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What Andela’s big change in business model and layoffs mean for Africa’s tech ecosystems

Yomi Kazeem

In the five years since it was founded, Andela’s business model of training and outsourcing junior developers to global companies around the world saw it become a champion for local computer engineering talent across Africa.

But with a major shift in strategy, the company is ending its developer training programs in Nigeria, Kenya and Uganda, and is letting go of up to 400 of its contracted junior developers across those three countries. Andela says it can no longer place all its junior engineers with clients given the saturation of talent in the US, its primary market, largely thanks to an upswell of training programs since it first launched in 2014. Some trained Andela developers have not been placed at all for the past year.

“This has nothing to do with cost cutting, or government policies—it’s a function of the market,” says chief executive Jeremy Johnson in a Facebook post. “We haven’t been able to scale remote, junior placements, in part because bootcamps and CS programs have grown rapidly over the past five years, and we’re no longer able to lead with a junior first strategy.”

While Johnson says the changes are not about cost-cutting, Andela, which has grown rapidly with venture capital funding in the last five years, has yet to attain profitability. Dropping its training program, which involved university-style campuses and facilities for hundreds of developers, will almost certainly improve its cost structure over time. The company is on course to “nearly double” its revenue to around $50 million year on year, but hasn’t forecast profitability in that period.

Consequences

An immediate consequence of Andela’s cull is that many skilled junior developers are now on the market in some of Africa’s largest tech ecosystems, which begs the question: can they be absorbed? Initial reactions suggest that may be the case as there appears to be high demand. Several startups, including fintech giant Flutterwave, have signaled intentions to hire some of Andela’s outgoing developers.

“There’s enough demand from employers to absorb these developers—already many companies are raising their hands to hire them—but companies will also need to accept their role in talent development,” says Paul Breloff, co-founder of Shortlist, a tech recruitment firm operating in Kenya and India.

“Training programs, like Andela’s, usually do a good job of turning out professionals with baseline technical skills. But these need to be rounded out with soft skills, judgment, and solving real problems in teams, and that usually only happens on a job surrounded by peers and managers.” For its part, Andela is working in collaboration with Lagos-based Co-Creation Hub and other hubs across its markets to identify companies interested in hiring its outgoing talent.

But there’s also the question of affordability. Given its pricing, which was set for servicing North American and European clients, Andela’s developers have been seen as out of reach for most local startups. The company’s choice to shut down its developer training programs given realities in the US market rather than seek to place talent locally seems to suggest that option was not economically viable under its pricing models.

Tosin Olugbenga, founder of Investa, a budding Nigerian fintech startup, plans to hire Andela’s developers as soon as possible but expects that “the cost of hiring would be lower” on the assumption that “supply is higher than demand” given the sudden flux on available talent.

Edem Kumodzi, a former senior engineer at Andela, also expects a change in the pricing dynamic to erase the perceived financial barrier for local startups: “It’s what they earned at Andela that should be the benchmark, not how much Andela priced for their skills,” he says. “The market will quickly correct itself and those who would want such [high] wages will have to relocate or work for remote companies,” he adds.

The need to move abroad is an option that’s consistent with current realities as several skilled developers are opting to work remotely for foreign companies or emigrate given the promise of professional growth and higher salaries. Industry insiders say Nigerian developers in Europe and North America can earn up to ten times more than at home.

Mixed reactions

Andela’s move has been met with mixed reactions from Nigeria’s tech industry insiders. On one hand, there’s been significant appreciation of the attention and regard the company’s business model brought to local developers in global markets. Some argue that the company’s strategy of playing up the skill of local developers and providing opportunities for that skill to be showcased in more developed markets elevated the perception of local talent and, by extension, their earning capacities.

But there are also those who consider the move too much of a departure from the company’s founding premise of providing opportunity that might have been out of reach to budding developers across Africa primarily through training. It’s a premise upon which Andela raised over $150 million from major name investors including Facebook’s Mark Zuckerberg, former vice president Al Gore and tennis superstar Serena Williams.

And without the key differentiator of actually training up young local talent on a large scale across several African markets (Andela will still train around 100 junior developers annually in Rwanda in a program subsidized by the government), the focus is now on placing more experienced engineers.

The change in business model will probably mean Andela will lose some of its youthful tech “startup” appeal as it transitions to a more traditional business process outsourcing model in a market led by decades-old Indian giants like Infosys and Tata Consultancy Services.

Ultimately, Andela’s change in strategy will also have a cyclical effect as its decision to focus on outsourcing senior developers (Andela plans hire 700 more experienced engineers by the end of 2020) from local ecosystems means it will likely be poaching them from existing startups and tech companies.”What we need to do is balance good ‘ecosystem players’ with being a market-driven business,” admits Seni Sulyman, Andela’s VP of operations.

But given Andela’s significant advantage as one of Africa’s best funded tech companies, it will likely shake up another sector of the market because it can make offers that most local startups will not be able to match, inadvertently triggering a dearth of available talent at that level. “Local startups should definitely be very worried,” Kumodzi says. “Because I can see Andela spending even more resources to grab as many of them as they can.”

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