At business school and then in the real world, at Diamond Bank, I learned that you follow your customers. Banks open locations based on business; where their target customers are. In previous times, we followed the [physical] trade routes of our customers. Whilst some banks opened locations in capitals of big cities; for us, we just followed where their trade was.
Providing infrastructure to support their own infrastructure made good business sense. Number of customers, at scale, was the key metric in terms of success. Then, if you had dominated the market, indeed maybe even saturated the market, you would then look to other markets to target and expand into.
Today, that market is harder to dominate in a physical sense; as a bank, your products need to be accessible in a completely different sphere — online; on the cloud.That’s where your customers are, that’s where you need to be. Furtherstill, it’s not simply a case of scaling physically across a country and at various business hubs/locations, the current trend and area of focus seems to be very much focussed on scaling across the continent.
Banking, and its success, is underpinned by appetite for risk and returns. As is Venture Capital. The reason for scaling across the continent, and one as large and populous as Africa, is a mix of scale and risk mitigation. VCs currently pouring millions into banking platforms powered by tech are looking to mitigate their concentration. However, what I’ve noticed is a trend whereby because these companies aren’t going narrow and deep into their country markets before scaling, they’re not conquering their home markets — where they theoretically should have a deep understanding of cultural nuances, languages, local business etiquettes. This, before they’ve recorded any real foothold [let alone being anywhere near market dominance] in their home country, they’re already chasing supposed opportunities in new markets.
With this cross-continent strategy so early on, we do not dimension the risk of moving across African countries with different languages, regulations and business cultures at all. If you have a lack of expertise in your own market, are you really going to be able to dominate a new market? How will you conquer this new market? What skills, networks, deep understanding will you have on day one? On day 100?
Today, a key factor and advantage in any business today is local knowledge. Anyone can provide services in any market; the competitive advantage for businesses is local knowledge. Customising your products, services, solutions is very, very, very key. If you haven’t done that, you’re unlikely to dominate the market — let alone any other markets. One company that springs to mind when it comes to dominating and saturating a market before expanding, is MTN. They’ve consistently shown that they can genuinely be dominant in an African territory, and at the point where they realise they cannot grow that market much more before stagnating, they launch into a new market; but not before they have market dominance; they don’t do half hearted expansions or leave money on the table before they venture across borders.
Bringing in the VC models — on the surface it looks like start-ups and investors have aligned goals and visions. However deep down, they do not. A VC is always looking at returns. But when you want to establish a different market, it takes time, which is all about building relationships, bonds, networks. And Africa, in particular, takes time. We like to take time to get to know each other. You have to cut through the cultures, languages, the regulatory hurdles and more — you have to build a new professional tribe from scratch. But VCs come in and more often than not they want to bring in the management team — many of whom have no experience of the local markets, yet they still feel empowered enough to change all the processes and without any sensitivity to the markets they’re operating in.
So we need to be strong in our local funding markets, so that we don’t have VCs 7,000km away defining corporate governance structures or expansion strategies, in which they have absolutely no means of being able to realistically execute. I’m not saying that VC is bad, by any stretch of the imagination. But those beyond the continent borders don’t have the on-the-ground context or real-life data points to make the right decisions. They care about their returns; most of which have a seven year shelf-life. Local VCs understand our markets and therefore can modify their expectations beyond the template that YC or Stanford sets out for the grads being churned out and deployed to “power and save Africa”. Patient capital; where money needs to be targeted; investing in home countries before costly [and often not even necessary] pan-African expansions, because they still subscribe to the growth-at-all-costs mantra.
We’re going to have all these amazing companies, generating revenues from Africans, employing hundreds of thousands of Africans, having a big input on African economies. But they’ll be owned by foreign organisations because the local market didn’t participate in the investment or scaling of them. The Nigerian Start-up Act is looking to make the situation better. There are also lots of Nigerians with dollar positions who can invest in Nigerian companies. It’s time that local capital takes the dominant position in the African markets, scales the companies in a way that makes sense to our African ways.