Create
Create Rather Than Disrupt
Beads of sweat ran down Timbo Drayson’s forehead, stinging his eyes. It was his fourth consecutive day spent in the hot Nairobi sun, methodically taking photos, tying them to GPS coordinates, and building an early testable dataset. Timbo, CEO of a startup called OkHi, was gathering data to create uniquely identifiable locations—what the rest of the world calls street addresses—for downtown Nairobi. To that end, he was gathering coordinates, visual cues, and other familiar markers that Nairobi residents use when giving directions.
In developed Western countries, street addresses are provided by governments and are considered table stakes for a variety of public and private services.
Registering for a driver’s license? What’s your address?
Want your Amazon package? What’s your address?
Need an ambulance? What’s your address?
So when I first met Timbo in 2014, I was shocked to find out that more than half the world does not have street addresses. In Kenya, where Timbo is based, only 2 percent of all buildings have them.1
A city without street addresses doesn’t mean a city without directions. It just means that current systems are highly inefficient. In Nairobi, if you’re getting a delivery, you might say, “When you get to Jogoo and First Avenue, please turn left at the red house. You go down the road to the green shanty, up the road where the three dogs sleep, and down the dirt path for thirty seconds. I’m the fourth house on the right. It is blue.”
This seems difficult in the daytime. It is often impossible at night.
More than half the world lives in slums, favelas, shantytowns, or other areas with tenuous property rights and where the government has yet to designate official street names or numbers for residents. Globally, some four billion people don’t have addresses, a figure expected to double by 2050.2
Addresses are a massive public good that powers an array of services. Consider that the average ambulance response time in Nairobi is more than two hours, versus six minutes and ten seconds in New York.3 A large part of this problem is improper location and addressing, causing ambulances to circulate for critical minutes to find an exact location. Similarly, a lack of addresses stalls commerce. It takes 3.1 phone calls for a KFC delivery, and 1.4 phone calls per ride for an Uber pickup.4
To solve this problem, Timbo founded OkHi, a technology-driven startup that creates addresses where there are none. OkHi’s mission statement is “Be Included.”5
Timbo no longer collects the needed information manually in the hot sun. Instead, OkHi’s crowdsourced digital addresses—a unique combination of a GPS point, a location’s photo, and additional descriptors—are ever-evolving and growing. OkHi lets its partners access the database for a small fee. When partners look up an address, they are given turn-by-turn directions to the GPS point and oriented to the proper building based on the qualitative descriptors and the pictures.
Since its early days, OkHi has made groundbreaking progress. By partnering with the ubiquitous Uber and Jumia (a leading e-commerce player), OkHi acquired the GPS coordinates necessary for building an extensive database. Since then, Timbo has partnered with players ranging from restaurant chains to appliance retailers to public services.6
What Does a Startup Look Like?
To most, OkHi’s story does not seem like a typical startup. When people think of addresses, they might think of boring government infrastructure or twee street names, if they think about the subject at all. Where is the hooded techie, slurping Soylent, writing code into the night and disrupting an industry?7
This last phrase deserves a moment of pause. Most Silicon Valley startups are focused on disruption, a word that has taken on near-mythical qualities. It refers to a startup’s raison d’être: upending stodgy and inefficient industries by adopting new technologies, new processes, and new attitudes. The mandate to disrupt has become a clarion call to the technology industry, and in particular to Silicon Valley. Everyone is disrupting everything in Silicon Valley, from health care to driverless cars to education, and even to politics.8 The most famous pitch competition in Silicon Valley is TechCrunch Disrupt, the Olympics of the startup community. And disruption isn’t only for entrepreneurs. There are disruptors in venture capital, angel investing, and accelerators.9
A scene from the HBO satire Silicon Valley perhaps best reveals the absurdity of the industry’s fixation on the concept. In an early episode of the first season, Pied Piper, the hero’s fledgling startup, is pitching at TechCrunch Disrupt. His competitors are a set of startups, including Immeadabug, set to “revolutionize the way you report bugs on your mobile platform”; Tappen, which will “revolutionize location-based mobile news aggregation as you know it”; and Systobase, which will “make the world a better place through paxos algorithms for consensus protocols.”10
These satirical startups are all-too realistic. If this is disruption, perhaps we have forgotten what the word means.
Our modern conception of disruption stems from research at Harvard Business School conducted by Clayton Christensen, professor of strategy. Christensen pioneered this thinking in his book The Innovator’s Dilemma and his ensuing research on disruptive innovation. In an article, Christensen and colleagues write as follows:
“Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses . . . [Entrants start by gaining a toehold in overlooked segments] by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.11
Despite the centrality of Christensen’s theory in Silicon Valley, his classic example wasn’t about digital technology startups at all. His theory originated instead in the steel industry. Large, integrated steel mills saw competition on the low end of the market from minimills. The integrated mills ceded the low end of the market, allowing the minimills to get a foothold and over time develop better infrastructure to drive efficiencies and process flexibility, eventually overtaking the large mills altogether.12
Disruptive innovation is an emotionally attractive concept. It is a modern version of the story of David and Goliath, where the small player, eating scraps at the periphery, rises to become the victor, not only of the market but also for righteousness, because the larger player ignored parts of the market, did not innovate, and ultimately did not serve people’s needs.
