Technology for Informal Trade with MarketForce 360's Tesh Mbaabu

Tesh [00:11]: The informal market in Africa is really highly informal. It's fragmented, it's expensive to service. There's so many retailers who are used to distribute products to the end consumer. That's what you call general trade. 90% of trade in Africa is through corner shops, spaza shops in South Africa, or dukas in Kenya.

Justin [00:33]: That's Tesh Mbaabu, the co-founder and CEO of MarketForce 360. For many consumer goods companies or financial service providers on the continent, distributing products and services to mass market consumers requires field sales agents, and MarketForce is a Kenyan startup building software for these companies to leverage when selling and distributing via agents at the last mile.

Tesh [00:51]: And this happens in financial services as well, because like in Kenya, we have so many mobile money agents that act the same way, enable consumers to access cash and transact. So that's the market where we are operating.

Justin [01:07]: In this episode, next up in our series exploring the startups and entrepreneurs digitizing informal and analog industries, we venture into the informal retail markets. Tesh and I talk about product, the considerations in building products you use at the last mile and the needs of the multinational FMCG companies and financial service providers at the other end of the value chain. We talk about his recent experience participating in Y Combinator's accelerator program, what other companies he hopes to see built in the retail and logistics space, and much more.

Justin [01:33]: Before we start, we'd like to thank MFS Africa for their sponsorship of the entirety of this series. MFS Africa's API hub connects over 200 million mobile wallets in almost 30 African countries. Their competition is with cash, while MarketForce 360’s competition at the last mile is with pen and paper. When we talk about digitizing retail, digital payments and e-commerce, an important corollary is logistics and the need to more cheaply and easily move goods around the continent. It's something I talked to Josh Sandler about. Josh is the co-founder and CEO of Lori Systems, a Kenyan based logistics platform, that coordinates cargo owners and transporters across the continent.

Josh [02:07]: We're trying to solve a fundamental challenge, which is that when you buy something in, let's say East Africa, 25 to 40% of what you pay for a product in Kenya goes to logistics cost. 75% of a Rwandan export price goes to logistics costs, and that's compared to 6% in the US, 8% in Europe. Let's talk about how it was before Lori. So a lot of the traders, let's say Cargill, they would have a list of hundreds of different transporters. They have a team that calls them, they'll come outs let's say 70 of them, 40 will answer the phone, 20 will say they're available, they'll enter negotiations, come to terms with 10. And then the end three trucks will show up at the right time on the right day.

Josh [02:55]: That delay wasn't being driven by the fact that trucks were just unreliable. It was often driven by the fact that there was lack of information visibility. The trucks delayed were offloading points. Or, their loading was delayed by three days, more, and they just didn't have visibility into what the cargo readiness is, so they had to continue to commit to picking up that cargo. A lack of centralized coordination and flexibility is really what drives that aforementioned inefficiencies. The utilizations, just over 6% of West Africa, it could be 3% at times. When you have very expensive assets and overhead on that is adding significant costs.

Justin [03:39]: Later in the show, we'll hear a bit more from Josh about how Lori is working to solve logistics, inefficiencies on the continent. Okay. Here's MarketForce 360's Tesh Mbaabu.

VO [03:49]: You're listening to The Flip, the podcast exploring contextually relevant stories from around Africa.

Justin [03:59]: What does it mean if I'm a financial service provider or if I'm an FMCG company, a multinational FMCG, and I have all of these agents, for example, or all of these middlemen distributors, helping me get my product down to the last mile, what does it mean for the market to be so informal and what sort of challenges am I faced with that you're trying to solve?

Tesh [04:20]: Yes. Primarily the problem that financial service providers and FMCG companies, as it were, face is that they do not have market visibility, like real-time market visibility. And that's because of our very undigitized way of distributing products. So what happens is, I'm a manufacturer, I pass on my products to a distributor, and that's where my visibility ends. So if I'm selling things in Nairobi, my distributor will sell for a week or two or three, and they'll come back to me and tell me I'm out of stock. However, I will not know who is buying, who is the end purchaser of my product. And what this does is, it makes manufacturers get information about the market really late. So they're not really able to optimize their distribution, know what products are really selling well in certain markets, and what sales agents at the ground level are really performing better than others. And all these factors lead to lower market share, lower penetration of my products in the market.

