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Age of Start-ups: Familiar path of companies that failed test of time in Nigerian market

There has been significant growth with respect to investment and business development in the country, and this cuts across all areas of the economy

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The Age of the Start-ups: The familiar Path of Companies that have Failed the Test of Time in the Nigerian Market

Africa, specifically Nigeria has become a center of attraction for both investors and new businesses, irrespective of the failures by several Startups in the country

There has been significant growth with respect to investment and business development in the country, and this cuts across all areas of the Nigerian economy; E-commerce, mobile technology, fintech startups among others.

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Despite the many possibilities and potentials in the Nigerian market, not so many new businesses are able to scale through the fundamental stage, and as such are either forced to relocate or perhaps fold up if they don ’t end up been purchased by a third party company.

Some of the companies of the internet era that have failed the test of time in Nigeria at the fundamental stage include a couple of prominent businesses and/or brands who came in with bold statements such as OLX (classified forum), Efritin, Fero, Wiko, Wechat, Tambo Mobile, Easy Taxi, among several others.

While some of these businesses were able to scale through for years before going pear-shaped, others could barely scale through beyond a year. It’s interesting to note that many of these businesses share similar key issues that led to their respective failures, including a lack of proper research before entering the market, spending investor funds and never hitting the profitability mark, misappropriation of resources, lack of employee confidence, etc.

Sadly, a couple of existing Start-ups with seemingly great potential are still towing this familiar path to failure. This article aims to look at some of these businesses, past and existent, and shed light on key issues leading to their eventual failure.

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Efritin

Owned by Swedish company– Saltside Technologies, Efritin officially launched as a classified advertisement website in Nigeria back in August 2015, however, could not scale past the second year of establishment in the country due to many reasons, with mismanagement of funds and high cost of data being the most prominent.

(READ MORE: Twinpine celebrates seven years of data driven mobile advertising

According to the CEO, Nils Hammar, Efritinhad suffered greatly from the lack of excellent internet penetration and adoption. Nils also emphasized on how the high cost of data, as well as the unfavorable economic condition during that time, had impacted negatively on the business.“We have a long list of KPIs to evaluate how things are performing. Compared to other markets, we didn’t see the same progress in Nigeria” Nils told the media.

“I think the data cost in Nigeria is very high. In comparison to other parts of West Africa, Africa and the rest of the world, it is very expensive to use the internet for the vast majority of the people. It is very difficult for e-commerce and classifieds because they are quite late in the evolution of the internet industry,” Nils added.

With no much doubt, Efritin’s exit from the Nigerian market points to the fact that their business strives in Nigeria was a non-profitable one.

While Nils’ reasons for the closure are justifiable, insiders also have it that the main reasons for the company’s inability to survive in Nigeria are major because of funds mismanagement. Recall back to 2016, Efritin former MD, Zakaria Hersi was accused of stealing thousands of dollars, while turning a blind eye to the internal crises that played a major role in their demise, especially as they were not able to raise more funding to scale the business any further.

Another key issue would be the lack of proper market survey, considering that other online classified platforms like OLX were not doing fantastically great as at the time of establishment in Nigeria.

Easy Taxi

Easy Taxi is another business/startup that failed at the point of debut in Nigeria, or better still let me say could not survive the test of time. Following the reception of a seed-funding valued at $10 million, the ride-hailing service which started off in Brazil back in 2011 expanded to Africa among other regions, launching in Nigeria sometime in 2013 and commencing operations in Abuja. 3 years down the line, however, the company hit the halt button and exited Nigeria.

(READ MORE: WHO warns countries against rushing to lift coronavirus restrictions)

Easy Taxi Nigeria is a subsidiary of Africa Internet Group who had the likes of Rocket Internet, MTN, Millicom, among others as Shareholders. It was hard to believe they wouldn’t survive the Nigerian economy for that long given all the major stakes in the business, however, as with most businesses that have failed in the past, Easy Taxi was not immune to the harsh realities of market penetration in a challenging market as Nigeria’s, hence its exit.

As for the reasons for their failure in Nigeria, it is still very unclear as all effort to lay hands on actual information has been to no avail. For the obvious, Easy Taxi had to struggle with proper penetration into the Nigerian market.

OPay

Talking about OPay, the story is a bit different as it is not a case of exiting the country. Instead, the fintech and multi-service company has been struggling with profitability since it arrived in Lagos, Nigeria back in August 2018. Here, there are several key issues that may lead to a bad ending for the Chinese company if care is not properly taken.

One of those many key concerns about OPay’s business in Nigeria is the over-reliance on financing to become profitable. While it is not news that Africa, and Nigeria as a whole, has become a focal point for foreign investors; OPay has keyed itself into the enormous opportunity therein, investing millions of dollars to pivot its multi-service platform which has been more of a liability than an asset. Why? You may like to ask; so far, the company has rather focused on spending, even when it is obvious that a lot of their business module is not sustainable, or perhaps, requires an overhauling in other cases.

