Building & Succeeding in Africa: How Did Safaricom Do It?

Safaricom is about to start operating in Ethiopia, what can African entrepreneurs learn From Safaricom's meteoric rise?

To hear Michael Joseph—Safaricom’s founding CEO—tell it, Safaricom started from a rented apartment with a mega team of only five individuals. Twenty-two years down the line, the company has over 5500 direct employees, and more than 500,000 indirect employees.

For context, that is the approximate number of jobs Kenya created annually between 2015 and 2019 in the informal sector.

Informal & Formal New Jobs Created Between 2015 and 2019

Source: Statista

Safaricom is arguably the most profitable and successful company in East Africa. It became the first company to hit the 1 trillion Kenya Shillings mark at the Nairobi Stock Exchange (NSE) in 2018.

Last year (2021) in May, under the Global Partnership for Ethiopia (GPE), Safaricom won a 15-year licence to operate in Ethiopia. The licence covers both voice and data, and later this year, Ethiopia has promised to upgrade the licence to cover mobile money.

In an interview with Business Daily Africa’s Julians Amboko, Safaricom CEO Peter Ndegwa declined to speculate on a possible Average Revenue Per User (ARPU) in the Ethiopian market but expressed his confidence that the business case is incredibly positive.

Ethiopia is equally optimistic. The country hopes Safaricom’s entry will generate millions of opportunities. Safaricom is determined to meet this hope, with Anwar Soussa, the CEO of Safaricom Ethiopia saying they are committed to creating and sustaining over 1.5 million jobs within a 10-year period.

With such a ringing endorsement, one can only assume that Safaricom is set for unprecedented growth and barrier-breaking success in the next few years.

But how did they do it?

Safaricom Stayed at the Forefront of Innovation

Before financial technology (fintech) became what it is today, there was Mpesa. Before Venmo, there was Mpesa!

Mpesa is the world’s first mobile money service and its success has cemented Kenya as the origin of mobile money. Launched in 2007, Mpesa facilitates transactions via a sim card. The M stands for money and ‘pesa’ is the Kiswahili word for money.

With a sim card and a mobile phone, one can deposit and withdraw money, pay for services & goods, save money, access credit and transfer money.

Mpesa:

• Boasts of 42 million users across seven countries in the continent, with 26 million of those users coming from Kenya

• Controls over 50% of international money transfers into Kenya

• Handles over 21 million transactions on a daily basis

• Is fast becoming the default payment platform in the region

When Richard Quest was in Kenya, this is what he had to say about Mpesa.

When you see a hawker or a newspaper vendor accept payments using Mpesa, that is how you know it is big.

Richard Quest, interview with Kenyan journalist, Victoria Rubadiri.

With the company’s trend for innovation, Safaricom laid the foundation for eCommerce in the country by introducing Lipa na Mpesa which translates to ‘Pay with Mpesa.’ The service allows a user to pay for goods and services with their mobile phone.

Beyond Mpesa, Safaricom was Kenya’s first 4G network. That positioned Kenya as one of the early adopters of 4G in Africa. More recently, Safaricom has launched 5G, making Kenya the second country in Africa to roll out 5G.

At each step, Safaricom has embraced innovation—daring to go where no one has gone.

Lesson? Embrace innovation.

Safaricom Built a Nuanced Product That Fits the Kenyan/African Market Without Sacrificing Global Appeal

Nuance is the key word!

Investors often cite a lack of sufficient infrastructure and low purchasing power as a deterrent to building and investing in the continent.

For prospective tech investors, the biggest hindrance, they say, is the lack of an exit history in the form of successful strategic sales or IPOs for startups in the region.

Here is the thing, Safaricom still succeeded.

To accommodate the low purchasing power, they kept the Mpesa transaction fees low and focused on acquiring critical mass. According to Michael Joseph, because the transaction fees were so low, they needed millions of transactions to turn a profit.

In the first year of launching Mpesa, Michael Joseph set a target of 1,000,000 users and promised to fire the employees if they did not deliver. The employees delivered and the one million users became the critical mass needed for Mpesa to take off.

Since then, Mpesa has grown steadily and has consistently been a top revenue generator for Safaricom despite the low transaction fees. In 2021, Mpesa surpassed voice revenue to become Safaricom’s biggest revenue generator.

