Failing To Win: Hard-Earned Lessons from a Purpose-Driven Start-Up
Mike Quinn
288 pages, Independently published, 2021
From 2009 to 2019, Zoona was an award-winning pioneer in Africa’s fledgling fintech ecosystem. Fueled by a vision of A Cashless Africa, the company grew from scratch to process $2.5 billion in money transfers and remittances for an active base of 2 million underserved consumers in Zambia and Malawi through their innovative network of cash-in cash-out micro-franchise agents.
The following is an extract from my recently published book, Failing To Win: Hard-Earned Lessons from a Purpose-Driven Startup. The book starts with two chapters of essential information about the company’s origin story, before analyzing their eight biggest failures and what I learned from them.
As 2018 broke, Zoona was the dominant market leader in Zambia, and for years had been well out in front of two deep-pocketed, multinational mobile network operators (MNOs) that had launched competitive mobile money products: Airtel Money and MTN Money. Knowing Zoona’s position was under threat, I and my leadership team were busy preparing for the roll-out of a digital financial service offering branded as “Zoona Plus,” when the MNOs stepped up their attack.—Mike Quinn
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The MNO Carpet-Bombing
We were encouraged by our December 2017 results, which broke nearly every record we had. We had hit one million monthly active consumers, with two million people—close to 25 percent of Zambia’s adult population—having completed at least one transaction in the past quarter. We also finished the year just shy of $20-million in revenue, even with a Zambian kwacha that had halved in value since we started. These were remarkable achievements that we were incredibly proud of. But these macro-results masked a weakening of our over-the-counter (OTC) money transfer product, which still made up more than 70 percent of our revenue. Compared to the previous year, our December money transfers had flatlined in volume and value, and decreased in revenue in both Zambia and Malawi following our lowering of prices. We could also see that low-value money transfers, which were higher margin and made up the bulk of our volume, were shifting away from Zoona toward MTN and Airtel Money, particularly in the Copperbelt Province. These trends underscored the urgency of making the transition to a digital future anchored by Zoona Plus.
Then it happened.
In early 2018, MTN once again went into full attack mode, taking on both Zoona and Airtel in Lusaka. They blanketed the capital city with yellow MTN Money kiosks, planting up to ten side by side on street corners. We heard stories of MTN employees being encouraged to give kiosks to their friends and family, and even become agents themselves as side hustles. It didn’t take long for Airtel to respond and aggressively roll out their own mobile money kiosks in similar quantities. Within a few months, every street corner in Lusaka’s central business district had one Zoona kiosk sandwiched in among a sea of MTN and Airtel kiosks; the MNOs were engaged in an all-out war for Zoona’s market share.
This attack coincided with a cholera epidemic that hit Zambia at the same time. As the nation suffered, so did our transaction volumes. Following the government shutdown of markets, businesses and schools, about a third of our agent outlets were forced to close, some for up to a month. Those that stayed open served fewer consumers. Many agents took cash from their float to cover their living expenses and tellers’ salaries, which many of them cut back on. Our Zoona Cash (agent liquidity credit product) default rate shot up while our consumer experience degraded, with agents having less float available and unmotivated tellers. Our revenue took a material hit which again shortened our cash runway.
Following the epidemic, several city and town councils began to confiscate kiosks from Zoona, Airtel and MTN. They blamed agents as a threat to public health because they didn’t have easily accessible toilet facilities. The entire economy ran on informal businesses and street vendors who also lacked immediate toilet access, but the agent kiosks were visible targets. We had to pay fines to get them back, and often the councils would relocate them to places with less foot traffic. The game of cat and mouse became an ongoing challenge, with councils raking in money through fines while scoring political points for their clean-up exercises. Our kiosks were rounded up in towns without reported cases of cholera, and each time it happened our team had to scramble to get them back.
