Market-creating innovations develop new growth engines for companies and create entirely new industries upon which economies can build and thrive. They transform complex and expensive products into simple and more affordable products, making them accessible to a whole new segment of people in a society who have not been able to buy a product or service simply because it was not affordable or accessible to them. Market-creating innovators find a way to change that and in the process, create new markets. They represent the best version of capitalism: both consumers and companies win.
Since 2008, more than 200 Harambeans have developed high impact ventures in Africa with lasting social and economic impact that have not only attracted more than $400 million from investors but helped to create more than 3 000 jobs. Much can be learned from the insights and success stories of Harambeans and other enterprising entrepreneurs in developing economies.
1. Every market has potential for extraordinary growth within it
Innovators must first understand that there is significant opportunity in frontier markets, which are underdeveloped. The opportunities in these markets do not (and should not) resemble opportunities in economically developed markets precisely because the fundamental makeup of these markets is different. They are, typically, filled with many more “non consumers”. The market is not obvious, but signals vast market-creation opportunity.
2. A market-creating innovation is more than just a product or service. It’s an entire business model.
The organizations that thrive in frontier markets understand that they have to rethink their entire business model. That business model may not resemble a similar business in a more developed economy, but the key is that the entrepreneur has found a way to design the business so that it actually has a chance to succeed.
3. On technology: borrow first, invent later
There is a misconception that companies in frontier markets must invent new products and technologies in order to target customers in those markets. Existing products and services are just too expensive for them and so, newer, lower cost options must be invented to be successful in these markets. This couldn’t be further from the truth. Innovation is not the same as invention—and invention is not essential to create a new market. Invention describes the process of creating something entirely new that has never existed before, while innovation is a change in the processes by which an organization transforms labor, capital, materials and information into products and services of greater value. Innovations, which include a particular technology, are often borrowed, from one country to another and from one firm to another, and then improved upon. Organizations in frontier markets can borrow first and invent later.
4. Don’t wait for institutions and infrastructure to be perfect. You can help create them with successful innovation.
Many companies are reluctant to invest in developing economies until it’s clear that institutions and infrastructures, such as well-developed capital markets, education and healthcare systems, and electricity have taken root. But history has shown us, time and again, that market-creating innovations can actually trigger the development of institutions and infrastructure, initially with rudimentary “work arounds”, but eventually triggering more sophisticated developments. Once a new market is created that is profitable to the stakeholders in the economy (including investors, entrepreneurs, customers and the government), the stakeholders are often incentivized to help maintain the resources the market has pulled in – such as infrastructure, education and even policies. This, we believe, has a significant impact on long-term and sustainable prosperity.
Market-creating innovators in Harambe are focused on building businesses that not only help their customers, but will thrive in the long term. In the process, they are actually helping to build their countries, too.
Adetayo Bamiduro H’15 is a great example of a market-creating innovator. Through a summer internship with e-commerce platform Konga, an Amazon-type service in Nigeria, while a student at MIT’s Sloan School of Management, Bamiduro did extensive research into how Konga was struggling with “last mile” delivery to get orders into the hands of customers. When he graduated, Bamiduro and his MIT Sloan classmate, Chinedu Azodoh, founded MAX (Metro Africa Xpress) in their home country of Nigeria to create a more efficient, technology-driven, platform to fill that gap.
In the process, Bamiduro and Azodoh realized that for them to create a new and reliable infrastructure to accomplish efficient last-mile delivery for customers, they had to actually build more infrastructure. They needed a network of drivers who were licensed and properly trained. They needed to create ways for drivers to safely collect payment for their services through a mobile phone wallet. They needed to help drivers find ways to finance and purchase their own vehicles. “It was like we were seeing the opportunity at first, as the part of the iceberg that you can see above water,” says Bamiduro. “Our frustration with the non-existent infrastructure forced us to innovate and go down the value chain. Once you dig in, you discover there is so much missing.”
MAX has grown beyond a last mile delivery service to add messenger services and transportation services for people who need to get somewhere quickly. “Each time we developed a new layer, we found another layer that was missing,” he says. And that, in turn, grew into a very substantial business. At the time of writing MAX had contracts with 1,100 drivers, 85 full time employees, and is planning to triple that in the next six months.
MAX was able to do this with the help of an impressive array of partners who saw the potential in what the company was building. MAX has raised $9 million in investment to date, including $7 million from an elite group of strategic investors from the US, Europe, Asia and Africa. The newly launched Harambeans Prosperity Catalyst, a rule-based co-investment fund established by Cisco aimed at accelerating the growth of market-creating innovators in the Harambe Entrepreneur Alliance, is another investor in MAX.
“This isn’t just about building mobile apps,” says Bamiduro. “It’s about creating financial, technology and operating infrastructure where it never existed.”
Karen Dillon is the former editor of Harvard Business Review and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty with Clayton Christensen and Efosa Ojomo H’17.