KenCall - Can Nik Nesbitt's Venture Succeed in Kenya?

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________________________________________________________________________________________________________________ Professor Daniel Isenberg prepared this case. Certain details have been disguised. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

D A N I E L I S E N B E R G

KenCall - Can Nik Nesbitt's Venture Succeed in Kenya?

It was 11:30 p.m. on Friday, November 14, 2008, when Nik Nesbitt (CEO) and his younger brother, Eric (COO) wound up their urgent discussion without reaching a firm conclusion. “Our new client sent us the final contract today with a clause withholding 20% of their payments to us as taxes, money KenCall would never be able to reclaim, and setting a bad precedent for the four-year-old contact center. “As a tenant in this Export Promotion Zone (EPZ), we have been exempt from tax, but our client has interpreted the regulations to not entitle us to the exemption. Our accounting firm cannot see a way around this.”

From the day in 2001 that Nesbitt began earnestly to set up a contact center in his home city of Nairobi, Kenya, the successful American executive had experienced dozens of obstacles, from the absence of good roads and modern fiber optical networks (see Exhibit 1), to being defrauded by consultants, to political violence which racked Kenya early in 2008. The Kenyan startup had entirely consumed his pension fund and created severe tension with his third partner—and brother-in-law.

With close to a hundred agents manning the late night shift, Nesbitt packed his briefcase under framed pictures of Nesbitt with Kenya’s president, with various ministers, the prestigious Legatum entrepreneurship award,0F

1 and numerous news articles on KenCall, including an entire New York Times column by Thomas Friedman on KenCall’s promise (see Exhibit 2).

“If KenCall’s champions only knew what it is like to leave night after night at midnight, often frustrated, tired, sometimes downright scared that we will crash and burn.” Nesbitt wondered out loud to the case writer. “I do feel pride when I look out at the floor and see the bustle and hear the buzz, but I sometimes wonder if it has been worth it.” On Monday a delegation of 10 or so limited partners in KenCall’s only fund investor would be paying their first visit to Kenya and KenCall, eager to see firsthand how their investment was faring. Nesbitt wondered what he should tell them.

1 The Legatum Pioneers of Prosperity Africa Prize, recognizes the “very best business leaders of those small and medium enterprises … in Africa that are the lifeblood of an economy.” www.templeton.org, accessed January 16, 2009. KenCall was one of five runners up each of which received a $50,000 prize. In September, 2008, KenCall was selected by the CCF European Call Centre as the best non-European call center (source: Company).

809-114 KenCall - Can Nik Nesbitt's Venture Succeed in Kenya?

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Nik Nesbitt

Born in Nairobi in 1962 to parents both of whom were mixed-race, Nesbitt’s British grandfathers were deeply involved in pioneering the colonial development of Kenya in the early 1900s. Nesbitt’s father was a prominent physician who served both the poor and the elite of Kenya, and was also broadly involved in Kenyan society and business affairs, with personal investments in farming, a tile company, a travel agency, and local banks, for example.

We were quite well off but did not flaunt our wealth as was common. My father was often away, my mother was a strict disciplinarian and instilled in us a high level of aspiration. Successful Kenyans surrounded us, and since my dad was apolitical, our house was a place where politicians of all parties could meet socially and speak their minds [See Exhibit 3 for a brief history of Kenya]. Life was free: in the summer we got on our bikes each morning and came home for dinner at night. I was the middle of five children, and we were all shades of color, as were my friends: it did not matter to anyone.

Nesbitt’s eldest sister and brother went to Dartmouth, and Nesbitt followed suit, getting bachelor and master degrees in engineering, followed by two years at Boston Consulting Group, and then a Stanford MBA (’91). His plan of becoming a leading Kenyan industrialist dashed by political instability and violence in the early 1990s, Nesbitt set his sights on the executive suite of a Fortune 500 company. He started out in marketing for an electronics manufacturer where he climbed the corporate ladder, ultimately managing all of the company’s 1000 distributors and then leading the company into the Internet era.

In 1995 Nesbitt married and soon after moved with his wife to Denver to “live a simpler life,” joining the telecommunications company US West where he worked on their expansion into Internet related services. In mid-1998, swept up in the dot-com boom, Nesbitt joined a broadband access startup which closed in 2000, and Nesbitt joined Denver-based Qwest Communications, an innovative telecommunications company that was still on the rise. After Qwest acquired the ailing US West, Nesbitt recalled:

The $100 million service I ran grew overnight to $1 billion and I became vice president of Qwest’s business partner program and was instrumental in making that a success, with 11 vice presidents and 400 people under me. But I was passed over for an important promotion, and I left in 2001. By that time I was actively formulating the concept of an international contact center in Kenya that would be competitive with those in India and the Philippines.

Nesbitt believed that Kenya had several advantages for contact centers. First and foremost were human resources. Kenyans were well educated, and many Africans from other countries studied at Kenya’s highly regarded colleges and technical schools. Unemployment was extremely high (40%, compared to 7% in India)1F

2 so that an employer could be very selective, wage inflation was limited, and turnover was low—factors that would subsequently plague Indian outsourcers. Furthermore, English was Kenya’s official language, with most primary school and all high school conducted in Oxford-style English, thus Kenyan agents would be more understandable than Indian agents.2F

3 Overall, Kenya’s literacy rate was 91% for males and 80% for females (compared to 73% and 48%,

2 https://www.cia.gov/library/publications/the-world-factbook, accessed December 5, 2008. 3 A small scale survey conducted by a KenCall consultant based on telephone interviews of untrained Kenyan job candidates ranked candidates 7 on a scale of 10 prior to any diction training, compared with a score of 6 for trained Indian contact center agents.

