This past week, the NBS released its latest unemployment figures. The numbers are staggering. For every seven Nigerians in work, about three people (that can and want to work) are unemployed. More than half are women.

2.5 million of those people are out of work despite university education and professional qualifications. In context, that’s a population roughly the size of The Gambia, Namibia or Botswana.

It’s a problem with a solution that’s difficult to fathom. It’s tough to read much into it, beyond despair or gratitude.

We each have a tendency to focus on the short-term, and that’s pretty natural. The most practical response though (at the individual level anyway) is to abstract just a little, and look at the situation tactically.

I’ll explain.

“Finding talent” is a common problem that you will hear many high-growth company leaders speak about. And they are not trying to hire in the tens of thousands. We have a new generation of employers — the job creators of the future — that has quickly become apathetic towards traditional signifiers, like a resumé or where you previously worked. They’ve found that too few of those 2.5 million people are employable in roles with a high bar for productivity. They’ve lost faith in the system.

I’ve personally also spent a significant portion of my time in the last nine months trying to hire, with limited success. Finding good resumés has been relatively easy. It has been harder to find people with the skill, intellectual curiosity and cognitive dexterity to be enthusiastic individual contributors to a new, small team, that is defining processes and dealing with a level of ambiguity.

The outlook for the future of our spiritless jobs market is compounded by the ongoing fundamental shifts in the nature of work, happening all around us. The world of work is changing at break-neck speed, and the pandemic has only accelerated some of that change. For many roles, remote work — or at least a level of workplace flexibility — is now a legitimate, cost- and time-effective option where it wasn’t before.

The pandemic has also amplified the skills that will define success in a more digital world. We’ve had a taste of the future.

We are the generation that straddles the shift from information scarcity to information abundance. With the internet, we are bombarded with information at an unprecedented rate. Access to information is no longer a competitive advantage (just think how often you now just Google information or knowledge you don’t have without skipping a beat). We’re all already suffering a level of cognitive overload.

The winners in future, then, will be the minority of conscious consumers that are able to sort through — literally — a world information, organise it, save it, and use it to solve real problems in original, creative ways. That minority will build specific knowledge and craft unique voices. And the future will reward their creativity, innovation, writing & speaking ability, judgement, cognitive flexibility and observable output.

And in that world, more and more potential employers will say: “show me something you’ve built.”

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.” — Alvin Toffler

Particularly in a market like ours, with relatively few high-quality jobs, the best advice, then, that I am freely sharing, is this:

“Prepare for non-linear growth and watch for non-obvious opportunity.”

But how does one do that?

I’m increasingly persuaded that you’ve got to “learn in public” and “show and tell” your resumé. And that’s saying a lot — I am not a big fan of self-promotion, and my digital footprint is sporadic, at best. Regardless, it’s clear to me that the future world of work favours public learning, observable, logical wins, and an ability to teach.

The paradox of the internet is that, as overwhelming as it can be, it is also the perfect place to compete, if you know how to consciously use the various platforms and tools available, to your advantage. It’s an open platform that places power in the hands of job seekers, challenges the status quo and cuts out the traditional middlemen.

The power of the internet goes much beyond anything as trite as “building a personal brand”. It’s in showcasing your relevant skills and abilities regularly, online. An ability to curate information is no longer compelling — anyone can do that and there are apps and tools that now make it easy. Developing a unique viewpoint, building a voice or platform built on specific knowledge and/or observable achievement, curating an audience — these are differentiated abilities.

Four things to keep in mind, then, as you read the unemployment news:

(1) It’s going to get harder not just to keep a job, but to find one;

(2) A resumé is no longer enough;

(3) The skills of the future have fundamentally shifted; and

(4) We are all competing in public.

It’s easy to get distracted by the unemployment reports — the numbers are staggering.

But the question, I think, that we should each be asking ourselves is this: “how do I keep signalling through the noise?”

EGMx

TL;DR — To save its malls, it looks like Persianas could become its own anchor tenant.

After a 15-year run, Shoprite is voting with its feet and selling its interests in Nigeria. I remember when a common Shoprite anecdote (urban myth?) was that Whitey Basson (former CEO of Shoprite Holdings, who led its aggressive international expansion) liked to boast that its most profitable store in Africa was at the Palms Mall, Lekki.

This kind of news always comes with speculation. This time, it’s that Tayo Amusan (Chairman of Persianas, a real estate developer & owner of the Palms) is the likely buyer of a 70% stake in the business. If true, the meaning is simple: Shoprite sees less long-term value in its 25-store Nigeria portfolio than Persianas does.

Keep in mind, malls don’t generally work well without strong anchors. And with probably the only willing anchor tenant deciding to leave the market, the mall-based, ”big box” retail model in Nigeria looks challenged. Strong anchors are popular retail brands, with wide appeal and reliable operations. Like Shoprite. Strong anchors drive footfall.

But retail operations are complex. And while Shoprite’s landlord may not seem like the most natural buyer for its retail ops, Persianas does already operate a handful of non food brands. Food retail ops will be trickier, but this is likely a tactical (albeit risky!) move to secure the viability of its malls by keeping its most important tenant in operation. Persianas has invested decades and billions on a bet on malls in Nigeria.

Shoprite’s operating model hasn’t been working well for its SA-based owners. It’s facing (yet another) FX liquidity crunch and a probable Naira devaluation. It operates fragmented supply chains and has limited pricing power with its customers. A volatile ZAR has not helped it return meaningful profits in a few years. Trading volumes are down 6% year on year (-12% before FX) — abysmal for a food retailer of its scale.

You and I will probably see little immediate change. A rumoured five-year management contract should stabilise the transition for Shoprite’s local customers & suppliers (and mall co-tenants).

Tactically, the plan could also give Shoprite’s South African and (new) Nigerian owners runway to execute a roadmap to a full exit, without destroying value.

Nigeria’s economy is propped up by 42 million MSMEs. In many cases, these are solo entrepreneurs, with little formality, no registration, no employees and no significant equity cushion (assets of less than N10 million). These businesses underpin around 60 million jobs, that are directly threatened by the COVID-19 health crisis and the coming economic recession.

The macro outlook isn’t great. McKinsey estimates that in the “least worst-case scenario”, that is, even with a contained outbreak, Nigeria’s GDP will contract by 3.4% this year, from 2.5% growth previously projected. Small businesses, their founders and employees are often the most vulnerable in times like these. Many will face cost pressures, liquidity issues, supply chain challenges, bankruptcies, closures and job losses.

In the new low-touch, post COVID-19 world, customer engagement and digital strategies will be critical for the small businesses that will survive in Nigeria.

The good news is that small businesses are agile enough to respond to changes in demand faster, to identify opportunities and test ideas quickly. Small business owners (SBOs) also have enough direct control in their businesses to make the bold decisions for survival, including shuttering existing products and services, launching new channels overnight, or even pivoting their businesses where possible.

Eight out of ten startups will not survive the economic crisis.

I saw a statistic that 80% of startups will not survive this crisis. To put this in context, Startup Genome estimated that the Lagos tech ecosystem had up to 700 active startups in 2017 (it’s difficult to find a more recent datapoint). The tech ecosystem is lucky to have vocal champions, and NITDA has already constituted an advisory committee, drawn from the ecosystem, to make recommendations to cushion the impact of COVID-19 for that community. But more than the startups, I worry about the 40 million other small businesses that are also under threat.

In the startup ecosystem, we (rightly) make distinctions between the business needs of high-growth tech or tech-enabled companies and traditional MSMEs, pointing to their differing levels of job creation, innovation, business models, addressable markets, financial profiles, risk/return potential, and digital adoption rates, to justify the different funding instruments, support and advice that their entrepreneurs need.

The truth is, in this current crisis, the best advice for entrepreneurs, whether SBOs or tech startup founders, is the same.

Broadly, entrepreneurs should be reducing their expectations around outside capital, conserving cash, re-forecasting their revenues and cashflow projections regularly, tightening costs, and stress-testing their income under 2 or 3 (max!) thoughtful scenarios. They should also be looking for opportunities to create new revenue streams, taking advice from experienced mentors and advisors, bracing themselves to make tough calls, and preparing for a ‘new normal’ on the other side of this crisis.

There is a lot of information out there to guide tech startup founders (and a community that has rallied around to support them), but very little actionable guidance targeted at SBOs in Nigeria. These are the solo entrepreneurs and gig workers, the employers of <10 people, the suppliers, retailers and service providers.

