#50 - Frontier Fintech is Back!

Personal lessons from a failed start-up, why I'm focusing on Frontier Fintech and what you should expect.

Artwork by Mary Mogoi - Instagram

Hi all - This is the 50th edition of Frontier Fintech. A big thanks to my regular readers and subscribers. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. 🚀

Legendary director James Cameron has coined something he calls the “creativity law of thermodynamics.” He says: “Before you can radiate, you need to absorb.”

It’s a good reminder that before you undertake any creative act, you need to have undergone a number of challenges, have had interesting relationships, and have found people endlessly fascinating.

Polina Pompliano

Frontier Fintech is Back

I am making a comeback to Frontier Fintech and this time on a full-time basis. Unfortunately, Sote didn’t take off but it was a very valuable learning experience. Indeed the most valuable lessons come from failures as opposed to success. In this article, I will;

1. Explain why I have come to the decision to focus on building Frontier Fintech;

2. Walk you through what I plan with Frontier Fintech and what you should expect;

3. Share some insights into my journey a Sote and the lessons I gleaned about product market fit;

Focusing on Frontier Fintech

It’s been a couple of months since I stopped working at Sote. It was a rough last few months at Sote, particularly as you feel what not having product market fit feels like and start dealing with the inevitable conclusion that it simply won’t work despite all your best efforts. It’s a painful experience. If it was bad for me, I can only empathise with what Felix has had to deal with. The two of us ran Sote and over time built a brotherly bond. He’s one of the smartest if not smartest people I know and it just goes to show that you can have the most talented people in the building but if your product is not ready, there’s nothing you can do. The market always wins. 

In my feelings about Sote’s demise, I took a trip to Naivasha. A lake side city at the bottom of the Rift-Valley and about an hour and a half's drive from Nairobi on a two day fishing trip. The aim was to declutter, decompress and process everything. In the middle of the lake, with no distractions and no fish, my thinking got clearer.

I got inspired by the "Hedgehog Concept" that Jim Collins describes in his book, Good to Great. The idea behind the Hedgehog concept is that great organisations have one core skill that drives their economic engine and that they can claim to be the best in the world at. The more I thought about this, the more I realised that this should also be applied at a personal level. The Japanese call it "Ikigai" but simply it's the intersection of competence, passion and economic value.

The only thing that I've done in my life that has those three components has been this newsletter. I enjoy it, I can claim to be the best in the world in this specific niche without sounding like a lunatic and it can drive economic value for myself and most importantly for the thousands of subscribers and partners. It was a useful personal journey and one that I feel I must share with people. A lot of times we have an image of ourselves that does not reflect who we truly are. My immersion in business over the last 10 years has been super critical in showing me what I want to do and what I don’t want to do.

I grew up admiring Warren Buffett and other great entrepreneurs such as Dr. James Mwangi in Kenya, Jeff Bezos, Jack Ma and Charles Munger. Warren Buffett in particular has always been a role model due to not only his success but the manner in which he operates. A combination of consistency, a focus on the fundamentals, long-term thinking and pure hard work. I read The Snowball by Alice Schroeder when I was in my first year of university and by that same year I had read all of his Annual Letters and all the books by Benjamin Graham. In fact, I remember spotting the Intelligent Investor by Ben Graham at the airport bookshop in Johannesburg and bought it even if it cost almost 100 dollars. As a student, that was a massive investment but I didn’t even blink an eye. 

As an operator both at a bank and recently at Sote, I realised that most successful businessmen whether in Africa or globally follow in one way or another Buffett’s principles. They all work hard, focus on their own fundamentals and practise some form of long-term thinking. The key here is to understand the difference between businessmen in the continent who actually build sustainable value and those who practise arbitrage i.e. sit on a choke point due to political connections and extract rent. What I have come to realise is that every successful entrepreneur has the following traits;

1. The ability to work really hard;

2. A deep care or passion about the industry they’re operating in;

3. The ability to withstand pain - Although this is tightly linked to point 2 above. It’s hard to withstand pain if you don’t care;

