Middlemen as a Service - A Retrospective with Sayo Folawiyo and Justin Norman

Justin Norman [00:00]: For those who are new to the show, or who were first introduced during our current conversational series of episodes, you may not have heard something that we've done in past seasons. At the end of each episode, I sit down with The Flip's executive producer and my B-mic, Sayo Folawiyo, who is also the co-founder and CEO of the home services platform, Kandua. Sayo and I have a retrospective conversation on the theme we explored in that episode. It's our opportunity to reflect on what the interviewees said, and to try to make sense of the insights they shared.

Justin Norman [00:27]: Since our current series explored one theme - digitizing analog and informal industries, we opted to have one retrospective conversation to reflect on the 10 episodes we just published over the past two-and-a-half months. That conversation is this episode. Sayo and I talk about high-touch, people-centric, tech startups. We talk about market segmentation, interoperability, and specialization; and I think we even invent a new, as-a-service category.

Justin Norman [00:51]: But before we start, we'd like to thank MFS Africa for their sponsorship of the entirety of this conversational series of episodes. In our exploration of the startups and entrepreneurs digitizing analog and informal industries, an underlying theme, and something that Sayo and I talk about in this episode, is fragmentation. Fragmentation not only at the last mile or of individual sectors, but fragmentation of markets across the continent. Dare Okoudjou, the Founder and CEO of MFS Africa, he thinks because of this fragmentation, we'll ultimately see more consolidation, especially in fintech. Last year, MFS Africa acquired another fintech, Beyonic, and perhaps this ought to inform the strategy of founders and investors alike.

Dare Okoudjou [01:29]: There are few facts that one have to always keep in mind here. One of them is that most markets in Africa are subscale. So success, or winners, will need to be multi-market. You will need to be multi-market to be able to get to something that is sizable and matters in the long run, and I'm thinking here 5-10 years perspective on the industry. If you want to look at success 5-10 years from now, most successful companies will be multi-markets.

Dare Okoudjou [01:58]: How do you achieve that? Because most of this initiative or most businesses that we are seeing, are still starting in one particular market and then growing to multi-markets. I think from that perspective, consolidation will play a big role, and the ability for fintech companies, or a company in this sector, to think laterally about combining resources at some point, to be able to achieve that scale first, faster. So I think that is one driver of consolidation.

Dare Okoudjou [02:29]: The other one, which is also the fact is that I think for a very long time fintech will be built on the rails of mobile money. That is just the most basic form of current accounts that people are going to be able to leverage to build services on top of that. By the nature of the mobile business itself, which is multi-market, dominated by multi-brands, and assuming consolidation in mobile business itself will continue to be able to keep up, or to be significant or to be meaningful, for these mobile networks. As a partner, you also will lead. People will be forced to be multi-market, and people will be forced to go on to achieve scale through that, and acquisitional merger and acquisition would be a great tool to achieve that. So because the founders will also need, at some point, to create a path toward exit, what we've done now with Beyonic will slowly become a template, will slowly become a way of thinking about how to get to an exit when, if you're in fintech, either a company or an investor at the moment in Africa.

Justin Norman [03:37]: Now, without any further ado, here's our series retrospective.

VO: You're listening to The Flip, the podcast exploring more contextually-relevant stories from entrepreneurs around Africa.

Justin Norman [03:53]: So we set out to weave a red thread through all of these episodes... this idea about digitizing and formal and analog industries. So I wonder if there's actually some transmutable lessons that we learned, or that were exposed across a variety of sectors and businesses and markets that we covered in this episode.

Sayo Folawiyo [04:16]: I have talking points.

Justin Norman [04:17]: Okay.

Sayo Folawiyo [04:18]: I do think it was interesting how many of the interviewees had people in the delivery of their products. I thought I found that quite interesting, like actual people, but it was a lot of people-to-people, stuff, which I thought was interesting and indicative actually of what it takes. I thought about...so we just ran a training course for artisans, and one of the things that worked really well was this idea of group accountability, and all the take-home work. There was a leaderboard. There was this peer accountability. And then I... that's something we see a lot, either with the group savings or where they... I can't remember who it was. I think it was the retail and former retail one, maybe MarketForce, and this idea of local community group thing just as a tool for product adoption. I just think it's interesting, that I want to think more about.