KenCall - Can Nik Nesbitt's Venture Succeed in Kenya? 809-114

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respectively, in India.)3F

4 Furthermore, the costs of a college-educated agent in Kenya and India were essentially the same, about $300 per month, including transportation, benefits, and salaries.

After leaving Qwest I started a consulting practice to pay the bills, meanwhile talking with contact center experts. In fall 2001 I joined forces with a childhood friend in Kenya from a powerful business family who would provide the land and get the approvals. By then divorced, I traveled to Kenya frequently to work on the idea. Throughout 2002 we collected information about contact center operations, human resources, training, and regulations.

The father was subsequently appointed Minister of Telecommunications in December 2002—what a godsend I thought—but immediately thereafter they informed me that they had a different partner, and our agreement was terminated. Although I was deeply offended, I was confident that I could survive the setback. Fortunately, the president blessed my vision in a one-on-one meeting, and in early 2003 I persuaded my younger brother, Eric, to join me as he was moving back to Nairobi to start a family, and my sister’s husband, Stephen Liggins, a senior bank executive based in New York, was eager to commit, offering seed funding.

Nesbitt initially planned to remain in the U.S. for marketing while Eric set up and managed the Kenya operation. Nesbitt no contact center experience, so he was constantly looking for expert help. Two such consultants, “Chip” and “Tom,” were former Qwest executives:

In August 2003, Steve [Liggins] and I secluded ourselves at Hilton’s Head in South Carolina, teleconferencing in Eric [Nesbitt], Chip, and Tom as needed—with a clear opportunity, political support, Stephen’s seed financing, Eric on the ground, and Chip and Tom providing expertise, I decided to leave my consulting practice and close off other options.

Fool’s Gold

Chip and Tom brought in Guild Consulting4F

5, a small firm specializing in contact centers, although shortly thereafter Chip and Tom had a falling out with Guild, and left the project. Nesbitt flew to Nashville to meet the two Guild principals, a former travel industry contact center executive, Annette, and an Indian partner, Deepak, also with contact center experience. Nesbitt recalled:

It was like finding gold. They were exactly what we needed: a one-stop shop. They would not UtellU us how to set it up, they would actually Uwork with us to do itU: they would bring architects to design the layout, IT experts to design the communication and software systems, help us recruit, select, hire and train the agents, and bring us customers. They would continue to serve as the front end for us in acquiring and managing customers (primarily from the travel industry), which was critical, because the notion of outsourcing customer service to Africa terrified some customers. Their references from the travel industry were glowing and within weeks they brought us written letters of intent from customers.

Pending a definitive agreement which would take two months or more to execute, in November 2003 the two parties signed an MOU according to which “Safaricall”5F

6 would pay Guild a fee of $100,000 upfront and then $850,000 based on milestones. Guild would serve as the master contractor, and if Nesbitt could raise $3 million to build a 100-seat operation (comprised of $1 million for PPE, $1

4 https://www.cia.gov/library/publications/the-world-factbook, accessed December 5, 2008. 5 Names associated with Guild Consulting are disguised. 6 Safaricall was the first name given to the venture before it was changed to KenCall.


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million for initial operating expenses, and $1 million for marketing), Guild guaranteed $8 million in revenues in the first year, with various protections for non-performance. When Guild insisted on receiving the first $100,000 installment prior to getting on a plane to Kenya, Nesbitt prevailed over Liggins’ objections, and both partners put up $50,000 each and Annette came to Kenya with their attorney, Allen.

Relations with Guild were rocky accompanied by severe disagreements about Guild’s ongoing demands for additional payments—including a posted $400,000 bond that Guild claimed was required by entities that issued tickets—followed by direct threats that Guild would give their customers’ business to eager Indian suppliers. Nesbitt, on his part, demanded to receive a detailed operational plan for establishing the center. In parallel, Nesbitt had raised $470,000 (structured as 87% debt and 13% equity) from parents, other family members, and friends, and had circulated an information memorandum, prominently featuring the partnership with Guild. Nesbitt also raised $1 million in debt from a Kenyan bank, with the covenant that a minimum balance of $500,000 be maintained with the bank.

By Q2 2004, despite the visits by various Guild consultants and a detailed 1000-page operational plan from Guild, agents were not trained, the definitive contract was not signed, and architectural plans were not finished. Liggins continued to voice serious misgivings about Guild’s legitimacy, but Nesbitt wanted to push forward, and the resulting disagreements created the first of several serious rifts between the two. A confidential talk between Liggins and Allen, who attested to Guild’s legitimacy, temporarily reassured Liggins, but Nesbitt’s darkest suspicions were aroused:

When I scrutinized the 1000-page report, I could discern that the blueprints were cut and pasted from a different document. I talked to the Indian IT consultant who had visited, and he wasn’t working with Guild anymore. I recalled Guild’s demand to put a $20 million penalty on us if we approached customers directly (we refused). I realized that I had never carefully reviewed the customers’ letters of intent. I made some pretext to see these—they made me promise that I would not even show them to Stephen—and I realized that they were vague, non-committal, and very similar in style. I tried to contact the letters’ authors: “He doesn’t work here anymore.” “We closed that department months ago.” “We never heard of him.” We immediately filed suit for fraud in Nashville court, but Annette, Deepak, and Allen appeared smugly in court having filed for bankruptcy the day before. We had been scammed.

