How we created the right conditions for the rise of a billion-dollar African startup
Disclaimer: After being asked numerous times to share my thoughts on what I believe makes startups successful in Africa, I have finally acceded. But some things to note. The thoughts shared here are mine and do not reflect any of my current or previous employers. Further, I have shied away from sharing Material Non-Public Information on any companies I have mentioned and only used their names for demonstration purposes. The thoughts shared in this piece are not investment or business advice but a way to encourage conversation around what key markers make a startup successful in Africa, particularly fintech. And, of course, this article is neither a complete nor an exhaustive analysis of what makes startups in Africa successful. I was among the first team members of ChipperCash in Africa.
Recently, the African startup ecosystem has been ablaze with unprecedented mega-round financing. Exactly 3 days ago, Wave (a spin-off from SendWave) announced they had raised a $200 million series A monster round for a valuation of $1.7 billion, fast setting the pace for the emergence of a Francophone West Africa unicorn. Not long ago, OPay had raised $400 million from some of the biggest funds in the game including SoftBank, making it a $2 billion venture overnight. ChipperCash, on the other hand, accelerated into the coveted billion-dollar club (B-Club or Tres-Comas Club going by Russ ‘effing’ Hanneman parlance) after raising a whopping $100 million, less than three years since its launch. If you are a small startup, financial analyst or industry pundit you might be wondering what the secret sauce is with these startups.
A little surprise first — when you are deep in the murk building a billion-dollar company, you actually have no idea how and that things will pan out. You are lost in the moment and seeing all the metrics flying up and to the right, great, but you typically have no idea whether what you are building will eventually turn out to be a juggernaut.
To build a billion-dollar startup requires bringing the right elements together, especially for African founders. Here’s the scoop.
One, sell a grand vision.
A billion-dollar club startup (BC) must have a grand vision. A BC cannot play around with a run-of-the-mill vision and expect to excite potential investors and customers. It must portray an image so exalting that its world of users finds its daily meaning and lifestyle around it. One way to showcase this vision is via snappy statements that encapsulate powerful stories.
A few examples are instructive. ChipperCash claims to “Move Your Money Freely”. Behind this simple yet memorable catchphrase is the story of the founders themselves facing problems sending money back home to Ghana and Uganda when they were pursuing their undergrad studies at Grinnell. What makes Chipper’s vision so grand is that they are doing free transfers anywhere you are in Africa, and potentially, hopefully, they have the plans and guts to do this globally. Given over 500 million mobile money accounts in Africa, investors salivate at this kind of market opportunity cloaked in a grand vision. On the other hand, Wave is promising to make Africa a cashless continent. How cool. And they are doing that by disrupting decades-old business models that have vice-gripped customers to costs and tedium from banks and telcos. More on that under business innovation below.
As an aspiring BC, you have to paint the picture, but you have to get the job done. The key differentiator with BCs is that they clearly understand what jobs need to be done for their customers and are doggedly focused on delivering those jobs. Only well-delivered jobs realize visions.
Founder combo
A potential BC has co-founders who complement each other. These can be twin co-founders or a number of them, but they must cover the needs of the business from engineering to operations. A perfect combo is one in which one of the co-founders is great at business and the other can cover engineering. The business co-founder ensures the startup can operate day-to-day while the engineer co-founder ensures the startup has a product that works. In between, they can find design, product management, growth hacking, marketing, customer support, compliance and finance teams to further oil the engine of growth.
Something interesting I have seen to oddly work in the case of twin co-founders is where the co-founders are so different in their personalities to expect a successful working relationship. On the one hand, one of them is charismatic and draws people to the vision of the startup while the other is almost boorish, curt and asocial but always gets the job done. I would say you need both, especially where the CEO has a magnetic aura that draws great hires and investors to the company and the technical co-founder can build a solid engineering team that delivers a quality product.
