Why and how to start a for-profit company serving emerging marketspost by Ben_Kuhn · 2019-11-06T01:00:08.621Z · EA · GW · 15 comments
This is a link post for https://www.benkuhn.net/emco
Wave (1) is a for-profit, venture backed startup building cheap, instant money transfer to and within Africa. Since launching in 2015, we’ve become by far the biggest remitter to Kenya and Ghana, saving our users and recipients over $100 million so far. Our biggest source of expected future impact is building mobile money systems within Africa, which will have an orders-of-magnitude bigger impact if it succeeds.
Wave’s mission is to improve the world, not to make money. Despite that, we operate more like a tech company than a social enterprise. Our investors are venture capitalists trying to make a high return, and they hold us to the same standards of growth rate and unit economics as any developed-world startup. This might seem like a downside (surely it would be easier to directly optimize for impact rather than have pressure from investors to make money?), but for us it’s actually increased our impact in two ways. First, the pressure to grow quickly forces us to make our product better and scale faster, so we help more people by a larger amount. Second, since we’ve done really well by for-profit investors’ standards, we can raise much more money than a nonprofit or social enterprise.
In my opinion, Wave’s path—importing the US startup playbook to developing countries—was predictably high-expected-impact ex ante. First, starting a company generally has high expected impact: the social benefit of innovation is usually a large multiple of the private return. Serving an emerging market adds another multiplier, because the problems you could work on are much worse. (Providing someone $5 of value means a lot more when $5 is their day’s wages!) Finally, there’s more low-hanging fruit for companies to work on in developing countries, because the supply of skilled entrepreneurs is smaller.
On the margin, then, more altruists with experience working in the developed world should try this approach. I feel safe saying this because very few people (altruistic or not) currently seem to.
This is surprising, since lots of developing countries now have the infrastructure to support tech companies. In big cities like Dakar, Nairobi, Addis or Lagos, there’s mostly-reliable electricity, decent internet, high smartphone penetration, driveable roads and so on. But there aren’t many great startups taking advantage of them. (According to our investors who pay the most attention to Africa, Wave is by far the most promising.)
Why isn’t the space more crowded? I’d guess it’s because creating a great product requires two things: being maniacally perfectionist, and deeply understanding your users. To be maniacally perfectionist, you need to be immersed in a culture with really high product standards (for instance, Silicon Valley). To understand your users in Africa, you need to live in Africa. The intersection of these two groups is practically no one, because most people who could live in Silicon Valley would much rather not move to, say, a former tank base in the middle of the desert (where many of my coworkers lived for years).
One way to think of Wave is as an importer of high standards. For instance, in most mobile money systems in Africa, if you try to make a large withdrawal, your local agent may not have enough cash—it could take them hours or days to come up with the money. At Wave, we realized this made users sad, so we started predicting how much cash our agents would need and working with them to make sure they never ran out. This was a lot of extra work and risk for us, but led to massive adoption from traders—with funds available instantly from Wave, they could often turn over inventory literally twice as fast. Every way in which Wave beats other mobile money systems has followed a similar playbook: notice a problem, then try really hard to solve it instead of saying “eh, whatever.”
The “local context plus high standards” theory suggests a simple (though not easy!) strategy to build a high-quality business that helps the global poor:
- Move to a developing country to understand your future users.
- Learn the startup playbook (for instance, by doing Y Combinator).
- Start a business whose users are in the place you live.
The remainder of this post fleshes out this strategy. I’ll restrict my discussion of location mostly to sub-Saharan Africa, since that’s the region I’m most familiar with, but I’d guess it would work in other developing countries too.
The first important decision in this strategy is where to move to. Here, I’d (roughly) rank the most important criteria as:
- Minimal language barrier so that you can understand your users and coworkers
- Good enough infrastructure to support a tech startup
- Somewhere you like living, to minimize your risk of burnout
- Strong enough institutions that your expropriation/corruption risks are low
- A large addressable market
For an English speaker, the top few places would probably be Lagos, Accra, Nairobi, Kampala or Dar es Salaam (though I’m not too confident in this because I’ve never lived in any of these). If you’re considering this strategy, I’d recommend researching them all, visiting multiple and choosing the one you’re most excited about.
You should probably spend some time just learning before trying to start a business. While you’re doing that, it will help to work somewhere else—ideally somewhere that will expose you, not insulate you, from what daily life is like for most people. For this, NGO or “voluntourism” type work might actually be useful. For instance, Drew, Wave’s CEO, started thinking about money transfer after running a nonprofit selling hand-carts in Tanzania for a few years, and experiencing the pain of trying to send money to his own business.
