[caption id="attachment_4007" align="aligncenter" width="640"]<a href="http:\/\/techmoran.com\/2013\/03\/03\/ceo-weekendscarey-eaton-on-building-profitable-tech-companies-this-side-of-the-world\/business-increase-profits\/" rel="attachment wp-att-4007"><img class="size-full wp-image-4007" alt="Image:www.prvivtis.com " src="http:\/\/techmoran.com\/wp-content\/uploads\/2013\/03\/business-increase-profits.jpg" width="640" height="480"\/><\/a> Image:www.prvivtis.com[\/caption]\n\nThis is a follow-up series of what <a href="http:\/\/techmoran.com\/2013\/02\/16\/ceo-weekends-cheki-africas-ceo-carey-eaton-on-cheki-brightermonday-jobberman-the-future-of-one-africa-media-with-tiger-global-management\/" target="_blank" rel="noopener noreferrer">Carey Eaton<\/a> began a few days ago, first as an interview. Today he talks about building profitable businesses not just the technology involved.\n\nHis earlier phrase<a href="http:\/\/techmoran.com\/2013\/02\/25\/developing-story-hivisasa-com-calls-it-a-day-why-a-website-is-not-a-business\/" target="_blank" rel="noopener noreferrer"> that a website is not a business<\/a> ruffled some feathers and we got several emails arguing against his idea. Eaton explains what he meant and what it means to build a profitable and long-lasting company regardless of where you are.\n\n<strong>Pitch, Raise Funding & What Next<\/strong>\n\nWe are not going to dilute his words.\n\nI was thinking about the tech space in Kenya and realized that a lot of attention had been poured into pitching - Pivot25\/East and Hackthons etc which is all good but the problem is what happens next after the pitch fests.\n\nI went back and looked at all the people who won in those pitching competitions to see where they are today. Very few got anywhere - and by anywhere I mean a second round of funding, some revenue, some profits or some sort of meaningful traction in the consumer space. Pesapal, Kopokopo seem to be going places. I'm actually really struggling to think of more.\n<strong>Go Get Customers<\/strong>\n\nThe cause of the failures is the lack of farsightedness by the 'winners' as most of the "businesses" spent their money on building technology \/ apps \/ applications \/ websites and very few spent their money on getting customers. Purely talking out of love for the tech industry and not criticizing founders by any means but the current ecosystem has been very geared to building developer capacity than business.\n\n<strong>Tech Skills Vs Business Skills<\/strong>\n\nBut that doesn't mean founders have no help to build businesses out of their tech skills. That gap in building business skills among the tech community is now being addressed more by the likes of GrowthHub, 88mph and iHub. iHub is more focused on the tech capability, and probably that was right in the early days and they should continue to play that important role.\n\nOf all the pitch competitions and VC's that came and went, I also get the sense that very few really acted as close business mentors. Few could still be active in Kenya but on a practical end they left limited results or no trace of what they did in 2010 and 2011. But there is a new breed of investors who needs praise for setting up shop here and working with founders day by day.\n\n<strong>Local Presence Is Great\n<\/strong>\n\nThe Savannah Fund or 88mph, I think these guys are filling that gap by being physically here on the ground, whereas many of the first set of early VC's here flew in and out a lot. That probably made a difference I reckon.\n\nThe setting up shop here by this funds means a lot. They don't give money to founders and fly out but work with them to develop products ready for the market unlike the pitch fests earlier which most of the winners just have websites online and no work being done, no customers being recruited and in the meantime the money they 'won' being spent.\n\n<strong>Product Problem<\/strong>\n\nThe product problem is not just with pitch fest 'winners' but with bigger players who also had own money to spend.\n\nKalahari.co.ke, Dealfish.co.ke and Mocality.co.ke had massive amounts of money to spend, best technology platforms and greatest teams of the most qualified and experienced in town but what happened is the opposite. And not using them for ridicule but as teaching aid to up and coming entrepreneurs. Their lives as companies was cut short due to a number of complexities.\n\nKalahari.co.ke had a pricing non-competitiveness, underestimated the supply chain and a delivery complexity while Dealfish had no revenue model but a money spending model and sadly for Mocality, there was also no real viable business model.\n\n<strong>Traffic Vs Sales<\/strong>\n\nAdvertising could have been in their mind but Google Ads are fine if a company has a MASSIVE audience and only want small margins. Being free doesn't necessarily draw in masses of traffic but is a loss making operation for any firm.