can-b2b-e-commerce-startups-innovate-their-way-out-of-tough-times?

Building a tech startup is the “new cool.” Well, it’s been this way for over a decade but gained peak acceptance in recent years. Raising millions of dollars only became popular in 2021, and the fintech wave is the youngest trend. Before fintech, e-commerce was the darling of investors. And since 2021, investors became more interested in B2B (business-to-business) e-commerce, pouring hundreds of millions into startups in this space.

The narrative fueling this sector’s growth is that Africa’s retail market is large, and consumer spending is growing. The Economist Intelligence Unit estimated that retail spending in the continent is more than $1.4 trillion. So there is a lot of opportunity for those who can connect the fragmented parts of the market.

According to Briter Bridges, a market intelligence platform, 28 African B2B commerce startups collectively raised more than $470 million since 2008, and at least 90% of this capital was raised between 2021 and 2022. In March 2022, Kenya’s Wasoko raised $125 million in a round led by Tiger Global.

In Africa, B2B e-commerce startups focus on connecting manufacturers with customers. They provide a convenient way for street vendors and small-store owners to replenish their supplies through mobile apps, WhatsApp, and text messages. These startups offer products at discounted rates and assist merchants with logistics, managing delivery using their own fleets or outsourcing to third-party companies.

However, this sector is going through a rough patch, like its B2C counterpart. B2B e-commerce companies are now grappling with a funding crunch and a tough market.

Earlier this week, TechCabal reported that Twiga Foods, a B2B platform that connects farmers and food vendors, laid off its entire sales team in 2022. In March 2023, Zumi, a Kenyan B2B e-commerce startup, shut down due to its inability to raise capital. In January, Wabi, an e-commerce platform backed by Coca-Cola, announced it was shutting down operations in five African markets, including Nigeria, Kenya, and Egypt. Before its closure, the business had heavily discounted its products to drive customer growth. Late last year, MarketForce, a Kenyan B2B startup, had a round of layoffs six months after raising $40 million in funding, citing harsh market conditions. This pattern is raising concerns about how difficult it is to be a distributor in Africa, tech startup or not.

Yesterday, Twiga let go about 60% of their sales team of 450 in Nairobi, citing harsh business environment.
We always tout innovation as a watertight solution. But FCMG distribution has been showing players fire for a while. Seems it doesn’t matter if you’re traditional or not.

— Spry Voice (@SpryVoice) June 6, 2023

The popular narrative around B2B e-commerce often pits them against traditional distributors. It’s the same way fintech gets tipped as the ones to overtake traditional banking institutions. But this narrative, for the most part, isn’t practical. It doesn’t account for the market’s complex nature and the difficulty in making entire communities change mindsets already ingrained in them.

When I saw what all the B2B startups were trying to do, I warned many of them that it will be hard to replace entrenched incumbents who benefit from zero-interest supply chain credit but they didn’t listen. African distribution is more of a community play than an efficiency play.

— Osaretin Victor Asemota (@asemota) June 6, 2023

Over the past few years, B2B e-commerce startups positioned themselves as replacements for traditional middlemen who charged high markups. Many tried winning the markets by storming them with discounts. It’s the same approach fintechs and neobanks have used in their bid to beat traditional banks: charging little to zero for transactions to win over customers. It’s a high-growth strategy, which many have started finding difficult to sustain. It is now becoming clear that a price war is not enough to win the markets long-term. Also, more people have seen the flaws with applying the Silicon Valley playbook in the African market.

Until we leave the Silicon Valley mantra and try to build community-first models, we can never crack retail fully in Africa. What the Lebanese and Indians are doing is only the tip of the iceberg. The volumes below are HUMONGOUS!!! pic.twitter.com/ofc6ogzNlh

— Osaretin Victor Asemota (@asemota) June 6, 2023

Nevertheless, the fact that B2B e-commerce startups are having a tough lap doesn’t mean they are losing the race. It’s only a reality check, that Africa’s seemingly “broken” markets are a feature, not a bug. And players who want to change the game have such a high mountain to climb that they will have to either evolve or die.

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