How Sustainable is The Startup Ecosystem in Nigeria

Always launched with much fan fair and a long guest list of celebrities and media people. The Nigerian startup ecosystem may be already partying too much, like it's 1999. Except for the biggest media companies and some fast cash burning big ecommerce sites, I doubt if any of the startups have much revenue or even profits to be dropping these launch parties. Yeah, launch parties and events, By "launch" being pre-revenue, pre-sales and sometimes even pre-product.

I'm sure it's nice to mix business and partying like Jordan Belfort even before the first sales start coming in. And I am open to the claims that these PR events are essential for press coverage and early realeases. For example, SlotMobileApp that launched recently, is already at the top of high traffic Nigerian ecommerce sites. But What's the main difference between them and Huntella Gadgets, a similar site that has been around for a while and which in a sustainable way acquire much of it's business through social media and search traffic. Which of the two is profitable and which will outlive the other?

Think of Nigerian music apps that sponsor weekly events with big name celebrities, Are they profitable or will they run out of cash? This is all debatable.

Noise isn't always performance. just take a look at SHOPA. The fast growing $11 million venture funded ecommerce startup that just closed it does after a high profile party attended by models and clebrities and then follow-up campaigns featuring the same class.

Seems we have forgotten the importance of Organic growth. We have no retrospect of how Startups like Instagram and even Facebook and Google got to where they are. They grew by lowering their costs of acquiring new users. Sometimes that cost is brought down to zero with their viral marketing.

Seriously, if you have to pay celebrities to acquire new users (and you are not even an entertainment company) how long will you be in business without again raising a lot of money to keep paying these celebrities and again and again till the funding surpasses your actual business or we hit a funding crunch and you are out of business.

Lastly, I forget where I saw this quote, but the saying goes like this "If you wanna survive in business, be a cockroach." I know investment is good in a booming market to grab as much market share and as quickly as you could, but being wasteful is equally bad and can kick you out of the market. 

4 Things That Helped Win World War II Which Are Unthinkable Today.

World War II was a deadly conflict, it killed millions of soldiers and innocent civilians. It was a war that had to be won at all costs. Some of the tactics employed are unthinkable in this modern day but they were what needed to be done in order for the allies to come out victorious over the axis.

1. Countless Human Sacrifice in the Front Lines: The Soviet's red army lost more than 10 million men in the eastern front. It was the necessary cost of stopping Hitler's troops march to Moscow with powerful weapons like the German machine guns and the Panzer tank. Endless ground troops were sent to face the advanced German weaponry. They were basically marched into a slaughter.

2. City Infernoes: A number of cities were completely set ablaze with air raids and fire fights when they were contended by opposing troops. Including Italian cities, the German city of Harmburg and the Russian cities of Kursk and Stalingrad. Thousands of civilians burnt in the blazes.

In modern day, Unless for military and communication targets, Cities are not indiscriminately targeted in warfare.

3. Poor Working Conditions in Weapons Assembly Lines: In the assembly lines of war hardwares in the US, workers worked very long hours in order to out manufacture and out supply the Germans in weaponry to the front lines. When the workers tried to unionize and strike, President Roosevelt threatened to enlist them in the army unless they returned to work.

4. The cost to animal rights: I'm not sure if there's an existing estimate on the number of horses killed during the war in Europe. The Soviet used specially trained dogs to deliver IEDs on a suicide mission to moving German vehicles.

5. Use of the Atomic Bomb: The US used the atomic bomb, twice, in order to take Japan out of the war. Atomic warfare is unthinkable today as it may lead to a full blown Global destruction.

The World today has many rules to conventional warfare that classify so many things as war crimes including the use of chemical or biological weapons. In the day of politically strong workers unions, PETA and the Hague, can desperate wars be won?

First Generation of Nigerian Startup Founders: Where Are They Now?

Around 2007, with cheap money flooding international investors' pockets, Global startup funding began to pick up at a fast rate. Funding had been undergoing sluggish growth since the start of the hangover from the dot-com crash.

Social media startups were popping up, digg, reddit, del.icio.us, twitter, were becoming sites you had to visit daily. Mashable was also coming up as a half blog, half social site. New entrepreneur networks were forming online and news of new funding was being shared daily. Optimism was back and so were new ideas.