(READ MORE: Beware of sites offering free internet plans, NCC warns Nigerians)

As much as funding for a startup is very vital, working with a module that is sustainable or viable is as important. Sometimes, it is not all about spending money; a sustainable strategy sometimes cost less spending. It is even worse when a startup such as OPay fails to gather (despite having reasonable funding) the required expertise and knowledge to run the business, especially in this part of Africa where you have to go the extra mile to achieve significant success.

OPay’s services include ORide, OTrike, OFood, OLoan , and the recently launched OCar among others. Here, it is obvious that a lot of activities are taking place simultaneously, however, how many of them are properly been managed? How many of the business are properly been accounted for by their respective management team?

While you are trying to figure that out, the Chinese company’s inability to turn a profit yet could also be blamed on external stakeholder impact – the Lagos State Government has influenced some policy that may have impacted a vital operation of OPay negatively.

In a recent development, the State government placed a ban on the use of Okada on major roads within the state, and as a result, OPay has had to shut down its bikes operation not only in Lagos State but also in other states where its bike operation is functional, including Kwara State (although the company hasn’t released any official statement to that regards; insiders informed of how a majority of OPay staff was laid off in Ilorin following the okada an in Lagos).

(READ MORE: Naira under pressure as Nigeria records poor export earnings)

The OPay bike-hailing service was meant to be the business module to lay the golden egg, but now what happens? In my opinion, it simply shows the extent to which OPay lacks an understanding of the environment with respect to the engagement of stakeholders and policymakers.

Also, in a recent report by a research website- Hindenberg, Opera was found guilty of several misconducts in its operations across the board. The company was not only linked to what was tagged as ‘exploitative loans’, but also misappropriation in the company’s operational cost, poor management, as well as certain corruption crisis specifically tied to the company’s current  CEO, Yahui Zhou.

According to an insider whose name will be withheld for privacy reasons; she shared an insight on what the internal management looks like, and just like the rumors that have been making rounds on the internet, it wasn’t a fantastic one. According to her, the company has employed a lot of resourceful talents, while offering juicy benefits; however, fast-forward to date, the company has been landing a lot of slash on employees’ benefits including salaries.

Additionally, Opay was recently accused of falsifying numbers, which according to a reliable source, was from fake orders, and was intended to ‘promote’ or possibly increase its app usage. Whether this worked well for them or not, it isn’t the best approach for a startup that ordinarily should be after leaving behind a good first-time impression. What also happens to gain people’s trust? I didn’t mention investors because, to them, it’s all about Return on Investment (ROI).

(READ MORE: External reserves decline by over 8%, despite lower FX demand)

It is also worthy of note; OPay’s latest venture into the mobile business. The Chinese company named its mobile brand- OLLA, and you are most likely not aware of what that means, I guess? This is only possible because the new devices have recorded low sales (near-zero in some cases) in over 80% of the shops they are been sold at the moment. That’s also aside from the fact that the devices are of low quality, forcing a lot of phone dealers to quit doing business with them.

There are more than a dozen, perhaps hundreds of startups who are most likely threading in this similar path. It is only advisable to stick to the most important things in starting a business, and two of them are sticking to a sustainable plan and recruiting efficiency over numbers, (or both simultaneously).

This article is brought to you by Askifa.ng

Askifa.ng is a Technology-focused news website, and its primary aim is to demystify the ideology behind the technology, an alternative to saying simplifying technology. While our primary focus is to dish out tech stories and breaking news; we also have a keen interest in Startups across respective fields, and we won’t hesitate to put up stories about the latest development in the space

 

Nairametrics often allows the usage of its website for businesses wishing to send out important press releases, articles and other communication forms of their products, services, events, employees, and personalities. Some of these articles are paid for.

2 Comments

2 Comments

  1. Olukayode Balogun

    April 6, 2020 at 1:30 am

    Interesting article. Impressive.

  2. Anonymous

    April 8, 2020 at 10:01 am

    Please do an article on Sim Shagaya, all the businesses he starts never seem to last.

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Business News

U.S.A calls for an independent probe of AfDB president, Akinwumi Adesina

There were allegations of a certain number of appointments and departures deemed questionable and several contracts approved under Adesina’s leadership which were in violation of the bank’s statutory and ethical rules.

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AfDB partners DFID to unveil $80m infrastructure financing for Africa, ADB launches $3 billion “Fight COVID-19” Social Bond, US calls for an independent probe of AfDB president, Akinwumi Adesina

This appears not to be the best of times for Akinwumi Adesina, the President of Africa Development Bank (AfDB), who is in the process of canvassing votes for a second term. This is because the United States Government is pushing for more investigation into his activities.

