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Disruptive Innovation The Key ingredients of launching and scaling up a high-growth disruptive innovation. By Peter Ndiangúi 1.

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Presentation on theme: "Disruptive Innovation The Key ingredients of launching and scaling up a high-growth disruptive innovation. By Peter Ndiangúi 1."— Presentation transcript:

1 Disruptive Innovation The Key ingredients of launching and scaling up a high-growth disruptive innovation. By Peter Ndiangúi 1

2 Objectives To help you appreciate the value of applying a disruptive innovation framework lense when working through your entreprenurial ventures 2

3 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 3

4 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 4

5 Economic growth story…. 5 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 Your graduation my graduation

6 Internet Usage Update Source 1 – Communications Commission of Kenya Source 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 Penetration Rates 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

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

8 Infrastructure Investments completed 8

9 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 9

10 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 10 Source – www.christensen.comwww.christensen.com Two types of disruptions 1.Low-end disruptions Target over-shot customers 2.New-Market disruption Compete against non- consumption

11 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 11

12 Examples of Disruptors 12 IndustryDisruptorDisrupteeKey Disruption results ComputersApple Mac, IBMMainframesAffordable computing power AdvertisingOLXNewspapersAffordable & convenient way of communicating with a customer MusicApple iTunesRecord ProductionAffordable & convenient way of acquiring music Global IndustryDisruptorDisrupteeKey Disruption results BankingEquity BankRetail BanksAffordable banking solution AdvertisingDealfish/OLXNewspapersAffordable & convenient way of communicating with a customer PaymentsMPESAPaying bills /sending money Affordable & convenient way of sending money Local

13 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 13

14 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. 14 Customer’s Circumstance Job to be doneCurrent 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.ke Free to advertise Ad runs until you sell

15 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 ? 15

16 Elements of your business model 16 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

17 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 17

18 Outsource or integrate ? – It depends 18 So It depends !! 1867 frozen meat rail in the US Dell Computers assembly plant When functionality & reliability are inadequate integrateWhen 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 ?

19 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 19

20 E-COMMERCE OPPORTUNITIES IN KENYA Opportunities are growing in E-commerce 20

21 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 ? 21

22 The Online Market Place 22 Online Advertising Platforms Online Advertising Platforms Online Classifieds Online Classifieds Online Retailing Social Media Search Advertising General Retailers Killer Category Retailers Content Platforms Content Platforms Content Creators Nation Standard Content 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 General Vertical Levelup

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24 24 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

25 E-commerce challenges in Kenya 25 Select Merchandise to stock Process Payment Process Payment Fulfill Order Deliver Order Deliver Order Care for Customer NOT GOOD What can entrepreneurs do based on disruptive innovation theory ? NOT GOOD What can entrepreneurs do based on disruptive innovation theory ? Internal view - From an E-commerce Entrepreneur Develop & Maintain Platform Develop & Maintain Platform

26 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.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’ 26

27 Becoming a Serial disruptor.. Key ingredients of building a disruptor’s DNA – Associating – Questioning – Observing – Networking – Experimenting 27

28 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 28

29 Who we are OLX.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. 29

30 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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