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How did a 30-year old Nigerian and a Ghanaian – Tunde Kehinde and Raphael Afaedor – grow their local e-commerce startup into a multimillion dollar company in less than year?
VENTURES AFRICA – I was chatting with a colleague, as we drove to Jumia’s Lagos corporate office, when he asked rhetorically: “Why would JP Morgan be so interested in a 5 month old Nigerian startup as to invest millions in it?” Well, I was eager to know too.
Africa, home to six of the world’s fastest growing economies, has caught the entrepreneurial bug but an ubiquitous lack of funds has kept its entrepreneurs from marching. Minutes into meeting Jumia co-founder Tunde Kehinde, he would have me know having an amazing powerpoint business plan isn’t the key to investor funds.
“With the little crowd funding you can get, test your business concept and prove it makes money,” he tells me. “That way you become irresistible for investors.”
His partner, Raphael Afaedor chips in: “We had to quit our jobs and put all our effort in what we believed. Often, working 16 hours a day, sometimes more.”
Raphael was laid back, but spoke with rare speed. Spitting an average of 3 words per second, he would give Eminem a run for his money. His business-like countenance, tucked-in white office shirt and black trousers, made him look like the boss at the Jumia office.
Tunde on the other hand, with the rest of the Jumia team appeared youthful and casual.
At the online retailer’s office, dozens of under-30 year olds carrying Jumia tags could be seen in jeans and sneakers or fashionable clothing. Self expression is uninhibited, ideas are encouraged. It’s the kind of place a millennial would love to work. It isn’t the conventional Nigerian work setting – for a second, I thought I was in some sort of Google workspace.
Hanging on the walls at the lobby are two aluminium frames. One reads: “Best People for the Best Team.” The other, a sort of guideline for interaction between the staff, reads: “Challenge ideas but Respect everyone.”
When Raphael and Tunde first conceived the idea of building an enduring online ‘shopping mall’ for the Nigerian market, they had never met. Raphael was Head of Marketing and Sales (West, Central & North Africa) with Notore Chemical Industries while Tunde Kehinde was in the UK assisting alcoholic beverage multinational Diageo, to acquire valuable African brands. Both had also studied at Harvard Business School (and Tunde had tried his hands on Bandeka.com, a dating site for young African professionals) so they had received some training for their impending entrepreneurial pursuit.
Word got around about two guys talking about e-commerce opportunities in Nigeria and by a stroke of fate they met through a mutual contact. 10 days later, the pair started building their first general merchandise store; only this time, the store was to be online. The name was Kasuwa. The strategy was simple – boycott difficulties associated with shopping at the mall – traffic, long queues, stress, time constraint – by providing a user friendly online store with competitive prices, thereby making shopping convenient.
“Why wait till weekend before going to the mall when you can shop at the press of a button and have your purchase delivered to your doorstep?” Tunde wore a wide grin as he made the statement.
The business of delivering electronics, computers, fashionable items, et al across Nigeria’s 36 states is not an easy task. The boys had to quit their jobs and take a risk. Little did they know Rocket Internet, a german internet Venture Capital was seeking opportunities in Nigeria. Like the American billionaire Paul Getty who struck oil at an early age, the young men had struck gold. Rocket Internet, also owners of South Africa’s leading fashion online retailer Zando, met the duo and decided to invest in Kasuwa. June 2012, Kasuwa.com was officially launched.
“It’s not just getting money that matters,” Tunde explains. “Get smart money.”
“Investors that can add value to you, open doors and help you network, will help you run faster against competition.”
Not only does Rocket Internet funds Kasuwa, the group also shares with Raphael and Tunde its network, expertise and vast experience operating e-commerce, including a billion dollar business, in several continents.
An introduction of the German group on its website reads: “Rocket is much more than a venture capital firm or an incubator. We bring together all key elements required to create great companies: team, concept, technology, and capital.”
It’s one thing to have all that support though, it’s another to understand the market and rightly execute market entry strategy in a peculiar one like Nigeria. The first four months were really rough for Kasuwa. Just two months after launch, reports of a brand name change from Kasuwa to Jumia “due to legal issues” filled the online media. Subsequently in September, Jumia and Sabunta – a Nigerian online fashion store, also supported by Rocket Internet – downsized and merged, shedding off around 50 employees, some earning as much as 6.5 million naira ($41,000) per annum.
Raphael says, “the name Kasuwa wasn’t catchy. We wanted a name that could sell, even in other African countries.”
And Jumia sold. With a workforce of less than a hundred, a 12,000 sqft warehouse, omnipresent Google ads, effective marketing campaigns, and countless overtimes, the new brand quickly gained wide acceptance, recording about 40,000 site visits daily – more than Amazon’s site visits from Nigeria – and receiving orders from every state in the country. “The early acceptance surpassed our expectations. We emerged 7th most trafficked site in Nigeria, the number one player in the country’s ecommerce space, and the business was profitable,” Raphael says with a hint of excitement.
