Scaling digital water tech – 4 lessons from 2 start-ups

For digital companies entering the water market, often considered a fragmented and conservative space, which companies can they learn from? Which start-ups entered, scaled, got the t-shirt, scars and lived to tell the tale?

According to a new report from mobile network operator industry body, GSMA, the journeys of two business-to-business service providers hold lessons for all “seeking to accelerate digitalisation”.

The report investigates Wonderkid, which provides software solutions to 40 water utilities in Kenya and other African markets. The second company, CityTaps provides pay-as-you-go (PAYG) digital metering solutions to utilities in West Africa and Central America.

Both organisations secured grants through an Innovation Fund through the GSMA Mobile for Development (M4D) Utilities Programme.

By analysing the experiences of the two grantees, critical considerations for innovators at different stages could be identified, from ideation to validation, iteration, refinement, scaling, and widespread adoption, according to GSMA.

We picked out four key lessons from the full report, listed below.

Lesson 1 – Know your market (attractiveness)

For digital solutions in emerging markets, digital readiness is key for service adoption, said the report. The example of Kenya was used – it was in May 2015 that Wonderkid deployed its solution to four water utilities in the country.

The market was seen as “extremely well equipped” with 52 per cent penetration of unique mobile subscriptions, compared to 45 per cent unique mobile penetration across Sub-Saharan Africa.

Furthermore, 59 per cent of the population still lack access to at least basic water services in Kenya, showing a “clear addressable market for digital solutions in the water sector”.

Lesson 2 – Proactively enable policy

Enabling policy is another critical factor for innovators. Policies that incentivise performance improvements can create demand for digital solutions said GSMA.

“Policies that incentivise performance can create demand for digital solutions.”

In Kenya, the regulator takes an active role in managing performance, which can create a demand for tools that support improvement. Wonderkid's tools enabled utilities to meet KPIs set by the regulator.

The report also warned: “Relying too heavily on policy requirements, which are always evolving, can be a risky business strategy and limit the scalability of a solution to other markets.”

Policy can also constrain a PAYG solution in markets where prepaid water systems or disconnecting customers are not allowed. For mobile-enabled digital solutions, mobile money regulations are notable potential barriers.

Lesson 3 - Forge win-win partnerships

Perhaps an obvious choice but one worth repeating: partnerships are key to success for any start-up.

In the water market, effective partnerships between innovators and mobile operators or utilities are not easy to develop given their very different priorities, size, regulatory boundaries and overall way of working.

“It is essential that the partnership delivers demonstrable value for both sides.”

In forging partnerships, parties on both sides need to recognise the other’s constraints and develop a plan that considers these frictions. Given the challenges, it is essential that the partnership delivers demonstrable value for both sides.

A partnership between CityTaps and Orange in Niger was referenced as a win-win. CityTaps could leverage Orange’s brand recognition and mobile money platform, while Orange benefitted from a positive use case for mobile money among its urban market segment.

Following this partnership, Orange Burkina Faso invested in CityTaps’ prepaid smart meters in Ouagadougou to help the company offer the solution on a lease basis to the utility.

Lesson 4 – Be open to blended finance

For any start-up, securing the necessary capital is a critical barrier. Few utilities in emerging markets are likely to have sufficient capital to scale digital solutions independently, the report said.

In Kenya, despite having a regulation that enables the water sector to take commercial loans, there are few examples of such transactions.

In this context, funding can play a significant role in supporting the adoption of innovations that will pay off in the long run. Today, 60 per cent of Wonderkid's utilities receive donor-funding to pay for Wonderkid's service, and 40 per cent pay for it themselves.

“Blended finance, combining public and private investment, is increasingly addressing this gap.”

Blended finance, a combination of public and private investment, is increasingly addressing this gap. This approach uses public and development financing, typically provided at concessional rates, to de-risk and attract commercial bank loans by providing guarantees and demonstrating creditworthiness.

Although there are still few cases of blended finance being deployed at scale in the water and sanitation sector. However, once solutions have been validated and are preparing to scale, public funding can play an important role in attracting the additional private sector funding needed to scale these solutions in frontier markets.

Innovative financing methods, such as results-based financing and development impact bonds, are also well suited to contexts where there are clear and measurable impacts from investments.

- The full GSMA report can be found here.