I’ve tried to focus this content on the SBOs, and to provide guidance as they consider the risks and potential opportunities in their businesses through the crisis.

What happens after the lockdown?

The lockdown isn’t your most important or most immediate challenge, because there’s ultimately nothing you can do about it.

It’s been about two weeks since the Lagos state lockdown was imposed, and we’ve just been extended for another two weeks until the end of April. It’s important to understand — without hesitation — that there will not be a return to business as usual after this lockdown, no matter how much (or little) longer it lasts.

Crises like these create fundamental shifts in demand. That means your customers are re-assessing their need for your product or service, and re-calibrating how they engage with the world. You need to do the same thing.

The critical question is: how prepared is your business for what happens after?

The end of the lockdown doesn’t mean all restrictions will be lifted.

FWIW, I expect the current lockdown to play out as follows:

1. Short term (up to 4 weeks): lockdowns in Lagos, Abuja and Ogun, because case numbers are still accelerating, especially in Lagos (the epicentre). Other South-Western states could consider closing their borders with Lagos. An extended lock down is unlikely with rising threats to safety and legitimate concerns about livelihoods.
2. Short to medium term (1–3 months): the binary lockdown vs. no lockdown options will morph into a curfew system, with sustained restrictions on large gatherings and stronger compliance monitoring on health & safety and social distancing protocols.
3. Medium to longer term (6–12 months): there is a good chance that we will enter a cycle of full lockdowns and stronger/weaker enforcement of restrictions and protocols. Enforcement will be implemented in stops and starts in Lagos, as clusters of infection emerge and/or as the confirmed case numbers continue to rise.
4. In the long term (up to 24 months): people need to feel confident that they can go about their daily lives without a high risk of catching the virus. It’s difficult to see a path to a fully functioning economy without a vaccine (by some estimates, up to 12 months away) or without herd immunity. We could see intermittent disruptions to how we live and work for up to two years.

What is happening for your customers during this lockdown?

First: health, personal hygiene and physical safety are top of mind.

Your customers are thinking about how these issues affect them, their families, friends, colleagues and employees. They will want a greater sense of control and security on the health of their families. They will want to limit time away from home and to reduce long-distance travel (by any means, for any purpose) as much as possible. They will continue to stockpile for a while to make sure they always have everything they need at home.

Your customers will be especially protective of young children and aged parents, which means even greater isolation for those two groups. They will prioritise at-home (or close-to-home) behaviours that can be done in isolation, e.g. take-out/home delivery, and working out alone or virtually.

Second: they are conserving cash and managing their spending more consciously.

Your customers are re-allocating more of their spending towards essentials (food, healthcare, fuel), and where they can, extending towards “little luxuries” to keep their families comfortable during longer periods of isolation (e.g. upgrading their GoTV or DSTV bouquets, paying for streaming platforms, or subscribing to digital learning platforms for children, like uLesson). They will naturally be more price-conscious, but also favour trusted brands. Where they make non-essential purchases, it will be in ways that align with their broader purpose (e.g. personal development) or to invest in long-term goals.

Third: they are embracing digital tools and platforms.

Your customers are expanding the platforms they interact with, personalising them and finding new ways to interact (e.g Zoom’s daily active users has expanded from 10m to 200m in one quarter, and use cases for many people now include regular family gatherings and even weddings). For years, social media has faced criticism for making young people more isolated. But in a time of general social isolation, use cases for social media (digital communication tools in general) are evolving.

The great news is, this isolation is driving wider acceptance for digital tools and online services, and this could be the catalyst that e-commerce in Nigeria needs. While going virtual, your customers are gravitating towards more personalised, intimate interactions. Trust will be important as they do this. They will rely more heavily on referrals, recommendations and social signals as they choose new services or service providers.

Fourth: they are increasingly worried.

Your customers are worried about salary cuts and job losses, and the risk that they will default on credit and other obligations (e.g. rent, school fees, etc.). There is a chance they will default on their committments to you. For brands and service providers, this could be a time to build trust, if you can create opportunities for them to smooth their financial obligations or if you can help them feel more empowered in their decision-making.

Over time, as the COVID-19 crisis deepens, many people will feel more isolated, lose their jobs, be confronted with sickness and face relationship issues. Their anxiety levels, loneliness and depression will unfortunately rise. Children and women are at even greater risk of abuse and violence during periods of long-term stress. Many people are turning to digital apps and online tools to help manage their mental health through this crisis.

Fifth: some know that they will never go back to their old jobs and ways of working.

In this forced WFH experiment, many business will be better able to estimate the true net cost of remote work, as they assess productivity losses against potential cash savings from lower fixed costs. Companies will re-evaluate their core, permanent staffing needs in the short-term, but also beyond that. Smaller staff sizes may have a direct impact on your small business if you provide services to large corporates. Budget cuts and tendencies to under-invest in employee welfare could mean that your income (e.g. professional catering for offices) is under threat.

Many of your customers will be forced into self-employment and freelance work, and will need to repurpose their skills and experience for a digital market in a “lower touch” world. They will be looking for support, learning and guidance to do that, and will appreciate boosts to their credibility and morale as they find new purpose. They will look for skills-based training, but also for direction and leadership from influencers, mentors and coaches.

What does this mean for your small business?

It depends what you do and how you do it. The truth is, the right answer lies somewhere in the alchemy between your financial cushion (how much cash you have in the bank — ideally enough to cover your running costs for up to 6 months), the sector you’re in, how you operate (your business model) and how long the recession lasts.

For example, if your business relies on large gatherings (e.g. catering large social events), close in-person interactions (e.g. bars), a high perception of hygiene (e.g. health & beauty services), travel (e.g. mass inter-state transit), or expendable (or deferrable) demand (e.g. seedless grapes), then the short term outlook isn’t good, but it’s important to try to think carefully about what your sector’s recovery pattern could look like. The Board of Innovation’s reports have also been fantastic with helping me think systematically for different small business archetypes in Nigeria.

It’s difficult to draw too many direct parallels, but of course, the experiences of countries that have been the hardest hit so far (like Italy, China, the UK and the US) provide some important learnings. Broadly, demand is down and layoffs are highest in the travel & leisure and entertainment sectors. It’s up in packaged food retail, and health & personal care.

In China, which models the potential that a more digital future could hold, we saw dramatic shifts in online purchases of consumer goods in the first few weeks of this year, driven by groceries, health & personal care, alcohol and pet food. The greatest spikes in volume came from home cleaning/hygiene products and instant, ‘ready to eat” food categories as people stockpiled.

You should assume that the economic crisis will last 12–18 months, meaning that you will start to see a return to a stable level of demand (not necessarily at pre-crisis levels) after that.

Regardless of what’s happened to your business in the first 2 weeks of lockdown, the critical question is — what do you think will happen over the next 12–18 months?

How should you think about the potential recovery profile for your business?

Depending on whether your business is up or down so far through this crisis, your recovery (or ramp-up) could happen in a number of different ways.

If your business volumes have been down in the last couple of weeks…

If volumes are down, do you think your customers will return? Post lockdown, will you struggle to compete with your current model? Has the lock down revealed other competitors, channels or products that could served them better?

Long term, are there underlying trends that mean that your business will recover? Or do you expect a long-term decline?

If your volumes are likely to recover, how quickly do you think that could happen? What are two or three triggers that could help boost consumer sentiment in your sector? And what actions within your control could help attract customers back to your company in particular?

If your business volumes have been up in the last couple of weeks…

If volumes are up, do you think your new customers will stay? Why have they been buying from you? And if you have multiple products, what have they bought? Is your product or service solving an immediate need, an important need, or a values- or purpose-oriented need? Are you benefitting because your customers have limited alternatives in the short-term?

Where did your new customers come from? Did you take share from a competitor, and why? Are you providing a more convenient solution? Can you continue to do that sustainably? If you’ve switched to a delivery first model, were you profitable on each order (after the cost of delivery)? What monetary values of orders were unprofitable? How can you drive more profitability — either through higher order values or more frequent orders?

Long term, what would it take to keep your new customers and to protect your new business volumes? How much of that is potentially within your control?

Whatever the last two weeks has done, this is a great time to survey your customers (retained, new and lost) and to potentially interview them. This is also a good time to put in place a simple NPS feedback mechanism and to use the insights from that to learn more about what’s working and what’s not working. Use that input to overhaul your strategy and operational plans, and to develop a customer engagement plan using social media (not WhatsApp broadcasts!) that’s authentic, empathic, respectful and builds trust.

