Slides presented by Peter Ndiangui, CEO of OLX.CO.KE at the School of Computing and Informatics, University of Nairobi

1. Disruptive I
Di ti Innovation
ti
The Key ingredient f
y g ts of launching and
g
scaling up a high‐growth disruptive
innovati
ation.
By Peter Ndiangúi
By Peter Ndiangúi
1

2. Objec
ctives
• To help you appreciate
e the value of applying a
disruptive innovation f
p framework lense when
working through your entreprenurial ventures
2

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

4. "We always overestimate the chang that will occur in the next 2
y g
ge
years and underestimate the change that will occur in the next 10
e
years. Don't let yourself be lulled in inaction" Bill Gates
nto
THE COUNTRY I GR
RADUATED INTO &
THE ONE YOU WILLL GRADUATE INTO
4

5. Economic gro
g owth story….
y
GNI (Income) per Capita GNI
I per capita growth in OECD & emerging economies
Ken
nya Ghana China Nigeria
Kenya Ghana Zimbabwe China Nigeria
Sou
uth Africa South Korea Australia
9000 7000 40000
GNI per capita
8000 6000 35000
ana, Kenya)
NI per capita
(Australia, & South Korea)
7000 30000
5000
6000
pita
25000
rging economies G
Nigeria, China, Gha
GNP per Cap
4000
ECD Countries GN
5000
20000
4000 3000
15000
3000
2000
2000 10000
OE
Emer
(N
1000 5000
1000
0 0 0
1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Your graduation
Time my graduation
Time
• 1980 – 2000 K
2000, Kenya’s 20 years of E
’ f Economic st
i tagnation – l growth rates + high pop growth
ti low th t hi h th
• From 2003 – 2011, growth rate reversed avera aging 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 )?
n
• May be….why ?
be why
• High growth rates + low birthrates due to low dependency
o
• High growth due to ; Oil, Iron Ore, G , new constitution (political stability), Coal
Gas
• May be not ….why ?
why
• Political instability + large balance of trade – diminishing exports if resources are not
f
commercialized & no strong manufac cturing base 5

6. Internet Usag p
age Update
80% 70%
ates
70%
58%
Penetration Ra
60% 51%
Mobile Penetration Internet Access
50%
35% 38%
40% 34%
30% 22% 23% SEACOM & TEAMS
16% Under-sea Fib O i
U d Fibre-Optic
20% 10% 11%
8% 9% Cables go live in Jul
10% 4% 5% 3% 4%
0.05% 0.38% 2%
& Jun 09 respectively
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Time
• 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
Africa’s
• Cheap access & devices - Zero Tax on all internet access devices
x
• 95 % of Mobiles are Internet acces capable amongst urban Kenyans
ss
• High Technology adoption rates du to hi h literacy rates
i h h l d i due high li
Source 1 – Communications Commission of Kenya
Source 2 - “Deep dive - The growing popularity of the intern – Mckinsey & Company Africa Consumer Insight
net"

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

8. Infrastructure Invest
Infrastructure Investments completed
tments completed
t
8

9. “Innovation is the specific instrume of entrepreneurship. The act
ent
that endows resources with a new c capacity to create wealth.” Peter
Drucker
THE THEORY OF DI
ISRUPTIVE
INNOVATION
9

10. The th y
heory Two types of disruptions
1. Low-end disruptions
• Target over-shot
over shot
customers
2. New-Market disruption
• Compete against non-
p g
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
i t t diti l
performance metrics
Source – www.christensen.com
m
10

11. The theo
The theory cont
ory cont…
o
Case in point M‐Pesa
• Encrypted SMS technology
– Simplifies
payments/transfer process
payments/transfer process
• CBK did not stiffle money
y g
transfer by insisting on ‘
traditional banking
standards
• V l
Value network – N b k
k Non‐bank
Agency Network
• Low‐cost processes &
Low cost processes &
resources
11

