Notes From My Jumia Case Study

So, I’ve spent the past couple of weeks working on case studies of various Nigerian/African Unicorns, answering questions like what they did? How they did it? And what you can learn from the strategies they’ve employed.

Last weeks case study was on Jumia group, the first (supposedly) African unicorn to list on the New York Stock Exchange.

These are my notes from that case study.

Note: If you’re a big fan of Jumia, and you’re very sensitive, you probably shouldn’t read this.

Understand your Market

I usually start my notes with something about markets, and there’s a reason for that. The Nigerian, and by extension African market is a very complex market, and the better you understand and grasp it, the less your chances of bleeding investors (or your) money to nowhere. Jumia is the perfect reason why you should never enter the Nigerian market without understanding it.

I’ve always said that copying and pasting without reasonable modifications doesn’t work in Africa, some agree, some do not, however Jumia is the reason you definitely shouldn’t do so.

Jumia’s original investors Rocket Internet have a reputation for copying and pasting, they did this with Billpay, Alando, and Studivz (PayPal, Ebay and Facebook clones respectively), went scott free and apparently walked away with hundreds of millions of dollars before landing in Africa and learning the hard way that jumping out of an airliner with a parachute without finding out how it works (understanding the market) is not being proactive, and learning on the go.

Jumia’s strategy was to quickly take the eCommerce space in Africa and solidify their lead, and because everyone keeps saying Africa is the next billion, they forgot to ask enough questions and find out if this was a market ripe for eCommerce, if they had asked enough questions, they would have realized that eCommerce is a niche business here, a good number of Nigerians can’t afford eCommerce, most transactions still tend towards cash and majority of their target market prefer offline to online retail. But they didn’t, they just drove into the market head on without brakes, seat belts, or even an airbag. They probably didn’t have a drivers license. Makes me wonder what they had on the pitch decks they were showing investors, they must have had WeWork’s sweet talking Adam Neumann on their team, but I digress.

When I was in Boarding School, and my house (purple house) needed someone to represent them in a race, someone who could sprint large distances in the shortest possible time, I was definitely not the guy to call. If they needed a rapper, I was the guy (don’t ask me why) but running was definitely not my thing.

I thank God that Stripe bought Paystack, and at least it got into International venture capital news, if not, the fact that the business that represents the innovative and entrepreneurial drive of a continent of 1.2 billion people in the largest stock market on the planet is an unprofitable eCommerce business founded by two Frenchmen, that has so far lost more than a US$1 billion, is still on track to losing more and has no clear path to profitability is disturbing. Jumia is the perfect idea of what a bad example looks like.

Jumia is the reason I was never allowed to play football on a competitive basis when I was in boarding school (don’t ask me why).

Calling Jumia the Amazon of Africa is extremely misleading, calling Jumia the Amazon of Africa is like calling Innoson motors the Toyota of Nigeria. Innoson motors is more of a Lockheed Martin (Government Contractor) than a Toyota.

In my opinion, Jumia is the black WeWork that mysteriously found its way to the NYSE (New York Stock Exchange), after burning billions of dollars in venture capital and investors money.

Jumia is the reason your mum always wanted you to wear nice clothes when you went to church on Sunday, so you could represent her well.

To create some context, Jumia and its subsidiaries are active in 11 African countries representing a total market size north of 600 million people, out of which it only has 6 million active users around 1% of its market size (I wonder what their definition of an active user is, Boomplay has 44 million active users; they define an active user as anyone who has logged into their platform more than once, I have never bought anything on Boomplay in my life, yet Boomplay defines me as an active user.), whereas Amazon’s American market which is around 300 million people, out of which 59% of its American users (95 million people) are signed up to Amazon prime.

With a market size twice that of Amazon USA, Jumia has a GMV (Gross Merchandizing Volume) of US$1.1 billion whereas Amazon USA has a GMV north of US$100 billion, a 100x multiple. I personally think that calling Jumia the Amazon of Africa is an unfair description of both Amazon and Africa.