Progress

Shocked, with self-confidence bruised, nearly broke, and with his credit cards exhausted, Nesbitt forged ahead with Eric and Liggins, despite the fact that at times Liggins and Nesbitt were not on speaking terms. Although the tuition for the Guild lesson nearly destroyed the venture, the bank and investors were understanding, and by summer of 2004 the venture, now called KenCall, had tangible evidence of progress:6F

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• The support for this endeavor from the highest levels of the Kenyan government • A license from Kenya’s telecommunications regulatory agency to operate its own international

two-way data and voice international gateway – the first private license of its kind • A vast amount of knowledge on the technical details required to build and manage a contact center • An option on a … contact center space 14,000 square feet with attractive lease terms • Detailed architectural drawings for the facility

7 Excerpted from an information memorandum to shareholders, August 1, 2004. Company document.


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• Detailed telecommunications connectivity proposals from well respected international providers • Detailed engineering, security, power management and fire management details • Access to very capable and competent engineering and technical resources • A large database of qualified candidates available for training • An extensive set of contact names for new business opportunities in the US • Very capable contact center training and certification resources • A solid commitment by the leadership in KenCall to build a profitable business

Obtaining Regulatory Approvals

From the outset Nesbitt recognized that a license of some kind would be required to operate a contact center under Kenya’s raj-based bureaucracy, although initially he tried to argue—in vain—that as a user of telecommunications and not a carrier, they should operate unlicensed, and they would buy bandwidth from Telkom Kenya, the bureaucratic, inefficient, state-owned monopoly. In 2001-2002 Nesbitt left most of the regulatory process in the hands of his then-partners (the former friend and his father), but when the partnership ended, Nesbitt and Eric were on their own:

It took us the entire year and 40-50 meetings (including 20 meetings just with the regulator) to obtain the license. Initially, the government told us that they needed to create a new license category for an international call center because we were the first. In parallel we held talks with Telkom Kenya. They told us bandwidth was $48,000 per megabit—we thought per year, they said, “per month!” They had no concept of providing an SLA [service level agreement that guaranteed agreed upon performance standards]. They had a mishmash of different technologies and it took months to get information from them. We also learned that Eastern Africa was the only major region of the world not linked by undersea fiber cables. So we began to look into owning our own satellite dishes and leasing transponder space, which would cost about $150K to start.

So we went back to the ministry regulator and told him that we want to operate a satellite link. Recent liberalization allowed us to operate an in-house satellite-based data network, but we needed to use it for voice as well, including international calls. They were terrified that we would become another of many pirate international call providers. They had no problem with us sending and receiving packets of data. They had no problem with us doing online video. And they could see our logic in turning off the video to leave only audio. But the regulator rejected our application. We then began re-approaching the ministry itself, using every personal contact we could to get a hearing, writing white papers, emphasizing that we would be creating jobs—that was a big hook. We had little money and were working out of our parents’ home and our cars. Finally after being turned down by the regulator, we got a hearing with the minister himself, ironically, my former friend’s father, along with several Telkom Kenya executives. The minister asked if there were any objections, and within a few minutes we had approval. By mid-2004—two years later—we had two licenses, one to operate a satellite data network, 7F

8 and one to operate a call center.

In order to closely monitor KenCall’s compliance with the license, the ministry required KenCall to operate within an Export Promotion Zone (EPZ) near Kenya’s Jomo Kenyatta International Airport, which was a mixed blessing. The EPZ granted zero tax to exporting manufacturers, 5% to

8 More specifically, the license allowed KenCall to operate a VSAT—very small aperture terminal—data network.


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licensed telecommunications service providers, and 20%8F

9 to services. Initially the EPZ authority argued that KenCall was a telecommunications company, requiring the applicable approvals and licenses which were difficult to obtain as well as expensive ($250,000), but Nesbitt eventually convinced them that KenCall was a user of telecommunications services, not an operator. The next catch was that in order to reside in the EPZ, KenCall was required to be an exporter. After pondering the dilemma, Nesbitt successfully argued that KenCall exported packets of data.

The Service is Launched

Older and wiser, a few weeks following the Guild scam Nesbitt retained a contact center consultant, Kathy Sisk Enterprises, and had a completely different experience. At no charge other than a $5000 monthly retainer, Sisk sent Nesbitt training manuals, IT specifications, and other documents, and undertook to bring KenCall its first contract for 50 seats at 1.5 shifts per seat. In November 2004 Sisk came to Kenya with an IT consultant and began to set up the operation. KenCall and Sisk filled a college hall with 500 applicants and commenced training them; 50 who successfully completed the training were offered jobs. In December 2004 Sisk brought KenCall its first customer, an outbound call project (see section, “Business Models”) selling home security services. Unfortunately, payment was commission-based, and, given KenCall’s low productivity calling into these picked over leads, revenues were $3 per hour while costs were $7.

