OoTheNigerian

sometimes, I make a lot of sense.

Category Archives for: Technology

How I’ll Run an African Technology Incubator

01 December 2014 by Oo

Introduction

There has been an uptake of tech incubators/accelerators in the African techosystem™. While I applaud the great work that has been done so far, I am yet to see an incubator on this continent run the way I’d love to do it. Rather than just criticise, I’ll use this post to give my own perspectives and suggestions using an example.

I have to point out that this is merely postulation and in real life, things hardly turn out the way you postulate.

Between the Incubator and the Accelerator.

There seems to bit of confusion between what incubators and accelerators are. My own definition is simple: the incubator takes the idea to product/market fit; the accelerator takes it from product/market fit to where it needs to scale.

I am talking about running an incubator.

Guiding Principles.

The incubator will be pro founder and looking to fund commercial viable businesses.

I am not one of those that ridicule MBAs. But there seems to be a difference between business and tech head founded startups. My guess is the tech heads are better placed to empathize with a fellow tech head. While pure business heads are guided solely by numbers.

In addition, I see a lot of incubators that view their investor position as being benevolent. They see it like they are doing the entrepreneur a favour. I see it as a partnership at worst and at best, the founders are doing me a favour helping me make money.

In reality, we both need ourselves to make money while solving problems.

The set up.

I like the Y Combinator setup. If I were running an incubator, I’d have a core partnership structure. The partners made up of “specialist generalists” e.g operations would all have a stake in the incubator and must have contributed to the fund.

I am not a fan of incubators/accelerators that stockpile “mentors”. It ends up confusing people. There are many ways to cook soup. What ends up happening is each mentor in a bid to justify their existence insist their way is the best. Of what use is a mentor that tells you “what that other guy said is good enough”

The partnership will have one primary person that covers an area of expertise. e.g Product, Finance, Technology, Design Legal and Operations. The partnership will not be bigger than 6 people. Of course industry experts will be welcome to play an ad hoc mentoring role but it will be after the startups have been selected.

More on that in my example to come.

Idea Selection

We’ll focus on ideas that are relevant to the continent but applicable globally, generate revenue from the very first user and can scale to millions of dollars in revenue with a team of 20 or less and at worst can survive without follow-on funding even if it does not succeed in scaling.

Founders will be able to apply with their ideas or ours.

Founder Selection

Since we will be focused on incubating, we will be looking for teams that are “complete”. The core tech must be internal and part of the team. Same as the core operations (more on that in my example). They must have proven at some point in their past that they have the resilience and focus to execute a project for a long period of time.

We will also recruit our founders. The best employees are sought out and not waited on to apply for the job. I believe same applies to founders. I see most incubators putting out application forms and waiting for the applications to roll in.

Like the CEO of a startup, I as the promoter of the incubator will use applications but will also spend a lot of time trying to recruit founders. Many of the best people are already doing something else with their time. That does not in anyway mean that those that apply are not good more like there a lot of great people that will not apply.

We’ll look to cap it at 5 teams per set and 2 sets per year.

The Incubation Period

There will be a residential place available for all founders. This may not be a big deal in other climes but here in Lagos, having a place where you have 24 hours light is luxury.

Providing only an office that has the resources is not enough when most of your founders will be spending 4 hours daily commuting and most likely will be operating at 50% capacity during “office hours”.

For the 3-4 months incubation period, every other distraction will be taken care of. At least it will be an offer left for you to take or not depending on circumstance.

Scope and Funding

Once of my biggest criticisms of African incubators is that they do not begin with the end in mind. They have this idea of holding on to the startup from the beginning to IPO. I view the startup funding funnel more like an assembly line. Before starting, it has to be clear who you want to hand over to and pitch those people before you start. After hand off, you move to the next batch.

Y Combinator’s accelerator program ends with them handing over to Venture Capitalists and Seed investors on demo day. Were I to do an incubator, my plan will be to hand over to the accelerators and that means discussing with the likes of YC, TechStars and co before I start to know the type of metrics and growth that will get them interested.