4. Long-term Thinking;

5. Unique personal gifts that make them succeed in that specific industry. Warren Buffett had a unique mathematical aptitude, Jeff Bezos is very good at first principles thinking and Jack Ma is a natural salesman. It’s critical to have aptitude in what you do;

6. Courage to take action and risk. This is super important.

My personal journey has shown me that I have the ability to work hard, withstand pain and think long-term. The only challenge was that I was not engaging in pursuits that channelled my natural aptitude and I didn’t have the courage to take action. I for a long time fought the moniker of being a writer and thinker because all of my heroes run operational entities. I genuinely looked down upon the idea of being a “thought leader” and writer. I also didn’t have the courage to chart out on my own and I needed to undergo some life experiences so that I can truly understand the concept of risk and having courage. 

In short, I’ve come to accept that my core skills of thinking and writing when applied to Fintech can create something of value and on their own create a business worth having. I’ve also built my muscles to take risks and more importantly, to have courage. I have the smarts, know-how and grit to make Frontier Fintech work and I have learned to trust myself. This has been a personal journey and I’m glad that I’ve put myself in situations that have forced me to confront this. 

This is a round-about way of saying that Frontier Fintech is back. This time it's back permanently and better than ever. I will be giving it my full attention with the aim of building a premier Pan-African Fintech newsletter and community. The aim is to catalyse fintech outcomes across the continent through insights, networking and professional development. 

What’s New?

The usual weekly Monday morning deep dives will continue. Every week on Monday you will receive a long-form article discussing a specific topic of interest to the African Fintech ecosystem. The thing about this is that I will never run out of things to write about.

Frontier Fintech GPS - Weekly Insights on Global Fintech News

I will be introducing a new segment in addition to the traditional Monday deep-dive articles. Frontier Fintech GPS will be a weekly newsletter arriving in your inboxes every Wednesday morning East African Time. The idea behind this is that people need to make sense of all the happenings in global Fintech particularly as it relates to doing Fintech in Africa. This will be a news summary of 10 global news items with insights that are specific to the continent. Simply, it will enable subscribers to get smart about global Fintech. 

Frontier Fintech Community

A new Frontier Fintech Community will be hosted on Circle. I’m hoping to create the largest gathering of the best Fintech minds, operators, executives and investors in African Fintech. I selected Circle due its ease of use and wide feature set that I believe are critical to make a community platform in the continent provide lasting value to its members. I chose Circle over Slack and Telegram for the following reasons;

1. The ability to host live webinars and conferences;

2. The ability to host and curate courses;

3. Privacy - The ability for members to regulate their interactions with other members - you may not want to receive DMs;

4. In my view a better channel/space experience enabling users to focus on the channels that matter to them the most;

5. Better pricing given that Frontier Fintech will pay for the costs of running the platform whilst users get an unthrottled experience;

The community will provide the following benefits to its members;

1. Access to a wide and growing network in African Fintech;

2. Exclusive spaces where the best conversations on different topics such as Neobanks, Digital Transformation, Payments and Mobile Money will be had;

3. Webinars, Courses and different resources curated to enable you to get smarter on Pan-African Fintech;

4. The best conversations on African Fintech;

The Art

You will notice a much sleeker brand with amazing visuals for each post. I want to create a truly world class brand and I’ve partnered with none other than Mary Mogoi who is one of the most gifted artists that I know and who also happens to be my wife. All the artwork will be produced by Mary. She will run the brand and the aim is to build an iconic brand that everyone associated with Frontier Fintech can be proud of.

Monetisation of Frontier Fintech

I want to be transparent about how Frontier Fintech will be an economic engine for myself upfront. Doing Frontier Fintech is hard work and I know it offers immense value to its subscribers. There’s nothing like it on the continent and I believe that it can be even better. Monetisation will be through three key planks for now, with more avenues for monetisation being introduced over time. I’m inspired by Amazon Prime in the sense that the core mission of any monetisation efforts will revolve around “Continuously adding value to Frontier Fintech Subscribers”.