Customers would not trust us with inbound service [such as customer support], but it was easy to get lead lists that had already been cherry picked. Slowly but surely, using various brokers we began to get bigger and better outbound contracts, losing less money each time, but really learning how to run the business.

In March 2005 KenCall received a call from an operator of contact centers in South Africa who wanted to expand into Africa and saw KenCall as a partner for East Africa. He outsourced a contract to KenCall for selling British Telecom’s broadband services, and sent two managers to train KenCall’s agents (eventually they remained at KenCall permanently). This high quality outbound project yielded the large majority of KenCall’s 2005 revenues of $135,000. From that moment on, with significant ups and downs, KenCall was an ongoing business.

KenCall’s Business Model

By the mid-2000s the contact center business model was well established around the world, with over seven million agents worldwide, including captive contact centers and domestic contact centers. Contact centers serving primarily international markets were about one million.9F

10 Exhibit 4 contains additional information. Typically, contact center services were either inbound or outbound, and either voice or data, creating four categories of service, each with its own particular characteristics and business model.

Outbound voice

Outbound voice services were those in which the contact center, on behalf of the client, initiated calls to third parties to sell products or services (e.g. newspaper subscriptions), develop sales leads

9 The regular corporate tax rate in Kenya was 30%. 10 Based on personal communication with Peter Ryan of Datamonitor, December 2008. Mr. Ryan estimated that about 600,000 workstations served international clients, at about 1.6 agents per workstation.


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for the client (e.g. setting appointments for the client’s insurance agents to make home visits), “cleanse” sales leads (e.g., update telephone and other information in a database of customer leads), and conduct post sales follow up. For most outbound voice services, such as sales or lead generation, customers paid commissions only. KenCall’s contracts for the first year were for outbound services, as these were the easiest contracts to obtain, but by 2008, KenCall had no outbound voice business. (See Exhibit 5 for a customer list.)

Outbound data

Outbound data services consisted of email and text messages that KenCall initiated on behalf of the customer, typically for advertising or sales.10F

11 For example, KenCall was hired by Google Kenya to collect Kenyan addresses for Google Maps, for which they used email. KenCall received a fixed fee for every outbound text message.

Nesbitt commented on KenCall’s outbound service experience:

At first we could only obtain outbound contracts, which in general were much easier to get because the client incurred no financial risk, and had already picked the most lucrative leads from the lists, so that only very low probability leads remained. We got our costs down to $5 per hour but our revenues turned out to be $3 per hour. But it was an excellent boot camp for our agents: we had to learn to BE the voice of the client company, to adapt our approach to the company’s culture and policy. We learned that telling a lead we would call at 9:00 p.m. did not mean ‘sometime while the clock was still on the 9th hour, such as 9:59.’

Inbound data

Inbound data services consisted of a client sending information to the contact center, which then manipulated or operated on the data. For example, contact centers might transcribe voice recordings, put voice into text. Pay for inbound data services, which were not as common as the other services, could be on a per-message basis, for example.

Inbound voice

In some ways, the most attractive contact center business was inbound voice in which the contact center handled, for example, inbound 1-800 sales lines, customer service, help desk, hotlines, complaints, and emergency (911-type) services. Typically, customers paid $10-$15 per-hour, although sometimes customers paid on a per-call basis. Nesbitt commented:

To be sticky with clients is very important, because there is a learning curve that is customer specific, so we try to get as many lines of business with each customer. But this also leads to a big weakness—we don’t have a sales or marketing department, that all falls on me, and we use BLGs—business lead generators—who get a commission for bringing us new customers. For follow on business, you need to have a consultative sales style.

There were seven accounts active as of November, 2008, four of which were inbound voice paying anywhere from $7 to $12 per hour. Three were inbound data, transcribing voice messages to mobile text or generating interactive entertainment content for mobile phone users. Two of the customers

11 Because contact centers also handled inbound and outbound data in addition to voice, they were often called “contact centers.” The term “contact center” is used in this case to refer to both voice and data.


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were American, one was French, two were Kenyan, and one was Tanzanian. KenCall’s largest customer—200 seats—was Telkom Kenya, providing customer support to subscribers.

Operations and Human Resources

Throughout its short history, KenCall’s focus was more on operations than on marketing because Nesbitt felt that the burden of proof was on KenCall to show it could operate at world class standards, at least on a par with Indian standards, if not higher, due to the skepticism with which customers viewed Kenya and Africa.

Infrastructure

At the heart of KenCall’s operation was a satellite dish and link which uploaded and downloaded all of the voice and data traffic, leasing bandwidth from Kenyan and international providers at a cost of $32,000 per month, after investing about $150,000 for the equipment. Using satellite communications was a major disadvantage vis-à-vis optical fiber connection because there was a significant lag (up to 600 milliseconds) due to the need to upload and download data to and from the transponder, but Nesbitt had no choice: it would be at least mid-2009 before optical cable linked East Africa to the rest of the world. Nesbitt recalled:

The satellite lag partly caused us to lose our largest client in 2007: most networking equipment is built to automatically disconnect a call if a lag exceeds 300 milliseconds, and then it may automatically reconnect the call. As a result, one call could actually be logged as several calls, or one could be in a call session but logged as disconnected. We did not know about this at the time, and a client who was paying us on a per-call basis thought we were cheating them by inflating the number of calls. That was a big mess, by the time we sorted it out, the client had restructured its business anyway, and we were out.