12. Examples of
p f Disruptors
p
Global
Industry Disruptor Disrupte
ee Key Disruption results
Key Disruption results
Computers Apple Mac, IBM Mainframes Affordable computing power
Advertising OLX Newspapers Affordable & convenient way of
communicating with a customer
Music Apple iTunes Record P
Production Affordable & convenient way of
acquiring music
Local
Industry Disruptor Disrupte
ee Key Disruption results
Key Disruption results
Banking Equity Bank Retail Ba
anks Affordable banking solution
Advertising Dealfish/OLX Newspapers Affordable & convenient way of
communicating with a customer
Payments MPESA Paying b
bills /sending Affordable & convenient way of
money sending money
12

13. "If I find 10,000 ways somethin won’t work, I haven’t failed. I
ng
am not discouraged because every wrong attempt discarded is
often a step forward" Thomas E
forward Edison
APPLYING DISRUPT
TIVE INNOVATION
FRAMEWORKS ON N YOUR VENTURE
13

14. Framing the opportunity
g pp y
• Define your customer va
alue proposition
– Th J b t b d
The Jobs to be done theo
th ory can help here
h l h
• Customers do not buy 1 iinch drill they buy a one inch hole
• When customers buy a pr roduct they are hiring the product
to get a job done for them
mselves.
• Targets based on Demogr h
b d raphics are mere correlations.
l
Customer’s Job to be done Current Limitations of Alternative
Circumstance solution((S) current solution (S) solution to get
the job done
A car dealer with Reach over 1000 Newspap
p pper Expensive to
p www.olx.co.ke
no money to customers classified
ds advertise Free to advertise
communicate to everyday Reach is capped Ad runs until you
a wide range of sell
customers about
cars in her yard 14

15. Define your Bu
y usiness Model
• 3 types of business mo
odels;
– Solution shops Value chains & facilitated networks
Solution shops , Value c
chains & facilitated networks
c
• Value Network
– To join or build a stand alone value network ?
• For example do you sell your product through existing
p y y p g g
channels or establish ne
ew channels
– Example of Honda vs Ha arley‐Davidson dealers , Honda distributed
via power equipment sto ores
– Intel & SAP joint venture
e , SME targeted ERP software distribution
via previous channel par
p p rtners, Accenture ‐ FAILED
,
– Imagine if Safaricom atte
empted to distribute its MPESA service
through the natural channels of Bank branches when it started
–HHow can you implement l
i l t
t e‐learning software in our schools based
i ft i h l b d
on this principle ?
15

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

17. Agile Strategy ma
Agile Strategy ma
aking & execution
aking & execution
• Embrace émergent str gy
g rategy’ thinking
g
– Example ; Honda exper
rience in the US market
• A l di
Apply discovery‐driven l
d i n planning
i
– Make projections
– Determine assumptions that must prove true
– Implement a plan to lea – to test assumptions
Implement a plan to lea
arn
arn to test assumptions
– Invest to implement str
rategy
• Pi i i i
Pivoting is important , as you experiment
i
17

18. Outsource or integr
grate ? – It depends
p
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 o products overshoot customer needs
of
then convenience ,customization & lo prices are what is not good enough
ow
• For e-commerce e-cosystem in Kenya . What is not good enough ?
So It depends !! 18

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

20. Opportunities are growing in E comm
Opportunities are growing in E‐comm
merce
E‐COMMERCE OPP
PORTUNITIES IN
KENYA
20

21. Kenya s Online
Kenya’s Online Marketplace
e Marketplace
e
• How big are the oppor rtunities online ?
• Long on promise short on $$$ ?
Long on promise , short on $$$ ?
• Using the Disruptive in
nnovation framework
how do we navigate it ?
• What are the ecosyste s key ingredients &
What are the ecosysteem
em’s key ingredients &
hurdles ?
21

22. The Online M
Market Place
Online
Online Soccial Search Content
g
Advertising
Classifieds Meedia Advertising Platforms
Platforms
• Craiglist • Faceb
book Global share Content Creators
General
• OLX • Twitte
T itter • GGoogle – 82 %
l • N ti
Nation
• Schibsted • Badooo • Bing – 4 % • Standard
• 43thin
ngs • Yahoo! – 6 % Content Aggregators
• Huffington
cal
• Cheki.co.ke • Yandex – 2 %
Vertic
• Seek.com.au • Baidu – 5 % • Hulu
• Realestate.com • AllAfrica
Kille
ller Online
l
Online General
Catego ory Gaming
Retailing Retailers
Retaileers Portals
• Amazon • Zappos • Levelup
• E-bay
22

