Posts Tagged ‘business’

Formalization is no panacea for micro-entrepreneurs, a liminal space is necessary for growth

Yesterday, my bank sent back a client’s payment though I’d presented the invoice and other paperwork. I’m a registered micro-business in the highly formal economy of Finland, and the bank I’ve been with since 2009 has upped their internal regulations after a spate of bad publicity surrounding the Panama papers. I’ve been caught in the middle of changing rules though the kind young man sitting with me at the bank did tell me I was neither alone in this nor was it rare among their customers. They’re going through changes.

We talked a little about the work I do among women entrepreneurs in the informal economies of East Africa, and he pointed out that Finland was a very difficult operating environment for startups and entrepreneurs. They recognize this. He observed that my experiences at this formal end of the spectrum could only help me with my work on the other end. I had to agree, though I left the bank empty handed, having been turned down by their corporate banking side as well.

Still, I haven’t come here to moan about my banking troubles so much as to point out that the young man was right. Neither end of the spectrum of formal and informal is healthy for a rapidly evolving newly born business or micro venture. Too little support and growth is slow and painful; too much regulations and you fall off the wagon everytime your business changes or their rules evolve.

What is needed and rarely articulated is a grey area between formal and informal – a liminal space if you will. One that allows for change and acknowledges the experimentation and iteration that is the natural part of the development process. A common cliche is to liken a young or small business (my small business is 12 years old) to a growing child who might sometimes have to burn a finger on a match to learn about fire.

What perhaps is needed is to codify this ambiguous moment or period and discover ways to fit that within the formal structures of a highly developed society, as well as adapt it as a stepping stone in the unstructured informal underdeveloped locale. These bridges need not be identical in details so much as concept – that an entrepreneurial venture’s nature is such that it needs room to move and grow unhampered whilst still receiving the support and facilities that it requires.

There’s hope yet for me, allegedly. The bank has set up a startup unit and I’ll call them today to see if there’s anything that can be done. Else I’ll have to look around for another bank. In the meantime, the taxes still have to be paid and the remittance problem solved. Wish me luck!

My African Twitter: Social Media and Its Role in the Emergence of African Economies

Social Media Day 2015 is as good a day as any to finally get around to completing this post I’ve been meaning to write for almost half a year now. It is based on my personal experience and observations, supported by a few relevant links.

African Twitter is unlike any social media I’ve experienced. In less than 2 years it has become a significant part of my life. Its a community and a conversation, both real time and asynchronous. Its warm and welcoming and very, very human. Its like going to a convivial office and hanging out with your peeps all rolled into one. And you can’t be serious about doing business in Africa without being a part of it.

The paragraph above may come across as idealistic hyperbole, so I’ll try to break it down into chunks and explain. First is the purely subjective personal experience, followed by the bigger picture of African social media in the business world. Diving deeper into a proper ethnographic study of the African Twitter experience really should be done at some point. At this time, I’m hazarding guesses based on secondary sources and my own experiences. Also, given that my African Twitter timeline is business oriented, my network will reflect this rather than a purely social network.

What distinguishes the African timeline is that the vast majority of people are connected far more closely to each other. Chances are, if you follow someone, then many others that you follow also follow them and vice versa. This seems to be the case regardless of geography and interest area. This could be due to history and demographics – Twitter isn’t as popular across the board as Facebook, for example, and early adopters are more tech savvy than the norm.

This leads to a more or less coherent timeline and conversation stream, closer in experience to a conversation thread in a bulletin board or community weblog.

In my older Twitter handle, with the exception of few social clusters which tend to reflect real world networks and/or LinkedIn connections or pre-existing connections through other, older communities eg. MetaFilter, most people, for the most part, are not connected to each other. Thus, its more fragmented, and for the most part, people are simply pushing out information or links or tweets. That is, its ‘talking at’ the world rather than ‘talking with’ the world. Its rarely an ongoing and coherent stream of conversation the way the African experience is more often than not.

In sum, its far more of a social experience.

From the less personal perspective, there’s already been recognition that Twitter is leading the way to greater integration across the continent – a pan African conversation if you will, as the Nigerians and Kenyans exchange daily tidbits with each other while all keep up with what’s happening on the ground in Burundi or South Africa.

