Finding viable solutions to deliver financial and non-financial digital services to Kenyan small holder farmers may sometimes feel comparable to discovering the lost city of Atlantis. Both pursuits, led by explorers enamored with fulfilling activities, often conclude in more failures than successes. Fortunately, there are many Kenyan explorers: AFA’s Ecosystem Review uncovered at least 125 potentially sustainable technology firms that aim to offer a range of digital solutions that may be particularly useful for farmers seeking useful agricultural finance and information.
Mercy Corps’ AgriFin Accelerate Program recently conducted technical assessments and strategic appraisals on five brave explorers – small technology companies — traversing the largely uncharted small holder market. The review exercises involved a high level technological assessment and SWOT analysis with specific focus on business models, operations, organization structures and the robustness and security of technology platforms. Known to us as Value Added Service Providers (VASPs) and typically comprising early stage start-ups that have begun to gain traction with small holder farmers, the owner entrepreneurs possess more energy and motivation than can be summoned from an energy drink. VASPs are beginning to provide much needed services to small holder farmers ranging from digital training on farming practices to transportation logistics, input purchases, market pricing and market linkages for the commodities produced. VASPs have taken advantage of the ubiquity of mobile money to accept remote digital payments and reduce farmer reliance on costly brick and mortar roll outs to take advantage of trusted, demand-driven digital services.
The initial findings of the technical reviews noted that many of the VASPs are progressively approaching a positive profit before tax (PBT) with increasing small holder farmer adoption. Understanding the factors that are making this sustainability possible and facilitating innovative business partnerships are the mainstays of the Mercy Corps AgriFin Accelerate program. The following are some of the key insights we have gathered from these technical reviews.
1. Business models that add up
Having a clear business model (with defined markets and use cases) is a point that has been belabored, yet oftentimes remains an afterthought. Through our reviews and engagements with VASPs we have come across some cases of tails wagging dogs, as the VASPs struggle to discover working propositions and pricing strategies that meet the expectations of their target markets, while basking in the glow of their software development. This situation is a clear challenge faced by some VASPs offering digital training and information services to farmers, for example. The old premium short messaging service charges to farmers and pushed repetitive information have been met with disapproval often leading to large number of drop outs. One of the organizations in this vertical that enables farmers to “pull” learning materials has taken to charging the content providers and offering the service for free to farmers. This model has seen increased service uptake, reaching to date more than 100,000 farmers who regularly use the learning platform.
For the lucky few that stumble on workable models, they often miss the strategic pivot to achieve takeoff velocity principally because they get consumed with operational activities demanded by their slow growing customer base and take their eyes off the business of making profits on demand-driven products and services.
2. Sufficient skin in the game
Some of the startups we reviewed were characterized by insufficient equity and retained earnings to invest and run the business, presenting a challenge to future scaling potential. In Kenya it is reported that 1 out of 3 startups fail due to “starting out with too little money” to sustain the business as it attempts to get the business basics right. Often, owners start their business based on brilliant technology ideas and less on the operations required to run the business and make it successful. Thus many VASPs find it difficult to grow beyond the proof of concept. Without adequate cash flow and working capital, slow sales can burden the business before it has a chance to gain momentum.
3. Management, governance and strategy
A famous quote states that ‘if your only tool is a hammer then every problem looks like a nail.’ Our study found that many of the VASPs with good business models lacked certain management competencies that are essential to scale efficiently and effectively. In one example the need for advanced logistics and supply chain management skills was a clear barrier to continued profitable expansion; in other cases it was lack of strategic thinking on information technology as would ordinarily be steered by a competent chief technology officer.
Challenges in management often exhibit themselves in unclear growth strategies, low investment in product development or adjustments, and unsubstantiated go-to-market strategies. These gaps are sometimes addressed through strong participatory boards of directors with an independent chairperson who provide the strategic oversight to navigate the management challenges. However, we have also observed strong boards that have been known to exert too much ill-informed authority and such intervention may dull the entrepreneurial passion.
4. Products that address a clear need in the market
Developing products that do not meet a clear market need is another finding from our experience. Innovators tend to get excited to put a product into the market believing that innovation alone will gain market traction. Most of the time the first product that the VASP brought to market did not meet a clear demand or was difficult to monetize. We witnessed that the agile VASPs pivoted from these initial products after a few iterations. Typically, the successful ones were supported by user testing and experience, and were eventually able to get the product and market fit right. Sometimes product re-development took rethinking and complete redesign of their proposition, and then more iterations to ensure farmer insights shaped the proposition.
5. Technology and scale
Through our technology assessment process we found a number of the VASPs missed out on critical elements in building their technology platforms that have the capacity and robustness to scale quickly enough to manage the growing customer adoption. The VASPs often did not take enough time to think about how their platforms will perform when orders double or triple, how to manage outages, system breakdowns and basic dashboards on system downtimes whether scheduled or random. They also lack a clear technical development roadmap and made non-strategic decisions on hosting, provisioning test, development and production environments.
6. Marketing Considerations
We also found from the assessments that some VASPs got consumed in the sales fulfillment process and spent little time building marketing propositions that would gain strong brand loyalty, high usage, in-depth analysis of the 4 marketing Ps, especially promotion was lacking. They often looked at the surface requirements of customers and didn’t dig deep enough into the voice of the customer to lead to compelling marketing and communication strategies to secure their share of the targeted customers’ mind and wallet. As a common African proverb goes ‘Dogs do not actually prefer bones to meat; it is just that no one ever gives them meat.’
Use of basic human centered design research techniques could go a long way in ensuring many of these VASPs are truly addressing their consumers’ needs and communicating the right messages.
7. Founders Syndrome
Lastly, but not least of all, and perhaps an inconclusive insight, some of the VASPs portray early signs of ‘Founders Syndrome,’ which may occur when the founder of an organization fails to yield and share control over the organization’s reins and prevents it from adapting to changing circumstances. Granted, founders are generally innovative, passionate, entrepreneurial and visionary. Unfortunately they are also often impervious to change, inflexible and sometimes may unconsciously prefer status quo to the detriment of the organization. The hold of the founder on the business may cause it to stall or fold up altogether.
At Mercy Corps AFA we have no doubt that digital financial services in Kenya have enabled some VASPs to flourish. The possibility of convenient, trusted real-time payments through mobile makes many of their products and services viable and scalable in the small holder market. Nevertheless, those which have been successful or appear to be on the cusp of success have strategically addressed the above insights and built start ups that are on the highway to success and in turn provide the smallholder farmer with an opportunity to participate in meaningful economic activity, build their farms and improve their resilience.
Sieka Gatabaki, the Digital Financial Services Specialist
Lucy Kioko, the Agricultural Specialist, AgriFin Accelerate Program, Mercy Corps
AgriFin Accelerate is a program implemented by Mercy Corps and supported by the MasterCard Foundation and aims to increase access to digital financial and informational services for one million smallholder farmers in Kenya, Tanzania and Zambia over the next six years. The program will also works towards increasing the volume and velocity of electronic payments, bundled with information services.