In the contact center itself, agents worked in a converted 14,000 square foot warehouse, arranged in long rows of desks (see Exhibit 6 for a photograph) with a PC-based workstation at each cubicle. There were 300 seats altogether, and the company employed 650 agents in three shifts.

Human Resources

A team of three recruiters handled recruiting and initial training, with a selection ratio of about 1 hire for every 20 applicants. Applicants were screened for English and general aptitude and the subsequent training of candidates led to the ultimate selection. Role plays and interviews by panels of several judges were also used. Training took place at night in order to create realistic conditions. By the time they were selected the recruits were trained, and those who were hired underwent client-specific training for anywhere from a few days to several weeks. For example, in a database clean up for Dun and Bradstreet, agents needed to learn about how to extract information from SEC filings. Occasionally a recruit would leave after the training because training at KenCall improved their attractiveness to other contact centers. 75% of KenCall’s agents were college graduates.

Base salaries for KenCall agents were about $200 per month,11F

12 with another $150-$200 possible as performance based compensation; agents in captive contact centers received 50-100% higher wages, but otherwise, KenCall’s compensation was competitive. On top of wages, each agent cost 10% in transportation (each agent was brought to and from the contact center located about 8 kilometers

12 Figures in this section are slightly disguised.


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from the center of Nairobi, close to the airport) and benefits. Agents worked an average of 176 hours per month. Overhead came to about $2.5 per hour, and when an hourly rate was applicable, KenCall charged about $12 per hour, although it sometimes accepted lower paying contracts in order to secure a new customer. Nesbitt commented: “We are the new player in the market.”

Supervision

There were two first level supervisory positions, quality assurance (QA) and team leader. The approximately 40 QA analysts were all promoted from the ranks of agents where they had served at least a year before being trained for QA, which took two weeks. The QA analyst typically evaluated the work of 10-12 agents 3-4 times per week, using a number of performance indicators based on a customer SLA, and the evaluations were the basis of weekly customer reports as well as of feedback to the agents. Customers also used the QA data to conduct their own independent QA of agents’ calls and/or messages. Nesbitt explained: “We do twice as much QA as customers expect. One of our largest customers had 11 contact center suppliers in India, the Philippines, the Dominican Republic, and North America, and ranked KenCall #1 for five of the nine months of our contract.”

A successful QA analyst could become a team leader after three months in QA, although some were not promoted or chose to remain in QA. The 40 or so team leaders directly supervised 10-15 agents each, and at least once a week gave detailed feedback to agents on specific calls as well as overall performance and behavior, and coached them on how to improve. All feedback sessions were meticulously recorded and archived. Team leaders could eventually be promoted to account managers, of whom KenCall had five.

Financing and Performance

Starting with the company’s first sales in 2005, revenues had grown to almost $5 million, and in November Nesbitt was revising the 2008 forecast (see Table 1) to $5.5 million, with an EBITDA of $1.3 million. At the end of October, 2008 KenCall had PPE of about $1 million, current assets of $.8 million, current liabilities of $1.2 million (of which $.4 million were short term borrowings), and long term borrowings of $.4 million.

Table 1 Revenues and Profit (in $000s; estimates from September, 2008.)

2004 2005 2006 2007 2008(e) Revenues 0 $135 $1,653 $3,345 $4,762 EBITDA -$1,048 -$1,092 $90 $121 $874 Net Income -$1,132 $-1,261 -$120 $-293 $556 Source: Company documents.

KenCall had raised a total of $2.7 million in equal amounts of equity and subordinated debt issued by early investors. Friends and family accounted for all but $.825 million, $.750 million of which was invested by a small Netherlands based angel fund for an approximately 15% stake.


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Challenges In Facing the Future

Sales and Marketing

“One of our biggest challenges is sales and marketing,” sighed Nesbitt:

Sales are almost completely dependent on me. We have a marketing department, but that is more for PR and marketing communications. I am just activating a group of BLGs in the US and UK. But we are still operations focused, not sales focused. IT is our biggest budget, and we feel we have to get that completely right before we can sell more aggressively. Part of the issue is that we have built our culture around scarcity, not abundance—scarcity of capital, scarcity of bandwidth, scarcity of electricity, and of transportation. In two weeks I am going to make a presentation at a prestigious event in London where the audience is packed with potential customers, and we only have a black and white brochure. And customers tell us, ‘Call us back when you have a fiber based infrastructure.’ That would be 2009/2010 if all goes well. A potential customer in the US had 8000 agents in North America and needed to shift 1200 offshore: they outsourced in the Philippines instead of to us only because of our lack of fiber. The flip side of the equation is that we cannot take on new customers without spare capacity, because even medium-sized customers will require 200 seats. Right now we operate two shifts at 85% capacity, and the shorter graveyard shift at 30% capacity.

