This year, the global tech ecosystem, especially in Africa, witnessed significant shifts due to the economic downturn. The impact reverberated across the entrepreneurial landscape, prompting adaptations in fundraising, investor strategies, and market dynamics. The familiar rhythm of funding announcements that once resonated through the headlines in previous years now harmonizes with a new tune of resilience, profitability, and sustainability.
Founders have moved the goal post from these fundraising milestones to maximizing capital to stay afloat.
Investors on the other hand seem to be diversifying their portfolios by concentrating capital on markets where the revenue opportunity is exponentially large. There has also been a flight to fundamentals where only companies with strong unit economics and strong growth will likely stand out amidst the liquidity crunch.
In this piece, we spoke with Jessica Long, CEO and co-founder, Maad to get a sense of how her team is building a cash flow-positive business and how they are riding against the tides. Maad is modernizing informal retail in Francophone West Africa by unlocking supply chain efficiencies to deliver everyday household products to thousands of small shops.
How has the market downturn impacted your business, in particular?
The market downturn has completely changed the fundraising climate. Valuations have been slashed, and investors don’t have money to invest. Risk tolerance has shrunk: the investors we talk to no longer want to invest in new markets and profitability has taken center stage in investors’ evaluations.
Our operations have stayed largely the same, if not strengthened by the financial collapse. Maad’s business makes everyday products available to most of Dakar’s population. In times of downturn, demand for core needs remains unchanged.
Anglophone competitors have retreated from West African markets (Dakar and Abidjan) to focus on the unit economics of their core businesses. This puts us in a strong position to establish ourselves as a clear market leader in our core markets prior to direct challenges from pan-African competitors.
In light of “scarcity of capital” have you had to make changes to ensure that your business is capital efficient? Have those changes been impactful in any way?
Maad has always run a capital-efficient business, with a small HQ team tackling big growth objectives. In light of the financial downturn, we completely restructured our operations to accelerate our profitability window. We shut down two warehouses and consolidated all operations into a single 1000m2 distribution center. We put our focus on revenue generation: increasing margins and building warehouse efficiency.
As a result of these changes, we reached ops-level profitability in Q2, 2023. Our company is now default-alive with no further fundraising: burn rate on the time horizon needed for company-level profitability costs less than the money we have in the bank. This puts us in a strong negotiating position for fundraising. We still want to raise money to accelerate growth, but we can do so on our timeline and our terms.
How did you communicate these changes to your team & keep them motivated? How about your investors & other stakeholders?
Our team has always been excited by the growth they see around them, month after month. We frame the changes in the operating model in terms of self-sufficiency. By putting the company in a position to operate profitably, it allows us to chart our own destiny.
Investors are already bought into the capital-efficient narrative that we have always been partial to, so it’s been an easy shift to make with them!
What are some key metrics that you track to measure your startup’s capital efficiency?
We use multiple margin calculations:
- GM1: Margin between price of products purchased vs. sold
- GM2: Margin after the cost of last-mile logistics and warehousing
- GM3: Margin after sales and marketing
We set separate objectives (around supplier relationships, minimizing shrinkage, logistics costs, etc) to push each of these margins further.
How are you balancing the need to conserve cash & prioritize growth with sustainability & profitability?
Needing to stay alive has made it easy to prioritize: we’ve done everything we can to put ourselves in a default-alive position. This has meant:
- Accepting that international growth will come more slowly
- Basing operational scale-up on actual cash generation of existing ops
- Prioritizing innovation initiatives in proportion to their provable revenue generation potential
It’s an interesting experience for us, having less room to experiment, and needing to prove the business value of every initiative we invest in as such a young start-up. But it puts us in a great position to scale up profitably, with basic unit economics already proven out.
How are you approaching fundraising during this downturn, and what have you learned from previous economic crises?
We’re taking things more slowly. We’ve reduced the money we’re seeking, scoping out a minimal amount of money needed to become a clear market leader in our home market, generating revenues that are in line with a Series A raise. We’re shopping around for investors who are still deploying capital right now and are still sold on the size of the opportunity we’re going after, the possibility of owning easy access to fast-moving consumer goods at a national level.
Our capital-efficient business approach means that we generate more revenue and get closer to profitability for every month that we wait.
There are a range of new opportunities emerging in the tech industry in Africa, how are you positioning your business to take advantage of them?
We believe that we are creating tech opportunities in Francophone Africa! Recording the largest ledger of digital transaction history for small businesses positions us to both make and take advantage of the next wave of merchant fintech plays.
To put this simply, Maad adapts by restructuring operations, achieving operational-level profitability, and positioning itself as a market leader in core markets. The company also communicates changes to the team as a move towards self-sufficiency, while investors are aligned with the capital-efficient narrative.