4 Lessons for Entrepreneurs From Africa's Solar Industry
Wherever you are in the world, offering a solution and way for the customer to afford the solution is what drives success.
In my opinion, the next hotbed of innovation is Africa, specifically the nations of South Africa, Rwanda and Kenya. Numerous industries are being disrupted at the moment, from the African mobile money market -- the undisputed leader of which is Kenyan startup M-Pesa -- to job hunting, by South Africa's Giraffe, a mobile recruitment app for low-income workers without internet, but with smartphones.
Yet the largest revolution that's sweeping across the continent's emerging markets is in renewable energy, specifically solar power. Today, solar is growing so quickly that of the nearly 600 million Africans living off-grid, experts estimate that approximately 10 percent are using clean, renewable energy to power their homes.
So how did solar come to dominate Africa so thoroughly? And specifically, what lessons can American business owners learn from the ingenious, resourceful entrepreneurs operating in the challenging conditions of the African continent? Plenty, as it turns out.
1. Offer small, decentralized solutions.
Without a doubt, solar energy faces considerable obstacles, not only in Africa, but internationally as well. The biggest barrier may well be integration into existing infrastructure, particularly power grids, which may not be able to accommodate the variability of solar -- cloudy days produce less power, for example.
African solar startups have taken this reality into consideration. They understand that building large solar farms, then connecting homes with extensive power grids is a lengthy undertaking that, absent public and government backing, can take years, if not decades. Instead, entrepreneurs have seized upon decentralization, skipping big infrastructure to bring power directly to the people.
Take M-Kopa, arguably the leader in African solar energy. The company's bundle, which costs $35, provides a solar panel, multi-device charger, several charging cables, lights, radio and a SIM card for mobile payment. M-Kopa has already sold 300,000 kits across Kenya, Uganda and Tanzania, leapfrogging extant power grids entirely and empowering their customers. Now that's not to say that big solar farms don't exist; rather, they're far less prevalent, and much less important, than the small-scale, personalized touch of a startup like M-Kopa.
The lesson here? Rather than relying on large, centralized networks, devise a decentralized, low-cost solution that could reach hundreds of thousands of households. One such example is Blockstack, a startup that uses the encryption-based technology Blockchain to guarantee anonymity while surfing the web.
2. Don't wait for the government to step in.
Related to the above tenet of decentralization, it's important to note that while government subsidies and intervention can help your business, such assistance may never come.
This is doubly true when it comes to many African nations. Consider this -- in 2014, Transparency International estimated that nearly 75 million Africans were forced to pay bribes -- often for access to basic services like water, sanitation and yes, electricity. Furthermore, poverty and bribery are inextricably linked, and as a result, those who pay the most bribes are also those least able to afford it.
With that in mind, two entrepreneurs founded Juabar, a Tanzanian franchise centered around small, solar-powered kiosks that offer cell phone charging. Rather than wait for the government to build the requisite infrastructure, Juabar's two founders simply stepped in and created a network of solar powered, micro-entrepreneurs. Such franchise owners earn, on average, between $75-150 per month, in a nation where the monthly average is around $45 per month. In the future, Juabar plans to offer Wi-Fi and other information services.
The lesson here? At the risk of getting political, it's true that certain, well-established industries receive a lot of funding and subsidies from the government. But if you're an underdog, don't despair. Even if the government ignores your industry in favor of those with powerful lobbies, you still have a fighting chance. How? Use low-tech, decentralized solutions, start at the grassroots level, and remember to...
3. ...take advantage of new technologies.
Given that disruption is the mantra for the digital age, this one should come as no surprise. To return to the case of M-Kopa, the startup's success -- a $19 million round of funding in 2015 -- owes a lot to the convergence of two factors.
First, consider that solar panels have been declining in cost. In America alone, the price of solar panels has dropped by 5 percent for residential households, and 12 percent for large-scale solar farms. Further, some reports estimate that the costs of solar energy will drop 60 percent by 2040, to three cents per kilowatt hour, which is far cheaper than gas or coal in many areas.
Second, recall the earlier mention of Africa's burgeoning mobile payments market, led by startups like Kenya's M-Pesa. Developed by Vodafone and its African partner Safaricom, M-Pesa revolutionized the payment landscape, allowing users to pay off anything from cab rides to M-Kopa's solar energy bills. In fact, MIT researchers have found that services like M-Pesa improve access to capital by the poor and increase their consumption -- a boon to startups like M-Kopa.
The lesson here? Leverage existing and emerging tech to carry out your core business better, faster and cheaper than the competition.
4. Build a profitable, but fair, financing plan.
Financing is something of a dilemma. Without a solid financing plan, potential customers won't be able to buy your product or service. But if your plan is perceived as unfair, you're likely to lose customers.
Take a look at Off Grid Electric, another solar energy startup that's quite similar to M-Kopa. Rather than force their customers to pay off loans at exaggerated interest rates, OGE charges its customers $7 a month for services. After three years, customers own their own unit. Considering that it costs around $100-140 per year for kerosene lamps and candles, users can save a lot of money by paying off their OGE unit within three years.
The lesson here? Balance company profits with customer interest to provide a win-win situation for everyone. After all, happy customers are repeat customers, and you can bet that both OGE and M-Kopa have ancillary products to offer.
Ultimately, given the numerous challenges that African solar energy startups face, it's logical that they would have much to teach entrepreneurs the world over. Ultimately, their most important lesson may well be the vital role of creativity. After all, without a forward-thinking vision and the courage to challenge existing circumstances, none of these innovative companies would exist today.
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