Disruptive Innovation

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

By Peter Ndiangi

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

What we shall be discussing

About 35 minutes
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

"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
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Economic growth story.

GNI (Income) per Capita
Kenya 9000 8000 7000 GNP per Capita 6000 5000 4000 3000 2000 1000 0 1970 1980 1990 Time 2000 2010 Ghana Zimbabwe China Nigeria

GNI per capita growth in OECD & emerging economies

Kenya Ghana China Nigeria

South Africa
7000

South Korea

Australia
40000

Emerging economies GNI per capita (Nigeria, China, Ghana, Kenya)

5000 4000 3000 2000 1000 0 1970 1980 1990 Time 2000 2010

30000 25000 20000 15000 10000 5000 0

my graduation

Your graduation

1980 2000, Kenyas 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 todays 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 5 commercialized & no strong manufacturing base

OECD Countries GNI per capita (Australia, & South Korea)

6000

35000

Internet Usage Update

80%

Penetration Rates

70% 58% Mobile Penetration Internet Access

70%

60%
50% 40% 30% 20% 10% 0% 1999 2000 2001 0.05% 0.38% 2%

51% 34%
22% 35% 23% 9% 10% 11% 38%

16% 4% 2002 5% 2003 8% 3% 2005 4% 2006

SEACOM & TEAMS Under-sea Fibre-Optic Cables go live in Jul & Jun 09 respectively
2011

Time

2004

2007

2008

2009

2010

47% of Urban Kenyans use the net at least 10 hour per week (Mckinsey) In Mckinsey survey Kenya lead the pack in Africas 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

Broadband Installed Capacity

KENYA Total Capacity - 575,000 mbps Utilized Capacity 265,00 mbps Utilization Rate 58 %

Infrastructure Investments completed

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

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The theory

Two types of disruptions 1. Low-end disruptions Target over-shot customers 2. New-Market disruption Compete against nonconsumption 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
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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

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Examples of Disruptors
Global
Industry Computers Advertising Music Disruptor Apple Mac, IBM OLX Apple iTunes Disruptee Mainframes Newspapers Record Production Key Disruption results Affordable computing power Affordable & convenient way of communicating with a customer Affordable & convenient way of acquiring music

Local
Industry Banking Advertising Payments Disruptor Equity Bank Dealfish/OLX MPESA Disruptee Retail Banks Newspapers Key Disruption results Affordable banking solution Affordable & convenient way of communicating with a customer

Paying bills /sending Affordable & convenient way of money sending money
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"If I find 10,000 ways something wont work, I havent failed. I am not discouraged because every wrong attempt discarded is often a step forward" Thomas Edison

APPLYING DISRUPTIVE INNOVATION FRAMEWORKS ON YOUR VENTURE

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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.
Customers Circumstance Job to be done Current solution(S) Limitations of Alternative current solution (S) solution to get the job done

A car dealer with Reach over 1000 Newspaper no money to customers classifieds communicate to everyday a wide range of customers about cars in her yard

Expensive to advertise Reach is capped

www.olx.co.ke Free to advertise Ad runs until you sell

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 3 types of business models;

Value Network

Define your Business Model

Solution shops , Value chains & facilitated networks

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 ?
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Elements of your business model

KEY PARTNERS Telco ISPs

KEY ACTIVITIES
Develop platform Market platform Manage Content Customer Care

CUSTOMER RELATIONSHIPS

CUSTOMER SEGEMENT

Online
CUSTOMER VALUE PROPOSITION

Advertisers Customers

Free/ low-cost KEY RESOURCES CHANNELS and convenient SH Brand way to buy or sell Telco Online Internet Platfrorm Mobile REVENUE MODEL $

MARGINS COST STRUCTURE $

Premium Ad Fees Free ads & free access

Platform devt/maintenance Customer Acquisition Costs

Example of a freemium business model such as OLX

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Agile Strategy making & execution

Embrace mergent 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

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Outsource or integrate ? It depends

1867 frozen meat rail in the US Dell Computers assembly plant

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 !!
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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 ecommerce setting

Org structure is critical

Even where you havent got employees define the roles as if you had employees in place

Investors who are patient for growth but impatient for profits
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Opportunities are growing in E-commerce

E-COMMERCE OPPORTUNITIES IN KENYA

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Kenyas 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 ecosystems key ingredients & hurdles ?

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The Online Market Place

Online Advertising Platforms
General

Online Classifieds
Craiglist OLX Schibsted Cheki.co.ke Seek.com.au Realestate.com

Social Media
Facebook Twitter Badoo 43things

Search Advertising
Global share Google 82 % Bing 4 % Yahoo! 6 % Yandex 2 % Baidu 5 %

Content Platforms
Content Creators Nation Standard Content Aggregators Huffington Hulu AllAfrica

Vertical

Online Retailing

General Retailers
Amazon E-bay

Killer Category Retailers

Zappos

Online Gaming Portals

Levelup

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Kenyas Online Advertising Crystal ball

KES 350,000 Kenya Shillings in Millions (000,000) KES 300,000 KES 250,000 KES 200,000 KES 150,000

KES 100,000
KES 50,000

KES 0

2003

2004

2005

2010

2011 KES 672 KES 154

2012 KES 1,484 KES 341

2013 KES 3,280 KES 754

2014 KES 7,248 KES 1,667

2015

2016

2017

Total Advertisement Spend (Ksh) KES 5,950 Annual Online Ad Spend Online Classifieds Spend

KES 10,115 KES 10,744 KES 48,960 KES 67,150 KES 87,295 KES 113,484 KES 147,529 KES 191,787 KES 249,323 KES 324,120 KES 16,018 KES 35,400 KES 78,235 KES 3,684 KES 8,142 KES 17,994

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 its infancy, but it is at an inflection point The Long Tail of advertising (SMEs & individuals) is underserved in Kenya. Its a huge opportunity !

G-20 Countries Advertising spend trends

120% 100% 80% 60% 40% 20% 0% 2003 Year 2010 % of media spend

Non-Digital Media Spend Digital Media Spend

50% growth print migration, 50 % new investments 24

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 ?

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Applying Innovation frameworks

1. Define your value proposition & target market based on a jobs to be done approach 2. Design a business model that satisfies the value proposition at acceptable price points 3. Avoid Pre-mature scaling !!
1.
1.

Be patient for growth but impatient for profits

Whether from family , friends or VCs innovation capital has to be patient capital
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4. Choose your investors carefully.

Becoming a Serial disruptor..

Key ingredients of building a disruptors DNA Associating Questioning Observing Networking Experimenting

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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

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Who we are
OLX.co.ke is formerly dealfish.co.ke, Kenyas leading online marketplace or Classifieds site. OLX is one of the largest and most successful free classifieds site in the world with presence in over 90 countries and supports 40 different languages. accessible through a PC or mobile phone. We provide safe and transparent transactions between buyers and sellers You can sell or buy almost anything on OLX and its all for free.

You can also search for jobs available on OLX.

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 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

Finally My challenge to you

Disrupt the market !

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