THE OPEN LETTER NEWSLETTER

Fancy ice? This startup is exporting chunks of glacier ice harvested from fjords in Greenland to exclusive bars in the UAE. Compressed over millennia, frozen without bubbles, and uncontaminated by humans, guaranteed to be purer than the stuff kicking around in ice trays in your deep freeze.

In this Open Letter:

• Smart flava: South Africa’s teetotaller opportunity.
• Local startup buys startup, Apple takes the lead & Busy Airports.
• Find and convert: How to use storytelling to win at marketing.
• The results: What Startup founders are struggling with most.
• From the rooftops: Share The Open Letter and get free business tools.

TRENDING NOW

The money in sobriety

Drinking isn’t as cool as it used to be. 

At least that’s what it looks like if you follow movements Sober October (Ocsober) or Dry July. But ask any person who quit booze what the most annoying thing is about quitting – Having almost no options for drinks in social settings – it's either extremely sweet juices and sodas, or water. Until recently…

Raise a glass for the sober ones

When making beer or wine, the sugar reacts with the yeast to create alcohol and carbon dioxide. So naturally when alcohol is made, the fluid loses most of its sweetness. And it's this natural removal of the sweetness that gives these drinks its unique taste. 

For years, people have attempted to create drinks with a similar taste but without the sugar turning into alcohol. Unfortunately, they were never able to achieve the same result. Alcohol-free beer tastes like cold bitter Horlicks (a malt drink consumed hot in winter) and alcohol-free wine tastes like grape juice (Which is literally what it is. Lol). 

Enter the process of de-alcoholisation

Removing the alcohol post-manufacturing however keeps a lot of the taste intact – or at least it's closer than anything up until now. And this is something many traditional alcohol brands have jumped on. 

Locally Castle Free, Heineken 0.0, and Savannah no-alc are some of the most popular sober versions of otherwise popular drinks. And these sober versions of popular drinks are likely making good money.

When you buy a normal beer or cider alcohol tax (commonly called sin tax) applies to the volume of alcohol in the drink – it results in SARS collecting roughly R2 per beer over and above VAT. Yet non-alcoholics don't pay this tax, and also sell at prices higher than their alcoholic counterparts. Meaning there’s some nice margin to be made.

Just how big is this market?

Unfortunately, as with so many industries, South African data points are really hard to come by, but some assumptions point to a massive and fast-growing market. In the USA for example, the non-alcoholic market is roughly 13.5% of the size of the alcoholic beverage market. With the SA alcohol market at R173 billion, one could estimate that the demand for non-alcoholic beverages locally could be as much as R23.35 billion soon. And it lines up with predictions that it will grow at 8.9% per annum over the next few years.

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But it's not only beers and ciders

Initially, non-alcoholic beers, ciders, and wines hit the shelves. But recently local manufacturers have started producing non-alcoholic spirits as well (with even less tax to pay, one can imagine the margins are really attractive).

• Mahala Botanical is a South African distilled non-alcoholic spirit infused with 9 hand-sourced botanicals. As the name ‘Mahala’ (Zulu for free) suggests it’s free from sugar, alcohol, colourants and artificial flavours.
• Abstinence is a range of non-alcoholic spirits and aperitifs inspired by the Cape Floral Kingdom.
• Iconic is another distilled non-alcoholic spirit with its Citric Rose offering made from natural and classic London-Dry (yeah, the London-Dry type gin) ingredients. 

But that’s not all. Overnight e-commerce offerings, Drink Nil and Zero Drinks popped up even retail giant Woolworths has fridges stocked with low and no-alcohol drink options.

This space is set for massive growth and there are opportunities across the value chain here. We will be keeping a sober eye on this space.

IN SHORT

🧙‍♂️ Epic Pass. Private school learners in South Africa (including online learners) who wrote their 2023 matric exams through the Independent Examinations Board (IEB) have achieved a 98.46% pass rate. Will be interesting to see how that compares to the rest of the 2023 Matric class’s results being released today.

🦶 Secured Footprint. Stellenbosch headquartered Entersekt has acquired Modirum’s 3-D Secure payment solutions for an undisclosed sum to help it expand its customer base and secure over 2.5 billion transactions per year.

🍎 Big Apple. Apple has overtaken Samsung as the world’s largest smartphone seller, ending Samsung’s 12-year unbeaten run. Apple ended 2023 with 20% of the smartphone market share, while Samsung grabbed 19.4%.

📈 Good Tymes. TymeBank has become the first digital bank in Africa to reach profitability, and it did so in less than five years. Pretty impressive considering less than 5% of all neo-banks around the world have reached profitability. They are also looking to raise at a valuation exceeding $ 1 billion soon — unicorn incoming.

🛬 Busy Airport. Cape Town International Airport set a new record in December 2023 for the most traffic in and out. Beating the previous record set in January 2020.

🇿🇦 Fight Morning. SA’s very own Dricus “Stillknocks” du Plessis will challenge current UFC middleweight champion Sean Strickland for the title in the wee hours of Sunday morning (thanks Canada) at UFC 297. The main fight will be broadcast on SuperSport (around 5AM) — with English, Afrikaans and isiXhosa commentary. #hulleweetniewatonsweetnie

HOW WOULD YOU BUILD IT?

How to Market Your Startup Like a Guru

If you’re battling with marketing, acquisition, growth, awareness and beating competitors, then this week’s How Would You Build It podcast is for you. We sat down with serial entrepreneur, founder and marketing guru Dave Duarte, to chat about how to market a startup, build the brand and build a community. And it’s solid GOLD.

Some of the best bits…

1. Tell a good story and your marketing is done

Dave jumps straight in with the one hack that does all your marketing for you. He says not to leave marketing to the “arts and crafts” department, build the narrative of what you’re trying to do internally at the core of your product.

Sometimes a single line makes every sale so much easier. Uber’s was so good – “press a button, get a ride/taxi” – that it built the company to mega-scale, and even led to other startups comparing themselves to Uber – “we’re the Uber of the xxx space”. 

It’s your job as founder to figure out what that one line is for your brand. Dave says to make your customer the hero of a story – “They are Luke Skywalker, your product is the lightsaber, get Luke to understand that he needs that lightsaber to save the universe.”

2. Identify your audience by eating your broccoli

Dave says there’s only one reliable way to find your user and that is to get in front of a whole lot of people you think might have the problem you’re solving and have a three-tier conversation: Who they are, What problems they’re facing and then Frame your product as the solution to those problems.

Then comes the acid test: If that person looks you in the eye and says, “Oh my goodness, yes! I want it, right now. Where do I sign up?”. Only then do you have your audience – everyone else is a mom (they like the idea of your product but they will never buy it).

The broccoli part is actually finding those people and getting them to talk to you – via video call or in person.

3. Startup marketing hacks

First off, you gotta actually have a plan and budget to build and test a suite of marketing approaches (channels). Then Dave says you structure it like so…

1. Truths: Expend some of your budget and effort on doing the basics right: Create your story, have an awesome website, get a great product video, and engage with your audience on socials or wherever. Just make yourself look like a company you’d actually buy from. Clients "Look before they eat”, so make sure things look awesome.
   
2. Trends: Test out trending marketing approaches – try TikTok, approach influencers, and run ads and adjust. You never know if you don’t try.
   
3. Trifles: Keep a little bit of budget to do crazy, fun stuff you really want to do. The key is to just have fun – host an in-person event, try something whacky with AI – and just have fun with a bit of your marketing.

Then, bring it all together in a channel-based approach: Try different channels, measure them, see where you have success, double down on those and gradually just build a series of marketing channels that actually work for you.

If you are a founder, you have to listen to this one, we promise it will be worth the 40 minutes.

You can also grab the Spotify and Apple Podcast links on our website here.

THE RESULTS ARE IN

We asked what you mostly need help with in your startup, and market fit and acquisition come out tops…we can help with that btw, so hit us up.

🟨🟨🟨⬜️⬜️⬜️ Securing Funding (23%)

🟩🟩🟩🟩🟩🟩 Market Fit and Customer Acquisition (37%)

🟨⬜️⬜️⬜️⬜️⬜️ Product Development (7%)

🟨⬜️⬜️⬜️⬜️⬜️ Scaling the Business (10%)

⬜️⬜️⬜️⬜️⬜️⬜️ Team Building and Management (0)

⬜️⬜️⬜️⬜️⬜️⬜️ Regulatory Compliance and Legal Issues (3%)

🟨⬜️⬜️⬜️⬜️⬜️ Marketing and Brand Awareness (10%)

⬜️⬜️⬜️⬜️⬜️⬜️ Financial Management (0)

🟨⬜️⬜️⬜️⬜️⬜️ Competition and Market Differentiation (10%)

⬜️⬜️⬜️⬜️⬜️⬜️ Work-Life Balance (0)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Space dust? NASA says it finally managed to open the container with the world’s first actual asteroid sample. It only took 3 months, but already scientists say there are super interesting hydrated organic compounds from asteroid Bennu in there.

In this Open Letter:

• Venture studios: A new way to build a startup in SA.
• Cheaper streaming, magnetic forests & accelerating Africa.
• Easy growth: Ensuring you have the perfect market fit.
• How we like our pocket AIs: The results are in.
• Free stuff: Share this and get cool business tools.

TRENDING NOW

Ultimate Startup Support in SA

In the startup-verse, the harsh reality is that the majority (9 out of 10) don't make it. 

Yet, the prize and thrill of building a successful startup has many wondering, is there a better way? This has led to a whole host of mechanisms to help give as many new startups the best possible shot at making it.

At the core are the grassroots startup development initiatives we all know – accelerators like Y Combinator and Techstars, incubators and VCs to help fund and develop new ideas.

And they all fit together in a specific way:

• Incubators are short-term programmes that validate ideas and help get early traction.
• Accelerators are short-term programs for growth-stage startups (already have an MVP just need to grow) that help them reach a point of raising capital.
• VCs are investors, offering capital to help startups reach their goals.

But there is another, slightly rarer and, some might say, more in-depth type of startup developer. One that acts more like co-founder…

Enter the Venture Studio – a game-changer for startup development

Venture Studios are like the special forces of the startup world. They're not just passive investors; they roll up their sleeves and get involved in building businesses from scratch. 

They employ top people across various disciplines and bring them to the table to help you build while often supplying the funding needed as well – the whole shebang.

1. A scientific approach to building startups
   Venture Studios don't gamble on hunches; they use a structured, gated process for developing and testing hypotheses. This approach allows for the early identification and discontinuation of less promising ventures, thereby focusing resources more efficiently on those with greater potential.

2. They learn the nuances of a startup in a specific territory faster
   By managing multiple ventures at once, they accumulate knowledge rapidly across various sectors and technologies. This breadth of experience means they can avoid repeating mistakes, improving the success rate of new ventures.

3. They share expert skills across multiple startups
   Venture Studios operates several ventures simultaneously, sharing expertise, services, and other resources between them all. This shared model is particularly beneficial for startups that need experienced, yet costly resources early in their lifecycle. In a Venture Studio, these resources are distributed across various projects, offering significant cost savings and synergies.

4. Opportunities for older founders
   Contrary to popular belief, the typical successful founder isn't in their early 20s, but rather closer to 45 – experienced but often burdened with responsibilities that make high-risk ventures less feasible. Venture Studios offers a solution here: They provide roles like venture architects or venture owners, allowing “startup founders” to earn a salary while working on startups. While this might mean less equity than founding a startup independently, it also means less risk and a steady income — nice.

The numbers speak for themselves 

Startups backed by Venture Studios have shown impressive Internal Rates of Return (IRR) – around 53%, compared to 21% for those backed by traditional VC funds.

In the South African eco-system, you have companies that do venture services like Specno who assist startups, corporates and scale-ups in building ventures. And then there are those like The Delta that have a hybrid model of building some of their ventures internally whilst also helping corporates build their ventures.

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A new way to build

But, you often get the best results when a studio builds along specific verticals… 

This way they create synergies between startups that complement each other. Put a large corporate in the mix that has many problems to solve and opportunities to unlock and you might just create a powerhouse for SA startup creation.

And that’s exactly what's happening over at Next176. 

Backed by Old Mutual, they’ve set up their own Venture Studio to create disruptive and innovative businesses as well as invest in growing startups — a hybrid model. And they have lofty goals – to positively impact a billion African lives – by focusing on consumer-led products in the Health, Education, Jobs, Business Ownership, Debt Management and Environmental Sustainability space. 

Heck, they’ve already invested a collective R84 million into tech-driven startups like Kena Health and JOBJACK. And they say they are also building a bunch of new startups internally with some exits on the horizon.

So, with VC funding drying up, perhaps venture studios are the future of building startups in SA. We can see them having a major impact on the local ecosystem. We are watching this space.

IN SHORT

🫰 Cheaper Streaming. Showmax subscribers in SA can expect to pay 10% less on its monthly cost when it launches the much anticipated Showmax 2.0. Showmax is set to cost R89/month, while its mobile offerings are also set to be similarly discounted.

🦈 Magnetic Forests. A South African startup, SharkSafe Barriers has come up with an innovative, safe way to deter sharks from popular beaches: an array of flexible pipes that mimic a kelp forest (sharks steer clear of them) with magnets inside that disrupt sharks’ electromagnetic receptors.

🧴 Iced Sunscreen. Scientists at the North Pole have found traces of sunscreen in the snow after collecting glacier samples from the Brøggerhalvøya peninsula. Pretty interesting considering the sun doesn't shine there in winter, and could point to long-range atmospheric transport from contaminated air masses from Eurasia.

👟 African Acceleration. Pan-African venture capital firm Norrsken22 has opened up applications for its eight-week Accelerator Program for African startups. The program offers upfront funding of $125,000, as well as interactions with unicorn mentors and leading investors. Apply here now.

📵 Hanging Up. Mobile Virtual Network Operator (MVNO), Lyca Mobile has ended operations in SA, 6 years after entering the market. Lyca Mobile is one of the largest MVNOs in the world, with operations in some 60 international markets.

🌍 African Expansion. FirstRand is looking to acquire banks in the other African countries it operates in to capitalise on the rapid economic growth in other countries on the continent.

BUILDER’S CORNER

How to Make Sure You Have Market Fit

We often speak about product-market fit, which is just building the right product, the one the market needs most right now. And, generally, the market rewards you by buying it.

Startup guru Brian Balfour actually breaks market fit into 4 distinct categories. Each with its own exercises, measures and methods.

So, if you’re pretty far along and have a product already, this is one to pay attention to. (And if you’re still building, keep it in mind as a place to build towards.)

Nailing all 4 Market Fits

1. Market-Product Fit

How to Check: It’s sorta the opposite of product-market fit, in that this time you check to ensure that the market you’re targeting is the ideal fit for your existing product.

Do some surveys to gauge how well your product meets their needs – try the “bait” survey to find your superuser. And then look at customer satisfaction, retention rates, and your Net Promoter Score (NPS).

How to Get It: If you don't have Market-Product Fit, consider pivoting your product features based on customer feedback. Niching down on a specific segment of the market should do the trick. Find a few segments to test and see if you get better feedback, retention and NPS scores among those niches.