1. Subscriptions - Within a month i.e. first week of October I will be introducing a paid tier to my newsletter subscribers. The subscription options will be as follows;

   1. Standard paid subscriptions - 15$ per month or US$ 120 per annum for paid subscribers. For those who have already pledged to subscribe in the past, you will immediately receive an annual subscription;

   2. Founding Subscribers - US$ 500 per month or US$ 5,000 per annum;

   3. Group Subscriptions - Will depend on the number of subscribers and will be targeted at Corporate subscribers who want to get their teams signed up to Frontier Fintech. This will be a B2B sales effort on my part;

2. Paid sponsorships for Frontier Fintech GPS;

3. Select advisory roles within the following contexts;

   1. Early Fintech Start-ups navigating product market fit within their respective markets;

   2. Global VCs navigating Fintech investments in Africa and want to gain deep context into the markets they are investing in;

   3. Incumbent enterprises such as Banks and Mobile Money that are navigating digital transformation and are placing Fintech at the core of their strategy;

I will limit my advisory work to a maximum of three organisations at any point in time to ensure that they receive full value for their money;

Let me break them down.

Standard Paid Subscriptions - 15$ per month and US$ 120 per annum;

1. Access to Frontier Fintech weekly deep dives which will all go behind a paywall. In my view these are the best deep-dives in Fintech in the African continent. People have used them for interview prep and strategy development in large organisations. If you can afford to take me for a drink once a month, you can afford a subscription;

2. Access to the new Frontier Fintech community that will be hosted on Circle which will be of immense value for professional development, continuous learning and networking;

3. Discounted pricing for Frontier Fintech events;

4. The warm fuzzy feeling of supporting your favourite Fintech publication;

Founding Subscribers

These are targeted at individuals and organisations that want to engage with Frontier Fintech on a deeper level and are investors, operators and executives with existing operations on the continent. The core thing is that you want a constant sounding board as you navigate your respective Fintech journeys. The key benefits will be;

1. Access to weekly deep dives;

2. Enhanced access to Frontier Fintech community on Circle. This will include messaging capabilities and private spaces;

3. Introductions to other operators, executives and investors in the market where possible;

4. Meetings whether virtual or in-person where the latter is possible;

5. Supporting world class insights on the African Fintech market.

Paid Sponsorships

This will be an ad that will appear at the start of each Frontier Fintech GPS newsletter. It’s targeted at businesses that are targeting the African Fintech market specifically on a B2B basis or B2C where our readership is your targeted audience. The main benefits for advertisers are;

1. Access to a growing network of Founders, Executives and Investors in African Fintech;

2. A network comprising the CEOs of most African Fintech companies;

3. Powerful brand association through Frontier Fintech;

If you’re keen on sponsoring the newsletter, write to me at samora@frontierfintech.io

Advisory Work

I will limit myself to three advisory roles in select organisations. You may ask yourself, what’s the difference between official advisory services and the services that Founding subscribers get? The former is a more formal engagement that generally works on the terms of the company engaging me as an advisor and fits within a formal advisory structure within the organisation. I will be selective with such work and will select work based on the impact that the company can generate. If you see me providing advisory services to a company and you don’t believe there’s any meaningful impact to the ecosystem, please call me out. 

The Fly-Wheel

It may seem that I’m taking on too much and that either my writing will suffer or the service I offer my advisory clients will take away from my service to my paid subscribers. I’ve taken a lot of time to think about this. In as much as I have to optimise the economic value that Frontier Fintech can generate, this economic value is only sustainable if the larger Frontier Fintech community is receiving value. Moreover, whatever value the community receives should be increasing without any increase in the amount paid. This is a principle that I will hold dear. 

All this works fits together in the following way;

1. World class writing and insights will lead to more subscribers both paid and unpaid;

2. An increasing network will lead to a more vibrant community and more value for the community members;

3. A wider network and community will also lead to better value for Founding subscribers as they can tap into more knowledge and people;

4. Advisory work will produce revenue that can be reinvested into increasing the value received by paid subscribers;

5. In short, the more successful Frontier Fintech is, the more value subscribers will get and the more value my advisory clients will get.

