Hey there, Justin here. Thanks, as always, for reading this week, and a big welcome to our new subscribers – we’re glad to have you 🙏.
If you enjoy The Flip Notes, please do forward to a lucky friend. And if you’re that lucky friend, join us by subscribing here:
The Flip Notes is sponsored by Flutterwave.
Flutterwave and PayPal announced a partnership earlier in the year to help African businesses receive payments seamlessly through PayPal. Now, they have partnered to make running your business easier by waiving transaction charges.
Businesses that sign up on Flutterwave can enjoy waived charges on the first $500 worth of payments accepted from international customers via Paypal.
As a business in Africa, you can sign up on Flutterwave and start receiving payments through PayPal today.
Rule #1: Pull The Goalie
One of my favorite episodes of one of my favorite podcasts is entitled Malcolm Gladwell’s 12 Rules for Life, from Revisionist History. An ode to Jordan Peterson’s book 12 Rules for Life, Gladwell publishes his list.
Except, he only has one rule: pull the goalie.
Pulling the goalie is a phase from ice hockey. When a team is losing towards the end of the game – typically with a minute or two left – they will pull the goalie, leaving the net empty to substitute in another offensive player, giving the losing team a 6 on 5 skater advantage. Very often, the losing team will give up an empty-net goal, in spite of the man advantage, and they’ll wind up losing by two goals rather than one.
In the episode, Gladwell credits two hedge fund investors, Cliff Asness and Aaron Brown, for inspiring his one rule for life. The duo penned a research paper entitled Pulling the Goalie: Hockey and Investment Implications. It’s core argument: while hockey tradition says that you should pull the goalie with a minute or two left, the data says that the most optimal time to pull the goalie if you are down by one goal is with five minutes and forty seconds left in the game.
This, of course, does not take into consideration the social costs – the fans, players, or management’s reaction to a more bold decision which, while statistically increasing the likelihood of tying the game, also increases the likelihood of lopsided losses. Keeping the goalie in the net until a minute or two left in the game doesn’t maximize the team’s chances of winning, but it also doesn’t maximize the chance of losing by two or three or four goals by playing with an empty net for such a long amount of time.
What is right or necessary is not always agreeable.
On the contrary – pulling the goalie with nearly six minutes left in the game is disagreeable, which Gladwell defines as “the quality of not being dependent on or particularly interested in the approval of others”.
Being disagreeable when you need to be disagreeable, particularly when there is a social cost, is hard, he argues. But there are times when being disagreeable ensures the greatest likelihood of success. And in those instances, you have to pull the goalie.
What does pulling the goalie look like in Africa?
I am most frustrated, in business, by conventional wisdom. How many businesses are dying a slow death, afraid to do anything different that might upset the status quo, despite the fact that a perpetuation of the status quo is worse for them in the long run?
This applies not just to business building but to nation-building and development too. The average percentage of unemployment across African countries is around 30%, with that number trending higher amongst the youth population. Meanwhile, the African population is going to double in the next 20 years. Where are the jobs going to come from? Seriously, what’s the plan?
Half-measures and incremental improvements won’t get the job done here. A perpetuation of the status quo is actually riskier than many of the things that we perceive to be risky, like investing in early-stage startups. What we believe to be bold is not actually bold – it’s necessary. Sure, it might be disagreeable, but it’s necessary nonetheless.
A few weeks ago, in TFN #63, I wrote about play-to-earn games, and how rural Filipinos are making a few hundred dollars a month playing Axie Infinity. NFT games, built on Web3 crypto infrastructure, are creating democratized earning opportunities in a location-agnostic marketplace. At the end of the piece, I wrote,
Meanwhile, there are an abundance of digitally-native African youth, with an abundance of time, and few job prospects. Why shouldn’t there be a play-to-earn games as an economic development strategy for the continent?
That’s not a rhetorical question. What development agency is going to take $100,000 or $1 million to experiment with building out a play-to-earn ecosystem in an area with high joblessness (instead of whatever it is donor organizations spend their money on)?
Though maybe this level of thinking does not go deep enough. NFT games, or the gig economy, represent an earning opportunity for those who may lack formal employment opportunities, and as such, have an abundance of time. But is that the solution – giving low-skilled people something to do with their time? Or, should they instead be given skills?
Andela trains software engineers. Cloud Factory and Sama employ an impact sourcing model. Eneza Education and uLesson provide mobile-based supplemental learning, whereas Moringa School in Kenya or Umuzi in South Africa provide in-person, tech-based learning on a for-profit and non-profit basis, respectively.
But shouldn’t there be 100s more of these kinds of companies, considering the need and possible impact of their success? Sure, many will fail, but are the potential outcomes not worth trying?
According to The Big Deal, education and jobs is an especially underinvested vertical, representing only around 5% of total venture investment on the continent. (And this is, perhaps, where the venture ecosystem being so overweight fintech is especially worrisome).
In the business context, perhaps pulling the goalie is Schumpeter’s Creative Destruction, in which a business cannibalizes existing revenue streams for the benefit of the longer-term growth of the company.
Disney pulled the goalie when it pulled (pun intended) its IP off of Netflix to support the development and launch of Disney+. It is my understanding that this is something telcos and banks, for example, are less inclined to do.
So what does pulling the goalie look like for startups?
Perhaps it’s going all-in on models that conventional wisdom has, up to this point, said will never work in Africa – like Chipper Cash’s fee-free transfers, or Wave’s free deposit, withdrawal and bill pay.
Or maybe we can view this from a consolidation lens. Surely most entrepreneurs set out to build companies of significant value, but in African markets sector consolidation is to be expected. A startup opting to continue its journey as part of a larger growth-stage company may be disagreeable – or seem disagreeable at the time – but it’s also what the ecosystem needs to solve more problems at scale.
Finally, there are clear ways in which governments can pull the goalie, from a regulatory perspective, or a free trade perspective, or an immigration perspective in terms of compelling talent to build in its country. A private equity investor friend of mine thinks South Africa should go all-in on building out select sectors for global renown, like how the Philippines has become known for its call centers, or Bangladesh for its apparel manufacturing.
What is that thing – the export – that select African countries are known for?
I recognize that there are political limitations (and perhaps it’s easier to pull the goalie if you’re a benevolent dictator from a small East African country) but that’s not to say that a bottom-up approach can’t be meaningful. Indeed, the Indian call center industry started with one guy’s conviction and dogged persistence that this was a no-brainer opportunity in the country.
I also recognize that there are market limitations. Investments need to make money, and if businesses are going to cannibalizes themselves it’s going to require real conviction from its leadership.
And that’s the point – the change we wish to see requires conviction and deliberate intent, in the face of conservative forces and dissent. For those reading, I hope you have it.
Pull the goalie.