The U.S Treasury Secretary, Steven Mnuchin, has called for an independent probe into allegations by a group of whistleblowers against the AfDB President, thereby rejecting plans by the bank’s board to stop the investigation on the issue.

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According to a monitored report from Bloomberg, a letter which was dated May 22 and addressed to the Chairperson of the AfDB board of directors, Niale Kaba, stated that the US Treasury Department disagreed with the findings by the bank’s ethics committee that cleared Adesina of any wrongdoing.

According to the US treasury secretary, “We have deep reservations about the integrity of the committee’s process. Instead we urge you to initiate an in-depth investigation of the allegations using the services of an independent outside investigator of high professional standing.”

It can be recalled that a group of anonymous staff had accused Adesina of multiple cases of abuse and breaches of the bank’s code of ethics. The allegations include various cases of alleged breaches of the code of conduct, unethical conduct, private gain, an impediment to efficiency, preferential treatment, and involvement in political activity, all affecting confidence in the integrity of the bank.

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(READ MORE:AfDB, Asian Bank, others worsen poor nations’ debt problem – World Bank)

There were allegations of a certain number of appointments and departures deemed questionable and several contracts approved under Adesina’s leadership which were in violation of the bank’s statutory and ethical rules.

Although Adesina insisted on his innocence, having been cleared by the bank’s Ethics Committee of all charges brought against him, the whistleblowers expressed serious doubts about the ability of the African Development Bank to conduct an independent investigation. Therefore, they said they did not have enough confidence in the Ethics committee handling the case dispassionately.

The criticism by the United State Government, who is the biggest non-African shareholder, follows questions about the bank’s internal processes and comments by World Bank President, David Malpass in February that multilateral lenders including the AfDB tend to lend money too quickly, and in the process add to the debt problems in Africa. Adesina had refuted this claim, describing it as not fact based.

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Economy & Politics

BREAKING: Nigeria’s GDP grows by 1.87% in Q1 2020, as non-oil sector weakens

Nigeria’s Gross Domestic Product (GDP) grew by 1.87%(year-on-year) in real terms, representing a drop of 0.23% points compared to Q1 2019 and 0.68% points decline compared to Q4 2019

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Covid-19, Conditional cash transfer: FG gives reason for disengagement of 2 Payment Service Providers, President Buhari asks the Chief Justice to release prisoners due to coronavirus

Nigeria’s Gross Domestic Product (GDP) grew by 1.87%(year-on-year) in real terms. This is according to the first quarter (Q1) GDP report, released by the National Bureau of Statistics (NBS) on Monday.

The performance recorded in Q1 2020 represents a drop of 0.23% points compared to Q1 2019 and 0.68% points decline compared to Q4 2019, reflecting the earliest effects of the disruption, particularly on the non-oil economy. Quarter on quarter, real GDP growth was –14.27% compared to 5.59% recorded in the preceding quarter.

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The oil sector recorded a real growth rate of 5.06% (year-on-year) in Q1 2020 indicating an increase of 6.51% points relative to the rate recorded in the corresponding quarter of 2019.

Details shortly…..

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Coronavirus

New normal for the informal sector

Africa is the world’s last frontier in the fight against extreme poverty where one in three Africans−422 million people−live below the global poverty line.

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Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

The outbreak of the novel Coronavirus disease (COVID-19) in China has extremely changed the world, as it has turned into a major pandemic and affected millions of people around the world regardless of geographical location, age, race, gender, etc.

While this crisis is first and foremost a public health issue, which has claimed the lives of thousands of people worldwide and still counting, the economic fallouts will no doubt be overwhelming and will likely lead to major economic meltdowns; both in the formal and informal sectors.

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According to Brookings Institute, Africa is the world’s last frontier in the fight against extreme poverty where one in three Africans−422 million people−live below the global poverty line. This fact brings to fore, the alarming consequences of COVID-19 in the economic sectors which will increase the income gap backward rather than reduce the number of people living below the global poverty line.

The informal sector arguably constitutes the largest employer of labor in Africa. The International Labour Organisation estimates that more than 66% of total employment in Sub-Saharan African is in the informal sector. With a pervasive informal sector, city governments have been struggling with how best to respond to the COVID-19 pandemic. Furthermore, informal enterprises are typically characterized by low wages and non-exportable goods and services. This sector provides crucial livelihoods to the most vulnerable of the urban poor.

(READ MORE: Recalibrating Job creation within COVID-19 realities )

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The spread of COVID 19 poses a big threat to small scale businesses which serve as a major source of livelihood for many Africans. It is important that, just as Africa is working towards combating the spread of the virus, the government should help to support this vital, yet often excluded segment of the economy.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

The informal sector is very much essential for the welfare of the people living in the local communities and for the expansion of the economy at large. As Africa’s informal sector provides about 80% of employment and contributes over 50% GDP, it is reason enough to save this crucial sector from jeopardy.