But the thing that cannot be compromised with both co-founders is a high IQ for their market. Both must have their fingers at the pulse of the market they are serving, understand and empathize with their customers, and be willing to roll up their sleeves at a moment’s notice and serve customers in whichever capacity. When I led ChipperCash in East Africa, there were moments when we had an overwhelming amount of outstanding customer support and onboarding tickets. With a lean team, the practical thing to do was to conquer and divide work that ordinarily was outside my purvey. Doing that moved us a notch step up to completed tickets in record time, good customer reviews, sustained growth, and eventually a series A. Great founding teams do what it takes to move the needle for the company in the early days.
But a little more about a magnetic CEO. The one defining characteristic I see with magnetic CEOs is that they are what you would call charismatic competitive. They are smart, in fact extremely smart, but they play it cool. And they have high EQ for people. One clear instance of this was with Ham, ChipperCash’s CEO. We met back in 2014 doing a mini-MBA accelerated winter program in Cambridge. For the two weeks that we spent in the program I only got to know him toward the end of the program when after weeks of hacking research and creating hypothetical products, we bumped into each during an in-house presentation. All along I had imagined that our team — comprising a Brown university Asian whiz kid, the student president of Occidental College, and a super sharp South Korean lady — would carry the day, only for Ham’s team to emerge out of nowhere and scoop the overall presentation prize. Particularly, his part of the presentation was simple and cogent. I sat there gobsmacked. Of course, my team and I being A-listers recalibrated and eventually took the best team prize at the final investor presentation in downtown Boston, but the lesson was clear. Years later, it is this ability to move people that sold me to working with Ham at a time when I had a fine career in consulting as well as building my own startup.
Teams
You can have a great founder combo, huge ripe market, investors willing to pump cash, and a grand vision, but it takes a dedicated, disciplined team to deliver a startup from 0 to 1. The kind of team you bring onboard in the early days can make or break a startup. The early team informs the culture of the company, and that culture becomes indelible and pervasive for all incoming employees.
When we started Chipper operations in Nairobi, I was a first-time managing director with only a few years of experience managing teams and processes. But what really helped was an intentional approach to building teams that could deliver jobs to customers effectively and efficiently. We were deliberate about being inbox zero for any customer complaints such that even on a Sunday afternoon when customers would call, we would strive to find a solution to their issues. My personal line was open to customers, and I would not have had it any other way. The focus on ruthless efficiency and customer-first approach was and is still a driving force for success at Chipper.
You want teams that can deliver not teams that have credentials or are entirely recruited because of experience. If experience was what mattered the most then we wouldn’t have fintechs or edtechs, because then these companies would have to be founded and run by bankers or professors. And we know few bankers and professors running fintechs and edtechs. I see a lot of wannabe BCs recruiting heavily on experience and credentials. At some point when I tried to get a short-term job to help a fledgling edtech company to build a product and get to product-market fit, I nailed every bit of the interview and painted a picture of what the edtech could achieve with my kind of abilities and past successes, only to be told later that the reason I would not make it to lead their teams was because they wanted someone who had scaled a company before. Here was a pre-seed company worrying about scaling instead of product-market fit and getting their team right for top performance.
BCs thrive because their teams understand the work at hand and can sacrifice to deliver that work even deep at 2am. They are completely sold to the mission of serving their customers, are well compensated for their sacrifices (I was fast in bumping up employee salaries within three months if they demonstrated massive potential and delivered beyond expectations), and are continuously appreciated for their role in achieving the company’s mission.
Credentials are simply market signals for perceived ability, not the ability itself. Experiences that work are those that are adaptable and applicable, not those that worked five years ago and are erroneously expected to work under rapidly changing circumstances that startups operate in.
Market
Of course, it’s a no-brainer that to have a BC, you have to have a billion-dollar market. A billion-dollar market is either a market with a billion users each willing to pay a dollar for your product, or a million users each willing and able to pay $1,000 for your product or service. The second option is a tough sell for most startups and even mature companies and is usually reserved for luxury brands like Apple and Hermès. In any case, what is the fat chance that you are going to create a luxury brand as a startup? Your guess is as good as mine. Onto option one.