Justin Norman [05:17]: Well, I think it's actually many things. It's a tool for product adoption. It's also customer service, customer success arm. It's also distribution, MarketForce 360, having Salesforce as a service. And I wonder...it's really interesting in terms of this whole ethos of software is eating the world... We just did a whole season actually about people-heavy, high-touch businesses, where the high-touch element is a feature and a critical enabler of that. I guess, again, back to the know-your-customer type of thing, having people involved is not something that cut out the middleman type of thing. It's entirely a feature for the products and the services in question.

Sayo Folawiyo [06:02]: Yeah, and I dig that a lot. I dig it. I think, again, it's interesting. It's contextual.

Justin Norman [06:09]: Even high-touch customer onboarding can also be a feature for US, Western software companies in developed markets. I'm thinking of like Superhuman, how you can't sign up for Superhuman unless you do a 30-minute onboarding call. And so I wonder if, to some extent also, this idea about like, self-serve SaaS, you don't need to speak to a human, we don't have a phone number that you can call. I wonder if the pendulum has actually swung too far in that instance, and this feature thing, the feature being high-touch is something that ought not ever be overlooked on the continent because of the dynamic of the market in which we're dealing. But that is something that is really a benefit, ubiquitously.

Sayo Folawiyo [06:52]: A hundred percent. Yeah, really well said, because I don't for one second, believe that even 80% of guys doing much are doing it on a super low-touch kind of thing, but there is that thing. And I think it's also important, again, when we talk about contextually-relevant insights, when we talk about who is driving narratives, I think those are the kinds of narratives that send people down the, a weird road, because it's... what do you hear about? You hear about the trend, and when you're hearing about it out of context, you might be forgiven for believing it's more like 10%, not 80%, of people that are running fairly high-touch processes or something like that. That said, I do think it's definitely more of a feature here than elsewhere.

Justin Norman [07:46]: I wonder then if the notion of digitization of informal and analog industries, how we presented that content is a little bit of a miss, or was a little bit misrepresentative in that what we're not saying, with the benefit of hindsight, what we didn't mean to say was that digitization means creating software for everything, but it was just digital-first structures for an otherwise analog environment, digital processes that work together well with the people who are an irreplaceable part of the business operations of the companies that we're talking about, and in the markets that we're talking about it as well.

Sayo Folawiyo [08:32]: I didn't feel that energy by the way, just... It might've been where we were coming at it from, but I felt like even the fact that we're having this conversation means that it did the content that is shown.

Justin Norman [08:43]: Maybe I'm overstating the fact that we may have been misrepresentative, but I think that that's then actually the conclusion for me, is that digitization doesn't mean software on its own necessarily. It means software to improve analog processes, but our use of agents or high-touch onboarding for example, is not unnecessarily analog. It's in fact, a feature, and an important feature, that when backed up by software and enabled by software is compatible with what a modern contextually-relevant business, digital-first business ought to be, this nuanced blend of high-touch people and software.

Sayo Folawiyo [09:31]: Yeah, and I don't know, it seems like that's what people do anyway.

Justin Norman [09:35]: Is that self-evident, or was that known? Am I, are we reaching a conclusion that's not actually surprising?

Sayo Folawiyo [09:42]: For sure, but it's good to remind oneself. That's the thing for me. You know it, when you think about it, like you just said, right? What did you say, Superhuman? You know it when you think about it, and if you think about a lot of your experiences, can you get a feel for this. I think it's that 1%, 2%, 8% that don't need any or much intervention, and they carry the narrative, and you forget it sometimes.

