Lightbulb moment for M-Kopa
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When Jesse Moore and Nick Hughes decided in 2009 to leave their telecoms jobs and set up a company, they had three criteria for their venture: it would have to take advantage of mobile phone technology in emerging markets, particularly mobile payments systems; it would need to transform people’s lives; and it would need to show potential to become a $1bn company within a decade.
“We didn’t see any trade-off in the pursuit of building a really strong commercial business and making lives better,” says Moore. “What you had to do was focus on neglected customers and solve a really massive pain point for them — offer them something that’s phenomenally better.” The pain they chose to address was the relatively large sums that Kenyan households without access to the electricity grid were paying for what Moore describes as “really crappy energy” — kerosene to light their homes, batteries to power their torches and radios and a long trek to someone with power to charge their mobile phones.
The solution was M-Kopa, a solar-powered system that can charge two lights, a torch and a radio (all of which are provided by the company) and a mobile phone. It is run using a control box, which contains a mobile data chip, through which customers can buy credit for their power using mobile money transfers. The company can process payments, monitor the system’s functionality and tackle problems through its proprietary, patented technology platform called M-Kopanet.
Moore and Hughes, with banker and micro-finance expert Chad Larson, in 2010 founded the start-up in Nairobi that became M-Kopa the following year. The initial goal was to sell 1,000 units a week within three years. That milestone was reached within 12 months and now the 1,200-strong sales team, who work on commission and incentives, are selling up to 4,000 units a week.
For a down payment of 3,500 Kenyan shillings ($34) and daily instalments of Ks50 for a year customers are guaranteed power every day because the solar panels are much larger than the appliances need.
Peter Muinde and his wife Winifred — M-Kopa customers in Machakos County, 40km south-east of Nairobi — estimate they are saving about Ks20 per day on power. This is almost a third of what they were spending, plus they are spared the hassle of having to buy batteries and kerosene, or clean sooty residue off the house walls and ceiling.
“We’re using the money we save to buy books and school supplies for our four children,” Winifred says over the sound of voices chatting away on the radio in the background.
Mobile money technology combined with the latest solar systems have fuelled the rapid expansion and enabled the company to leapfrog east Africa’s poor infrastructure. “Whether it’s our business or other businesses, the conventional thing to say about Africa is it’s cursed by a lack of infrastructure,” says Moore, M-Kopa’s chief executive and a Canadian with an MBA from the University of Oxford.
“I really believe that if you’ve got an optimistic view of technology trends and the way they’re going both in off-grid energy, and data connectivity and financial services”, he says, “we can see Africa in general [and] east Africa in particular as a great hotbed for leapfrogging.”
M-Kopa has more than 300,000 customers, 80 per cent of whom are in Kenya, with the rest in Uganda and Tanzania. Moore says the goal is to reach 1m by the end of 2017 — or 4,500 new customers a week between now and then. The company is looking beyond its three current markets, having taken on a licensing partner in Ghana that is helping it assess whether a model of selling through other agents works.
High-quality customer service is also a key feature of M-Kopa’s success. This is achieved not only through employing scores of young, articulate people to answer queries but also by using the technology in the system.
“A customer called to say their lights were shutting off early in the evening and when we looked in the system we found that somebody was charging a bunch of mobile phones in the middle of the day when the owner of the system was out of the shop,” Moore says. “So he was able to conclude ‘I’ve got to lock up my system during the day or that person needs to be locked out of the store so they’re not draining my battery.’”
One potential weakness in M-Kopa’s business model is the dependence on M-Pesa, the mobile money system developed by Kenya’s dominant telecommunications company, Safaricom, to collect customer payments. But Moore describes it as a “pretty safe bet” considering that “it’s such an important product for the whole [Kenyan] economy.”
“The reason I moved here and the reason we started M-Kopa here is because of the reliability of the platform,” he says. “In other markets, such as Tanzania and Uganda, we have a decent platform but it is more of a struggle for us to collect, for people to understand how they can pay for their M-Kopa system.” But while the potential market for off-grid solar is 20m households in east Africa alone, selling solar panels for charging lights and radios is unlikely to create a $1bn company within a decade. The clue to how Moore, Hughes and Larson intend to fulfil their third goal is in the company’s name: “kopa” is Swahili for borrow.
Once customers have paid off their solar systems and thus demonstrated they are dependable clients they are offered the chance to remortgage their system in exchange for further products.
Fuel-efficient stoves and smart phones have been on offer for some time but it is the latest addition to the catalogue, an M-Kopa-powered television, that the company hopes will provide a huge boost to business.
If Peter Muinde, a motorcycle taxi driver, is anything to go by, they are correct. He became an M-Kopa customer in December and is desperate to get a television. “When can I get one, why not now?” he kept asking M-Kopa staff recently.
Moore refused to divulge what the next product would be. But Hughes, one of the brains behind M-Pesa, is now heading M-Kopa Labs, the company’s new research unit. “One thing we are not concerned about is that they don’t have ideas and ways to move,” Moore says. “It depends where we execute best.”
Investors appear excited about M-Kopa. The company has raised about $30m in equity and $25m in committed debt. The latest round of $19m of equity funding was completed in November. The lead investor is London-based Generation Investment Management, founded by former US vice-president Al Gore. Other investors include Sir Richard Branson, Virgin Group founder, and Steve Case, AOL co-founder.
Locating the company’s headquarters in Nairobi has been crucial to attracting investors, Moore believes. “To be able to design the stuff and think about it in Silicon Valley or London is one thing but then the actual application of the technology in the field involves a lot of rolling up your sleeves and getting a feel for the market and distribution.”
But winning that “ground game” is not easy, or cheap, Moore notes, when it comes to investing in technology in Africa. “Assume you have enough money to make your technology good,” he says. “Then you have to invest five to 10 ‘x’ over again if you’re going to implement it.”
Analysts are largely bullish about M-Kopa. Aly-Khan Satchu, a Nairobi-based investment analyst, says the company is “the first example of serious beef” among the hundreds of tech start-ups that have led Kenya to being nicknamed Silicon Savannah. “A lot of people have been drinking the start-up Kool-aid and there hadn’t been traction till now,” he says.
“M-Kopa is one of those that is leading the charge. It has shown that you can take nickels and dimes from the bottom of the pyramid and build a substantial business.”
Some analysts have queried whether the founders are the right people to lead the company on its hoped-for path of growth and the chief executive recognises this is a valid concern.
“I haven’t started a company before so I don’t know if I’m best at what happened for the last five years or what will happen for the next five years,” says Moore. “I certainly understand my role and all the senior roles at the company are transitioning from a founder-driven smaller start-up into very much a growth business with a lot of dimensions.”
Moore has hired a new chief operations officer, Carl Thielk, from Motorola, and a new sales director, Yesse Oenga, who ran telecoms services company Airtel’s operations in Uganda. They intend to expand the sales team to 3,000 people and increase production, most of which is done in China, to 10,000 units a week.
“I would characterise our priorities as breadth and depth,” Moore says. “We want to get a bigger breadth of customers on board as fast as possible. We also want to get a deeper relationship with those customers over time so they upgrade to other products.”