Its an immediate and real time conversation and replies and acknowledgement are part of the etiquette. This applies to corporates of all kinds as well as institutions, utilities and government departments. People talk directly to the airlines or holler for customer service from their mobile service providers.

The African timeline is the everyday manifestation of that old concept of “Markets are conversations”, in a manner that I’ve yet to see in other spaces or geographies. In fact, just yesterday, Hotels.ng founder Mark Essien tweeted that his best source for new hires was Twitter, an observation quickly validated by others.

Other startups have seen the value of the social, and social media is big enough business to garner cover stories. Global platforms may not see the potential for monetization – Facebook being a case in point – but the participants most certainly do. Increasingly, social networks provide the opportunity to scale your reach, and thus, your business.

This post is only an appetizer, I’ll come and look more closely at this space. There’s a link between social media use and economic growth I want to explore.

Your thoughts?

Assessing the size and value of investment opportunities with an informal economy footprint

There’s an interesting snippet from the Nigerian news yesterday that led to this framing of a necessary problem statement. KPMG’s head of private equity is quoted as saying:

Meeting current needs of the one billion plus population and, the future demands of the rapidly emerging middle class consumers will drive the next wave of Private Equity investment on the continent.

However, investors, according to KPMG, are keener to do business in sectors that have little to no direct relationship with government, or through structures that limit government control and undue influence.

This was the view of ‎Partner & Africa Head, Deal Advisory & Private Equity at KPMG, Dapo Okubadejo, who said that throughout the firm’s ongoing interactions with foreign investors, it was clear that concerns about ‘red tape’ and perceived corruption are still top of mind for investors who are looking to enter African markets.

Given that private equity investments are currently the hottest thing in key African markets, this shift in emphasis to more consumer facing sectors brings to light some unique challenges that investors will have to face beyond the oft mentioned challenges such as variability in quality of infrastructure and inadequate systems:

African consumers transact mostly (90-odd% in most markets) in cash.
Emerging consumer classes are more likely than not employed in informal sector activities, in small business and trade. This has impact on both their purchasing patterns as well as their cash flow regardless of income strata.
Services are mostly part of the informal sector.
Greater degree of retail formalization at the front end (B2C) is no guarantee of similar degree of formal structures at the back end (B2B). Distribution, delivery, payments – the entire supply chain – may have components from both the formal and informal sectors.
The role of personal relationships and social networks in the information ecosystem and impact on B2B and B2C decisions.

What does this actually mean, though, to the investment community?

A few years ago, Emerging Futures Lab had the unrivalled opportunity to work with Village Telco, a South African social enterprise whose corporate mantra emphasized open innovation. We can openly share our experience of qualifying, from the perspective of investment and potential for returns, an industry sector for which little or no market data is available due to its significant footprint in the cash based informal economy.

While the industry itself – cyber cafes or internet cafes – maybe in decline today due to the proliferation of affordable smartphones and data plans, back then it was a significant market opportunity for an innovative communications technology. Our task was to assess the size and dollar value of this industry and the market potential for Village Telco’s Mesh Potato device. This was complicated by the fact that not only had we to offer product pricing recommendations but we had to elicit purchase intent for an unknown product category.

Implications for Investment in B2C

This experience was an eye-opening exercise in shedding light on assumptions made in traditional market analyses and pricing exercises.

When such a significant proportion of the industry is operating in the informal sector then many of the heuristic methods and frameworks either did not apply or resulted in skewed outcomes.

The assumptions underlying pricing, for example, focus on utility value, whereas we discovered the majority of informal sector businesses looked at revenue generation potential, intent on maximizing the returns on their capital investment in new technology.

The implications for risk and returns, as assessed by consumer facing businesses, are also influenced by the cash flows and patterns of the informal sector. When the majority of transactions are in cash, how does this influence decision making?

The specific business or industry itself that PE funds are considering may not be as informal as the internet cafe industry but any consumer facing business in this operating environment will face the implications of the propensity for cash.