Advice for four SBO archetypes

Scenario 1: “I run a delivery company.”

Companies like yours will be the lifeblood of the retail and restaurant sector in our new “lower-touch” world. Those businesses are being forced to reconsider their distribution channels. You are likely to benefit from greater delivery volumes in general, especially in an environment that has relied so heavily on brick and mortar infrastructure so far (and is learning that it may not need it to operate). Small businesses will need to find delivery capacity at short notice. But how do you make sure that you capture a disproportionate share of the rise in demand?

There is currently very little differentiation in last mile delivery services or capabilities, and the customer experience (on both sides) is generally poor. Customers are also going to be looking for a higher level of hygiene and health consciousness. This is the time to think about how you differentiate yourself from the competition and how you engage and communicate with existing, new and potential clients. What are the reasons they should pick your company over the next one?

Favourable e-commerce trends also create an opportunity for logistics-tech companies to build platforms that help small businesses roll out delivery options quickly, particularly as the go-to last mile delivery options could face some strain. Could you build a simple platform that aggregates and fulfils demand, or a system, in collaboration with a group of other small last mile delivery companies, that passes on unfulfilled demand?

Scenario 2: “I produce branded snack foods and sell through major retailers.”

If you’re a local food producer, the lockdown and import/travel restrictions are likely to be favourable to you, as long as you are able to guarantee your supply chain, and can further diversify your customer base towards the larger, more stable and trusted retail stores, e.g. Shoprite, Spar, Ebeano, etc. Many economies are looking inwards for local production, not only for COVID-19 relief items (e.g. masks), but also food and other day to day consumption items, where global supply chains are difficult to rely on.

Because people are stocking up, spending less time at the supermarket when they do venture out, and focusing on buying more essential items, it’s important that you are front of mind when they do make a buying decision. This could be the right time to invest in building your brand, given extended isolation and higher social media use in general, and to focus your marketing messaging on creating a sense of comfort for your consumers. If you can create a word-of-mouth referral loop, that would be fantastic.

Watch your working capital though — your customers (the retailers you sell to) are likely to be tighter on payment terms. If you can create a direct to consumer channel and integrate it with your social media marketing (and even offer bulk order discounts or create an auto-refill system), you can mitigate the risks to your liquidity against at least some of your businiess volumes.

Scenario 3: “I have a ready-to-wear fashion brand.”

Frankly, we’re entering a tough period for non-food retail in general, unless you’re producing health & personal care items, for the most part. Fashion is fickle, and for many brands, it will become harder to convince your customers to make buying decisions.

The good news is, direct to consumer fashion has done relatively well in previous recessions, as customers look for brands that speak to their shifting values: cost-consciousness, simplicity, authenticity. Because more people are engaging online (not just during this lockdown, but with the extended culture of social distancing that is likely to follow), this period creates an interesting opportunity to identify your core “tribe”, make inventory that responds to their needs and build significant brand equity by executing an excellent digital marketing strategy. Bike hailing companies are pivoting to meet higher demand for delivery services, so fulfilment shouldn’t be a major issue.

In the short to medium term, export bans in several countries means critical capacity for Personal Protective Equipment (PPE) is being developed locally. PPE manufacture needs factories that can produce, finish and cut fabric, construct gowns, scrubs, face shields and surgical masks. If you can re-purpose some of your garment production capacity, this could help create incremental revenues. To make this work, sourcing materials locally, managing working capital/liquidity and accessing reliable partners and distribution will be critical challenges to think through. Reaching out to Assembly Hub would be a great place to start.

Scenario 4: “I am an events planner.”

A business like yours does well in a strong economy but tends to be among the first to suffer in more challenging times. I think it’s fair to say that your business is at little risk of becoming obsolete in Nigeria in the long-term, but also that you are at direct real risk of your revenues remaining close to zero after the lockdowns are lifted, regardless of who your main customers are, i.e. companies (e.g. conferences) or individuals (e.g. weddings, or birthday parties).

The good news is, you will benefit from a backlog of postponed events. If you can keep costs to a minimum until restrictions are lifted, you will see a spike in demand eventually. The stronger your corporate/HNI client base, the quicker your revenues are likely to return. Make sure you have a strategy to keep your most experienced team-members engaged with the business and well looked after. They will be critical to your ability to recover quickly as demand picks back up.

In the meantime, how can you build trust and create incremental revenue virtually? This could be the right time to launch that event planning academy you have been dreaming about, and to focus on building your brand. For example, if your expertise is weddings, you could create content and virtual events that supports brides in their planning processes as they wait for the right time to move forward with their plans, and share expert tips, tricks and tools for reducing wedding budgets.

This post was informed by data kindly provided by the good people at Stears. They have a database that covers 850,000 SMEs in Nigeria. The most common small businesses are schools, clothing/fashion retail, cars dealers & automotive parts retailers, real estate agents, beauty services (including salons and barber shops), food and household goods retailers and retailers of mobile phones & computer equipment.

EGMx

March 8 is a beautiful, heartwarming celebration of womanhood. But beyond International Women’s Day, it’s important that those of us in positions of leadership and influence — male or female — think practically about how to drive real change towards gender equality within our teams and organisations.

Equality is a year-round issue.

In Nigeria, we hear all the time how women are “better” employees or “harder” workers. I personally think that point of view is problematic. The surviving sample of working women is statistically biased, and an assertion like that is complicated by the numerous microaggressions that play out for working women in their workplaces everyday.

As professional women, we might look around the rooms we inhabit, and find that we are each one of just a few left with a seat at the table. It’s probably easy to fall into the trap of believing that over the years, you’ve worked harder, smarter or better than the women you started your journey with. The reality is that the truth is much more complex.

On days like International Women’s Day, my biggest bug bear is this: we generally over-index for telling women to adjust their mindsets (“dare to believe” type messages) and massively under-index for telling everyone (men and women) to look out for their unconscious biases. This is the ground zero problem to solve for women at work.

Female mindsets aren’t the problem.

A couple of weeks ago, the UNDP released its 2019 Human Development Report, which suggests that progress towards gender equality is actually slowing. Only 14% of women and 10% of men globally display no gender social norm bias.

Nine out of ten people in the world (men and women) display some form of gender bias. That includes you and I. That means that the decisions that we make as leaders, where women are concerned can be influenced by those biases. It also means that the invisible barriers women face in their workplaces are real, and confront us every day.

That’s pretty sobering.

And it’s hard to fully accept, especially in the context of what feels like massive gains with global social movements like #MeToo, #IWillGoOut, #NiUnaMeno and #IWD over recent years.

While disadvantaged groups are actually catching up on basic achievements (e.g. increased rights to an education, to vote, or to work), there is much slower progress towards the more empowering enhanced achievements (for example, equal pay). In the 50 countries where adult women are now more educated than men, they still receive 39% less income on average than men despite working longer hours in formal employment.

Nowadays, (thankfully!) we tell girls that they can be anything they want and we invest more in their education, but we also block their access to power. 1 in 2 people still think men make better political leaders, and 4 in 10 think men make better business executives.

Often gender biases at work are not subtle.

66 percent of women. 1 percent of men. The research is silent on the gender of those providing the feedback. There are lots of great examples of everyday bias in the workplace in this presentation by LeanIn.

This article references two examples from a recently published book (which I admit I haven’t yet read). The first mentions a female executive at a multinational who did all the right things: worked late, got management training and enthusiastically received “feedback”. What may count as feedback for a woman at work is an entire article in itself, but it seemed she was finally due for a promotion to a leadership level that was, incidentally, exclusively male. Then at the key meeting, a male executive refused her promotion because “She just doesn’t fit. She has those glasses and she wears that clip in her hair.”

The second mentions a woman, who was “jokingly” asked to do the dishes by her new boss in front of a group of her male colleagues, on her first day of work at a new job.

I’ve literally been there on both counts. I’ve been mocked by a room of men (colleagues and clients) for not immediately understanding what the IT administrator speaking to me in a foreign language (in a foreign country), needed as he set up some equipment in front of me. I have also been told directly by a boss that I “just” didn’t “fit”. Anecdotes? Yes. Isolated experiences? No. Unintended? Who cares.

To better understand how bias plays out for women in the workplace, this video is a great place to start.

Even the most unconscious of biases have real costs.

For example, in actual dollars and cents female founders raise.

