08 Sep

OLX Kenya Country Director Peter Ndiang’ui speaking during the August 20 session of Power Forum held at SCI PhD Lab.

Business model creation is a rigorous  intellectual process that  involves thinking and knowing in advance whether that business idea will be fruitful. If not, it is abandoned entirely for something else that works-and works better.

First and foremost, it is very crucial to know whether the idea itself is ‘disruptive’. This, according to Peter Ndiangu’i, is one that “transforms a complicated, expensive product into a simpler affordable one”.

Also, the OLX Kenya Country Director believes that the idea in question “should make good products better”. Paraphrased, Mr. Ndiang’ui again sees a disruptive innovation as one that is efficient. That is , process improvement takes out costs. Moreover, considering that the idea may not be a ‘process improvement’, it must still be cost-effective and has a coherent economic value network.

That explanation squares well with what Clayton Christensen and others have written in The Innovator’s Prescription  which outlines that disruptive innovations are ” low-cost, built on regulations  and standards that facilitate change, have an economically coherent value network as well as employ sophisticated technology that simplifies”.

But in case the reader fails to grasp what the authors have described beforehand, Christensen et al. advise them to take a rather easy route to figure out the nature of their innovation. Thus the authors begin by asking:

What makes an innovation disruptive? It is not just the magnitude of the advance… if it works to sustain the existing business model, it is not disruptive…[it is] a change in business model from the existing one to a new one  which is more efficient and/or better addresses the demands of the consumers is the key.

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Mr. Peter Ndiang’ui delivering on ‘Business Model Creation’ at Power Forum on August 20 this year.

Next, determine whether the innovation fits in any of these three categories of business models: ‘Solution Shop’, ‘Value-added Process’, or ‘Facilitated Networks’. Here, as cited in a PowerPoint presentation by John Roport  of the Institute of  Health Economics (Alberta Canada), Christensen and others describe the types of business models as follows:

  • Solution shops are structured to diagnose and solve unstructured problems using highly trained experts. E.g., diagnostic work in general hospitals.
  • Value added processes generally take incomplete inputs transforming them into complete outputs of greater value. These procedures are possible after a definitive diagnosis has been made. E.g., laser eye surgery. 
  • Facilitated networks are enterprises where people exchange things with one another. E.g., web-sites to connect people living with a chronic disease.

Next, proceed to design the actual business model with the following guideline in mind: begin by defining certain essential aspects that must be factored in your model. Such components entail specified ‘Value Proposition statement’, ‘Key Activities’,’Channels’, ‘Key Partners’, ‘Cost Structure’, ‘Customer Segments’, ‘Target Margins’, ‘Revenue Streams Model’, and ‘Key Resources’.

Details of each component can be found at Inc.

Lastly, test to see  if the model works. If not, fix it, or abandon it for what really works. Indeed, it can be known whether the model is fruitful if, among other things, it “models reality very well.” This is due to Peter Ndiang’ui, one of the leading techpreneurs in Kenya.

 

About the writer

Moses Omusolo is the Social Media Manager, C4DLab.