Targeting specialist markets can be big winner

Wednesday January 05 2022
Strat-up Nairobi.

Launchpad Accelerator Africa startups at the iHub, Nairobi. Twelve startups from Africa were in for a three-month equity-free mentorship programme. PHOTO | DIANA NGILA | NMG


Entrepreneurs in Lagos, Nairobi, and Johannesburg have caught a bug. It's not exactly a pandemic. But for several years now, they have been chasing the fintech bandwagon. A new digital money start-up is popping up most weeks. And that's a welcome development, even if many of them will fail (because not every idea finds a market).

The throng of founders committing themselves to big ambitions in a quest to knit together African finances is a sign of economic vitality. But they could do better, achieve more for Africa, and fill their own pockets more successfully.

The problem is the size of their ambitions. The word on the street is that the bigger one's dreams the better. It's a spirit to be applauded in general. But within it also lies an almighty pitfall. When every entrepreneur is chasing a market of 1.5 billion customers and promises investors a chance of seizing a trillion-dollar opportunity, many good but slightly smaller chances are overlooked, and many fine entrepreneurs will fail unnecessarily. In fintech, seemingly every start-up currently wants to do international money transfers between African countries. Undoubtedly, the need for such services is great.

Financial flows across the continent's borders are growing every year and the options for consumers are still limited. But this is unlikely to be a market with more than a few bundled service providers. Network effects are strong and many of the players getting in the race now are following a fad more than an actual opportunity open to them.

This phenomenon is far from limited to fintech. In health, media, and logistics, the same story is told by entrepreneurs about building vast and complex machines with continental scale. Undoubtedly, some such companies will be built successfully. They may become the African Amazon – and shower incredible and well-deserved wealth on founders and investors. But that is not the solution to everything. It misunderstands the lessons of the global tech and start-up boom.

There will always be a few high-profile entrepreneurs serving extremely large and varied markets. Everyone knows and rightly admires, say, Jeff Bezos, who famously set out to build the "everything store", which also became the title of the best book on Amazon's rise. But it is an exception. Most successful tech founders in Europe and America serve niches, catering to ever more specialist customers.


Technology is making it relatively cheap and easy to go after ever smaller niches. Specialist players can build very successful businesses (and have!) without going for continental size with huge resources and thousands of staff.

Serving niche audiences

Tech enables small players who seek to disrupt large players by serving niche audiences better than the big guys do. Often, they win by getting very close to specific customer segments. The formula of these successful start-ups has been to build or reinforce communities and allow them to evolve to their own benefit. That's true at all sizes, of course.

Mobile money providers such as M-Pesa, who are the forerunners of today's fintech, are community builders too in a sense. They have reordered how African societies work by enabling new forms of commerce. Changing the flow of goods and services has made new ways of living possible. Mass-market products are far from dead. Some will continue to thrive – not least because they enjoy economies of scale.

But mass-market products will form a shrinking part of the commercial universe in future. Our societies are atomising ever further as they become more developed. Specialisation is the trajectory of history. We humans have been specialising ever since the stone age and that trend is accelerating with digital technology. Not least since it has also enabled the precise segmentation of specialist customer groups and the cheaper delivery of products to them. Most start-ups today need to find a specialism they can serve. If most founders chase after lottery wins, we all lose.

More than ever, part of their role is to build (virtual) communities, replacing tribe or class as a social frame, categorising social groups, also known as customers, by ever narrower personal and professional interests. An entrepreneur today needs to find a community that doesn’t yet have flagship products. She or he is looking to build something that fits a segment of the market better than what's there now. An “everything machine” will not do that.

Entrepreneurs working in fintech and beyond need to ask themselves some hard questions. Do they really want to bet their future on scoring the biggest home run anyone can think of by building a product for all of Africa and beyond? Or might they start by capturing smaller communities such as Zambian accountants and Ethiopian sports fans… and then slowly aggregate customer groups over time until one day they may be in a position to build an omnibus?

Everything-changing idea

The grand ambitions of many founders are breathtakingly beautiful and extremely courageous. And a tiny number of them may well come up with a vast, everything-changing idea. But they must know they are embarking on a journey to build the hardest possible product. For venture investors who spread their bets widely it may make sense to back hundreds of maximalist ideas, expecting to find one or two massive winners. But for the ecosystem as a whole, that's not an attractive proposition. Betting on the creation of all-African omnibus products leaves too many gaps.

This is not to suggest that entrepreneurs should lower their ambitions. The hardest part of starting a venture is common to all of them – it is to get from nothing to something, to identify a problem worth solving and then develop a product that fits the market, reaching an initial set of customers and bringing in the first revenue. The first million is the hardest. Most ventures fail there. Anyone who embraces that challenge shows remarkable ambition. Their entrepreneurship is to be applauded.

But ambition alone is not enough. Clear-eyed focus on where the best opportunities lie is needed too. And that isn't always in the stratosphere. A credible path to achieving $10 million in revenue in a limited number of years – rather than a slide deck promising $10 billion in the distant future – is the mark of a shrewd founder. And it doesn't preclude them from shooting for the stars eventually.

Oliver August is the Chief Technology and Innovation Officer at Nation Media Group