S1E3: On Leapfrogging

December 5, 2019

Leapfrogging - what is it? What is it not? What is it good for and what are its limitations? We speak to Yoco's Head of Expansion, Marcello Schermer.

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Temie [00:11]: The reality is you cannot leapfrog building infrastructure.

Justin [00:15]: That's Temie Giwa-Tubosun, Founder & CEO of the amazing social enterprise LifeBank, a marketplace and delivery service for blood, oxygen and other medical products in Lagos and Abuja.

Temie [00:26]: But how you build that infrastructure can be optimized by technology.

Justin [00:32]: Last episode - episode two - we talked about business models, and the challenges entrepreneurs on the continent face in having to make the numbers work while simultaneously building out infrastructure that other tech companies around the world often aren't building. That episode had us thinking - the pervasive narrative about the continent is that there are tremendous leapfrog opportunities - with the mobile phone being the most obvious example.But what are all these companies doing building out infrastructure? Can't they just leapfrog? The counter argument is you can't leapfrog hospitals - as Temie says.

So what is a leapfrog technology in the current context anyways? Is mobile money a leapfrog? Off-grid energy? Drone delivery? Seems like, if we want to leapfrog and push this narrative, we ought to define what it is to better understand where and how it's possible. So in this episode of The Flip, let's explore leapfrogging.

VO [01:30]: You're listening to The Flip, the podcast exploring more contextually relevant stories from entrepreneurs around Africa.

Justin [01:40]: Welcome back to The Flip - I'm your host Justin Norman. Let's talk leapfrogging. Mobile phones may have allowed the continent to leapfrog landlines and in many cases leapfrog personal computers as well. But so far, ride hailing companies aren't leapfrogging roads. And mobile money isn't necessarily leapfrogging bank accounts either. In fact, sometimes it's an on-ramp and can lead to greater bank account adoption. Yet, the leapfrogging narrative prevails.

So to explore this topic further, we sat down with Marcello Schermer, who shared some insightful commentary from his experience around the continent.

Marcello [02:12]: My name is Marcello. I'm currently the head of expansion at Yoco, which is a South African fintech company in the payments space. I used to be the regional manager for Africa at a company called Seedstars, where we helped entrepreneurs across the continent get exposure and access to funding and scale.

Justin [02:28]: In Marcello's current role with Yoco, he's spent much of his time on the ground in potential expansion countries in Africa and beyond, to better understand the local digital payments landscape. Given the view of fintech & digital payments as a prospective leapfrog category, we were eager to get Marcello's view on leapfrogging. To start, we laid the table with a definition of leapfrogging to better understand the so-called leapfrog opportunity.

Marcello [02:50]: I don't doubt that there's massive opportunities for leapfrogging, and we've only scratched the surface. The true cases of leapfrogging, which think of it as literally a foundational shift in how a certain task is done or infrastructure is provided - I think they are few and far between. And they're not obvious on some Forbes list for you to pick and solve. They're more like evolutionary technologies that are just applied to make leaps in certain industries.

Justin [03:22]: So then what's the deal with the mobile phone leapfrogging in Africa? And how do we leapfrog?

Marcello [03:27]: I don't think leapfrogging is something you set out to do. Nobody started the mobile phone saying we're going to leapfrog landlines.The application of the the technology, the downstream effects of this technology then at some point made people do leaps and bounds and somebody came and said this is leapfrogging. Leapfrogging is a term that's applied looking back - it's not something that you plan to do.

Justin [03:50]: It's important here to distinguish - when discussing leapfrogging, that the technology itself isn't necessarily a leapfrogging technology. In fact, it's an incremental technology, that when applied in a specific market or a specific set of circumstances, has a leapfrogging effect.

Marcello [04:05]: If leapfrogging or this kind of disruptive technology exists, then it's the result of compounding, small improvements rather than this big a-ha moment where all of the sudden someone invented stuff. The most interesting innovation happens when you solve small problems in a compounding way, and then at some point they come out as these big things. But nobody has ever started being like, I'm going to do this massively huge thing - it's a compounding of small solutions to important problems that then at a certain point became the valuable things that they are.

Justin [04:40]: Let's take an example of a product that some consider to be a leapfrogging technology - the mobile money transfer service M-Pesa. M-Pesa is an interesting story, not just because of its ties to the leapfrogging narrative, but also because of its origins.What was happening in Kenya, in the mid-2000s - Kenyans were buying airtime with cash, swapping the credits to other mobile users, who then resold it for cash. Seeing this existing user behavior, researchers partnered with Vodafone's Safaricom to pilot a formalized mobile money transfer service, which became M-Pesa. It wasn't an idea chasing a use case - it was existing user behavior formalized into a business.

Marcello [05:18]: And that's often where the most interesting ideas come from - see what people are already doing and figure out how to do it even better. We often put M-Pesa as this leapfrogging narrative story, when the reality is it was an absolute accident. It got hacked into this financial services tool, which was allowed to grow because the regulator wasn't doing anything about it. And then you had the political issues happening in Kenya at the time which helped M-Pesa spread. Then you have this thing that really only became this big by accident, and then got so big that the regulator couldn't stop it anymore. Which, doesn't reduce the impact or importance of what it is or what it does for the country, but it was not this idea where somebody had this lightbulb moment and said I'm going to leapfrog the world.

Justin [06:09]: So if leapfrogging isn't something that you set out to do, that doesn't mean it's not an important ideology.

Marcello [06:14]: It's something that really has more of a branding effect and a storytelling effect than anything else, which is not illegitimate, but it's just good to understand the limitations of what it is, where it comes from.

Justin [06:27]: So perhaps this is the message for entrepreneurs - leverage the narrative. Narratives can be useful - just as The American Dream is a powerful narrative for the US, the leapfrogging narrative can be powerful for entrepreneurs building these types of solutions. But still, when building any business - and especially on the continent -leverage existing infrastructure where available, sustainably build new infrastructure when necessary, and most importantly, solve real problems.

VO [06:59]: Thanks listening to this episode of The Flip. You can subscribe on your favorite podcast app and follow us on social media @theflipafrica. You can also join our newsletter by going on our website theflip.africa. Tweet us, DM us, email us. We'd love to hear your feedback on the show. We'll see you next time.