Article by Ken Lohento and Hermann Tossou
More and more entrepreneurs in African, Caribbean and Pacific (ACP) countries are seeking to exploit wider access to digital technologies to offer ICT-based solutions. However, turning promising ideas into profitable businesses that break even is a struggle. A key challenge is to grow revenues and keep customers, turning sales into repeat purchases. Moving into profitability is a major hurdle for young entrepreneurs who lack business management acumen and knowledge of the agriculture sector, and have few business assets to fall back on.
Here are six recommendations from CTA’s AgriHack Talent initiative that young ACP agri-entrepreneurs and start-ups can employ to grow and sustain their digital businesses.
1. Target agricultural institutions as primary customers for higher and sustainable revenues
Most smallholder farmers in least developed countries are unwilling or unable to pay for ICT services. They are reluctant to invest their meagre earnings into services that might not yield tangible and immediate returns. They have a limited understanding of digital technologies and a low level of digital literacy. In such situations, start-ups can design services that offer a value proposition to agricultural organisations, such as cooperatives, farmer organisations, public extension agencies and other bodies, which can pay for these, on behalf of farmers or for their own use. This business-to-business (B2B) strategy will more effectively ensure continuous and regular purchase of services provided by start-ups, reducing a lot of the risk and transaction costs engaging numerous individuals.
2. Offer bundled, multi-sided services
Since farmers struggle to pay for digital agricultural services, offering a single service is risky and on its own is unlikely to ensure profitability. As an example, offering market information services through farmer subscriptions generally provides insufficient revenue on its own to be fully self-sustaining – often because these types of services were traditionally available free to farmers, but often because farmers are suspicious of new and unproven schemes. To succeed, entrepreneurs may need to go against accepted business wisdom. Instead of delivering well-defined individual products for target customer segments, the core digital agribusiness ‘product’ in such situations is much more likely to be a ‘bundle’ of services targeting a type of customer. When start-ups offer integrated packages of services – for example market information with weather information, or soil testing and access to inputs – the value provided is more obvious to farmers and is more likely to be adopted. If needed, these bundled services can be offered in collaboration with other service providers.
A second, hopefully temporary, approach to business sustainability is to offer ‘sideline’ digital or agricultural consultancy services to non-priority customers who can pay. An example of this is where a business provides aerial multimedia services (via drones) to non-agricultural customers alongside the core aerial agricultural mapping and advisory services business. Bundling services overcomes problems of specialised service uptake; Sidelining offers income to cover possible core business losses during start-up.
3. Diversify, but remain focused
Bundling services, usually with partners, is a planned way to spread risk and increase reach by delivering integrated or linked services to target customers. Often however, digital ACP agribusiness start-ups tend to over-diversify the types of services they offer as a sort of survival strategy. They rush to seize any available opportunity, engage in too many different directions, and lose focus. This risks blurring their value proposition, so clients, partners and investors may shy away. A sound tactic is to be aware of the risks in diversification, and balance business efforts to give strategic priority to the main value proposition and vision of the firm. It is critical that start-ups that do need to diversify for survival purposes communicate their main value proposition to investors, avoiding any idea that it ‘does anything, anywhere, anytime’. Bundling services with partners, as described above, is one way to diversify in a sustainable way.
4. Properly segment customers and services
Segmentation – dividing customers into various categories and offering them different services – is a classic and highly effective business strategy. Companies led by young entrepreneurs usually fail to do this adequately, neglecting to create distinct customer segments that they can address. Simply dividing the market segment into two categories – farmers and agricultural organisations – is too basic, and not effective. More granular and actionable segmentation should be carried out. A good pricing strategy, adapted to the vertical and horizontal segmentations designed, is essential. Different prices can be set, by taking into account periodic subscription options, or the quantity of goods or level of services to be purchased by clients.
5. Identify optimal target market size
Setting and defining market targets is critical. Often, ACP digital agripreneurs are overly precise, designing products that can only be carried on a very narrow technology, or they are over-ambitious, setting impossible to reach numbers of individual farmer customers. Unless the returns are massive and the costs tiny, it does not usually make sense to design a digital agribusiness service targeted to a few thousand customers, for example, exclusively by farmers who own a smartphone. At the same time, it is unwise to take as a target market the total number of farmers in a country. A realistic target market should be clearly identifiable, reachable in the next 5 or 10 years, and sufficient for the product or service to become sustainable.
6. Collaborate with public and development institutions for customer acquisition and sustainability
Entrepreneurs should learn how to collaborate strategically with development organisations, governments and public institutions that have a mission to improve farmer livelihoods, help them generate higher revenues and promote food security. By partnering with these institutions, entrepreneurs can engage in projects to raise the awareness and capacity of farmers and agricultural organisations. This is a valuable opportunity to acquire customers and develop markets. Entrepreneurs must therefore know how to interact effectively with development institutions, understand their working practices, and be conscious of the need to help them deliver and account for social impact, spending public money wisely in the process.
This article was created through a CTA-led process to document and share actionable knowledge on ‘what works’ for ACP agriculture. It capitalises on the insights, lessons and experiences of practitioners to inform and guide the implementation of agriculture for development projects. Original article available onCTA blog.