Justin [05:30]: Let's get into MarketForce 360. You guys say your field sales and distribution automation software. YC calls you the Salesforce for retail distribution. I don't know if you'd like that description or not, but that's at least what they call you. So what exactly is the product? And how are you going about through software and through automation, solving these problems that you just mentioned for the myriad of customers and sectors that you work in?

Tesh [05:55]: I'd call our product a platform. And that's because we're in use by various players in the retail distribution value chain. So for a sales agent out there, they'll use our mobile application to record all the customer interaction. So they will collect orders, record all the visits as they happened, record the customer information, geolocate the customer, record as they do deliveries and as they collect payment, and the manufacturer has a real-time web dashboard, where they're able to see what is really going on in the field. And these guys are moving from pen and paper to using a system. And pen and paper is largely inefficient. I think the key thing that we've realized is that purchasing in this space is largely about trust and relationships.

Tesh [05:51]: And that's one thing we've realized with even the retailers that we serve. One of the reasons they love us is that it's not about pushing an app for them to order their goods, they actually have somebody that they meet almost on a daily basis, who's talking to them and asking them, "How was your day? How was your night? Do you require any additional stock today?" Rather than just the digital channels and that's really working out. And I believe that is one of the reasons the infusion of technology and people on the ground is powerful.

Justin [07:25]: Yeah. And then you're serving a wide variety of customers and you have a couple of different products that do it. So can we talk about, are there nuances between those different products and how you go about developing a product for a variety of different use cases and customer personas?

Tesh [07:44]: Yeah. So just to paint a picture is, our products are very complimentary. We started out with a sales force automation system, and I guess that's why we’re called Salesforce for Africa. Because we built a product that's highly customized for the African market, highly tailored. Offline mode, the pricing, just working one on one with African based companies, that makes our product really efficient for this market. Then what we realized is our manufacturers and distributors, our customers, want a product where the extra value is, how do you enable me to access a bigger market than I access today? So you're making me efficient, but how do I access a bigger market share? So that's how we introduced MarketForce Troops, which is essentially the same application that this customer's 20 agents would use to collect orders. We are opening it up to gig workers out there to use the same application, generate orders in their communities. As they earn an income, the manufacturer is able to access the same data on one dashboard and increase their market share at the same time.

Tesh [08:30]: So that's how we ended up having these two complementary products. In terms of the financial services side, the infrastructure from a technology perspective is the same, but the difference is that one is selling products while the other one is selling services. So that is more of a configuration on our backend. Then most recently we introduced, RejaReja which is a layer on top of the same service, where we're telling a distributor using the same portal, we'll be able to make your inventory available to the retailer, to directly order for goods from you, or to directly sell some of these financial services to the consumer and they act as a distribution agent.

Tesh [09:42]: So all these things are really interconnected and we're building an ecosystem for last-mile distribution. We were seeing a lot of traction on our Troops product because the fact that we are telling guys that we're giving you sales force on demand. It's very interesting. So many companies are coming and saying, I need your sales force because I couldn't just keep up with the capex of owning my own sales force and sales force in this case meaning the people on the ground, not the software. Yeah. So thinking a bit radically, there's a lot of more opportunity available that I need to think about.

Justin [10:18]: You mentioned from a product perspective, there are certain product features that are made for the African environment, so offline mode and so on and so forth. And I think that that's a crucial point that I want to go deeper on with you is, talking about consumer or user uptake, for example. Because I think that, that's a prevalent part of this conversation about digitizing is getting users to actually use the app and to input their data when somebody is buying something to input it on the app and not just on a ledger or not at all. And so I'm wondering if you can speak to that process. Is there certain product interventions that have facilitated that? Has it been your customers pushing down on the people in the field saying you have to use this? Is it a combination of both? How do you get the uptake that you want to make all of this actually work?

