Startups are not the answer to Nigeria’s quest for economic diversification
The Nigerian technology industry has seen lots of activities in recent times. Most of these activities have been taking place in the local startup scene.
The drop in the prices of crude oil has sparked discussions about diversification. Diversification of the economy from oil revenue.
Some people believe that startups are the answer to the diversification quagmire. This optimistic, euphoria laden belief should be contested. This contest will bring to light a more realistic evaluation of what startups offer.
The big questions are:
- Can Nigerian startups generate as much revenue as oil did? (~$60B in 2008)
- Can Nigerian startups replicate the results of the Startup Nation, Israel?
Being a Startup is a phase
The state of being a startup is a phase. A phase where experimentation to discover a sustainable business model is carried out. By default, it is a state of expending lots of capital and incurring losses. For startups to lay any claim to being a replacement for oil they need to pass this phase and become businesses.
Copying the West
Many startups in Nigeria are clones of successful Internet companies in the West. While this is a safer way than working on an untested idea, it is one that has not yet been profitable so far.
Startups founders need to understand that the developed West is different from Nigeria.
Jumia, Konga and DealDey have learnt the hard way. Pay before delivery has refused to work in Nigeria. Also, they recorded the largest share of layoffs in the tech scene since the fall of oil prices.
Profitability
Oil generated up to $60B in 2008 when a barrel of crude was sold at $147.
Another set of questions.
- What are startups generating today?
- What can startups generate in the future?
Startups need to be profitable to become a viable source of income for the country. They need to grow past the experimentation phase and become profitable technology businesses.
So far so good, a great number of Nigerian startups today are not yet profitable. Being a alternate source of income is not about quantity but quality. We are looking at yearly revenues up to $60B (approximately 60 unicorns).
Conclusion
The real deal for Nigerian startups is profitability over venture fund raising ability.
Startups have to make tangible and impressive revenue to become worthy replacements for the ‘black viscous liquid’.
Startups should forget the chase to be unicorns and embrace profit over any other thing.
Copying the West doesn’t seem to be a viable business model. It has only served as a channel for foreign capitalists to move money to their countries.
Can we export new technology to Africa and the rest of the world?
The answer will come from merging technology with other industries like agriculture, health. Israel exported technology because it solved problems in irrigation, weaponry, medicine etc.
Finally, I think it is wrong to consider startups as a representation of technology. They are a fragment of it.
I will update this article as I dig up more stuff. Thank you for reading.
Originally published at chaibizi.com on April 25, 2016.