2. Product-Channel Fit

How to Check: Analyse the effectiveness of different marketing channels (Google VS social networks, Facebook VS Linkedin, Instagram VS TikTok, email VS app etc.) in reaching your ideal customers. 

Look at your customer acquisition cost (CAC), conversion rates, and engagement levels in each channel. Your best channels are the ones where you have the best possible CAC.

How to Get It: To improve Product-Channel Fit, test different marketing channels and strategies. Optimise your messaging for each channel and focus on those that bring the highest quality leads at the right cost.

3. Channel-Model Fit

How to Check: Now you need to check if your business model works with your sales and distribution channels. How profitable is each channel for you? And then, how scalable is that channel? 

Consider the lifetime value (LTV) to CAC ratio you get from each channel. You ideally only want to spend a low percentage of 20—30% of LTV as CAC, so look at the channels where you think that’ll be possible. Then, also analyse channels based on sales cycle length – the faster you can get to the sale, the better.

How to Get It: If you’re spending too much to acquire new customers, there’s only one of two options: 1) Find different channels that work better with your business model, or 2) Adjust your business model, pricing strategy or sales approach to better leverage existing channels.

4. Model-Market Fit

How to Check: Assess if your business model is sustainable and scalable in the market you’re currently targetting. If you niched down, check that the niche is big enough, reachable enough and able to pay in your competitive landscape.

If yes, great, go for it. If not, you’ll have to find a way to increase your potential market to unlock growth.

How to Get It: If you lack Model-Market Fit, you could try and discover a newer, larger market – though that’s easier said than done, and takes you back to Step 1.

More often than not, model-market fit might require you to pivot your business model. Maybe you can change your revenue model, target a different market segment, or adapt your operations to better suit the reality of the market (i.e. slim down operations until you are profitable in the current situation).

See how to reverse-engineer startup success.

Got a market fit hack to share? Hit reply and let us know…

THE RESULTS

We asked whether you’d use an AI pocket assistant like rabbit r1, and most people haven’t found a use for it just yet…

🟨⬜️⬜️⬜️⬜️⬜️ 👍 Already ordered mine (15%)

⬜️⬜️⬜️⬜️⬜️⬜️ ✍ My human personal assistant will do just fine (4%)

🟩🟩🟩🟩🟩🟩 🤷 I really don’t know how I would use it (48%)

🟨🟨🟨🟨⬜️⬜️ 💥 This is the beginning of the end of the world (33%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi there,

Remember when…? If you’re in tech, it’s always cool to look back at how far we’ve come. Now you can check the main tech advances in the year of your birth. (For everyone born after 1970, though.)

In this Open Letter:

• On trend: The future of human-machine interfaces.
• AI-friendly chips, deeper diamonds & SA’s e-commerce battle.
• Kickstart: Building a tech company in 2024.
• The tech presidents need: The results are in.
• Tell someone: Share this & get free business tools.

TRENDING NOW

The Future of Human-Machine Interfaces

Steve Jobs made a historic trip to Xerox's Palo Alto Research Center (PARC) in December 1979. It’s famous because here he would be introduced to several revolutionary technologies, including the computer mouse and the graphical user interface (GUI). 

Steve knew immediately what he saw would change computing forever – an intuitive way for humans to communicate with computers. 

Because, before GUI, the way we talked with computers was a bit of a mess…

And Apple ended up shaping much of the world as we know it today by releasing GUI (with keyboard and mouse) in 1984, along with its operating system, Macintosh. 

Microsoft followed suit, releasing Windows and finally gaining success with Windows 3.0 in May 1990. A move that would set up Microsoft as a global leader in software.

Over the next 30 years, user experience design and user interface development have become massive industries. There are millions of designers and developers working daily to create interfaces for humans and machines to engage.

Talking tech

However, at its core, user interfaces are simply the communication layer between humans and computers. It’s a mechanical way for us to translate our human instructions into code, so the computer can display data in a way that’s helpful to us – a simple concept that spawned entire UI-based industries.

But when computers innately start getting better at understanding what we want from them, we might not need all of these interfaces anymore. 

Now, you might be familiar with Large Language Models (LLM) that’re used in innovative AI tools such as ChatGPT. Enter LAM, a Large Action Model that enables a computer to execute tasks humans normally do.

Introducing Rabbit

The rabbit r1 is a pocket-size AI companion built on the world's first LAM operating system. It was announced a few days ago at CES and, on its first day, it already sold 10‘000 devices at a retail price of $199.

The LAM operating system connects to an online vault where you can give it access to your online accounts such as Uber, Airbnb, etc and it can then execute complex tasks on your behalf by simply following your voice prompts. 

Not quite replacing the phone, and likely more playing in the personal assistant space. But what it's doing is challenging the status quo in how we interact with computers. 

In fact, it probably won’t threaten all the user interfaces we know and love just yet. But we do think that, just as Steve Jobs got excited about the mouse and what it could do, LAM is going to play a big role in human-machine interaction in the future. 

This might just be the start of an exciting new tech journey… and we’re definitely watching this space.

IN SHORT

🖋️ Kenya Startup Bill. Kenya’s president will sign Kenya’s Startup Bill 2022 into law by April 2024. The bill will set out to provide employment opportunities for Kenyan youth, provide tax breaks and access to platforms to access information and support, as well as a credit guarantee scheme.

🔨 Battening the Hatches. Things are hotting up in the local e-commerce battleground as Naspers boosts investment into Takealot in anticipation of global e-comm giant Amazon’s arrival on SA shores this year.

👨‍💻 Consumer Electronics Show. CES 2024 kicked off in Vegas this week and showcased all of the upcoming incredible tech set to hit the streets including the next generation of laptops, tablets & handhelds powered by AI-friendly chips, transparent TVs from Samsung & LG, and Honda’s global EV series Honda Zero.

💎 Diamonds are Forever. Diamond behemoth De Beers and the government of Botswana have approved the $1 billion deal to dig under the world’s richest diamond mine Jwaneng, to extend the life of the mine by 20 years and haul out up to 9 million carats per annum.

🤑 Taken for Granted. South Africa has 28 million grant recipients, nearly 12x as many as in 1994 and 4 times as many as the 7.1 million taxpayers.

🌝 To the moon? The Securities and Exchange Commission (SEC) has approved 11 exchange-traded funds (ETFs) that hold bitcoin (BTC).

HOW WOULD YOU BUILD IT?

Building a Tech Company in 2024

If you’re amped to build something innovative in South Africa this year, then this week’s How Would You Build It podcast is for you. We spoke to the ever-vibrant Zanele Matome, founder of Welo Health, and she has some remarkable insights into building a MedTech, as well as some awesome general startup advice.

Some of the highlights…

1. Taking the leap & being bold

Zanele says she was in a mining job when the entrepreneur bug bit her. Then, engaging with some people in tech inspired her to want to head to Silicon Valley, to immerse herself in what tech was all about.

However, as she explains here, Zanele had nothing but the clothes on her back when a “happy accident” with the old car she was driving gave her an insurance payment just big enough to cover a plane ticket to San Fransisco. So She risked everything and went – a move she credits as enabling her to come back to SA and build Welo Health.

2. Build up your core tech team internally

Zanele explains that she’d made the strategic decision early on the outsource most of their development but regrets not building an internal tech team when they had successful funding rounds.

Having an internal dev and CTO, made up of people who are inside the company and share your vision is key, she says. 

3. Be smart about managing your cash flow 

Zanele also has some great insights on managing startup money. She advises, as a startup getting corporate or government contracts, to negotiate faster payment options – even if you have to lose up to 50% of the contract value just to get them to agree, getting paid faster is more important in the early days, she feels.

Then, she recommends saving and building up a windfall of 6 to 12 months of operational expenses in the bank as soon as possible and advises every founder to think twice before making any hires.

You can also grab the Spotify and Apple Podcast links on our website here.

THE RESULTS

We asked what tech you think politicians need, and of course like 60% of us said tech to improve their delivery 😜

⬜️⬜️⬜️⬜️⬜️⬜️ 🗳️ Tech to win more votes (8%)

⬜️⬜️⬜️⬜️⬜️⬜️ 📨 To answer my requests (3%)

🟩🟩🟩🟩🟩🟩 💪🏽 To actually do something (60%)

🟨🟨🟨⬜️⬜️⬜️ ⚖️ To be less corrupt (29%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🌿 They don’t need tech (0)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

‍

Hi

Posh flush? There goes the maxim of Alexa “doing everything for you” ‘cept wipe. This new smart toilet comes with an Alexa-enabled bidet, so you can ask her to “spray” and she’ll keep you clean.

Welcome to all our new readers!

Wow, what an amazing start to 2024 – 200+ new signups in just the last 5 days. So if this is your first newsletter, welcome! A quick recap of what we do:

• We send 2 newsletters every week, Tuesdays and Fridays.
• For each newsletter, we pick relevant business/startup sectors.
• The spread of topics is to accommodate different industries
• And the purpose is to give you great insights and ideas for the work you do.

We often find very niche and previously unknown opportunities in strange places, like today’s “business and politics” focus. Next time it will be something else, just as crazy, but always backed up by data.

Hit reply and let us know how you like it!

Let’s get into it.

In this Open Letter:

• Smart moves: Business opportunities in politics.
• Blimp funding, volcano drilling & cashless Woolies.
• Founder focus: How to avoid startup theatre & build something solid.
• SA’s best startup sector: The results are in.
• Free stuff: Share this and get cool business tools.

TRENDING NOW

The business of politics

Half the world is heading to the polls in 2024, including us here in South Africa. And democracy and progress aside, elections are big business.

Although official numbers are hard to come by, it appears big political parties spend anything from R550m to R1bn on election campaigns. (Cyril Ramaphosa apparently spent in the region of R400m to become president of the ANC).

In the 2019 national elections, every ±40 000 votes resulted in one seat in parliament. For the DA’s R550m they spent, they gained 3,622,531 votes nationally. That’s R151 per vote or ±R6m per parliamentary seat. 

Incidentally, that’s about the 5-year salary of a member of parliament.

Where do they get money?

• Investments: I.e. Chancellor House is ANC’s investment vehicle.
• Donations: Which by law needs to be declared — you can track all of them here on a very cool dashboard.
• Companies paying for things on their behalf (not quite legal, but likely happens) — these ones aren’t tracked.

Want a slice of the campaign budget? Offer something to get that cost per vote down (it’s like CAC, but for political parties — CoV?). And whilst traditionally T-shirts and KFC vouchers played a key part, it’s likely more and more the online narrative will influence voting patterns. 

So, a few billion rands will be spent this year, but where are the opportunities? 

Intelligence

Channel campaign messages and budget in the right area and you will certainly get the cost per vote down. This is where intelligence ventures like Murmur can capitalise – being able to map and predict online trends and sentiment using big data and AI. Analysing hundreds of thousands of online conversations, these guys can tell politicians where to focus their attention and money.

Campaigns

Manufacturing T-shirts and banners might not get you paid (at least not until the next election), but digital services for campaigns or even the operating system for the election campaign payment terms are likely different. 

Stellenbosch-based, PlusPlusMinus built a suite of campaign management tools for the DA and has spun it out as a standalone product for political campaigns used in various countries across the world.

Management

Nothing buys a cheap vote come the next election better than performance. So performance management software, tailored for political parties, can do a whole host to help those who are serious about service delivery to track and monitor their reps.

With billions to be spent in the next 6 months on wooing voters, opportunities abound. You know what to do… we will be watching this space…

IN SHORT

🎈 Soaring High. Local blimp startup Cloudline has raised $6 million in a funding round led by an ex-Google VC and a couple of pan-African funds in a bid to become the leader in carbon emissions-free autonomous flights.

🌋 Hot Stuff. Scientists in Iceland are going to drill not one, but two boreholes into a magma chamber – the first journey to the “centre” of the earth to give the first direct measurement of magma and to potentially supercharge geothermal power.

🥶 Funding Winter. Looks like it could be a long, cold winter for startups in SA as the impact of the US economy continues to be felt on SA shores. With the interplay between the rand, dollar, the Fed as well and US interest rates impacting the available capital for emerging markets, it might be time to look further afield for those cash injections.

⚽️ Turned Tables. The SABC has (finally) managed to get one over MultiChoice & SuperSport after it secured the broadcast rights for the Afcon 2023 football tournament set to kick off in a couple of days.

🚫 Cashing Out. Woolies have announced that their WCafé’s will be going cashless from the 16th of January and it’s caused a bit of a stir on X and other social media platforms.

BUILDER’S CORNER

How to Grow a Next-Gen Startup

So, you were excited about building a startup the Silicon Valley way: You know, develop an idea, convince a bunch of investors to bet loads of money on it, hire lots of people, take years to develop it, borrow some more, grow to unicorn status… and then hope to someday get a payday…

Experienced founders in The Open Letter say that things don't always work out as you expect, and investors are not foolish enough to invest in every idea.

We’ve said a few times: There are other ways of building something truly amazing. But, just in case you think we’re full of it, you should know this line of thinking is not unique to South Africa.

Canadian founder Pierre Sabbagh shared this insanely sobering post on LinkedIn. So we thought we’d use it for today’s Builders Corner.

The Experienced Founder’s Advice to First-Timers

1. Steer Clear of the Startup Hype

Don’t get swept up in the glitz of startup culture of having to constantly raise money. Focus less on fundraising and remember, a startup's worth is not in its perceived glamour but in its real business value.

2. Embrace Bootstrapping

Start with what you have. Use your own funds and invest your own time and effort. Look into government grants for initial support if need be (check the TIA seed fund grant or some of the SEDA programs). This self-reliant approach breeds resilience and creativity.

3. Build a Compact, Capable Team

Resist the urge to hire too early. But do outsource tasks that aren't core to your business. Rely on your founding team for critical operations. A lean team is nimble and more manageable.

4. Product Development: Think Before You Code

Before diving into product development, take a step back. Reconsider your initial ideas. Hold off on writing code until you have a clearer picture of what is truly needed. Validate the idea first, then make sure the market actually wants (and will pay for it) before you try to build anything scalable.

5. The Importance of 'The One Customer'

Find that one customer who can be a real partner in your journey. Someone willing to share insights into their business pains, challenges, and gaps in existing solutions. This relationship is invaluable for targeted product development.

6. Craft and Refine Your MVP

Develop your Minimum Viable Product (MVP) in collaboration with this first customer. Offer them a significant discount, but avoid giving away your product for free. This approach ensures real-world feedback and a committed early adopter.

7. Expand Through Referrals

Utilise your first customer’s network for growth. Each new customer brings opportunities for learning and product refinement.

8. Focus on Revenue from the Outset

Prioritise generating revenue from day one. Grow your business sensibly, without the pressure to expand rapidly. Always keep an eye on your financial health.

Some absolute Gold in there. Great principles for almost any new business. How are you tracking with them, what do you need to start (or stop) doing in 2024? Hit reply and let us know.

