I received many notes from the community to comment on the B2C foodtech delivery company which collapsed in Kenya, after raising  US$1 million: “Kune is a foodtech based in Nairobi that produces $2/$3 kunelicious meals for individuals & corporates”. The company collapsed last week.
(Sure, why is he piling on people who just lost a company? My feed is a school and when I write, I do hope some people here learn. I hope the founders do not read this piece though – and do not share it with them. We need to respect them at this time.)
As I wrote in Harvard a few years ago, B2C business with a delivery component in sub-Saharan Africa is hopeless except in South Africa. The problem is not making a nice ecommerce website or nice foodtech app, the real deal is the logistics. Simply, a food delivery startup in Kenya cannot improve its marginal cost because as it grows, the distribution cost (a key component of marginal cost) will not go towards near-zero as you expect in great aggregators. In other words, it cannot compound its leverages over time!
Registration for Tekedia Mini-MBA edition 9 (Sep 12- Dec 3 2022) has startedRegister here. Cost is N60,000 or $140 for the 12-week program.
Yes, it is very hard to run an aggregation business when supply is bounded and cannot be negotiated/commoditized for the cost element to become a non-factor. The supply here is the delivery system with the drivers as the main components. Even if you control demand – having many users ready to order food – unless you can reduce the cost of those deliveries down to near-zero, profitability will become hard. This is the reason why companies like Uber may not be profitable in their ride-sharing business unit for years; they influence and control demand, but they have no absolute control over supply which affects their margins; Uber drivers are not infinite and have push effects on the business.
Contrast with great aggregators like Google and Facebook where supply (contents generated by users) is nearly infinite and also free (Google caches your website, Facebook gets your baby photos, etc, free). With that, they just focus on discovery experience for users, thereby positioning  themselves for super gross margins since the raw materials are nearly free. Kune is like Jumia which continues to struggle without the ability to curtail costs efficiently; Jumia’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss was $53 million in Q1 2022, a 70% year-over-year increase.
Uber, Kune, and Jumia are united by one thing: poor marginal cost. From Kalahari to Mocality to Efiritin to OLX (most bankrupt), when a digital business cannot improve marginal cost, it dies or will struggle to make profit over time! That is the reality which can only change when companies fix that distribution cost by going hybrid like Konga has done; Copia Kenya is another example which fixed that paralysis.
It is key to understand that B2C delivery firms in most parts of Africa are not digital businesses even though they have apps and websites. These are meatspace companies whose marginal costs are dominated by what happens in the physical world, during that delivery process.
My recommendation remains: do not run such companies. You will face a double whammy – a marginal cost problem on delivery and an unbounded competition from open markets (ecommerce) and bukkas (foodtech) which make it hard to adjust prices to compensate for those delivery costs.
The KUNE team will rise; it is nothing but an experience.
Many questions on Copia business model. Many want to understand how Kenya’s Copia has also fixed the marginal cost paralysis I noted. It is very simple: when you can grow revenue and users without increasing distribution cost, good things happen.
Copia’s networks of agents enable it to attain near-zero marginal cost even as it scales revenue. That is the reason  I have noted that it runs the best ecommerce business model in Africa. When you plot its data, it will look like this plot below or the RHD (right hand side) .  Most other ecommerce firms look like industrial age marginal cost (LHD) .
Understand Your Marginal Cost!
If you run an ecommerce or foodtech delivery business and the plot looks like the LHD plot, you are not actually running a “digital” firm. The digital nativity does not come by nomenclature, it comes from the marginal cost positioning which makes it possible to have great scalable advantage in the market.
Do Not Waste Time Starting B2C Ecommerce Business in Nigeria

1. Advance your career, run your business better with Tekedia Mini-MBA (Sep 12 – Dec 3, 2022): join Africa’s finest business school faculty. Click and register here.

2. Click and register for Tekedia Startup Masterclass and master the secrets from start-up to unicorn. Cost is N180,000 naira or $400.

3. Click to join Tekedia Capital Syndicate and own a piece of Africa’s finest startups with a minimum of $10,000 investment.
Ndubuisi Ekekwe, PhD, Chairman of FASMICRO Group, is the Lead Faculty in Tekedia Mini-MBA. He writes regularly in the Harvard Business Review. Email: [email protected]
If you write that Kune collapsed, it means that it was standing before, but from the analysis, was it ever standing before alluding collapse? We need to frame these things better, so that those who may embark on redesign or course correction won’t build another failure. What played out is that something that was dead from the beginning was reported dead again, giving the impression that it was once alive.
It is dangerous to mistake technology for business, once you understand that, you will realize that not everything that looks like business is actually business. If a commercial aircraft with 200 passenger carrying capacity has only ten passengers at departure time, will it take off? It could, in the name offering great customer service, but if such repeats itself often, it will surely go out of business; it doesn’t matter if its customer service is celestial.
It sounds great to prepare a meal at Apapa and deliver to someone at Lekki, wonderful concept, fantastic execution, but at what cost? Once you second guess on the last point, you are dead. It is never about the services, but the cost, as long as the latter is not diminishing, you are dying.
For B2C e-commerce success? The answer is not found where the players congregate.
So what is the Advice here for B2C in terms of marginal cost .?
Apply the principle of Double Playbook ? ?

document.getElementById( “ak_js_1” ).setAttribute( “value”, ( new Date() ).getTime() );

Subscribe to our newsletter to receive breaking news by email.
Term & Privacy


Leave a Reply

Your email address will not be published.