And thus Christensen’s theory of innovation became the philosophical underpinning of Silicon Valley and the technology industry more broadly. As Jill Lepore wrote for the New Yorker, “Ever since The Innovator’s Dilemma, everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars . . . You live in the shadow of The Innovator’s Dilemma.”13 If disruption became the anthem, startups became the marching band. Startups bring lower-cost solutions or more efficient processes enabled by technology and couple it with an outsider’s attitude. They promise to remake industries in their own image.
The Creators
Of course, this doesn’t sound much like the OkHi story. Where is the inefficient industrial incumbent thrown by the wayside? Where is the relentless march upmarket from an inferior product? OkHi does not fit the definition of a disruptor, because there is no industry that is being disrupted—unless of course it’s the three sleeping dogs you met earlier.
Timbo Drayson is a Creator working in a Frontier ecosystem, which I define as those innovation centers located outside Silicon Valley and its closest counterparts. Frontier Innovators, often by necessity, are creating new industries, new business models, and ultimately new products and services for their markets.
Creators do three fundamental things simultaneously. First, they offer a product or service that solves an unserved, acute pain point in the formal economy. Where there are existing informal, unlicensed, or unofficial alternatives, Creators bring legitimacy and formality to their industries.
Second, Creators offer a solution for the mass market. While certainly new product categories can be created for the top of the market (think Virgin Galactic space travel), the Creators in this book focus on innovation that serves everyone and not only the rich.
Finally, Creators are focused on game-changing innovations that fundamentally rethink a market and a sector. Technology is often a key enabler, but it is accompanied by new ways of structuring the business, working with customers, or operating. In this way, many Creators share an important point of similarity with their cousins, the disruptors.
The difference in the number of Creators between the Frontier and Silicon Valley is striking. Within a sample of leading emerging-market startups, 63 percent are creating new industries. This includes companies like Rivigo, which is formalizing and expanding the trucking industry in India; Dr. Consulta, which is developing a nationwide chain of affordable medical clinics in Brazil; and M-KOPA Solar, which is providing solar energy home systems in Africa. By comparison, using the same definition and looking at a sample of the most successful Silicon Valley startups, only 33 percent are Creators.14
However, things are rarely black or white, and neither these bright-line definitions nor the ensuing analysis is, or can be, perfect.15 While we may disagree about categorizing specific companies, the overall trend is clear: the Frontier is spawning many more Creators than Silicon Valley is.
Of course, this dynamic is often the natural result of necessity. Frontier Innovators, particularly those operating in developing ecosystems, are Creators because that’s where the largest unmet opportunities exist. They offer platforms in education, health care, transportation, and financial services to the mass market, where technological and business model innovations promise to successfully bridge historical gaps.
In an interview, I asked Timbo who he thought was the most significant Creator in Sub-Saharan Africa. Without hesitation, he said M-PESA.
From Physical to Digital Cash Transfers
In emerging markets, nearly two billion people are “financially excluded,” meaning they have no access to formal financial services.16 They don’t have bank accounts, checks, debit cards, access to formal loans, a stock trading account, insurance—or any way to transfer money other than physically handing over a stack of cash. A further two to three billion are underbanked, with insufficient access to these essential services.17 Nearly half of our planet’s population is either unbanked or underbanked.
It isn’t that the banking industry doesn’t want to provide bank accounts for everyone. It’s that it can’t. The traditional banking model, with physical branches, tellers, and outdated technology infrastructure, just doesn’t work when trying to serve customers living in remote parts of emerging markets, with tiny bank balances and highly infrequent use.18 The business case does not make sense.
Enter M-PESA, Kenya’s largest mobile money platform and the leading example of this business model globally. M-PESA created a network of stores—think of a massive human ATM network across Kenya—where anyone can deposit money into their phone’s account or send money to any other phone or store. The difference is that this system does not rely on a bank card, a voice call, or a smart-phone-enabled app like Whats-App. Instead, it’s all done on a simple mobile phone via the texting capability built in to even the simplest low-cost phones. This innovation was transformational in a country where the average GDP per capita was $840 in 2007.19
M-PESA was an audacious project. It was also not a traditional startup. M-PESA was incubated inside the leading Kenyan telecom, Safaricom (an entity jointly owned by the Kenyan government and the global telecom Vodacom).20 The company formed an entrepreneurial team to develop the project and received external seed funding. But again, this wasn’t typical early-stage funding: it was a grant from Department for International Development (DFID), the UK international development agency.21
M-PESA’s new SMS-based banking tool did not disrupt a traditional inefficient payment network. There were no broadly accepted payment networks in the country. M-PESA’s biggest competitor was the local hawala system, where people gave envelopes full of cash to bus drivers and asked them to give it to a specific friend or relative a few stops away. The driver would receive a commission for driving the cash to the village. You can imagine that beyond being inefficient, this system presented a high risk of loss, theft, and fraud.
