In a world of over 7 billion people it is all but impossible to come up with a completely original idea and there is usually no real need for one. When it comes to business ones, ideas are a dime a dozen. However you discover sooner or later that in this sea of ideas the good ones are extremely rare and very hard to spot. To ensure that they execute only the best of ideas, the tech founders who have thrown in the towel on their own creativity, look for proven ones. For local technology entrepreneurs the business models most emulated are those used by their peers in the West, particularly those in the much touted Silicon Valley.
However not all business models can be successfully imported in their raw form. By comparing the factors that affect the success of these businesses in their native environments with the conditions in Zimbabwe, we can try to predict the success potential of some of the most popular modern business models in Zimbabwe.
A. The ones least likely to work
1. Growth at the expense of profit
Tech has led to the rise of a new kind of business, the company that puts off making money from its potential customers for as long as possible. This counter intuitive practice is very common in early stage social media companies. These companies are almost guaranteed to be able to make a lot of money from advertisements once their user base is large enough, so it certainly does make sense for them to chase user growth at this stage. A very similar strategy is used by other non social media companies including the likes of Amazon, Uber and Spotify. All three of these companies appear to be currently pursuing growth in lieu of healthy profits. Amazon has grown to become one the largest retailers in the world by relentlessly undercutting its competitors.
Amazon’s ability to undercut competitors is made possible by its very small margins. Amazon has practically no profit despite its astronomical size and valuation. Uber and Spotify follow an almost similar strategy of focusing on long term growth at the expense of short term revenue and profits. Uber is burning through its funds to fuel an aggressive growth drive while almost all of the money Spotify makes goes to artists and record labels.
Why it will probably not work in Zim
While growth should be one of the primary focuses of every business, most local businesses are bootstrapped with very limited financial runways. In addition very few of these businesses have offerings that allow this since products and services generally cost time and currency to produce. In a volatile economy like ours, business models and the viability of any potential revenue streams should be tested early on in the life of a startup.
2. Sharing economy businesses
These are businesses that facilitate the sharing of goods or services between parties that are traditionally viewed as consumers. Two of the most prominent international examples are Uber, a ride sharing service that is giving taxi drivers the world over a run for their money, and AirBnB, a service that allows home owners to let unused rooms for a day or two. Locally we have Uber-like businesses: Hwindi and Econet’s Vaya.
Why it will probably not work in Zim
Zimbabwe has an unemployment rate of over 90% (although the government always does its best to deny this). This means that most services are cheap and easily available on a very thriving informal market. For the foreseeable future we will always have an easily accessible alternative to these kinds of platforms. In addition most of these businesses also bank on the ubiquity of reliable and affordable internet access, which is seldom the case in the country.
3. Businesses affected by network effects
Loosely described these are businesses where the value of the company’s offering to its customers/users increases with each user added. Examples include instant messaging, social media and dating platforms. To begin with, startups in this space will be competing with well established and widely known incumbents and their marketing budgets are usually much too small to compete with these behemoths. In short this means that in order for your platform to appeal to new users it must already have a substantial number of preexisting ones.
B. The ones with reasonable chances
1. Cutting out the middleman
The advent of the internet has allowed producers to economically and efficiently sell their goods directly to customers. For high value goods this can actually be a good business model for those producers who do not have the resources or willingness to set up their own retail operations. One of its biggest advantages is the removal of a third party’s margin allowing goods sold this way to be cheaper and more competitive than a conventional online retail operation.
2. Online auction
This model, pioneered by the likes of E-bay, allows potential buyers to bid online for products on offer. Unfortunately those venturing into this space are trying to win over a very large and nimble informal sector that is composed of individual sellers already scattered across all of social media marketing their wares. The entrepreneur will find himself confronted with what is termed the “chicken and egg problem” in startup circles. This is a challenge that confronts anyone who wants to start a marketplace platform. All marketplaces need two groups, the buyers and the sellers. It often proves very difficult to entice people to to join your platform if either one of the groups does not appear to be large enough. In addition to this, like I mentioned earlier,most of your potential users are already gravitating towards platforms like Facebook and Whatsapp to achieve the same thing, albeit in a very limited capacity.
Here one hopes customers will pay fixed, regular and periodic installments in exchange for continuous or periodic access to a service or supply of a product. However because of the generally low income of most Zimbabweans, they tend to be cautious of recurring charges especially for non-essentials. This will significantly reduce your potential market size and make your products or services a tougher sale.
One of the most successful startups to use this model is the Dollar Shave Club in the US. This company did nothing more spectacular than provide subscriptions for shaving razors, but was acquired by Unilever for over a billion dollars.
C. Most likely to work
This was natural for the web and the model was adapted from that which is used in traditional text based media like newspapers and magazines. It is one of the most tried and tested business models on the internet and giants like Facebook and Google owe their existence to it. The execution of this business model is almost formulaic in its simplicity: you grow the number of users of your program or website to the best of your ability and you then sale advertisement space to other businesses for the substantial number of eyeballs you have managed to draw to your creation.
2. Bricks and clicks
In this case the business has both a sizeable physical and online presence. A physical presence is very reassuring to the hesitant Zimbabwean online shopper since e-commerce is still relatively new and viewed with distrust by some partly because of a few false starts by earlier tech startups.
A developer creates their software and offers access to it for free with the possibility of getting extended functionality if you pay. In a world where people expect to get everything for free online, it is very hard to get a potential user to fork over money for an untried product. The freemium model allows users to try out your app for free without any prior financial commitment, much like a free sample.
4. Digital products
Despite the plethora of free content available on the web, whether legally or otherwise, locally relevant content like music, TV programs, softwares and e-books can be hard to come by. For this reason, distributing these types of content can prove to be a very lucrative business.
5. Professional open source
I will start off with the example of the UK based Canonical. This company develops among other products an open source Linux distribution called Ubuntu. They may offer this operating system and its source code for free but they are still able to make money through services like customer support, customization e.t.c. Zimbabwe is one of the world’s biggest users of bootlegged software, so offering your creation for free from the start can save you a lot of heartache in the future.
NB: However despite all these facts that I have outlined it must be remembered that the success of any business idea ultimately depends on its execution as much as the environment in which it operates.