To summarize the challenge for market assessment:

Heuristic frameworks for market analysis developed in the context of more developed operating environments may not always offer accurate insights on potential for sales and market share.
Assumptions made on purchasing patterns, pricing and buyer behaviour should not be left unquestioned, particularly if the industry segment has a significant footprint in the informal sector.
Risk assessments may be skewed by the impact of the above two factors in the qualification of a market’s potential or industry viability.

Caveat:

Many of the most visible investments till date have been in FMCG such as dairy or biscuits but The Economist offer their opinion albeit without mentioning the increasing emphasis in the B2C space.

Strategy and Operational Excellence: Trade-Offs Made in Design and Thinking

“Managers must clearly distinguish operational effectiveness from strategy. Both are essential, but the two agendas are different.

The operational agenda involves continual improvement everywhere there are no trade-offs. Failure to do this creates vulnerability even for companies with a good strategy.

The operational agenda is the proper place for constant change, flexibility, and relentless efforts to achieve best practice.

In contrast, the strategic agenda is the right place for defining a unique position, making clear trade-offs, and tightening fit.”

“What is strategy?“, Michael E. Porter, Harvard Business Review, Volume 74, Number 6

With reference to my previous post, I thought to clarify my thinking a little further.

Design (not design thinking), very clearly falls in the realm of operational effectiveness, as derived from the explanation given above – let’s use that old classic, the iPod, as a commonly understood example – it is very well designed. It would not have reached it’s iconic status if it were not well designed.

But just for the sake of this thought experiment, let’s say that Apple’s strategy could be framed as “leader in the market of portable, user friendly, hard drives that allow you replay the stored information. Hypothetically, mind you, and with respect to the iPod only, for the purposes of this conversation.

Steve Jobs’ vision was clear and Apple’s unique value proposition – the user experience – well differentiated. But his strategy of maintaining leadership in this category [clearly defined, per Porter’s definition] is supported by his operational effectiveness in releasing a new product [in the same product category – strategy] with a quality and frequency that left the other players breathlessly behind.

Had he not had this clear strategy he could have done any number of things that many do to maximize the revenue generation possibilities – released an iPod clothing line, offered iPod accessories, distributed toy iPods in Happy Meals, whatever came to mind. But any of these tactics would have moved him away from his core value proposition.

This would have been short term thinking, how to maximise the cachet of the iPod brandname or, you could say, the outcome of not having a well defined strategy from the very beginning. By continuing to make trade-offs that he did in his decision making and tightening fit, he continued to maintain his strategic agenda, envisioned in advance for Apple’s forward momentum.

A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both.

The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs. – ibid

On the other hand, at the time of the iPod’s heyday, just prior to the iPhone’s full scale disruption, there was much discussion on some of the design choices made, particularly in the arena of customer service.

Some may recall that the battery could not be changed in the original iPod and customer service for the product was nowhere near what today’s CX and UX gurus would advocate.

Here’s the snippet from the wayback machine linked above:

Its battery wears down and can’t be easily replaced because an iPod can’t be opened up by mere mortals. All of these were conscious design choices Apple made.

There’s something in that and I’ll be coming back to it, but in the context of this post one wonders whether trade-offs such as these, in operational effectiveness, make for good strategy in the long run?

Innovation at the small enterprise level

Moses with Muchiri, MtoPanga, Mombasa Oct 10th 2011

I’ve never been left with such a strong sense of enterprise and innovative thinking as I have now after this past week in Coastal Kenya. In fact I asked Muchiri if he’d been specifying some high standards for the introductions made to various cyber cafe owners or was it that we just happened upon the amazing crowd of people that we did.

What blew me away was simply their quality and resourcefulness – Moses for example, shown above talking to Muchiri in his little workspace at the back of his second cyber cafe, was a biochemist by training with a penchant for fine arts. He had a thriving business around creative services – graphic design, screen printing, photo touch ups etc right down printing your choice of photograph onto a ceramic mug for you. This was in addition to his two cyber cafes and computer training classes. He was the first to dismiss mobile phones as the perceived threat to cybers, instead pointing out that it was mobile broadband modems that were having the real impact along with easily available cheap desktops.