Sometimes, the startup might scale beyond your next planed step. In that case you work and hand them to the VCs. But at worst they have great accelerators to be handed over to.

For the above to work, there has to be a clearly defined time scope. If startups think they can stay forever they will work like they have a cushion. Like strict and loving parents, they have to know the nest is available for just 4 months. That’s it. It would help them have an urgent mindset. It does not mean after 4 months you kick them out in the rain if they are stuck.

Equity and Financing.

Off my head I am looking to spend $25-35k per startup for 10% “founder shares”. $15-20k cash and $10-15k for facilities/operational expenses depending on team size. I think it is fair because we’ll be acting as co founders taking practically the same risks as founders.

For the funding of such a scheme, we’d will be looking to raise about $2 million that will last over 4 classes (5 startusp per class) and 2 years. A fraction of the money (say $100k) would come from the partners, much more(say $400k) from the promoter i.e me and the rest, from strategic Limited Partners. e.g Venture Capital firms and accelerators interested in deal flow and say telco companies interested in not being left behind.

Raising money from external parties is the hardest part. But then, that’s why we have the finance person in the startup :). Also see epilogue.

A Quick Example.

Idea

Funding a startup that wants to build an on-demand platform for building artisans (painters, plumbers, etc). Customers request jobs and the startup gets a trained artisan to do the job and takes a part of the revenue.

Founder Selection

The team would need to have someone that can build the platform but more importantly, a person that has practical industry experience. Say whose parent or self is/was an artisan, or has experience in the industry e.g has worked in a building maintenance company.

If we do not see such a person applying we’ll seek them out. Maybe someone doing such a business on an analogue scale or sweet talk that person out of their building maintenance job where they do all the work but the owner takes all the upside.

I am not saying a founder without such experience cannot learn on the job. I just believe the risks of failure are much higher without practical experience.

Scope

Our work as an incubator is to ensure that at the end of 4 months, there is traction which we’ll define in revenue terms before the class starts.

In the first few days, we will work with the founders to define the scope. e.g focus on painters and painting jobs in Lagos.

As a product person in conjunction with our tech partner (say Ope Obembe), in two weeks, we can work hands on with the technical guy to get the version one of the platform ready. Our operation partner say Mark Essien (top lad) will work with the operational co founder to work on recruiting 5 painters that will execute the first jobs and maybe a strategy for scaling recruitment and training.

Everyone will work hand in hand to get the first set of jobs.

At the end of the incubation period, we would expect that 30-40 painting jobs must have been done with say 8 new jobs a week coming through and growing weekly. Growth is extremely important.

That will be the core focus. That is what we will hand over to be accelerated. If per chance it is moving much faster, then we’ll seek higher level of funding or if sustainable, no funding at all.

It all depends on circumstance.

Mentors

After selection of such a startup, we’ll seek mentors that have experience in the building maintenance space. Say an executive in Berger Paints or someone that has executed on something similar in a different country like Adaora, the co founder of HomeJoy (no, she’s not Igbo) . Such people can be a source of finance or important strategic partnerships later on

This differs from the popular model of pooling mentors for the numbers before knowing if their skills will be relevant to the starups selected. Although someone that has scaled and exited a web hosting company is cool to have around, that experience is most likely irrelevant in the case of building an artisan on demand company.

Conclusion

The above captures the high level of my general idea. While still very theoretical and easier to write than execute, it is the way I’d try to do it if I were doing it.

Epilogue

My retirement plan was always to fund and run an incubator after my first exit. It is so much easier for two reasons, I would have the money to kick-start the process and secondly, I would have the authority and trust when speaking and convincing founders, potential investors, partners and most importantly myself.

But since that is taking much longer, I’ll brain dump my theory until it’s time :)

PS: Do check out Callbase, one of the products of the startup where I’m co founder.

Thanks to Ope, Banke and Mark for feedback.