THE RESULTS

We asked which startup sector in SA has the most potential in 2024, and AgriTech seems to be the hot new favourite…

🟨🟨🟨⬜️⬜️⬜️ FinTech (13%)

🟨🟨⬜️⬜️⬜️⬜️ AI (9%)

🟩🟩🟩🟩🟩🟩 AgriTech (23%)

🟨🟨🟨⬜️⬜️⬜️ EdTech (11%)

🟨⬜️⬜️⬜️⬜️⬜️ InsureTech (5%)

🟨🟨🟨⬜️⬜️⬜️ GreenTech (13%)

🟨⬜️⬜️⬜️⬜️⬜️ HealthTech (6%)

🟨🟨⬜️⬜️⬜️⬜️ E-commerce (9%)

🟨🟨🟨⬜️⬜️⬜️ A brand-new sector I'm creating (11%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi there,

Good year so far? Hundreds of partiers who booked a special time-travelling flight to celebrate the New Year twice (you know because the Earth is round like that) got a bit of a letdown when the flight was delayed just enough for them to miss 2nd New Year by a few minutes.

Heh heh.

And, with that, a happy New Year to you. We hope you had an awesome rest over the holidays and you’re ready for 2024. Because big things are happening this year.

Here’s how to be a part of them…

In this Open Letter:

• Startup changes: Big predictions for 2024
• Inflatable Wi-Fi, pocket AIs & talent wars.
• Savvy start: Building your product around its marketing.
• The results: What we’re most looking forward to in 2024.
• Tell someone: Share this & get free business tools.

TRENDING NOW

How startups are going to change in 2024

In 1929, amidst the tumult of the US stock market crash, Walt Disney and Brother Roy founded the Walt Disney Studio. 

This bold move marked the beginning of what would become a legendary entertainment empire.

Similarly, during the closure of a 16-month recession in the 1970s, a young Bill Gates and Paul Allen launched Microsoft, setting the stage for a technology revolution. 

Moving to more recent history, the aftermath of the 2008/2009 global financial crisis became a fertile ground for innovative startups like Airbnb (2008), Uber (2009), Slack (2009), WhatsApp (2009), and Instagram (2010).

So, does the birth of great companies require the backdrop of a recession? 

Not necessarily. However, the unique challenges posed by financial downturns often create conditions ripe for entrepreneurial innovation.

Loads of available experienced talent 

In 2023, the tech industry experienced a record number of layoffs. This surge of available talent, often at the lack of options is willing to work for less (or be compensated with equity) and is ideal for startups seeking talent. Some of these individuals might finally get the nudge to start that startup they have been wanting now that they have the time to do so. But that’s not all.

Creative funding models

Funding patterns also shifted. In 2023, venture capital investments in Africa fell from around $5 billion in 2022 to approximately $3.2 billion. While funding is often crucial for rapid growth, its scarcity can hone a founder's focus and drive more frugal, effective strategies – a key ingredient for long-term success.

‍

The Resurgence of Lean

And let's not forget how the economic constraints back in 2008 paved the way for one of the most significant startup movements of the 21st century: The Lean Startup. 

Coined by Eric Ries and popularised in his 2011 bestseller, this approach shifted the startup mindset. Traditionally, companies would spend millions to fully develop their products before launching and then only seek customer feedback — often completely missing their market’s needs.

The Lean Startup methodology, advocates for building quickly, measuring user engagement, learning from it, and then iterating. Once a necessity, this cycle has now become a widely adopted practice.

A new kind of startup in 2024

As we navigate through this economic turmoil (maybe even recession?), we're potentially on the cusp of witnessing the birth of some of the most significant startups in recent years. And if you are building something, be sure to tap into the knowledge and learnings that founders will be sharing over the next 24 months.

Our big prediction for 2024? Startup founders will shift from trying to raise funds to building lean, call it Lean Startup 2.0. And as always, we are watching this space….

IN SHORT

⭐ Star Recruits. Of the 5% of the world’s population not yet covered by mobile internet, half live and work in sub-Saharan Africa and SpaceX is about to turn up the heat in this area. They are actively recruiting a global licensing and activation manager for Starlink, its satellite internet service.

🎈 Inflatable Wi-Fi. But they are not the only ones going after this market, The World Mobile Group, in partnership with Vodacom, is trialling tethered balloons that provide internet in rural Mozambique.

🤖 Pocket AI. Samsung is set to launch its latest phone – expected to be the Galaxy S24 with the Samsung Unpacked live stream event on 17 Jan. And it looks like Samsung will be going hard to bring AI into its smartphones if the teaser “Galaxy AI is Coming” is anything to go by.

🪖 Talent War. Local corporates are finding it increasingly harder to get talented, skilled workers as professionals are emigrating or generally dissatisfied with their jobs. The increasing shortage of skills doesn't only impact the relevant industries, but the broader economy as well.

🏖️ Holiday Planning. If the memories of your December holiday are already fading away, take comfort in the fact that South Africa will be getting 2 extra Public Holidays this year. First up will be the expected Public Holiday for Election Day (around May), followed by the observation of Youth Day which falls on a Sunday this year (16 June).

BUILDER’S CORNER

How to Build Your Product Around Your Marketing Strategy

A recurring theme among SA startups is that they tend to battle a bit with marketing.

And it rings true, a lot of founders we talk to build amazing products and then only at the tail end of production ask: “Well, how are we going to market this thing?”

And, in some dealings with local ecosystem players, we started exploring the idea of actually building products around well-developed marketing strategies.

It makes sense because then you can build with your marketing plan already in mind.

In fact, that’s very much how we at The Open Letter build our products, so we thought we’d share some insights…

4 Steps for Building Around a Marketing Strat

1. Nail down your core customer before you start

Most founders do a quick validation, then jump straight into development and only look at user journeys once they get to UX/UI.

We’re saying reverse that and do way more in-depth market research beforehand. A more thorough validation, if you will. 

What’s more, see if you can’t get a lot more info on your various customers, segments, individual needs, preferences and – most importantly – where to reach and influence them (which channels).

2. Craft your value proposition first

Next, try to reach some of those customers and sell them on the idea.

Engaging with your actual audience helps you figure out what resonates with them, what language works and what doesn’t etc. Conversations, interviews and surveys are your friends here.

Take all of that and start building out your messaging, defining your brand and playing with ways to convert.

3. Optimise your product to integrate with marketing channels

Building your product, brand and technology to align with your chosen channel(s) lets you deliver your product or aspects thereof where your market is most active.

It actually helps to build product and marketing together, and then allow them to inform each other…

4. Test & build in feedback loops

As an example of how marketing and product can inform each other: Our first MVP version of The Open Letter was built on a platform with certain features.

But, as we rolled out our marketing, we learnt that we’ll need to double down on a specific conversion mechanic which our existing platform didn’t offer.

This allowed us to very quickly and early on switch to a different platform that’s been way more successful for us, helping drive down CAC and boost growth in one fell swoop.

If you want to chat about building better products, smarter, set up a strategy session with us.

Got a building or marketing hack to share? Hit reply and let us know…

THE RESULTS

We asked what you’re most looking forward to in 2024, and we can’t wait to see what innovations the new year will bring…

🟨🟨🟨🟨⬜️⬜️ More AI stuff (22%)

🟨🟨⬜️⬜️⬜️⬜️ The 2024 SA national elections (12%)

🟩🟩🟩🟩🟩🟩 Launching/Scaling my Startup (31%)

🟨🟨🟨🟨🟨⬜️ The incoming post-recession bull market (27%)

⬜️⬜️⬜️⬜️⬜️⬜️ More Open Letter memes (4%)

⬜️⬜️⬜️⬜️⬜️⬜️ The Open Letter community launching 2024 👀 (4%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi there

Space to breathe? Since Jeff Bezos plans to move humanity into massive cylindrical space habitats, have a treat and watch an actual physicist with almost 1 million followers explain in the most sci-fi way possible what other insanely cool things we could do in space cylinders. (Plus: check out his other vids for crazy futuristic tech ideas.)

In this Open Letter:

• Remixed: Big startup movers and shakers.
• Best airports, Apple-tinted goggles & a slice of the big tech pie.
• Where we cut & trim: The latest results are in.
• Free stuff: Share this and get cool business tools.

TRENDING NOW

Greatest Startup Hits of 2023

Well, it’s (almost) a wrap. 2023 is done and dusted. 

And we’re getting ready to take a little break ourselves:

• Today, 22 Dec will be our last newsletter for the year – we hitting the beach soon. 
• Don’t worry, though, we’ll be back in the first week of Jan.

So we thought it’s a great time to highlight some of the most interesting movements in the startup space in SA this year.

FinTech in SA is alive and kicking

The financial services sector is big in SA – it contributes some 14% to our GDP — ±R650 billion per year. Now, it’s hard to build a FinTech, and it needs a lot of money, but pull it off and you’re building something massive. 

And the space has seen some big rounds of fundraising this year:

• Peach Payments – raised $31 million in April.
• Revio – raised $5.2 million in September.
• Stitch – raised $25 million in October.

This space is heating up, and we’re excited to see what’s gonna go down in 2024. 

Did you miss our fintech feature? Read it here.

A silent unicorn

African startup bros love talking about unicorns. And they often list and talk only about VC-backed unicorns (a tech startup with a $1 billion valuation). 

But, without too much VC hoo-ha, SA mobile network operator Rain has quietly become a unicorn in less than 6 years of operating. 

It’s a great example of what can happen when you go all-in on new tech (5G) in an established industry.

However, Starlink is coming (eventually) and is said to be rolling out plans for satellite-to-phone networks, meaning you don’t need them towers. 

This space is only set to get more interesting.

Missed our Rain feature? Read it here.

The informal economy is pumping & perhaps we’re not all that unemployed?

GG Allcock set SA abuzz with some research he did on the size of the informal economy – R750 billion a year. And whilst many claim they don’t pay tax unless they’re selling counterfeit products (those fake lemon twists that recently hit the news), they’re likely still paying VAT. 

But will we see the government making moves to introduce more taxes here after the 2024 elections? Won’t be popular, but a competent government can do a lot with that tax money to improve services in the informal sector.

What’s more, there are major opportunities for tech to play a big role in supercharging these informal businesses.

Did you miss our informal economy feature? Read it here.

The new insurance companies are here

Big data is any actuarial scientist’s dream. And as these models and processing power get better and better, more innovative insurance models pop up. Not to mention how LLM can improve customer service and operational efficiencies.

All this means more competitive products, better margins and all-around better value for everyone (if more people have insurance, insurance can get cheaper for us all). 

With 70% of cars on the road being uninsured, there is a lot of opportunity here – ±7 million customers in waiting.

And it does make sense that there are some big rounds of funding in this space:

• Naked – digital insurance platform raised $17 million in February
• Pineapple – digital insurance provider raised $22 million in November

Did you miss our neo-insurance feature? Read it here.

It’s all coming down to 60 minutes

Checkers Sixty60 has recently set the pace for grocery delivery in SA – which others like Woolies Dash, PNP Asap and Spar2u have had to follow. 

The challenge for the newcomers is that grocery delivery typically competes with smaller convenience stores (think PNP Express, QuickSpar or The Woolies Food at Engen garages) which is traditionally not a market Checker’s focussed on. 

So, whilst Checkers is pulling in new customers they otherwise didn’t reach (quick, small-basket convenience buys), the other retailers joining in are simply serving their existing customers in a new way (likely just to stop the bleeding caused by Sixty60). 

So we’d say it's round 1 to Checkers. But don’t expect Woolworths, PNP and Spar to take this lying down – things are likely to heat up in this space in 2024.

Did you miss our Sixty60 feature? Read it here.

The Open Letter

As for us? We were up to a whole lot in 2023. Here are some stats:

• 100k+ words written over 77 Newsletters.
• 160k impressions on our emails.
• Grew our active subscribers from a few hundred to 4200+.
• We maintained an average open rate of 39% and click-through rate of 9%.
• Our podcast, How Would You Build It, had 43 episodes generating 748+ hours of listening in total.
• And we created and shared roughly 198 glorious memes across all our publications and channels.

All and all, we had a great time. Thanks for reading and listening. We wish you a Merry Christmas and a highly successful 2024. 

Want to give us (or a friend) a Christmas gift? Share the newsletter with someone you think will enjoy it.

See you in 2024 🥳 🚀

IN SHORT

🚗 Tesla Recall. Over 2 million Teslas in Murca & Canada have been recalled (nowhere else), for an over-the-air software update. Seems like some drivers think Tesla’s Autosteer is an Autonomous System (it’s not). It’s a semi-autonomous system meaning that while Autosteer can handle accelerating and vehicle steering – it still requires a human to keep an eye on things.

🥧 Piece of the Pie. Tired of Google, Apple and Meta making ad revenue from your content? The Competition Commission has invited comments on its investigation into the imbalance between large digital platforms like Facebook, Google and Apple, and South African news publications. We might just fill this one in.

🥽 Apple-tinted Goggles. Production of Apple’s mixed-reality headset, The Vision Pro is running full steam ahead, with the launch set for February 2024. Said to be one of the most complex launches – the headsets come in multiple sizes and configurations that need to be fitted to the specific user’s head - not to mention the additional accessories needed.

✈️ Flying High. With over 4’000 airports in the global database of AirHelp Inc., together with survey data compiled from nearly 16’000 passengers, we now know the world’s best and worst airports. And what do you know, SA is in the mix.

🛰️ Starlink-ed Africa. Eswatini is beating us. It has become the 8th African country to have Starlink launched. And from only R1’070 per month, the low-orbit satellite fleet is offering wide, fast and stable internet connectivity to folks in rural areas where network operators have found it difficult to service.

THE RESULTS

We asked where you get your hair cut, and the mall barber/salon still takes the crown – now go build some tech for it…

🟨🟨🟨⬜️⬜️⬜️ ✂️ I cut/shave myself (20.5%)

🟨🟨⬜️⬜️⬜️⬜️ 💇‍♂️ My wife/husband (18%)

🟨🟨🟨⬜️⬜️⬜️ 💈 I got a guy in Ekasi (20.5%)

🟩🟩🟩🟩🟩🟩 🪒 Fancy barber/salon at the mall (41%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🧔 I don’t cut my mane, ever. (0)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Imagining stuff? “BrainGPT” can now read your mind directly and turn it into text on screen. Great, we were getting sick of using our thumbs anyway.

In this Open Letter:

• Clear cut: A wide-open SaaS market in SA.
• 1 Billion for Xmas, Musk University & 100 years of radio.
• Dream team: Assembling the right skill set.
• The results: Who’s writing the code of the future.
• Tell someone: Share this & get free business tools.

TRENDING NOW

The Barbershop-SaaS Run

Building a successful SaaS (software as a service) business in SA is complicated.  

When you’re selling SaaS to corporate SA, you’re up against international players with deep pockets and often well-developed products and track records. I mean, as much as we want them to buy locally, who can blame them for picking foreign providers with established, low-risk products?

And those SaaS consultants are so slick.

However, there is a segment of the market which is underserved when it comes to SaaS in SA – small to medium-sized businesses (SMEs). 

Not agencies and tech companies. No, think SMEs like laundromats, carwashes, barbers and beauty salons. It’s slick ‘cos they’re normally not digital natives and probably don’t browse the internet buying international products to improve their operations.

The Barbershop Business Model

Their business models are relatively simple – cover your monthly expenses (rent, wages, electricity, water, etc.) and the rest is almost pure profit. I.e. let’s say your expenses are R50’000 a month, and you do a standard haircut at R250; after 200 cuts, your margin per cut is almost 100% (given that service costs are negligible). 