Option one is essentially you finding millions of customers and delivering a delightful product experience that solves their pain points. The product, however, has to kayak on a scalable low-cost distribution network, and this is where digital becomes a useful channel. The reason Chipper and Wave work is because they represent next-generation ideas for how we should be transacting our money. Chipper is providing a low-cost cross-border payments solution for users in a huge mobile money African market. Wave is targeting the same market with a different offering. Wave is essentially positing that customers do not need legacy telcos and banks that have stifled their personal financial freedom by charging ridiculous amounts for transactions; so they are coming into the market to build a different infrastructure and drive the prices for transacting on mobile money to unprecedented lows. Personally, I am excited about these developments and cannot wait to see how these two upstarts and many others are going to revolutionize the way we transact.
Business model innovation
There is nothing inherently revolutionary in what ChipperCash or Wave is doing regarding their products. Social-like peer-to-peer payments have been with us for some time now, including Mpesa. In fact, the idea of requesting or sending money among peers and showing that in a transaction feed is a Venmo-esque innovation that preceded the two. What these two B-clubbers are doing different is that they are innovating around key business processes and pricing.
Take Chipper for instance. Within three years, atypical, the company has rapidly expanded into seven African countries with more to come. And in each of these countries, Chipper’s dominant strategy has been to offer zero-rated peer-to-peer transactions for transactions happening within a specific country, and low rates for cross-border payments. Just three or four years ago, one would spend $2 to move $10 across East Africa. The idea to launch rapidly in several markets allows a BC to test, court and dominate those markets if they turn out to be a fit. As customers are realizing that they have more choices on the platforms they can use to transact, they are demanding stronger value propositions on key pain points like pricing. ChipperCash realized this and decided to be the leader in driving prices towards zero. Incumbents like Mpesa may have to revisit their defence strategy because infrastructure is no longer a moat. Enter Wave.
Wave is planning to build a different mobile money infrastructure away from core banking and GSM towers. Mobile technology has improved to a point that players like Wave can set up independent agent networks (though they do not need to do this because most mobile money agent networks are already fungible) and connect transactions via mobile applications, USSD and QR cards. Their model is significantly cheaper and replicable. Already, Wave has secured the Senegalese mobile money market and is seeking rapid expansion across Africa turbocharged by a $200 million VC financial war chest. Beat that.
I believe that players that seek to sincerely give customers financial freedom, that is reduced charges so customers can enjoy their hard-earned cash, transparency on how customer money is moving or where it is being held in the case of limbo transactions, and seamless transactions between wallets, will win the billion-dollar African mobile money market. Players who are looking to build onto legacy infrastructure will win in the short-term but lose in the long-haul. The game is changing to favor users. And it has to change. We are onto mobile money 3.0.
Finally…
To be a contender for BC is to be strategic about how you position the vision of what you are building, who you co-found with, who you hire, fire and promote, what market you are targeting, and the fresh ideas you inject to change how things are being done. The future of BC belongs to those startups that can sense the tsunami of customer expectations and either ride the wave or create a higher ground for outsized performance.
EDITS: Since the publication of this article, ChipperCash has shed it’s valuation from $2B to $1.2B owing to a slowdown in the global VC market. The VC valuation game is highly speculative and based on what investors believe a company could be worth, not what the company may truly be worth in the public markets. Startups like ChipperCash have therefore been forced to reassess their growth-at-all-costs Silicon Valley model so that they can rework their revenues and margins. How ChipperCash and others navigate the new reality will determine whether they succeed in the unforgiving African fintech market going forward. Further, ChipperCash may need to address critical management issues surfaced by employees who left the company in the middle of the 2023 FTX collapse, citing among other issues, management’s inability to address critical corporate culture and transparency gaps.