6 comments | Categories: Startups, Technology | Tags: , , , ,

With Konga’s 25 Million Dollar Raise, Here is the Bigger Story.

03 January 2014 by Oo

Techcabal just broke the awesome news that Konga just raised 25 million dollars.  That itself is a big story, but looking closer, what is the bigger gist.

Let us pay a little attention to the financiers. Here is a quote from the TechCabal story

Beyond the fact that the round is skewed towards Swedish Kinnevik’s lead, we could not ascertain the structure of the deal, nor the resulting valuation. Preceding cash injections saw $3.5 million seed (Kinnevik) and $10 million series A (Kinnevik, Naspers).

Kinnevik is basically the lead investor and has great control.

Let us move back a few weeks to the story of the MTN – Rocket Internet/AIH deal. The owners of Jumia and co via Africa Internet Holdings

The partnership will result in MTN, Millicom and Rocket Internet each holding a 33.3% stake in Africa Internet Holding (AIH).

So Millicom and Rocket Internet control AIH with 66.6% and in turn Jumia.

So why mention Kinnevik?

Well, Kinnevik practically owns Millicom and yes they are the largest investors in Rocket Internet.

Oh Shit! I hear you exclaim. Ah Shit indeed.

Kinnevik controls (technically you could argue) both Jumia and Konga and practically own ecommerce in Nigeria. That my friends is the bigger story.

Which brings me to a prediction for the next year I missed in my post yesterday. Konga and Jumia Nigeria will become one and will be run by Simdul Shagaya. With the co founders of Jumia rumored to have left, I do not think it is that far fetched.

PS. Let me introduce you to Cristina Stenbeck. The boss at Kinnevik. The most powerful person in the African Internet space.  She is 36 years old. *bows*

Cristina Stenback

17 comments | Categories: Commentary, Nigeria, Technology | Tags: , , , , , , ,

Value Creation, Capture and Nigerian Music (File) Startups

05 December 2013 by Oo

I have always wanted to publish my ‘thesis’ on music (file)  startups especially as it concerns Nigeria. I still do not have the time to do something comprehensive. However, as someone that spent quite a few years in this industry, anytime I hear another iTunes for Nigeria launching and relaunching, I get distracted mentally.

I am hoping by writing this long rambling  thesis, that distraction will go away.

Please note that this was written in one go this morning. No time for edits or ‘cohesive writing’. I have Fonenode business pulling my ear. Sorry

Let’s go.

  1. Doing a pure download/file startup (ala itunes) is a mistake.

  2. Creating a successful Nigerian streaming startup is kinda late now.

  3. The only opportunity is focusing on discovery and ancillary unpiratable business models.

With all politeness, Nigerian music startups in general have added practically zero value to Nigerian music therefore it is going to be extremely hard to capture value where you have not created it.

A model that depends on extracting money from from an artist after (s)he has become popular is quite wishful thinking.

The central revenue model of most music file startups is selling downloads (If you have no transactional revenue plan, and hope on advertizing to make it big, LoL). Asides the fact that the approach to selling (by Nigerian startups) the music adds no value, it is anti to the success of the artist.

(Let me get this out of the way: iTunes has half a billion STORED credit cards and offers insane convenience. You are NOT iTunes)

Yes, I am saying selling music especially singles works against the interest of the Nigerian artist even the ones that have ‘made it’.

Take a look at this tweet by Don Baba J below

He is giving actively giving away his latest hit track. Begging people to take it for FREE. Is that what you hope to sell? You may think is is mad and leaving money on the table. But my simple chart below explains why he is doing it.

SOURCE : Pulled out of me ass.

My interpretation

In the first chart, the artist makes a higher percentage of revenue from the sale of his tracks. However, because of the friction caused by focusing on selling music, the artist did not get popular. But did some shows though. Big share of small pie.

In the second chart, the artist did a Don Jazzy, pushed his music for free but still offered it for sale to those who want to buy via iTunes and other channels. As a result the artist got popular did lots of shows, performed at weddings and most importantly got paid to perform at the birthday party of the wives of the governors. How can I forget the endorsement revenue. (Small share but mighty pie)

“But we will sell albums!” I hear you cry.