What can such a SaaS product do:

• Drive more bookings through better service to customers and using tech.
• Plan resources better (when to have how many staff to optimise for income).
• Using intelligence to offer discounts or promotions in times of lower volumes.
• Collect payments (for convenience, but also to boost the product’s ARPU).
• Offer unique business models – monthly subscriptions and sell products (all great for the products ARPU).

All to make the business hit the cashflow breakeven point sooner, maximising profit.

Zoning in on barbershops and hair salons

SA doesn’t have great industry stats, which is a shame – it could help entrepreneurs find opportunities way easier.  But for a start, GG Alcock estimates the informal economy’s hair salon industry at R10 billion and some internet scrapers claim there are ±3’300 hair salons and ±1’000 barber shops in SA.

Sizeable but there is even more room for growth. In the UK, there are roughly 19’000 barber shops. Now with an employed population count of 33 million, that’s one barbershop for every 1’684 employed citizens. Or, comparing it to their GDP, that’s 1 barbershop for every $165m generated in their economy. 

Mapping that back to SA, the demand could be anything from 2’500 (by GDP per barbershop) and 9’200 (by employed citizen per barbershop) and that’s not even counting the hair salons!

So, who is onto it?

Whilst there are international SaaS solutions such as Fresha that South Africans can use, you can’t help but feel a local player can serve the SA market that much better. 

Especially since a solid in-person and on-the-ground sales effort is probably how you’re gonna get the most adoption in this space (just ask Yoco!). 

That might just be an opportunity that DNKO can jump on. In its first year of operations, they managed to book more than 1’000 appointments for their clients.

Early days, but with a sizeable, growing market and little local competition, they might just be onto something.

IN SHORT

🕹️ Fly From Home. ASL Aviation Holdings, owner of several airlines including local Safair and FlySafair, is running trials on pilotless cargo planes with Reliable Robotics over the San Francisco Bay Area. And while there was no pilot on board, the test flight was piloted remotely from Reliable Robotics’ control centre 80 km away.

💳 Tap-and-Go. Remember how back in August we ran a Poll about how Open Letter readers like to pay and an overwhelming 41% voted “Tap-and-Go with card”? Well, Safaricom is set to issue 60 million of its mobile money platform M-PESA users with physical plastic Visa cards to provide Tap-and-Go payments to their customers.

🎓 Chancellor Musk. Elon Musk is set to open a university based on his recent tax filings that show he donated $100m to his charity, The Foundation, to establish a primary and secondary STEM school in Austin, Texas. The school will primarily be funded through donations and tuition fees.

👎 Shrinking Tech. The global tech scene has already seen a 50% increase in tech layoffs in 2023 from last year, with nearly 250k jobs lost. With everyone from Google, Amazon, Microsoft, Yahoo, Meta, and Zoom right the way through to smaller startups affected, here is the list.

💯 Radio 100. Radio in South Africa just turned 100 (yesterday – 18 December 2023). Happy Birthday to the still universal mass medium in SA and the most popular and pervasive medium on the African continent. Here’s to the next 100 years of Taylor Swift, Opinionated DJs and annoying, repetitive radio ads. 

⏪️ Reversed Sale. After mounting pressure from UK & EU regulators, Adobe’s $20bn deal to buy out Figma has fallen through. But Adobe has to pay a “reverse termination fee of $1 billion”. Now that’s gonna be one lekker Christmas party.

BUILDER’S CORNER

A Team with the Right Skill Set

You got your idea (or getting there) and it’s time to get going – great! Now, how do you set yourself up with the right skill set/mix of people?

Well, inspired by Paul Graham’s original hackers & painters analogy, and looking at the 3H concept of what any startup needs right at the beginning, we propose building your startup around 3 core functions/roles.

These could be your first 3 employees, or – more likely – 3 founders or a mix thereof. Either way, these are the 3 skills you likely need to start strong.

Your First 3 Team Members

1. The Hacker

This is your coding guru. The Hacker's role is to develop and deliver code swiftly, turning your vision into a tangible product. Speed and efficiency are their mantras, and they thrive on bringing technical solutions to life. Now don’t confuse the “hacker” with someone who has stolen money from your internet banking or even with a normal software developer. The “hacker” in this instance refers to a kind of software developer who is extremely creative in moving fast (i.e. hacks things together) and is adept at taking the shortest route possible to ship. 

“Hacking code together is bad in the long run” you might rightly point out and it's true. But in the early stages of startup speed trumps scale. Why? Because you are still learning and chances are you are going to bin the hacked code soon. If you spend months putting together your scalable product, you will lose a lot of money when you realise it's not exactly what customers want.

How to test if someone is a “hacker”: Give them an idea and ask them to slap a basic version of it together over a weekend. If they come up with something that can be used to solve the problem (or part thereof), chances are, you have a hacker.

2. The Painter

Aesthetic appeal is key. The Painter ensures your product doesn't just work well but looks great too. They bring a blend of design prowess and creative flair, essential for captivating your audience and standing out in a crowded market.

And they double as your branding and marketing material go-to as well. Things that look legit, just sell more easily, and someone with that visual eye that can help you bring legitimacy is worth gold.

How to test if someone is a “painter”: Two things. Firstly, look at their portfolio but secondly, watch them design something in person. Ask them questions along the way to see how they think about aesthetics. A good “painter” generally has a natural feel for what looks slick and feels right.

3. The Hustler

Growth is their game. The Hustler is your business builder, focused on networking, sales, and strategic partnerships. They're the force behind your startup's growth, pushing boundaries and opening doors to new opportunities. A startup is nothing without customers and this guy will do anything and everything to get it done.

How to test if someone is a “hustler”: Give them 24 hours to get an interested prospect you can pitch to. Better still, get them to make a sale (even without the product being done). If they pull that off, selling once the product is live will be a breeze.

What’s more, you can use these core functions as a base to build out the rest of your team as you grow.

Got startup team-building hacks or insights? Hit reply and share with the class…

THE RESULTS

We asked who’s writing the code of the future, and NQF5 grads and self-learners are in the lead…

🟨⬜️⬜️⬜️⬜️⬜️ 🎓 BSc CompSci grads (8%)

🟩🟩🟩🟩🟩🟩 🤓 NQF5 grads (32%)

🟨🟨🟨🟨⬜️⬜️ 😎 Self-learners (26%)

🟨🟨🟨🟨⬜️⬜️ 🤖 AI (24%)

🟨⬜️⬜️⬜️⬜️⬜️ 💪 Me (10%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi {{ FIRSTNAME | there, }}

Flippered overlords? Scientists were rather stumped when they thought they’d discovered a dolphin with a “thumb” off the coast of a Greek island. Turns out they were wrong – it has two thumbs.

In this Open Letter:

• Real growth: What 650k devs could solve.
• 1 car per minute, le big Apple & loadshedding wrapped.
• Inside track: How to get your first B2B sale.
• Your bakkie of choice: The results are in.
• Tell someone: Share this & get free business tools.

TRENDING NOW

650k Jobs Big Enough to Bail Out Eskom

Plus stimulate so much new growth…

Speak to any SA tech startup founder and they’ll tell you finding good devs is a nightmare. 

Between not being able to pay as well as corporates, and then requiring devs to do some really complicated hack jobs, you’re looking for a unicorn. 

Now, that problem’s not unique to SA startups. But the difference is that places like the US and India just have way more developers than we do, so your chances of finding those unicorns are just so much higher.

And this marketplace imbalance is as old as the software industry itself. Supply just never seems to keep up with demand. 

How does SA stack up?

South Africa has roughly 150’000 software developers. That’s 2.4 devs for every 1 thousand citizens (not quite 1 in a million, but close). Compare that to the USA, where there are 13.29 developers for every 1;000 citizens. We’re somewhat behind – by that ratio, we should have ±800’000 developers by now. 

Now we know, USA’s GDP is 50+ times that of SA, so they’ll have more dev jobs. But considering that many SA developers and dev firms do work for foreign companies, that 800k number is likely more accurate than not. And it means we’re 650k short.

What will 650k dev jobs do?

Dev job marketplace OfferZen’s research shows the average salary of a software developer with 2–4 years of experience is between R30 000 and R35 000 per month (depending on where you stay, Cape Tonians earn more ¯\_(ツ)_/¯). 

And someone earning R35k per month pays roughly R75k a year in Pay As You Earn (PAYE) taxes. Now, we’re not saying SARS should convince government to train more devs… wait, yes we are – they absolutely should. Adding 650’000 software developers at that pay generates an extra R48.75 billion in PAYE per year. That’s enough to bail out Eskom… a few times over…

But making devs isn’t easy

SA doesn’t have the best education rep. And expensive universities aren’t helping. 

Want to study computer science at Stellenbosch? Well, the course alone will set you back R60k per year, add another R60k for accommodation, money to stay alive, and, and, and... 

4 years and R600k later you can hit the job market and start paying off that student debt – yikes! 

Passive learning also seems a bit silly for a skill best learnt by doing. And with such a massive shortage, perhaps fast-tracking devs to practical experience is the way to go. 

That’s where platforms like Zaio come in. Having recently announced strategic financing by E Squared, Zaio is an accredited developer training program that gets those wanting to code going within 6 months for as little as R 6’950. 

WeThinkCode is another innovative company that does on-the-job training for devs. They even offer the course for free + give developers a stipend, because the stuff they learn on is actual real-world developer work. Noice!

Whilst both these companies are making great progress, we’re still a long shot from closing the gap – and perhaps there is a case to be made to get the government to fund these initiatives more aggressively. 

Either way, at sub R10k vs R600k for your education, it’s definitely something to think about. 

Now before you @ us, we know a bachelor of science is not the same as an NQF5 qualification. But perhaps NQF5 is enough to get most devs going?

Besides, at a few hundred BSc CompSci graduates per year, it's going to take centuries for SA to fill the gap, at which point whatever comes after AI will do the job, right?

IN SHORT

⚡️Loadshedding Wrapped. The lekker okes at EskomSePush have Wrapped Loadshedding for us this year. With some cool stats and insights for SA as a whole and your area in particular (see your area in-app for deets), it’s a fun data spin on a not-so-lekker topic.

⛰️ Cape Ai. Some folks had some AI fun with Cape Town this week - reimagine what Cape Town Suburbs would look like as action figures. Among others, there were: Fish Hoek, Obz, Constantia, Bo-Kaap, Sea Point, Athlone, Bellville and Stellenbosch. Did your ‘burb make the list?

🚙 One in 60 Seconds. 2ndhand car platform WeBuyCars sold 1 car every 60 seconds from the 24th to the 30th of November – with 864 cars sold on Black Friday alone. Looks like the 2nd hand car market is on the rise again – with the number of vehicles WBC sold in 2023 increasing by 13%.

🍏 Comparing Apples with French Fries. Tech behemoth Apple is slowly but surely gaining on the French stock market’s market value. With the companies (including Louis Vuitton & Hermes) listed in Paris’ combined market value of around $3.2 trillion – Apple is breathing down its neck at around $3.1 trillion.

😎 Meta Bans. Meta’s Ray-Ban smart glasses have received a shiny new update and will start rolling out its multimodal AI features. Demo’ed by Zuck on Instagram – it showed how it can help you pick out the right pair of pants for a shirt, write a funny caption for a pic, identify an object in an image, and translate text.

HOW WOULD YOU BUILD IT?

Getting Your First 10, 20 B2B Sales

If you’re building with an eye on targeting companies and enterprise clients, this week’s podcast is for you. We spoke to Heine Bellingan, founder of JOBJACK, who just raised R46m, about their mission and, most importantly, how to get your first few sales as a B2B startup in SA.

1. No 1 sales secret: Persist & celebrate publicly

Getting those first sales is super hard, but Heine says there’s magic in being able to approach a new prospect when you refer to having done work with another big-name company. 

They did pilot projects and would share them on LinkedIn, making a big deal about it (even though there’s no cash yet), and this would create the impression that big brands are hiring JOBJACK. The snowball effect is that getting the next meeting becomes much easier – and, from there on, it's just persistence.

2. Never underestimate the value of cold calling

If you want to learn what’ll work, fast, Heine says the way to go is to cold call. Because when you actually speak to people you get immediate insights into what they want, need and what they’ll respond to.

If you’re targeting the kind of client whose contact details can be easily sourced, get on the phone and be prepared to make a fool of yourself for the first 10 or so calls. You’ll learn so much from that, you’ll be able to go back and adapt your script, approach and proposal, so you’re fine-tuning the process for your first hit.

3. It gets easier, but the hard yards come first

As Heine explains here, landing that first client requires working up the willingness to phone 100 people, dead cold, in a matter of a week, getting rejected by 99 of them and maybe getting a “yes” from just one.

However, once you’ve broken that barrier, it gets a lot easier.

Like our podcast? Remember to subscribe and never miss an episode.

THE RESULTS

We asked what your bakkie of choice is, and we have the Hilux in pole position, with Cybertruck close on its heels, followed by a decidedly no-bakkie crowd…

🟨🟨🟨🟨⬜️⬜️ Give me that Cybertruck now (22%)

🟩🟩🟩🟩🟩🟩 Hilux (27%)

🟨🟨⬜️⬜️⬜️⬜️ Ford Ranger (10%)

🟨🟨⬜️⬜️⬜️⬜️ Land Cruiser (10%)

⬜️⬜️⬜️⬜️⬜️⬜️ Isuzu (3%)

⬜️⬜️⬜️⬜️⬜️⬜️ Corsa Bakkie (2%)

🟨⬜️⬜️⬜️⬜️⬜️ Tupperware Bakkie (5%)

🟨🟨🟨🟨⬜️⬜️ I don’t Bakkie (21%)

LET’S DO SOMETHING TOGETHER

• Partner with The Open Letter to engage 4000+ people in the SA startup ecosystem — Let’s chat.
• Need advice on how to build or grow your startup? We can help — Let’s chat.
• Come across a cool startup or founder you think we should cover. Hit reply and let us know.

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Let it grow? Remember when we shared the video of a new Japanese island’s fiery birth? Well, new satellite images show it’s still growing, so there might be some new beach property investment opportunities soon.

In this Open Letter:

• The switch: A new way to build cars in SA.
• Google fakes, Eskom’s new CEO & the chance to build your idea.
• Think big: How to generate more viable ideas.
• The best online shopping: The results are in.
• Free stuff: Share this and get cool tools for business.

TRENDING NOW

Supercharging SA’s R230bn Auto Industry

SA really needs more policies to help create jobs and boost the economy.

Take our motor manufacturing industry, for example. We’re the biggest manufacturer in Africa, producing some 600k cars a year for brands like Mercedes, BMW, VW, Toyota and Isuzu – two-thirds for export.

The impact? The industry contributes 4.9% of our GDP (±R230bn) and 110’000 jobs.

But there is a storm of epic proportions brewing

The EU is set to ban the sale of internal combustion engines from around 2035. 

That means European manufacturers will have far less incentive to keep making fuel-powered cars in SA because they won’t be able to export them to the EU. 