Today, M-PESA reaches eighteen million people in Kenya, with more than one hundred thousand agents processing more than one hundred million transactions, which some estimates put at equivalent to 40 percent of Kenya’s GDP.22 M-PESA was also foundational in creating the mobile banking industry globally. Studies have indicated it has been the primary driver of lifting nearly two hundred thousand households out of poverty (2 percent of Kenyan households).23
As a former member of the steering committee of the Mobile Money group of the GSMA (the global telecom industry association), whose mission is to help scale mobile banking across the world, I have enjoyed a front-row seat to the staggering growth of this ecosystem. On the back of M-PESA’s example, the industry has exploded, with replicators around the world. There are now more than 250 mobile money deployments serving more than 850 million people across the world.24
The First-Mover Disadvantage
The story of M-PESA is inspiring. But the company was by no means an overnight success and encountered many roadblocks along the way. Nick Hughes, one of the founders of M-PESA, explains:
The project faced formidable financial, social, cultural, political, technological, and regulatory hurdles . . . To implement, Vodafone had to marry the incredibly divergent cultures of global telecommunications companies, banks, and microfinance institutions—and cope with their massive and often contradictory regulatory requirements. Finally, the project had to quickly train, support, and accommodate the needs of customers who were unbanked, unconnected, often semi-literate, and who faced routine challenges to their physical and financial security. We had no roadmap.25
There is a name for this: the first-mover disadvantage.26 Contrary to conventional wisdom, research indicates that not every first mover will have an advantage. There is a tug-of-war between the situation when technology is disrupting an industry (likely first-mover advantage) and the situation when technology is creating an industry or leading a market change (unlikely first-mover advantage).27 Creators like Timbo and Nick faced a long, arduous path to scale that necessarily began with not only the creation of an entirely new industry but also the need to shape a new mindset for their prospective customers.
For M-PESA’s customers, the concept of having money stored in a format other than cash was a complete novelty. Thus, the idea of giving cash to a stranger with the promise it would be sent via mobile phone to its intended recipient was unthinkable. To overcome this, M-PESA had to educate its customers at length. As one of the early product managers reflects, “The first obstacle we encountered was the agents’ hesitation to pay out cash withdrawals . . . It was a brave shop assistant who opened the employer’s till and handed out cash because they had been sent a text message telling them to do so.”28
Similarly, regulators had never overseen a mobile banking platform. Would they be comfortable with having a parallel financial system operating outside the banks? Which regulator would be in charge—the telecom regulator or the central bank? In M-PESA’s case, as noted by one of the regulators in charge, “M-PESA was a gamble . . . Clearly, M-PESA is a classic case in which innovation preceded policy. In such cases, policymakers take the risk and, through system wide consultations, push for supportive policies.”29
For all these reasons and more, being a first mover to create an industry often takes much longer, and requires more endurance, than undertaking any disruption-type endeavor. But despite the first-mover disadvantage, Frontier Innovators succeed in building successful businesses. They enjoy the Creator’s advantage, as you’ll see next.
Capturing the Creator’s Advantage
Being a Creator is difficult, but it has unique advantages as well. Let’s explore four in turn.
First, creating new industries has the potential to create immense markets. This is one of the first questions a venture capitalist will ask: How large is the market? For many Creators, the market can be nearly unlimited. M-PESA is targeting a financially underserved market of two billion people. OkHi could one day serve the billions of people who lack street addresses.
Peter Thiel makes a similar argument in his book Zero to One, arguing that the best companies are creating new industries rather than playing in an existing sandbox. Going from “zero to one” requires enabling something that has never been done before.30 It is different from horizontal progress, where we see something that is already working and grow it or replicate it, resulting in incremental, “one to n” progress.31
Often Creators instinctively know they’re developing an important market. But they rarely know how it will evolve. When Alexander Graham Bell was awarded a patent for sending voice signals over an electric wire, could he possibly have foreseen the mobile phone revolution?
Benefiting from Competition
For Creators, competition is not always a bad thing. Here, Thiel would disagree. He often proclaims, “Competition is for losers,” meaning that by targeting new markets, Creators can build a monopoly and thus have the potential to capture a greater share of the opportunity.32 This can be the case; however, simultaneously, in large, created markets there is often an advantage to competition.
