I just came back from a trip to Nigeria and a good friend and mentor basically asked me to ‘mind the gaps’. What he was getting at was that the way to build businesses would to be insightful and purposeful about understanding where there is significant need for consumer goods or services that are not being satisfied by the existing market. So I talked to a bunch of people and thought about it some and here is a first set of thinking on the big gaps I see. Each of these areas could probably sustain a large business and is currently underserved.

Now some of this might be obvious or not. And there are specifics to work out (big picture can only get you so far). But I’ll tackle the nitty gritty in another post.

Caveat Emptor:

There is basically more that I don’t know that I know about this subject. So these observations are a combination of anecdotal observations, perceptive intuition and gut sense that comes from wide ranging reading and pattern matching. I will try to understand what I do not know and close the gaps more assiduously though in a section at the bottom called ‘what I don’t know’.

1. The lack of patient capital for risky new ventures
   

   Everywhere I go, I meet neo digital or even service entrepreneurs that are champing at the bit to innovate. And they need access to ‘venture type’ capital that allows them the opportunity to innovate or to fail. And mostly gets out of their way or buckles down to help them increase their chances of success. This lack of capital is so pervasive that it is of itself a gap. There is a lot that can be done for risky ventures without traditional venture money, but paradoxically the infrastructure need is probably greater in Nigeria/Africa. There are many resources available with a fast Comcast connection and your local tech meetups than can be found imagined and almost none if it is as easily accessible in Nigeria.

   1. Open questions
      1. Are the business conditions good enough that this kind of capital will generate appropriate returns? I’ve personally observed that the pool of talent with the ability to build solid enduring firms may be small. However this is only with reference to the skills usually deployed in the West. Different skills may be in play in places like Nigeria and may already be plenteous but untapped.
         
      2. What are the totality of those favorable business conditions?
      3. Is the talent pool good enough to drive profitable innovation and sustainable firms?
         1. What dimension of talent is needed?
         2. How many talented people will create an inflection point?
      4. Who or what vehicle will be the ‘enabler’ of this kind of innovation? What shape will it take?
      5. What kinds of returns should be expected realistically?
      6. Is it even necessary to focus on the neo-digital sector? What is the generic TAM (The Addressable Market)?

2. Reducing friction of money & increasing trust in new types of electronic payment
   

   There seems to be still opportunities around reducing the friction of money. And increasing the trust people have for all the different new instruments for money (these two things are the related but can be separate too). Mobile payments is part of it but not the whole story. Some examples of things that are not happening in the economy yet and are big opportunities: debit card payments for taxies, Square™ type applications for the long tail of retail in the country. There are probably things that are not immediately apparent, but reducing the coefficient of friction for money is a really fruitful area of investment.

   1. Open questions
      1. Is trust tightly correlated with the payment or app providers? I.e. is there an opportunity for a private horizontal trust provider? I don’t think I’ve seen a trust purveyor who is not either the government (Federal Reserve, etc.) or someone who provides an instrument of payment (Visa, MasterCard, PayPal, etc.)

3. Distribution infrastructure and logistics
   

   It’s no secret that Nigerian/African infrastructure is terrible. (I guess you could generalize this more to the emerging market but that frankly seems unnecessary). With that reality is also the fact that getting products into end customer hands is expensive and time consuming. Firms often have to build their own distribution networks (mobile scratch cards, fleets of motorcycles for pizza delivery, etc.). There seems to be some value in carving out specific horizontals of distribution that other service providers can ride on top off and then charging them for the privilege of not running their own distribution or logistics infrastructure. The likes of the current incarnation of FEDEX and UPS as a logistics company seems like a viable long term goal especially if you focus on the added value of ‘within the metro’ services because that is a clear gap in the cities.

   1. Open questions
      1. Is there enough economic activity to sustain a horizontal infra and logistics company?
      2. What is the relationship between cost of service and scale for such an enterprise?

4. Ecommerce (products and services)
   

   Related (and maybe subordinate?) to the two concepts above is the general sense that the country and region is on the cusp of being ready for ecommerce. This will likely involve not just products (retail sector mostly) but also services (hotels, airline, restaurant reservation, talent markets, etc.). The trick with products is highly related to friction of money/trust and distribution. The trick with services is correlated with how to get enough people to pay for them (it has to be something fundamental and exemplify a broad based need for a decent swath of society in order to make the TAM worthwhile. It is worth exploring the option of tuning business models towards segments that have deeper pockets like enterprises or government (enterprises strike the right balance as a hedge on pure consumer plays if the premise is to stay out of the public sector due to its inherent messiness and sometimes corruption).

   In terms of channels, SMS is still viable, although the shift to an app based mobile experience is happening very quickly. SMS and WAP interfaces to services will likely still be important over the next few years, depending on the market segment being targeted. Web of course is a given.

5. Marketing channels
   

   The ability to target the right customer is going to be huge. Now and eventually. The monolithic ‘bottom of the pyramid’ is dead and was probably never alive in the first place. The BOP is individualized and segmented in a hundred ways. Sure there are commonalities like having cell phones, but that may not be the keys to quickly reaching the right customer with willingness to pay; you have to go beyond that. Someone need to build these channels online and offline and the interstitial places in between. And then own it and rent it out for a fee.

   1. Open questions
      1. Beyond Mobile, what other aggregation points are there?
      2. How much effort needs to be put into building additional aggregation choke points vs. monetizing what is already there?

6. Market insights
   

   It seems that there should be a market for truth™ somewhere in the equation. The data needed to make really good decisions appears to be in short supply from cursory research. There are few companies routinely generating this kind of insight and trying to make a profit on that kind of focus, reputation and brand of helping companies refine their bets.

   The obvious difficulty is thinking hard about where this market is on a curve. Illustratively, the market opportunities in many new sectors are so obvious that deep insight might not be needed in order to make profit for a while (e.g. the mobile cell phone industry in the beginning) – the market equivalent of shooting fish in a barrel that is right in front of you. Marketing insight becomes valuable insofar as it can add high incremental value in its ability to steer capital and labor at the right targets in a world where that insight is rare or hard to find. If this is true then marketing insights may need to be steered initially to established and growth businesses and not to startups.

   1. Open questions
      1. Maybe marketing insights are superfluous for new ventures (and not their priority) at this point in the development curve.
      2. Is the market for insight fully dominated by consulting companies at this point or are there significant gaps?

7. Healthcare
   

   The need here is just massive. But of course the minefield sown by regulation and horrible infrastructure is vast. I plan to explore this in the future. But I just don’t know enough right now.

What I don’t know (in addition to the open questions)

• Who is being successful at what? And for the successful ones, what are they struggling with?
• What is the variation in the economies of different African countries – Nigeria, Ghana, Kenya and SA as bellwethers?
• What key metrics, indices and data points are relevant for each country in order to think about investing in new ventures?
• What specifically in the environment should a smart entrepreneur pay attention to? For example, how many bank accounts exist, how many mobile wallets exist, how many debit card exist, how many PCs exist, how many tablets, how fast internet connections are etc.
• How to track the transparency and cooperation of the public sector in order to understand when they can become a significant target for growth opportunities.