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Before fintechs became the standouts of the African tech ecosystem, it was startups in the online logistics and transport space in Africa linking on-demand apps to move people and goods around the continent that was all the rave.

For the online logistics space, it’s not difficult to see why investors were quite curious about the market. In Africa, more than $180 billion is spent annually on haulage, and logistics account for more than 70% of a product’s price, according to reports. For comparison, it’s 6% in the U.S. Logistics operators in Africa suffer from various problems, from inconsistent pricing, which stems from a fragmented supply-and-demand market, to paper documentation and little or no access to financing.

On-demand logistics and trucking marketplaces solve these problems and reduce costs by connecting shippers to transportation, assisting them in moving cargo, extending working capital facilities and supplying them with apps and software to manage their operations.

The year 2019 was good for such businesses. Lori Systems had just closed its Series A round. At KOBO360, the company had achieved product-market fit and business was growing fast off the back of its $30 million equity and debt investment from Goldman Sachs and other investors. However, over the next couple of forgettable months, these platforms showed signs of struggle, no thanks to the COVID pandemic and its resulting lockdown restrictions, which stifled most of their on-the-ground operations.

In an interview with TC, KOBO360 CEO Obi Ozor narrated the problems that came with the pandemic and with restrategizing. He also detailed how the company faced them and its current state of stable growth and sustainability.

KOBO360 has a straightforward business model: Manufacturers and trading houses that want to ship cargo place an order and get matched to a truck driver who can deliver the goods. But the logistics market is such that on-demand trucking marketplaces must make advanced payments (about 50% or more) to the truck owners during cargo pickup and complete the rest of the payment upon delivery. On the other hand, manufacturers like multinationals Unilever, Nestlé, and Lafarge are fond of making late payments — and as a result, KOBO360’s drivers are at a disadvantage because they’d need to wait for days or weeks to receive payments.

Most truck drivers are in the unbanked and underbanked segment in Nigeria. With the informal nature of their jobs and a nonexisting credit profile, considering the majority don’t own a bank account, it’s difficult for them to access loans. Also, the trucks aren’t owned by drivers but by microfleet owners, the other critical stakeholders in KOBO360’s business who, despite making over $400,000 yearly buying and leasing out trucks, aren’t eligible or attractive for bank loans.

In a bid to make drivers more attractive to its banking partners, the YC-backed company launched Kopay, its payments product for drivers, in late 2019 to extend financial services to them by leveraging the data gathered on our platform. But these financial institutions didn’t buy it, Ozor told TC.

“How do you derisk a truck driver to a bank or financial institution? They don’t want to touch drivers,” he said. “The banks wanted us to ensure we charge the financing costs before they could touch them. They wanted us to structure something where we provide the first loss tranche — that is, if a service isn’t completed, Kobo bears the first loss.”

Despite the challenge, KOBO360 still chased growth and while it tried to tweak this product to meet its partners’ conditions, the pandemic hit. Operations froze due to lockdowns across various markets and because its drivers, trucks and cargo shipments were all grounded, it forced the company to make sweeping changes and change its focus toward achieving strong unit economics after years of blitzscaling growth.

Building for drivers and tackling the collections problem

Since banks wouldn’t lend to KOBO360’s drivers, the company partnered with insurance firms and invested about $4 million in building an insurance product covering the risk of goods-in-transit, driver misbehavior and credit default. That sorted, Kobo360 passed the ancillary costs incurred on each driver’s trips to the transporters.

In addition, the company understood that while global manufacturers using its platform were sluggish to make payments due to their cash conversion cycles, COVID allowed them to embrace tech and go digital. Hence, it developed Payfasta, an embedded finance platform, to fix the delayed revenue collection problem. Once manufacturers started accepting digital proof of delivery, KOBO360 reduced its collection process by 12 days.

“When we initially focused on growth, we didn’t care about all these things. We just ate up all that cost. So gradually, because we delivered insurance, which is per trip and cheaper and a financing product that works, we started to move to positive unit economics,” said Ozor. “We stopped covering some of these costs and passed them to the transporters and field operations. We moved the whole collection process digital and created credit wallets for every manufacturer where they were to maintain a certain balance and not exceed a particular timeline to pay up what they owed.”