Yup! You will sell albums. How many non singles from albums have made it big?

Fun Facts:

  • Nigeria is the only market where an artist re releases a track from a published album as a single)

  • Our Artists sometimes release three singles at one go.

  • Davido released about 6-8 singles before launching his album.

Ok, I’ll make it a bit more sad. You definitely have heard of the long tail.

I stole the chart from here

What the chart means is that a few hits drive most of the sales/interaction/traffic. In the case of Nigerian music startups, very few songs will make all the money and these are the very songs that are given away for free! *sigh*.

We have seen instances where artists were paid quite a boatload of to distribute the songs via a particular channel (iRoking and Spinlet come to mind). It was good for the artist though in the short term. Not so sure about the distribution platform.

For Spinlet, it can be argued that the money paid was a marketing cost in trying to get people to download their app. For EME though, it was also kind of a win as they put together a bunch of songs which may never have been released and got good money from it. Of course they still released it in the open market. I’m not sure how many career defining hits came out of that album.

As for purchasing music and hoping to profit from the distribution like they do in Alaba, that is a really bad idea. iRoking did that and stopped. There are no guesses why.

(Supplier power for music in Nigeria is so low so they cannot go after hulkshare and co even if they wanted to. how much is the value of music you are going to court for anyway. And the artist will still give it away for free. I think iRoking tried the legal method at a time)

Streaming/subscription:

Now, let us assume you want to go the streaming/ subscription route for the library of music. How do you undercut Deezer, Spotify, MOG, Grooveshark who can give you the latest Olamide and Eminem on the same platform. In Grooveshark’s case, it is free albeit a bit backward compared to Spotify and Deezer.

The awesomeness of those platforms is the tail end asides the terrific experience of having access everywhere.Having everything is what gives them the most value and without 100 million in the bank, you cannot even begin thinking of playing that game. Grooveshark began and got big before the labels tried to take them down.

Besides all the space for that model has already been taken. Even Rdio (backed by men who sold Skype 3 times!!) are finding it insane to crack.

So if you cannot exclusively distribute music, how do you want to make any serious money from it?

Re: creating value:

To know if a Nigerian music file startup gives value, which one would die today and have a dent on listening or revenue for artist?

None.

But some people create value. The bloggers, especially NotJustOk have added the most value to Nigerian artists. Without them, there is absolutely no way any Nigerian artist would attempt to tour UK/US/Malaysia etc. Unfortunately, they have not been able to capture the value they have created.

Sorry guys.

So how can money be made at all by the music startups?

Any music startup that wants to succeed, has to be at scale, and create something that has to do with network effect. For instance, if your startup has the best way to efficiently reach all the reggae lovers in Lagos, then you can tap into that because you would make it possible to have a successful reggae concert. Without you, it would have been impossible.

Can you make an artist get endorsement? Sell tickets, merchandise? Then you can tap into the value you create.

There are other unpiratable business models like caller back tunes which gave Inyaya 5 digits in dollars monthly for many months. Unfortunately, all the value of CBT is created and consumed by the telcos. If Kukere was sold exclusively there will be no Iyanya. Period.

But one thing is certain, you cannot pay for most of the music if you are to make any money. In theory, COSON would try to convince artists otherwise. I will take them a bit more seriously when I see any currently successful artists endorsing their shakedowns. They will not and they know it. They need radios and blogs to spread the music far and wide. The day Wizkid (who is insanely massive) decides to cramp down on the playing of their music in hotels, radio, public places, you will see enough people replacing them overnight.

This is because there is no short supply of great music. With a laptop you can create what can become a hit song in Nigeria.

(Fun experiment:  9ice has banned his music from blogs. Let us see how that turns out Lol)

More bad news.