The type of questioning a founder faces has significant funding consequences and women attract just a fraction of the capital that their male colleagues do.

A 2017 HBS study found that investors (male and female — although VCs are still mostly men) tend to ask male entrepreneurs questions about their companies’ potential for gains, and female entrepreneurs about the potential for losses. VCs ask two kinds of questions: promotion questions (‘upside potential’), e.g. “what major milestones are you targeting for this year?”, or prevention questions (‘downside risk’), e.g. “how predictable are your future cash flows?”

The researchers found that entrepreneurs that faced mostly promotion questions raised 7–8x more capital than those that faced prevention questions, and that each additional prevention question (i.e. above average) cost the entrepreneur nearly $4 million. Controlling for capital needs, business quality, age, and founder experience, the relationship between entrepreneur gender and startup funding was completely explained by the style of questioning.

It’s not enough to demonstrate that their companies are unlikely to lose money. Entrepreneurs need to convince VCs that their companies have ‘home run’ potential. But the pattern of questioning itself can create self-perpetuating cycles that aggravate the funding disparity. More than 8 out of 10 founders responded in a similar manner to the question’s orientation, i.e. a promotion question received a promotion answer, and a prevention question received a prevention answer.

Investors are not doing enough.

When I found that study, I finally understood the incredible funding disparities. Just 2–5% of VC capital ends up going to female founded companies, despite the fact that women make up 20-40% of company ownership (depending on geographical region).

Just as alarming, investors also acknowledge that while there is a business case for investing in women and diverse teams, they are not doing enough, systematically, to drive change. 60% of VCs surveyed by Morgan Stanley last year said there were too few women in their portfolios, and 83% agreed that it’s possible to intentionally invest in women while still maximising returns. But 60–70% also admitted that diverse investing is just not a firm-wide priority.

I’ve been on two venture capital panels in recent months. Both times, female founders challenged us on the gender disparities between their access to capital and the questions they face, based on their own very real experiences. On the first, a female investor responded by giving the founders pointers on how to pitch their startups as well as the men; and on the second, a male investor praised the professional accomplishments of his female colleagues, before admitting to having not (yet) deployed any capital into a female-led company. Neither meant any harm, I’m sure.

As leaders, we must intentionally confront bias.

Bias is pervasive. It isn’t limited by gender. We all fall into bias traps. You and I can be more than one thing at the same time; consciously committing to equality, but still having prejudices about women’s roles at work.

We all know the realities by now: women are judged differently and more harshly than their male counterparts throughout their work lives. And aside from the financial and professional costs, the emotional and psychological costs are real and often overwhelming.

McKinsey’s 2019 Women In the Workplace survey reports that women still, by and large, feel that gender is an invisible barrier to equality at work. We continue to suffer micro-aggressions and we are still under-represented across the breadth of our organisations. In the last five years, our employers are much more committed to diversity, but the greatest impacts are in senior (C-level) hiring and workplace policies (e.g. flexible working). Women are still not being promoted into management roles at a fair pace.

Tackling bias is probably the single most effective thing you can do between now and March 8, 2021.

A few actionable ideas on how to keep the meaning behind #InternationalWomensDay2020 alive over the next 12 months:

• Make your diversity track record and objectives public. Hold yourself and your team accountable to them. Develop a strategy.
• Re-examine your screens and filters. Make a habit of asking yourself if you’d make the same decision(s) if gender wasn’t a factor. Rely on carefully considered, transparent and codified structures and processes to help modify and sustain your behaviour, not willpower.
• Make your decisions as transparent and open as possible. Invite others into your decision-making.
• Hire diverse teams across the board, not just at leadership levels. Experiment with blind-hiring tests to get there, if you can. Expand your traditional sources of talent and re-consider your retention policies.
• Measure inclusion objectively. There are tools and resources online to help you better understand if your team feels valued, trusted, and psychologically safe.
• Organise unconscious bias training for you and your team. Learn about the different types of bias and how to actively tackle them. The International Women’s Day website has a great presentation that you could use to run a workshop yourself.

EGM x

“Our business is backing moonshots — and there is usually a ton of execution risk, by definition. The hardest thing is finding people who are willing to try.”

— Endeavor International Selection Panelist

Telling Our Own Story

They say if you don’t write your own stories, others will do it for you.

Endeavor’s model is differentiated. Our mantra is “go big, or go home”. Our capital is deployed exclusively in service of our mission — helping high-impact entrepreneurs scale faster. One of our strongest values is “paying it forward”, and this permeates everything our teams, mentors and board-members do.

Endeavor is the entrepreneurship support model that Nigeria’s next generation of future large-scale enterprises needs.

One of the hardest (and most exciting!) things we do is select Endeavor Entrepreneurs. The process starts in our country offices, and ends at an International Selection Panel — an intense 3-day event that combines back-to-back interviews, networking dinners and full-day deliberation sessions, to decide which candidates to admit into our global network, through a unanimous vote of Endeavor ISP panelists.

In my two years at Endeavor, panelists have included Reid Hoffman, co-Founder of LinkedIn and Partner at Greylock Partners; Wences Casares, Founder & CEO of Xapo (the world’s largest custodian of Bitcoin); Mitchell Elegbe, Founder & CEO of Interswitch (Nigeria’s first tech unicorn); Jason Green, Founder & General Partner at Emergence Capital (early investor in Box and Betterworks); and Fady Gandhour, Founder of Aramex and Chairman & CEO of Wamda Capital (investors in Careem, Twiga Foods and BitPesa — incidentally, all companies led by Endeavor Entrepreneurs).

For an Endeavor candidate, the ISP is an opportunity not only to meet and network with the very best founders and investors, but also a chance to get open, unbiased, critical feedback in a judgement-free setting— information that is probably not naturally available in many scenarios.

But there are 3 possible ISP outcomes: “No”, “Not Yet”, or “Yes”.

Months-long interviews and preparations, followed by a rigorous 3-day trip to an Endeavor ISP location as far away as Riyadh, Sao Paolo, Nairobi or even Bali, could seem like a lot of investment for what could seem, at best, like a 1-in-3 chance of success.

Why Bother?

Last week, in Riyadh, Saudi Arabia, at our 93rd ISP, Endeavor Entrepreneurs, Mudassir Sheikh and Abdulla Elyas, two of the three co-founders behind Careem — the Uber of the Middle East — joined around 30 other panelists to select new Endeavor Entrepreneurs from more than 14 different countries.

Along with their 3rd co-founder, Magnus Olsson, the Endeavor Entrepreneurs built Careem in just over 6 years, scaling its ride-hailing operations to over 100 cities in 14 countries in MENA and South Asia, and ultimately selling to Uber for over $3 billion in 2018. Now, they’re using (some of!) their time, experience and resources to select Endeavor Entrepreneurs and to help support the most promising entrepreneurs in the Middle East, by giving back through Endeavor UAE.

A candidate at the same ISP closed a six digit Series C round for his fintech startup a day before, and jumped on a plane to Riyadh for the Endeavor ISP immediately after.

About 20% of our portfolio is made up of entrepreneurs that weren’t selected at their first ISP. They leverage the ISP feedback and connections, and come back, in some cases, as many as 2 or 3 years later, with stronger underlying business models, and much better traction.

If you’re a serious entrepreneur operating outside of Silicon Valley, with crazy scale ambitions, you don’t ask a question like “why bother?”

“What will it take to scale?”

“How does this business get 100x bigger?”

“What can Endeavor do to help this entrepreneur?”

— these are the critical questions we try to answer for each company.

The answers are literally never as simple as “more money”. Building a large, sustainable company comes with a ton of execution risk, especially in an emerging market.

Reducing Time to Scale

I meet a lot of startup founders building interesting, sometimes potentially transformative, companies. Their companies are often innovating around solutions to solve some very real problems.

Whenever I explain Endeavor’s model, I generally end up saying some variation of “raising capital is the easy part”.

And the best entrepreneurs get it.

Successful companies tend to have benefitted from support systems that incorporate the mentorship, advice, experienced hiring opportunities and commercial introductions that come with broader network connectivity. Founders in more developed ecosystems usually take these things for granted. Entrepreneurs that are active in the markets that Endeavor focuses on are typically underserved by capital, investors and talent. Those deficits become more important as their companies scale.

Endeavor Entrepreneurs understand the value of time.

Becoming an Endeavor Entrepreneur could be the difference between faster or average time to market; raising capital on smarter or average terms; or optimising your team for the next phase of growth vs. hiring months behind your company’s current needs.