Sayo Folawiyo [10:09]: I thought an interesting point that doesn't come up that often, and I just thought it was smart mostly because I feel the same way, was about thinking about specific segments in the informal sector. It gets brushed with this wide brush of informal retail and segmentation of that is really important. Industry, segmentation, size segmentation, things like that. And you don't hear people talk about that a lot, probably because they have to sell a big market size.

Sayo Folawiyo [10:41]: But I do think it's important. I just thought it was interesting that, firstly defining those segments properly, and then secondly, what that means for product makers, a lot of the relevant market sizes that make it worth it, what's more attractive than not attractive, what's a beachhead into what? There're all sorts of considerations that I find interesting that maybe...and I'm sure the entrepreneurs are thinking about, but you don't get to see as much from outside looking in, which is also leads me to my next thing, around this, "everybody is a fintech" thing. Where does everybody start and everybody begin? And who can organize... I guess there's a natural and organic self-organizing that will happen, right? Some will die. Some will merge, some will fight. There's a natural thing. I just wonder if there's a smarter, quicker way to work out who's going to be best placed where, if we need a dictator.

Justin Norman [11:40]: What, who can consolidate all of these guys who are doing pretty adjacent stuff?

Sayo Folawiyo [11:44]: Yes, into market segments and capabilities.

Justin Norman [11:48]: The dictator is the invisible hand of the free market.

Sayo Folawiyo [11:51]: That's facts. I had this whole thing about what happens when everybody is interoperable. What is the role of the middleman in a fully interoperable world and everybody you're talking to as the middleman?

Justin Norman [12:03]: So I guess my response to that first would be to ask if the premise of a fully interoperable world is even possible.

Sayo Folawiyo [12:12]: Isn't that what we're going for? Interoperable, decentralized. Isn't this the trend?

Justin Norman [12:19]: Definitely.

Sayo Folawiyo [12:20]: What does that mean for the middleman? Do the economics of building just completely change?

Justin Norman [12:26]: But aren't the middlemen the ones who are enabling interoperability, though?

Sayo Folawiyo [12:29]: But you'd assume true interoperability means basically a very low barrier to entry, and I think that completely changes the economics of being a middleman, right?

Justin Norman [12:38]: Well, I guess the question is, if are these services going to run out of margin, such that the being a middleman is no longer going to be profitable, and then what? And that's what we're starting to see with peer-to-peer payments. It's like people are waiving fees, and then the whole thing is, can you build the super app of adjacent services so that you can actually generate a healthy margin on your customer because the typical, fee-based services that a middleman offers are becoming, or presumably will become obsolete, or at least the margin will be reduced such that you need to find real, service-based revenue that's not just middlemen revenue.

Sayo Folawiyo [13:19]: But isn't it interesting thing that the service-based revenue is also another middleman? These services that you're talking about, aren't they also middlemen like the embedded finance to the core transaction is also a middleman of financial services providers wanting to provide service so their transaction is also getting competed away because if you assume that interoperability...

Justin Norman [13:49]: What about ride hailing? Is ride-hailing and food delivery a middleman?

Sayo Folawiyo [13:53]: Yeah, of course, and to be honest, and I think that's where it starts becoming interesting because in the world of full interoperability, I think you're talking about a world where if my food is good, everybody tells their friends, they follow my own direct page because they could easily discover me and see what their friends like, and there's good recommendation engines everywhere. They can order directly from my website. I have an easy API access into a... someone's phone who has a car nearby who can just pick up the food and drive it to me and drop it.

Justin Norman [14:28]: Yeah, but that's the middle... the API is a middleman too.

Sayo Folawiyo [14:30]: But I'm saying that concentration of power is more distributed. So, I'm not saying it goes to zero, but in this world it should be more distributed. And it's just an interesting... I mean, and I also think there's a lot of insightful answers to this question, but it's just an interesting thought experiment that I think I haven't quite got my head around in this world of embedded everything and interoperability, and where everybody wants everything in one. ...What role the middleman plays, where should you be positioning yourself as a founder or company thinking that that world is going to exist?