This time founding a tech company wasn't limited to Silicon Valley alone. After the crash, funding got really scarce and the cost of starting and running a startup was hitting rock bottom. This opened the doors to many, including us, a few innovative Nigerians.

If we rewind 3 to 4 years back, I was already running my startup. The African Music Network, a music and discussion site hosted on only 100mb of server space. this was during the days of Styl Plus, Plantashun Boiz and Tony Tetula. In less than 2 years, the service had to shut down, and not because it didn't gain traction, but because it was extremely difficult to make credit card payments to the American hosting company and monetization in Nigerian didn't exist at all back then.

Now I run 9flix, One of the front runners in the future of Nigerian video entertainment, well, according to them > What You Get From Video On-Demand Services - Premium Times NG

Folabi Ogunkoya - I think Folabi is one of Nigeria's first Internet success stories. He co-founded CaramelLounge together with Lawrence Bassey-Oden during the early days of social networking when it was dominated by MySpace. MySpace was more American than Global (probably one of the reasons for its failure) so it was tough to meet fellow Nigerians or Africans via the network, mostly because there were few.

Folabi and Lawrence built caramellounge to solve that, and they sold the company not long after launch. It became Afriville and later shut down (probably because of dominance of FaceBook).

Folabi Ogunkoya is now an investment banker in the UK.

Solomon Sydelle - After the reign of MothelandNigeria.com, the one time biggest Nigerian site, which was never updated, Another patriotic lady took the reigns from Boomie, the owner of MotherlandNigeria. Solomon Sydelle was an early Nigerian blogger with Nigerian Curiosity.

Loy Okezie - Loy returned and settled in Nigeria to be a part of the developing startup scene. He has played a significant role, with his blog TechLoy becoming a news platform and a launch pad for Nigerian startups. Many Nigerian startups have taken to TechLoy to announce their launch or funding news.

Loy Okezie still runs a few tech news outlets including Techloy and partakes in many Startup events.

Francis Oghuma - The Naija educated and South Africa based outgoing personality launched an innovative idea of a social networking engine for Nigerians. Together with Nanje Mambe, the founder of the AfroVision group and now Njorku the Cameroonian job search engine, Francis launched Naijaborn as a smart social network for Nigerians, which has a searchable user generated database of the global Nigerian community.

Francisnow lives in Germany and has launched other digital media businesses like Sowambe, House of Picha, and a music discovery platform Jamoflife.

The Business of Nigerian Content Business | Case Study: Gimmesom.com

For a while now, I have been screaming that a great Nigerian content site needs to come out and take all the traffic. I even considered building my own site which will be easy to run and with lots of daily content flow. Nairaland is the one to beat here. Nairaland is a forum but it has let a lot of these blogs use social media to chip into it's market.

The site to be the one needs to have some news or current stuff, some interesting art and of course some really useful well written content.

One year ago, A friend explained to me her plans on developing a unique content site for the Nigerian audience. And now I am happy to say that the site has been live for the past few weeks, It has surpassed even my expectation in terms of quality, but I think the site isn't noisy enough to take the market.

Content is sometimes the quickest way to get into business and also has the advantage of high consumption. Gimmesom.com has the quality to be #1, needs more hands on the deck to tap into the Nigerian content hungry audience.  More hands for the feeding....

Beyond content quality, what exactly needs to be done?

Social Media: Gimmesom's sweet looking content needs to be all over Facebook and Twitter, It's already doing well on Instagram.. It needs to have at least a single Facebook post a day for a start, preferably posts with hundreds or 1000+ reach.

Content flow: Like i mentioned earlier The content flow frequency needs to be increased. may be gradually, content is king.

A Content Hub: The best way to sustainably get lots of content is by bringing other content sources together under one platform. Kind of like Nairaland on steroids.

My Bubblevaluation

Bubbles, unicorns, massive new funding rounds, that's all you hear of in the news these days. Even if you stay off the news to avoid all the bubble talk, you can't. It's usually on the front page of the site of your browser's homepage. Too much negative bubble talk and even bigger funding round news following it up, about the next startup to have "unicorn" status or potential raising a million dollars (or add some zeroes, matter of fact, add two zeroes) from some VC firm made up of dumb money, or smart money. you can't really tell the difference these days.

