How Fintech Zoona Is Solving Customers’ Real Problems

How Fintech Zoona Is Solving Customers’ Real Problems

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Vital Stats

  • Players: Brad Magrath, Lelemba Phiri and Brett Magrath
  • Company: Zoona
  • Established: 2009
  • Contact: ilovezoona.com

Zoona is a fintech company founded in Zambia in 2009, though the company is headquartered in Cape Town. The company developed a financial application that enables grass-root entrepreneurs to become agents who not only provide key financial services to their communities, but earn an income for themselves at the same time.

When founders (and brothers) Brett and Brad Magrath developed the platform, top of mind was the fact that much of  Africa is made up of cash economies with high rates of poverty and unemployment and very little access to formal financial services.

This doesn’t mean that people living in these communities don’t still have dreams and aspirations, and the desire to achieve better lives for themselves and their families.

Zoona’s solution provides technology, capital, and business support to emerging entrepreneurs in Africa, enabling them to start their own businesses as agents.

Connecting communities to financial services

As agents, they can process essential financial services to communities who historically haven’t had access to these facilities within their communities via mobile money transactions, including local and international money transfers, bill payments, even savings products.

Related: 10 Young Entrepreneurs Under 30 Share Their Start-Up Secrets

Over $1 billion in mobile money transactions have been processed on the Zoona system since inception, and 1,5 million people regularly use the service. The company has since expanded to Malawi and Mozambique. It has grown from a text message between two brothers to a company employing well over 100 people today.

In 2012, Zoona raised a series A round of $4 million, followed by a series B investment round of $15 million in 2016. Investors include Omidyar Network, Accion’s Frontier Investments Group, Quona Capital, the International Finance Corporation (IFC) and local VC company 4Di Capital.

How has Zoona attained quick success, and how has it managed to attract funding from some of the largest and most respected investors in the world? Entrepreneur spoke to Brad and Brett Magrath, and chief marketing officer Lelemba Phiri.

Why did you launch a combination of a for-profit and a social enterprise?

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Brett: The world is changing and it’s quite different from what it was even a few years ago. Today, doing good and making money are no longer mutually exclusive. To build a sustainable business that attracts great people and is able to stand the test of time, you need to point to the good you do. It’s something you can’t fake and something that you genuinely need to do. At Zoona, we are creating opportunities and not dependents.

How have you achieved such tremendous growth?

Brad: The fuel for growth is undoubtedly great people, so we’ve tried to attract the best to come and work with us at Zoona. Get great people in a room and great things happen. Beyond this, you absolutely must be customer-led, stay focused on what is important and say no to everything else. As an entrepreneur, the only people in your world should be your customers, and your focus should be on understanding their needs and pain points and working with them to solve them.

Every industry has a choke point: One thing that unlocks real customer value or solves a real customer problem.

Understanding that one thing and relentlessly focusing on absolutely owning that niche is all that matters. Your key drive must be to commit to be ten times better than anyone at that one thing that matters most to the customer. At Zoona, that one thing that customers wanted was the seamless and simple ability to cash-in and cash-out, so we focused on owning that experience and being ten times better than our competitors at that. We deliberately did not compete with promotions, or even price. We relentlessly competed where it mattered most and that’s where we won the battle and why we could grow.

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Lelemba: Another key factor has been our ability to stay true to our mission, sometimes under tremendous pressure. Growth comes with opportunities, but some may lead you to deviate from your reason for being. At one point, we were approached by a gambling company that was proposing very attractive terms for distributing their services.

As a company whose mission was helping communities thrive through building entrepreneurship and financial inclusion, we declined the opportunity and stayed true to our purpose. Growth is about spotting opportunities, but it is sometimes also about turning opportunities away. You can only be successful if you focus on what you’re truly great at.

What are some of the barriers to growth and how did you overcome it?

Brett: Lelemba has alluded to this, and I agree that the greatest threat to entrepreneurship today is totally in one’s power to control and remove as a threat. In simple terms, it is our inability to focus — to truly focus with laser-like discipline. As entrepreneurs, we all see opportunities everywhere, like kids in a candy store.