The second important decision is what to work on. If you talk to a lot of people about their problems for a few months, you’ll be more of an expert than me on this—I’ve lived in Africa for a couple years, but I was already working for Wave at the time so didn’t look too hard for other ideas. That said, I’ll give some of my priors.
The biggest business gaps in the developing world are the ones where products built in the developed world don’t generalize well to new contexts. For instance, credit/debit cards barely exist in developing countries, because most customers don’t have bank accounts and most merchants can’t afford a card terminal. You’ll find many other instances of that kind of gap.
Here are a few I’ve noticed. They’re skewed towards financial services, but should give you a general idea of the types of problems.(2)
- Most people don’t have computers, so lots of computer-based business software in the developed world should be rebuilt to work well on smartphones. In Wave’s experience, for instance, most small businesses don’t keep any sort of financial records. An easy-to-use mobile cash register or bookkeeping system could help small businesses run much more effectively.
- There seem to be way fewer chain stores in Africa, and especially few that also operate in the developed world. I’m not sure why this is, but I’d guess that the playbook for operating successfully in Africa is very different and doesn’t transfer well. But chain stores still should have advantages in economies of scale and branding.
- Many more people in developing countries are informally employed or self-employed. That means they have a lot of problems that developed-world tech companies have yet to solve, like income that’s very different from month to month, or needing to coordinate with other informal entrepreneurs in the same line of business. Products to help with these challenges would help a huge number of people.
- Things that rely on custom hardware in the US could be rebuilt to use cheaper/no hardware plus a smartphone—for instance, an ATM or cash register could talk to a phone over Bluetooth instead of using its own screen.
- Lots of systems in the developed world (shipping, for instance) rely on well-known street names and addresses, which don’t exist in many African cities. But they were also built before GPS was ubiquitous. “Logistics, but with GPS” is probably several different company ideas.
- Today’s e-commerce is built on a lot of assumptions that are false in Africa, like street names mentioned above but also easy electronic payments, a functional postal system, relatively easy credit, well-known large-scale brands, etc. One African e-commerce company, Jumia, recently went public, but they don’t seem to be executing particularly well on product. I think it should be possible to do better.
- It’s extremely hard to find good skilled tradespeople (plumbers, electricians, etc.) in many cities I’ve lived in. My guess is that the US solves this with some combination of high-quality vocational school and occupational licensing, neither of which exists (or is enforced) in many developing countries.
- Most “API for X” companies don’t serve developing countries, or treat them as an afterthought. For instance, Africa’s Talking is “Twilio, but for Africa,” and at Wave we’ve built our own micro-Twilio in a few different countries where Africa’s Talking doesn’t operate yet. These businesses depend on a strong tech ecosystem, so I’m not sure how viable they are yet, but they also enable that type of ecosystem, so are especially beneficial if they do work!
Last, a few thoughts on how the “Silicon Valley startup playbook” needs to change in a developing-country context.
If you’re not local, you will make a lot more mistakes because you don’t understand your users or your context. It’s way harder to build a good product when your users can’t read, or when you have to spend two weeks chasing a telecom to get permission to send text messages. That means it’s even more important to learn quickly from your mistakes, and you should expect to iterate for a long time before finding product/market fit.
Even if you’re in an Anglophone country, you’ll need to be “bilingual” between local and tech-startup norms. At Wave, our internal culture emphasizes honesty, transparency and autonomy, which is very different from a typical, say, Senegalese work environment. Some of our most important hires were people who were exceptional at “code-switching” between the two—they helped us work much more smoothly with local partners, and made a huge difference to our product and strategy.
If you’re in a country with weaker institutions, the risk of corruption or expropriation hurting your business is much higher. Compared to the developed world, it’s much harder to “fly under the radar” of either the government or your competitors, and they will also probably be less scrupulous. Start working on mitigating this risk (by having powerful, well-connected investors or business partners) earlier than you think you need to.
If you’ve read this far and are interested in starting (or working for) a business that helps people in emerging markets, I’m happy to talk more! Just get in touch.
Thanks to Eve Bigaj, Drew Durbin, and Lincoln Quirk for reading a draft of this post.
- The website only mentions international money transfer, because mobile money users don’t really browse the web. You can find the mobile money team’s minimum viable recruiting website here. ↩
- These are weakly held examples—you should validate them for yourself, thoroughly, if you’re interested in one. ↩
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