Political Violence

Another source of customer reluctance was the perception that Kenya was unstable and dangerous. Most recently this stemmed from the aftermath of the December 2007 presidential elections after which about 1100 people were killed when challenger Odinga backers’ claims of election fraud by incumbent president Kibaki triggered two months of violence which was largely between ethnic groups. 12F

13 Nesbitt related:

I cut short my Christmas vacation in Mombasa when the riots broke out. When I finally could get back to the office and found that many agents were not coming in to work—public transportation had stopped—and we were not serving our customers well. We organized blankets and food and sent cars to bring agents to the office, where they also slept. There was a party atmosphere, the agents loved it, and our production was 97%--our customers were impressed and it was one of our best months.

A U.N.-brokered power sharing accord gave Odinga the prime minister seat and restored calm, although perceptions of danger lingered to date in the international community. “Some potential customers believe that the riots are still going on,” rued Nesbitt in mid-November, adding that the political strife fueled the already-prevalent Africa fright:

Through my contacts in the US I met with the CFO of one potential customer. He called the head of marketing over, laughing: “Hey, what do you think about Nik in Kenya? It makes me think of Richard Leakey, bones, and giraffes.” Eventually I got them to treat us seriously. At trade shows I get a similar reaction: some are polite, and a few just say, ‘Hell no, never.’

13 https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html, accessed December 24, 2008.


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Traffic

A particularly acute problem plaguing KenCall was mundane but had far-reaching implications—traffic. Essentially all major employers in Kenya provided mini-bus transportation between home and the workplace. But in the past six months the thirty minute drive from Nairobi center to KenCall had begun to take anywhere from one to three hours, and slowdowns could occur any time of day, not just during rush hours.13F

14 As a result, agents needed to be picked up earlier and brought home later, more vans were required to transport the same number of agents, leaving the vans partially empty and increasing transportation costs, shift changes were sometimes delayed by late transport, and parents of some of the younger agents living far away would not let the agents—many of whom were young women—travel so far from home at odd hours. There was pressure for some agents to rent rooms closer to KenCall, which increased their costs and put pressure on wages. Nesbitt elaborated:

It is also more difficult to bring clients to meet us at the contact center to show them our operation, a key part of our marketing. We just can’t reliably schedule meetings. Furthermore, part of our marketing was the free PR we got all the time. Famous journalists would visit and write about us, heads of country delegations would come out. We are very high profile pioneers in Kenya, and the government would send group after group. It almost never happens now, only because of traffic.

The Weekend’s Homework

Nesbitt’s immediate task over the weekend was to prepare his presentation to Blue Link’s limited

partners, who consisted of some of Europe’s leading executives: the former CEOs of a large beer brewery and a large food conglomerate, the former managing directors of a large venture capital fund and a private equity fund, etc. The fund itself was a €4 million fund managed from the Netherlands that was targeting promising East African ventures. KenCall was Blue Link’s first investment, and as of November 2008 Blue Link had only made one additional investment, in a Kenyan health care facility. Whereas the fund had social objectives, investments were financially driven. Blue Link initially invested in KenCall when KenCall was desperate for cash, and it was having trouble rolling over its loan, so the investment came just in the nick of time. Nesbitt was not sure of the group’s purpose in visiting KenCall, and he suspected that they themselves were not sure: it could be partially a “feel good” visit to a social investment, a chance to scrutinize their portfolio company for its efficient use of funds, or it could lead to follow on investment. Nesbitt would sit down in the morning and begin to prepare his pitch.

14 The casewriter experienced the traffic first hand: in order to avert a several mile long traffic jam en route to KenCall, Nesbitt drove his new sedan through a well-traveled dirt road consisting of wheel-high mud pools and foot-deep ruts.


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Exhibit 1 Excerpts from July 30, 2008 Nesbitt letter to Deputy Prime Minister, Ministry of Trade

Dear Sir:

With respect to your question regarding what it will take for the BPO industry in Kenya to create massive employment over the next few years….

The opportunity

With the onset of globalization the opportunities for rapid improvement in the standards of living around the world are immense. In particular, the opportunities to create meaningful work for the well educated citizens of previously impoverished nations are growing rapidly…India, the Philippines, Malaysia, Mauritius, South Africa, the Caribbean, Eastern Europe, Peru, Brazil and Argentina are just some of the better known countries that have taken advantage of this phenomenon and over the last 5 years have created millions of jobs collectively in the BPO/Call Centre industry. Over the past 10 years, India alone has created well over 1.5 million jobs in this sector. Kenya has created 650 jobs…

With cost pressures and quality issues beginning to occur in the more traditional outsourcing destinations more and more companies are asking “Is there an alternative?”… In particular, in Anglophone Africa, Kenya presents one of the best opportunities for new growth in outsourcing. The country has a high number of highly motivated university graduates with neutral, anglicized accents. It has a progressive pro-business government with aggressive national goals to increase new employment, a well developed technical and educational infrastructure, a submarine fiber optic connection due in mid 2009 and a highly customer service-oriented culture. In addition, the under 30 generation of Kenyans is very well exposed to the outside world…

The Challenges Kenya faces

Kenya is relatively new in this outsourcing arena and has had limited success. Over a dozen small companies have started up since 2003, however barely a handful of them are still viable entities. Most of them currently employ less than 25 staff despite several years of experience. Only KenCall appears to have made it out of the incubation stage and grown in to a fully-fledged and award-winning operation. KenCall made it despite the challenges everyone else faced, but its case was unique.

