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

By Peter Ndiangi 1ObjectivesTo help you appreciate the value of applying a disruptive innovation framework lense when working through your entreprenurial ventures2What we shall be discussingAbout 35 minutes The country I graduated intoDisruptive Innovation theoryApplying Disruptive Innovation framework to your ventureAbout 15 Minutes E-commerce in Kenya through the lenses of disruptive innovationAbout 10 minutes Q & A time3The 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

4Economic growth story.51980 2000, Kenyas 20 years of Economic stagnation low growth rates + high pop growthFrom 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 dependencyHigh growth due to ; Oil, Iron Ore, Gas , new constitution (political stability), CoalMay be not .why ?Political instability + large balance of trade diminishing exports if resources are not commercialized & no strong manufacturing baseYour graduation my graduation 5Internet Usage UpdateSource 1 Communications Commission of KenyaSource 2 - Deep dive - The growing popularity of the internet" Mckinsey & Company Africa Consumer InsightSEACOM & TEAMS Under-sea Fibre-Optic Cables go live in Jul & Jun 09 respectivelyPenetration Rates47% of Urban Kenyans use the net at least 10 hour per week (Mckinsey)In Mckinsey survey Kenya lead the pack in Africas Urban internet penetrationCheap access & devices - Zero Tax on all internet access devices 95 % of Mobiles are Internet access capable amongst urban KenyansHigh Technology adoption rates due to high literacy rates

Broadband Installed CapacityKENYATotal Capacity - 575,000 mbpsUtilized Capacity 265,00 mbpsUtilization Rate 58 %Infrastructure Investments completed8

The theory of disruptive innovationInnovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth. Peter Drucker9The theoryCharacteristics of DisruptorsLower gross marginsSmaller target markets Simpler products and services May not appear as attractive as existing solutions whencompared against traditional performance metrics10

Source www.christensen.com Two types of disruptions

Low-end disruptionsTarget over-shot customersNew-Market disruptionCompete against non-consumptionThe theory contCase in point M-PesaEncrypted SMS technology Simplifies payments/transfer processCBK did not stiffle money transfer by insisting on traditional banking standards Value network Non-bank Agency NetworkLow-cost processes & resources

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Examples of Disruptors12IndustryDisruptorDisrupteeKey Disruption results ComputersApple Mac, IBMMainframesAffordable computing powerAdvertisingOLXNewspapersAffordable & convenient way of communicating with a customerMusicApple iTunesRecord ProductionAffordable & convenient way of acquiring music GlobalIndustryDisruptorDisrupteeKey Disruption results BankingEquity BankRetail BanksAffordable banking solutionAdvertisingDealfish/OLXNewspapersAffordable & convenient way of communicating with a customerPaymentsMPESAPaying bills /sending moneyAffordable & convenient way of sending moneyLocalApplying disruptive innovation frameworks on Your venture"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 Edison13Framing the opportunity Define your customer value proposition The Jobs to be done theory can help hereCustomers do not buy 1 inch drill they buy a one inch holeWhen customers buy a product they are hiring the product to get a job done for themselves.Targets based on Demographics are mere correlations.

14Customers CircumstanceJob to be doneCurrent solution(S)Limitations of current solution (S)Alternative solution to get the job doneA car dealer with no money to communicate to a wide range of customers about cars in her yardReach over 1000 customers everydayNewspaper classifieds

Expensive to advertise Reach is capped

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

Define your Business Model3 types of business models;Solution shops , Value chains & facilitated networksValue Network To join or build a stand alone value network ?For example do you sell your product through existing channels or establish new channelsExample 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 - FAILEDImagine if Safaricom attempted to distribute its MPESA service through the natural channels of Bank branches when it startedHow can you implement e-learning software in our schools based on this principle ?

15Elements of your business model16SHKEY PARTNERS

Telco ISPs CUSTOMER VALUE PROPOSITION

Free/ low-cost and convenient way to buy or sellCOST STRUCTURE $ Platform devt/maintenance Customer Acquisition CostsREVENUE MODEL $ Premium Ad FeesCUSTOMER SEGEMENT

Advertisers CustomersCUSTOMER RELATIONSHIPS OnlineKEY ACTIVITIES

Develop platformMarket platform Manage Content Customer CareKEY RESOURCES Brand Online PlatfrormCHANNELS Telco Internet Mobile MARGINS Example of a freemium business model such as OLXFree ads & free accessAgile Strategy making & execution Embrace mergent strategy thinking Example ; Honda experience in the US marketApply discovery-driven planningMake projections Determine assumptions that must prove trueImplement a plan to learn to test assumptionsInvest to implement strategy Pivoting is important , as you experiment 17Outsource or integrate ? It depends18

So 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 enoughFor e-commerce e-cosystem in Kenya . What is not good enough ? Financing, Recruiting & OrganizingThe 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 havent got employees define the roles as if you had employees in placeInvestors who are patient for growth but impatient for profits

19E-commerce opportunities in KenyaOpportunities are growing in E-commerce20Kenyas Online MarketplaceHow 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 ? 21The Online Market Place22Online AdvertisingPlatformsOnlineClassifiedsOnline RetailingSocial MediaSearch AdvertisingGeneral RetailersKiller Category RetailersContentPlatformsContent CreatorsNation StandardContent AggregatorsHuffingtonHuluAllAfricaGlobal shareGoogle 82 %Bing 4 %Yahoo! 6 %Yandex 2 %Baidu 5 %FacebookTwitterBadoo43things

Online Gaming PortalsCraiglistOLXSchibsted

Cheki.co.keSeek.com.auRealestate.comAmazonE-bayZapposGeneralVerticalLevelup23

24 Key Points Kenyan Online Ad market could be worth 78 billion by 2017Kenyan 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 pointThe Long Tail of advertising (SMEs & individuals) is underserved in Kenya. Its a huge opportunity !

50% growth print migration, 50 % new investmentsKenyas Online Advertising Crystal ballE-commerce challenges in Kenya25Select Merchandise to stockProcessPaymentFulfill OrderDeliverOrderCare for Customer

NOT GOODWhat can entrepreneurs do based on disruptive innovation theory ?Internal view - From an E-commerce Entrepreneur Develop &Maintain PlatformApplying Innovation frameworksDefine your value proposition & target market based on a jobs to be done approachDesign 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 VCs innovation capital has to be patient capital26Becoming a Serial disruptor.. Key ingredients of building a disruptors DNAAssociating Questioning ObservingNetworking Experimenting

27Key take-awaysA 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

28Who we are

29Finally My challenge to youYou graduate in an era of potential high economic growth A lot of global disruptors have eminated from university dorms ; Dell, FB, Google etcThe country is full of disruption opportunities that can bring affordable/convenient solutions into the market e.g.;Air travel Healthcare Education Disrupt the market !3031