Vendease's Shift to Performance-Based Pay: A Look at its New Strategy for Stability

In a bold move that reflects the challenges facing startups in Nigeria, Y Combinator-backed Vendease is undergoing significant changes in its employee compensation structure. After laying off nearly half of its workforce, the five-year-old food procurement startup has pivoted to a performance-based pay system in an attempt to enhance profitability and secure fresh capital.

Understanding the Restructuring Process

Following a substantial job cut that saw 44% of its workforce—roughly 120 employees—let go, Vendease announced a new compensation model designed to meet performance benchmarks rather than traditional salary structures. As part of this plan, employees now receive a standardized monthly payment of ₦140,000 (about $90), regardless of prior salaries. This is just the beginning of a structured recovery plan aimed at restoring salaries based on performance metrics that remain unspecified.

A Five-Phase Approach to Salary Recovery

The new salary recovery framework consists of five phases, with incremental increases tied to employee performance. From March to May, salaries can increase to merely 30% of their former levels as staff meet specific targets. Further increases are planned, with compensation reaching 60% from June to August and 90% from September through November. The goal is a full restoration by December, contingent on performance results.

The Role of Equity Share Option Plans (ESOP)

As part of the transitional pay strategy, unpaid portions of salaries will convert into equity share options under the ESOP. This structure allows employees to potentially benefit from the company’s financial success while motivating them to contribute towards achieving performance goals. However, exercising these options will be contingent upon approval at a board-defined fair market value, adding a layer of complexity to the plan.

Navigating Through Challenges: The Economic Landscape

Vendease's restructuring is taking place against a backdrop of severe economic difficulty for many Nigerian startups, particularly those dealing with depreciating currency and rising inflation. In the past two years, the naira has seen significant losses in value, impacting operational costs and profitability. Despite these challenges, Vendease claims to have reached a break-even point and is well on its way toward profitability, a narrative they assert is necessary for attracting new investments.

The Threat of Dilution: A Changing Market Strategy

Vendease is not just shifting its compensation model; it is also transforming its business strategy. The startup intends to move away from capital-intensive logistics operations towards a more software-driven model, focusing on facilitating operational processes through technology rather than directly managing them. This transition is indicative of a broader trend among Nigerian startups, where asset-heavy models are proving inefficient in the face of economic vulnerabilities.

Using Technology to Drive Growth

Vendease is betting on technology, particularly its buy now, pay later (BNPL) services, as a critical revenue stream. The strategy sees the startup sharing its supply chain insights and underwriting loans to food businesses, which traditional lenders typically avoid due to perceived risks. Reports indicate a default rate of below 1% on the $70 million issued in credit, showcasing strong performance in a volatile market.

Investor Confidence: Future Outlook and Potential

With the restructuring plan in place and a focus on software-driven efficiency, Vendease is gearing up for negotiations with current and prospective investors to raise a bridge round. These funds are essential for technological improvements, expansion, and sustaining operations amidst rising costs. The potential for mergers and acquisitions within the Hotels, Restaurants, and Catering (HORECA) sectors has been rumored, yet Vendease insists that its focus lies on scaling operations rather than selling the business.

Conclusion: A Blueprint for Survival amid a Crunch

Vendease's restructuring signifies a responsive strategy to the shifting landscape of Nigeria's startup ecosystem, aiming to create a model based on technological efficiency and flexibility. With its commitment to employee engagement through performance-based compensation and share ownership, Vendease may provide a blueprint for other startups navigating similar challenges. Ultimately, the outcome of these strategies will reveal whether they can effectively safeguard their future in a hostile economic environment.