Future Plans

There’s a lot more that we can do at Frontier Fintech and we’ll roll this out in time based on bandwidth and the feedback we get from the market. This includes;

1. Business Case Studies - One of the challenges that companies be it Fintech Companies, Banks, Insurance Companies, VCs and Incubators have is the idea of educating the market. It takes time to teach the market on what exactly your company offers and how you differentiate yourselves. This is not a Gartner type ranking but rather the market having sufficient knowledge about a company’s capabilities, its founding origin and what makes it different. This is more of a Harvard Business Case Study format as opposed to a magic quadrant. Companies would benefit from this as it would enable the market to understand them better. Perceptions are extremely important in business particularly in Africa. An educated market will lead to faster partnerships and engagements;

2. Frontier Fintech Executive Education - Talent is a major issue in African Fintech be it incumbents or start-ups. The issue with talent is that it’s not so much having technically capable people, but rather having the right mindsets and perspectives within the organisation. Fintech and innovation at large doesn’t depend on incumbent knowledge but rather the ability to think from first principles. A cohort based executive program that helps people sharpen their thinking in my own experience would be more valuable than teaching standard topics;

3. Frontier Fintech Recruitment - Again, talent is a major issue. Incumbents are struggling to get the right people on board because they’re all fishing from the same pond. Talent is required to lead digital transformation efforts and sustain innovation. At a specific point, there will be value in offering bespoke recruitment services. My thinking is that companies will have to fish from a wider pool.

Lessons from Sote

What was the Sote experiment?

I joined Sote in 2022 after having some conversations with Felix in late 2021 about what he was trying to build. The team at Sote had built a world class logistics business that in the space of a couple of years had achieved Authorised Economic Operator status and was serving some of the leading manufacturing companies in Kenya. The Sote platform was a rich visibility platform that enabled businesses to have end to end visibility of their supply chains. The key driver for the entire Sote experiment was that low trade within Africa and with the rest of the world was a major factor in holding back the growth of the continent. Of course there are numerous issues that hold back trading in the continent, but logistics and access to trade finance play a key role.

The way Sote was going to tackle these problems was through providing visibility using logistics. One of the insights behind Sote was that it would be a licensed clearing agent. Clearing agents in the world of trade are the ultimate data aggregators as they have a primary relationship with every player in the supply chain. Primarily with the trader but also with everyone that interacts with cargo including government agencies, shipping lines, transporters and infrastructure owners such as warehousing companies. This position enables clearing agents or customs brokers to have primary access to all the documents within a company's supply chain from Bills of Lading to Commercial Invoices and more. Traditionally, customs brokers have operated in an analog world with little to no digitisation. This privileged access to data and relationships if digitised in our opinion would unlock a lot of value for traders in the continent.

The Trade Finance Angle

First - What is trade finance? Simply trade finance is money given to a trader by a financial institution to enable that trader to complete a trade transaction. The transaction could either be an import or export transaction. Trade finance can be done in numerous ways but at the core of it, it's the financing that enables the global economy to work. Behind every sip of coffee or bite of chocolate is a trade finance transaction. The demand for trade finance is driven by a mismatch between when a trader needs money to complete his side of the deal and when he expects to be paid. Think of a businessman in Lagos for instance who is importing Solar Panels for sale to his customers, he may have to incur the up-front costs of paying for the panels and may only receive payments after 120 days considering the time it takes to ship, clear and sell the goods in Lagos. He therefore has a gap in his cash flow. Trade finance would come in to support this businessman by enabling him to pay his overseas suppliers upfront whilst waiting for him to import and sell the goods locally. It’s a massive market worth almost 40% of global GDP.

I joined Sote to build out the trade and supply chain finance capabilities that would ride on the back of Sote's existing data, relationship and cargo advantages. These in my view were and still are unique advantages in financing trade.