Source: Statista

To deal with the lack of adequate infrastructure, one, they built it and two, they worked with what was available. A good example was the inadequate banking infrastructure at the time.

In 2006, a year before the launch of Mpesa, only 14% of Kenya’s adult population had bank accounts. This figure has risen significantly but as of 2021, 17% of Kenya’s adult population is still unbanked.

Safaricom took this into account and created a product that did not rely on banks. As a result, they did not lock out a big chunk of the population.

Compare this with Venmo, a mobile money service launched two years after Mpesa. It is similar to Mpesa, but it requires a widespread banking infrastructure and use. If Safaricom had launched something similar to Venmo, it wouldn’t have worked because of the large unbanked population.

Mpesa worked because it was nuanced enough to address the issues specific to Kenya and Africa at large—57% of the African adult population is unbanked.

Another adjustment Safaricom made to accommodate the low purchasing power was to ensure that Mpesa would work on even the most basic of handsets. They intuitively understood that majority of the people in Kenya and the continent could not afford an expensive handset.

Interestingly, this is a trait that has become part of the company’s DNA—understanding the unique market needs and providing nuanced solutions. So much so that with the roll out of 5G, they have partnered with Google to introduced lipa mdogo mdogo (pay slowly) which allows an individual to purchase a 5G enabled phone via friendly installments of twenty Kenya shillings (approximately $0.2) daily.

Lesson? Prioritise building solutions unique to the local market. Safaricom has proven that building and succeeding in Africa requires nuance. Take into account the unique pain points and adjust for them.

Safaricom Perfected Mass Market Appeal

Mass market appeal is a tough nut to crack.

You might have a product that fits the market like a glove and the most innovative and exciting features/benefits for the end user but still fail to catch the market’s attention.

Going by Safaricom’s playbook:

• Guarantee ease of use

• Investing in a large distribution network

• Choose the right color

Safaricom spent ten million dollars in their first year of investing in Mpesa to set up a distribution network.

That ensured that wherever a user was in Kenya, within 200 metres, they were bound to find an Mpesa agent. It allayed the fear that one could receive money and be unable to access it because of the lack of an agent. More so, it appealed to the unbanked because one of the biggest reason they were unbanked was their location—the banks were too far away!

Of course this will look different for every product. Sometimes, a distribution network simply means ensuring that the mode the market is using to interact with your product is easily accessible. Other times, it means picking a less advanced technology as you wait for the market to catch up. By all means, think about your distribution network.

Regarding ease of use, I will quote something I heard from a random stranger in the streets of Nakuru, Kenya.

Ata cucu yangu na vile ni mzee anajua kutumia Mpesa, na ata kusema mtu atume ya kutoa (Even my grandmother, who is incredibly old knows how to use Mpesa, including making sure that anyone who sends money takes care of the withdrawal fee)

It is as simple as that! To appeal to the mass market, make it easy for people of different generations and backgrounds to adopt your product.

And this is especially critical in the continent because Africa is incredibly diverse. You cannot afford to not account for the diversity!

It is interesting that one of Safaricom’s biggest competitor at the time (Kencell which then became Airtel Kenya) lost ground because they were not willing to appeal to everyone. They marketed their product to the corporate sector and the corporate sector alone. The exclusivity disadvantaged them and years later, after rebranding several times, they are still struggling.

As for the green colour, Michael Joseph said it best.

The most strategic decision my team ever made was selecting green as the brand’s colour. It was instantly recognisable and it tugged at the heartstrings of an average Kenyan. It was perfect!

Green is one of the colours in the Kenyan national flag. Kenyan people already had a connection to the color. The color endeared the brand to the mass majority.

Lesson? If you can, avoid niching out and target mass market appeal. It gives you a bit of wiggle room when setting a price point. You will not need to set the price too high to make a profit.

What Safaricom’s Success Means

That it is possible!

Building wildly successful businesses in the continent is possible. Is it a little harder? Maybe. Does it require a smidge more creativity and innovation? Absolutely.

But hey, anything worth doing is never easy, no?

As an entrepreneur or budding entrepreneur in the continent, what else has Safaricom’s success taught you?