Konga offline

The title of this article is a loose translation of the Yoruba saying – “Iku ya j’esin”; for me, this is one of the overriding themes of the Konga sale. I first wrote about Konga on 29 September 2017 -“5 issues Konga needs to deal with as it scales”.

My preferred title for that article was, “Konga needs to scale back in order to scale up” but my publishers thought differently. I had looked at the Konga business and figured out that once the company ran out of cash, it would summarily run out of business. So, my initial post was to serve as a warning against a potential shutdown of the business.

I suggested that Konga should:

  1. Stop trying to be Nigeria’s largest online mall.
  2. Focus on quality control – sack merchants with poor quality products.
  3. Not incur a customer acquisition cost (“CAC”) on the same customer over again.
  4. Scrap Pay-on-Delivery (“POD”).
  5. Forget nationwide delivery; focus on profitable city clusters.
  6. Pay attention to disintermediation.

The backlash I got following this post was surprising. The “developer community” felt that I was attacking their hero. Rather than taking a dispassionate look at the obvious flaws in the business model and trying to fix it, they were getting excited at the quality of their “Tech”. You need to figure out what tech is to your business. Tech to Konga was an enabler rather than the business, but Konga felt otherwise.

A tribute to Our Ecosystem Builder – Sim Shagaya

Though I disagree largely with the way Sim ran Konga, one thing is obvious: he brought tech to the mainstream. Now, students want to be developers and young people look to him for inspiration.

Sim was passionate about what technology could achieve and he invested heavily in it. He has a cult-like following among developers and other technology entrepreneurs. He made a dent in this ecosystem and we will all be forever grateful to him.

However, I have also observed that not so many people can write against Sim; that is a difficult place to be, especially as nobody can tell you the truth. I am not as vested as a lot of people, so I can write something contrary to the popular view.

Sim has been involved in 3 companies (DealDey, GoMyWay and Konga), and ALL of them crashed out of business. There must be something wrong that nobody is saying. Maybe the first (DealDey) was a teething problem, maybe GoMyWay had a funding problem, what excuse will I give for the third?

Sim Shagaya, former Chairman, Konga

Now to the Konga Deal

Let’s be clear— Zinox could not have paid $10m for Konga. Sources within the venture capital community, private equity community and Securities and Exchange Commission suggested otherwise. Konga appears to have been given to Zinox.

Sources suggested that Zinox paid $1 (One Dollar) for Konga because it is illegal to get it for free. In fact, it was said that Konga was initially offered to Jumia for the same $1. Jumia, however, declined the transaction because the cost of integration of the 2 platforms could not be justified.

Konga’s demise was because major investors Naspers and AB Kinnevik decided not to fund the business again, and the cash being generated from the business could support its operations. It was also gathered that the investors had totally written off the investment and asked management to shut down the business.

As part of the deal, Zinox was said to have agreed to assume responsibility for the debt in Konga’s books and as a result get the company. If I led the deal, I would have asked for a haircut (discount) on the debt (I am not sure if that is part of the deal).

This is not a strange structure; it has been done before. Dangote did something similar with the reacquisition of Dangote Flour from Tiger Brands. DealDey was also acquired by Ringier under similar circumstances.

So What’s Next?

Following the acquisition by Zinox, I expect integration between Yudala and Konga. I will also recommend that Zinox runs an offline/online model rather than focusing solely on the online market. I believe that Nigeria is still largely an offline market; businesses should meet their customers where they are, while gradually moving them to where they should be.

Lessons to all

Tech is not your business – This youthful exuberance must stop! Running a business is tough. Running a business in Nigeria is tougher. Sim is one of the most mature technology entrepreneurs, yet he got carried away with “Tech”. My suggestion: build a solid tech but build a solid business also. If you are however in a situation to choose, please make a commercial decision over tech.

Developers will leave – This is a continuation of the first point. Hire good developers, but don’t be forced to go out of your way to get them. This is because they will force you to overpay them.

Once you are unable to raise money, they will all leave you to join the new startup that just raised. Case in point, Konga and Andela. If you doubt me, check the LinkedIn profiles of the senior technical consultants at Andela; a lot of them are from Konga.

Operate within your means – I have written before that this is Nigeria, not California. VC funds are not readily available; hence, you can’t continue to depend on investors’ funds for too long.

In Nigeria, you have to figure out how to operate successfully without needing to raise additional cash. Focus on sustainability, then growth (unless you believe that you will always get the cash from investors anytime you need it).

Move on – Sim has moved on to other things, rather than dwell on Konga’s misadventure. We should learn to do the same.

The “Nigeria question” – Maybe Nigeria is not that big a market. Maybe internet penetration is not that deep. Maybe online payment is still not widespread. Maybe e-commerce in Nigeria came ahead of its time. Maybe, just maybe.

Entrepreneurship is a serious thing, let’s keep it serious.

8 COMMENTS

  1. Well Said Fisayo… Tech businesses need to learn to make business and commercial decisions.. that you are a developer doesn’t qualify you as a business decision taker/maker… well said…I really also think the economy is not ready for ecommerce yet… other platforms may follow suit if not properly managed.

  2. i’m a techy but its true, business is business, don’t get carried away with tech. tech is just an enabler. my problem is that i dislike these “i told you so” writers. you don’t know it all. you don’t have the full picture. so stop speaking like a sage.

    • Thanks Laolu. I’m wondering if the writer has a business s/he founded and running, especially after reading his post of businesses that wouldn’t survive a particular year. Just wondering.

      But I agree with him to some extent. Personally I’m learning to ignore “fancy” and focus on profit. But I doubt any company can grow big and not invest in technology. It’s impossible.

  3. I praise the young man’s adventurous spirit.
    It is better to try and fail than never to have tried at all. I am sure he has learnt from this daring adventure of his and he would be better off for it later on. Those who are successful today must have had their fair share of failed projects. I see him as a success in the making. I am glad, upcoming techpreneurs can also leverage on his experience in order not to fail again.

    Steve Jobs advised Mark Zukerberg to hire the best hands and brains he can find for his team. They may cost a fortune but they will bring back better results. It paid off for Mark today. I will also advise same but find ways to keep your business sustainable in its gestation period.

    People should not be afraid to try. Every baby rises and falls before they master the walking and running skills. If you are afraid to take risk, you can’t go too far in life. Failure is a part of success. I hail the young man’s courage and look forward to his outstanding sucess in the near future.

  4. Good post. Just not sure the writer has enough information to throw certain statements like “Out of business”. Konga and DealDey may have been bought over but they are both still in Business.

  5. Very well said, but a little caution on the “I told you so” attitude ’cause every business has its pitfalls and peculiarities.
    Techy guys in Nigeria should learn to allow business experts manage the business side, while they focus on their passion. Ever wonder why Bill Gates didn’t manage the Microsoft business himself from day one? Anyway, managing business is serious business!

  6. This is post confirms a disturbing trend in Nigeria as a whole not just the business community, when we duplicate cultural bits from Europe or America, it fails in Nigeria if we are lucky, if not it leaves our own society worse off, when we duplicate we only copy the superfecial, we forget that “facebook” was simply a manifestation of deep currents in the American society, that’s only one way to look at it I know but still.

    The tech craze must stop, the author rightly pointed out that Tech is only an enabler. The business idea must be sustainable.

  7. The $75 million raised for Konga would have been better deployed building and staffing 200 stores across Nigeria selling just electronics (their biggest category). Slot Technologies is doing just that.

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