It was only natural for J.P. Morgan Asset Management to grab some equity in the company. As hard as I pressed, Tunde wouldn’t disclose the amount of the JP Morgan investment but he was kind enough to tell the cash was “significant enough” for him to feel “very confident about growing the business to a really really large scalable platform for a long time.”
Analytics of top internet searches and inquiries (for products) from Nigeria informs the decision of which category and product is sold on Jumia. Now, the online store gets 70,000 visitors daily. A March statistics report by global web information company Alexa, says roughly 34 percent of visitors to the site are one page views. The remaining 66 percent of visitors spend an average of over 9 minutes per visit. If a-tenth of this group purchases an item (comprising mostly of electronics, mobile phones, fashion items) and Jumia makes a meagre $7 on each sale (the retailer receives products on wholesale), it is safe to assume the company generates $32,340 daily, approximately a million dollars per month.
“Our staff has grown to over 300 and we are expanding into a 66,000 sqft warehouse, only 4 months after we moved into our current 12,000 sqft warehouse,” Raphael discloses.
With Nigeria’s middle class growing tremendously, and consumer buying on the rise, Jumia’s investors seems to have struck another goldmine of the Nigerian economy.
Tunde says: “We don’t want to just make profit. We don’t want to be here just a few years. We want to establish something enduring, help develop e-commerce in Nigeria and provide that talented fashion designer with no shop, a platform to sell across Nigeria.”
The Author
Neo said on March 29, 2013 [9:39 am]:
I am ADEGOKE Seyi Taylor :- Let us get into more details.
-> First: Nigeria is not US and US is not Nigeria. So all the avg. eCommerce CR are applicable to matured and developed market where eCommerce transaction is routine thing. But yes you need to start somewhere so this numbers are fine as benchmark.
-> Redeye says avg CR is 3.5% , seewhy says it’s between 2 to 3%, shop says it’s 2.2 % whereas digitalmarketinsight says its 2.5% – | whereas top 10 sites avg conversion rate ranges between 12% to 23% – But later should not applicable as you can’t compare apple or orange | Jumia is not amazon
-> Now maths part: It’s well known fact that 60% of internet being access from mobile or 6 out 10 nigerian access internet via phone. You will find lot of reference that eCommerce CR from mobile 1/4 of desktop ecommerce CR (check emarketers or comscore report)
-> Now Back to Jumia : out of 70,000 Uvs – Traffic Split is 60% Wap : 40% web: and even If we double CR from standard CR which is (for WAP : 0.6% to 1.2% and for Desktop / PC: make it 2.5% to 5%) – You will end up with 1904 conversion and taking $7 as value per order total daily Revenue would be $13,328 / day or $399,840 / month.
-> So to Goke: Yes I agree that they don’t disclose all info; but if you apply some numbers and logic; you will have idea : 6.6% can’t be applicable here.
I am ADEGOKE said on April 3, 2013 [11:27 am]:
Neo, I personally conducted a survey in a business district area of Lagos. The result yielded an astounding 32% conversion rate! A particular respondent ordered 8 smartphones from Jumia visiting the site only 10 times! That is an 80% CR. This is not to say the 32% CR is reflective of the whole of Lagos state.
Also, because of the increasing consumer spending and poor distribution network, a lot of orders come in from outside Lagos state. Visitors from outside the state don’t go to the site to window shop, they visit mostly with the intent of making a purchase.
Lastly, Raphael said to me twice that the company is “profitable.” I think that is the most important thing.
Neo said on April 6, 2013 [3:58 pm]:
@ I am ADEGOKE : I think the question is not about if company is “profitable” it was all about revenue estimation based on whatever data we have. ! If they say company is “profitable” then I don’t see any point of dispute even though It’s Pvt company.
Coming Back to your CR: 1 person sample can’t decide company’s entire Conversion rate : so we can’t take 80% for sure. I also did small survey and found that despite of site is popular but when it comes to purchase and that too from mobile; hardly 3 /10 people bought from their mobile. – But I still don’t trust any of survey as sample size is too minuscule. We were talking industry avg. and not “Hey Hello” survey! Btw If you see my previous comment: highest top eCommerce site CR ranges between 12% to 23% that too in developed countries; So 32% for this company again is something unbelievable; if that has to be believed again then company is generating $4.7 million every month; and If that is the case it’s astonishing ; Not even Amazon was able to do that. !
I am ADEGOKE said on April 6, 2013 [6:15 pm]:
I included the calculation to project a picture of the company’s balance sheet. Going by your calculation of approx. $350,000 per month, Jumia would barely pay the salary of its 300 employees(use an average of a thousand dollars if you wish). Now tell me, is $350,000 in revenue monthly, considered profitable for a company the size of Jumia?
Neo said on April 6, 2013 [11:41 pm]:
Adegoke :
Very Good Question. Let’s understand this in this way;
-> Here we are not discussing whether company is popular or profitable etc; we were discussing what can be tentative revenue based on this site traffic and industry standard avg. CR – Also are we able to establish CR relationship viz other similar sites in this industry?