An NGO, Financial Sector Deepening (FSD) Zambia, stepped in and spearheaded the formation of an industry association. Together, we complained to the Bank of Zambia that councils were disrupting our businesses, harming our agents, and ultimately impeding service to consumers. The discussion led to a new set of rules whereby councils agreed to standardize license fees and promised not to confiscate any agent kiosks that were paid up. Unfortunately for us, this didn’t slow down the MNO attack; instead, the councils shifted to collecting fees from the MNOs directly, which meant the more kiosks they rolled out, the more revenue councils would make (which the MNOs could afford to pay). This perverse incentive enabled MTN and Airtel to roll out far more kiosks than were necessary as part of their deliberate strategy to saturate the market and take Zoona’s share.
To compound the agent kiosk carpet-bombing, a regulation change that had come into effect without much fanfare now enabled the MNOs to automatically register their mobile subscriber bases for mobile money wallets. This meant that nearly every consumer in Zambia had, by default, either an Airtel or MTN Money wallet regardless of whether they had registered for one. Many had both. Gradually, our consumers discovered that instead of paying a sending fee to Zoona, they could directly cash-in for free into a receiver’s Airtel or MTN mobile wallet (which many didn’t even know they had). The receiver would still have to pay a cash-out fee, but this was simply netted from the money already in her wallet.
The decline of our nine-year-old money transfer product began to accelerate. All of our consumer research showed that our brand was still strong and our service was still superior, but we had lost the competitive advantage that had long justified our price premium. Consumers were fast becoming aware that our money transfer sending fees were higher than mobile money cash-out fees, and they had thousands of new MTN and Airtel Money agent kiosks to choose from—even if they had to cash-out bit by bit until they got their money. We were in trouble.
Price Reduction
Joseph Kuvor, our head of customer experience, built a new pricing model that brought us in line with the competition. We were experiencing cash-flow constraints exacerbated by the cholera crisis, so we proposed that our agents share in the pain with a reduced commission structure. Our model predicted a bump in transaction volume following the price cut, which would enable agents to return to the same income level within two months. We hastily organized a forum with our top agents, during which they all agreed we needed to reduce our fees and, after some grumbling, also accepted to share in the reduction. This turned out to be another mistake.
After some early positive signs that churned consumers were coming back to us, the predicted bump in demand failed to materialize and our money transfers continued to decline. The reduction in agent commissions had resulted in agents reducing their float, which counteracted the positive benefits of the price reduction. Worse, we discovered that some agents had been targeted by MTN and Airtel, and signed with them to hedge their bets. Since we were the only company that provided agents with Zoona Cash float on credit, which agents could easily liquidate, our float was being diverted to service MTN and Airtel consumers. Ironically, our long-time agent-liquidity competitive advantage was now driving the competition.
We were in crisis-management mode—yet again. Fearing we could lose our agent network, we rolled back agent commissions to the original level before our price change on condition that our agents hit targets and didn’t divert their floats. Good behaviors would qualify agents to stay at their high commission levels, while bad behaviors would drop them to a lower tier or result in termination. It was a balance of carrot and stick, but given the aggressiveness of the MNO attack it turned out to be a Band-Aid at best. We really had to slash our money transfer prices to slow the bleeding and then aggressively launch Zoona Plus, but we didn’t have the cash for the former and the latter was still a few months away.
Zoona Plus Launch
In August 2018, we finally pushed out a Zoona Plus pilot in one town in Zambia as a test before heading to the capital city of Lusaka. It was truly a breakthrough. Consumers could cash-in for free at our agents and then access a range of transaction services to send money, pay bills and buy airtime from any Android or USSD phone and on any mobile network. They could send money for free to another Zoona Plus wallet, and could optionally pay a fee for the receiver to cash-out for free at any Zoona agent. With the push of a button, consumers could shift their money into a savings account where they earned 10 percent per annum interest from our licensing partner, Finca, which was unique in the market. Consumers could also apply for a seven-, fourteen- or thirty-day loan, also from Finca, and an algorithm would instantly tell them whether they qualified and for what amount before disbursing the funds into their wallet. Everything about Zoona Plus had been designed and tested with consumers at every step, with full coordination between our Cape Town and Zambia offices. It was the best product we had ever built, and the culmination of our vision ten months earlier to merge our standalone Sunga (savings), Wallet (payments), and Boost (credit) products into an integrated digital banking product.
