In our conversation, we ponder where exits are going to come from and discuss the role that African corporates ought to play in funding innovation and in tech M&A. We both start with the belief that African corporates have not gotten involved in a meaningful way, and ask why that is and how it changes. 

Here’s part of our exchange, which I’ve edited for clarity and concision, 

Justin: I think there’s also something from a timing perspective - how disrupted have these companies that we’re talking about been? I don’t know that they’ve been disrupted that much relative to incumbents in a place like the US, right? So this fear of technology putting them out of business is not real yet. 

Sayo: Maybe we need a couple of people knocked off their perch but I don’t see that coming anytime soon. 

Justin: So that’s part of the problem - the incentive, in spite of our belief in Schumpeter’s creative destruction, for example, it may not be a real thing for them because there’s no outside pressure. And if there’s no outside pressure there’s no inside pressure. And maybe their R&D spend or their willingness to participate as an acquirer or corporate VC is them doing something because they feel they ought to be doing it for the benefit of the ecosystem, but it’s still a cutesy thing for their business because they don’t feel that they need to disrupt themselves yet. And, this whole idea is corroborated by mobile money. It wasn’t an innovation for telcos to disrupt anything it was an innovation for them to reduce their distribution costs. 

Sayo: Yeah, and that’s what I mean. What other costs can we help you reduce? I think we have the potential to be smarter than everyone else and I think the disruption thing is a huge waste of energy and money. I think we need to be more conservative about our energy and money given the environments that we are at. And I think that means we should be trying to collaborate - quicker, earlier - and that to me requires a level of communication that I'm yet to see.

Justin: Yeah, so I guess what you're saying is being smarter means thinking about how to leverage each other's strengths before the fear-based disruptive conversation that comes into it.

Sayo: Yeah, honestly, what can I help you with? Just tell me.

While this exchange has us compelled to further explore conversations with folks working for corporates, to gain perspective from the other side of the table, Sayo and I agree that the conversation around disruption is perhaps counterproductive to the collaborative opportunity and collective upside of both corporates and startups alike. 

In other words, it’s the wrong narrative. 

Corporate-startup mediation

In a recent conversation I had with Adia Sowho, for another upcoming episode of The Flip podcast, I joked that she should become a mediator between corporates and startups. 

Adia was most recently the VP of Growth for Nigerian fintech Migo. She moved into that role after meeting the founders while working on the other side of the relationship, on digital products with the telco Etisalat. I asked her whose “fault” it was that there is a lack of collaboration between corporates and telcos. She said,

Both sides are definitely responsible for where things are. I think there isn’t a strong understanding of what leverage means on the startup side…  would get frustrated and say, ‘the telco charges too much for revenue share’ and so on… I would tell people, ‘Look, sign the contract. It's only two years. And then at the end of two years, all you need to do is put me in a position where I have to adjust my commercials to respond to you if you have traction’… but that didn’t necessarily happen. 

Now, on the other side, it's just flexibility, latitude creating opportunities, as opposed to beating fists on a table and saying, I am the telco and you will do all that I say… just being able to accommodate innovation is a challenge in companies that are older… this is not a challenge that’s specific to just telcos. It’s a challenge that is present in companies that have a business model that has seen some success, companies that have a certain way to make money.  

Some of Adia’s anecdotes from her experience with Etisalat, in my view, corroborate the belief that disruption is the wrong narrative. After all, corporates are looking to partner with startups to make money - in a way that is additive to their existing revenue streams. 

And, until such a time as those revenue streams start to dry up, disruption will remain this esoteric, opaque thing. 

How does change happen? 

It’s worth revisiting how change happens - a topic we discussed in the context of COVID-19 a couple months back. We used the Fogg Behavior Model to explore further, 

“three elements must converge at the same moment for a behavior to occur: Motivation, Ability, and a Prompt. When a behavior does not occur, at least one of those three elements is missing.”

Meanwhile, we can plot corporates on the chart. The question becomes, how motivated are corporates to change? How motivated are they to change, especially, if the fear of disruption is not as real and if it is hard for them to do so? I’d put them pretty low on the motivation axis. 

We can see how motivation changes, however, when an innovation like mobile money impacts a telco’s business in a real and tangible way. 

For me, this raises a related question - what are we even disrupting? I think this question is especially pertinent at the current stage of development.

In other words, where are growth opportunities on the continent coming from? Surely, in an environment where millions are unbanked and/or are non-consumers, growth isn’t coming from disrupting incumbents or stealing market share. 

The narrative ought to be one of abundance, opportunity and augmentation, not scarcity and disruption. 

A collaborative approach to achieving our objectives

The difficulty with the abundance approach is that it’s exorbitantly difficult and/or expensive for corporates to target the mass market. It just may not make business sense for them to do so. And in certain markets on the continent, you can build a pretty good business serving the top 3, 5, 10 percent of consumers. 

How do startups and innovations, in general, (help to) grow that pie? 

The nature of mobile money, for example, reducing distribution costs for telcos made it easier - made the unit economics “worth it” - for telcos to go deeper into the mass market. To be sure, in this case, the opportunity is for consumer-facing businesses, whether B2C or B2B2C. 

Migo’s credit-as-a-service model enables incumbents to offer credit products to their existing customers, “augmenting traditional bank and payment card infrastructure”. 

Rwandan ecommerce company Kasha, in optimizing their platform for the bottom of the pyramid, is enabling FMCGs like Unilever to reach and market to last mile-consumers more directly and affordably than ever before. 

In Nigeria, Hello Tractor’s “Uber for tractors” model aggregates demand, and their IOT devices tracks asset utilization, which enables tractor manufacturers to better monetize their assets. 

In South Africa, incumbent banks like Capitec are leveraging Entersekt’s software to create a better, more secure, and mobile-first digital banking experience, which enabled it to better serve the mass market consumer by keeping its fees low.  

Mobile money, of course, is probably the most obvious example, where its impact as an on-ramp to other financial services is well documented. From research by the Consultative Group to Assist the Poor (CGAP),

M-PESA is only half the story. Many people are aware that total mobile money accounts in Kenya eclipsed the number of total bank accounts in 2009. Fewer people are aware that a second inflection point has already occurred: bank accounts in Kenya today outnumber mobile money accounts by more than 30 percent. 

A common assumption is that some degree of mobile money’s success comes at the expense of Kenya’s banking sector. Meanwhile, only 14 percent of Kenyans had bank accounts in 2006. That number is now above 40 percent.

This can be attributed, in part, to collaborative initiatives like mobile savings and loan product M-Shwari, formed through a partnership between Safaricom and CBA, “which has catapulted CBA from a small, up-market bank to one that serves more clients than any other bank in the country”. (CBA has since merged with NIC Bank to form NCBA Bank) M-Shwari was launched in November 2012 which correlates in the above chart to a doubling of total bank accounts in the ensuing years. 

CGAP sums up the opportunity for collaboration quite nicely,

While nonbank mobile financial services can fundamentally reshape the financial sector in a developing market, as they have clearly done in Kenya, mobile services need not represent an existential threat to the traditional banking industry. In fact, the reach of models such as M-PESA can enable and even incentivize innovation in the banking sector, including a shift in focus to increasingly lower-income consumers. Kenya’s experience shows, above all, that retail banks can thrive in the face of mobile money, as long as they are prepared to adapt.

Tech in Africa is not here to disrupt. It’s here to augment. Let’s change the narrative. 

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