Why We Invested: Boost - Digitizing informal small business across Africa 🌍
Take a closer look into Boost Technology and their work with small retailers
Small businesses fuel African economies.
In Africa, there are over 100 million small businesses that contribute to 70% of the continent’s employment. They are the neighborhood grocer, pharmacist, restaurant, or clothier, all of whom are fixtures in vibrant urban landscapes from Lagos to Cape Town. They are predominantly informal, lying within the so-called ‘missing majority.’ Despite their outsized importance for economic development and job creation, most remain underserved. They are typically unbanked, deal in cash, have little negotiating power when purchasing from wholesalers and miss out on potential sales by paying high travel costs to restock goods weekly.
The MSE sector is growing, too; CGAP estimates a $427 billion unmet credit demand for this segment in sub-Saharan Africa, which will balloon as youth are driven to the informal sector to earn a living.
However, this high degree of informality makes it difficult to sustain and grow a business.
Most of the merchant-supplier payment ecosystem is still cash-based, meaning that shopkeeper sales are rarely tracked electronically, much less reported to financial service providers. As a result, shopkeepers struggle to obtain credit, forcing most to rely on cash from friends and family or internally generated funds that — on their own — are insufficient for expansion and growth. Moreover, this lack of a financial credit score causes informal retailers to only have access to working capital at usurious rates. They also struggle to use digital services to order stock, make or take payments. Without bulk purchasing or access to real-time data for comparing prices, wholesalers often charge them a premium when negotiating for goods at the market. These challenges are particularly acute when considering that access to credit for emerging market MSEs have been shown to increase profits by over 50%.
Essie is one individual who understands these challenges firsthand.
Born and raised in a Cape Town township, she started running a door-to-door food delivery business during the pandemic to boost her income. Initially serving 50 township households with fresh dinners a few times per week, she soon discovered Boost through DuToit Marais, Boost’s South Africa CEO. According to DuToit, Essie’s income has more than doubled in the span of three months since using Boost; whereas she earns R2,500 per month working as a domestic worker twice per week, she now earns R3,500 profit per month as a customer of Boost. Moreover, since switching to Boost’s 14-day credit terms, her business turnover increased by 48% between April and May. “More than anything, I now make lots of money from credit, which is helping my family, also because now I’m studying and can’t work full time. I don’t have to go to town to collect food. I have delivery to my doorstep. Orders are always accurate and on time. Your products are different from the other places we buy from — much better quality!” In South Africa, where MSME’s make up over 90% of formalized businesses and between 50–60% of the country’s total workforce, Essie’s story can repeat itself many times over. This has great potential to empower thousands of women across Africa’s growing urban populace.
But Boost doesn’t want to just stop with Essie: its mission is to help 10 million informal small businesses like hers thrive in the digital economy. This is the purpose behind why Mike, Mary and Will co-founded the company last year. “The inspiration was to bring these informal small businesses into the digital economy to help them grow, create sustainable jobs and earn income,” Mike explained to us.
“I see this as not only a moral imperative as the world becomes more digital, creating risks of leaving the informal sector behind, but also as an enormous opportunity. This is a huge market that is underserved.”
Indeed, banks and B2C fintech companies have largely ignored the small business sector in favor of serving larger enterprises or digitally-savvy consumers. Boost is attempting to solve this gap in the market — and they’ve already made major inroads in doing so.
Since launching, the company has set up a unique franchise model. Its core brand, technology and products are centralized through a venture building platform, which enables local entrepreneurial teams to focus on serving customers and growing sales without the burdens of fundraising. The centralized platform also enables Boost to build technology and operational foundations that can be standardized and shared across multiple markets. This model has worked well thus far, with Boost recruiting exceptional local founders and launching a Pan-African footprint in Ghana, South Africa and Nigeria entirely remotely within nine months. Boost Ghana was also recently accepted into the Catalyst Fund Inclusive Digital Commerce Accelerator, where they received $120,000 in grant funding and bespoke support. The company is now recruiting co-founders and targeting Egypt, Uganda, Senegal and Cote D’Ivoire as its next four markets to enter starting later this year.
Boost may be serving different segments of customers in each market, but its core technology can be scaled across the continent. (In Ghana, Boost serves community grocers in Accra, whereas they work with township fast-food restaurants in South Africa). Boost’s platform allows shopkeepers to purchase goods straight from their phone, and in doing so, aggregates those orders and enables shopkeepers to purchase from suppliers at a discount. The company also offers inventory credit and a suite of other tools to optimize the B2B experience from procurement to delivery for retailers. They help take entrepreneurs on their platform to the next level and have aspirations to become the “Shopify for Informal Businesses.”
At Sherpa Ventures, we’re excited about Boost’s potential to transform the small business sector across Africa. Digitization and access to financial services can unlock new potential for previously underserved customers, and with Boost, shopkeepers will be empowered to scale their business to new heights. Our support of Boost reinforces our belief that digital inclusion can transform the lives of business owners throughout Africa. Not only does Boost’s platform enable merchants like Essie to grow their revenue, build stronger livelihoods and create more jobs, but it also creates a more fair and efficient delivery system, allowing shopkeepers to spend more time selling to customers and less time haggling with suppliers. Considering disruptions caused by the ongoing pandemic, we’re convinced that Boost is building the technology for informal small businesses to not just stay afloat during the crisis, but grow beyond that.