Tesh [11:10]: Yeah. Excellent. So the main value proposition that we've started with is to the service providers. So the FMCGs, and the financial service providers, because they're the ones who are hungry for last-mile data. And what has ended up happening is that when we onboard such customers, they actually force it down their sales agents. Because how field sales works for a lot of this company is very incentive-driven, commission driven. So basically they tell the agents that if your order is not placed through MarketForce, then we do not recognize your order. And they create systems in which all their sales data is centralized. It's very critical data. And if we're going to be collecting orders from the field and fulfilling, they need to be coming in from a very managed source. So we do not want you to be sending in orders via WhatsApp or using the order book that you used before, we're moving into MarketForce and you have to place your orders on MarketForce. And some have gone to the extent of actually purchasing devices for their agents to ensure this is done together with the data.

Justin [12:18]: Yeah. And then did they do training and onboarding of how to use the product, or is that something that you guys do as part of a service on top of the software? How does that play out in your case?

Tesh [12:30]: Yes. When we started out, we really supported in terms of having one-on-one trainings or training what we call TOTs, trainers of trainers. And these are guys who are champions within the organization, and then they'll go and train. They have a structure in which they'll train the team leaders and the team leaders will train their agents on the ground. Over time, we've built quite a knowledge bank for these sales agents. So we do share manuals, tutorials that they can watch and get really well onboarded on the app.

Justin [13:06]: And I assume you've spent a lot of time in the field talking to users in terms of developing the product and from a UI perspective and UX perspective. I'd love to know, are there certain lessons that you've learned, or maybe it's certain surprises, or you went in with a preconceived notion about how the app might be used or the use case, and then the users told you something differently. Is there anything that you can share from your experiences in the field that ended up being different or surprising, or that are worth sharing?

Tesh [13:37]: Yeah. Definitely. We had a lot of hypotheses that were proven wrong, and we could see this, but, like for example, today I went to the field and it's because we always love even developers going, interacting with the users and seeing how they perceive the application. And something like the language you use, because they're used to using certain apps and there's language like log-in and sign up or sign in and sign up that you think is really obvious. We had something called first-time sign-on and the OTP. Like we'd get so many calls and so many password resets simply because guys were downloading the app for the first time as agents. And they couldn't recognize that we had something called first-time sign-on versus the normal login. So that's one of the examples of where we really had to change our whole mindset and what we developed to fit in.

Justin [14:41]: Yeah. So shifting gears a little bit, but still staying broadly on the product perspective, the customers that you're working with, you mentioned that they're really craving consumer data from the last mile. Do you have any insights as it relates to consumer behavior? Similar to the question about product, any hypotheses that you had about what the last mile market looks like in Kenya or anything else that has been surprising or worth sharing the insights that you've gained from a product utilization perspective?

Tesh [15:15]: Yeah. So in the case of a lot of our customers, their customers are retailers. And some of the things that we've realized that we actually didn't think of was how various SKUs or products actually sell more in one area versus another. And this goes down to understanding marketing and promotions for various companies. So for example, the data points around really flavored soaps selling really well in the coastal region of Kenya and retail shops wanting, for example, they're buying a carton of soap, they like to have an assorted carton with like five flavors whereas you had companies packaging one flavor per carton, and this is something they put in the comments or the sales agent puts in the comments, which is very interesting and crucial information, even in terms of how you target your advertising.

Justin [16:16]: That's very interesting. One thing that's popping into my mind, there’s companies like Sokowatch in Kenya, similarly servicing the last mile retailers and helping FMCGs go all the way down. And I know that one thing that they do in particular is delivery, as well, because that's been a challenge. It raises a question about the types of problems that they have. And if tech companies especially can't afford to just be like these asset-light software companies. So I'd be curious to know from your perspective, and as it relates to some of the FMCG, for example, that you work with, is it just that they have some infrastructure in place and they're able to optimize their infrastructure and their distribution because of these last-mile insights. What are the market dynamics that compel Sokowatch, for example, to build out a fleet whereas you've decided that we don't need to do that.

Tesh [17:07]: So boils down to approach. And I guess a lot of founders are convicted on different approaches because of the different creativity around solving even the same problems. So in our case, we really believe that last-mile distribution, even without these tech companies coming into play, does happen. There are distributors all over the place. There are a lot of logistics players all over the place, but our thesis is more around how do we organize this sector and make the players that already exist more efficient in it. And that is why we chose an asset-light model. So we see ourselves playing really as a marketplace and a platform to digitize the current operators in the sector, in the future.

