Disruptive InnovationThe Key ingredients of launching and scaling up a high-growth disruptive

innovation.By Peter Ndiangúi

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Objectives

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

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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

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THE COUNTRY I GRADUATED INTO & THE ONE YOU WILL GRADUATE INTO

"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

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Economic growth story….

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1970 1980 1990 2000 20100

1000

2000

3000

4000

5000

6000

7000

8000

9000

GNI (Income) per Capita

Kenya Ghana Zimbabwe China Nigeria

Time

GNP

per C

apita

• 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

1970 1980 1990 2000 20100

1000

2000

3000

4000

5000

6000

7000

0

5000

10000

15000

20000

25000

30000

35000

40000

GNI per capita growth in OECD & emerging economiesKenya Ghana China Nigeria South Africa

South Korea Australia

TimeEm

ergi

ng e

cono

mie

s G

NI p

er c

apita

(Nig

eria

, Chi

na, G

hana

, Ken

ya)

OEC

D C

ount

ries

GN

I per

cap

ita(A

ustr

alia

, & S

outh

Kor

ea)

Your graduation my graduation

Internet Usage Update

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

0.05% 0.38% 1.90% 4.20% 4.95% 7.77%15.74%

21.62%

33.65% 35.25%

50.96%57.98%

69.72%

0.0319672727272728

0.0431377575757575

0.0868377575757576

0.101804606060606

0.105149052631579

0.228665789473684

0.376333421052632

Mobile Penetration Internet Access

Time

Source 1 – Communications Commission of KenyaSource 2 - “Deep dive - The growing popularity of the internet" – Mckinsey & Company Africa Consumer Insight

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

Pen

etra

tion

R

ates

• 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

Broadband Installed Capacity

KENYATotal Capacity - 575,000 mbpsUtilized Capacity – 265,00 mbpsUtilization Rate – 58 %

Infrastructure Investments completed

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THE THEORY OF DISRUPTIVE INNOVATION

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

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The theory

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

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Source – www.christensen.com

Two types of disruptions

1. Low-end disruptions• Target over-shot

customers2. New-Market disruption

• Compete against non-consumption

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

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Industry Disruptor Disruptee Key Disruption results Computers Apple Mac, IBM Mainframes Affordable computing powerAdvertising OLX Newspapers Affordable & convenient way of

communicating with a customerMusic Apple iTunes Record Production Affordable & convenient way of

acquiring music

Global

Industry Disruptor Disruptee Key Disruption results

Banking Equity Bank Retail Banks Affordable banking solution

Advertising Dealfish/OLX Newspapers Affordable & convenient way of communicating with a customer

Payments MPESA Paying bills /sending money

Affordable & convenient way of sending money

Local

APPLYING DISRUPTIVE INNOVATION FRAMEWORKS ON YOUR VENTURE

"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

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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.

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Customer’s Circumstance

Job to be done Current solution(S)

Limitations of current solution (S)

Alternative solution to get the job done

A car dealer with no money to communicate to a wide range of customers about cars in her yard

Reach over 1000 customers everyday

Newspaper classifieds

Expensive to advertise Reach is capped

www.olx.co.keFree to advertiseAd runs until you sell

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 ?

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Elements of your business model

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SH

KEY PARTNERS

• Telco• ISP’s CUSTOMER

VALUE PROPOSITION

• Free/ low-cost and convenient

way to buy or sell

COST STRUCTURE $• Platform devt/maintenance• Customer Acquisition Costs

REVENUE MODEL $• Premium Ad Fees

CUSTOMER SEGEMENT

• Advertisers• Customers

CUSTOMER RELATIONSHIPS

• Online

KEY ACTIVITIES

•Develop platform•Market platform• Manage Content• Customer Care

KEY RESOURCES• Brand • Online Platfrorm

CHANNELS• Telco• Internet •Mobile

MARGINS

Example of a freemium business model such as OLX

Free ads & free access

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

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Outsource or integrate ? – It depends

18So 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 ?

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

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E-COMMERCE OPPORTUNITIES IN KENYA

Opportunities are growing in E-commerce

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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 key ingredients &

hurdles ?

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The Online Market Place

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Online AdvertisingPlatforms

OnlineClassifieds

Online Retailing

Social Media

Search Advertising

General Retailers

Killer Category Retailers

ContentPlatforms

Content Creators• Nation • StandardContent Aggregators• Huffington• Hulu• AllAfrica

Global share• Google – 82 %• Bing – 4 %• Yahoo! – 6 %• Yandex – 2 %• Baidu – 5 %

• Facebook• Twitter• Badoo• 43things

Online Gaming Portals

• Craiglist• OLX• Schibsted

• Cheki.co.ke• Seek.com.au• Realestate.com

• Amazon• E-bay

• Zappos

Gen

eral

Ver

tica

l

• Levelup

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2003 2004 2005 2010 2011 2012 2013 2014 2015 2016 2017

Total Advertisement Spend (Ksh)

5950 10115 10744 48960 67150 87295 113483.5 147528.55 191787.115

249323.2495

324120.22435

Annual Online Ad Spend NaN NaN NaN NaN 671.5 1484.015 3279.67315

7248.0776615

16018.251631915

35400.3361065322

78234.7427954361

Online Classifieds Spend NaN NaN NaN NaN 154.445 341.32345 754.3248245

1667.057862145

3684.19787534045

8142.0773045024

17993.9908429503

KES 25,000

KES 75,000

KES 125,000

KES 175,000

KES 225,000

KES 275,000

KES 325,000

Keny

a Sh

illin

gs i

n M

illio

ns (

000,

000)

2003 20100%

20%40%60%80%

100%120%

G-20 Countries Advertising spend trends

Non-Digital Media SpendDigital Media Spend

Year

% o

f med

ia sp

end

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 a huge opportunity ! 50% growth – print migration, 50 % new investments

Kenya’s Online Advertising Crystal ball

E-commerce challenges in Kenya

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Select Merchandise

to stock

ProcessPayment

Fulfill Order

DeliverOrder

Care for Customer

NOT GOODWhat can

entrepreneurs do based on disruptive innovation theory ?

Internal view - From an E-commerce Entrepreneur

Develop &

Maintain Platform

Applying Innovation frameworks1. Define your value proposition & target market

based on a ‘jobs to be done’ approach2. Design a business model that satisfies the

value proposition at acceptable price points 3. Avoid Pre-mature scaling !!

1. Be patient for growth but impatient for profits

4. Choose your investors carefully. 1. Whether from family , friends or VC’s innovation

capital has to be ‘patient capital’

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Becoming a Serial disruptor.. • Key ingredients of building a disruptor’s 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 areOLX.co.ke is formerly dealfish.co.ke, Kenya’s 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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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 !30

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