Yes there is a bubble, because you can find a startup for almost anything imaginable that has raised millions of dollars, and worse, there is still too much VC money chasing these startups. It's difficult to raise $50,000. Extremely difficult. Try raising $1,000,000 and booom, you've been funded.

On what grounds am I making these claims though? Sentiment and hear-say. I told a founder friend that I needed to raise $50,000 to test a new mobile media idea and he said, "well, I don't know about that, there are many VCs that would give you a million dollars but I can't think of anyone that is willing to do a small round like that." And, yes, he has raised around $2 million for his niche social networking startup.

About sentiment, I really do feel there's a bubble. And so does every other person who's screaming there is a bubble and it is going to burst. Yeah, some back up their sentiment with some data and they look convincing.

A few years back I did a lot of bubble reading, I read about the canal mania, railway mania, the great crash and the housing collapse. And even though I didn't witness the dotcom bubble, I remember what it was like in 1999 and 2000. I remember Boo.com dying and resurrecting and then finally getting the silver bullet, I remember those Nortel Networks adverts with songs from the Beetles which they must have paid a fortune for the royalties of, and last but not the least, I remember the AOL Time Warner merger, a desperate move by Time Warner to get in on it. Whenever people and companies start feeling they've missed out if they don't get in on something, it's probably a bubble.

There's too much influx of money into startups, Crunchbase sometimes captures more than a billion dollars of funding in a day. Every money bag is shoving cash into the next startup that hails manicurists. That is definitely another red flag. There's probably more money than value in these startups. Valuation is not equal to value.

New ways of making and spending money go along with bubbles. Tulipmania, the roaring 20s that lead to the great crash and the depression. Vanity. Yes there's too much of it. But I don't want to go on record screaming bubble yet. We could see this last through the year and even 2016. May the smart ones eat the dumb and weak while coming out of it. 

Nigeria's Un-Real Estate

With the number of mentions of the word "bubble" on this blog, some of you probably have started viewing me as a doomsday sayer. Well, that's what I actually like about market bubbles, people tend not to see or agree with the predictions till they burst! 

People just don't see the over-valuations, or even if they see them, they think it would last or even go higher, what they actually see is an opportunity and when everyone thinks this same way, the bubble gets even bigger. It’s called a Gold Rush and it precedes a bubble burst. A gold rush may start when the commodity (gold, stock, real estate) may still be valuable and people are still profiting, but it becomes a bubble when people pay a higher price for what it’s worth and hoping or even expecting to sell it at a much higher price in a very short time because the price keeps going up. So, once the price starts going down, everyone rushes in to cut their losses by dumping the commodity and the commodity’s price collapses, or in other words, the bubble bursts. This is exactly what may happen with the real estate market in some parts of Nigeria in a few years.

As I was writing this post, I saved a draft of the first two paragraphs and left it till I felt like writing again. What inspired me to return to the post immediately was a chat I had over a cup of tea just a few hours ago with my "economist" Dad. We spoke about the astronomical prices of real estate in Abuja and the actual cost of building the structure (cost of building materials and the labour involved).

What my father suggested was that these houses (real estate) are not actually bought with their true valuation in mind, because most of the buyers are trying to find somewhere to stash their government loot and real estate seemed like a very good idea, they are not trying to make a profit. At least they think (as people always think in a bubble) even if they over-pay for it right now, the value will go up in the future, even if it doesn’t go up, what the heck, at least they got some place to keep their money for a while and they can flip it when they need the cash, this makes the price of real estate go up artificially. So I asked him, “what will happen to these valuations if all of a sudden, everyone needed the cash?” “The market and pricing will collapse” he said. This is simply what drives a BUBBLE, thinking you can overpay now because it will be a bargain in the price of the future or you can at least get your cash out. Once everyone wants their cash out, the prices take a nose dive.

With a few people going around looking for fancy houses to stash their easy earned money, these astronomical price tags become the norm. Remember your law of demand and supply? Well, if you don’t remember that law, go back to your basic economics, then come back after to continue reading this post.

