The Silicon Illusion: the numbers game
Tinashe Mukogo and Musekiwa Samuriwo
Imagine you had a revolutionary idea that could change the face of an industry forever. You have the financing and relevant support to launch the product to market. There would be a marked difference in uptake between a Zimbabwean product and a product in Silicon Valley at a very crude and rudimentary level. Hypothetically, technology is a numbers game and therefore demographics are an important contributing factor to the success of a technology startup.
The Effect of Numbers
Numbers determine how easily a startup can gain traction. The above graphic shows the number of tech Unicorns, companies valued at more than US$1 Billion, by country. What we see from the above is that the USA, the home of Silicon Valley is significantly ahead of the rest of the world. However another thing that one can observe is that there seems to be a link between population size and the number of unicorns. The united states has a population of 324M, whilst China and India have populations of 1.37B and 1.31B respectively. Indeed if we took the average population of the Top 10 countries by number of unicorns, we would come to an average population of 302M.
Entrepreneurs building tech startups in countries with large populations have an inherent advantage. The number 1 reason that startups fail according to research done by CB Insights is that there was “No Market Need” for their product or service. The larger the population, the better chances there are for the entrepreneur to find viable markets that have a problem worth solving. For instance, in the United States there is a market for xxxx and company xxx actually generates xxx of this industry. Whereas in Zimbabwe, whilst there maybe people interested in it, with a population of 14 Million it is not likely that there is a big enough market to make the business viable.
The Quality of the Numbers
However, another factor that is important is not only the size of the numbers but also the quality of the numbers. In markets in Africa with large populations such as Nigeria, Ethiopia and Democratic Republic of Congo the bigger problem is that the individuals in the target markets often do not have the capacity to pay for the services. This points to the willingness of the market to try out new things and commit budgeted spend on a new product. The success of many Silicon Valley start ups can be attributed to the consumptive appetites of the American consumer.
When we consider that Zimbabwe has a small population and less adventurous consumptive behaviour it negatively affects the potential for a startup to gain the necessary numbers to gain traction. If we consider the diffusion of innovation life-cycle traction is delivered by the the innovators and the early adopters. If the percentage of innovators and early adopters is low in a market then the chances of survival and growth are lowered. If for instance the majority of a market is full of laggards and late majority with very few innovators the rate of uptake is significantly hampered as marketing and distribution costs increase.
The capacity to appeal to the numbers (clear problem definition)
Consequently, is it just a matter of having good marketing campaigns or a matter of delivering the best experience? This brings the product or service into question and the expected experience for the customer. At the cornerstone of any business is the ability of the product to meet the needs and preferences of the customer. One of the things Geoff Cunningham says is that the company owns the marketing drive but the consumer owns the brand. In other words the consumer owns the interaction and experience with the product. In keeping with the rudimentary example between a Zimbabwean and Silicon Valley startup, it then follows that if both firms have 0.01% of the market there’s a marked difference in the value of customer experience.
The Right Business Model for your Market
Numbers make developing a business model rather tricky. Just looking at the revenue potential that a startup can gain in Silicon Valley vs Zimbabwe is very telling. Using a simple example earlier stated let us assume that a startup in Zimbabwe and one in America have the same product with the same levels of quality, innovation and so forth. Which product would gain traction earlier just from a numbers perspective? When we consider that America has a population of 321 million suddenly the potential for a product to maximize network effects is significantly larger than Zimbabwe with a population of 15.6 million. Though this is a rudimentary example it points to the challenges posed by market potential in presenting a viable and realistic business model.
What can Zimbabwean and African startups do?
The Born Global Phenomenon — solving local challenges with a global or regional appetite.
There is a movement in the technology startup space that contends that there are some startups that need to have a global market within the first 2 years of inception. There are a number of factors that determine whether a technology startup is born global;
- The market in your home country is not large enough to support the scale at which you need to operate.
- Most of your potential customers are foreign,multinational companies.
- Many of your potential customers have overseas operations where they will use your products or services.
- You operate in a knowledge-intensive or high-technology sector.
- Having the most technically advanced offering in the world is key to your competitive advantage.