We want to help high-impact entrepreneurs make the best possible decisions for themselves as founders, for their companies, investors and employees. Ultimately, Endeavor’s goal is to help improve a great company’s trajectory at its most critical inflection points.

“I believe entrepreneurship is the finest engine of capturing human potential on the planet and the practice needs to be spread far and wide.”

— Jason Green, Founder & GP, Emergence Capital & Endeavor Global Board-Member

Endeavor Entrepreneurs are our strongest bets to find sustainable models in their home markets. We want to equip them for greater success, and critically, create a platform for them to pay it forward by inspiring, mentoring and investing in the next generation.

Catalysing that virtuous loop for entrepreneurs in Nigeria is literally what keeps me up at night.

EGM x

March 8 is an important day, and in collaboration with Endeavor’s 32 other offices across the world, Endeavor Nigeria will be honouring the achievements and contributions of the women in Endeavor’s network. These are high-impact entrepreneurs leading some of the world’s most innovative companies, mentors with strong track records in business, entrepreneurship and industry, and board-members who support our operations in each market. They include Linda Rottenberg, Endeavor’s CEO and co-founder, who started this truly inspiring organisation over 20 years ago with an audacity that she herself has called ‘crazy’.

#HerImpact

All week (March 4–8, 2019), Endeavor offices, including Nigeria, will be sharing stories, blog posts and content from within their local networks and ecosystems on social media using the hashtag #HerImpact. Follow along on our Instagram, Twitter and Facebook channels (always ‘endeavornigeria’).

Endeavor’s #HerImpact series is part of our ongoing commitment to increase gender diversity within the Endeavor network. #HerImpact is devoted to elevating the voices, sharing the perspectives, and showcasing the professional expertise of women in Endeavor’s global network.

Representation Matters

2019’s International Women’s Day is themed ‘Balance for Better’. We are reminded that “the race is on” for gender-balanced boardrooms, government, workforces, media coverage, sports coverage, income and wealth distribution. The past few years have been exciting for women’s equality in so many different ways. We have witnessed global, regional and national movements, history-defining achievements in gender and diversity politics and a wave of conversation and action that has built clear momentum all over the world.

At Endeavor, we are proud to be part of the conversation in the high-impact entrepreneurship community and to feature some of the most impressive female founders and businesspeople within our global network. They include Leila Velez, founder of Beleza Natural (Brazil), a $100M chain of hair salons for women of colour; Mona Ataya, founder of Mumzworld (UAE), an ecommerce retail destination for expectant mothers and their children; and Caitlin, Julie, Jessie and Jenny James, four sisters that founded Drought, Michigan’s first and leading cold-press juicery. You can find their stories and many others here.

At Endeavor Nigeria, we are only a year into our journey to build the leading entrepreneurship support organisation in the region for high-impact founders who are at the scale-up and growth phases. And as part of that, we are determined to bring balance to our local portfolio of Endeavor Entrepreneurs and to the supporting network of Endeavor Mentors, Endeavor Board-Members and Endeavor Staff. Our ultimate goal is 50:50 representation. We understand that in order to do that, we will need to be part of the solution, to be part of helping more female founders become Endeavor-ready, and to be part of helping more women with excellent track records in business join our network as mentors for Endeavor companies. Consciousness is part of the journey to balance, but that needs to be accompanied by deliberate action. Keep an eye on us and keep us honest.

Balance is not a women’s issue, it’s a business and economic issue. How deep does the problem go? Only six countries in the world (none in Africa) currently have equal legal rights for women (extending from property ownership and inheritance laws to job protections and pension policies, rules governing marriage, movement and travel, pay, and personal safety); with the result that there are implications for women’s ability to work, start businesses and make economic decisions that are best for them and for their families. The barriers to balanced representation are large, looming, and structural.

As part of our 2019 IWD campaign, we asked two entrepreneurs operating in Nigeria (Elizabeth Rossiello — founder/CEO of BitPesa and Endeavor Entrepreneur; and Odunayo Eweniyi — co-founder/COO of PiggyVest, a fintech entrepreneur that we really admire) to tell us their stories, framed around four questions:

1. What’s one time you faced a challenge, setback or failure, and what did you learn from the experience?
2. Describe a problem you are solving — what is its significance to you and what is the solution your business presents?
3. Tell us about an accomplishment, event or realisation that sparked a period of growth or a new understanding of self.
4. What does this year’s IWD theme, ‘Balance for Better’ mean to you, and how can we achieve a better balance for women in business and in high-impact entrepreneurship?

Their responses were as varied as they are interesting and you can read them in full on our website.

For Elizabeth, ‘Balance for Better’ is a reminder that we need more balanced playing fields. Studies show that female founders face an entirely different set of challenges being heard and gaining credibility from investors compared to their male colleagues (for example, it’s much easier as woman to raise capital for a social impact venture than it is to raise for a for-profit company), and that female founders are too often quizzed on their capabilities compared to their male counterparts. The problem partly stems from representation — most socializing at executive levels continues to be done in male-dominated environments.

Odunayo finds the concept of ‘super women’ patronising and feels strongly that women need to insist that we don’t have to do it all, or to try to do it all by ourselves to be successful. For her, ‘Balance for Better’ means supporting women by encouraging them to be proud of their limits and to embrace help on their journeys to success.

Personally, I was both inspired and challenged by reading them and I hope you will enjoy the interviews too. I also hope that at Endeavor we can be at the forefront of a movement to bring more women into high-impact entrepreneurship in Nigeria and across the world.

This week, Endeavor will be announcing commitments to achieving better gender balance in our high-impact portfolio of entrepreneurs and investments. Watch this space!

I look forward to the achievements of the next few years.

E.

***

Endeavor’s #HerImpact series is part of our ongoing commitment to increase gender diversity within the Endeavor network. #HerImpact is devoted to elevating the voices, sharing the perspectives, and showcasing the professional expertise of women in Endeavor’s global network. Learn more about how you can get involved with Women in High Impact Entrepreneurship at Endeavor here: endeavor.org/whie.

In February, Endeavor launched in Nigeria, and I joined as Managing Director. Our goal is to select, support and mentor the best high-impact entrepreneurs, building scale-up companies with strong regional or international potential. Historically (20 years and counting), about 2% of entrepreneurs we screen have succesfully been selected to become Endeavor Entrepreneurs. Currently, there are over 1,600 entrepreneurs in our global network, joined by 4,000 leading investors, businesspeople and mentors. The strength of the Endeavor Network is at the core of what we call ‘The Magic of Endeavor’.

Endeavor Entrepreneurs are internationally recognised as among the best in their fields. Our entrepreneurs span the globe. From Johannesburg to Nairobi, Jakarta to Buenos Aires, Milan to Istanbul, they are building great businesses, growing revenues, creating jobs, raising capital and directly impacting and influencing their local ecosystems. Since 1997, Endeavour companies have created 700,000 jobs, and in 2016, had combined revenues of $10 billion.

Endeavor Entrepreneurs on average grow their companies and create jobs 2.4X and 5.4X faster than comps, are 4X more likely to inspire, 4X more likely to invest and 8X more likely to mentor the next generation.

At Endeavor, we select the entrepreneur – that means our Endeavor Entrepreneurs have a lifelong relationship with the Network, and have access to our services, platforms and mentors wherever they go, and for every company they start.

We are not an incubator or an accelerator. We offer Endeavor Entrepreneurs a network of talented individuals and organisations aligned with our mission of scaling high-impact entrepreneurship, in order to help them (1) think bigger (10x revenues!), (2) make better business decisions (by accessing talent, capital, mentors and markets), and (3) multiply their influence by becoming role models, mentors and investors themselves in their local ecosystems.

Who is an Endeavor Entrepreneur?

At Endeavor we focus on high-impact entrepreneurs. While of course also important in an economy, we are not focused on very early startups, small businesses or social impact ventures (although social impact is typically a significant fallout of our entrepreneurs’ success).

For us, three things define high impact entrepreneurship, and we look for each of these from our Endeavor Entrepreneurs:

1. She possesses the biggest, most innovative ideas and the capacity to realise them.
2. He scales his business, creating significantly more wealth and high-quality jobs.
3. She/he reinvests their knowledge, credibility and financial gains in the next generation of entrepreneurs, thus multiplying their influence.