Seeing M-PESA’s success in Kenya, Vodacom (Safaricom’s parent company) launched a similar product next door in Tanzania. In Kenya, Safari com had a monopoly, but in Tanzania, two other telecom operators had significant presences, and each launched similar products. It took more than six years for Kenya to reach eighteen million users, but, in much less populous Tanzania, it took less than five years.33 Growth in other markets in West Africa has taken even less time. With more players, the large investments in customer education and infrastructure development are shared, and multiple brands in the same space can bring greater legitimacy in the public eye.
Gaining Ecosystem Support
Creators are often supported by the ecosystem around them. In the United States, Uber is probably best characterized as a disruptor of the existing taxi industry, but in emerging markets, Uber (like its ride-hailing cousins) is a Creator, legitimizing an informal economy. Its reception there was in line with the different ecosystem: by and large, the existing informal taxi drivers eagerly welcomed and participated in Uber’s platform. Regulators, too, often took a friendlier stance in emerging markets: of the locations where Uber is banned, all twelve are in more-developed markets across Europe, Australia, China, Japan, and the United States.34
This ecosystem support can take many forms, including a diversity of funding sources. In mobile money, for example, providers have received investments from impact investors, foundations, development institutions, and corporate social responsibility investment vehicles. The same is true in other created industries.
Expanding the Pool of Talent
Creators can draw on a larger pool of talent. Startups live and die by the quality of their teams, and it can be difficult to attract top talent. Startups pay less, involve higher risk, and require longer hours. But the most ambitious startups—the Creators—offer a higher calling: a real opportunity to change the world. Employees are often willing to work for less, stay longer, and work harder than in comparable noncreating roles. Startups can often attract candidates from other sectors like nonprofits or government. You will explore the nuances of human capital in chapters 6 and 7 and the social impact of Frontier Innovators in chapter 8.
Standing on the Shoulders of Giants
Creators don’t just build companies. They create industries. They are the giants upon whose shoulders their successors stand.
Not only did M-PESA become one of Safaricom’s largest and fastest-growing revenue streams (representing more than one-third of total revenues), but also it kick-started a range of industries.35 Nick Hughes has lived this himself. His next venture, M-KOPA, is an energy access startup (similar to Zola). With M-PESA as the payment platform, homes that use M-KOPA’s solar-powered lighting system can pay for daily or weekly use.
M-KOPA’s business model would never have been possible without M-PESA, because the collection of a large volume of daily or monthly subscription payments by cash is too costly. And as a bonus, creating an application that relies on M-PESA forged a symbiotic relationship. M-KOPA customers become better M-PESA customers—using the platform regularly, teaching others in their community, and trying yet other products that have sprung up on the platform.
Another industry that has been reimagined thanks to mobile money is microfinance. In its early days, a key insight was that the poor were creditworthy borrowers. By placing borrowers into groups with a sense of strong social accountability and shared responsibility on the loans’ repayment, microfinance lenders found that repayment rates were high.
But this insight was also the biggest challenge: the in-person nature of putting people in groups, making regular visits to collect money, and maintaining deep customer engagement is expensive. Companies like Tala, Branch International, and Safaricom’s own M-Shwari now offer consumer loans, relying entirely on the mobile money platform. These next-generation digital lenders, much like those in microfinance, also look for social signals to identify creditworthy borrowers. But they do this entirely digitally. By leveraging big data like phone-calling patterns, a customer’s social graph, and spending patterns, digital lenders can determine creditworthiness without the overhead of a field staff, physical cash collection, and antiquated technology. This revolution is predicated on M-PESA and its fellow mobile money Creators.36
As for OkHi, even though Timbo is much earlier in his journey, he is already enabling other industries. He interviewed ambulance drivers, and that inspired him to push for a solution to slow response times. He recently got his wish: a startup called Flare launched an ambulance platform in Nairobi whose rapid service is predicated on accurate addressing—enabled by OkHi.37
Where Are My Flying Cars?
I teach an MBA class on emerging-market entrepreneurship. My students often ask for my feedback on the direction of their business ideas. I am asked questions like, “Will this even be possible?” “Am I making things too hard on myself by trying to build this new idea that has never been done?”
I ask them, “Why are you doing this?” Almost exclusively, they tell me they want to make the world a better place. The reality is that building a startup, any startup, is extremely hard and takes a long time. If you’re going to work that hard, for a large portion of your life, you might as well build something meaningful. Or at least try to.
What’s exciting is that the Frontier affords us many examples of entrepreneurs creating new industries. Timbo and Nick are not alone. There are many more like them.
I tell my students they should be Creators. I tell them that others have forged ahead, and they should look to them for inspiration. Perhaps the rest of the Valley should look to them as well for inspiration for their next businesses and remember why they got into this game in the first place.