We also actively try to mitigate risk by doing lots of different things, thinking if this one fails, maybe this other one will work out. The research shows, however, that if you try to do ten things simultaneously, you will fail at all of them. Exceptional results are only achievable when you try to do less. In doing less, you actually achieve more.

We built Zoona by focusing all our attention on this one business, in one market, with one simple product. We removed complexity and opportunity and adopted relentless focus. My advice to entrepreneurs is to focus on one business idea.

Focus on who your customers are, and what they want and need.

Brad: Another common barrier entrepreneurs need to overcome is the notion that ideas by themselves have value. The fact is, they don’t. Your business only becomes valuable when you start to grow, show that the idea actually works and can generate revenue.

This requires focus and commitment, so don’t even start thinking about raising money until you have a business that is proven to work. I believe people spend far too much time thinking about how big something can be, and not enough time in the trenches proving it will work.

Can you describe Zoona’s investment history?

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Brett: I think we may be one of the few businesses in South Africa that have experienced the full spectrum of fundraising activities. Brad and I bootstrapped the business for three years, then received grant funding, followed by angel investment.

We also raised funding through convertible debt and two rounds of international VC investment. We have an employee share option pool where employees can buy into the business. All in all, we have raised over $23 million.

Related: 10 Businesses You Can Start Part-Time

What advice do you have for other businesses looking for funding?

Brad: An idea is worthless. You absolutely need to bootstrap until you gain some real traction. Once you generate revenue, you can start looking for outside investment. It’s much easier to get hold of money to grow your business, than it is to launch it. Once you’re making money, you can get a fair valuation. So, don’t start a business with the aim of raising funds.

Launch a solid business that can survive without outside funding — that’s what investors are attracted to. Only raise capital when you are ready to grow aggressively, not when the business is struggling.

You need to be able to walk away from any investment negotiations. You also never want to attract just one investor, so you need to build a compelling business that attracts multiple investors and generates a bidding war.

How do you know that you’re getting a fair valuation?

Brad: When you raise capital, raise from people who know how to value start-ups. This is the main reason that Zoona’s investment was raised overseas. In South Africa, many investors know how to value corporates, but are only now learning how to value start-ups. If an investor wants to value your business based on your price-earnings (PE) ratio, walk away. Only ever accept valuations that are based on growth.

Brett: Be aware that raising money is complex and time-consuming, and the people you’ll be dealing with know what they’re doing and are very sharp. So, it’s important to bring them in early and be completely transparent. Don’t hide any skeletons in the closet. It’s also good to get advisors and mentors to help you navigate the process.

Related: Funding And Financial Assistance For SA Women Entrepreneurs

Investment term sheets are complex and hard for many entrepreneurs to understand, which is why you need mentors or a board of advisors who can assist. Don’t sign something if you’re not completely happy with it. When we received our first term sheet, it was the best day of my life. When someone actually explained the terms to me the following day, I felt like crying. Understand the term sheet, otherwise you’re going to pay for it down the line.

Lelemba: When it comes to measuring traction, it’s important to track not only the traditional metrics, like revenue and profit, but also key impact metrics, like the number of people who are benefitting from your product in rural areas, or the jobs that your product is directly and indirectly creating. There are many investors who are looking to invest in businesses that have the potential of making profit, and are also creating social, economic and environmental change. So, start measuring your impact early.

Is it important to have a good relationship with those investing in your business?

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Brad: Make sure you find the right investors who are aligned with your vision and priorities. This means you need to interview the investor, and their other investees. Do your research to know how they act when things don’t go as expected, and what level of support you can expect.

It’s also important to keep in mind that the value a good investor brings is much more than financial: They can help open doors, build relationships and make connections.

Getting the right investor on board is more important than securing the highest valuation, so be willing to go for someone you like and who can add real value, instead of the one who is offering you the best valuation.


Key learnings

  • Growth is about laser-like focus, not chasing every opportunity. Focus on what your customer wants.
  • Only chase funding once you are ready to grow aggressively. Bootstrap in the beginning.
  • Always bargain from a position of power. Don’t try to get funding when the business is struggling.
  • Understand the valuation and term sheet offered by a potential investor. Have an advisor who can help you unpack the details.
GG van Rooyen
GG van Rooyen is the deputy editor for Entrepreneur Magazine South Africa. Follow him on Twitter.