Justin Norman [15:11]: Well, I guess the question then I actually want to ask you is, in what instances is, in spite of our endeavor for things to be more interoperable and in spite of a trend towards decentralization, in what instances is a middleman a feature, right? And middlemen as trust and as onboarding?

Sayo Folawiyo [15:34]: Are you talking about MMaaS?

Justin Norman [15:39]: What is that...

Sayo Folawiyo [15:40]: Middle Man as a Service?

Justin Norman [15:44]: Is that a thing?

Sayo Folawiyo [15:46]: No, but I think what you're saying is just that I think things get broken down into their specific services. So you have an onboarding service, you have a KYC service, you have a "this" service. Someone said that in your... in the interviews, that you break everything down, then re-bundle it.

Justin Norman [16:03]: Yeah. So, Odun talked about bundling and re-bundling, and then Vahid with Nomanini also talked about a core belief being specialization. And so everyone is a specialist at whatever, and then in this case, to continue the theme of middlemen, those are the middlemen, but they are middlemen because they are providing value. It's almost to the point we've talked about before with double-sided marketplaces and platforms. It's like, you have to provide a value above and beyond just connecting two ends, or other services and other things that platforms provide beyond just their core thing. And if you're just being a rent seeker and charging fees, as a middleman, that's not middleman as a service. That's middleman as an extractor. So there's a big difference.

Sayo Folawiyo [16:53]: Actually, the way you said it is nice. I think we're going through an un-bundling. It's interesting to see how far that can go, and I actually think, quite exciting on the specialization front. I'd really like people to be good at whatever it is they do, and I'd like that to be enough of an opportunity to be really good at stuff, if you know what I mean? Because I think there's a bunch of people that are really good at specific things that have to do so much other shit, and I like the sound of, or the prospect of people just being really good at what they're really good at. And then what does that mean as a founder or an entrepreneur? What are you thinking about and how you position for that? And then there's obviously the question of re-bundling, which is also similarly interesting. What shape does the re-bundling take? Who are the gatekeepers? What role do the current gatekeepers play, things like that.

Justin Norman [17:47]: Is specialization and the ability to be a specialist, a function of the amount of completed infrastructure or available infrastructure? Is it a function of market size? Is it a function of a company's relentless focus? What enables one to be a specialist in this context?

Sayo Folawiyo [18:10]: That's a good question. It's some combination of those things that I'd probably call maturity. It's like... You remember playing sports when you were a kid? You could play 10 positions and just run everywhere and it wasn't that serious. And as you grow older and everybody gets better, and obviously everybody becomes more mature and understands the game more, and the context of the game and such and such and especially as you start realizing that, "If I spend that time on the left-wing using my pace, and I have a good team around me, I can... my striker can score, there’s someone at the end of my crosses. It's better for all of us."

Justin Norman [18:47]: Yeah. Ecosystem building is a team sport.

Sayo Folawiyo [18:49]: That’s a bar bruv.

Justin Norman [18:50]: That reminded me of... I don't know if you've ever read the book Range.

Sayo Folawiyo [18:54]: You've always told me to read it, but I haven't read it yet.

Justin Norman [18:56]: Really good book, but they say also that the most successful people in sports and in music, and whatever else, were generalists to start, and then ultimately they specialized, and what made them good was their generalist experience. And so if we extrapolate that to ecosystems, a lot of these companies early on are starting as generalists, but as they mature and as the ecosystem matures, they then are enabled to be specialists, and hopefully there'll be better specialists because they had to be generalists previously.

Sayo Folawiyo [19:26]: Yep. I'm with that. I like the sound of that.

Justin Norman [19:34]: That's it for this episode and this series of episodes of The Flip. We're hard at work on our next season, and until then, we'll still be publishing written content, including long-form essays and our weekly, bite-sized newsletter, at the flip notes. So be sure to follow us on social media @theflipafrica, and subscribe to the newsletter at theflip.africa. Thanks, as always, for listening, and we'll see you soon.