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

Panelists:
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. 

Danta:
•    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. 

Danta:
•    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. 

Harry:
•    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.  
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Discussion:
•    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? 

A:  
•    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. 

Conversation 3: Expanding Horizons: The Next Brilliant Cadre of Women Entrepreneurs

GES 2015 in Nairobi
Conversation 3: Expanding Horizons: The Next Brilliant Cadre of Women Entrepreneurs
Saturday, July 25, 2015

Moderator:   Jean Case; The Case foundation
Panelists:      1. Breanna Zwart, Google, in charge of emerging markets
                       2. Mark Straub, Kholsa Impact – venture capital fund
                       3. Nermn Fawazi Sa’d, fonder Handasiyat.net – virtual engineering, Saudi Arabia
                       4. Isis Nyong’o, founder Mums village

Estimated no of participants:     90 people

Jean:   No better investment idea than investing in women
•    Kenya has remarkable women investors that have broken barriers
•    Women-owned and run business are stable and more secure for investors
•    Women-owned business is not about women but about the business.  Women should endeavor to position themselves as equal to the task 
•    Women investment should be about changing the world, focusing  on big goals

Breanna:
•    Improving visible of small business
•    Reaching out to emerging market
•    Investing in broadband to enable women entrepreneurs to access information better  
•    Reach less visible clients and women-owned business to expose to investors

Mark: 
•    Venture capital fund focused on social impact.  Keen to empower entrepreneurs aiming to improve social impact, providing capital to change agents and resolving development challenges
•    Focus on ecosystem health; have diversity in your portfolio
•    Focusing on emerging market
•    When investing, hire people with different skills set than yourself
•    Choose managers who have interest in different sectors, have networks beyond yours and have other experience

Nermin:
•    As woman engineer from Saudi Arabia, I wanted to practice my specialty yet observe the cultural norms of my country 
•    Do not put barriers on yourself.  As a qualified engineer, I set up a virtual company that provided engineering opportunities in Saudi Arabia to outside world
•    Women entrepreneur can change the perspective of their clients by not emphasizing on their gender; focus on providing superior service to clients
•    Win trust, don’t compete

Isis:
•    Isis started  media technology company to build platforms for women entrepreneurs
•    Strike a balance between self-promotion.  Sometimes frowned upon in certain cultures, and reaching target markets
•    Do research to understand potential clients 
•    Get advice from successful women entrepreneurs, 
•    Get visibility for your products online
•    Produce goods and service that are relevant for local environment

Challenges and opportunities
•    With technology, you can build brands for their entire world market
•    Technology is a leveler – it removes challenges that are peculiar to women or to emerging markets 
•    Limited capital leads to risk averseness
•    Use technology to identify gaps and to present your products to large audiences
•    There are few or no talented women mentors and businesses insulators  in emerging markets

Conclusion
•    We are what we can imagine ourselves to be 
•    Banking with people with lower income can be profitable
•    Technology is a major enabler of medium and small enterprises
•    Kenya is major hub of technology innovations, invest in emerging markets
•    Look out for investment opportunities with social impact
•    You will meet dream makers and dream breakers, consider failure as an option 
•    Risk taking is step one. How you weather the risks builds your resilience

Conversation 6: Building the Next Generation of Entrepreneurs

GES 2015 in Nairobi
Conversation 6:  Building the Next Generation of Entrepreneurs
Saturday, July 25, 2015

Key Discussion Points:

1. Role of Formal Education:
- App Poll: 96% of the people in the room said job training is more impt for the success of a start-up business (as opposed to formal education.

- Need to practice what you learn within a company (internships, work experience)

- Formal education can be boring to an entrepreneur. Formal education needs to be made interesting and be conducted in an experiential learning way. Need to look at how to keep the entrepreneur spirit within formal education.
- Learning needs to be multi-faceted: peer to peer, mentoring, classroom, online, and from practical experience.  Need blended learning environments and options.

- Conclusion: Traditional education is not always the best option for getting the skills and experience needed to be an entrepreneur.  A mix of training, learning, experience and support is needed to be successful.

2) Search for Talent:
- App Poll: What is the hardest position for a start-up to hire:  Top three answers from those in the room:
a) Operations Manager = 41%
b) Sales Manager = 32%
c) Financial Manager = 18%.

- For start-ups it can be hard to find and keep good staff, especially mid-level staff.

- Ways to find and keep staff: create a cool culture and a place that everyone wants to work, Look for broad experience, people need to see potential in our company and be able to relate to the values and purpose. People want to work in a place they can learn, be heard and be creative. Good corporate governance.  If you know a good personal and don’t need them, share them with other companies so they will do the same for you when you need someone. What helps you get financial support and backing is the same thing that will help you get and keep employees.

- Start-ups have a soul and values that can resonate with people and this bigger vision will help you attract and keep employees. Give people a title to make up for inability to pay a lot (titles are cheap).

- Personality typing is really helpful to be sure you have the right person for the right job.

- Conclusion: Need training and experience in human resource management because the people can make or break a small company. Start-ups often under invest in HR and hiring the right people for the right positions. Talent (not $$) is the biggest challenge facing entrepreneurs.

3) Role of Incubators and Accelerators:

- Still under debate as we have no data to demonstrate that incubators and accelerators really work! 

- Engage diaspora (Korea is a great example of using the diaspora)

- Don’t take a cookie-cutter approach; tailor your approach to the needs of the start-up.

- Conclusion: Entrepreneurs need to look for the right fit when it comes to picking an accelerator. They should look for the right stage fit and industry to find the right match.
 
4) Overall Advice from Panel:

- Entrepreneurs have to want it, believe, work hard, keep trying, ask for what they need, and know what they want to achieve.  

