Disruptive Innovation The Key ingredients of launching and scaling up a high-growth disruptive innovation.

1. Disruptive InnovationThe Key ingredients of launching and scaling up a high-growth disruptive innovation. By Peter Ndiangúi

2. Objectives • To help you appreciate the value of applying a disruptive innovation framework lense when working through your entreprenurial ventures

3. What we shall be discussing… • About 35minutes • The country I graduated into • Disruptive Innovation theory • Applying Disruptive Innovation framework to your venture • About 15 Minutes • E-commerce in Kenya through the lenses of disruptive innovation • About 10 minutes – Q & A time

4. "We always overestimate the change that will occur in the next 2 years and underestimate the change that will occur in the next 10 years. Don't let yourself be lulled into inaction" Bill Gates The country I graduated into & the one you will graduate into

5. Economic growth story…. Your graduation my graduation • 1980 – 2000, Kenya’s 20 years of Economic stagnation – low growth rates + high pop growth • From 2003 – 2011, growth rate reversed averaging 3.5 % CAGR , 2007 peak (at 7%) • Could we see a china “hockey stick growth" in the next 10 years ( reaching 4x today’s GNI )? • May be….why ? • High growth rates + low birthrates due to low dependency • High growth due to ; Oil, Iron Ore, Gas , new constitution (political stability), Coal • May be not ….why ? • Political instability + large balance of trade – diminishing exports if resources are not commercialized & no strong manufacturing base

6. Internet Usage Update Penetration Rates SEACOM & TEAMS Under-sea Fibre-Optic Cables go live in Jul & Jun 09 respectively • 47% of Urban Kenyans use the net at least 10 hour per week (Mckinsey) • In Mckinsey survey Kenya lead the pack in Africa’s Urban internet penetration • Cheap access & devices - Zero Tax on all internet access devices • 95 % of Mobiles are Internet access capable amongst urban Kenyans • High Technology adoption rates due to high literacy rates Source 1 – Communications Commission of Kenya Source 2 - “Deep dive - The growing popularity of the internet" – Mckinsey& Company Africa Consumer Insight

7. Broadband Installed Capacity KENYA Total Capacity - 575,000 mbps Utilized Capacity – 265,00 mbps Utilization Rate – 58 %

8. Infrastructure Investments completed

9. “Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” Peter Drucker The theory of disruptive innovation

10. The theory • Two types of disruptions • Low-end disruptions • Target over-shot customers • New-Market disruption • Compete against non-consumption Characteristics of Disruptors Lower gross margins Smaller target markets Simpler products and services May not appear as attractive as existing solutions when compared against traditional performance metrics Source – www.christensen.com

11. The theory cont… Case in point M-Pesa Encrypted SMS technology – Simplifies payments/transfer process CBK did not stiffle money transfer by insisting on ‘ traditional banking standards Value network – Non-bank Agency Network Low-cost processes & resources

12. Examples of Disruptors Global Local

13. "If I find 10,000 ways something won’t work, I haven’t failed. I am not discouraged because every wrong attempt discarded is often a step forward" Thomas Edison Applying disruptive innovation frameworks on Your venture

14. Framing the opportunity • Define your customer value proposition • The Jobs to be done theory can help here • Customers do not buy 1 inch drill they buy a one inch hole • When customers buy a product they are hiring the product to get a job done for themselves. • Targets based on Demographics are mere correlations.

15. Define your Business Model • 3 types of business models; • Solution shops , Value chains & facilitated networks • Value Network • To join or build a stand alone value network ? • For example do you sell your product through existing channels or establish new channels • Example of Honda vs Harley-Davidson dealers , Honda distributed via power equipment stores • Intel & SAP joint venture , SME targeted ERP software distribution via previous channel partners, Accenture - FAILED • Imagine if Safaricom attempted to distribute its MPESA service through the natural channels of Bank branches when it started • How can you implement e-learning software in our schools based on this principle ?