What’s more, as they switch their focus to EVs, if SA isn’t EV compatible, well we ain’t getting those cars and you’ll be driving that Corolla till the cows come home (mind you, it will probably make it there and back, no sweat).

Late adopters

Let’s face it, most South Africans have largely ignored the global move to electric vehicles – despite us showing you how EVs could free up billions in disposable income and giving you ideas on how to build an EV-based business.

For several hours a day, we can’t even power our kettles, let alone a car. 

But it’s not just our lack of electricity that is holding back the move. What makes matters more complicated is that SA is one of the only places in the world that employs over 140’000 petrol attendants – meaning if we drop petrol, we’ll need to find new jobs for these people.

What’s more, the government will need to figure out a new way to collect levies for the Road Accident Fund, which they’re currently collecting from petrol and diesel sales (even if you use it for your generator, LOL).

It’s a tricky situation, but EV adoption is coming whether those things are in place or not. Our guess is government knows this because they’ve just released a 67-page whitepaper on our transition to EVs – mainly focusing on manufacturing, but the adoption will surely follow once the vehicles are produced here. It outlines some ideas on:

• Investment and Funding Boost: Enhancing investment and funding levels, including improved incentive support for EV assembly and component manufacturing.
• Electric Battery Value Chain Development: Establishing a regional value chain for electric batteries, including raw material refining and battery component production.
• Reduced Import Duties on Batteries: Temporarily lowering import duties for batteries in domestically produced and sold vehicles to improve cost competitiveness.
• Export Market Access and R&D Incentives: Securing duty-free export market access and leveraging R&D tax incentives to increase domestic value addition.

So far we’re missing out

Take the Cybertruck, for example. The reviews are incredible – it’s the bakkie of the future. 

It beats a Ford F-150 in a 100m drag (on a dirt track while the Ford is on tar). It even beats a Porsche 911 Turbo in a sprint while towing a Porsche 911 Turbo. 

It sells for $61k (R1.16 million) about the same price as a F-150 and by the looks of things, great value for money. But we can’t buy it in SA. 

Just imagine if Elon Musk sets up a Cybertruck manufacturing plant in the country of his birth – a long shot, but we can dream, can’t we?

With the government getting to work on policy and a looming forced transition by some of the biggest car manufacturers in the world, we think it's finally time to say that EVs are coming.

So, who is early?

A few months ago we covered Zimi – watch our podcast with founder Michael here – who is supplying charging solutions to fleets and end users.

But with last-mile deliveries like Sixty60, ASAP! and Dash taking off, electric delivery vehicles are likely a great place to start. And that’s where 3 local companies are focussing:

• ScootHero – delivery motorbikes with 3 ranges, finance and leasing options. 
• Ev Africa – delivery bikes from R44’900, four-seater cars and even a bakkie priced from R239’900. 
• Everlectric – a sweet-looking delivery van that promises you’ll “never pay for fuel again”.

Is it too late to get in? Nah we only just getting started.

IN SHORT

🪙 Got Crypto? According to an in-depth study by the Financial Sector Conduct Authority (FSCA), more than 5.8 million South Africans own some form of Cryptocurrency, with most using local Crypto trading platforms.

🤖 Staged AI. Google has admitted that the “Hands-on with Gemini” video used in the Gemini launch was staged. Not only was the video not recorded in real-time, but the vocal interactions with Gemini were dubbed later.

⚡️In Power. Eskom (finally) has a new CEO in Dan Marokane. Currently acting CEO of sugar producer Tongaat Hulett, he will join the power utility by the end of March 2024 and is no stranger to electricity, having previously held senior positions in Eskom, including Head of Group Capital.

👜 Emotional Baggage. Some travellers may find themselves getting emotional at the security counter on their upcoming holiday as the Airports Company South Africa tightens up their hand luggage regulations – including size and weight, as well as what is allowed in a slimline laptop bag. Hint: you can’t also carry your boardies and wine bottles in it.

👩‍💻 Unemployment Tech. Got a cool startup idea that can help solve unemployment? Enter the Next176 unhackathon and get mentored by top venture studio partners. You can also win some great prizes, and even end up building your idea with them.

BUILDER’S CORNER

How to Generate More Viable Ideas

Steve Blank once said that he thinks most startups fail because they don’t “find the right product-market fit”. But if ideas start from a bad place, the chances of them never hitting PMF are great. So we thought: Isn’t there a way to generate ideas out of a place where it makes it easier or more likely to get the right fit? 

You know, so you don’t even start working on things there's no market for…

Turns out growth hacker Max Bonpain wrote an article about it on Medium, and we quite liked his idea-gen method (which they take even further into POC and MVP, but we’re only looking at the idea bit now).

Solving the right problems 

1. Start with finding problems in segments

Maybe you read something in The Open Letter, or you have specific domain knowledge – likely the best place to focus. Focus your efforts on the various pains that a market faces. I.e. let’s say you are a doctor (or targetting this segment) you might know that doctors have issues collecting payments promptly.

While this might be a great place to start, engage more roleplayers in the space to start unpacking the nuance of it and the “real problems” (the real reason they are experiencing pain). I.e. timely collections might have nothing to do with the tech they use, but rather a business process to bill later making collections harder. In changing the business process, the role tech plays is different than the former where it simply acts as a collection mechanism.

Either way, chances are those experiencing the pain might not be able to get to the root themselves and you need to discover it through iteration and experiments.

2. Use the “How Might We” method

Use a visual tool for sorting ideas – use Figma or just colourful sticky notes on an old-school whiteboard. Write each problem as a “How might we…” statement. For example: if they battle with tracking their payments, write “How could we make payment tracking effortless?”

Don’t generate solutions yet. First, spread all the problems out and see if you can spot any general themes. It’s important to map all the problems you can find, even if they are not part of your original idea or direction.

Are a lot of them focused on a particular theme (payments, finance, admin or repetitive daily tasks perhaps)? Group these similar ones together.

Now, consider the individual groups and start generating solutions for each group – this helps you generate concepts that impact multiple problems.

You could even just focus on the groups with the most problems in it first.

3. What you are up against

Just like you’d journey map a product, mapping for ideation is creating a hypothetical journey of how customers might currently try and solve each problem they face – they might search for tools, try different methods, use MS Excel, get frustrated with complex software or simply give up.

Again, put each step in the journey on a sticky note or a visual tool and identify where they have pain points. Brainstorm how a product/service could solve each pain point to flesh out your ideas.

Next, you’d do a proof of concept (hopefully you can use no-code/low-code) and get it in a customer’s hands. This is where you can start uncovering the “real problems” and offer something meaningful to solve them.

Got a killer idea-gen hack? Hit reply and let us know…

THE RESULTS

We asked who you think will have the best marketplace experience in 2024, and Amazon’s in the lead – but love seeing all the support for Takealot.

🟨🟨🟨⬜️⬜️⬜️ 🛒 Takealot (32%)

🟩🟩🟩🟩🟩🟩 📦 Amazon (52%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🏷️ Bobshop (4%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🎁 Gumtree (2%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🏪 Makro (0)

🟨⬜️⬜️⬜️⬜️⬜️ 🤸 The local flee market (10%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi there,

Room to smize? People got pretty panicky when a bunch of tourists overturned their gondola in Venice, reportedly from being a bit overzealous with the selfies.

We can’t fault them though, having recently capsized a vessel ourselves. And that without even taking selfies — more at the end of today’s newsletter.

In this Open Letter:

• Big moves: The race to rule online retail in 2024.
• Web3 funding, return of the sharks & hating on ISPs.
• Big insights: How to raise R97M for your FinTech.
• Where we save & invest: The results are in.
• Tell someone: Share this & get free business tools.

TRENDING NOW

The Race to Rule SA’s Online Retail in 2024

There will be innovation…

In the olden days, mall owners made big bucks.  

Tenants didn’t have many options, nor did they care much as customers didn’t have that many shopping options, either. Everyone was making money.  

However, the higher up the food chain you were, the proportionately more money you made with less effort – so that's where you wanted to be. But now with malls shooting up everywhere and pressure on retail, being the mall owner no longer guarantees to make money – many are under pressure with quite a few malls up for sale.

But there’s a new race for a new kind of mall that will fully kick into gear in 2024.  

And that is to become SA’s biggest online mall. A multi-tenanted online marketplace featuring potentially limitless third-party storefronts that’ll deliver your heart’s desire straight to your door.

But we’ve had e-commerce stores

Yes, and the likes of Takealot have been running for years. However, e-commerce stores have a massive challenge in keeping down customer acquisition costs – buying ads to get me to buy from them quickly eats most of the margin.  

What’s more, sourcing niche products with higher margins creates warehousing and nuance customer service challenges. So, taking a book from brick-and-mortar malls and offering a storefront for third parties is quintessentially moving up the food chain — the online kind. By doing this they stand to benefit among other things:

• No cost in sourcing products.
• Lower storage and warehousing costs.
• Little-to-no cost in CAC (sellers market their own products).
• Offset risk of overstocking to third parties.
• Offset customer service and returns to third parties.
• All while making a sweet margin on every sale.

Amazon’s quite good at it

60% of Amazon in the US’s e-commerce sales are for third-party products – their marketplace is pumping.  

What’s more, the ad revenue generated from this (third parties can place ads on Amazon’s website), is what is pushing Amazon e-commerce into the green. Effectively using their eyeballs to capture ad revenue whilst also making a margin on the sale – ah, the good ‘ol double dip, something you just can’t do if you sell your own products.  

What’s more, their 9.7 million sellers brought in around $117.72 billion in third-party seller services in 2022 – and many of them did so quickly, with 63% reportedly being profitable in the first year.

So, what is coming to SA?

By now you probably know that Takealot has a marketplace where it sells third-party products – they currently have more than 10’500 sellers on their platform.  

But with Amazon coming to SA in 2024, they are also gearing up to make their marketplace a big focus, offering an exclusive R1 for the first year fee for sellers (Takealot normally charges R400 per month, which at 10 500 brings in a cool R4m+ a month).  

But it's not only a battle between these two e-commerce giants. Bobshop (formerly BidorBuy) is an online marketplace and internet auction platform, focusing exclusively on its marketplace – meaning they don’t sell their own products at all – and thus don’t compete with suppliers.  

What’s more, SA’s oldest classifieds site, Gumtree, is also rumoured to be pivoting away from in-person meetups and switching to a marketplace and arbitrage role. Bad news for scammers everywhere.

Even wholesale giant Makro is getting in on the action with Makro Marketplace where third-party sellers can list and sell new products on Makro’s normal site (if it’s not already available in-store).

The opportunity

The big thing is, as these platforms start enabling e-commerce for every product and supplier you can imagine, the suppliers will need tech to manage their one-man shows or small operations.  

Planning, stock, logistics, finance, etc. What’s more, these people might need some help with digital marketing, websites and other activities.

So whether you are a seller or supplier to sellers, 2024 is lining up to be a massive year for SA online marketplaces. And we feel that just like the early days of the physical mall, there will be money made across the board… don’t miss out.

OUR TOP OPPORTUNITY PICK FOR THIS TREND

Keen to capitalise on this trend? Here is our top pick idea to make the most of this trend

Refer one friend to sign up to The Open Letter and view our top opportunity pick for this trend (and all future trends we cover).

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OVER TO YOU

Who do you think will have the best marketplace experience?

Vote to see what others say...

• 🛒 Takealot
• 📦 Amazon
• 🏷️ Bobshop
• 🎁 Gumtree
• 🏪 Makro
• 🤸 The local flee market

Login or Subscribe to participate in polls.

IN SHORT

🚙 Unbundling. WeBuyCars’ parent company Transaction Capital is considering unbundling it from the group and listing it as its own entity on the JSE. With a 14% decline in earnings in 2023, WeBuyCars has seen growth in the 2nd part of the year with increased volumes and added bays to its national footprint.

🪙 Web3 Africa. Fuse Network has announced a $10 million grant aimed at funding Web3 projects in emerging markets like Africa. And while sub-Saharan Africa has the smallest crypto economy, countries like Kenya, Nigeria, South Africa and Tanzania show some of the highest grassroots Crypto Adoption.

🤮 Sick & Tired. South Africans have had it up to their necks with their ISPs. A new report from DataEQ which tracks how consumers feel about their ISPs based on 140’000 public posts on social media shows that local ISPs have a -42% average net sentiment. It’s lower than banking (23.5%), insurance (9%), and even telecoms (-14%).

🦈 Hi Haai. Great White Sharks could be returning to Cape Town’s False Bay. In 2011 there were over 300 sightings by SharkSpotters. In 2020 that number dropped to zero – staying there for 3 years. In the last few weeks, six different sightings have been recorded. Be safe out there.

🤖 Google AI. In the last year, OpenAI (and specifically ChatGPT) has been pretty much all the AI conversation has revolved around. Google hopes that this will all change with its release of Gemini – “the largest and most capable AI model” with Gemini Ultra the first to be available in an early access program.

🔇 Spotify Wrapped. Despite posting a R650 million+ quarterly operating profit in October on the back of a 26% active user increase in Q3, Spotify announced this week it would be reducing its employee count by around 17% and someone wrapped it for shareholders, LOL.

🏉 Scoring Money. VC firm HAVAÍC is kicking nearly R19 million into African-born tech company Sportable’s Series A round (R283 million). Sportable uses micro-tracking tech in sports like rugby, soccer and American football to improve data collection and analysis.

30-MINUTE PODCAST

How to Raise R97M for Your FinTech

If you’re passionate about the potential for high-growth ventures in Africa, this week’s podcast is for you. We spoke to Nicole Dun, COO and co-founder of Startup Club’s 2023 FinTech of the Year, Revio. Nicole was part of the team that raised their $5.2 million seed round in September, and she was super happy to tell us all about it…

Some highlights

1. A day in the life of the COO of a scaling FinTech

Despite the title, Nicole says she leans into her strengths, which are more on the commercial side of the business – enterprise sales, fundraising, brand and marketing etc. But then there are those stark context shifts when someone comes in and asks a much more practical focused question, like “How’re we gonna manage leave?”, etc.

Finding the balance between the strategic and operational side has been more about managing her own energy levels throughout the day.

2. Landing the $5.2M Funding for Revio

Nicole’s approach was to build relationships with potential funders long before it was time to ask for money. Making contact and giving monthly updates on their progress meant that, when it was time to raise, the investors already had so much insight into the company, they wanted to get on board.

Even now, after they’d raised, those relationships are important to keep going.

3. What are they going to do with the money?

Firstly, Nicole says, they’re deepening product capability based on feedback from their first 10 or so corporate clients. Next, they’ll be building the team, developing a repeatable sales process and investing in marketing, as well as ensuring they stay ahead of the curve in terms of payment tech.

Or if podcast app is your vibe, catch them here:

Like our podcast? Remember to subscribe and never miss an episode.

THE RESULTS

We asked how you save, and would you believe savings and RAs are in the lead…?

