One year on – looking back with hindsight

It’s been a while and we thought it’s time for an update

Webuye, May 2016

One year on – looking back with hindsight

We’ve been busy – in a good way but want to use the first anniversary of sales as an excuse to taking some time to reflect and share some lessons learned over these last 12 months, looking back what may have been good to know with hindsight.

You may recall that we built an MVP to test the hypotheses that people will buy and pay on time for the services and products we offer and that we started with a very simple sales process that has been evolving over time.

Here are the three main hypotheses we were working on and where we are at now.

There is a big demand for our products and services in our region to justify setting up a for profit business

Yeah, right, obvious, you may think. Well not so obvious. There is relative high awareness for solar products where we are based and the demand is high but what about cooking devices or clean water? We try to introduce new products in a very controlled way. We tend to only believe half of what the manufactures claim and instead let some clients try samples for a while so we can get feedback from them before deciding which product to offer.

Once, we did not do this and tried selling without prior testing and we failed. As mobile phones are ubiquitous it seemed pretty obvious to us to start offering a simple phone on credit as some of our clients didn’t have one and used the husbands phone to pay us. No one is interested! The problem here, we believe, is that we can’t compete on price as most phones being sold in the markets are second hand, and even new phones are mainly sold without VAT avoiding the taxman. Small market traders working on their own can live with lower margins to eke out a living. While we knew that, we didn’t know that at the price point offered, the added value of buying in instalments was virtually useless. People are able to afford it and are perhaps less risk averse because the product is well known so credit as a risk mitigation tool isn’t necessary.

We’ve also learned that the rural market is not a homogenous mass of consumers yet to be tapped. The consumer living in Webuye town is much closer to a Nairobian than her cousin living 5 km into the rural areas. Having reached 1,200 customers in a year from inception, we’re very confident that there is plenty of demand. How to match the technology needs and aspirations of these segments to our offer will, however, be a continuous process.

Almost all our clients pay for the goods they buy on credit on time

This is one is a lot less obvious. Even today, when we disclose our repayment rates, people do either not believe them or dismiss them as our sample is still small in their view. Perhaps our sample is still small and so we are determined to build a large enough track record to prove that ‘poor’, un-banked rural families without formal credit histories are not necessarily bad payers and can handle credit when given the right incentives – even for non-productive assets.

A year in, we know a little bit more but we believe we need to get another full farming cycle under our belt. People’s income is season-dependent, so is the mix of products that move fast. Those living in town and mainly live off non-farming income are not necessarily better payers, perhaps even the other way around. Social cohesion and pressure may work a little different than deep in the rural heartlands – 5km away.

We’ve learned that credit is necessary to sell but not only for affordability but also to mitigate the technology risk. When the consumer is unfamiliar with a new technology that they may have never experienced firsthand it becomes more attractive to pay in instalments; if the gadget fails after a few days, weeks or months, I stop paying and I limit my loss. Thus it’s so important to offer high quality transformative products.

Disentangling that from the affordability to develop the right pricing structure to further reduce arrears will be work in progress but we have tons of data on repayments that are constantly being analysed and evaluated.

But we now know that it is not about extending the credit terms to lower the value of the instalments as low as possible or matching with existing expenditures but it is about offering the right conditions where the consumer can pay quickly (they tend not to be comfortable with debt as this is not usual for them) but with terms long enough to try and see if the products does deliver while paying reasonably sized instalments.

We know how to sell our services in the most cost-effective way so we can make money

In Customer Validation (call it pilot, seed or early phase if you wish) the aim is to learn as fast as possible in order to find and validate a scalable business model and the focus is not in making money. The making money part of the game comes at scale but for that, one needs to have found the right model first.

Unfortunately, sales models for consumer durables that truly work at scale do not exist. Lots of innovation is happening around the planet but most models are still – after 5 or 10 years and more – heavily grant subsidised. At least for rural consumers in Kenya we had to start from scratch with some experiments. We are now in our third iteration of our sales process and this is still work in process, of course. But so far we have discovered stronger market segmentation than expected, as mentioned above, and most crucially the fantastic role clients, especially women, can play in our sales process.

Our very subtle pivot compared to our early days is that we have become a totally women-focused business. Women are our target customer group because they are the ones that can benefit the most from the products we offer, as they tend to stay at home and are in charge of most household chores. Also, they have also incredible social networks that are crucial in our model. They may lack the power to have the final say when making an investment decision at home but by including their husbands in our meetings we help them with their discussions.

As we have been selling to groups of clients since inception, we now  recognise  the power the leader of the group has in influencing others. We reward clients who go beyond the pure purchase for themselves form more groups and bring us new clients. This attracts women in particular because of their strong social networks: 90% of these incentivised leaders today are women. And these are the ones that bring us 80% of our clients, which have been recruited by other clients.

A crystal ball should have pointed out that the famous network effect that any new online service or product is looking for as their holy grail, can also work without all the tech as our model relies heavily on the social cohesion that exists in rural areas.

Because our clients buy the same product, at the same time and with the same conditions in small groups, they share the same pains and gains. Would you be more inclined to pay up quickly if you’re late on your instalment when an anonymous loan officer gives you a call or when your neighbour asks you nicely not to let the whole group down? Would you call an anonymous help line when you are unsure about how something works again or your friend who seems more confident with new tech? Would you buy this new thing you saw for the first time in the market (gosh they were loud and aggressive those sales people) or would you buy based on your friend’s recommendations?

Lessons learned

Favourite Steve Blank’s Manifesto line: “if you are afraid to fail you are destined to do so”.

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