Adeolaniyan Pedro Oluwaseun has been driving an okada, a motorbike taxi, in Lagos, Nigeria, for years. But it was only after he was working for Max.ng that he made a living wage: 5,000 Naira a day, or about $15.
“Being a champion for MAX now, what looked like a breakthrough then is my daily savings riding for MAX,” he told me by email.
Founded by two MIT graduate students in 2016, and with more than $9 million in investment, Max.ng is a motorbike hailing company – a Lyft for motorbikes – in four cities in Nigeria. With revenue of $500,000 a month, a chance to help thousands of people in Nigeria lift themselves out of poverty, and the potential of cutting carbon emissions as it transitioned to electric vehicles, the company seemed to be the embodiment of a social entrepreneurs’ dream.
A month ago, it all came to a screeching halt. At the beginning of February, the Lagos Ministry of Transport started enforcing a long-standing ban on motorbike taxis. Max.ng co-founders Chinedu Azodoh and Tayo Bamiduro have been negotiating to get their fleet back on the road, and say they expect to make an announcement soon. But the future remains unclear.
“It feels like a bad joke,” said Azodoh, who founded Max.ng in 2016, told me. “When we heard about this, we were confident it wouldn’t affect us. We made all these investments,” he said. “Now, we’re just getting caught in between.”
The ban seems to have been mainly aimed at the individually owned motorbikes careening between lanes of traffic. The larger motorbikes used by ride-hailing companies, which also use helmets, were supposed to be exempt, said Azodoh. That’s not how it worked in practice. Police have been arresting drivers and impounding the bikes, and squeezing money out of drivers and companies to get them back. Max.ng’s 1,000 drivers are off the roads, though the company continues to operate in Akure, Ibadan and Kano. Gorkada, a rival to Max.ng, laid off most of its work force. ORide, another competitor, is part of a Chinese digital conglomerate, Opera, that raised $120 million from Chinese investors.
The situation in Lagos is a particularly sharp example of one particular kind of risk, regulatory or policy risk, that faces investors and entrepreneurs in emerging markets, and to some extent in developed markets, face (Washington, D.C., for instance, just cut off operating permits for four scooter companies.)
Geopolitical risk, which has been on the rise, gets the most attention. Research published in the Harvard Business Review about a decade ago found that seizure risk, the possibility that a government would seize foreign (or domestic assets) had been declining. But policy risk, which the HBR research identified as gradually taking the place of seizure risk, is particularly hard to quantify or counter. New regulations can be merely surprising, or ill-advised. They can also be attempts to extort money from investors or entrepreneurs, or attempts to begin a negotiation over something like taxes or safety.
“The risks are higher because of regulatory environments and rapidly changing policies,” said Dina Sherif, the executive director of the Legatum Center for Development and Entrepreneurship at MIT. “But I also think that opportunities are greater and returns are multidimensional, which is often not the case in developed markets.”
As stakeholders work out a new policy or regulation in emerging markets, “shared value is often something that happens by default, whereas in developed countries they have to work on it,” she said by email.
(Disclosure: I’m a journalist in residence this semester at the Legatum Center, where I heard about the new regulation in Lagos).
Policy risk is often surmountable — but also often painful. And employees or contractors, like Oluwaseun, can get caught in the crossfire.
Max.ng has often been singled out as an example of a progressive company making a difference in West Africa. Azodoh and Bamiduro both gave up high-paying, more secure careers – Azodoh had worked at Goldman Sachs and Bamiduro at PricewaterhouseCoopers and Nigeria Liquefied Natural Gas — to go back to school and then to take a risk on starting a company in their country.
At MIT, Bamiduro was a fellow at the Legatum Center. They went through TechStars Accelerator, raising a seed round of $1 million. MAX started as a delivery company for Nigeria’s emerging e-commerce sector. But the bigger opportunity was in ride-hailing, which they launched as MAX Okada in June 2017. They raised a $7.5M Series A round in June 2019 to scale the company, led by Yamaha Motor Company, Novastar Ventures, MasterCard, Shell Foundation and Breakthrough Energy Ventures.
I asked for their best and worst moments building the company. They responded by email:
“One of the challenging moments we have had in the past has been in the area of meeting the right partners to unlock non-collateralized financing of motorcycles for drivers. Other hard moments we have faced has been rescuing our drivers (champions) from harassment by touts due to inconsistent regulations.
“We’ve also had amazing moments which come more from the impact we are making in the lives of drivers or whenever we get user testimonials of MAX saving the day due to the traffic gridlock in a city like Lagos.”
The duo were checking all the boxes: the idea, the pivot, the business model: drivers pay a set amount of their earnings each day until their motorbike is paid off, with interest payments on the loans a cumulative 40%, instead of the 200% offered by other lenders, according to the company.
Azodoh had even adopted a slightly saner work schedule, sleeping four or five hours a night instead of two or three. He joined a salsa class for fitness and to help relax. “I was super embarrassed,” he told a group of aspiring entrepreneurs in a TedX talk. “I told myself, just enter the class and partake in the class.”
No one seems exactly sure what happened with Lagos government’s shift on the okadas (The Ministry of Transport didn’t respond to a request for comment). Traffic accidents rank among the top 10 causes of death in many sub-Saharan African cities, which lack seat belt and helmet laws – so the crackdown on dangerous driving makes sense to many, at least in theory. (Meanwhile, the ban on okadas and tricycle taxis has been blamed for chaos in the city.)
Observers say it’s not clear why the motorbike companies were swept up in the ban, with some Nigerians seeing them as part of the solution, rather than the problem. Though the Lagos Ministry of Transport has touted coming investments in a ferry system, and bus and rail lines, the transportation system of the future has yet to materialize.
Corrupt police forces can use unclear or unevenly enforced regulations to squeeze bribes out of people or to favor one company over the others. Taxes or the extent of new safety regulations could also be another point of contention, though the Max.ng co-founders didn’t respond to a question about what, exactly, they are negotiating with the government about.
Azodoh and Bamiduro continue to lobby, which they did a few years ago as they first won an enforcement dispensation from the previous administration. “We are actively engaging major stakeholders in the Government and look forward to a regulatory policy that keeps us aligned with the Government goals,” they said by email.
“In my opinion allowing the motor bike hailing companies to operate is the best way the government can regulate the sector,” said Saudat Salami, who founded a shopping and delivery service, EasyShop EasyCook. “If The Govt mandates all okada riders to sign up with any of the motorbike companies it will be easier to regulate the sector through the companies. Each company will be mandated to train their riders and obtain Biometric identification from them. All rules flouted by the riders will be passed on to the companies they ride for. It is difficult to hold individual riders responsible but once they are in the employment of corporate entities this becomes easier.”
“This way government can protect the citizens without hindering their transportation.”
Meanwhile, for the moment, Oluwaseun is trying to figure out what to do.
The Lagos government told CNN it was committed to helping people who lost their jobs because of the ban. Many are probably back to the daily hustle, which probably means, for many, driving bikes illegally, as they can, or finding other ways to make a living. “Well, where there’s a will, there’s always a way,” said Oluwaseun. “I’ll need to find other means to achieve my goals.”
This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.