This article was originally published by The Realistic Optimist
Gold rush
There is a gold rush in Africa. Inspired by his successes Careem (ME), Gojek (SEA), and Rapi (LATAM) a host of tech entrepreneurs have flocked to the continent to win its grand prize: Africa’s super app. The playbook goes like this: build a delivery app that lets users order anything from groceries to medicine. Once users trust you, offer financial services. Then sell or go public.
There are many candidates for this mission. Jumia, Globo, Yasir… All of them have their coffers full to the brim, seemingly on their way to collapse Quicklythe company I founded.
Presto is a delivery app launched and operating in Libya. It’s a tough market, but one where oil wealth gives its population of 6 million relatively high purchasing power and access to the Internet. That and the absence of foreign competition is what we have capitalized on.
We had to reinvent the food delivery model. While our European peers were waging price wars fueled by seemingly endless VC money, we had to pretty much claw our way to growth and survival. For one simple reason: no VC was willing to invest in a country that watched more CNN than TechCrunch. With some seed funding from local investors, we’ve come a long way.
Today, Presto employs approximately 250 people and provides a revenue stream for more than 15,000 drivers. This year, as of the end of the third quarter, we delivered more than 1.5 million orders and grew our gross profit to $1.75 million, an 82% year-over-year increase.
We operate in major Libyan cities such as Tripoli and Benghazi and are opening three new ones as we speak. This enables us to control 80-85% of the national market. This is an African peculiarity: control of 1-2 major cities is usually enough to guarantee market dominance, as the rest of the country’s infrastructure is too weak to operate anyway.
Our success in Libya, tested by the endless surprises the country has in store, encouraged us to go further. We have our eyes on regional expansion. Our unique growth story, which differs sharply from the aforementioned competitors, equips us with unique strengths. Strengths that I believe make up for our smaller bank account.
Playing table tennis with a tennis racket
My strong intuition is that in the markets we are targeting (Mauritania, Senegal, Cote d’Ivoire, Tunisia and Ghana) our competitors will be hampered by their size. Their model relies on wasteful spending to capture said markets, hoping that the resulting market dominance justifies their financial boom. But in the countries mentioned, this reasoning does not hold water.
As I see it, these markets have a strict limit on the maximum amount of daily orders they can yield. Some of them naturally cannot exceed 5,000 orders per day due to various socio-economic, infrastructure and other issues. Such a number is a far cry from what well-funded players need to break even and justify their continued presence. The global cost structures of these companies will not reflect the reality of the economic unit on the ground.
We take a more flexible approach. Our experience in Libya and the funding constraints we faced forced a return to fundamentals: increase your margins, reduce costs and make money. One of the most financially successful delivery services I know of in Africa was founded by a Senegalese pizza chain that started offering delivery services to its existing customer base. It doesn’t have to be that complicated.
We will not go into these markets with the desire to become the undisputed market leaders as quickly as possible. Instead, we will nibble at market share with the ambition to build a profitable multi-country business.
That’s why we prioritize private equity over venture capital to fund expansion. We believe that the markets we target simply do not have the growth or affordability that VCs are looking for. By drawing from the most relevant source of capital, we also increase the likelihood of financial returns for our investors.
Sources: Semaphore, Crunchbase, Tracxn
An Afrocentric solution
There is something I find amazing every time I travel to Tunisia. Virtually none of the active delivery apps are in Arabic. It’s all in English or French. Although it seems trivial, this presents a deeper issue: some of these apps are developed and designed by non-Africans, for Africans.
Presto is and will continue to take a different approach. When we expand to Senegal, we want to hire Senegalese developers and not keep product development in Libya. We want to incorporate Senegalese strengths, localization ideas and original thinking into the wider Presto code base. Our goal is to create integrated and relevant solutions for the markets we expand into. That starts with getting local talent to conceptualize and create it.
This also plays into a theme I am personally invested in: the underutilization of great African minds. It is shocking how many scavengers in Africa have the mental capacity to be engineers, doctors, lawyers and businessmen. The lack of opportunities is a cancer for the human resources of our continent. I think it is undeniably clear that technology solutions that serve African consumers must simultaneously utilize, shape and empower the vast pool of great talent we are fortunate to have.
Functional differences
The Afrocentricity of our solution will be complemented by another, more subtle operational difference: the internalization of our operations.
Our competitors tend to outsource some of their core business functions. While doing so eases the short-term pain, I believe the long-term consequences are dire.
Take payment handling for example. Many of our competitors, including us, offer a “cash on delivery” payment option. Nothing unusual here: cash is still deeply ingrained in African consumer habits, and not everyone has a bank account. In Libya, the only financial presence some of our users have online is their Presto account.
However, cash on delivery introduces a new level of complexity and risk. Indeed, your distribution guides are now circulating with the cash your users have paid for them. Retrieving it, to pay the restaurants from which the food was ordered, is obviously of the utmost importance.
Some of our competitors outsource such functionality to third party providers. We think it’s a liability and a waste of time. Restaurants are not paid until the cash is recovered from the drivers. If your third-party partner is slow or inefficient, the restaurants that work in your app and your margins take a hit.
We took the opposite route: we set up our own cash collection centers in the Libyan cities where we operate. If drivers do not deposit the cash received within 12 hours of delivery, their account is locked and they can no longer work. It’s definitely a fixed, upfront cost, but one we believe is absolutely necessary.
The same in-house logic carries over to other areas such as driver training and recruitment, which we have also developed in-house.
Expansion as a risk aversion strategy
If one wants to build a sustainable, efficient and profitable business, there is only one thing to avoid: killing the company. Avoiding such an unfortunate end requires compensation against all possible causes of death.
In Presto’s case, one of the elements that could kill us is ironically what gave birth to us: Libya.
The power vacuum created by Gaddafi’s death led to a quagmire in which the country still revolves today. In the simplest terms, the country has had two major political forces for two years, one is a UN-backed government based in Tripoli and another rival government based in the east of the country, backed by General Khalifa Haftar. A multitude of militias, with different allegiances, further complicates the matter.
Libya’s descent into full-scale war would obviously complicate our operations and our survival. An oil price shock will destabilize the country’s one-way economy. Expanding into different markets is therefore a longevity tactic. The same can be said for other African startups whose home market is beset by various ills, if not war, then severe currency devaluation or troubling political unrest.
More than an attractive business opportunity for which we are uniquely positioned, expanding regionally is also a logical risk mitigation move.
conclusion
Presto joins the race to develop Africa’s super app. We believe the end result of this mission will be a net positive for the continent’s consumers, workforce and technology sector, as it has been in other regions of the world.
However, we propose a different strategy. A strategy that incorporates less flashy fundraising but sound business fundamentals. A strategy that puts our product development in the hands of the people who will use it. A strategy enhanced by successfully scaling into one of the most challenging African markets to exist.
Africa’s future is technology and African technology must be resolutely African. We want to help write this story.
Ammar Hmid is its founder Quickly.
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