tech too has chosen the easier path. Instead of fighting inertia or regulatory capture, it has been easier to retreat to Silicon Valley, justify the massive costs of doing so by pursuing infinite-upside outcomes predicated on zero marginal costs, which means relying almost exclusively on software as the means of innovation.
This appears to be an admission that, instead of addressing the root cause of a problem – which may be physical in nature, and which may come with some degree of regulatory challenges – technologists are merely building apps.
So, Ben poses a question – how can tech build? Here’s one suggestion,
invest in real-world companies that differentiate investment in hardware with software. This hardware could be machines for factories, or factories themselves; it could be new types of transportation, or defense systems. The possibilities, at least once you let go of the requirement for 90% gross margins, are endless.
As Ben argues, tech’s real advantage – and opportunity – is to leverage software in the real world, while building real things.
It feels like it’s a distinction that’s readily understood in African markets, where the inadequacy of strictly software-based solutions is blatant. And where existential and limiting challenges in these markets don’t allow for skirting around friction. The root cause problems must be addressed head on.
I think African startups – given the nature of the problems they are attempting to solve – have done this especially well to date.
To be sure, companies using software doesn’t make them a tech company. Legacy banks aren’t tech companies, as much as they think their mobile apps and vertical credit cards are innovative.
The key difference is the digital-first nature of African startups. Is LifeBank a software company that does logistics? Or a logistics company that uses software? I’d argue the former.
As we’ve seen, LifeBank’s critical enabler is their leveraging software and technology to solve problems in the analog world. And problems that no incumbents were solving – their use of technology created their market.
I’d like to give two other examples from recent interviews for The Flip podcast.
Twiga Foods is a digital marketplace connecting farmers to market and providing improved logistics in Kenya. While food costs in Africa continue to increase, due to mass fragmentation in retail, Twiga uses technology to aggregate this fragmentation and build efficient supply chains with an objective of reducing the cost of food. As their CEO Peter Njonjo explained,
We have an AI-enabled platform where we’re able to look at who’s ordering, how far they are, what are their geographical coordinates, what’s the state of the road near where they are? And how do we then best organize to get product out to them?
As Twiga Foods continues to consolidate supply and demand, they will be able to further reduce logistics costs as the volumes in their marketplace increase.
And as they continue to aggregate data, they are beginning to experiment with digital financial services such as working capital loans, which represents an opportunity to monetize a software-based product enabled by the physical ecosystem they have built.
MDaaS Global is a healthtech startup in Nigeria building brick and mortar diagnostic facilities in second and third tier cities. Crucially, they’ve built a scalable model through their use of technology and asset sharing. As their Co-founder Genevieve Barnard Oni, who we also heard from in season one shared,
All of our equipment is digitized so if we did have a mobile ultrasound unit in one of these smaller footprint centers we’re able to send images from that unit to a radiologist offsite, so you don’t have to have all of the staff that you need to be involved in care physically in that location – and at our current centers we already work with all offsite radiologists & because our images & equipment are digital it means that we’re able to not spend as much money on every individual center.
These companies have fixed and non-zero marginal costs – an inevitability when building any physical business. But they are able to improve the efficiency of their operations and ultimately reduce their costs (especially at scale) through the native use of technology.
Alternative funding models
In the above-mentioned Stratechery article, Ben offers another suggestion for how tech can build,
figure out an investing model that is suited to outcomes that have a higher likelihood of success along with a lower upside. This is truly the most important piece — and where Andreessen, given his position, can make the most impact. Andreessen Horowitz has thought more about how to change venture capital than anyone else, but the fundamental constraint has remained the assumption of high costs, high risk, and grand slam outcomes. We should keep that model, but surely there is room for another?
The African ecosystem has been working on that too.
In Season One, Episode Eight of The Flip podcast, we talked about innovative fundraising – the requisite creativity African startups employ due to the nature of the problems they are solving, and the alternative fund strategies investors are leveraging to create impact in this space.
As Josh Romisher, CEO of LaunchLab, tells of his past experience in off-grid solar energy space,
we started by saying we want to build hardware, a solar panel to put on your roof and a battery to put in your home, but we’ll back it up with software. Now we have to distribute that, so we’re going to build a robust sales force. But, in order to make it affordable, we need to offer seller financing. Now we’re a consumer finance company. In order for people to feel comfortable with our financing we need to service the system, so now we’re a service company.
The diversified nature of African social enterprises (coupled with a funding scarcity relative to western ecosystems) compels startups to cobble together funds from a variety of different investors using a variety of different investment vehicles.
Meanwhile, these are the companies the venture community holds in high regard because they are enabling access through the use of technology. And through the use of technology, they are well positioned to scale – a prerequisite to the traditional venture capital model.
Haven’t we been building?
While I’m reluctant to even attempt to predict the future, I think it’s safe to say that COVID-19 is and will continue to accelerate the rate of change of digital trends that are already happening.
As a result, there is a window of opportunity for use cases to be tested out on consumers who, right now, have less options. And perhaps there also exists a further opportunity to tap into COVID-19 related (financial) resources, as well.
We figured that if we just put our product onto the digital platforms, if we just put insurance onto mobile that suddenly people would wake up and want to buy insurance. The key thing there is if no one wants to buy your product, just because it’s now digital doesn’t mean it’ll make any difference.
That being said, and as examples above demonstrate, entrepreneurs in Africa have preemptively and continually taken up Andreessen’s call to arms. The African tech ecosystem has been building – physical things, differentiated by software.