- Your product or service category faces few trade barriers.
- Your product or service has high value relative to its transportation and other logistics costs.
- Customer needs and tastes are fairly standard across your potential country-markets.
- Your product or service has significant first mover advantages or network effects.
- Your major competitors have already internationalized or will do so soon.
- You have key managers who are experienced in international business.
Some of the challenges for Zimbabwe or African technology startups will be points 5, 8, 9 and 11. Yet naturally most technology startups will have to be driven to deliver high quality local solutions with a global appetite in certain industries because 66.6% of the points above are a push factor to be globally minded with relevant local solutions. What also makes it a critical success factor for Zimbabwean and African startups is the fact that there is a large contingent of Africans in the Diaspora.
Consider that there are potentially 3 million Zimbabweans living in South Africa or at the very least 100k. What does this do for achieving network effects? It opens up the solution to a wider South African population of 51 million. If a Zimbabwean startup develops a unique solution that solves some problems faced by Zimbabweans living in South Africa, there is potential that those same problems may appeal to some other people living in South Africa.
An Exponential Mindset — challenges of incremental thinking
In a traditional market with a traditional product it is normal to have an incremental mindset that fosters gradual development of a product. In technology and the digital age the challenge is that change in the market is rapid and volatile and achieving the right numbers cannot be something incrementally planned for over the space of 5 or 10 years. Rather, most solutions need to achieve exponential potential really early on in their life-cycle to survive.
Consider services like Twitter and Youtube without the right numbers to sustain continued investment. According to Mark Boncheck in his Harvard Business Review article, what an exponential mindset does is prepare a technology startup for viral and network growth as well as designing the product to survive the risky early years. It challenges the startup to take customer acquisition seriously as well as analyse potential network effects for a product. If for instance a Zimbabwean startup solves the needs of a cross border trader where would the network effects be for their solution in South Africa?
Business planning vs. having a business plan
Often the requirement to access finance and investment is a clear business plan. Yet for most startups in Zimbabwe the numbers barely make sense. How is it possible to have 160k users in Harare when that constitutes about 10% of the market share? Whereas having 0.01% of the market in America constitutes having 3 million users. Numbers make it easier to validate product potential. Hypothetically, it would be easier to convince investors of your product’s potential by proving that it can appeal to 3 million users.
Subsequently, in Zimbabwe it would be hard for a startup to convince investors that it will have 10% of the market in Harare in the launch and early growth phase. Rather, a Zimbabwean or African startup is better suited to adapting to market shifts. As an example there’s an application that was developed in Zimbabwe that was gaining very little traction for about 9 months. One team member proposed that he could leverage a relationship to gain access to the Tanzanian market. Within 4 months of signing an agreement with a Tanzanian company the product was gaining better traction. This points to the ability to adapt to the situation instead of keeping to a business plan. The reality is that for some countries an internally focused strategy may not work if one once to really scale. Yet, the important thing is to be flexible and skilled in opportunity recognition. .
Creating a Brand
The one thing Silicon Valley is good at, it is creating sticky brands. This is more than just creating a logo and supporting stationery. It is about creating products with the right customer experience. It is important to infuse products with the right mechanisms and tools to allow the customer to enjoy the product. For technology startups in Zimbabwe it is a matter of putting more time into developing the right user experience. In many respects it is creating a commercially viable product with the right pointers to guide and nurture customer experience from the onset. With the right brand positioning strategy i.e. the right touch points with the customer it is possible for a Zimbabwean startup to gain the necessary traction.
Market numbers are an important contributor to the success of a Silicon Valley startup and definitely affect the success of a Zimbabwean or African startup. Importantly, it’s not simply a matter of numbers but how the quality of numbers i.e. composition and consumptive behaviour of the market. Furthermore, the ability of a startup to capture the market by delivering an appealing experience. Startups in Zimbabwe and Africa can mitigate the challenges of not having sufficient numbers by developing a born global type company, developing an exponential mindset, effective business planning and importantly creating a brand. Furthermore, Zimbabwe and African startups can leverage on other intrinsic advantages it possess such as language and literacy.