Taking Nigeria to be the case study, the wave of the pandemic is showing no sign of reduction unless a permanent solution is found.

However, looking on the bright side, there is a possibility that a vaccine could be found sooner or later to counter this unpleasant enemy. But until then, how will we as a country adjust to the “new normal”, that is life after COVID-19, as the experts who used this terminology explained that life, as it was before, will not come back to normal for some time to come. Let’s take a few instances.

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One major normal, which is of general importance with a massive impact on our livelihood, is the loss of jobs. Yes, our means of making ends meet have been threatened. Many people will be rendered jobless as all economic activities the world over, have slowed down.

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Those who will be hit the hardest are, as already mentioned, small-scale businesses that may find it challenging to adapt to the new normal of doing business via virtual means, etc. The small-scale businesses are also employers of labor, so going down means their employees will suffer the same loss with them. Amongst the unemployed, the hardest hit is the daily wage workers whose livelihoods are based on their daily incomes.

(READ MORE: 7 common money mistakes I made and why you should avoid them)

Therefore, a lot of people will suffer unemployment in this time, and paying bills such as house rent bills, food bills, school bills will become near impossible.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

Another new normal is that, classes and lessons will have to be done online, and this could be the pattern for some time to come. This will pose major challenges for parents who do not have the resources to acquire gadgets or even buy the data required for their wards/children to participate in online classes. This new normal is also applicable to post-secondary students, who have a higher need for gadgets and data to participate in online classes.

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By this time in the old normal, schools would have begun a new term. Being the third term in which promotional exams are done, both parents and pupils will be up and doing to ensure preparations in order to secure promotions. Most especially those preparing to take examinations to secure admission into the universities.

The question posed here is, how can the government help in reducing the burden of both the parents and the students who are on lockdown right now and can’t make ends meet talk less of spending the little resources being managed this period to acquire required gadgets or even data? As we are all aware the data rate in our country is high, unlike in most countries where data is cheap or even free. Can the government help in reducing the data rates in order to reduce the burden on parents and students?

(READ MORE: Rethinking Inclusive Education: COVID-19 realities, post implications on education)

With the wave of the pandemic being on the rise, so many countries have moved away from multilateralism and have retreated into fending for themselves with several measures to protect their own people and economies, regardless of the effects on the rest of the world which has led to certain restrictions.

Post COVID-19 and Africa's informal sector: Africa and Nigeria "The new normal"

This restriction could also be the new normal, as we are left with the questions of what if? What if the COVID 19 pandemic continues in a second wave, with borders still shut, food importation restricted, what if we can no longer travel out for medical attention and must rely on our hospitals here? Talk less of education, what if we can no longer travel out to study abroad and must rely on our educational system here?  We can no longer be dependent on the world for everything.

For a country of over 200 million people, we cannot continue to keep ignoring the dangers that lie ahead if we do not begin to depend largely on what we produce locally, because the security and well-being of our nation is solely based on building a productive and well-diversified economy.

We have no clear vision of what the world will look like after the pandemic is over, therefore as a nation, we need to seize the opportunities of the “new normal” and make the best out of them. As much as all these new developments seem troubling, it is a clear opportunity to work things out for a better future ahead.

We must look inwards as a nation and guarantee food security, high quality and affordable healthcare for all social classes, and pioneering education for our people. We can transform Nigeria into a modern, sophisticated and self-sufficient economy in which we don’t have to be dependent on other countries for everything and can thrive on our own, protecting the poor and vulnerable and being able to compete with other strategic sectors internationally.

(READ MORE: Gold prices surge by 17.4% in 2 months due to global economic crisis)

To achieve this goal, what needs to be done include:

  • Supporting both the smallholder and large-scale agriculture production.
  • Creating a better educational system that will enable creativity and reasoning in order to prepare our children for the world tomorrow.
  • Creating more factories, storages, and logistics companies which also serve as a way of creating job opportunities for the youths.
  • Developing initiatives programmed to help support or promote youths who want to acquire skills and take them up as professions.
  • Providing security for the poor and vulnerable, and developing the policies that bring financial services to them.
  • Developing a standard and trusted health care system to keep Nigerians healthy irrespective of social class.
  • Creating easy access to cheap and long-term credit for SMEs and large corporates.
  • Creating a reliable power supply that can engender industrial activities.
  • Developing venture capitalists for nurturing new ideas and propagate Nigerian businesses to compete globally.

This is the opportunity to create a better Nigeria and do the needful to become a better country.

COVID-19 may have thrown us all into a crisis of unprecedented proportions but we can still make the best out of it. However, mismanagement of the challenges could leave us to suffer untold hardships for some time to come.


Written by Abraham John Onojaa

abrahamjonoja@gmail.com

+2348164208130

 

 

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