Tesh [18:00]: We've seen it with Alibaba and Amazon and all these players who really started out as like, as asset-light companies and ended up having to build the infrastructure. And I think at that point, it's a matter of, you're trying to really increase your margins and increase your efficiency because of the scale of the level of skill. But I think starting up, it's very capital intensive and also it's quite challenging to scale when you start getting into the asset-heavy elements of this business of retail distribution, because it's very fragmented. Then maybe if you're trying to do it end to end, then it's a lot of work and capital involved.

Justin [18:40]: Yeah. A lot of money. And in the context of digitization doing so there's first-order effects as it relates to your business or your customers in their ability to gather insights, as you mentioned from the last mile, and then to optimize their logistics or how they take products to market, for example. But then there's a lot of second-order effects, SME lending, for example, on top of the data that you have and so on and so forth. I'm wondering how you think about that in terms of expansion of products and services, how do you then think about the other opportunities to offer financial services or whatever else on top of the existing suite of products that you're offering on your platform today?

Tesh [19:21]: Yeah. Our thinking around that is really a partnership-driven approach. So we're already talked to quite a number of players like financial service providers. Because again, we do not intend to have a loan book because they’re guys who are really great at credit scoring, with API-first infrastructure, we're able to integrate and they're able to see the data and provide the working capital loans directly to the retailers. And on our end, we're looking at again, the marketplace model is more about how do we connect the dots and generate transactional revenue, and not really own big portions of niche businesses across this fragmented value chain. So that's how we're looking at it. And over time, it's a matter of timing, we'll be looking at introducing products other times. One of the things, for example, you're looking at is how do we help these retailers with insurance?

Tesh [20:18]: So one is how do we enable them to be resellers of financial services and earn more income. And at the same time, how do we insure them, insure their stock against burglary or they earn very little per day, so in case they're sick, how do we ensure that their hospital bills are covered or they earn what they earn if they went to work on that day. MarketForce was built because we realize that retail distribution has a lot of workforce involved, from the retailers, the sales agents, and all these guys need services, and they need better standards of living. They need a lot of optimization. So really our main job is to look at how can we improve lives for all these people, including the logistics providers and the FMCGs.

Justin [21:11]: That's awesome. One thing that I think people would definitely be interested in hearing from you is about YC. You just did the Summer 20, so last year. Can you talk a little bit about that experience? And I am particularly interested in the nature of MarketForce 360’s business being super localized and the way in which you're building a product fit for purpose and fit for the local market, and then participating in this global accelerator, right? I'd be interested to just hear in that context, what your experience was like, and what are your thoughts?

Tesh [21:44]: Yeah. So one of the things I think, and which is a trend is the YC's experience with software, specifically software-as-a-service businesses. So this is an area we play. And then the second area is around B2B e-commerce, which is also really growing across the globe. If you look at Indonesia and India and Southeast Asia, and of course, even in Africa, the Twigas and Sokowatch, and TradeDepot, all these guys. So it's really from my investment perspective, I think that's really attractive, then in terms of the benefits of getting into YC, it's great to be on an international platform where you're really challenged to think different. And over the three months at YC, one of the things we're able to do is iterate on our product, every week. And there's so much work that you're able to accomplish within the three months. And that was super valuable for us.

Justin [22:46]: Was there any advice in particular that they gave you in general, or maybe on your product, in particular, that was especially valuable to you on your journey?

Tesh [22:58]: Yes. I think the whole essence of YC about making something people want. We had to have so many conversations with our customers, and this is something that's really driven by YC partners around really understanding who you're solving for and building product-market fit. I think that, I'd say, improvement in mindset, because we were thinking like that earlier, but it's really drilled into you about how you need to build your product-market fit and nothing is going to solve that, even if you are given tons of money or had a large team. It's really important that you figure that out before you scale out. So that's something that really resonated with us.

Justin [23:40]: One thing, YC on their site has the YC requests for startup, right? They put out the list of startups that they want people to build. So what is the MarketForce 360 request for startup? What kind of businesses do you want people to build that don't necessarily exist that would maybe help your existing business today?

