I once attended a Lagos tech meetup and overheard a young founder say, “We hit 200,000 downloads last month. We’re practically profitable!”
I smiled, but inwardly, I winced.
It wasn’t the confidence that bothered me, it was the maths. The kind of maths that turns startup founders into debtors. Because behind every vanity metric is a hard truth. And here’s one that’s difficult to ignore:
Nearly half collapse because they misread market demand. Not because they didn’t dream big. Not because their logo wasn’t trendy. But because they didn’t understand what the numbers were really saying.
At a stage where global venture funding dropped to $66.5 billion in Q3 2024, the lowest in three years, investors are buying proof, not dreams and visions. And if your startup can’t show that it earns more than it spends, you’re not in the game. You’re in a countdown.
Welcome to the end of “burn and brag.” Welcome to the new economy: earn, or exit.
Understanding the Core: What Unit Economics Actually Means
Let’s not get tangled in complex languages. Unit economics is just a way of asking two questions:
- How much does it cost you to get one customer?
(That’s Customer Acquisition Cost — CAC) - How much money will that customer bring you over their lifetime?
(That’s Lifetime Value — LTV)
If your CAC is ₦15,000 and your LTV is ₦10,000, then congratulations, you’re spending ₦5,000 to lose a customer. Multiply that by 1,000 users and you’re running a charity, not a business.
Many Nigerian startups are walking this road. High marketing costs, weak retention, and poor product-market fit stretch CAC to breaking point. Meanwhile, LTV is crushed by churn, pricing issues, or over-reliance on freemium models that never convert.
Startups that fail to balance CAC and LTV almost always struggle with long-term profitability. And in this funding space, that’s beyond a delay; we can call it a death sentence.
The Collapse of “Grow Now, Monetise Later”
This model worked… once. A few years ago, if you showed rapid user growth, VCs would line up to invest. Profits? Not urgent. Just promise them a hockey stick graph and expansion plans into six African countries.
But the tide has turned.
Global venture capitalists are careful.
Investors are tired of exits that never come.
Unicorns are being questioned.
There are 1,565 unicorns globally. Many of them are now being pressured by investors to justify their lofty valuations. Some are laying off staff. Others are “restructuring”, a polite word for panic.
We’ve also seen this locally. Think about 54gene. It raised millions, expanded fast, then imploded. Why? Not just market challenges. They scaled before they nailed their business model.
And as Sequoia Capital said, “The market isn’t rewarding growth at all costs like it did in years past.”
“Companies who move the quickest have the most runway and are most likely to avoid the death spiral.”
“Hope for the best, but prepare for the worst.”
How to Fix Your Unit Economics Before it Kills Your Startup
The transition to solid economics is painful, yes. But it’s necessary. Here’s how founders can stop losing it:
1. Lower Your CAC, or Die Trying
Stop throwing money at ads that don’t convert. Referral systems, partnerships, community-led growth; these are more efficient. Know what works. Kill what doesn’t.
2. Increase LTV by Solving Actual Problems
If customers drop off after one month, your product has no stickiness. Improve value. Add retention features. Make people need you, not just try you.
3. Watch Your Margins Like a Hawk
What does it really cost you to deliver the product? If your margins are thin, scale makes it worse, not better.
4. Track Payback Period Relentlessly
How fast do you recover CAC? If it takes two years, you’re burning runway on wishful thinking.
5. Kill the Ego Metrics
Downloads, followers, media features; none of these pay salaries. Focus on revenue, retention, and repeatability.
We can’t keep building business models that need ₦1 billion in marketing to make ₦500 million in revenue.
Scale is a Privilege, Not a Right
Scaling isn’t a goal. It’s a reward for getting the fundamentals right.
A product that works in Yaba won’t magically work in Nairobi or Accra. Not if you’ve skipped the hard work of validating value. When you scale a broken business model, you scale the loss. Ask any founder who expanded too soon.
Y Combinator once warned,
“Make something people want.”
“Stay lean and iterate fast.”
“Survival is the first priority.”
What Investors are Really Looking for Now
Startups that survive the next phase will be the ones who stop performing for investors and start performing for customers.
Investors today want:
- Positive contribution margins
- Clear LTV > CAC ratios
- 18 to 24 months of runway
- Evidence of product-market fit before scale
And here’s the irony: Only 18% of first-time founders succeed. Those with one failed company under their belt? 20% success rate. Failure educates. But why not skip the tuition fees by learning what matters now?
The Future is More Focused
The focus on unit economics is not the end of ambition. It’s the start of maturity. Investors are not rejecting innovation, it’s the waste they are rejecting.
We’re moving towards a startup ecosystem that prioritises fundamentals over fireworks. I welcome it.
If you’re a founder, it’s time to stop asking, “How do I raise my next round?”
Start asking, “How do I make this business make sense, without burning everything?”
Because in this new normal, burning money is not commended, it can be reckless. Profitability is not old-fashioned; it’s the future.
And for startups in Nigeria, where capital is scarce and unpredictability is plenty, understanding and acting on your unit economics is indispensable, not optional.
