Soft Tribe

Interesting interview with Joe Jackson from Ghanaian IT company Soft Tribe and their decision to move into the Nigerian market, in this week's Balancing Act. I've pasted it below:

Faced with the dual challenges of international competition and a small home market, not many ICT entrepreneurs would simply pick up their bags and move to a bigger market. But that is what Soft Tribe’s Joe Jackson did. In this interview with Russell Southwood he talks about the challenges Soft faced and how things are working out. Soft’s move into Nigeria is not simply important for one company but touches on broader issues facing the ICT sector in Africa, including labour mobility and the likely success of locally-generated products .

Why did you move to Nigeria?

The decision was simple. The market for ERP software in Ghana was limited. It was estimated that the market in 2004 was US$15 million. Now the real estimate is probably smaller but it gives you some idea of the size. The market for the ERP software in Nigeria is US$700 million (including oil and Government sectors). Again this is probably an over-estimate but it’s much bigger than Ghana. I had to ask myself: what am I doing in Ghana as an ERP integrator?

The market is very concentrated in Lagos. There’s a lot of talk about Port Harcourt but unless you’re selling into the oil industry, it doesn’t matter. By setting up an office in Lagos, you could be at the heart of a bigger market than any other place in Africa, outside of Johannesburg.

Nigeria is a notoriously competitive market. If you’re successful, then dozens of “me-too’s” spring up. How are you finding it?

Because there are easier ways of making money, there is not as much competition as there ought to be. Selling ERP applications to international companies is not an easy way to make money. But as a West African company we have slightly lower costs than a foreign company.

How do you find working in Nigeria after Ghana? Has it been easy to set up?

Let’s describe the positives first. As a Ghanaian in Nigeria, you’re regarded as expert, as honest and as better value. On one level, our entry has been seamless and smooth. The challenges are the environmental ones. Registering a company takes a remarkably long time, up to three months. The mechanisms for setting up an office – power, traffic and recruitment – are all challenging. And it’s a big challenge getting appropriate staff. There is an enormous turnover of staff and the poorest quality of staff are looking for enormous sums of money.

The labour market has been hugely distorted by the mobile operators. In one month, I lost eight good senior programmers to a mobile operator.

Do you sell to Government?

No, we’re now only selling to the private sector. We had an experience of trying to sell to Government two years ago. We put in a bid and never heard anything. Then they contacted us and said somebody else has won the bid and wants to sub-contract to you. They ended up paying us more to sub-contract than we had put in our bid. Then the boss of the organisation changed and everything fell through.

You used to be a local company in Ghana selling local software. Now you’re selling Microsoft Dynamics Navaison products. What happened there?

When we started in 1991 our dream was to sell our own products. The target was to create an ERP product for West Africa. We were going to build the components and put them together. We became very successful in Ghana on this basis and had a large proportion of the market. We had close relationships with 30% of the 100 biggest companies in Ghana.

The first thing that changed was that IT purchasing decisions began to be made offshore. Two things accelerated this happening. One was the mobile phone. Mid-level companies now had much closer relationships with their headquarters. With telex and fax it had been difficult to maintain control. In the late 1990s, all companies tended to move towards regional organisation. For Ghana, the regional offices were mostly in South Africa, Europe and the USA.

Would you buy from a local software house? If I was in that position, I wouldn’t buy from me. The purchase of software is like a marriage. Divorce is very painful and if you have something well-known, you have something you can complain about.

We started to lose sales and what started as a trickle turned into a flood. However, certain areas we held on to for a long time. For example, payroll was regarded as a very local area of operation. Even Ghanaian companies would develop better relationships with foreign companies. Se we also started losing Ghanaian companies.

What about the financial side of this process?

We went from being small to a turnover of close to US$1 million. We then got VC money from FMO through Fidelity Bank. It wanted to invest significant money in us creating our own ERP application. However, the project wasn’t going anywhere so we had to kill it before it was over.

One of the advisers on the VC side at the beginning of the deal clearly said to me, I’m not sure you’re going to get revenues from your own ERP application. So I was talked into looking at other products and we ended up with Navision. Their partner model is very different from any other for this segment of the market. Others give you a fixed product that is mainly subsequently “window-dressed” through small changes. It’s mainly implemented straight out of the box.

Microsoft gave partners access to source code. We could develop other vertical products. In effect, there were two products: straight out-of-the box products and bespoke products. In this way, Navision allowed us to use our existing skills. So we chose the product, became a partner, invested in the training and had a huge event in 2005 to launch Navision in Ghana. At the time, we though Navision was diversification but with hindsight, it was the thing to do. Our VC partners sowed the seeds of a strategic decision.

What’s the ownership of the company now?

I own 35%. My partner, Herman Chinnery-Hesse owns 30%. Fidelity owns 30% and the staff 5%. Eventually we gave up trying to write “the holy grail”, our own ERP application. But it was very difficult weaning ourselves away from the “let’s do it from scratch” approach and going over to building with prefabricated parts. Before choosing Microsoft, we had not been using any Microsoft tools. We used Borland’s C++.

Because this was a strategic disagreement with my partner, and it was difficult to sell our own product in Nigeria (Nigerians detest their own products and this was also the same for Ghanaian products), and because of tensions from the disagreement, I said I would set up in Nigeria. It caused me some personal discomfort as my family is still in Ghana. And although the flying time is 4o minutes, the processes of getting in and out of the airport can take 4-5 hours.

What are your future ambitions?

My ambition is to grow the business to a US$5 million turnover on several platforms. We’re starting with ERP integration but training is also a huge market in this country. We want to set up a platform for outsourcing business applications. With the kind of HR and infrastructure problems they have here, there is a market for providing software as a service. We’re looking at halfway houses, installing a client end bit of software but outsourcing things like hosting, databases and support.