23. 23

24. Kenya’s Online Adv
y vertising Crystal ball
g y
KES 350,000
000,000)
KES 300,000
KES 250,000
KES 250 000
Kenya Shillings in Millions (0
KES 200,000
KES 150,000
KES 100,000
KES 50,000
KES 0
2003 2004 2005 2010 2011
2 2012 2013 2014 2015 2016 2017
Total Advertisement Spend (Ksh) KES 5,950 KES 10,115 KES 10,744 KES 48,960 KES 67,150 KES 87,295 KES 113,48 KES 147,52 KES 191,78 KES 249,32 KES 324,12
Annual Online Ad Spend KE
ES 672 KES 1,484 KES 3,280 KES 7,248 KES 16,018 KES 35,400 KES 78,235
Online Classifieds Spend KE
ES 154 KES 341 KES 754 KES 1,667 KES 3,684 KES 8,142 KES 17,994
Key Points
ey o ts
• Kenyan Online Ad market could be worth 78 G‐20 Countries Advertising spend
billion by 2017 trends
• Kenyan online classifieds market in 2017, could be e % of media spend
120%
100%
worth over $ 17 billi
h billion 80%
60%
• Online advertising in Kenya is at it’s infancy, but 40% Non‐Digital Media Spend
it is at an inflection point 20%
0%
Digital Media Spend
• The Long Tail of advertising (SME s &
(SME’s 2003 2010
individuals) is underserved in Kenya. Year
• Its a huge opportunity ! 50% growth – print migration, 50 % new investments
24

25. E‐commerce cha g
allenges in Kenya
y
Internal view - From an E
E-commerce Entrepreneur
Develop
Develop
Select
& Process
s Fulfill Deliver Care for
Merchandise
Maintain Paymentt Order Order Customer
to stock
Platform
NOT GOOD
What can
entrepreneurs do
p
based on disruptive
innovation theory ?
25

26. Applying Innovat
Applying Innovat
tion frameworks
tion frameworks
1. Define your value pr
Define your value prroposition & target market
roposition & target market
based on a ‘jobs to b
be done’ approach
2. Design a business model that satisfies the
2 D i b i d l h i fi h
value proposition at acceptable price points
3. Avoid Pre‐mature scaling !!
1.
1 Be patient for growth
Be patient for growth but impatient for profits
h but impatient for profits
h
4. Choose your investo
ors carefully.
1. Whether from family y , friends or VC’s innovation
capital has to be ‘pat
p p tient capital’
p
26

27. Becoming a Se
Becoming a Se
erial disruptor..
erial disruptor
• Key ingredients of building a disruptor’s DNA
– Associating
– Q ti i
Questioning
– Observing
– Networking
Networking
– Experimenting
27

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

29. Who w
Who w are
we are
we
OLX.co.ke is formerly dealfish.co.ke,
, Kenya’s leading online marketplace
or Classifieds site.
or Classifieds site
OLX is one of the largest and most successful free classifieds site in the
g
world with presence in over 90 counntries and supports 40 different
languages. accessible through a PC oor mobile phone.
We provide safe and transparent tra
f ansactions between buyers and
b b
sellers
You can sell or buy almost anything on OLX and its all for free.
You can also search for jobs available on OLX.
29

30. Finally – My ch
y y hallenge to you
g y
• You graduate in an era a of potential high
economic growth
economic growth
• A lot of global disruptoors have eminated from
university dorms ; Dell
i i d ll
l, FB, Google etc
l G l
• The country is full of d s upt o oppo tu t es
e cou t y s u o d disruption opportunities
that can bring affordab ble/convenient
solutions into the market e.g.;
solutions into the market e g ;
– Air travel
– Healthcare
– Education
• Disrupt the market ! 30

31. 31