\n\nThere are a bunch of people here who have read the Freemium book and are going for that as the gospel - ie the main stuff is free, the premium of the same stuff is expensive. Freemium doesn't really work in a fragmented market where there is Freemium AND loss leading going on at the same time.\n\nThe objective of Google is to grow the usage of the internet itself in the short term only. The objective of the freemium guys is a long term play. Google has no intention of dominating Kenyan classifieds. It started Google Trader to make the internet itself more useful. That usefulness is now being provided by Google's biggest spending local customers. The more Google get better at driving Google Trader, the more they undermine their spending customers, the more they work against the actual point of doing Google Trader in the first place - to drive internet usage (and hence ad revenue).\n<strong> Free Doesn't Mean Popular<\/strong>\n\nI think there's also Kenya to consider. Bure ni Bure (free is fake). Most Kenyans believe "Free" is a. a lie. b. temporary c. stupid. And rightly so if you look at the track record so far!\n\nWe had on our Cheki.co.ke website "KShs1,000\/-" crossed out, and "Free For Now". And we also were very clear with dealers, that we offered a three month Free Trial, after which it would be 20,000\/- a month, and we made them sign contracts that specifically spelled that out. ie we were very clear we were a monetised service which priced according to value. We also told them all in writing that if they got less than 30 buyer leads per month, we wouldn't charge them because of our belief in pricing to value delivered.\n\n<strong>How Do You Make Money<\/strong>\n\nA lot of dealers asked us 'How do you intend to make money" so we had to tell them, since we were telling them we are here for the long-term with you. Also many questioned "How does Dealfish make money" and actually it was quite interesting, the more they saw Dealfish's heavy spending, the more the dealers feared Dealfish in that they figured they were going to have to pay for all this at some point.\n\nThe more Dealfish spent on marketing to consumers, the harder they found it in sales. This is the opposite of how it normally works, and is a lesson in getting pace right. Overspending is a real thing!\n\nNo I think big things will come. It's just very early. You know once everyone has a smartphone, and some credit (due to data prices coming down) there is absolutely clear evidence of massive Kenyan demand for this stuff. Just like the rest of the world. I think<a href="http:\/\/www.moseskemibaro.com\/" target="_blank" rel="noopener noreferrer"> Moses Kemibaro<\/a>'s latest blog post on Safaricom was very interesting - it shows that barrier dropping.\nIf you saw the presidential debate last night, did you see exactly how mainstream social media has become in day-to-day discourse in Kenya? Totally normal. If you'd have seen that only two to three years ago you'd never have believed it.\n<strong>The Silicon Savannah Will Be Real<\/strong>\n\nIt's coming for sure. It just takes time - just in jobs category, if you look at Seek, Monster, JobsDB, Kariyer, TotalJobs, Jobstreet, 51Job, Cath, Naukri, Stepstone, Careerbuilder - all the major regional \/ global players - how many of them made it big in under 5 years? Zero. How many in under 10? Not many. Average is 12 years.\n\nOn top VC's coming here, 97% of VC's will hardly travel to New York from San Francisco, let alone Nairobi. Of all the VC's focused on Emerging markets, many are focused on China, India, South East Asia and Latin America due to better infrastructure, higher growth, better tech up of tech, later stage markets and lots of opportunity.\n\nIsrael, Turkey and Indonesia right now are super hot tech markets. Many more people are getting into the VC business which itself is fragmenting especially in Africa where there is no much data available to make investment decisions. There have been no successful exits from Africa to date. Africa is also not very understood, and is also very misunderstood. Many see it as a homogenous market and the risks are still high here but that should not discourage serious entrepreneurs. There is capital money in the industry.\n\n<strong>No Shortage of Investment Capital<\/strong>\n\nThere is no shortage of investment capital available here in Nairobi for good startups. I get called literally once or twice a week by people looking for deal flow. There are also now an increasing number of local angels in this space. I think in the $0-25K space, plenty of options in $25-250,000 space, probably about 10 realistic options. In the $250-$2m space, I think there are a number of players around too. And in the $2-20m space, you've also got options, maybe not as many at the lower figures in that range, in fact the if you're got $1m revenue, you have all the options in the world, that simple.\n\nThere are also a lot of social investment firms active here, and frankly a number of strategic investor type people as well - Naspers, Ringier and so on.