Endeavor Entrepreneurs include Mona Ataya, Founder of Mumzworld, the leading e-commerce retailer of mother, baby and child products in the Middle East and North Africa (Endeavor UAE); Idriss Al Rifai, Co-Founder of Fetchr, an on-demand mobile-first delivery and logistics company in the Middle East (Endeavor UAE); Ken Njoroge and Bolaji Akinboro, Co-Founders of Cellulant, a mobile-first fintech company driving financial inclusion in Kenya and Nigeria (Endeavor Kenya); and Thomas Pays, Mitchan Adams and Lyle Eckstein, Co-Founders of iPay, a bank to bank online payment gateway in South Africa (Endeavor South Africa).

Thomas, Mitch and Lyle joined the Network after successfully passing at our 77th ISP in Dubai last week. And with Endeavor’s help, Ken and Bolaji recently closed an important financing round for their company.

In Dubai, we also welcomed Abdulla Elyas, Magnus Olsson and Mudassir Sheikha, Co-Founders of Careem (the Middle East’s dominant ride hailing service, valued at over $1bn) among the newest cohort of Endeavor Entrepreneurs. Endeavor’s influence, network and access is unrivalled, and cuts across experience, geographies, industries and functional expertise.

We look for entrepreneurs that are likely to become the next “big bubbles” in their local ecosystems. The goal is to catalyse a multiplier effect, as Endeavor Entrepreneurs turbo-charge their companies’ growth, and over time, mentor, invest and inspire others to also become the next “big bubbles”.

Why Do We Do This?

We are not-for-profit; Endeavor’s goal is to drive economic development through high-impact entrepreneurship. Entrepreneurship is a powerful economic tool and we believe that high-impact entrepreneurs can literally change the world. At the core of our mind-set is the conviction that while talent may be evenly distributed, opportunity is not.

Endeavor has developed a very successful model that aims to eliminate barriers to critical capital, mentorship and markets, for the very best entrepreneurs in the world.

Why Nigeria, Why now?

Nigeria has the potential to be one of Endeavor’s most interesting markets for a number of reasons, not least the active tech and non-tech ecosystems concentrated in Lagos and the potential TAM given our population and various deficits. There are a number of exciting entrepreneurs and companies that we believe offer a strong potential pipeline for Endeavor Nigeria, and that we believe can achieve regional dominance with the right mentorship and access.

I’m proud to have joined Endeavor to lead the Nigeria office at a time when the ecosystem is visibly maturing and entrepreneurial opportunities are increasingly vast. The team and I look forward to working with Nigeria’s Endeavor Entrepreneurs to drive value from the Endeavor Network and, critically, to give back to the ecosystem.

More personally, I’m keen to actively help create more scale success stories and to help more founders and investors achieve more exits. The team and I are partners to any entrepreneurs and investors focused on building great companies in Nigeria. With Endeavor, my day job has literally become figuring out how to work with the top 2% of founders to achieve break-out success in Nigeria and beyond.

Our Support

We are backed by the Omidyar Network and have a phenomenal board of directors; accomplished business people who are supporting our efforts with their philanthropy. Their talent, expertise and networks cut across most major sectors in Nigeria and they are Endeavor Nigeria’s biggest champions. Like me, they believe that a focus on high-impact entrepreneurship will probably change the landscape of our country in under a generation.

We are also building out an incredible Endeavor Nigeria Mentor Network, bringing together business leaders with talent, experience, expertise, deep bench-strength and a similar passion to our own for the benefit of our companies. Endeavor’s success in each of our 32 countries is driven by the quality of the local mentors each team recruits, which include some of the most impressive professionals in the world. Learn about our Network here.

I’m excited that Endeavor Nigeria has launched and we look forward to working with you!

This is the first in a short series of articles I’ll be doing about Endeavor Nigeria and how we hope to work with Endeavor Entrepreneurs in Nigeria. I look forward to updating you on our progress.

Till then, find us on Twitter at @EndeavorNigeria.

E.

noun

1. the strange preference for low quality outcomes.
2. the word for ‘Nigerians are mad’.

“Nigerians are mad.”

Sound familiar?

How about: “Nigeria is special. Standard laws of economics don’t apply here.”

Or: “We have a unique system of doing things, that’s why we need homegrown solutions.”

I tend to roll my eyes or quickly get defensive when I hear such things. I’ve never been comfortable with the wisdom of the need for a collective lobotomy as the starting point for Nigerian economic policy.

But, ladies and gentlemen, it looks like they might be on to fragments of something. That said, we are not, in fact, mad.

Our seeming national preference for low-quality outcomes, while clearly not ideal, isn’t ‘unique’, it’s quite rational.

It’s Kakonomics.

I kid you not. I didn’t make that up. Kakonomics is a real word, and you and I are right in the thick of it.

I came across this article by Tim Harford, The Undercover Economist. It’s called ‘The Hazards Of A World Where Mediocrity Rules’, and describes completely familiar economic outcomes that possibly only apply (at a macro level) to a handful of countries, including definitely Nigeria.

I’m intrigued and excited, because finally (!) I have something other than raw emotion at my disposal the next time my skin bristles at the suggestion that something is fundamentally wrong with the psyche of individual Nigerians or that we are somehow cut from a deficient cloth.

I can now discuss, far more eloquently, why I am uncomfortable with the thrust of the Change Begins With Me campaign, which I think it is insidous by sermonising, without addressing context/system-wide issues.

But I digress.

‘Kakonomics’? Explain.

Happy to.

You know how people say “Nigerians are the Italians of Africa”? Well, now there’s a concept in behavioural economics to back it up. Tim’s article is actually based on the published work of a philosopher, Gloria Origgi, and a sociologist, Diego Gambetta, both Italian.

In 2009, they published a journal article called “The LL Game” (available in full here at a $36 cost). Here’s the abstract of their article:

So it turns out that if Nigerians are mad, Italians are mad too.

Let’s not forget that while one can only be mad if one’s behaviour seems strange to somebody else, that alone is not a sufficient condition for diagnosis. Notice how the authors describe a perception of cheating to outsiders, but insiders adapting to and relying on low quality outcomes?

Notice also that there’s no mention of corruption (and no, of course that’s not to say corruption doesn’t exist in Nigeria — that’s a whole other blog post), just self-interested, rational agents preferring and reaching an outcome that’s actually also technically Win-Win at the individual level while minimising effort on both sides.

I tried to buy the full study but it turns out I may not have up to $36 in the bank. Not to worry, Origgi blogs about Kakonomics here, in an article she calls ‘Kakonomics, Or The Strange Preference for Low-Quality Outcomes’. Her examples from Italy would be far from out of place in Nigeria.

She explains ‘Kakonomic worlds’ like this:

Standard game-theoretical approaches posit that, whatever people are trading (ideas, services, or goods), each one wants to receive High-quality work from others. Let’s stylize the situation so that goods can be exchanged only at two quality-levels: High and Low.

Kakonomics describes cases where people not only have standard preferences to receive a High-quality good and deliver a Low-quality one (the standard sucker’s payoff) but they actually prefer to deliver a Low-quality good and receive a Low-quality one, that is, they connive on a Low-Low exchange.

Basically, standard game theory is premised on one key assumption: that each party in a trade wants to receive a High quality good/service. When both sides don’t have the same/perfect information, moral hazard creeps in and you are more likely to end up with a sub-optimal outcome, whereby one party gets ‘cheated’ (Win-Lose). If the parties can/would collaborate, both could be better off. Economics assumes all this happens in a competitive environment.

In a Kakonomy, that starting premise is basically wrong. Each of us actually wants, and expects, the Lower quality outcome. Where we collaborate is to pretend to the outside world.

How does that work?

In a Kakonomic exchange the buyer doesn’t mind or care for getting less bang for his buck, for he intends to pay the seller in a less than complete way in some form or another, and the seller will not complain at this because he knows he is somehow selling just poof and not bang.

Fascinating.

It looks like three things are crucial to identifying a kakonomy:

1. You and I trust each other to underperform.

Kakonomic worlds are worlds in which people not only live with each other’s laxness, but expect it: I trust you not to keep your promises in full because I want to be free not to keep mine and not to feel bad about it.

2. We are experts at paying lip service or playing to the gallery, but we both know what’s up.

What makes it an interesting and weird case is that, in all kakonomic exchanges, the two parties seem to have a double deal: an official pact in which both declare their intention to exchange at a High-quality level, and a tacit accord whereby discounts are not only allowed but expected. It becomes a form of tacit mutual connivance.

