Corporate collaboration as growth and exit opportunity

Olayinka is a Nigerian founder who has been struggling to build a unique digital commerce startup that brings traders in physical markets online. His initial efforts were very successful as he opted for WhatsApp as the interface between customers and traders. He on-boarded thousands of traders from one market alone, and this got the attention of a large Lagos bank. The bank offered to partner with him, and he agreed to meet them at their offices.

The first thing he noticed when he got to the meeting with the bank was a massive whiteboard on one corner of the meeting room. At the top of the whiteboard was written “Buy Fintech Company.” He knew the intentions of the bank immediately. He was not ready to sell yet, and he made it clear to them. I had backed his decision at first, but I now realise that we were both wrong. He should have explored the possibility of an exit to the bank.

My friend Matt Mossman runs an M&A advisory company in Silicon Valley, and he has kept trying to let startups know that 98% of all exits in America are typically acquisitions. The statistics mean that your chances of being acquired as a tech startup in America are much higher than the chances of reaching the IPO stage. Matt also said that the easiest way to become an acquisition target is to solve the problems of the customers of the acquirer.

This scenario in Silicon Valley and the USA could also play out in Nigeria or even Africa as a whole, but it rarely happens. I have been trying to find out why?

Low trust?
We are described frequently as a “low trust society” but what does that mean? I believe it indicates that we only trust what is familiar. I think that trust is abundant, but we look for it in the wrong places.

I grew up seeing people do things for each other based on faith in them and I saw communities based on trust thrive. It is also true that a lot of that has changed.

Iyinoluwa Aboyeji, the CEO of Flutterwave, gave me an epiphany when he mentioned that “it takes over a decade for you to be able to build a known or household brand as an African startup.” His suggestion was a partnership with established brands.

Flutterwave has made those partnerships part of their core strategy, and it is working very well for them. The Flutterwave approach shows that “trust is contagious”. You can catch it from the right partners, especially when you have something to offer to their customers. The established brands provide rapid customer acquisition and distribution while the startup delivers innovative experiences.

The truth is that there is a healthy amount of distrust between established companies and startups in Africa, and that is where “low trust” really exists. The lack of trust is mainly because of the flippant use of that dirty ten-letter word, “Disruption.”

Startups believe that they can change the status quo with technology and people in established companies are afraid that it could just happen. Corporate job insecurity and unstable external environments fuel that distrust. The reality is that both parties need each other now more than ever.

“Disruption” should be replaced with nicer words like “Optimization and Innovation” because those are the most likely options to succeed in the short-term before opportunities to open up new profit pools.

Overlaps
If you map all the customers of corporations in Africa against those who have access to the internet or at least “digitally included,” I am very sure there would be almost total overlap. The customers that the technology companies want are already customers of corporates like telcos and banks.

Telcos provide last-mile connectivity and own the largest digital customer base. The corporates have also built extensive distribution infrastructure like agents and branches to reach them. I am not surprised that financial services or bank apps are usually the most downloaded and with more activity.

We need them
The American product design expert, Jared Spool says –

“Innovation is not creating something new.

Innovation is not inventing something that didn’t exist before.

Innovation is adding new value that didn’t exist before.”
USSD transactions were not something new, but they became an innovation in Nigeria when banks started using it to sell telco airtime to their customers. It became so successful that it was now a precursor to all other financial services transactions. USSD utility and versatility in banking is the new value that didn’t exist before that became unlocked with collaboration. This mutual collaboration in serving overlapping customers is also innovation.

Trust is a fundamental precursor of innovative ecosystems. Players can unlock new value when they take advantage of overlapping interests. African startups need corporates more than the corporates need startups. The banks and telcos have the customers that we need to reach digitally.

Equity Bank in Kenya launched a separate Fintech initiative in Kenya this week. The new fintech company has already reached out to other banks in the region for collaboration. I see a future where more of this will happen in reverse. Collaboration, then acquisitions and exits.