- Entrepreneurs need to be self-aware and mentor-friendly so people are willing to work with you and help out with more then just financing.

- Need to better understand how to measure the success of accelerators to see if they really work.

Conversation 4: David and Goliath: Linking to the International Supply Chain

GES 2015 in Nairobi
Conversation 4: David and Goliath: Linking to the International Supply Chain
Saturday, July 25

Moderator: Shelley Broader, Walmart

Panelists: 
-    Jay Ireland, GE Africa
-    Monica Musonda, Java Foods
-    Kitili Mbathi, Standard Bank

Estimated number of attendees:  Approximately 85

Introductions: 
-    GE has $3.5B in revenue, working in 25 countries in Africa; 
-    Java Foods is based in Zambia; Monica is a food entrepreneur
-    Kitili: Standard/Stanbic; 

Shelley: Entrepreneurs have a lot on their plate.  How important is a reliable supply chain to scale?  How?  Why?

Jay: Make it sustainable, consistent.  
-    In Africa, have to build a local presence, have to go beyond sales offices.  
-    GE has been in Africa for over 100 years, strong in South Africa and Nigeria before Kenya.
-    GE has $500-600M in investment in a few years in local assembly facilities and then will source locally.
-    How to get in: Have product or capability that can be done locally, then qualify (quality and financial).  Goal is supply chain for anywhere in GE, not just GE in Africa, same standards in Africa as anywhere else
-    Understand what you do and at the highest quality and look for opportunities

Shelley:  Perfect partnership to start business?  

Monica: Food retail 
-    Retail growth in Africa is at 15%
-    Concern: Need the right raw materials (…and not just maize)
-    Coordinate farmers and aggregation is challenging

Shelley: Example of a partnership?

Kitili: Second largest Coke bottler in Kenya.  Had a challenge when 25 largest distributors were selling on cash and constrained by working on small cash flow
-    Enter M-Pesa, good start but took 48 hours to get payment into their accounts. 
-    So designed a system with third party.  Trucks would have ID code, so would get instant confirmation and payment with a direct reconciliation. 
-    Also led to better resupply, so they sold more products
-    Also allowed  Standard to give them more direct financing, with more working capital for stock and to improve vehicles

Shelley: How to find credible financing at a reasonable rate?

Monica: Still a challenge for SMEs with limited working capital
-    Banks need to understand the sector better to discount the invoice rates.  For example can pay 30% on 60-day payment period.
-    Have a supplier fund (Mass Mart) and work with outside organizations to work with small agro-businesses and partner with the end user

Kitili:  We need to move from an asset backed system
-    Malawi example: Alliance One, worked with a client who works with small holder contract farmers on fixed price.  Bank then creates loan based on value of investment and backs sales with insurance (to cover difference with auction price)
-    Has led to better farm gate prices, but also has risk-sharing with industry due to volatility

Shelley:  Government role in trade? 

Jay and Shelley on PAC DBIA, focusing on agriculture

Shelley: Trade barriers: even with tariff-free textile raw material, transport takes so long they cannot work with Kenyan factories.  
-    Walmart can get material in days and to shelf in weeks, but with Kenya it can take months.
-    Problem is variance of days (not days itself).  At Durban Port can take 100+ days.

Jay: People and their capacity are key.
-    Critical skills gap has been discussed.  We are looking for technical people, and there is a lack of quantity of stem skills.  Kenya only graduates 4,000 engineers a year, 
-    Have a lot of university partnerships, training, mentorships, apprentices, sending abroad
-    Some are long term commitments (over two years), but expensive and cannot do it all themselves.  Above example was for 20 people, need 250 for the plant alone
-    Need to make sure the youth demographic dividend can be capitalized on…need the right training

Kitili: Pitching for financing, wide gap in skills…what are the key skills?
-    Understand the difference between how entrepreneurs and bankers see things.  Entrepreneurs are very optimistic, while bankers need to see the financials behind the optimism.  
-    Have your formal records and business plan clearly spell it out, banker then balances performance and business plan

Audience questions:
1.    For Standard Bank:  Tobacco is a well-structured industry and Alliance One is working, but could you go to new sectors? What collateral is needed, rates, etc?
o    Kitili: Key is to have credible end buyer with guaranteed end market and the work with the buyer to ensure the suppliers (farmers) have the right inputs.

2.    We have to reinvent the value chain organization for supply chain every time.  What is the best practice?  How do African entrepreneurs get to American markets?
o    Shelley: We are asking African nations to consolidate, but on the other hand each buyer would want their own standards.

3.    We need more internal skills.  We need African regional trade and African skills transfer.  Is there training and help to formalize and improve bankability?
o    Kitili: Yes.  Example:  Enterprise Uganda, an NGO for business plan development that also helps formalize the accounting systems to better manage cash flows.

4.    Supply chain management:  How can small companies work with international suppliers, as they do not exist locally. Typically have to go to China.  How do you manage quality?  How do we get past 100% payment required up front?
o    Jay: If you can get into our supply chain, you can leverage our skills, reputation, and volume.  Band together to get more volume (even think regionally), than approach the international suppliers
o    Shelley: Go for the long play, choose quality instead of price when it becomes a mutually-exclusive decision.

5.    Do you, the big suppliers, consider what we the entrepreneurs expect?
o    Jay:  Yes, but many challenges are hard to see, but do not overthink it.  Analysis by paralysis
o    Monica: I learned by doing with a safe, affordable product.  Once we panicked and spent on R&D based on some else’s idea and and got away from the basics.
o    Shelley: Also need to avoid putting Western perspectives on ecosystems that cannot support.  We meet suppliers where they are, not where we are.