The innovation lesson from Futurepump
A systematic testing of business hypotheses. Is it working?
Ms Kinya Kimathi is the Distribution Manager and Ms Martina Groenemeijer is the Product Manager of Futurepump, a solar pump manufacturer with a manufacturing base in India and customers across Africa. Futurepump manufactures solar pumps targeted at farmers with one-acre plots with access to surface water.
Business is booming. Their main distributor in Kenya is Davis & Shirtliff, a leading supplier of water related equipment. In the six months since the partnership was signed, Davis has imported three container loads of pumps from the company’s manufacturing facility in India and ordered two more. Each container has 200 pumps. Davis dealers are facing stock out situations.
This is a dream situation for a start up. Marc Andreessen, the legendary Silicon Valley entrepreneur, would have called this the product market fix: “being in a good market with a product that can satisfy that market”. “You can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it.” Futurepump’s journey is a useful lesson in getting to this state.
It all started with one customer: Joshua, from Kendu Bay, located on the shores of Lake Victoria, Homabay county, Kenya. Joshua was a teacher and head of a farmer group. He had been exposed to new farming technologies by his involvement with development projects and he started promoting Futurepump’s product. Joshua was an early innovator.
In the early days, Futurepump tried to figure out who the customer is. People working in Nairobi who also owned farms upcountry? Subsistence farmers? By closely listening to customer feedback they realized that their customer was a one-acre farmer growing high value crops — mostly fruits and vegetables — and with income to be able to buy a USD 750 product offered on a loan.
Working back from the customer, the company developed their business model in three fronts: the product, the distribution and the credit offering.
Initially the company focused only in the Western Kenya region: Siaya, Kisumu, Kitale and Homabay counties. They interviewed their first 400 customers and realized that were two segments: those who had previously used “petrol” pumps and those who had previously did not use any pumps but depended only on manual irrigation. For the first set of customers, the value lay in reducing the costs of fuel or the costs of hiring (some farmers hired the petrol pump and had to pay hiring costs in addition to fuel). For the second category, the value lay in saving time and expanding the area under irrigation. For the first set it was costs, for the second it was effort.
With these parameters in mind, the company introduced its first product in June 2016: a robust portable surface water pump with an 80 W solar panel and discharge of 2200 liters of water per hour. The discharge was less than that of an equivalent petrol pump which meant that farmers did not flood the field, washing off nutrients. They used storage tanks and drip irrigation thereby saving water and adding a sustainability benefit.
On the distribution strategy Futurepump knew a lot of effort was needed to develop a sales and service channel, and they could not do it on their own. They tested margins and incentive structures carefully with the first 20 dealers. They also approached large distributors. In fact, three years ago they approached Davis who was initially not interested. But over the years as sales grew and other solar products (such as lighting solutions) became popular the conversation with Davis was reignited. In 2017 Davis was signed as the main distributor and the existing dealers started buying from Davis. The transition was seamless as the dealer margins had been worked out with prospects of a future in-country main distributor. In fact, Davis reduced the wholesale price because of economies of scale.
Finally, on the credit strategy, the company initially offered credit to under 100 of its customers. The terms were an upfront payment of Ksh 15000 (about USD 150) and monthly payments of Ksh 2500 (about USD 25) for 22 months. The idea was to test payment terms and ability to repay. Again, the idea was to never develop financing on its own but to learn about financing products that work. Futurepump has now tied up with SolarNow, which has entered Western Kenya. At the time of writing, they already have eight branches with another branch opening in about a month. About a quarter of the solar pumps sold in the last six months have been with credit provided by SolarNow.
Futurepump provides many lessons in innovation. Peter Drucker, the father of the modern management, in his book Innovation and Entrepreneurship observed that successful innovations “start small. They are not grandiose.” Indeed, he said they better start small, requiring at first few resources and a small market to provide the time to make the adjustments required for success. But at the same time, while innovations should start small, they must also aim at market leadership. Futurepump started with a small market in Western Kenya but from the outset had decided to be a leader. Their goal was to tie up with a major distributor and they painstakingly built the evidence base that made the distributor interested in the partnership.
Futurepump’s journey also echoes the recommendations made by Eric Ries, a Silicon Valley entrepreneur who wrote The Lean Start Up. Eric recommends that entrepreneurs “see for themselves” and test out the leap of faith assumptions that lie behind the Value Hypothesis (which tests whether a product or service really delivers value to customers once they are using it) and Growth Hypothesis (which tests how new customers will discover a product or service). Futurepump tested the Value Hypothesis as they tested the product characteristics and the Growth Hypothesis as they worked on the distribution and credit strategy.
Futurepump is now trying to replicate their model in other African countries. Will other African markets be like the Kenyan market or would they need to go through the same process of learning in each country? Time will tell. In the meantime, Ms Kimathi and Ms Groenemeijer can congratulate themselves on one job well done.