The specific problem we were trying to solve in the trade finance space is that businesses still need tangible security in the form of real estate (land and buildings) to access trade finance. Globally, trade finance in markets such as Europe, Asia and North America is done without or with very little tangible collateral requirements given that Trade Finance is short-term in nature and ultimately the goods being financed are expected to convert to cash.

Lack of access to trade finance in the continent is therefore a big barrier to trade and ultimately, economic growth. 

Sote's Approach

The analysis then was simple, if we worked with a bank and powered their ability to underwrite and collect through our logistics data and cargo control, then the basis for a very strong trade finance proposition was there. The analysis was as follows;

1. Underwriting - Unique access to primary trade data from a client would enable us to understand risk better. You can't lie to your customs broker;

2. Collections - Our access and control of cargo would drive collections behaviour, if you don’t pay we can stop your supply chain;

3. Cost of Capital - Managed through our bank partnerships;

4. Customer acquisition - Powered by our logistics business and also the bank partnerships;

We then structured it to sell to banks. Our primary proposition was a visibility dashboard that gave business and credit teams in banks real-time access to all the cargo that they are financing. It was a comprehensive proposition for banks that at its core had;

1. Structuring capabilities - We would support banks to structure deals given our expertise in logistics and supply chain;

2. Visibility - Enabling banks to have real time updates on what is happening to all the cargo they are financing and the status of the cargo. This would cover updates all the way from overseas to when the goods arrive at a warehouse. 

3. Document management - Trade and Trade Finance depends on the constant exchange of documents across the supply chain. Nonetheless, this is done in a disparate fashion given that there is no central coordination between all the participants. As the customs broker and using our digital dashboard, we enabled banks to have real-time access to documents as they become relevant.

We then managed a B2B sales motion aimed at onboarding entire banks. The vision was that a bank would deploy a significant portion of its trade finance book through us subsequently managing the risks

What Happened?

“And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house.”

To understand start-up failure or success requires a deep understanding of the idea of Product Market Fit. The quote above from Marc Andreesen is a good start, the idea of PMF being a "feeling" is key to note. However, to better understand PMF, the article by Sequoia on PMF which was shared to me by Felix is critical. In the article, Sequoia details three archetypes of product market fit. This taxonomy is useful because at its core, it means that there are different ways to look at product market fit.

The three PMF archetypes are;

1. Hair on Fire - In Sequoia's words "You solve a problem that’s a clear, urgent need for customers. The demand is obvious. Because of this, your category is likely crowded with competitors vying for market share. Your customers are actively wrestling with the problem, and likely comparing existing products to solve it." Simply, the problem is well understood and the solution requirements are similarly understood - think HR Payroll software. To succeed in Hair on Fire markets, you need to solve the problem in a best in class manner. Thereafter, issues such as product velocity and go-to market become key differentiators.

2. Hard Facts - In Sequoia's words "You take a pain point universally accepted as a hard fact of life, and see that it’s merely a hard problem that your product solves for the customer. Your customers have resigned themselves to just living with the problem. They’re not urgently engaged with trying to solve it. The status quo is just how it is, and change doesn’t seem like an option. You upend how things are done with an unexpected approach: Facts can’t be changed—but problems can be solved. The challenge to overcome is force of habit. Customers will have to change their current behaviours, and inertia is powerful. You need an approach that’s novel enough, for a problem that matters enough, to be worth making a change." In hard facts markets, you need to come up with a reasonable solution but a large chunk of the work needs to be on "educating the market" about why the problem is solvable and reliably demonstrating how your solution solves this problem.

3. Future Vision - In Sequoia's words "You enable a new reality through visionary innovation. It sounds like science fiction to customers, either because the concept is familiar but sounds impossible (like abundant cheap energy from nuclear fusion) or because no one ever imagined it (like the iPhone). Customers are not only not trying to solve the problem, they are either oblivious to it or predisposed to think it’s a pipe dream. Either way, the obstacle is disbelief: Customers must believe that your product represents a whole new paradigm—often with its own ecosystem.". Think Tesla and EVs or Spacex. This is pretty self-explanatory.