The strategy proved to be a success. KOBO360 deployed $100 million through Payfasta and actively financed truck drivers and partners faster than before. Its nonperforming assets (NPAs) dropped to 0.8%, profit margins went up 240% and the receivables cycle reduced by 64% from 138 days to 49 days.

While shorter payment periods gave the company a steady cash flow and allowed it to focus on improving its services, growth stalled because of churn in the number of manufacturers using its platform. Within the company, certain personnel and roles, even in senior management, became unnecessary and redundant as KOBO360 evolved from an e-logistics platform to an e-logistics and embedded finance platform. A few KOBO360 senior managers and executives who earned up to $50,000 per annum took pay cuts of about 30%.

These issues were highlighted by investors when the company returned to the market the following year to raise a $100 million Series B ($50 million in equity and debt each). The round proved challenging to close even though KOBO360 finished Q4 2020 on a solid note and business grew 84% the previous year, Ozor recounted.

“We couldn’t find an investor to anchor the $50 million equity round we had in mind at the time, and we almost ran out of money, to be honest. Raising money had become too long and distracting, so we decided to do a bridge round with existing investors for a nine-month runway,” he said. “Still, I think COVID helped the business because it forced us to understand that we can’t build just hoping that the next round would work.”

Bringing experienced hands to steady the ship

As investors became frugal with cash and funding was difficult to come by, KOBO360 returned its priority to assembling a team for its next phase: sustainability. But it wasn’t a comfortable process. Ozor mentioned how undergoing several changes, self-doubt and fatigue took a toll on his mental health; eventually, he had to sort help through some mentorship programs.

“Most times, your investors and board are present when it’s working. When it’s not working, it can get lonely. At one point, I took leave from work and went for some leadership courses to see if I could figure out how to improve my capacity because I felt like I didn’t have enough ability to run the company anymore,” he said. “It’s things people don’t talk about; as a founder, there comes a time when we are not the most experienced to run these companies. Some of us actually need to be fired as CEOs; if we had to be interviewed for our roles, most wouldn’t make the cut.”

It also didn’t help that Ife Oyedele, his right-hand man since the company graced the tech scene in 2017, had to resign for personal reasons. But the show had to go on. Cikü Mugambi, an associate investment officer who, while working for the IFC, took a keen interest in KOBO360’s business (Kobo360 is an IFC portfolio company), joined the firm as chief of staff. Ayo Fashina, ex-IFC and Deutsche Bank, became its chief financial officer, while Kemide Senah, ex-Google and Citibank, took over Oyedele’s role as head of growth.

Given the informal nature of the logistics business, KOBO360’s default mode was often reactive, putting out fires constantly and having to resolve last-minute issues with handling cargo or insuring vehicles. But operations have run smoother since it brought on the new executives and changed its approach to one concerned with drivers and other stakeholders — mainly orienting them with digital processes — instead of driving insane growth.

“Before, we used to be reactive. Now there are no fires to put out. It gets boring, but it’s necessary,” Ozor laughs. “Investors love sustainability more than growth today. We used to be a company where you could dish out instructions to people but now having conversations are key because of the senior talent you have on board. We moved from what I call a diagnostic control system, where the founders instruct, to an interactive control system.”

Last December, KOBO360 closed about half its intended raise: $48 million in equity and debt to double down on the momentum gained over the previous two years and build a sustainable strategy around being asset-light (the company also owns some of the trucks it leases) and improving its culture and product.

The Series B investment was led by the Fund for Export Development in Africa (FEDA), the equity arm of Afreximbank. The anchor investor is a bellwether in the African Continental Free Trade Area (AfCFTA) agreement, which aims to reduce tariffs among member countries and cover policy areas such as trade facilitation and technical trade barriers. FEDA’s crucial role in AfCFTA was one of the value-adds KOBO360 sought when fundraising, as it intends to build a Global Logistics Operating System (GLOS) on the blockchain that combines all activities in the African supply chain ecosystem into one robust platform.

According to Ozor — who recently co-founded Fig Finance, a liquidity infrastructure for B2B companies and marketplaces in emerging markets and plays an advisory role in the upstart — this operating system is an opportunity for industry stakeholders (cargo owners, truck drivers, fleet owners, customs, and insurance companies) to access valuable data, facilitate trade, derisk the sector, and bring in more capital. By solving the asymmetries in trade, he believes GLOS can deepen Africa’s $1 trillion logistics sector and move toward creating a pan-African digitized freight market.