For those monetizing via say YouTube, the artist will go with you until he becomes big enough. Olamide is now on Vevo and you cannot match Vevo. Why? adding an Olamide increases overall value of their assets on a higher magnitude than yours. So you cannot match their offer.  It is a global game.

You too yarn. What was the plan for GBEDU.FM?

Those who interacted with me 4 years ago know that I had a time frame for GBEDU.FM before it would become too late. I know if I was not already BIG by last year, it was over to go through the streaming route. The time has passed.

Of course I had (have?) other ideas on how it could still work and I will give away just a little. Any Nigerian music startup that wants to make it somewhat big (> $2million.year revenue) cannot buy music first of all.  Secondly, they MUST align with a brand that will carry most of the operating cost in exchange for marketing exposure (meaning you must be big). Then focusing on creating value and sharing with the artists AFTER the value has been created. Alternatively, align with an organization who you will add value to even if independently, you cannot be profitable. e.g Like Spinlet is with Etisalat.

Other

I heard Michael Ugwu has focused on adding value in another way by making music distribution more efficient with Freeme Digital (I love the name!). I like seeing cashflow positive stuff. There is also DistroKid  (affiliate link. Feel free to go straight)  and another launching soon in that space.

I do not know how big that opportunity is but is a great way to be in the music business. Michael’s relationships with the artists gives him a head start and competitive advantage. Especially with back catalouges

My advice?

Don’t enter the space now. It is too late. Except you are neck deep already or you have a completely different angle. Your effort will be rewarded better elsewhere.

I love this quote on music startups so I will end with it again

“Music startup” is a misnomer, most music startups are actually music file startups.  If you want to actually create a music startup you have to combine cultural understanding of music + identification of new acts/trends that haven’t been picked up by existing labels & media, with a deep understanding of new media technologies.  Basically, think of the Web 2.0 equivalent of a Suge Knight.  Nobody has ACTUALLY started a music startup yet — probably because it is hard to have both cultural and technical sophistication.

If someone creates a really authentic new digital space with authentic new artists, and uses the new digital medium to deliver the close personal relationship today’s music fans / etc want out of their bands and personalities, they are likely to make a fortune.  Redistribution of existing content owned/controlled by labels and (equally evil) rights agencies is an epic failure of a business model, and does very little to address the massive thirst in the marketplace for new, interesting, authentic culture

- Numair Faraz on why it is difficult to build a music startup

There are many things I left out and could have made this shorter. Sorry, I did not have time.

I’d love your comments.

PS: GBEDU.FM is still there but it is now my expensive hobby. You have a new iPhone? Cool. I use an old phone but I have my personal music player. The  domain name costs $100 a year.

PPS: I will edit later when I have the time (I lie)

BTW, Do check out Orin for mobile . It is theoretically a competitor but the lad is someone to watch out for.

2 comments | Categories: Commentary, Digital Media, GBEDU.FM, Nigeria, Technology | Tags: , , , , , , ,

Another Roll of the Dice

29 November 2013 by Oo

As some of you may know, my friend Ope and I have launched a new company, it is called Fonenode. We are building a telephony infrastructure on which solutions that simplify communication for businesses and individuals can be built easily.

The last year has not been easy. A few ups and a number of really deep downs and I always wonder if I should have taken this road at all. Getting a proper and stable job would have been obviously much more straightforward for me.

I always tell my fellow entrepreneur journeyman and women, “we are playing the startup lottery” because of the amount of uncertainty and risk involved. This time around though, I have that niggling feeling that “this is it”. That all lessons have been learned and would be applied this time.

But isn’t that what the gamblers all say?

To my family and friends that have supported and rooted for me all this years. Especially my mum, dad and my cousin Namo. Without whom, I would have given up a long time ago.

*Thank you!

Here’s to successful and fulfilling journey.

PS: What is the status of GBEDU.FM? It is officially my expensive hobby.

*Yes mum, I know the only form you want my thank you to take. I am searching hard. I will find her soon. Promise.

11 comments | Categories: GBEDU.FM, Self, Technology, Uncategorized | Tags: , , ,

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