Nevertheless, the challenges all the centres face are numerous and very difficult to overcome. And they include:

1. Expensive bandwidth. Kenyan companies pay $7,000 per MB per month versus companies in India who pay under $500 per MB per month

2. The lack of submarine fibre optic connectivity. This makes the oversaes companies wary of doing voice calls over satellite and choose to defer coming into Kenya until the submarine cable arrives

3. The lack of local experience. Very few people in the local labour market have any call centre/BPO experience, which makes growing and building experience difficult and expensive

4. The lack of marketing of Kenya as an attractive outsourcing destination 5. Very few Kenyan role models and so the potential of Kenya as a destination remains a question mark in the

minds of clients and even investors 6. Inadequate funding for the local BPO outsourcers. Very few venture capital companies and banks are not

willing to lend. Friends and family are the primary sources of funds, which is not scalable 7. Very few local opportunities to gain experience and learn the industry (private or government) 8. The new labour laws restrict outsourcers ability to match staffing with demand, because it is so difficult and

expensive to let staff go if there is a down turn in the business 9. The Lack of EPZ status for companies in this growth sector. Many of the countries in the outsourcing world

afford their domestic BPO companies EPZ status to encourage their growth. IN Kenya one has to be within an EPZ to have that status. However, EPZ facilities are rarely in locations attractive to white collar workers.

10. Con artists coming into Kenya long on promises and invisible on delivery. Many companies have lost lots of money from international dealers who do not deliver

… Given the success of many of these other countries in this arena, it is clear that that these obstacles can be overcome, and quickly, if Kenya were to take the effort to learn from such countries…In general, these successful countries have followed varying paths to reach where they are today, but they seem to have one thing in common: Government support. In some countries this sector has received direct government investment to promote and subsidize indigenous companies gaining a firm foothold in this space before the big international companies swooped into the countries to sweep up the best resources and talent.


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… I advocate that the country focuses on the following:

Create an attractive investment environment in Kenya

a. Bandwidth Costs. Ensure that once the submarine cable connects Nairobi to the world that the cost of bandwidth remains competitive to other countries around the world.

b. BPO Marketing and publicity domestically c. BPO Marketing and publicity internationally. d. Tender for eGovernment contracts – data entry, customer service, e. Improve roads – eliminate pot holes, clear up kiosks f. Improve telecommunications in Kenya g. Improve security

2. Attract large outsourcers to set up operations in Kenya a. Promote Kenya as an outsourcing destination (media articles, trade missions to Europe, USA and Asia for

politicians’ speeches and celebrate successes in Kenya) b. Travel to meet these large companies with a powerful senior minister led delegation to India, USA, UK,

South Africa and convince them of Kenya’s potential c. Invite large outsourcers to come to Kenya d. Make concessions to large outsourcers to invest in Kenya (affordable rent in office parks, tax incentives,

bandwidth subsidy incentives, DIT training reimbursements) e. Create a one stop shop for investment between the KIA and EPZA and others…

3. Attract large corporate companies to set up captive call centre operations in Kenya. a. Promote Kenya as an outsourcing destination (media articles, trade missions to Europe, USA and Asia for

politicians speeches, and celebrate successes in Kenya). b. Travel to meet these large companies with a powerful senior minister led delegation to India, USA, UK,

Europe, South Africa and convince them of Kenya’s potential c. Invite large companies to come to Kenya and open up BPO facilities here, especially those already doing

business in Kenya in one form or other d. Make concessions to large companies to invest in Kenya (affordable rent in office parks, tax incentives,

bandwidth subsidy incentives, DIT training reimbursements e. Create a one stop shop between the KIA and EPZA and others…

4. Attract the Kenyan Diaspora to return to Kenya and invest or at least influence business coming to Kenya a. Visit the diaspora in the major cities in Europe and the USA to spread the word about outsourcing

opportunities in Kenya b. Encourage Kenyan expatriates to create outsourcing companies of their own in Kenya c. Encourage Kenyan expatriates to drive outsourcing opportunities within their own companies to Kenya d. Make it easier for Kenyan expatriates to return to Kenya. Affordable loans, permit duty free purchase and

repatriation of personal vehicles (new or old). Allow returning residents to even buy their vehicles duty free in Kenya

e. Provide favourable investment advice to the diaspora f. Pass dual citizenship bill

5. Invest heavily in building man power and skill sets in this arena. a. Invest in training facilities b. Create facilities up country c. Drive hard the requirement for typing skills and neutral accents in new recruits and in existing employees d. Invite experts from around the world to lecture and provide local consulting advice.

Source: Company document.


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Exhibit 2 New York Times article about KenCall.

Source: From The New York Times, April 4, 2007. © 2007 The New York Times All rights reserved. Used by permission and

protected by the Copyright Laws of the United States. The printing, copying, redistribution, or retransmission of the Material without express written permission is prohibited.