Tesh [23:59]: So I'm seeing a huge shift in terms of the fintech space and a lot of backend infrastructure startups coming up. I'd love to see the same in terms of logistics, APIs to access insurance and financial services, warehousing as a service. In my particular case, retail distribution is also very fragmented. So I'd love to see startups in specific areas like warehousing as a service, I think would be very interesting.

Justin [24:28]: Just all of the APIs, as many APIs as possible.

Tesh [24:32]: Exactly. As many.

Justin [24:34]: Definitely. Now onto sort of the purposely broad questions, what is something that you're thinking about now, either a strategy question about where you go next, either it's maybe something that you want to learn, something that you're just particularly focused on, a trend in the ecosystem. Would love to get some perspective on you there.

Tesh [24:51]: Yes. One thing I'm thinking about is how distribution is really crucial for any startup and the ball game in Africa being very different, distribution of product here is really hard and that's why the software-as-a-service business or model is really challenging for any startup in Africa. So one thing that boggles my mind is how do we improve distribution of services and products? And that's why this business really it's something I'm really convicted to do.

Tesh [25:25]: I guess another thing would be around how do we improve the living standards of Africa. Because the thing that people don't see if you're living in a lot of the urban or peri-urban cities, we tend to forget how marginalized a lot of Africans are. And just thinking about it being in the retail sector. The fact that 90% of trade is general trade is mostly because of the marginalized communities. And these guys will heavily benefit from some of the things that we take for granted like access to the products we need, the essential goods we need, essential services we need like insurance. And so it would be nice to see more setups really look into this because it's huge opportunity, and I'm not afraid to see more startups doing this or competing with us in this space because there's really massive opportunity even if you have 20 or 50 of us. I think it's going to take a long time before distribution of essential services is really where it needs to be in this continent.

Justin [26:35]: Yeah. I think a broad brush that we're painting these episodes with is that while somebody may say your competition is Sokowatch, for example, our counter-argument is that your competition is with pen and paper, right? And with just the informality in general, is that something that you think about is that the competition is actually a welcome thing and a good thing, and that the opportunity is so large and you need more people to be solving these problems. If these problems are actually going to be solved, because there's only so much that MarketForce 360 can do on its own.

Tesh [27:07]: For sure. So we are more of collaborators, we're educating the market together, we're learning together. And I'd love to have conversations with guys who are trying to solve either complimentary problems or same problems, similar problems, because it's going to take all of us to create this shift and bring Africa really into the digital age because when we're so far behind.

Justin [27:38]: Thanks again to MFS Africa for their sponsorship of this episode. Earlier in the show, we heard from Josh Sandler, the CEO of Lori Systems, about the inefficiencies and fragmentation of the logistics sector, which has downstream effects on the cost and availability of goods at retail. The solution is all about increasing the utilization of trucks already on the road.

Josh [27:56]: The question you always ask is, why has this not been done before? And for us, it was just such a simple concept and simple answer and a simple reality. When we spoke to people and we spoke to experts in the space from inter-government organizations and the World Bank, and what not, a lot of folks said, the issue is corruption, the issue is infrastructure. And when we started pulling back the layers and doing some work growth diagnostics and binding constraint analyses et cetera. What we quickly saw is that yeah, there may be like a dollar or so paid for every thousand dollars here and there to get something sped up. And that's not the binding constraint for what I'm trying, but it's adding cost to the system.

Josh [28:41]: When you look at it on infrastructure, yes, it was taking 13 hours to drive 400 kilometers from Mombasa to Nairobi, which is not great. But at the same time, you're doing one trip per week. So now what happens is when trucks are delayed, our system will reallocate alternative trucks. When cargo is delayed, we'll send those trucks elsewhere. We'll keep these trucks moving, which are very expensive assets, and increase utilization. So conceptually simple, increase utilization, get more trips per truck, increase revenue for the drivers and decrease the per-trip cost for the cargo owners. It's easier said than done, operationally, very challenging.

VO [29:34]: That's it for this week's episode of The Flip. Next week, we head to South Africa to continue our exploration of informal retail markets. See you there.