Because there’s a need in a market isn’t a requisite for you to innovate for that market, there needs to be enough people in that market that can pay you for your solution. What you run is a business, not a charity.

Creating value is just one part of the puzzle, you also need to think about how to extract value.

If you think I’m being too harsh, you’re right, but after exiting their complete 11% holdings at Jumia, I have strong reasons to believe that Rocket Internet shares my sentiments too.

Start with Infrastructure

Every tech business falls into one of three categories; businesses that build Infrastructure (Flutterwave, Paystack, Interswitch, Intel, Qualcomm), businesses that build a product on top of existing infrastructure (Uber – Google maps, Tecno – Mediatek chipsets, HP – Intel, your eCommerce store – Paystack), and businesses that build both infrastructure and a product at the same time (Apple-IOS-A11 Bionic chip, Samsung – Exynos, Google Pixel – Android), however once in a while, some business high on venture capital comes out of nowhere to do the unthinkable. Once in a while, a business comes out of nowhere to build a product where there is no infrastructure. The VC smoking tech startup of our generation is Jumia group.

Looking at Jumia’s financial reports, you’ll notice that a good part of Jumia’s expenses comes from fulfillment costs. Nigeria doesn’t have the appropriate logistical infrastructure for eCommerce, and you’re either faced with building your own infrastructure (which is another problem to solve entirely), or using venture capital funds to subsidize the cost of fulfillment.

Amazon has the US postal service to rely on, Jumia has the Nigerian postal service to rely on. This is why Jumia is still unprofitable.

Identity

Is Jumia an African business? Short answer: no.

Long answer: A business that has it’s headquarters in Germany, product team in Portugal, and senior management in Dubai cannot walk up to me and tell me it’s an African business because it innovates for the African market.

Transsion Holdings makes 75% of its sales in Africa, and they don’t call themselves an African business.

Transsion has probably made more profit this year in Africa than Jumia has made since incorporation. Why? Because Jumia hasn’t made a profit.

The Bright Side

It’s not all gloom and doom, there’s also a bright side; Jumia has raised more venture capital money than any African Startup I know of. To put this into context, from 2010 – 2019, West African startups have raised US$1.8 billion, Jumia alone has raised about 40% of that amount at US$823 million, there’s definitely a thing or two you can learn from Jumia on fundraising.

On its path to profitability, Jumia has chosen to spin off Jumia Pay and Jumia Logistics. Jumia Pay is presently enjoying good adoption, growing at double digit speeds, and has a huge marketplace it can take advantage of, so there’s a lot of potential there.

I personally don’t see a concrete future in eCommerce as a mass market service in Nigeria any time soon. eCommerce scales massively as a niche product, think about all the people selling clothes on your WhatsApp and Instagram feeds, and the fact that there are more dispatch riders parked in Computer Village Ikeja, than there are human beings moving there (this is obviously a joke, but you get the point), but as a mass market product that you want the average Nigerian, and by extension African to use on a regular day to day basis? I really can’t tell.

Jumia has plans to go into groceries/FCMG deliveries soon, a large volume, small margin business segment. Would you prefer to order toothpaste on Jumia and wait for an hour or more to get it delivered to you, go out yourself to buy it, or find someone at home that isn’t doing anything and plead with them to get it for you? Your call.

Inspired by the Holy Spirit

P.S if you work at Jumia, invest in Jumia, or have a personal relationship with Jumia beyond just using their site, and you find this post offensive, I apologize for my humor, that’s just the way I write.

P.S 2: I’m presently working on an eBook where I go deeper into market segments, business verticals, and a couple of other stuff required to build billion dollar businesses here in Nigeria. If this is something you’re interested in, you could click here to my landing page and signup to get notified when it launches, get early access, and a 30% discount when it finally goes live. (https://mailchi.mp/bf9bc6f5788c/ebook)

Disclaimer: These are my views, and do not represent the views of Tekedia or Prof Ndubuisi Ekekwe