-> Ok; back to your question; based on this calculation of revenue how this site can afford to pay salary and If it’s profitable ?
-> Well Again check my comment; if company says they are profitable; so be it. but despite of this fact; I would be “devil’s advocate” – It’s pvt company and we don’t know the fact as they don’t disclose it and this is applicable to other pvt eCommerce as well.
-> Therefore we went through all this calculation. Now Q is which calculation is right ? Well Let’s take 2 cases
case 1: This site is earning > $1+ Million/month (your calculation) => It’s profitable but then they are performing crazily and exceptionally well and well above amazon, bestbuy standard CR !!!!!! And you are “Einstein” of entire eCommerce industry ! But one can argue; It’s still possible- Well it’s hard to believe again !
case 2: This site is earning > $350K+/month => It’s not profitable so how come it’s paying salary to 300+ staff ? Well by this argument all IT startup can not run if they are not generating profit initially ? There are many websites who did survive or even surviving with high pocket investment; – So Mocality, InMobi, Kalahari all were not profitable but the amount of money did they invest was crazy and still they were able to pay salary to their staff. – Therefore If you have deep pockets; question of affordability of paying hardly matters;
My take on :
If they are profitable – It’s good for us and for industry ; but I am still doubtful in CR calculation aspect.
michaelengadget said on March 11, 2013 [7:09 am]:
I think this article is crap. Jumia is a Rocket company with these 2 guys as front men. There is no way any Nigerian based e-commerce business can raise $26 million from American Investors without foreign backing. The Germans own this company and that’s why their execution speed is impeccable. You cannot go from running Bandeka.com to running Jumia without major backing. E-commerce, fulfillment and running a web application of that scale is no joke.
I am ADEGOKE said on March 11, 2013 [8:50 am]:
Sir Jumia Africa (and not Jumia Nigeria) got the $26 million investment. Here’s a link to the report http://www.ventures-africa.com/2013/03/nigerias-largest-online-retailer-secures-20m-equity-investment/
michaelengadget said on March 11, 2013 [8:03 pm]:
First I have to apologize for my poor word choice;calling your article crap. That was not necessary.
Next we are saying the same thing, your article portrayed them as Naija version of Jeff Bezos. You used the word co founder many times and gave the impression that JP Morgan invested milllions in Jumia. “Why would JP Morgan be so interested in a 5 month old Nigerian startup as to invest millions in it?”
This is a Rocket company. These guys have to be good, but they work for Rocket. This is technically not a Nigerian start up.
I am ADEGOKE said on March 12, 2013 [10:31 am]:
Apology accepted!
First, Raphael’s Jumia designation on LinkedIn has ‘Co-Founder’ on it.
Second, the boys resigned from their jobs and started working on Kasuwa before they met Rocket Internet. It was there idea. I believe if they had no funds, they wouldn’t have resigned to start the venture.
Third, I can’t disclose all but do you really think JP Morgan would invest a trifling fee like $500,000 or anything silly like that in a venture? Have they ever in the last decade? Better believe they invested millions.
Lastly, this story is about 2 Africans having a dream and securing funds to grow it. It doesn’t matter whose money it was. Facebook didn’t grow on Zuckerberg’s money, yet he gets all the applause for it and has major shares in the company! Ditto Google! Selah!
I am ADEGOKE said on March 12, 2013 [10:41 am]:
Please follow me on twitter. Let’s talk.
I am ADEGOKE said on March 11, 2013 [11:47 am]:
Besides, it takes more than heavy capitalization to make a company profitable. I believe InMobi, Mocality etc were well funded companies too…
I am ADEGOKE said on March 11, 2013 [12:06 am]:
@ Seyi Taylor. Here’s what I found online sir.
E-commerce websites report an average
conversion rate of 2.2% according to shop.org
Top 10 converting e-commerce sites report an
average conversion rate of 12%
My calculation in the story above represents 6.6 percent conversion rate.
I am ADEGOKE said on March 10, 2013 [11:45 pm]:
@ Seyi Taylor. I did ask. No organization would divulge such internal/private information. And the calculation is based on 10 percent of the 66 percent that spend an average of 9 minutes on the site. So that’s actually way below 10 percent of actual site visits.
Seyi Taylor said on March 10, 2013 [11:08 pm]:
“Analytics of top internet searches and inquiries (for products) from Nigeria informs the decision of which category and product is sold on Jumia. Now, the online store gets 70,000 visitors daily. A March statistics report by global web information company Alexa, says roughly 34 percent of visitors to the site are one page views. The remaining 66 percent of visitors spend an average of over 9 minutes per visit. If a-tenth of this group purchases an item (comprising mostly of electronics, mobile phones, fashion items) and Jumia makes a meagre $7 on each sale (the retailer receives products on wholesale), it is safe to assume the company generates $32,340 daily, approximately a million dollars per month.”
I don’t understand this math at all. Since you went to Jumia’s office, why didn’t you ask Raphael what his numbers were instead of jumping through mental hoops? And what’s ecommerce’s standard conversion rate? 10%? Really?