🟨🟨⬜️⬜️⬜️⬜️ 🏊 BTC (one swimming pool at a time) (10%)

🟨🟨🟨🟨⬜️⬜️ 👵🏻 Retirement Annuity (18%)

🟨🟨⬜️⬜️⬜️⬜️ 💸 Money Market (10%)

🟨🟨🟨⬜️⬜️⬜️ 📈 Shares via EasyQuities (14%)

🟨⬜️⬜️⬜️⬜️⬜️ 🙌 Stokvel, baby (6%)

🟩🟩🟩🟩🟩🟩 💰 Good ‘ol Savings Account (27%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🛋️ I hide it in my couch (like a president) (5%)

🟨🟨⬜️⬜️⬜️⬜️ 🤔 What is this “save” you speak of? (10%)

WE FLIPPED IT

It’s flipping easy to tip a kayak — at least that’s what it felt like. We are proud to say we were the first “tourists” in Cape Town to flip a kayak this season. Hope yall having a great Dezemba, stay safe!

LET’S DO SOMETHING TOGETHER

• Partner with The Open Letter to engage 4000+ people in the SA startup ecosystem — Let’s chat.
• Need advice on how to build or grow your startup? We can help — Let’s chat.
• Come across a cool startup or founder you think we should cover. Hit reply and let us know.

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Cool off? Talk about the environmental impact of crypto; researchers have just shown that a single Bitcoin transaction could use as much as a swimming pool’s worth of water to cool the processors executing it. Sheez.

In this Open Letter:

• R50bn play: Stokvels when Rands go digital.
• Repo-ed microwaves, e-comm talent wars & Cell C still insolvent.
• For profit: Lowering your customer acquisition costs.
• Where we shop: The results are in.
• Tell someone: Share this & get free business tools.

TRENDING NOW

When Those Rands Go Digital

The next wave of tech opportunities will follow

It’s Dezemba! And, for many, that means a few more weeks till summer break. But for millions of South Africans participating in grocery stokvels, it could mean Christmas grocery is on the way. 

What you might not know is that the uniquely South African communal savings mechanism we call stokvel gets investments of about R50 billion per year, split across around 800k stokvels running in SA's informal sector.

No wonder then that many a digital entrepreneur has tried to digitise the stokvel. So far, with little success – simply digitising the process with tech doesn’t work and feedback’s non-existent since most users can’t articulate what they need ‘cos they have no banking or tech frame of reference.

What hasn’t worked

Common misconceptions around stokvels are:

• Record keeping and planning aren’t a problem – replacing pen and paper with an app adds little value since the few members in the group often know and trust each other and the calculations are simple.
• Participants mostly don’t expect more money back than they put in, so offering interest isn’t as appealing.
• There is some risk in carrying cash, but transaction fees on cash are still zero. Fact is: If you contribute 12xR100 into the stokvel you expect 12xR100 back. Interest and transaction fees confuse the equation.
• Onboarding needs to be unbelievably simple. Participants usually know the person running the stokvel. And to join, you just give them R100 or whatever and there you go. It needs to be as simple or simpler than that.

Don’t feel too bad, though. Banks haven’t figured out how stokvels work either – case in point, these are the requirements for opening a “stokvel account” at one of the major banks:

What, no blood samples needed? Should be simple.

But R50bn in deposits is attractive

Let’s say you capture just 2% of that market. You could buy R1 billion of SA government bonds using the deposits, earning a cool ±R100m per year in interest (if those rates stay this high). 

So it’s worthwhile figuring out the stokvel market…

Now, there are complicated regulatory hurdles here. But probably the biggest challenge to overcome is transaction fees. 

Enter PayShap

PayShap is a rapid interbank payment protocol that allows instant transfers between different bank accounts at a low fee (or even free). Currently, each bank has its own fee structure and it’s a bit of a mess. But there is pressure from the reserve bank to make PayShap universally free. 

Now, when PayShap goes free, it’ll become the direct digital competitor to cash, with a lot less risk of getting mugged etc. 

And stokvel is just one of many applications that can take off once we get to totally digital cash. So if banks can just find some consensus on fees, there might be opportunities everywhere soon. 

Tech entrepreneur, watch out for this one…. it's about to get real.

IN SHORT

🚙 Uber 500. Would you believe Uber Technologies Inc. has been added to the S&P 500 Index? This after two straight quarters of posting some operational profits, which sparked renewed investor interest (Uber Shares gained 132% in the last year). Here’s hoping the optimism’s enough to carry them all the way.

🪑 Removable Assets. Working at Luthuli House? Warming up your lunch might be hard going forward as the Sherrif is set to attach anything and everything (even microwaves) in an attempt to settle the R100 million account run up with an events company during the 2019 elections campaign. R100 mill – that’s a helluva lot of Streetwise Twos and yellow T-shirts.

🧲 E-Comm Talent War. Looking to cash in on the e-commerce giants’ plays in 2024. Takealot has double the amount of e-commerce jobs available compared to Amazon. Amazon will be hitting SA shores early next year with its jobs portal having around 22 e-comm-related jobs, compared to SA e-comm king, Takealot, with 47.

🗼Low Signal. Despite recapitalising in September 2022, Cell C remains insolvent – as seen in its latest financial results revealed last week. The mobile operator’s assets are pegged at R5.7 billion with liabilities of R15.09 billion. Its subscriber numbers have also decreased significantly over the last 5 years from 17 million to 8 million.

🧶 Time Travelling Knitwear. Longing for the days of the Windows XP Wallpaper (you KNOW the one…)? Well, last week Microsoft dropped its “Windows Ugly Sweater: Bliss Edition” onto its Xbox store and it’s already sold out. You can still add it to your wishlist – who knows, they may just do another run in future.

BUILDER’S CORNER

How to Lower Your Customer Acquisition Costs

OK, so you got some adoption, your usage is growing and you’re making some sales. Now, why aren’t you making any real profit yet?

Good business comes down to one thing: The money you get in (Customer LifeTime Value or LTV, i.e. revenue) minus what it costs you to get that customer (Customer Acquisition Cost or CAC) equals profitability (considering your customer servicing cost is under control, but more on that in a future edition).

Servicing costs aside, there are basically 2 ways to make more money from each customer :

1. Raise the LTV — This can be done through partnerships, reducing churn or upselling.
2. Lower your CAC — Acquire those customers for less.

The first one only works up to a point, I mean you can’t keep raising prices without taking pain. So, like most of us, you’ll want to focus on number 2.

5 Strategies for lowering your CAC

1. Know your numbers

The first step is to actually know what your current CAC is per channel. Build yourself an “Omega” dashboard that combines all your analytics with your weekly/monthly sales. Then looking at these costs, try different strategies in different channels while still measuring your CAC per channel.

Once you have your lowest CAC channels, A–B test and double down. Boom.

2. Build a hyper-engaged audience/community

Create a standalone, associated audience-based product (ask Elvorne to help you) – a newsletter, community, blog, tool etc. – with marketability, so you can develop high value and engagement on it.

Test acquisition costs into that product instead – it should be cheaper because it’s a more neutral, value-driven space. Build your funnel to go from audience to your main product, optimise the conversion and double down on acquiring users via that route instead.

3. Build a solid referral mechanism

Word of mouth is great (because it’s practically free!), and its digital cousin is getting current customers to refer their friends and family. If your Net Promoter Score is pretty decent, take it a step further and build a referral mechanism with a strong internal campaign – reward people with value for referring others.

4. Diversify and upsell

You don’t want to raise your prices to the point where you’re not competitive. But that doesn’t mean you can’t increase your LTV in other ways.

Remember, you only pay CAC once. Once they’re in your database, you can reach them cheaply. So why not create new products/services and upsell them?

5. Partnerships & collabs

Is another non-competing company talking to your market? Maybe there’s a chance for synergy or some other reason to collaborate. Striking a deal where you share or cross-promote products is one way to access more of the right people at a lower cost.

Got a CAC insight to share? Hit reply and let us know…

THE RESULTS

We asked when was the last time you were in a Pep store, and would you believe Pep Home is rocking it…

🟨🟨🟨🟨🟨⬜️ 👍 All the time, baby (20%)

🟨⬜️⬜️⬜️⬜️⬜️ 👔 Just for kids’ school clothes (7%)

🟩🟩🟩🟩🟩🟩 🏠 Some good deals at Pep Home, though (22%)

🟨⬜️⬜️⬜️⬜️⬜️ 📱 Buying business phones cash at Pep Cell (5%)

🟨🟨🟨⬜️⬜️⬜️ 🛍️ Kids clothes at A.C.Kermans (13%)

🟨🟨🟨🟨⬜️⬜️ 💻 Just HiFi Corp and Incredible Connection (15%)

🟨🟨🟨🟨⬜️⬜️ 🙅 Never have I ever (18%)

⬜️⬜️⬜️⬜️⬜️⬜️ 😆 I’m there right now! (0)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Break time? Brickception lets you play a game within a game within a game – adding a whole new dimension to Atari’s classic 1970s hit “Breakout”.

In this Open Letter:

• Big money: Pepkor’s secret FinTech weapon.
• Lazy AIs, parking investment & SA’s lost businesses.
• Recap: Using AI in local context to benefit Africa.
• Smart scaling: Laser-Focus KPIs for growth.
• Landlord experiences: The results are in.
• Tell someone: Share this & get free business tools.

TRENDING NOW

The FinTechs that Earned Pep R10bn

Where does the 2 out of 3 baby garments sold in SA come from? Or what about 7 out of 10 prepaid phones? 

Well, most likely, China. Originally. But locally, it gets sold through one of the various stores in the Pepkor. With store chains such as Pep, Ackermans, TekkieTown, Buco – even Hifi Corp and Incredible Connection – Pepkor has diversified a lot over the years. 

‍

The group reported revenue of R87bn in the 2023 financial year. But what’s most noteworthy is that their FinTech division contributed R10 billion of that revenue and R950 million in operating profit. It’s a powerful combo… Physical stores spread across the country that serve as a place of distribution for FinTech products — there's likely no slowing down.

FinTech at Pepkor 

Pepkor’s FinTech division has a suite of products including:

• Capfin, a subsidiary of Pepkor, is an unsecured credit provider.
• Abacus is a niche insurer within the Pepkor group, offering easy and affordable retail insurance​.
• Tenacity Financial Services, part of the Pepkor group since 2007, specialises in managing in-store credit card programs for several Pepkor retail brands

But these all make up only 33% of their FinTech revenue.

The other 67% is generated by one you probably never even heard of — Flash.

Flash gives merchants (mostly spaza shop operators) a device with an app that allows them to sell digital products and services like:

• Airtime
• 1voucher (which can be redeemed for sports betting, Dstv or other online services such as Uber)
• Prepaid electricity and water
• Payments
• Payouts of SASSA grants
• Transfers and much more.

Impressive range of services, but one of Flash’s major feats is likely how it “digitises cash” – i.e. allowing the “unbanked” to transact digitally.

They reportedly turned R37.1 billion of cash into digital vouchers or digital products. That’s a significant amount considering the estimated size of the township economy is R425bn. 

What could Flash become?

Flash is currently financial services and VAS, but with its footprint of circa 200k merchants across South Africa’s informal market, it could become any or all of the following:

• Payment and distribution for e-commerce plays – perhaps they can even launch their own e-commerce solutions to informal markets by collecting cash at Flash vendors and using those locations as pickup points (yes, this is super complex, but if anyone has a chance of pulling this off in informal markets, its probably them).
• Provide financial services (and even bank accounts) to Spaza shop owners – and with the data points they have, they could offer unique services.
• Perhaps a more ambitious move could see them go into informal FMCG supply and compete with the likes of Yebo Fresh.

Pepkor only started reporting Flash’s numbers in this year’s financial results, for good reason. This FinTech juggernaut might just become the major driver of group revenue and profit in years to come. 

And with them cracking the cash-to-digital problem in informal markets, chances are anyone wanting to sell things from outside the informal settlement to inside (be it digital or physical goods), would likely need to make use of their systems.

IN SHORT

🦥 LazyGPT. Users have been complaining about ChatGPT avoiding doing monotonous or tedious tasks asking the user to complete the work. Wasn’t that why we got ChatGPT in the first place? Interestingly enough the tedious and monotonous tasks we’ve put up with for decades, ChatGPT got tired of in a year.

🪡 Listed Threads. Shein wants to list for R1.7 trillion. The e-comm clothing behemoth has filed with US regulators for an initial public offering (IPO) in the wake of its massive growth. Perhaps shareholders can expect to receive their dividends 4 times longer than expected and also need to pay additional “duties” before cashing out.

🚪Shutting Down. More than 1’300 South African businesses have closed down in 2023. Loadshedding, N3 transport disruptions as well as consumers feeling the pinch (or shall we say punch) of elevated petrol and food costs, have all made it harder on businesses.

🛻 Get Trucking. It’s been a busy week for Elon. He not only announced that Cybertruck deliveries would start this week (this could push Tesla’s valuation closer to $1 billion), but he also told us exactly how he feels about advertisers wanting to blackmail him by withdrawing their ad spend (it’s not flattering, we can tell you that much).

💰 Parking the Bag. Ticketless parking company admyt has agreed to the terms for a R30 million investment from REdimension Capital to drive product enhancement, expand the number of admyt-enabled locations and scale its user base.

THE RECAP

AI in the African context

Yesterday was ChatGPT’s 1 year birthday and to celebrate we did an online webinar to discuss how AI can help solve the continent’s biggest problems. In case you missed it, watch our very own Bobby Sequeira, Catherine Lückhoff of 20Fifty and Matt Quatra from Webory talk all things AI and Africa.

BUILDER’S CORNER

How to Set Laser-Focus KPIs (as you Grow)

It’s easy to set and track core KPIs when you start – maybe it's just you and a few founding members. Simple. But keeping that laser focus gets hard when you grow and stuff gets complicated…

‍

No worries, the good guys over at Midstage Institute developed the concept of retaining only 2 core metrics, no matter how large your business (inspired by Jim Collins’s book Good to Great).

And they make a compelling case using 2 examples from a few years ago:

• Facebook has 2 company-wide metrics:
• Active users
• Engagement time
• Google also has 2 across the entire company:
• Active users
• Clicks

Why? Well, that’s how they make money. Facebook sells advertising based on exposure, so the more people on their platform for longer, the more they can make. Google also sells ads but they get paid more on the click. So the more people click, the better.

Reverse-Engineer it like so

1. Identify your Growth Metric

This is what amplifies your revenue. In Facebook and Google’s case (all ads-based social media actually), active users because they need network effect. In free-to-paid and freemium, for example, this might be the total number of new free users, etc.

2. Pinpoint your Economic Metric

This is the single action that generates revenue – when that free user subs (the upsell) or a user clicks etc. This can usually be tied directly to a monetary value.

3. Use it to scale

What’s cool about this method is that you can use it to simplify KPIs as you grow. Each metric has millions of sub-metrics underneath it that all contribute to making it happen. So you can tie almost any employee’s action to the core metrics.

What’s more: It helps align your team’s focus and can even help you make critical growth decisions – if you can’t tie a new role’s performance directly to your 2 core metrics, maybe you shouldn’t be hiring (paying) a person to do that job.