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Exhibit 3 A Brief Overview of the Republic of Kenya

Recent history. Initially a trading outpost for British traders, in the 1880s Germany challenged Britain for control of the area, and the two nations ultimately divided control of East Africa, with the Germans controlling what is now Tanzania. British gradually intensified its activities in Kenya, encouraging British to settle the fertile northern highland plains to create large farms producing cash crops, such as tea, tobacco and coffee. Britain also built a railroad to connect the port of Mombasa with the highlanders. Unfortunately, the settlement of the northern plains, coupled with the severely limited rights of the indigenous Kikuyu, disenfranchised the tribe members, and over the ensuing decades this ultimately erupted in the Mau Mau Rebellion of 1952-1960. In 1963 Britain gave Kenya its independence and free elections brought the resistance fighter, Jomo Kenyatta, to the first presidency, which he held from 1963-1978. Daniel arap Moi was Kenya’s second president until 2002, when the current president, Mwai Kibaki was elected. Challenged by a strong opposition party, the December 2007 elections were flawed by widely acknowledged election fraud, and when the challenger, Raila Odinga, was declared the loser in the tight race, riots erupted, leaving over 1000 people dead. A power sharing agreement was brokered by former UN Secretary General, Kofi Anan, by which Odinga became Kenya’s second prime minister.

Society and Economy. English and Kiswahili were Kenya’s two official languages, and 50 indigenous languages were also spoken. Approximately 34.5 million Kenyans from over 40 ethnic groups populated the country. 66% of the population was Christian, 6% Muslim, and the remainder indigenous. The three largest urban centers (Nairobi, Mombasa, and Kisumu) had 40% of the population. Kenya’s area was 582,646 square kilometers, just smaller than Texas.

Kenya’s GDP of $29 billion (2007) was generated primarily from agriculture (25%), which provided 75% of the nation’s jobs, tourism (12%), manufacturing (10%), and transport and communications (11%). GDP growth has been strong, averaging around 6% since 2003, and growing by 7% in 2007. President Kibaki’s Vision 2030 called for increasing income per head fivefold to $3,000, with annual GDP growth of 10%.

Source: Adapted from www.cia.gov/library/publications/the-world-factbook/index.html (accessed January 18, 2009), Corporate Kenya: The Business, Trade and Investment Guide 2007/2008, IMC Switzerland, 2007, and www.britishempire.co.uk/maproom/kenya.htm (accessed January 18, 2009).


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Exhibit 4 Contact Center Data

Workstations (000s) 2006 2007 2008(e) 2009 2010 2011 2012 Price per hour (end customer price) Canada 32.5 34.1 35.8 37.0 38.4 39.4 40.3 $28.60 India 179.2 221.0 257.9 285.3 296.8 305.7 314.8 $13.50 Malaysia 10.9 14.7 17.8 23.1 24.6 26.2 27.4 $16.90 Philippines 48.7 58.4 67.5 75.8 82.4 88.2 94.0 $13.70 Mexico 42.1 50.0 59.6 70.8 74.8 77.5 80.1 $17.90 South Africa 9.4 11.8 14.8 17.8 19.7 21.5 23.2 $18.70

Source: Provided courtesy of DataMonitor, from “Contact Center Outsourcing Global Model,” 2007. According to Peter Ryan of DataMonitor, the six countries listed here represent those countries with the highest concentrations of international outsource contact centers, that is, serving international clients. Not on the list were those countries which primarily served domestic customers, or captive contact centers. There were approximately 1.5 agents per each workstation. About 90% of the activity represented above was inbound.


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Exhibit 5 KenCall Customer List

Customer Name Coverage Region Type of Activity Industry

PAST BUSINESS Advanced Alarm USA Appointment setting Security Anthony Robbins USA Appointment setting Motivation/ Self Help Big City Communications UK Outbound Sales Telecommunications Brown Mortgage USA Lead generation Mortgages Celtel Ltd Kenya Outbound selling Telecommunications Digital Media USA Outbound sales and appointment setting Media/Entertainment DTB Ltd Kenya Outbound sales and appointment setting Banking Dun & Bradstreet USA Data clean up Financial Services Earthlink -CS USA Inbound sales and support Internet Access Earthlink -PPC USA Inbound sales and support Intenet Access East Africa Safari Express Kenya Inbound reservations Airline East African Breweries Kenya Inbound sales promotion FMCG (brewery) Equity USA Lead generation Mortgages FMIC USA Lead generation Mortgages GTV Kenya Outbound sales and appointment setting Satellite TV IMC USA Lead generation Mortgages Landlord 411 USA Outbound sales Property management Medicann USA Inbound/Outbound sales Health Care MNH USA Lead generation Mortgages Nova Star USA Sales Insurance Onetel UK Outbound sales Telecommunications Paym8 Kenya Inbound Help line Financial Services Paynet Kenya Call Centre Financial Services Roper Insurance Services USA Appointment setting Insurance Royal Palm Trust USA Lead generation Mortgages SLH USA Lead generation Mortgages Strategic Marketing USA Lead List building Insurance Telechoice USA Outbound sales Telecommunications Toucan UK Outbound sales Telecommunications UAP Provincial Kenya Appointment setting Insurance Wall Street Journal USA Outbound sales Media Xanax USA Outbound sales Mortgages EXISTING BUSINESS (11/08)

Celfish Media USA Inbound sms customer service and expert services support Entertainment

Jetlink Kenya Inbound reservations and customer service Airlines Jott USA Voice to text translation Transcription Orange (Telkom Kenya) Kenya Inbound/ Outbound customer service Telecommunications Spinvox Worldwide Voice to text translation Transcription Tigo TZ Inbound customer service and sales Telecommunications



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Exhibit 6 KenCall's Contact Center


Documents

KenCall - Can Nik Nesbitt's Venture Succeed in Kenya?