I touched briefly on this yesterday in my post. There’s a problem that inevitably faces many startups in Africa where a strategic decision must be made whether to work with an MNO or not. For most, that decision is closer to the question of how much of the business model are they willing to rely on the MNO for? The fact is that the MNO’s are gatekeepers to most of the digital economy in Africa. They own the mobile money networks, the agent networks, cell phone access, and internet access. It’s a great position to be in if you’re an MNO because everyone wants to work with you, and you can dictate the terms. For the reasons previously stated, startups view the MNO as a great channel to reach customers. I’m willing to say that if you look at a collection of 10 of the most successful startups in Africa, 8 of them have business models closely intertwined with an MNO. That means MNOs do provide a lot of value to startups. But with that value comes a significant amount of risk. Some of these risks include but are not limited to:
- The MNO will take a piece of any revenue or sales you generate on their channel.
- They might have hidden fees in parts of the journey, making it more expensive for your customer.
- If you become successful enough, they might decide to dictate your price point to the customer.
- They might copy your model and push you out.
- They might renegotiate your fees when a new CEO joins.
- They might change your product if they think it’s affecting their business model
- They might give your business model to a competitor
- They might just cut you off if they don’t like you anymore.
These are all things I have seen happen to startups since my time working in the space. It’s usually resulted in the startup dying a slow painful death. Sometimes, the startup is able to pivot, but that’s rarely the case. It’s important to understand that while MNOs can provide massive value to a startup, the risks of them extracting rents on your model in the future are pretty high. Be careful!