Why and how to start a startup serving emerging markets

Wave is a for-profit, venture backed startup building cheap, instant money transfer within various countries in Africa. Since launching in 2018, we’ve become by far the biggest money transfer service in Senegal, used by over 50% of the adult population every month, and saving our users over $100 million so far. Our roadmap is to expand throughout Africa and launch every other type of financial service our users need, which we expect to have an orders-of-magnitude bigger impact if we succeed.

Wave’s mission is to improve the world, not to make money. Despite that, we operate more like a tech company than a social enterprise. Our investors are venture capitalists trying to make a high return, and they hold us to the same standards of growth rate and unit economics as any developed-world startup. This might seem like a downside (surely it would be easier to directly optimize for impact rather than have pressure from investors to make money?), but for us it’s actually increased our impact in two ways. First, the pressure to grow quickly forces us to make our product better and scale faster, so we help more people by a larger amount. Second, since we’ve done really well by for-profit investors’ standards, we can raise much more money than a nonprofit or social enterprise.

In my opinion, Wave’s path—importing the US startup playbook to developing countries—was predictably high-expected-impact ex ante. First, starting a company generally has high expected impact: the social benefit of innovation is usually a large multiple of the private return. Serving an emerging market adds another multiplier, because the problems you could work on are much worse. (Providing someone $5 of value means a lot more when $5 is their day’s wages!) Finally, there’s more low-hanging fruit for companies to work on in developing countries, because the supply of skilled entrepreneurs is smaller.


On the margin, then, more altruists with experience working in the developed world should try this approach. I feel safe saying this because very few people (altruistic or not) currently seem to.

This is surprising, since lots of developing countries now have the infrastructure to support tech companies. In big cities like Dakar, Nairobi, Addis or Lagos, there’s mostly-reliable electricity, decent internet, high smartphone penetration, driveable roads and so on. But there aren’t many great startups taking advantage of them. (According to our investors who pay the most attention to Africa, Wave is by far the most promising.)

Why isn’t the space more crowded? I’d guess it’s because creating a great product requires two things: being maniacally perfectionist, and deeply understanding your users. To be maniacally perfectionist, you need to be immersed in a culture with really high product standards (for instance, Silicon Valley). To understand your users in Africa, you need to live in Africa. The intersection of these two groups is practically no one, because most people who could live in Silicon Valley would much rather not move to, say, a former tank base in the middle of the desert (where many of my coworkers lived for years).

One way to think of Wave is as an importer of high standards. For instance, in most mobile money systems in Africa, if you try to make a large withdrawal, your local agent may not have enough cash—it could take them hours or days to come up with the money. At Wave, we realized this made users sad, so we started predicting how much cash our agents would need and working with them to make sure they never ran out. This was a lot of extra work and risk for us, but led to massive adoption from traders—with funds available instantly from Wave, they could often turn over inventory literally twice as fast. Every way in which Wave beats other mobile money systems has followed a similar playbook: notice a problem, then try really hard to solve it even when it seems extremely difficult.

The “local context plus high standards” theory suggests a simple (though not easy!) strategy to build a high-quality business that helps the global poor:

  1. Move to a developing country to understand your future users.
  2. Learn the startup playbook (for instance, by doing Y Combinator).
  3. Start a business whose users are in the place you live.

The remainder of this post fleshes out this strategy. I’ll restrict my discussion of location mostly to sub-Saharan Africa, since that’s the region I’m most familiar with, but I’d guess it would work in other developing countries too.


The first important decision in this strategy is where to move to. Here, I’d (roughly) rank the most important criteria as:

  1. Minimal language barrier so that you can understand your users and coworkers
  2. Good enough infrastructure to support a tech startup
  3. Somewhere you like living, to minimize your risk of burnout
  4. Strong enough institutions that your expropriation/corruption risks are low
  5. A large addressable market

For an English speaker, the top few places would probably be Lagos, Accra, Nairobi, Kampala or Dar es Salaam (though I’m not too confident in this because I’ve never lived in any of these). If you’re considering this strategy, I’d recommend researching them all, visiting multiple and choosing the one you’re most excited about.

You should probably spend some time just learning before trying to start a business. While you’re doing that, it will help to work somewhere else—ideally somewhere that will expose you, not insulate you, from what daily life is like for most people. For this, NGO or “voluntourism” type work might actually be useful. For instance, Drew, Wave’s CEO, started thinking about money transfer after running a nonprofit selling hand-carts in Tanzania for a few years, and experiencing the pain of trying to send money to his own business.


The second important decision is what to work on. If you talk to a lot of people about their problems for a few months, you’ll be more of an expert than me on this—I’ve lived in Africa for a couple years, but I was already working for Wave at the time so didn’t look too hard for other ideas. That said, I’ll give some of my guesses.

The biggest business gaps in the developing world are the ones where products built in the developed world don’t generalize well to new contexts. For instance, credit/debit cards barely exist in developing countries, because most customers don’t have bank accounts and most merchants can’t afford a card terminal. You’ll find many other instances of that kind of gap.

Here are a few I’ve noticed. They’re skewed towards financial services, but should give you a general idea of the types of problems.1


Last, a few thoughts on how the “Silicon Valley startup playbook” needs to change in a developing-country context.

