Andela cut 420 staff today as part of a major restructuring. I personally do not think it is just an operational restructuring; I see a company preparing itself for an IPO. Yes, from all indications, African operating startups would be expected to be profitable in NASDAQ or NYSE as I examine the paralysis Jumia is undergoing in NYSE at the moment. From all indicators, Jumia has the same trajectory with many peer-U.S. firms – growth and losses. But while some of those U.S. firms are trading north, Jumia is bleeding market cap.
By pre-layoff numbers, Andela had 1575 engineers on board. Big job cuts usually point to financial distress and decreasing demand for a company’s goods or services. That’s not the case with Andela’s personnel move, according to Johnson, who describes the layoffs more as a result of misreading the market.
In a Q/A session last week in a Fund event, I did explain that going forward, I will suggest to African operating startups to attain stable profitability before listing outside the continent even if they have to sacrifice growth. Profitability is the only way to assure investors that market risks are under control: growth has failed as Jumia case clearly shows. I have called this issue gestation to profitability challenge.
The gestation period to profitability in a typical Nigerian startup is long. That long gestation is also the reason why many startups or small businesses collapse few years of founding. Typically, one way to deal with this is to raise capital, ramp up market entry to grow fast enough to attain profitability. But in our extreme volatile economy, if the timing is off by months, the company can collapse.
Quickly, using Jumia, I came to the conclusion that U.S. market wants to see profit even at lower revenue growth for African startups. Andela is not profitable yet; these cuts will help on the march for profit out of the projected $50 million revenue it will make in 2019. By then, everything will come together for that 2021 IPO (my prediction).
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On Andela’s $50 million in 2019 projected income, “It’s the first time we’ve ever confirmed anything on revenue,” said Johnson ? who acknowledged the venture is still not profitable.
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The problem with raising millions of dollars is that, once these startups collect those fat cheques, they lose both their mind and way.
The only innovation becomes how to raise more money and record more losses, the issue of profitability is always muted, there’s never a clarity on that point.
Let’s keep watching, only that all the stories are always heading in the same direction…
I have always been of the opinion that profitability is key no matter the revenue generated.