One startup is building a digital marketplace with the aim of connecting traders on a single platform.
By Christopher Schroeder | December 14, 2017
Ask a Silicon Valley aficionado what today’s most significant trends are, and you’ll get an earful about artificial intelligence, machine learning, robotics, block chain, genomics, gene editing, and more. What you’re unlikely to hear are the ramifications of the three-fold shift these trends are unleashing.
First, there is near-universal access to computing, smart device capabilities, and the latest technologies across emerging markets. Second, emerging markets are experiencing a significant rise in their middle and consuming classes, who are increasingly powered by this technological access. Third, a new generation of tech-enabled entrepreneurs is using this technology to leapfrog infrastructure and business challenges at an unprecedented speed.
Why doesn’t the West fully appreciate these developments?
Some of it is historic bias. For decades, making it in global technology has fundamentally meant making it in the West, primarily in the United States. When global giants in hardware and consumer electronics rose in Japan and Korea, the primary markets were in the West. The rise of almost every great, global, scaled software company has been built within a few hundred miles of the US west coast.
Silicon Valley would agree that China represents the first sign of change. The real lesson, for example, in the success of e-commerce juggernaut Alibaba is not merely that China is a large market that will favor a handful of highly successful enterprises. The real lesson is that this multi-billion dollar, tech-enabled, global player was fundamentally built without the West at all.
As an investor, I see great opportunity in that shift, but it is also a double-edged sword. When everyone has access to technology, innovation is unleashed everywhere. At the same time, it means the great global tech platforms can reach anyone more affordably than ever before. The Facebook, Twitter, Google, LinkedIn, Snap of most markets are, well, Facebook, Twitter, Google, LinkedIn, and Snap – unless, as in China, the government has banned them. I heard a pitch a year ago from a bright entrepreneur who wanted to build the WhatsApp or WeChat of Africa, not understanding that those are, already, WhatsApp and WeChat.
So where is an entrepreneur to compete? The opportunity lies where there are massive, complicated, hands-dirty local problems, which are not being solved by traditional players. Although local, these problems are often enormous and shared across emerging markets. Layering technology onto these solutions means they can scale and expand faster and more affordably than ever before. And such enterprises sit on unique data sets while solving these unique problems, two of the core components necessary to leverage machine learning and AI to even greater scale and success.
One of my favorite examples is Twiga Foods in Kenya (I have no direct investment in this company, but sit on the investment committee of a fund that does). A total of 96% of food and consumer products in urban sub-Saharan Africa are sold by small and medium-sized ‘road-side’ vendors. There are more than 130,000 of them in Nairobi alone. These vendors access their stock by waking up at 4:00am, traveling to open-air markets, and getting a push-cart, taxi, or shuttle to bring their stock back to their shops once a day. Trapped in this logistics and pricing monopoly, the vendors are limited in their ability to grow or diversify.
Peter Njonjo and Grant Brooke were the perfect team to go at this opportunity. Grant has studied agriculture economics while working on his PhD from Oxford. Peter has led some of the largest fast-moving consumer goods operations in Africa, such as Coca Cola, whose West African operations he now runs. They agreed the system was broken and the problem was big. Kenya’s distribution challenges are similar across the entire continent, parts of the Middle East, South-east Asia, and beyond. And none of the big global tech players were even looking at it.
What, they wondered, if you could build efficient, data-sophisticated logistics to directly deliver to vendors’ shops? And because every farmer and vendor has at least a mobile device, and has been long comfortable transacting digitally – Kenya’s mobile money capability, mPesa, is used by more than two-thirds of the country – what if you built a digital marketplace with dynamic pricing to benefit both farmers and vendors? Grant told me the ramifications were clear: “Vendors could get better pricing, better quality products, delivered to their shop[s] so they don’t have to go to markets. And farmers get better, transparent pricing and a guaranteed market to sell into.”
Twiga’s job in the short term is fairly simple: build a digital marketplace, and build fulfilment logistics for it to operate upon. For the medium and long term, sitting on unique data sets of farmers’ pricing and vendors’ ability to pay, open a host of new business services such as micro credits. “I view the role of marketplaces – Uber, OpenTable, Ebay, Deliveroo, or Airbnb – as serving a basic function,” Grant explained. “They connect what were very fragmented players onto a single platform. That’s really the heart of the last 20 years of the Silicon Valley tech boom. Twiga is what that looks like in any emerging market. Get product moved around efficiently, and provide the data to know where the market is going months in advance. As with other tech marketplaces, and even the last 500 years of commodities market developments, the more users on that platform the more efficient the marketplace.”
What is unique about Twiga, and other companies tackling similar problems, is the “getting your hands dirty” aspect. Grant smiled, “You can’t build these businesses as you can in Silicon Valley with a bunch of 20-year-olds and a pitch-deck. Solving the logistics part of this is hard, on-the-ground, and hyper local. Technology makes it cost efficient to scale rapidly.”
The future for Twiga, no doubt, will be geographic market expansion. But I believe it will, at its essence, be a data company. The company sits on some very interesting data, indeed. “We have a live map of every shop (regardless of shop type) in the areas we’re active,” Grant told me. “In the past, that data had only been collected by big retail operations and market research firms performing block-walking sample surveys every few years. Ours is live, and starting to be able to tell us consumer trends in various states, getting pictures of the micro-economies.” He believes companies that have provided research and data sets (McKinsey and Nielsen, among others) for the past 50 years in developed markets are not going to be the ones for the future in emerging markets.
The other data Twiga sits on is basically the only food pricing index across Kenya, beyond the statistics bureau’s monthly sample used to calculate inflation. With the economy so dependent on agriculture, this means they’re getting better at predicting pricing, inflation, and incomes than the government itself.
Finally, as Twiga moves from offering third-party products across fruits and vegetables to any basic retail good, it has data points on every vendor that can help them determine what they want to stock, in what volumes, and how frequently, if they’re creditworthy, and so on. This is similarly true on the supplier side of the market. “We’ll have an entire business unit dedicated to data-sells in the coming years. Even to large financial institutions, like the Kenyan Central Bank and World Bank, our pricing and inflation data should be much more accurate than their predictions,” Grant suggested.
Right now, Twiga’s competition is primarily the traditional open-air markets it is seeking to disrupt. Twiga beats them by being cheaper, more convenient, and providing a higher quality products and services. It’s not a hard sell. Therefore, nearly all of Twiga’s challenges are operational; it can only get the needed infrastructure and people in place so fast. “In Twiga culture we call this ‘own your problems’,” Grants added. “We try to design the business in such a way that external forces don’t have a lot of impact on it, and user acquisition isn’t a challenge.” They have attracted some of the best logistics and tech talent in Africa that I’ve seen in any emerging market.
I’ve learned more about fruits and vegetables and agriculture logistics tech in Africa than I could have imagined. But to the power of shared problem solving across the rising world, it has served me well. Six months ago I was pitched a similar company, only based in Latin America.
The entrepreneur told me she found few in Silicon Valley who understood what she was trying to do, and wondered if I understood this opportunity at all.
Yes, I told her. Yes I do.
Christopher M Schroeder is the co-founder of Next Billion Ventures and author of Startup Rising: The Entrepreneurial Revolution Remaking the Middle East – the first book to describe the rapidly rising tech and innovation scene in the Arab World. You can find him on Twitter at @cmschroed.