Case Study: The Shutdown of Zumi

Zumi was an e-commerce startup based in Kenya. It was founded in 2016 by William McCarren and Sabrina Dorman. The company started out as a digital magazine focused on lifestyle and fashion for women. In 2019, it temporarily shut down in 2019 due to an inability to raise funding and losses from digital advertising revenue. Their social media page announced the shutdown and their decision to pivot operations. They resumed operations in 2020 as an online marketplace for wholesalers and retailers in Africa’s fashion scene. Other members of Zumi’s founding team were Eric Njogu, Tomas Rosales, and Mohamed Nuur.

The Vision and Business of Zumi

Zumi’s primary vision was to empower business owners digitally in Kenya. The founders, based on their experiences with successful e-commerce companies, set up a thriving business. Customers place their orders on the Zumi app or through an agent, and wholesalers/retailers provide their goods on demand. Delivery was conducted with its logistics partners, and the goods were paid for upon delivery.

Zumi’s Iron Triangle

In Africa, apparel traders who sell thrift clothing operate informal, individual businesses. They wait for large-scale importers to signal the arrival of goods and then purchase sizeable quantities known as ‘bales’ from brokers. These transactions are often carried out without prior market research and are also cash-dependent, with upfront payments.

Clothing prices and profit margins are set by individual deductions, which depend on transport prices and several other market conditions. These business conditions make it difficult for them to build a credit history, make credit purchases, and collect the loans necessary for business expansion.

Sherpa Ventures, a Zumi business partner, documented the company’s “Iron Triangle”, a three-tiered approach to easing trading for apparel retailers in the country. This strategy was brilliant, given Kenya’s large appetite for thrift clothing at the time. It tackled recurring problems and presented instant solutions.

Zumi’s Unique Selling Point

Zumi targeted clothing suppliers and retailers and made a profit by establishing business connections between them. These clothing retailers signed up on the mobile app or made inquiries through a physical ZUMI agent.
Its position as an e-commerce platform ensured retailers could purchase goods directly from a list of suppliers. This was done on the ZUMI mobile app, through text, or through a ZUMI agent. Verified orders were dispatched directly to the sellers for free at their market stalls on the same day of their purchase. Returning Zumi customers built order histories over time that allowed them access to credit. This way, retailers got stock and credit at fair prices. They did not visit warehouses physically to haggle and saved their transport fares. Prior to its closure, Zumi customers testified about the improvements in their businesses and living conditions, proving that its unique selling position met expectations.

Factors Leading to Zumi’s Closure

Zumi raised a total of $1 million in funding over nine rounds with ten investors. Before its initial shutdown, it raised $120,000. After resuming operations, it raised $250,000 in a seed round. Following this spike in capital, the company announced expansion plans into neighbouring countries – Nigeria, Ghana, Tanzania, and Uganda. The business achieved over $20 million in sales and amassed 5,000 returning customers.

Despite these impressive milestones, the startup struggled to sustain business operations due to inadequate funding and other economic challenges. In March 2023, William McCarren announced on LinkedIn that harsh macroeconomic conditions, market volatility, and the lingering effects of the COVID-19 pandemic forced Zumi to shut down permanently, leading to the layoff of 150 employees.

Key Takeaways

Zumi’s mission focused on improving Kenya’s micro-retailing sector and Africa’s fragmented retail system. The business was poised to achieve greater heights with an impressive business strategy. However, inadequate funding cut these dreams short. Broader economic challenges and operational difficulties compounded the effect.

The subsequent success of Zumi’s founding team in other business ventures confirms that the startup’s shutdown was not due to a lack of capability. Zumi’s shutdown is a stark reminder of the challenges African startups encounter.