Next Wave: What’s going on in Kenya’s B2B space?

Kenya's business environment can be brutal for companies with a lean financial model. [Read the newsletter in your browser.](=.MMvzvVfite22HnYPo4vDFeiWA4EIIy5XKcRytTWeYi8) [Cet article est aussi disponible en français](=.9S4U3RcYftYln8ju-SfFcmG-dMyVAs0xz1xjBSdglN0) [Next Wave Logo] 19 May, 2024 What’s going on in Kenya’s B2B space? [Ecommerce] Image | Pixbay --------------------------------------------------------------- Kenya's e-commerce sector, [once a picture of growth and innovation](=.s9uu1nKwcTjF2K5amJnzWPztfFG3grAwGJ5jiNL21U0), faces a harsh reality for businesses catering to other businesses (B2B). The sector seems to be weeding out players, with many prominent names struggling recently. MarketForce, a major player, [shut down its B2B platform](=.TpOX5JDupLC0Hacc5jO4OYMhVM0fZbknznPSkaaPmGQ), RejaReja. Twiga, a company that connected retailers with farms for their produce, ran into [cash flow problems](=.vSr0fN0hHPuiN5PBq6d5OYkf2U1fDJVvT0Ow_snRS8w) and was forced to make leadership changes, including the departure of its co-founder and CEO. Wasoko, another established name, [executed a merger](=.XpiGqHQFLjheN47q4zlNWGFJUF4QFo7s4f_P9eWG62A) with an Egyptian firm, MaxAB, which resulted in over 100 employees losing their jobs. [And just this week](=.koyZMlp79yYKNJpnguRNn-kT2-fbK8XUgbXyDaCqH_A), Copia, a company that had previously secured significant funding (over $127 million), announced that it could potentially lay off staff or shut down completely if it could not find additional investment. These aren't isolated incidents. Other Kenyan e-commerce startups, such as WeFarm, which connected farmers with suppliers for their agricultural needs; and Zumi, a platform that linked retailers with various suppliers, have also faced business challenges and eventually shut down their operations. Next Wave continues after this ad. [Sales Pro] Register to attend the biggest sales conference of the year! Catapult your sales game to the next level [Visit Now](=.lqgSSOnbODfDONapHAObKM3Y9LIIdkPh_ISueFGDUtA) What's causing this wave of business challenges in Kenya's B2B e-commerce space? Locals understand that Kenya's business environment can be brutal for companies with a lean financial model. But how? The first reason is that credit terms are unfavourable for any startup or vendor trying to grow. Many Kenyan businesses, especially in the fast-moving consumer goods (FMCG) sector, which includes commodities like food and beverages, routinely expect long credit terms. It's not uncommon for companies to ask for payment deadlines exceeding six months. This creates a huge cash flow gap for businesses like e-commerce startups. There is also a case of e-commerce platforms burning cash too fast. Imagine a scenario where you, as an e-commerce business, offer your customers 30 days to pay for their purchases, but your suppliers expect you to wait over six months to receive your payment. [This extended waiting period](=.YwoF8Q8NBEYmNDOXmIRm1Maip1ezcKn_TCMgzprptDw) creates a financial strain like a wound constantly bleeding cash. This combination of lengthy credit terms expected by customers and a lack of access to short-term credit creates a major obstacle for B2B e-commerce businesses in Kenya. Although a maxed-out credit line can cause problems, it wouldn't necessarily cripple the entire platform. So, where is the problem? Next Wave continues after this ad. [Property Flex] Subscribe to Property Flex and buy land for as low as N30,000 monthly. [Visit](=.ErKO5H64njz_5yWEeyjkAfvRJXFzSvr1KFIyaVGMkUk) The uncomfortable truth Kenya's e-commerce landscape is still very small commercially. While some startups might paint a picture of explosive growth, the reality is that there just aren't enough online shoppers to support overly ambitious business plans. Let’s not forget that Kenya is a [predominantly cash-based](=.Pr5X6MsSHIqtpuxpF_JWB6D923fJPW0bd8gj23kjuj4) society. This means that even for e-commerce businesses that manage to attract customers online, collecting payment can be slow and cumbersome. Forget the buy-now-pay-later (BNPL) options in more developed nations that have been growing lately in emerging markets (a story for another day). Ideally, if one is entering Kenya's e-commerce space, one must be prepared to look beyond immediate results. Building a successful online business here requires a long-term vision, focusing on customer trust and gradual market development. One cannot expect overnight success because it is clear now that success takes time. Next Wave continues after this ad. [Kiolbi] Want to become a pro at Product Management? Join our intensive 4-week program starting on May 4th, 2024. Join the cohort for an immersive learning experience, tailored to make you an expert in the field. During the program, you’ll explore theoretical classes, do practical exercises, collaborate in groups, complete assignments, and use valuable product templates. All sessions are conducted virtually, offering flexibility and accessibility to learners worldwide. By the end of the program, you’ll receive a Certificate of Completion, validating your expertise in Product Management. Don’t miss this opportunity to advance your career and become a proficient Product Manager. Secure your spot now and embark on a journey towards success in the dynamic world of product development. [Click here to get started](=.J69beI1YCKoT_3CP-KZGgQUodQglVJIERyHv4ihsK4I) It is also worth mentioning that there is a disconnect between perception and reality, which has fuelled these problems. Many e-commerce companies secure funding by presenting inflated valuations to attract investors or for [potential buyouts](=.odLJzKAnVeh7NvlcC4w4YSDhRtfvpIOhpKX8qgVqsDk). These valuations often don't reflect the true size or maturity of the Kenyan e-commerce market. This mismatch in expectations can lead to financial difficulties, and there are multiple examples to cite if one looks around hard enough. “E-companies in Kenya are overvalued for obvious reasons: to get investor cash. Not because that's the reality of our market,” said one of the key players in the business who asked not to be named. So, what happens now? B2B e-commerce platforms must assess the Kenyan market size and be realistic about it. Overly ambitious plans based on inflated portrayals will create a financial strain that usually does not end well. I would also argue that transparency with investors about market realities is key to avoiding inflated valuations and potential funding shortfalls. Else, e-commerce shutdowns will remain the norm. Next Wave ends after this ad. [GITEX Africa] GITEX Africa returns a second time on May 29–31, 2024 to Marrakech, Morocco, discussing ways to accelerate the continent’s digital health revolution. GITEX is the continent's largest all-inclusive tech event renowned for uniting the brightest minds in the technology industry [Grab your tickets here](=.0SZXHoS9_CtdEgzVAPr8hXyvyu9uM87Vm8oBWKYfkqs) Kenn Abuya Senior Reporter, TechCabal Thank you for reading this far. Feel free to email kenn[at]bigcabal.com, with your thoughts about this edition of NextWave. 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