- Konga's acquisition shows how entrepreneurs face an uphill task trying to push startups in economic environments where grave infrastructural gaps exist.
- Before understanding Konga’s decline, it is important to first appreciate that the business, despite being a little too ambitious in a difficult market, was no less a viable project from a business perspective.
- Konga did not prove its model in a few cities before bullishly rolling out across Nigeria in its effort to win market share.
On the 3rd of February 2018, there was a collective sigh of sadness around Nigeria as Konga, West Africa’s largest e-commerce platform was acquired by Zinox Group—a local ICT conglomerate.
The sigh was not for the acquisition itself, which in fact has kept Konga from completely going under, but for the fact that five years after its founder, Simdul Shagaya birthed the business, what seemed like a disruptive player in Nigeria’s business ecosystem had slowly tapered off. By 2014, two years after the company’s establishment, Simdul earned himself a place on the Forbes list of “10 Most Powerful Men in Africa." Such was his foresight and such was the respect accorded to the idea of Konga.
Entrepreneurs face an uphill task trying to push startups in economic environments where grave infrastructural gaps exist. While innovators in the private sector can inspire economic growth through FDIs, they cannot replace the role of the government in creating infrastructure for innovation to thrive.
For one to understand how it all started to go wrong for Konga, this is a good starting point. Here was a solid innovation with a lot of promise, but which, following a few years of boom, began to stutter under the weight of economic shocks and infrastructural deficits.
Before understanding Konga’s decline, it is important to first appreciate that the business, despite being a little too ambitious in a difficult market, was no less a viable project from a business perspective. At the time of Konga’s inception, e-commerce sales raked in over $2 trillion globally, and the sector was projected to grow to $4.48 trillion by 2021.
In Nigeria, 18 million people were using smartphones, 91.6 million of them were on the Internet, and over 16 million of them had Facebook accounts. What is more, Nigeria was Africa’s biggest market. In other words, for Konga, the numbers looked good.
It was no surprise that Konga was able to secure about $130 million from two venture capital firms, one of which was Omidyar Network, a global funder which have also invested in other Nigerian startups like BudgIT, Andela, and Flutterwave.
So why did Konga stutter after what seemed like a bright start? Did it try to expand too fast? Patrick Okigbo III, a Nigerian business analyst, says that this was where the cracks emerged. Konga did not prove its model in a few cities before bullishly rolling out across Nigeria in its effort to win market share.
The company amassed huge operational costs by setting up warehouses across Nigeria to be able to serve its customers, it built its own order-fulfilment infrastructure against a background of a highly price-sensitive mass-market.
If there was ever a chance that the company would survive the pilling overhead cost and break even, it was denied such a fighting chance by Nigeria’s low economic tide which began in the fourth quarter of 2015. Collapsed oil prices in a rentier state like Nigeria meant that the economy took a sharp decline, squeezing household income, and inevitably the decline of many businesses—of which Konga itself was not left out.
In a price sensitive industry which it operates in, not only did people’s spending habits become restricted but they would feel comfortable shopping in places where prices were not fixed in order to strike a bargain.
Yet an even more insidious though unspoken challenge was security. Often when infrastructure is discussed, transport, telecom, ICT, are the first to come to mind, yet without security, businesses lose money in Nigeria.
For example, the March 2017 killing of the deliveryman of Jumia, a rival e-commerce business in Rivers State must have partly accounted for the closure of the Pay-on-Delivery (PoD) option, added to complaints by sellers who were worried that people returned goods without reasonable justifications.
Konga would also retrench 60% of its workforce soon afterwards in order to minimise its operational cost. At any rate, whatever problems the removal of PoD must have stopped, it would have nonetheless wiped out a sizeable percentage of its customer base as a good number of people are either not too literate to handle card transactions or are still too wary of the risks.
The point has to be reiterated, however, that there is no substitute to providing basic and decent infrastructure, if entrepreneurs and businesses where to thrive anywhere.
In the absence of a decent nationwide infrastructure, Konga had expanded its operations to capture a larger market share as quick as possible. In doing so, it tried to play the role of a business and a government at the same time. It could have survived on a leaner business model if Nigeria had an efficient postal service system which businesses like Amazon and Ebay leverage on in Europe and America and other advanced economies. Instead, with the comatose state of the Nigerian Postal Service, Konga had to go out of its way to build its own postal infrastructure known as KOS.
They also had to build a warehouse to keep the goods between time of arrival and delivery to final destination. In the end, their operations became overstretched and untenable.
The story of Konga is a reminder that without a strong infrastructure base, every startup suffers. And every innovator finds themselves ascending a high, if not unclimbable mountain.
Obinwanne Okeke is the chairman and CEO of Invictus Group of Companies, a conglomerate involved in agriculture, construction, oil and gas, real estate, renewable energy, and telecoms.