3. We’re both happy with the result.

Thus, nobody is free-riding: Kakonomics is regulated by a tacit social norm of discount on quality, a mutual acceptance for a mediocre outcome that satisfies both parties, as long as they go on saying publicly that the exchange is in fact at a High-quality level.

Basically there’s little incentive to actually compete, but we pretend to.

If Nigerians are mad, we are not the only ones.

It’s easy to pick on Italians and Nigerians. But Ugandans seem to be in on this Kakonomics thing too.

Two examples from Nigeria, sorry, I mean Uganda:

1. Ugandan time:

If I were to give a simple example familiar to us in Uganda: you are invited to a meeting where you are told that the meeting will start at ‘exactly’ eleven a.m. yet everyone knows that the meeting will actually start much later; thus everyone connives to arrive later because they accept tardiness as the norm. Although the right words are used, a different lower standard is applied.

2. Exam standards and university degrees:

Cheating is widespread in Ugandan Universities, both in examinations and in the preparation of dissertations. However, there is tacit connivance with the teachers, who set revision questions which will come up in exams, and do not use the recognized plagiarism software ‘Turn it in’ to check for plagiarism (with the exception of International Health Science University, Victoria University, UCU and Uganda Martyrs). This is a low low outcome — the students get certificates and degrees, which are not up to international standards, but the lecturers don’t have to put in much effort.

Eerily familiar, no?

A couple of examples from our brothers and sisters in Italy:

1. University lecturers (again…)

Gambetta and Origgi observed the LL game being played at an advanced level in Italian universities. Not only would both parties to an agreement deliver low-quality, but they would insist to each other that they were doing an excellent job, and pronounce themselves delighted with what they had received in return.

For example, a visiting lecturer might agree to deliver a series of eight original seminars and be paid an honorarium of €1,200 in advance. In fact, the payment is six months late and it’s only €750 (some excuse about taxes); meanwhile, the lecturer is mostly on holiday with his family and only gives five lectures, all of which are old hat. Both sides expected as much yet both sides loudly announce they’re delighted with the superb professionalism on show. Meanwhile, they are indeed pleased enough: the faculty has not been embarrassed by some visiting star and retains a larger entertainment budget; the lecturer enjoyed a free holiday without having to do any serious work.

2. Contractors (You and I like to call them ‘artisans’…)

So, for instance, in Italy if you hire a contractor to do some renovation work for you, you can rest assured that either the quality of the work promised or the agreed upon time frame for completion will be broken, sometimes both.

Yet you have no need to worry, because the contractor is not counting on you paying him when you promised you would anyways, take it easy. In the end both parties will be equally happy whatever the outcome and take it all in stride, they have both played the “LL game” and Kakonomics has won the day.

But if everyone’s happy, where’s the harm?

The outcome is Win-Win, and we’ve both gotten what we expected from the trade (even if we pretended to the outside world we had different expectations), so there’s been no cheating or corruption in the strict sense.

But the problem is while you and I have both behaved quite rationally at an individual level, there’s a cost at the societal level (economists call these ‘externalities’), which could be direct, where contracting parties are not necessarily end-users (e.g. in the Italian lecturer example, what about the students?), or indirect in that it pollutes the entire system by ingraining a mindset/culture of mediocrity across business, education, politics, media and creativity over time. It creates an anti-competitive spiral that’s difficult for a society to get out of.

I’m going to completely lift Tim Harford’s words here:

There is something rather charming about a kakonomy at first glance. It can be quite pleasant to relax and be a little bit crappy for a while, and we all know that there is nothing quite so exhausting as a colleague — or, worse, a spouse — who is relentlessly perfect.

But a true kakonomy is collusive, a tacit agreement to be mediocre at someone else’s expense. In the case of many Italian universities, it appears that collusive mediocrity costs Italian students and the Italian taxpayer.

Once a kakocracy has been established, it is likely to endure: recruiters will be careful not to hire anyone who might not only rock the boat but also repair the leaks and fix the outboard motor.

The spectre of kakonomics is a reminder of the importance of things that cannot be measured: the culture of an investment bank, or a university, may matter just as much as the explicit rules.

The Secret Sauce

So if you want to foster a kakonomy, how do you do it?

Tim is silent on that one, but here’s my hypothesis:

Try as much as possible to remove competitive elements from your economy and society. Distort capitalist ideals, embracing socialist politics, collectivist ideologies or rentier capitalism and/or allowing state-led corruption to fester, so that the link between hard work and reward at the individual level is distorted. When the resulting anti-competitive norms, customs, values and ideologies have been disseminated over generations and are deeply-ingrained, and you find yourself left with an economically failing society, step back, admire your good work, then tell the people that they are, in fact, mad for responding to system-wide problems and the very incentives before them.

Selah.

Harsh?

Maybe.

True?

I think there’s probably something to it.

There isn’t much widely available online about the features of (or list of) countries that are generally kakonomies (and no doubt at the market level you could probably find examples in every country), but, after a long-winded anti-socialist, pro-capitalist rant (which, if a little emotional and condescending, for the most part I agree with) one economics blog summarises the problem like this:

When economic incentives and differences are removed from the table, people in general revert to not wanting to do more work than they need to, and especially not more than the other guy next door for exactly the same amount of rewards he’s getting.

The other “motivators” that socialists want to ram down your throat (revolution, downward equality, fatherland, state, or even a welfare state), in the end just don’t cut it in pushing the general populace towards greater excellence. Precisely because they are only collectivist ideals, they say and mean precious little to individuals except maybe for the limited time that propaganda is still producing some effect on them not neutralized by harsh reality. As time goes by and the Utopia fails to materialize (as it always must and will), the individuals lose faith and trust in those synthetic collective “motivators.”

In the end everyone will just accept lower quality exchanges for lower quality goods or services, and they will even start to expect and demand from everyone else exactly the same.

So does #ChangeReallyBeginWithMe?

In a way, yes.

Because there is no system without the actions of individual agents.

But also, no. Not in any meaningful or sustainable way.

Because we have seen for as long as human beings have been alive that we struggle with actualising notions of the collective good, especially where there is no clear individual benefit.

Rather than trying to fight human nature and the result of decades-long socialisation, I think a better strategy might entail respect for the individual, and acknowledgement that this ‘change’ is a task that involves all of us, combined with tangible changes and reforms to system-wide elements, such as the government itself and key institutions, such as NASS, the judiciary and the police force.

Change Begins With Me propaganda isn’t necessarily wrong (as long as things don’t turn sinister and we don’t end up in a police state), it’s just not likely to produce anything lasting or tangible from you or me. So it’s probably just not a great use of money right now.

Long term, a fundamental re-orientation in our national psyche will, in my view, require an overhaul of the tone and culture of our politics and economics (for example putting aside puritanical, centrist ideologies and embracing the importance of merit and a respect for markets).

Nobody said nation-building would be easy.

But I digress.

In summary, there’s a word for ‘Nigerians are mad’, it’s called kakonomics.

E.

P.S. I found the following example timely and funny, in light of the #ChangeBeginsWithMe Obama plagiarism debacle. You know you’re in a kakonomy when someone tries to remind everyone that corruption is in fact stealing and every inane reason in the book is given from all quarters for why they should keep quiet.

Listen here. I’m on from around the 11th minute.

E.

Much ado about these numbers. I was supposed to be on a call about them with the guys at TechCabal earlier, but fate and Etisalat conspired to shame me. Disappointing, because I was looking forward to it.

I should preface the rest of this article by saying Konga is a company that’s quite close to my heart. I think the founder/former CEO, Sim, is a great guy that has shown excellent vision, courage and leadership with the three companies he’s started in Nigeria and I truly believe his primary motivation is a desire to see Nigerians live a fundamentally better quality of life. What he’s trying to do with Konga is by no means easy nor will success be clear cut, but it’s pretty commendable.

Here goes.

So, first off, what did the report actually say? Two things:

1. Konga has 184K active customers (people who have purchased on the platform in the last 6 months); and
2. Kinnevik thinks its 34% stake in Konga is worth SEK 101m ($12m at current rates), which implies the entire company is worth $35m.

First reaction: those numbers look quite ‘small’ (although, to be fair, the active customer number has been published for the last 3 or 4 quarters, so shame on us all for not paying close enough attention).