We made some adjustments based on key learnings from the short pilot and threw all of our weight behind the subsequent launch. One thing the pilot taught us was that consumers responded negatively to the Finca logo on Zoona Plus marketing materials, as Finca loan officers had a reputation of aggressively chasing loan defaults. This was a touchy subject because our partnership with Finca was already misaligned on several fronts, including co-branding. We made the decision to minimize their branding as much as possible for the Lusaka launch, but they had yet to commit to a subsequent country-wide roll-out.
Zoona Plus launched with a bang in Lusaka in October 2018, and the market responded swiftly. We ramped up registrations to 1,000 new Zoona Plus consumers per day following a series of consumer roadshows around Lusaka to generate hype. We converted our Sunga consumers to Zoona Plus, and our nudge unit back in Cape Town actively experimented with text messages to move them from their first to second to third cash-in, which was the metric that signaled stickiness. We started disbursing small-value loans and using repayment data to build a credit-scoring algorithm that would enable us to scale up over time. Within three months, Zoona Plus had 50,000 active consumers.
We needed to scale up nationwide to recapture our lost money transfer market share, as Zoona Plus couldn’t yet be used to send money to people outside of Lusaka. Before we had a chance, disaster struck. Finca needed to approve the intended move, but instead notified us that they would be ending our partnership, leaving us without a license for the key Zoona Plus differentiators of savings and credit. This was an abrupt and unexpected shift from them just as we thought we were finally getting aligned, but ultimately Finca was not comfortable with Zoona renting their regulatory license for what was essentially our product. All of these challenges could have been overcome if we had had the balance sheet to more aggressively slash our legacy money transfer prices without cutting agent commissions to protect our market share, while securing our own micro-finance deposit-taking license to roll out Zoona Plus across Zambia. For these actions to be feasible, we needed a big Series C investment that was meant to close months earlier by mid-2018. Unfortunately it never did.
Embracing Failure: What I Learned
It’s tempting to look back and say that Zoona was destined to be killed by the big bad MNOs. This is a convenient narrative and easy escape route to explain why we didn’t win in the end; it implies that rather than venturing into head-to-head competition with Airtel and MTN by purposefully shifting toward consumer digital financial services, we should have instead leveraged our agent network to provide cash-in and cash-out services to others in the market, such as banks, enterprise clients and maybe even MNOs. However, when we did try to do this earlier by offering enterprise payment services and even once partnering with Airtel Money, we found ourselves spending a lot of time and energy for very little reward.
It’s undeniable that Zoona created the consumer money transfer market in Zambia, winning a quarter of the adult population as active and loyal customers despite years of competition from two MNOs and a large South African retailer. It made sense that we should not only try to retain these consumers, but expand our offering to them. Plus, our agents were dependent on commissions from Zoona money transfers for their revenue, so we had little choice.
I believe we picked a winning strategy and had a winning product with Zoona Plus, but we made the decision to move on it too late and we moved too slowly. Our critical mistake was to invest our Series B proceeds into expanding into Mozambique rather than immediately building Zoona Plus in Zambia on the back of Sunga’s success. Had we taken the latter option, we would have digitally registered all of our consumers by the time the MNOs carpet-bombed the market with agent kiosks, and there would have been no reason for them to switch. Instead, we were distracted elsewhere. We also underestimated how much effort it would take to transform our team, technology, products and brand to make this leap. If we had focused with intent on making it earlier, I believe we would have pulled it off and become the M-Pesa of Zambia, and after that Malawi.
There is, however, a similarly critical problem with this counterfactual: It’s highly unlikely that we would have been able to raise a Series B round on a strategy to win the Zambian consumer market, especially on the tail of Zambia’s earlier currency crisis. This was our dilemma: We should have focused on Zambia but we had convincing internal and external reasons not to, most notably a $7.5-million Series B investment tranche dependent on our expansion into Mozambique. Ultimately, it was an impossible choice. Still, I wish I had recognized this trade-off at the time, and had the wisdom and courage to double down where we were winning. We could have saved market expansion for another day and with a better offering.