Conversation 5: Focus on Africa: Different Business Models

GES 2015 in Nairobi
Conversation 5:  Focus on Africa: Different Business Models
Saturday, July 25, 2015

Moderator:  Deborah Magid, IBM Ventures

1.    David Kamau Kuria, CEO, Ecotact
2.    George Mulamula, CEO, DTBI Incubator
3.    Harry Hare, DEMO Africa
4.    Danta Disparte, Risk Cooperative
5.    Tayo Akinyemi, AfriLabs

Approximate number of attendees:  80

Main ideas:  
- No one knows what you are doing no one will buy it. Test the hypothesis. This will give you exposure and a chance to correct things early.
- “Speed to market” and then understand if the idea will work. 

•    Be ready to run a business for life, not just for 3-5 years. 
•    Copy cat system doesn't always work without full information.
•    Start on a business, get it to work well then diversify, not too early though.
•    In Africa, start ups that struggle with financing can benefit from public private partnerships. 

George:  Where can start ups begin? Consider the big opportunities available within global companies by working in their supply systems, e.g IBM:  package the solutions and they will be interested. 

•    For global companies, it’s important to note that staying on the  sidelines and not investing in sub-Saharan Africa is a mistake. It is the next big place, with  fast growing economies. 
•    Start ups need - investment, someone to buy their product and marketing opportunities 

Harry:  One consideration is social investment financing.

Kamau:  Won Social investment of the Year Award
•    Turn challenges to opportunities.  How do we bring some of the solutions for the village, e.g sanitation, and translate them to entrepreneurship? In sub Saharan Africa, social investment faces complex ecosystems such as adequate legislation to support innovation.
•    Secondly financing for social development (sanitation, solar) was not attractive to financial institutions in the past. Now there is more interest from banks. 
•    More than 50 percent of sub Saharan Africa will be living in urban settlements in the next 50 years. From this, consider the opportunities that could emerge (waste collection) for innovation and investment through technology. 

•    Initially looked for venture capitalists. After three years without success, we turned to 'angel’ investors.  There is now an African Super Angels network comprised of NGOs and other groups that can provide financing for start ups. 
•    Incubators such as iHub offer training to help start ups understand the size of the market and where they fit.  Are you local, regional? Where you intend to be will determine the type of financing and where to look for it.  Is your business competitive so that it will attract financing?
•    Incubation hubs in Kenya have their own challenges. In time, they will need to develop more deliberate processes to systematically build entrepreneurs. Often they have short programs, e.g 1-2 weeks, which may not be adequate.  Then they cover a wide scope of components, such as what to do initially, at growth and when and how to expand. Perhaps these areas could be divided out along core competencies so that each one has its niche. 
•    Incubation helps entrepreneurs to consider questions like - How do you innovate a business model to fit into a certain setting and get it to grow? Identifying a gap, aligning consumption of the product to the market.
•    Entrepreneurs fall into two categories,  survival and business. The difference between the two is that the latter incorporates "innovation," which gives an advantage to their product or service.  
•    Entrepreneurs don't need to solve big global problems. Consider the idea in small steps e.g Uber: considered how to call a taxi easily by phone locally. The market then shaped the direction and soon it became a global solution. 
•    One often has to go beyond consumption patterns and be ready to innovate. MPesa was started as an unproven pilot. There were no consumption patterns.  Yet because of various factors in Kenya, it was adopted at an unprecedented scale – an example of market disruption.

David:  I have a business that exemplifies this "disruption," with a social investment approach.  To sort sanitation in the city, we started to make toilets with some start-up capital through a public-private partnership. The company grew rapidly in six months and became a model for counties in Kenya.  

•    Consider bringing creativity, innovation and entrepreneurship in formal school programs as part of their regular training. Incubators responded to this gap in the education sector and stepped in to provide entrepreneurship skills. 
•    Building better business models that are transformative should be one of the components of an incubator.
•    Incubators differ in their idea of impact. Some look at impact as the bottom line. Others look at the development of the social and economic environment. 

Q: What views are there for making business models in Africa that work in one place, also achieve success in others, basically business expansion in a different setting? 

•    MPesa, though very successful in Kenya, has not been very successful in other African countries, although huge sums of money have been spent on it. In Kenya, Safaricom was a dominant player.  MPea had initial capital from DfID and later, as it grew, from Safaricom. 
•    Secondly, MPesa helped meet needs which are cultural in nature e.g many Kenyans have a city home and a rural home, requiring them to send money 'home' for various needs like paying farm workers.  Hence, MPesa met a specific need.  In Tanzania, Vodacom was successful.  MPesa worked because of the enabling legal framework and competition. We saw a copycat syndrome where other providers started mobile financing transactions and the market to grow.
•    In countries like Mozambique, MPesa has not been successful because of a gap in the demand side.  Education is a significant factor in growing markets. In addition, many business people in Mozambique have limited knowledge on business and do not adopt new ideas easily. So expansion to that market is challenging. 

Last comments from panel:
•    Find a problem that you want to solve and do so. 
•    If it requires innovation, proceed. 
•    If replicating another's idea, proceed. 
•    Simplify.