How do you measure and ensure performance in a growing team? Hit reply and let us know…

THE RESULTS

We asked if you ever had issues with a landlord, and the ole “where’s my deposit” scene takes the cake…

🟩🟩🟩🟩🟩🟩 🤏 Stole my deposit (40%)

🟨⬜️⬜️⬜️⬜️⬜️ 🦶 Kicked me out (8%)

🟨🟨🟨🟨⬜️⬜️ 💕 Loved each other (28%)

🟨🟨🟨⬜️⬜️⬜️ 🧐 I am the landlord (24%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Got bacon? North American states are battling to fend off a devastating invasion of “super pigs”. Some are employing “pig squealer” apps to try and stop the “most invasive species on the planet” from devastating more farms and taking more human lives (no jokes).

In this Open Letter:

• Failing with grace: Lessons from a would-be unicorn.
• Brain money, boat-powered SA & attack of the Brazilian hackers.
• Maxing value: How to niche down properly in a small market.
• How we insure: And the results are in.
• Free stuff: Share this and get cool tools for business.

TRENDING NOW

The Rise and Fall of SA’s UniKudu

“The startup failure play-by-play we never knew we needed”

Anyone who’s rented or rented out property will know the frustrations (if not PTSD) that go along with it. This R340 billion-a-year industry has more problems to solve than Jordie Barret’s chiropractor after the Rugby World Cup final. 

Apart from “the usuals” like payments, deposits and damage, though, South Africa has the unique problem of race discrimination in tenant selection – something Benjamin Shaw tackled with his first startup, HouseME, back in 2015. 

In their must-read new book, The First Kudu, Ben and HouseME COO Lorne Hallendorff share how they raised multiple rounds of funding, grew to 34 employees, 50’000 registered users, and processed hundreds of millions in rental payments per year.

They were flying so high that there was even talk during one media interview of HouseME becoming SA’s first unicorn. To which Ben replied that a Kudu might be more appropriate, given the South African context.

The problem, of course, was that the Kudu isn’t mythical… but that was all pre-generative AI, so we couldn’t resist…

But then it all came crashing down in 2020 and HouseMe went belly up.

Apart from Covid lockdowns disrupting HouseME’s momentum (people couldn’t go to work, so how could they pay rent?), Ben and Lorne explain that they made some other critical startup mistakes, mainly because this kind of thing is so poorly documented in SA.

So this book is essentially a play-by-play documentation of a tech startup’s rise and failure, specifically for SA. 

Some of the failures they unpack in the book include:

• Focus — Don’t do too much for too many people (we are learning, check out Builder’s Corner down below)
• How to build the right features.
• How much funding do you need?
• Building, motivating and aligning the team.
• Delighting customers.
• and much more.

Keen to learn more? We had Ben and Lorne on the podcast last week – check it out, they share some priceless insights…

As for the residential rental space, opportunities abound. 

The market might just be big enough that zoning in on one of the many challenges and solving that well could be an opportunity in itself. But, as with all major problems, there are already a few active players:

• Founded in 2018, DigsConnect is the largest student accommodation marketplace in Africa, connecting landlords, estate agents, and property managers with students looking for accommodation. The platform simplifies finding and offering student accommodations.

• Established in 2017, Flow Living automates property ad creation and targeting for Real Estate Agencies and Property developers, streamlining their marketing efforts and simplifying deal closures.

• Launched in 2014, RedRabbit offers an inspection app that streamlines the property inspection process and includes a maintenance ticketing system, enhancing efficiency in rental inspections and property management.

• Founded in 2017, Preferental is revolutionizing the way landlords manage their property portfolios with advanced technology and expert support. The startup offers Preferential Promise, a service that guarantees rental payments to landlords, even in case of rental defaults.

• Founded in 2015, Property Inspect focuses on innovation in building compliance and efficiency. The platform offers user-friendly technology for all property inspection and operations needs, aiming to improve standards and streamline processes in the real estate industry.

Residential rentals aren’t going anywhere and neither are the Proptechs resolving some of its more pressing challenges. We are watching this space…

‍

IN SHORT

🤝 Board Games. After all the OpenAI craziness last week, they’ve appointed a new board. Members include some heavy-hitters in the tech space including a board member from Spotify, a President Emeritus at Harvard, and a former Facebook CTO.

🤑 Big Spenders. The Western Cape has won Black Friday according to Peach Payments’ Black Friday tracking dashboard. The payment gateway processed over 435’000 transactions with the province seeing 53% of all merchant transactions followed by Gauteng (42%) and KZN (4%) — do other provinces even Black Friday?

🚢 Barge-Power. Floating power plant provider Karpowership just got the environmental authorisation for their 2nd of 3 projects to connect to SA’s power grid. Last month it won approval for the 450-megawatt plant at Richards Bay, with the second being a 320-megawatt gas-fired plant at Saldanha.

🧠 Brain Money. Brain chip company Neuralink has just raised another $43m increasing its previous tranche to $323 million. In May, Elon Musk’s company received FDA approval to kick off human trials.

👨‍💻 Brazilian Hackers. Credit bureaus TransUnion and Experian have allegedly fallen victim to a hack again by the notorious Brazillian hacker group N4ughtySecTU Group. The group is demanding a $60 million ransom but both companies have denied being hacked.

BUILDER’S CORNER

How to Niche Down Properly in SA

During our podcast with Ben and Lorne, focussing on a niche came up as something that is crucially important for startups. Yet niching down means making your total addressable market (TAM) smaller – sometimes too small. 

‍

That’s what makes building startups in SA so much harder than in a massive market like the US – and why so many SA startups we consult have tried to be too much to too many people.

So how do you niche down without killing your TAM?

1. Find a niche

Can your solution service a subset of the total market well first? DigsConnect, for example, niched down on just student accommodation at first. 

Identify your market, then choose a subset that has:

1. The least competition
2. Biggest pains,
3. and/or Where you have the most experience/connections in.

Then ask yourself, can I go even more niche on this? I.e DigsConnect could have started offering accommodation only for first years and nail that, etc.

2. Double down on the value for this niche

When you have 40 (or 120) hours a week to figure out how to add value, trying to add value to 4 different types of customers means you are only giving each 10 (or 30) hours. So you might attract a larger base, but you’re gonna battle to make it a great experience for them – founder focus doesn’t scale well in the early days!

However when you double down on a specific niche (1 type of customer), you can really fine-tune the value and customer experience. Create a “wow that was awesome” experience and they’re likely to tell others – and the others they tell might just be the group you target next. 

Momentum is key, don’t break it by trying to be everything for everyone.

3. Maximise returns on each niche

Iterate your offering to catch fringe use cases, and scale with tech. Once it runs smoothly and your cost to service is less than the fee they’re paying you, that’s when you can try to increase the size of your TAM by going vertical or horizontal.

Large markets are nice, but even when generating lots of revenue from these markets, the business will fail if the unit economics don’t work. Focus smaller, get the cost to service down and scale from there.

Got a hot niching and revenue tip? Hit reply and let us know…

THE RESULTS

We asked how you insure your stuff – Discovery, Naked and “winging it” take the cake…

🟨⬜️⬜️⬜️⬜️⬜️ 🧐 Old Mutual (or the like). (7%)
🟨⬜️⬜️⬜️⬜️⬜️ 💰 Outsurance – Early disruptors for my Outbonus. (7%)
⬜️⬜️⬜️⬜️⬜️⬜️ 👑 King Price – Funniest Insurance ads. (3%)
🟨🟨🟨🟨🟨⬜️ 🫣 Naked – The name just gets me. (23%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🍍 Pineapple (what’s not to like). (0)
🟨⬜️⬜️⬜️⬜️⬜️ 🥃 MiWay – If it’s good enough for Frank… (7%)
🟩🟩🟩🟩🟩🟩 🧭 Discovery now owns my life (27%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🛋️ Bunch of banknotes stuffed in my couch. (3%)
🟨🟨🟨🟨🟨⬜️ 🧚‍♀️ I’m just winging it. (23%)

‍

LET’S DO SOMETHING TOGETHER

• Partner with The Open Letter to engage 4000+ people in the SA startup ecosystem — Let’s chat.
• Need advice on how to build or grow your startup? We can help — Let’s chat.
• Come across a cool startup or founder you think we should cover. Hit reply and let us know.

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Still wanna go to Mars? Scientists have just discovered that prolonged time in Zero-G could cause ED. Suppose the jury's still out on whether NASA should issue male astronauts a few extra (blue) pills.

In this Open Letter:

• Dem Pineapples: How to raise R400m funding.
• Open-source Tesla, OpenAI’s 4th CEO & what SA’s worth.
• Building with AI: Opportunities in Africa today.
• Cool tools: A few Black Friday deals for founders.
• Where we watch: The streaming results are in.
• For your business: Share this and get free stuff.

TRENDING NOW

How You Like Dem Pineapples?

Well, we all sat up a took notice when Pineapple raised another R400m the other day. (During a general startup investment downturn, no less). But it wasn’t their first, they raised R80m in 2021. 

And it might not be their last, because they seem to be playing the “old” insurance game pretty well.

Let’s face it: Africa is underinsured. Almost 90% of Sub-Saharan African adults have no insurance – and that meant Africa sucked up over R18bn in dead losses from theft, natural disasters etc. in 2019 alone.

But we knew that. Of the 11.4 million cars on the road in SA, it is estimated that 70% are uninsured. (That’s more than 2 thirds of cars, so that’s likely the driver in front and behind you that is uninsured – eek!)

In fact, Pineapple says almost half their customers are first-time insurers – prolly ‘cos they’re appealing to a new demographic. But it does show that, even in the most established and competitive industries, there’s still lots of room for growth.

But how does the insurance business work?

Well, we’re no experts, but a dive into Outsurance’s numbers gives a glimpse into the model of one of SA’s leading short-term insurers. 

• Claims ratio: The percentage of premium that is paid out to claims. In the case of Outsurance, that is 52.8% of their R10.9 billion in net earned premiums. 
• Cost-to-income ratio: This is the expenses compared to net premiums written. In their case, this was at 26.1% or R2.84 billion.
• Operating profit: The bottom line. And Outsurance had a good year with R2.244 billion in operating profit.

It can get quite complex – you need to attract enough customers with a certain risk profile, at a premium price point that is competitive.

Now, to make the premiums more competitive than other insurers, you could either: 1) Reduce your claims (initiatives like the Outbonus could drive people to claim less), 2) Reduce your operating expenses, or 3) Lower your profit. 

And that seems to be exactly what new kids on the block like Naked and Pineapple are trying to do. Naked has also been in the news for some big rounds of funding and has been in a showdown with Pineapple for best billboards in Gauteng for some time now.

Both are using AI and tech to automate much of the business processes and sales. In fact, Naked is so bullish on how tech can help them win, instead of a variable cost-to-income ratio, they charge a fixed percentage fee, meaning that if there are fewer claims, the additional money will be paid back to policyholders – neat. 

What this means is that their profit margin can only grow if the operating costs come down. Aligning shareholders, staff and customers – a recipe for success.

It’s much the same over at Pineapple.

And how do they stack up?

Sure, R400m sounds like a big raise for an SA startup, but one of the incumbents in the sector is making 5 times that as operating profit in a year. So you almost wanna ask: is that enough? 

It all seems to come down to better tech and lower operating costs.

For example, Outsurance has 5’924 employees in South Africa and, from a quick LinkedIn search, it looks like Pineapple has only 85 (Naked sits at 106). 

But how they use their staff is absolutely fascinating…

Ho ho, no surprise the new kids are proportionally investing more in engineering and IT. But what’s interesting is the difference in sales vs operations. 

It does seem that Naked is set on using tech to scale the sales (quoting, onboarding, etc) process as well. Having more people in ops could point to the back office functions of supporting the front end, maybe?

Pineapple does seem to be able to throw a whole lot more into sales while likely using more tech on the operations side. Is R400m enough? It surely can give the tech a big boost. Time will tell.

But one thing is for sure, the future of insurance is most definitely more lean and tech-enabled. And these two startups are positioned to have a say in how it’s going to play out.

IN SHORT

🏆 Power Brand. Still revelling in national pride from the Bokke’s Rugby World Cup victory, it would seem like it’s also good for business. South Africa’s back-to-back Rugby World Cup titles have seen its brand value increase by 44% to USD117 million (ZAR1,989 million). Now that’s lekker man.

🛠️ Weekend Plans. Got some time on your hands? If you’re a Tesla Roadster fan, Tesla just open-sourced every single part of the Tesla Roadster's design and engineering. You could build your very own Roadster in your garage – but some assembly may be required.

🤼‍♂️ Trading Blows. Investec is jumping to capitalise on EasyEquities' recent press with the release of its trading platform Clarity. And while many are comparing the two head-to-head, they’re not the same thing. EasyEquities allows users to invest directly in shares offering voting rights etc, whilst Clarity (for now) offers trading of synthetic CFD, meaning you don’t actually own shares.

🪑Musical Chairs. OpenAI is getting its 4th (we think) CEO in a week. On 17 November, Sam Altman was removed as CEO by the board, with CTO Mira Murati briefly made interim CEO. Twitch founder Emmett Shea was announced as the new interim CEO on the 19th. Then, on the 21st, Sam Altman returned to OpenAI as CEO (but not after first accepting a job at Microsoft and like 95% of OpenAI employees threatened to quit). Just make AGI the CEO already!

🤑 Crypto Fine. The world’s largest crypto exchange Binance, has had its CEO step down. Changpeng Zhao (CZ) will also admit to violating US laws as part of a $4 billion settlement after an investigation into illicit financial breaches at Binance.

JOIN US NEXT WEEK

Real AI Opportunities in Africa

We’ve all watched the global AI plays, but what can this tech unlock specifically for us here on the African continent? We’re meeting two founders leading the AI charge locally to come share where they think the big opportunities are…

Join us, along with Catherine Luckhoff from 20Fifty and Matt Quatra from Webory for The Open Conversation on Tuesday 30 November at 18:00.

Register Here

MORE VALUE

A Few Lekker Black Friday Deals

Found any great deals for founders? We honestly think it’s slim pickings this year…

And maybe that’s how it’s supposed to be – Black Friday mainly for entertainment goods, considering that’s how it all started. See, in the US, you have higher incomes and economies of scale, so Black Friday was all about clearing stock from showroom floors after Thanksgiving.

Last season’s stock just took up valuable floor space for newer, more expensive models people are gonna want around Christmas, so selling a TV for $1 dollar made sense if it was holding you up from making a juicier $1’000 sale.

That said, SA dropped nearly R20 billion on Black Friday last year, with that number set to rise to R26 billion+ this year. Prolly driven mostly by retail – just watch yourself, those buggers have inflated their prices all year, so your “deal” might not be as sweet compared to the same one last year.

If anything, we’d love to see SARS get on the Black Friday bandwagon.

OK, all jokes aside, we did manage to round up software deals you might find useful…

Founder’s Deals

Project Management

Get 25% off all your favourite Notion Templates. Valid ‘til 29 Nov.

Marketing

Get 50% off social media and email tool Tailwind’s annual plan.

