So, last week I started a “thread” to figure out the evolution of Nigeria’s transportation technology ecosystem. I touched on the ride hailing business, how and why some of them failed, some barely surviving, with others being somewhat successful. I also looked at new entrants into the space.

This week, we’ll take it a step further, starting with bikes and how they are returning to Lagos roads.

I remember a few years ago, it appeared that entrepreneurs in Nigeria were only thinking about e-commerce (just like lending apps are in vogue today, e-commerce was the beautiful bride then… I will write about this sometime later). Entrepreneurs were quick (maybe not so quick) to find out that it was not all rosy. It was not all about building a website. It was not all about writing lines of code, nor all about UI/UX. Building an e-commerce business involved (still involves) lots more.

Entrepreneurs had to solve infrastructure related problems including payment, warehousing, merchant management, customer service and of course reliable logistics. That is where I believe bikes began to return to our roads.

Tunde Kehinde and Ercin Eksin, both former Co-CEOs of Jumia Nigeria, faced this logistics problem first-hand while running Jumia. I am sure they learnt that their business then (Jumia) would not survive without an effective logistics platform. I believe they saw the problem and the opportunity, hence they left Jumia to co-found Africa Courier Express (ACE).

If the CEOs of Jumia could have left to start another business to support Jumia and other e-commerce businesses, it could be because they think that the logistics opportunity is larger than the e-commerce opportunity. Irrespective of what their thinking was, the most important thing is that they found that the opportunity was worth pursuing.

ACE had a value proposition to e-commerce businesses – to handle all their customers’ orders so that the founders of these platforms could focus on the core of their business – selling. For ACE to achieve this, it would require bikes to run these errands for the e-commerce platforms. I remember thinking about this problem then, and how the value flow within the industry would shape up. For ACE, it won’t have to bother too much about revenue collection, since the e-commerce platform guarantees that. However, the e-commerce platform would still have to figure out a way to collect her money from her own customers.

Needless to say that there are tens of these logistics play right now. In addition, the founders of ACE have moved on (again) from that business to co-found another – Lidya (a platform for small & medium business lending in emerging markets).

For a business like ACE, few things to track will be the efficiency of their delivery infrastructure. They have to invest in route optimization and manage downtime. They also have to grow their merchant pipeline. This is true for most B2B businesses. You can’t afford to have dependency risk. If one business contributes 50% of your total revenue, then you can as well be the subsidiary of that business. So your job as the founder will be to widen that partner pool in case you lose one of them.

If I were a founder of a business like ACE, I would run the customer experience bit of the business myself. Guys think about it, another business entrusts its own customers to me! That is a huge responsibility! I can’t afford to mess that up. As far as it depends on me, the customers will have a solid experience with our own dispatch riders and delivery agents. I might not be able to guarantee the quality of products being shipped, but the customer would love our own service.

Another company fueling the return of bikes is MaxGo. MaxGo started as a similar platform just like ACE, with a different twist. Max focused on individuals or businesses sending letters, documents or other packages from one location to another. Businesses typically send packages through their own in-house dispatch riders or drivers. Some also had partnerships with legacy courier companies to pick up letters at a certain time daily or weekly. Max created an on-demand platform where businesses could just order a dispatch rider from their app. I believe the market taught them something different, now they are focused on moving people around using these bikes.

The need is clear. Back in the days, before the ban on okadas, I could board a bike from my house at Ojodu Berger (then) to Victoria Island via Third Mainland Bridge without incident. Even if there was an accident, I would board again the following day. That was the best way we knew to beat Lagos traffic. Through its app, customers can request a bike ride to any location within the city.

Max had not settled in before competition hit. Gokada emerged with exactly the same offer – an on demand bike hailing app. From global trends, Uber and Taxify might be preparing their own entries into that space, like they are doing in other countries. In fact, Uber and Taxify had launched this bike hailing business in Kenya and Uganda. Nigeria will not be too far away. Go Jek (the Indonesian bike power) might also be looking at Nigeria as well.

This bike business is about to evolve into a street fight. We’ll wait and see.

Like we saw with ride hailing, distribution and pricing are major ingredients for success in this space. By distribution, I mean the ratio of bikes to customers. If I had to wait 30 minutes for the driver to get to me, then there is no point. To solve this distribution problem requires HEAVY capital investment to buy these bikes. Both Max and Gokada will have to figure out the best way to acquire their bikes.

Then they will need to track the payback and profitability on each bike. Imagine I bought a bike for 100k, payback period checks how long the 100k investment is returned by the bike itself. Profitability then checks how much each bike is able to make after deducting the cost of operating the bike. These are metrics that need to be tracked as they both scale.

They need to know how much each bike will need to make daily and the cost of operating the bike for that day. If that is not profitable, then they might need to check their pricing strategy.

Regarding pricing, Uber and Taxify are bad examples. Taxify entered into the market by undercutting Uber on price. Reducing the per kilometer cost of a trip for the customers, while increasing the drivers’ share of the revenue. Both companies are still loss making.

So, Max and Gokada will have to be deliberate about their pricing strategy. Pricing strategy is typically informed by the overall business strategy. What is the business trying to achieve at this point? Is it to drive customer usage or improve profitability.

Conclusion

Now I need a Part 3. I still need to talk about the heavy industries and market data gathering (Kobo 360, TruckIt, Trade Depot and Delivery Science). I need to write about Staffbus, GidiTraffic (if it has overstayed its welcome), and Lagos Traffic Radio. I need to discuss the response of the incumbents including NIPOST and the likes of God is Good Motors. I don’t think that the car dealership space has changed too much, except of course the used car market that is being redesigned by Cars45. I am not sure Elizade and Coscharis have gotten the memo yet. This car market will change. This is where Corporate Venture capital comes in. I think companies like Elizade and Coscharis should be investing “small change” into these startups. That “might be” (is) the future. Even the car manufacturers themselves are hedging their bets by investing in Uber, Lyft, Didi, Taxify, etc. Some are investing in electric cars, self-driving cars and technology amongst others. Let me not start another post here.

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