So once there is the need for the cash amongst a reasonable number of these high end property owners, they flip the properties at a lower valuation, even below the prices they bought them for and the more want to sell, the lower the prices go. Even those owners that don’t need the cash, they’ll see the valuations of there properties go down and some would panic and decide to sell before it gets any worse, and as they sell, there is more panic and more falling prices and the whole property market could take a nose dive. It’s a domino effect.

Is this similar to the collapse of the real estate market in the US? No it’s not. Their’s more like a credit crunch, people couldn’t pay back the money they “borrowed” to buy their houses so they lost their homes and as more homes were lost, the values went down and owning a home or those mortgage loans started to look like a very bad idea and the companies that made huge bets on those loans collapsed. Well, it’s pretty much more complicated than that, but you get the idea.

What we have here is different  

They say, when it comes to value of real estate, 3 things matter. Location, location, location. I think that’s an excuse for over valuation. To real estate agents, they can’t see anything more important than location because it is the biggest driving force behind the real estate deals and sales. But, for me as someone into building design and construction, I know the actual cost of the building structure shouldn’t be over-looked. Last weekend I was in Abuja and one of my class mates back in Architecture class invited us to help her make a few decisions about some interior finishings shes working on at a huge estate development somewhere in the town (won’t say the location though). The estimated cost of building the houses was just a tiny fraction of the prices they were going for and trust me, there is nothing special about the location.

Another problem is too many housing estates, apartments or whatever you like to call them are being developed and sold at high prices. You know what happens to the price tag of a commodity when there is too much inventory right? The market is surely over-valued but we won’t see a sudden collapse like what we saw in the US. But in 10 to 15 or even 20 years, something will happen and shake the market and the real estate market in Nigeria will correct.

Ok this photo has nothing to do with Nigeria, but it has everything to do with the warning of a bubble.

In 1929 before the market crash that lead to the great depression, a wise Wall Street guy said, “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.” Come to think of it, have we ever had more real estate agents, experts and advisors like what we have now? If everyone is doing it, then it’s time to get out. You mustn’t get out now, but be ready to when it happens.

Nigerian Startups Advertising Everywhere Are Those You Won't Find Anywhere, In The Future!

My own startup dream started around 2000 and 2001 when the startup market in the US was collapsing. The time prior to the collapse was filled with memories of startup ads on TV and on every website you visited. These startups were everywhere, you couldn't get away from them. From adverts of Boo.com on anything you could get your eyes on to CNN advert videos with (high royalty paid) songs by Beatles advertising Nortell Networks. Where are these companies now?

Be it the year 1999 or 2013, it is never sustainable to spend a lot of money as a startup in order to continue to be in, or acquire new business. That is why startups are called "startups" in the first place. They find creative ways to market or build marketing within their products from the start. How many people taught Groupon was a big idea and bought shares in it's IPO. Groupon would have been a really great idea if they didn't spend so much money on sales.

So there are a ton of Nigerian startups mainly e-commerce sites and some content or media sites buying up Billboards in various locations in the big cities, buying TV spots, Youtube pre-roll ads, promoted tweets and handles, expensive Facebook likes and banners on every high traffic site that is offering to sell ad space. These startups are too focused on the short run and the money they are throwing on ads that may or may not perform at times could be used to build a great product that would promote itself for free in 5 years to come. Building a startup is not about short-term hype but building a successful company or product that would last a life-time.

There is only one way to build a successful startup, and it is by building a product that people will keep coming back to and that would be talked about by people there-by growing virally naturally. That's how I got on Facebook and Yahoo in the early days of email in Nigeria, peer pressure. My peers laughed at me because I didn't have an email address and I was mainly on Myspace till my friends pressured me into joining Facebook.

So I boldly predict that you won't be able to find most of the Nigerian startups making noise right now in the next 5 years. By 2018 a lot would have crashed after burning a lot of venture capital and smarter technology focussed startups come in and disrupt there business. Actually, 5 years is a long time but trust me a lot will happen within the time. If you are building a startup, make sure you make technology your biggest advantage, not a money-bag or some noise making bloggers.

To cut a long story short, very soon a highly focused technically talented startup would come along and optimize the whole e-commerce system in Nigeria, and also a hardware focused, great product genuises would come and change the content and data game. Watch this space :)