Automation

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Found any great deals? Hit reply and let us know…

THE RESULTS

We asked which channels/OTTs you watch, and now we’re seriously doubting Netflix’s reported SA penetration…

⬜️⬜️⬜️⬜️⬜️⬜️ 🏈 DStv (6%)
⬜️⬜️⬜️⬜️⬜️⬜️ 📺 SABC (0)
⬜️⬜️⬜️⬜️⬜️⬜️ 💪🏾 Showmax (4%)
🟩🟩🟩🟩🟩🟩 💻 Netflix (53%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🍏 Apple TV (4%)
🟨⬜️⬜️⬜️⬜️⬜️ 🏰 Disney+ (11%)
🟨⬜️⬜️⬜️⬜️⬜️ 🦸 Prime Video (9%)
🟨⬜️⬜️⬜️⬜️⬜️ 📱 Nah, give me social media any day (13%)

LET’S DO SOMETHING TOGETHER

• Partner with The Open Letter to engage 4000+ people in the SA startup ecosystem — Let’s chat.
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• Come across a cool startup or founder you think we should cover. Hit reply and let us know.

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Stealth attack? This Ukranian Grandma of 6 enlisted as a drone pilot for the army. But only because they wouldn’t let her join the infantry.

In this Open Letter:

• A little OTT: Inside the war for SA’s eyes.
• Exploding starships, great neighbours & whale-watching AI.
• Builder’s benchmarks: Value your company like an investor.
• How we sell cars: The results are in.
• Free stuff: Share this and get cool tools for business.

TRENDING NOW

The War for SA’s Eyes (Heating Up)

In South Africa, video OTT (delivering media content over the net) is an R4b+ industry. The entire entertainment & media industry is set to grow to R231.2 billion in 2027 at a compound annual growth rate (CAGR) of 5.5%.

So it makes sense then to see DStv and Showmax owner MultiChoice doubling down on Showmax, dropping R500 million into a Showmax 2.0 (set to launch in 2024), in partnership with COMCAST, who owns NBC Universal.

It also makes sense, given that for the first time ever DStv has lost subscribers in every segment, including a whopping 14% decline in the Compact tier – previously one of its strongest performers.

But will this Showmax 2.0 play work? Let’s dive in

‍

How can they grow?

Well, we know Showmax generated R555 million in subscription fees over 6 months, and assuming most people are on the R99 or R229 per month subscription (Showmax also offers an R39 pm mobile-only option), they likely have anything between 600k and 800k active subscribers (some say its closer to 1 million). 

That’s a long shot from their 21 million DStv subscriber base. But Showmax 2.0 is built with the ambition of getting to 50 million subscribers across DStv and Showmax in the next 5 years – another 29 million to go.

The good news is that OTT is predicted to grow 12% year on year over the next 5 years, putting SA’s OTT market at R7.6 billion. 

Now, even if Showmax claims all the growth there is over that time, it might only grow its Showmax subs to 5 million. Still 24m short which they would want to make up throughout the rest of Africa — ambitious indeed.

‍

Global contenders

Although the latest data shows that Showmax has overtaken Netflix as the leading OTT in Africa (40% vs 35%), we all know the chances of capturing 100% of the growth are extremely slim. 

Netflix is a global powerhouse with over 240 million subscribers (300k-400k in SA alone). And then there’s still Apple TV, who’s pitching itself through our smartphones, making up a bouquet of options. 

And with Amazon e-commerce coming to SA soon, we might see a bigger uptake in Amazon Prime subscriptions locally. In the US, Amazon offers priority delivery, coupled with other benefits for a monthly subscription, including access to Amazon Prime streaming.

The Reel Future of Entertainment

But whilst the battle for who captures the TV screen rages, the real question is: “Was this ever a battle for the TV to begin with?” 

The one thing that really poses a serious threat to OTT streaming services could be platforms like TikTok, YouTube and Instagram. 

The content might differ, but it overlaps, competing for the same time slot in consumers’ lives: Entertainment. 

And with the socials’ business models mostly not requiring subscriptions, competing for our attention is becoming fierce. 

South Africans already spend 154 days per year online, 54 of those on social media. Each month, the global average for time spent on social media increases:

• YouTube is just shy of 24 hours
• Facebook & WhatsApp around 19.5 hours
• TikTok & Instagram 13 and 10 hours plus per month, respectively. 

So, whilst Showmax is pumping millions into becoming the continent-dominant OTT, it might all be in vain. Who knows what the future of screen entertainment holds… As always, we’re watching this space…

IN SHORT

🐋 Conservational AI. Vodacom and the World Wide Fund for Nature (WWF) in SA have joined forces to launch a pilot program in Saldanha that aims to protect whales and other marine life from getting tangled in the ropes of offshore mussel farms. The AI-based tech uses cameras and hydrophones to alert mussel farmers to whales in the area to activate an emergency response.

⚡️Splashing Cash. Eskom will use some of the R230 billion multilateral loans to expand SA’s transmission grid, which will “significantly contribute to stopping power cuts and is crucial to bringing renewable projects online”. It’ll also go a long way to improving Eskom staff morale and performance – as Eskom struggles with “people problems”.

🤖 Open Cray I. Between Sam Altman’s ousting (and joining Microsoft), and some heavy hitters resigning after the drama – newly appointed interim CEO Emmett Shear already has the first 30 days of his tenure planned out. The former Twitch CEO tweeted his 3-point plan at 1 AM (as one does) including hiring an investigator to dig into the events leading up to his appointment.

🤝 Neighbourgood news. SA Prop-tech Neighbourgood has acquired Local Knowledge, a next-gen travel experience and tech company. (The founder of Local Knowledge, Nick, reads The Open Letter. Lekker one Nick!). Local Knowledge is set to build the experience vertical of Neighbourgood – helping guests create lifelong memories and meaningful connections.

🚀 Scattering Starships. On Saturday SpaceX launched its 2nd Starship. The rocket flew for around 7 minutes, successfully separating from its booster before its internal Automated Flight Termination System was triggered destroying it mid-flight.

BUILDER’S CORNER

How to Valuate Your Company (Like an Investor)

Ask any founder how much they think their startup’s worth and you’re likely to get a range of answers that all boil down to the same thing: More. Always more.

‍

But then you chat to investors and do some funding rounds, and they always seem to have a different figure in mind…

Why? Well, for starters, they don’t have any personal or emotional attachment to it, so they need to evaluate it objectively, on merit alone. And that often means finances and execution, not the idea itself. So they look at it as potential multiples of Annual Recurring Revenue (ARR).

And doing the same exercises they do is extremely illuminating for how you should grow your company. Here’s one of our favourites…

Steps to value on the LTV/CAC model

1. Calculate your LTV/CAC ratio

LTV and CAC are north stars for startups. A quick recap:

• Life Time Value (LTV) is the total revenue you get from a single customer, minus servicing cost, over the average duration for which most customers use the product before cancelling.
• Customer Acquisition Cost is the total amount you spent to acquire that customer — think marketing spend, signup costs, etc.

If you take your LTV and divide it by CAC you’ll get your LTV/CAC ratio.

2. Multiply by ARR

According to Dirk Sahlmer from SaaSfyi’s valuation framework, the higher your LTV/CAC ratio, the higher your value scales as a multiple of ARR (annual recurring revenue). Like so:

LTV/CAC ratio

Company Valuation

Lower than 2

Double your ARR

Between 3 and 5

2–2.5 times ARR

Between 5 and 8

2.5–3 times ARR

Between 8 and 10

3+ times ARR

Note: These are international SaaS metrics, so you might have people locally differing from this quite a bit. In reality, very few companies have an LTV/CAC higher than 3 to 5.

But, this should serve less as a valuation tool, and more as some benchmarks for you to be building towards – because every startup needs to generate revenue.

Got a valuation insight or question? Hit reply and let us know…

THE RESULTS

We asked how you sell your cars, and most people use tech-enabled platforms…

🟨🟨🟨🟨⬜️⬜️ 🏆 Trade in for something bigger and better, baby. (23%)
🟨🟨⬜️⬜️⬜️⬜️ 🚗 Drive it into the ground then sell it for parts. (13%)
🟩🟩🟩🟩🟩🟩 ⚙️ WeBuyCars, Weelee etc. (30%)
🟨🟨🟨⬜️⬜️⬜️ 💻 Facebook Marketplace/Gumtree. (17%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🚙 Pass it down to my kids. (3%)
🟨⬜️⬜️⬜️⬜️⬜️ 🏷️ Drive around with a “For Sale” sign in the window. (7%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🤹 Leave the keys in the ignition and claim insurance. (3%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🙃 Why on Earth would I buy a car? (3%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.

Hi

Need a hand? Scientists developed a new soft-materials technology for 3D printing robots with ligaments, tendons and such. Meaning new Luke Skywalker-style limbs are not that far off.

In this Open Letter:

• Sales gap: This R250bn industry needs more SaaS.
• DStv solar, delayed Christmas & the new EasyEquities competitor.
• Smart money: How to set yourself up tax-savvy in SA.
• Who’s buying stablecoin? The results are in.
• Free stuff: Share this and get cool tools for business.

TRENDING NOW

Why Aren’t We Building More SaaS for Cars?

Ten, 20 years ago buying and selling a second-hand car meant navigating dealerships or a trek to Pick n Pay for a printed copy of the AutoTrader. Problem was, by the time you’re done browsing, the one you wanted might have already been snapped up. Not ideal.

SA’s 2nd-hand car market

Used cars are a big business. Out of the ±11 million vehicles on the road, more than 1 million change hands every year. Consider an average price of R250’000, that’s a R250bn industry!

But WhoBuysCars?

WeBuyCars changed the game over the last few years – one of SA’s leading vehicle buying (and selling) platforms with over 2’500 employees, and 70 branches (including Morocco). 

At first, the name seems odd for a company that sells 2nd hand cars. But it's indicative of the fact that selling your car has more pains than finding one to buy. WeBuyCars solves this pain like so:

• Get a good price for your car
• Get money quickly (in 3 easy steps – with immediate payment) – if you need cash and have a car you can sell, these guys make it happen quickly.

This put WeBuyCars in the position to acquire a lot of stock, to offer the widest choice to buyers.  But it also means they have to sell quickly, which is where the tech comes in:

• Cars get listed quickly
• Online presence and ATL marketing ensure they are top of mind
• Tech-enabled financing processes.

Tech & business process engineering make the model work

Chatting informally to a WeBuyCars buyer, we learnt they try to sell a car within 5 days or less. If not, it goes up for auction. Unsold cars cost money and moving stock fast is crucial.

And 2022 was a massive year for them.

• They increased their revenue by 66% from R10.723 billion to R17.848 billion.
• They sold 125’812 cars (up from 88’271 in 2021), on average moving 10’484 vehicles per month (up from 7’356).
• E-commerce was no slouch either, with sales volumes increasing 27% from 26’810 cars to 34’300.

But then the wheels came off a bit in 2023. Rising interest rates and a downturn in the market dealt the entire car industry a blow, and WeBuyCars are expecting 20% less profit this year. 

That said, though, the use of tech to empower their business processes has unlocked margin and powered their business model – and therein lies the opportunity. This is an R250bn a year industry with thousands of independent dealerships. So the question is: Why aren’t we building more software to help second-hand car traders cut costs, improve efficiency and unlock more margin?

And it might make sense now more than ever. Official numbers aren’t showing a recession in SA (yet) – but there is definitely a lot of pressure on consumers and the industry. Players across the board, from WeBuyCars to Weelee, Cubbi, getWorth and all the small independents will be looking for cost savings and better margins. And what can do that better than great niche SaaS products?

We are watching this space.

OUR TOP OPPORTUNITY PICK FOR THIS TREND

Keen to capitalise on this trend? Here is our top pick idea to make the most of this trend

OVER TO YOU

IN SHORT

🛰️ Leaving the Nest. Just like a little bird getting ready to leave the nest, SpaceX looks to be preparing for Starlink to spin off via IPO. With assets being moved to a wholly owned subsidiary, the listing for the fast-growing satellite division could happen as soon as next year.

🍍 How you like them (Pine)apples. Local AI-powered digital insurance provider Pineapple announced the closing of their R400 million funding round led by new investors with existing investors also kicking in some cash.

☀️ Let the sunshine in. MultiChoice released its interim financial results this week, revealing a 5% drop in active subs. Apparently, loadshedding is to blame, so the video entertainment group is exploring a subscription-like service for solar to help its customers stay entertained – even when the lights go out.

📱 Invest Tech. Investec is set to launch its EasyEquities competitor Clarity (previously only available to its private banking clients) to offer easy, affordable access to financial markets. And if Investec’s six months’ financial results released yesterday are anything to go by, doesn't look like they’ll need to charge R25 per month…

🧌 The Grinch That Delayed Christmas. SA’s busiest container port, Durban, is suffering heavy congestion with some container ships taking up to 20 days to offload their cargo – 4 times longer than normal. To add to importers’ headache, shipping operator MSC says it’s going to start charging customers a $210 per container “congestion surcharge” from 3 December 2023.

30-MINUTE PODCAST

How to Start Up Tax-Savvy in SA

If you’re deliberating company structure or being smart about tax, this week’s How Would You Build It podcast is for you. We spoke to tax advisor and Irhafu founder Andre Bothma about setting up your startup in the SA company and tax landscape.

And he dives straight in with the No 1 biggest mistake most startup founders make…

1. Don’t just run to the CIPC to start a company

It’s way easier and cheaper to just test ideas out as a sole proprietor first, especially if you don't have official long-term contracts or lots of sales yet, Andre explains here. Just use revenue share contracts to sort out things with your co-founders and go test your ideas.

Once you grow or land big longer-term contracts, take your time and register your company properly, he says here. Avoid equal share structures (like 50/50 or 33/33/33 splits) and redefine all your business agreements to reflect your new structure. Plus: Remember, the main reason you want a company is for the business benefits and to protect you personally from the credit agreements necessary to grow, so be clear about why you need a specific structure.

2. When and how to register internationally

If you’re targeting international markets or especially if you’re going to raise funds outside of SA, then setting up offshore’s an option – maybe Delaware for the US and Malta for Europe – Andre says here.

Just do it when it’s financially viable, ‘cos it can cost a whole lot more to get done. And be aware of Controlled Foreign Company (CFC) regulations – for example, if the majority of your overseas company is owned by South African residents, you actually pay tax here in SA, not over there. It’s best to get a professional financial advisor to help you set up overseas.

3. South Africa could be set up for business-beneficial tax

With SA’s company tax now down to 27%, it’s a good time to start keeping more cash inside your business (as opposed to spending it all to post a loss just to save tax). Andre even mentions here that he imagines South Africa could lower corporate tax even further, down to maybe 25% sometime in the next decade.

This wouldn’t be a bad move for the country, since lower taxes make it more attractive to post profits, and more profit drives more business, economic growth and employment. This would also make SA more attractive to investors, so keep your eyes on this one.

Or if podcast app is your vibe, catch them here:

Like our podcast? Remember to subscribe and never miss an episode.

THE RESULTS

We asked if you see yourself using a stablecoin soon, and would you believe the majority still opt for normal currency?

🟨🟨🟨⬜️⬜️⬜️ 🤙 Yes, I use it all the time. (29%)
🟨⬜️⬜️⬜️⬜️⬜️ 😕 Still not sure what a stablecoin is. (17%)
🟩🟩🟩🟩🟩🟩 🏦 No, I only make use of FIAT (50%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🛏️ I keep my money in my couch (like a president) (4%)

Find more awesome business ideas from South Africa's favourite startup and tech newsletter.