A useful valuation benchmark for ecommerce companies is 1–2x GMV. There are issues of net vs. gross GMV, gross profit vs. revenues, and the question of what exactly Konga’s revenue model looks like, but at a high level, I’d guesstimate Konga’s GMV is roughly $35m (let’s call it N10bn).

If you hunted around on Kinnevik’s website, here’s what else you might have found:

1. Konga’s active user numbers are declining quarter on quarter. 184K is 10% less than the number was at March 2016, which was 2% less than the one at year end. Active users grew at a pretty decent 17% between September and December 2015, but it’s tough to estimate how much of that could be down to ‘Yakata’ promotional activity.
2. To date, Kinnevik has invested a total of SEK 209m ($25m) in the business. That means they are carrying the Konga investment on their books at an unrealised loss (0.5x money). A year ago, they valued the company at $140m (2x money), up from $52m about a year before (when cumulative capital from both investors was $38.5m), implying an unrealised return of 1.4x for the investors after just one year.
3. Kinnevik has changed its valuation basis in its last report. Instead of last transaction value, they now use their estimate of ‘fair value’, based on market multiples. I don’t see the change as particularly noteworthy. The last transaction is almost two years old, valuations have come off a fair bit across the industry (tech bubble this, tech bubble that) and the macro environment in Nigeria is fundamentally different. Frankly, that’s what market multiples are for — to estimate an asset value. What I find more interesting is the fact that Kinnevik has a similar sticking point with Rocket Internet, which uses Kinnevik’s previous approach to Konga for its own reporting. Kinnevik has traditionally taken a more conservative approach, saying this was based on market multiples.
4. Konga hasn’t raised money for almost two years. In the tech/ecommerce world, that’s a long time for a company that’s got a high cash burn (inherent in the business model) and is growing. Its last round ($40–60m according to Crunchbase) was in October 2014. We know that Naspers led the round, and it doesn’t look like Kinnevik participated too significantly — it was diluted from 41% to 34% at some point in early 2015, according to Kinnevik’s reports. I don’t think the timing of the adjustment means there has been a secret round somewhere, I suspect it‘s just about the time taken to technically close the round.
5. Between launch in 2012 and the end of 2014, Crunchbase estimates that Konga has raised a total of $79m; they believe the right number for the Series C raise in October 2014 was $40m. Looking at Kinnevik’s reports, I size the round at closer to $50m, so let’s say they’ve raised $89m since launch.

And Jumia?

Jumia reported 1.3 million active customers as at March 2016. They are in several more countries than Konga, but Nigeria is the largest, followed by Egypt then Kenya (by GMV). It’s reasonable to use GMV as a proxy for customers, and I’d hazard a guess that those 3 countries are 60–70% of Jumia’s business. Again, complete guess, but I put Nigeria at 30–40%, so let’s say 400–500K active customers.

Jumia’s active customer number grew by about 100K between December last year and March this year. Over the same period, Konga’s fell by 13%. That growth could have come from outside Nigeria, but given that it happened on a base of 1.2m, if Nigeria is 30–40% of the business, you’d need a fair amount of growth from other countries to make up for a decline in Nigeria. My guess is a lot of that growth came from Nigeria. At the minimum, Nigeria is probably flat.

Transaction volumes grew 8% in Q1 2016 compared to Q1 2015, GMV fell 8% but gross margins are improving. They also talk about an ‘acceleration of the shift to the marketplace model.’ All here.

I think what looks like Konga’s relative underperformance is explained by three things: (1) some disruption to the business with the transition to a new CEO, Sola Adekoya. This is not unusual and perhaps to be expected somewhat, given the ‘ambassadorial’ profile Sim had in the market; (2) The fact that they haven’t raised capital in a little while, putting pressure on marketing/customer acquisiton and other spending (they’re letting people go); and (3) macro headwinds which continue to hurt local consumer confidence and the broader Nigeria equity story. Konga is a single country play (vs. a Jumia, for instance) and Nigeria is a tough place to raise capital for at the moment.

Here are the real issues.

(1) Market size, (2) business model, (3) competition. These are the big, fundamental, strategic questions. The operational (what to do to stem the losses, or how to grow the customer base, for example) are less important, to my mind.

Market size. Yes, long-term, indicators support an expectation of more and more online purchases. And, yes, ‘Amazon didn’t get there overnight’, but does the Nigerian market really have the capacity to support both Konga and Jumia at scale?

Business model. Neither company is running a sustainable business model yet, neither is profitable and I’d wager neither is cashflow positive. Both are in the middle of a pivot to marketplace four years after they started, and in both cases, the pivots have been ongoing for two years. Jumia recently consolidated all AIG’s businesses under a single brand. That tells me the cost of marketing several distinct brands in each market was starting to look scary.

Doing eCommerce Amazon-style is a low-margin, high-volume game. The problem with that is you have to outcompete the other guy, and to do that, you need to outspend him. Your customers aren’t loyal. Your inventory is full of commodities (like books or mobile phones) and you can therefore only compete on price and/or service quality. To do that, you need to invest in promotions/marketing, your technology/back end and fulfillment/last mile. None of that comes cheap, and discounting is a race to the bottom, so you’re also polluting the market/teaching the customer to behave in a certain way in a bid to ‘win’.

Many of those phones you see on Jumia are being sold at little or no gross margin (yes, sometimes at a negative GM). That’s great news for the customer but a nightmare for an investor. When Konga announced its last raise, the press said some of the proceeds would be used to build out its logistics (to be clear, this meant buying fleets of vans and scooters). The company was quoted as saying DHL and the like couldn’t keep up with how quickly it was growing. That logistics burden is huge in a market like Nigeria (probably a lot heavier, relatively speaking, than any ‘dumb’ infrastructure burden that even Amazon faced).

Competition. Jumia’s parent is well funded, has a number of powerful, well-capitalised strategic partners, and desperate to make a success of it. Nigeria is Jumia’s single most important market. Rocket Internet’s stock price is trading at less than half its valuation at IPO. The company is facing heavy criticism from investors and the success of its equity story will lie in its ability to find sustainable models in emerging markets, and what’s clear so far is that’s easier to do in some parts of the world than others. It needs Africa, and consequently, Nigeria, to work.

But Amazon took 20 years to get ‘there’.

Yes it did, and it spent a heck of a lot of money along the way pursuing a ‘winner-takes-all’ strategy in one of the most sophisticated markets in the world from a customer perspective, so arguably comparably easier markets than somewhere like Nigeria. It was almost 20 years before Amazon delivered one dollar of profit from ecommerce, despite operating for the most part in countries where people are rich (and probably a lot less price-sensitive than Nigerians), educated, connected to the internet and generally open to new experiences. Countries with credit card/digital payments cultures and decent distribution infrastructure.

Amazon has now taken that global brand, massive balance sheet and all the expertise gained from making mistakes and spending hard, to India, where Flipkart is desperately trying to defend its ‘first mover advantage’. Flipkart has raised $3.2 billion in 12 rounds over the last six years and is still at risk of losing the market to a new entrant with deeper pockets. I don’t know how much capital Rocket has put behind Jumia in Nigeria, but Konga’s $89m pales in comparison to Flipkart’s invested capital, even when you scale the capital requirement down for relative sizes of the opportunities in India and Nigeria.

It’s easy to insist that “it’s too early to judge”, that the trajectory for Konga or Jumia in Nigeria should be similar to Amazon’s, until you remember that in the two years between 1995 (when Amazon started) and 1997 (when it IPOed), 34 million people in the US came online, joining 24 million that were already connected. The average American grew her income by almost 10% over the same period. By the end of its first two years, Amazon had 1.6 million customers. The US had a population of about 260 million at the time.

The thesis that goes “because going to informal markets is so inconvenient, millions of Nigerians will shop online” has had four years to prove itself. In two years, Amazon grew its active customer base from zero to 1.6m in a country of 260 million. In four years, Konga and Jumia have (by my estimate) 500–600K active customers in a country of 180 million, many of which are probably not unique (so let’s say there are no more than 500K people in Nigeria that are currently actively shopping on Konga or Jumia). Flipkart has 20 million monthly active users 9 years in, with “no breakeven in sight”. The cost of changing behaviours is high, never mind the cost of building out infrastructure. The unit economics of some of these businesses in Nigeria are probably really ugly.

Jumia’s new Nigeria CEO recently said she thinks it will take another three to five years to reach profitability. That would be quicker than Amazon, but perhaps.

But even if that proves to be true, the fundamental question remains, does the Nigerian market have capacity for two profitable companies in this space?

E.