16. Elements of your business model KEY PARTNERS • Telco • ISP’s SH KEY ACTIVITIES • Develop platform • Market platform • Manage Content • Customer Care CUSTOMER VALUE PROPOSITION • Free/low-cost and convenient way to buy orsell CUSTOMER RELATIONSHIPS • Online CUSTOMER SEGEMENT • Advertisers • Customers KEY RESOURCES • Brand • Online Platfrorm CHANNELS • Telco • Internet • Mobile COST STRUCTURE $ • Platform devt/maintenance • Customer Acquisition Costs REVENUE MODEL$ • Premium Ad Fees MARGINS Free ads & free access Example of a freemium business model such as OLX

17. Agile Strategy making & execution • Embrace émergent strategy’ thinking • Example ; Honda experience in the US market • Apply discovery-driven planning • Make projections • Determine assumptions that must prove true • Implement a plan to learn – to test assumptions • Invest to implement strategy • Pivoting is important , as you experiment

18. Outsourceor integrate ? – It depends Dell Computers assembly plant 1867 frozen meat rail in the US When functionality & reliability are inadequate integrate When customization & convenience are inadequate integrate • When the functionality & reliability of products overshoot customer needs then convenience ,customization & low prices are what is not good enough • For e-commerce e-cosystem in Kenya . What is not good enough ? So It depends !!

19. Financing, Recruiting & Organizing • The concept of Schools of experience when recruiting • For example hiring a former CEO of a bricks & mortar retail might not help you in an e-commerce setting • Org structure is critical • Even where you haven’t got employees define the roles as if you had employees in place • Investors who are patient for growth but impatient for profits

20. Opportunities are growing in E-commerce E-commerce opportunities in Kenya

21. Kenya’s Online Marketplace • How big are the opportunities online ? • Long on promise , short on $$$ ? • Using the Disruptive innovation framework how do we navigate it ? • What are the ecosystem’s keyingredients & hurdles ?

22. The Online Market Place Online Advertising Platforms Online Classifieds Social Media Search Advertising Content Platforms • Content Creators • Nation • Standard • Global share • Google – 82 % • Bing – 4 % • Yahoo! – 6 % • Yandex – 2 % • Baidu – 5 % • Craiglist • OLX • Schibsted • Cheki.co.ke • Seek.com.au • Realestate.com • Facebook • Twitter • Badoo • 43things General • Content Aggregators • Huffington • Hulu • AllAfrica Vertical Online Retailing General Retailers Killer Category Retailers Online Gaming Portals • Amazon • E-bay • Zappos • Levelup

24. Kenya’s Online Advertising Crystal ball • Key Points • Kenyan Online Ad market could be worth 78 billion by 2017 • Kenyan online classifieds market in 2017, could be worth over $ 17 billion • Online advertising in Kenya is at it’s infancy, but it is at an inflection point • The Long Tail of advertising (SME’s & individuals) is underserved in Kenya. • Its ahuge opportunity ! 50% growth – print migration, 50 % new investments

25. E-commerce challenges in Kenya Internal view - From an E-commerce Entrepreneur Develop & Maintain Platform Select Merchandise to stock Process Payment Fulfill Order Deliver Order Care for Customer NOT GOOD What can entrepreneurs do based on disruptive innovation theory ?

26. Applying Innovation frameworks • Define your value proposition & target market based on a ‘jobs to be done’ approach • Design a business model that satisfies the value proposition at acceptable price points • Avoid Pre-mature scaling !! • Be patient for growth but impatient for profits • Choose your investors carefully. • Whether from family , friends or VC’s innovation capital has to be ‘patient capital’

27. Becoming a Serial disruptor.. • Key ingredients of building a disruptor’s DNA • Associating • Questioning • Observing • Networking • Experimenting

28. Key take-aways • A disruptive innovation lense might increase the odds of success • A business plan/strategy is as good as the last day you updated it • Pre-mature scaling is one of the biggest killers of start-ups • Innovation can be predictable

29. Who we are

30. Finally – My challenge to you • You graduate in an era of potential high economic growth • A lot of global disruptors have eminated from university dorms ; Dell, FB, Google etc • The country is full of disruption opportunities that can bring affordable/convenient solutions into the market e.g.; • Air travel • Healthcare • Education • Disrupt the market !