Enhance ReadabilityAchieving rapid growth is difficult for any startup; achieving rapid growth in an emerging market where established companies have given up is even more difficult. Yet that is precisely what Nagib Mimassi did when he built Orolix into the third largest Internet Service Provider (ISP) in Brazil by focusing on poor, rural customers. By examining his story, we can see how carefully building alignment between the business model, product, and go-to-market strategy can drive stunning growth in a capital-efficient manner.
In 2003, Mimassi was bothered by something. As an Internet entrepreneur, he was convinced of its transformative power. Yet because Internet access was still very expensive in his native Brazil, few poorer Brazilians and almost none outside the major cities were on the Internet.
Achieving rapid growth is difficult for any startup; achieving rapid growth in an emerging market where established companies have given up is even more difficult. Tweet This Quote
He decided to start with the goal of bringing the Internet to rural communities. Then, he worked backwards to figure out a way to serve that market profitably. The answers he came up with would upend his industry.
At the time, Brazil’s leading telecom had a monopoly on providing DSL service. Brazil’s existing Internet users, largely urban and wealthy, were keen on high-speed access. The major carriers were largely getting out of the obsolete dial-up access business. But where the incumbent saw obsolescence, Mimassi saw opportunity.
Dial-up access was slow and painful for those, who like most of us today, are used to high-speed access. But for rural communities, any connection to the Internet, and thus the outside world, was a giant leap forward. Mimassi decided to concentrate on providing dial-up access. Because the business was considered unattractive, he was able to rent the infrastructure to provide dial-up access from one of the existing big players, obviating the need for the capital expenditures to set up his own banks of modems.
Next, Mimassi focused on lowering the price of his new dial-up service to a level that would be low enough to appeal to poorer customers. He realized that dial-up customers offered a significant financial advantage, in that they generated interconnection fees for the carrier receiving the calls. Mimassi was able to reach an agreement with a local carrier to share the interconnection fees generated by his dial-up service and then used those interconnection fees to subsidize his customers. His new company, Orolix, was able to offer its service for free, making it accessible to everyone.
Carefully building alignment between the business model, product, and go-to-market strategy can drive stunning growth. Tweet This Quote
But this commitment to low prices meant that the company had to be incredibly lean. The margins simply weren’t large enough to support a traditional ISP’s cost structure. That meant finding a way to acquire and serve customers at an unprecedented low cost.
Mimassi tackled the service part of the equation first. After doing the math, he concluded that the only possible solution was to make the product almost entirely self-service—despite serving an unsophisticated market that one might expect to require more, not less, hand-holding. Mimassi and his team tested numerous product variations on rural customers, refining the service to maximize usability. Ultimately, Orolix was able to serve nearly a million dial-up customers with just two customer service representatives.
That left one final, seemingly insoluble problem: acquiring customers in a geographically fragmented market without any money to spend on marketing. Once again, Mimassi found a way to turn what seemed like a weakness into a strength. The very geographic isolation of the rural communities Orolix proposed to serve meant these close-knit communities had a much deeper and stronger network of offline social relationships than did sophisticated urbanites. Orolix would leverage these social relationships by relying on referral marketing.
For rural communities, any connection to the Internet, and thus the outside world, is a giant leap forward. Tweet This Quote
Orolix made a simple offer: if you referred someone to Orolix and became a customer, you would earn 20% of the interconnection fee that got paid to Orolix as long as they remained a customer. To a great extent, this offer was made out of necessity; Orolix couldn’t afford to pay any up-front cash bounties. Yet this offer ended up fitting in perfectly with Orolix’s lean operating strategy. Because the referral rewards depended on the long-term retention of the customers you referred, the referrers became an informal, decentralized support team. Some referrals would even make house calls if one of “their customers” was having technical difficulties—a level of high-touch service that Orolix would never have been able to afford to provide via conventional means.
Orolix refined the referral program. For example, Mimassi found that the program became more effective when they limited Orolix customers to a maximum of 10 referral invitations at a time. Once you invited your 10 referrals, you wouldn’t be able to invite more until some of the initial set accepted the offer and became Orolix customers. This gave the referrers a strong incentive to focus on the very best prospects and to call or visit them to encourage them to sign up. This improved the conversion rate and even increased the pace of growth because the referrers were working harder than ever before.
Some business models that work in one emerging market often don’t translate to others, but it’s important to see these differences as opportunities. Tweet This Quote
Within just three months, Orolix reached breakeven. In less than a year, Orolix had nearly a million customers, making it the third-largest ISP in the country and by far the largest dial-up ISP.
Mimassi achieved these goals because he targeted a low-margin, less-sophisticated, geographically isolated market, even though he had no money to spend on operations or marketing.
Succeeding in emerging markets can be difficult. The models that work in other geographies often don’t translate. Yet if you see these differences as opportunities rather than disadvantages, startups can grow rapidly in these markets, generating financial returns and massive benefits to consumers.