The common thread running through the success stories of growing sustainable small businesses seemed to be centered around a willingness to question the limitations of conventional services, spotting opportunities centered around this investment in hardware, software and access and a sense of changing trends observed among their customer base.

Moses' Dibarts ICT Village at Vintage Plaza, Mtopanga, Mombasa

Moses actually mentioned that latter – almost articulating the basic idea of doing user research and incorporating the feedback into his business strategy. He calls it the number of ‘No’s he gets versus the number of ‘Yes’s as one of the drivers for his choice of services to offer.

The ones who felt the slowing down of business were more likely to be those who imagined that simply setting up shop would bring in the cash flow or had let the changes go by passively without responding. The good old days of customers waiting in a queue for a limited amount of time at the computer have gone for good. What’s emerging in the frontlines are solutions like Robert‘s in Cannon Towers in downtown Mombasa.

Business centre set up by Robert, Mombasa, Kenya 12 Oct 2011

Noticing that many of his cyber cafe customers were walking in piles of documents they were struggling to manage in the tiny space available in the traditional cyber cafe layout, Robert realized that there was a business opportunity in catering to their needs. The majority of his business came from shipping agents and such like, most of whom would not even be based in Mombasa but in town only long enough to release their goods at the nearby port. He threw out the cramped cubicles and replaced them with spacious work stations – in effect, offering hot desks rentable by the day, week or month by the transient business workers.

Robert's signage on the street level of Cannon Towers, Mombasa, Kenya

Now, with fewer computers he generates more revenue at his business center than he does at his original cyber cafe still operating at a different, yet more high traffic location surrounded by educational institutions. Naturally, he already has his expansion plans in place even as the traditional cyber next door has declining revenues due to market forces.

Why is design important?

Design is first and foremost a philosophy, based on a system of values, which seeks to solve problems. What are we creating? Why and for whom? Are we correctly framing the problem to be solved? These are the questions to which the answers are then manifested tangibly in the form of a new product, service or business model.

Human-centered design approaches the task of problem solving by always seeking to understand the end-user’s needs and aspirations, goals and the environmental conditions and constraints in which they live. When we can design a product or solution that meets an unmet need or challenge successfully that becomes good design.

These qualities are what make design a powerful tool for not only increasing value for corporations but also benefiting their customers by providing elegant yet effective products, services and business models. Often the biggest challenge is to identify the real problem that must be solved, this where using design research methods and tools can help businesses at their early stage strategic planning.

Design thinking in business takes this problem solving aspect one step further. Now the tools and techniques from the field of design such as ethnographic research, rapid prototyping and conceptual brainstorming integrate with the pragmatic business frameworks of strategy, analysis and metrics to create and provide roadmaps for business innovation and competitive advantage. In this context, design has evolved away from traditional form giving to becoming an integral part of corporate strategy.

How and where can it be applied?

When you’re looking for new market opportunities – You know your company’s strengths and are looking for inspiration and insights for innovation within your existing product line or think there might be a new product category you’d like to explore. You know the market opportunity you want to target, such as “seniors or youth market” or “wish to expand to a new culture or country ” but need help to define the product or product category that would allow you to take maximum advantage of this opportunity.

Or when your business is facing a very specific challenge, but doesn’t really know why and needs to take a look not only at their products and services but their business system to see what can be tweaked. Often companies who need an innovative new product concept to become a global design “hit” will face this fuzzy problem. This is where design tools such as exploratory research and insights can lead to clear articulation of opportunity spaces and as yet unmet consumer needs, communicating visually through concept sketches as well as creating a strong business case for a particular design direction by supporting market analyses and metrics.

Design has the tools for visualizing complex large scale systems and the insights thus derived can be applied to improving the quality of the customer’s experience, improve the efficiency of the process and offer benefits across the spectrum of applications. For example, the UK has hired a senior designer to help improve the patient experience and the processes at the National Health Service. Bringing design’s empathy and user centered approach to process innovation adds intangible value to systems which were otherwise focused on efficiency and profits alone.

So design is extremely important. The nature of the field allows it to add empathy, insights, innovative approaches to problem solving to traditional means of addressing the same challenges. It creates value and enhances the user experience; it gives meaning to lifeless objects and can touch human emotions on a fundamental level.