Determining your PMF archetype very early on is critical because it determines your growth journey and everything from product, hiring and fund-raising decisions. For instance, in a Hair on Fire market, quickly building an MVP and putting it in front of customers as quickly as possible is critical. Thereafter, once customers start using your product, fund-raising becomes critical so that you can give yourself the best chance to build a "best-in class" solution through hiring the best and investing in the best technology.

In a Hard Facts problem, speed to market is not the differentiator. The key challenge for a Hard Facts start-up is to demonstrate to the market that their product solves a hard problem and build trust within the market. There is a period of educating the market (usually 18-24 months) that's required to get the market ready to purchase your solution. Ideally, your start-up should be as lean as possible during the "market education" period and only scale to capture the market you have created. This is akin to Defence tech companies. Companies like Anduril spend a significant amount of time educating the market i.e. Pentagon on how software can change warfare. It’s for this reason that Palmer Luckey states that the only successful Defence Tech companies have all been founded by billionaires.

At Sote, we belatedly understood these archetypes. Our problem was a Hard Facts problem. We were trying to get banks to issue trade finance facilities without the need for tangible real-estate collateral. Our job was to educate the market that supply chain visibility and control is a better way of de-risking trade finance than tangible security. We built out tech and recruited an entire team prior to fully educating the market. Once our MVP was built, we spent 18-24 months in aggressive sales but in actual fact, we were simply educating the market. Indeed, we succeeded in educating the market, but we simply ran out of time. Our cost and capital structure did not allow for an 18 month market education campaign. We ran out of time as banks were slowly starting to accept the idea of issuing trade facilities based on supply chain visibility. This was validated by repeated pilot transactions with a tier 1 bank in Kenya and the commencement of "onboarding" processes with two other banks in the market.

If we were to do it differently, we’d bootstrap for a 2-3 year period ideally with heavy pockets that can fund product build out and market education. Only with significant traction would we raise money. 

To be fair, a number of reasons outside of our control also played a part. Banks in Kenya have been struggling with rising NPLs that have risen to levels not seen for over two decades. For this reason, credit heads and bank boards are not trying to hear anything about lending without security. If the market was growth oriented, then we could have seen more traction. The idea of PMF archetypes will creep up frequently in this newsletter.

My key learnings from the Sote experience were;

1. Companies don't die due to lack of funding - lack of funding is a leading indicator of the lack of Product Market Fit;

2. It's critical to understand your PMF archetype as you're starting your business;

3. PMF is not about signing MOUs and other “love letters” as my friend Lorraine of PngMe calls them. It’s about cold hard cash in the bank coming in in a regular and predictable manner;

4. The discussions around whether start-ups should raise or bootstrap misses the key point of "PMF archetypes". In my mind, VC funding is a capital structure decision in Corporate/Start-up Finance. Bootstrapping makes a lot of sense when you're solving a hard-facts problem as it allows you to keep costs low as you educate the market. If you're in a "Hair on Fire" market and have validated demand, it makes sense to raise money to scale; so long as capital is the key lever for enabling the growth you're targeting. In essence, you can’t generalise about whether start-ups should follow a VC model or not. 

5. The market always wins;

6. There are plenty of other lessons I've learned which I will share through some upcoming posts such as;

   1. B2B sales into banks;

   2. Digitisation of trade and supply chain finance;

   3. Ecosystem and Platform Banking;

   4. Neobanks;

So there you have it. I look forward to more deep dives and getting into the weeds of how technology is impacting the financial services industry in Africa. Coming up is a major deep dive on how AI will impact banking. On Wednesday, look out for the first edition of Frontier Fintech GPS.

In the mean-time, hit the subscribe button. I’m also curating a small group of people to trial the community prior to its launch in October. If you’re keen, kindly send me an email on samora@frontierfintech.io. 

As always thanks for reading and drop the comments below and let’s drive this conversation.

If you want a more detailed conversation on the above, kindly get in touch on samora@frontierfintech.io.