You’re an entrepreneur with an interesting product that’s starting to gain traction. You’ve spent 6 weeks tracking down what looks to you like the holy grail of business development — the perfect long-term strategic partner. This partner gets the value of your business because they’re in your industry and they’ve seen the pain points you’re addressing first-hand. You’ve invested in meetings, hours of phone calls, and multiple iterations of an MOU outlining the ways the partnership will aggressively benefit both of you, in a market that’s becoming more and more competitive year over year. Your contact is bullish and has done well to promote the partnership internally. You triumphantly send off what you’re sure is the perfect final version of your agreement — after all, it’s exactly what they asked for.
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Then something surprising happens: nothing.
Going under water
In Kenya, this phenomenon is so common there’s a name for it: ‘going under water.’ Without warning, the director for business development who’s been championed this project for as long as you have stops picking up the phone or responding to emails. A month later, with no progress on your partnership, it’s time to look back and assess — what happened? The answer in this case and countless others when roadblocks seem to appear out of nowhere, is misalignment of incentives.
You carefully designed a win-win for your startup and your partner, but you forgot to consider individual interests. At his organization, no one’s ever been let go for a project never seeing the light of day. On the other hand, going out on a limb and failing is a real career risk and bears little opportunity for personal recognition. Foot dragging, going under water, these responses can be deeply rational individual decisions within the context of an uncertain environment where rewards for risk-taking are low to non-existent.
Misaligned incentives are all too common, and account for the majority of challenges startups experience, especially in markets like East Africa.
Look at every stakeholder as a gatekeeper
An example from an industry close to my heart — transit. Google Kenya’s BebaPay, in addition to other NFC-based cashless payment systems that have emerged in Kenya over the last couple of years may well be the solution to a slew of very real problems in the public transit world (and other verticals). Merchants are hassled constantly by corrupt police focused on and fueled by the tremendous volume of visible cash transactions that occur every day on Nairobi’s streets. Chairman of the Matatu Owner’s Association (MOA) and a well-known spokesman for transit in Kenya, Simon Kimutai thinks removing cash from buses is the key to defeating low-level corruption. But if there’s one challenge cashless payments need to overcome, it’s misaligned incentives.
Who stands to benefit most from cashless payments on buses? Bus owners (who will gain real data on revenue collection) and bus passengers (who will avoid frustrating and costly overcharges through pricing transparency).
But who’s the gatekeeper? The vehicle’s staff — the driver and makanga (conductor) — who believe they stand to gain very little from this new technology and may in fact see reductions in their take-home pay as a result of the added pricing transparency (fewer opportunities for overcharging). These gatekeepers control the service because they operate the vehicle, and in BebaPay’s case, they hold the technology (a mobile phone NFC card scanner) literally in their pocket. If they’re wary of BebaPay’s benefit, they may well leave the scanner at home, or tell customers wishing to pay by card that the battery’s dead. And it may well be.
I’m optimistic Google will find a way to solve this gatekeeper problem, and if Kimutai is right, the answer is in highlighting the reduction of bribes paid. Whatever the solution, it won’t work unless the vehicle’s staff are completely convinced that they, too, benefit from the service.
Beware of assumptions in creating incentives
Assumptions lead to surprises (fun in real life, horrible in business). You’re going to need to keep the assumptions tab in your Excel model, but keep top of mind, too, the list of things you don’t know.
Your product has multiple levels of users and all are going to perceive it, and their interaction with it, in very different ways, conditioned by their context — past experiences, pre-conceptions, and personal preferences. Whether you like it or not, you’re the most biased possible candidate to predict what matters most to your stakeholders, and the only recourse besides bringing in a market research team, is to be intimately aware of your assumptions.
Instead, question everything. Physically draw out every type of stakeholder that will come into contact with your business over the next 1-3 years, and list the incentives (personal, professional, political) that are likely to push them up, down, towards, and away from the path your business is on. Which of these forces are naturally aligned? Latch onto those, design marketing around them, perhaps bring them even closer to the core of your business. Where are the misalignments? Pick one and ask yourself what you can to do to bring that stakeholder onto your path to care about the things you care about, face the challenges you face, and win when you win.
This article by Jeremy Gordon, Founder & CEO of FlashCast Ventures, Kenya, originally appeared on VC4Africa, a Burn Media publishing partner.