If you’re not local, you will make a lot more mistakes because you don’t understand your users or your context. It’s way harder to build a good product when your users can’t read, or when you have to spend two weeks chasing a telecom to get permission to send text messages. That means it’s even more important to learn quickly from your mistakes, and you should expect to iterate for a long time before finding product/market fit.

Even if you’re in an Anglophone country, you’ll need to be “bilingual” between local and tech-startup norms. At Wave, our internal culture emphasizes honesty, transparency and autonomy, which is very different from a typical, say, Senegalese work environment. Some of our most important hires were people who were exceptional at “code-switching” between the two—they helped us work much more smoothly with local partners, and made a huge difference to our product and strategy.

If you’re in a country with weaker institutions, the risk of corruption or expropriation hurting your business is much higher. Compared to the developed world, it’s much harder to “fly under the radar” of either the government or your competitors, and they will also probably be less scrupulous. Start working on mitigating this risk (by having powerful, well-connected investors or business partners) earlier than you think you need to.


If you’ve read this far and are interested in starting (or joining) a company that helps people in emerging markets, I’m happy to talk more! Just get in touch.

Thanks to Eve Bigaj, Drew Durbin, and Lincoln Quirk for reading a draft of this post.


  1. These are weakly held examples—you should validate them for yourself, thoroughly, if you’re interested in one. ↩︎

Comments

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Max

Thanks for writing this!

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Mustafa

<3

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Danny

This is good info! Thanks for sharing your thoughts.

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Wang

I’m a bit uncomfortable with the framing of Africa as devoid of high product standards:

To be maniacally perfectionist, you need to be immersed in a culture with really high product standards (for instance, Silicon Valley).

Typically, people who look like they’re weirdly underperforming are actually optimizing a different metric, and it’s worth understanding what that is.

E.g., pre-modern subsistence farmers often pass up easy wins in efficiency and productivity because they’re not maximizing production but rather minimizing risk: https://acoup.blog/2020/07/24/collections-bread-how-did-they-make-it-part-i-farmers/

So, in your example of banks regularly running out of cash, I’m curious what was happening such that this was a rational response. Were the banks themselves having liquidity issues? Competing on other competencies? Lacking the skilled workers to diagnose and solve this problem?

Ben

To be clear, I don’t think most companies in Africa are “weirdly” underperforming, or underperforming that much more than, e.g., a typical second-tier bank in the US, which also has abjectly poor product standards (or did the last time I used one).

It seems tendentious to describe optimizing-for-a-different-metric as “typical.” I don’t think it’s worth, for instance, understanding whether people who score a zero on the Putnam are actually trying to write down the answer, or whether the typical failed startup was actually trying to increase their valuation. It’s a normal state of affairs to have wide variance in execution ability even among the set of people trying to optimize a given metric.

I have lots of theories about why other mobile money companies might make bad products, but given that making bad products is the default state of almost every company everywhere, it seems overdetermined enough that I don’t expect the answer(s) to be enlightening about anything in particular.

(I’ve edited one line of the post which made it sound like building good products is more trivial than it actually is.)

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Ben

A couple readers have asked whether, if you’re from a middle-income country, it still makes sense to try to build for a lower-income country instead of your home country. I think this depends a lot on the country, but many middle-income countries still have a lot of people below the global poverty line. If you live in one of those countries, the advantage of better local context and connections quite plausibly outweighs the disadvantage of there (maybe) being relatively less low-hanging fruit.

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Lucas

This is quite insightful. Thank You!

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Ben

Great, really insightful! I would take some issue with the point on tradespeople. In my experience living in Benin, there was a glut of people going into trade/vocational schools because university was expensive. Distinguishing quality/honestly was much more of challenge and was best done through social networks

Ben Kuhn

That’s why I said “find good skilled tradespeople” :)

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Andreas

Great post. Local context/high standards makes for a great operating mantra.

One area I’ve found this challenging to pull off is hiring. Most westerner’s impulse would be to either try to do salary arbitrage and hire local wherever possible, or to hire peers only and avoid having to invest in training. Hiring local turns out to be essential in some areas (sales, biz dev, legal) and challenging in others (engineering, product). In some functions like engineering local context simply doesn’t matter as much — or is easy to acquire —but it can be especially costly to import high standards. I’d say on balance we probably over-indexed on local context early on. Importing high standards can be tough to pull off for a startup if you don’t have the time and resources to invest into training. My own conclusion has been that you need the core team/early hires to bring those high standards already to the table. Building up local context feels easier/faster than acquiring high standards.

Understanding your users by spending time in your target market is another interesting aspect. I’ve found this is definitely possible even if you start out without much local context. But since business culture in Africa is so heavily personality- and trust-based, it’s still essential to have people with existing relationships on the ground. Especially key in a regulated sector. I’ve seen some people try to set up shop in Africa fully remote, without boots on the ground. It has not worked out well.

Lots more interesting sides to this. Thanks for the post, got me thinking about this more deeply again.

Ben

These are great points that definitely resonate with my experience at Wave!

We ended up having a pretty clear split between remote (fully distributed, hiring some from Africa but majority from elsewhere) and local orgs (works onsite in each country, populated near entirely by local hires). Remote orgs were product, eng, data, security, “country launchers”, a few key bizdev/finance/IT hires, and some admin staff supporting the other remote orgs (eg remote recruiters). Local orgs were everything else, so basically everyone involved in actually operating mobile money scoped within a single country.

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