Big Business and Small Units

What is better: a whole delicious dinner or just a bite? A handsome new outfit, or just a few threads? A compelling book read cover to cover, or just a few scattered letters?  Of course, the whole is always better than a small fraction, right? Not always.

Africa’s business revolution is often based on small fractions, and the business leaders who figure out how to sell a fraction of the whole are often the ones who win, and win big. In business jargon it’s called fractionalizing, and it’s a method Uganda’s business leaders have been quick to adopt, often in incredibly inventive ways.

Mobile telecom companies were the first to understand that less could be far more. When cell phones were introduced in Europe and the United States, they came with hefty monthly subscription fees and extended contracts. Innovative entrepreneurs in Africa realized cell phones would never take off with restrictions. But what if each person didn’t have to buy an entire subscription. What if they only had to buy a fraction of one? What if they could buy just a few minutes’ worth at a time? As scratch cards and pay-as-you-go cell phones replaced subscriptions, mobile phones throughout Uganda and the rest of Africa took off. And when Simba and other telecom marketing departments realized scratch cards valued at $20 or more could be further fractionalized to just a few dollars, they suddenly increased business many times over.

The latest fractionalizing is in electricity. We’d all like electricity in our homes, schools, and work places, but perhaps the traditional way of seeing electricity as either available all the time or not at all is too conventional. A few industrious entrepreneurs are looking at ways to sell electricity like minutes for phones, allowing consumers to buy only what they need or afford. In Uganda, Umeme is rolling out Yaka, offering meters for which customers can pre-pay minutes of electricity, and MTN and Fenix are doing the same with solar power by the minute.  These systems are bringing electricity to areas that wouldn’t have been able to afford electricity by conventional means, and they are creating profits for the companies.

Consumer companies also learned that good things often come in small packages. According to the world-renowned consulting group, McKinsey & Company, Africa’s consumer market may offer the biggest business opportunity on the continent, but success may depend on packaging. Capital Shoppers, Shoprite, and other large grocery stores often sell large boxes of laundry detergent, but the small, local kiosks along the road understood their customers couldn’t afford a whole box. Instead, the kiosk owner would break up a box into smaller units that could sell for just a few shillings. Consumer goods giants like Unilever note they have succeeded in Uganda and throughout Africa by listening to the consumer, and what the consumer wants is “low unit packs” (LUP). These LUPs are often the same size as the kiosk’s smaller units, but they have Unilever branding, thereby creating brand loyalty. These LUPs are often more expensive than large boxes when cost to weight is compared, but for the individual consumer the small quantity is more affordable. For Unilever, the success of small packages is undeniable as it looks to Africa as its next growth market.

If doing laundry isn’t your thing, there is still another way to fractionalize having clean clothes: Yoza, a new app that uses an uber-like system to connect dirty laundry with local washers.  Started by Solomon Kitumba after he woke up one morning overwhelmed by yet another large pile of laundry. Kitumba, like most people his age (24 years old) didn’t need a laundry washer all the time. He just needed a fraction of that time. His app now offers Ugandans needing laundry services the means to connect to local washers and contract for just the washing they need. For the washers, finding full time employment was often difficult, but Yoza allows them to take in small jobs, which with enough small jobs, soon can add up to the equivalent of a whole job.

Next time you are at your local kiosk or buying minutes for your phone, take a moment to appreciate how going small has created big success in Uganda and throughout Africa.

Be the first to comment

Leave a Reply