1 September 2018

Nigeria: Two Nigerian Corporates Do Innovation and Start-Up Investment - 'We're Clear On What Value We Add. There's a Lot of Value Around Our Network'

Two local Nigerian companies have set out their stall for engaging with innovation and start-ups. This is something that would have been unimaginable five to ten years ago. Russell Southwood talks to Tomi Otudeko, Head of Innovation, Honeywell Group and Toro Orero, CEO, Zone Tech Park about what they are doing and why.

With the resignation of Safaricom's Chief Innovation Officer in Kenya last week, it's clear that innovation by corporates is not always as easy as it looks. However, as Tomi Otudeko, Head of Innovation and Sustainability, Honeywell group put it, existing businesses don't really have a choice: "Big business can't afford to ignore technology and innovation. If you ignore it in the next 5-10 years, it will be too late".

So who are the two Nigerian corporates taking the leap? The first company is Honeywell Group has launched a new accelerator and investment vehicle called Itanna. Led by Tomi Otudeko, Head, Innovation and Sustainability for Honeywell Group and Director of the new venture, Itanna will roll out four-month innovation programmes for tech-enabled Nigerian startups from its newly built Enterprise Factory in Lagos; with its pilot cohort of startups receiving USD $25,000 each in investment from Honeywell Group.

Itanna launches with four cohort companies - Accounteer - providers of online accounting services for SMEs across Africa; KoloPay - a cashless target savings mobile and web application, Tradebuza - an online platform for managing and brokering commodities sourcing and outgrower scheme, and PowerCube - providers of affordable power supply using renewable energy.

Honeywell Group is an old Nigerian business started by Tomi Otudeko's father Oba Otudeko and her older bother is the CEO of the company:"The company was started 45 years ago. My father was doing trading, buying and selling yeast. Honeywell Group is more like a holding company". It has already built successful businesses over a 50-year period.

The second company is The Workforce Group, a leading HR company in Nigeria. It has opened Zone Tech Park, a new venture builder for start-ups in Nigeria. Located in Lagos, Zone Tech Park is the brainchild of Bolaji Olagunju, a serial entrepreneur and Founder and CEO of The Workforce Group. He has bought in Toro Orero as CEO of Zone Tech Park. Orero was formerly a managing partner at Silicon Valley VC fund DDF.

To date, US$6.5 million has been invested in Zone Tech Park to build the infrastructure and environment needed to help African startups scale and compete globally. Zone Tech's startups will have direct access to more than 400 domestic and international corporations who are clients of WorkForce.

For Tomi Otudeko at Honeywell, the engagement with innovation was sparked by an external approach:"The idea came about last year when a team reached out to Honeywell Group about innovation and it got us thinking about the impact of technology. They wanted to do a corporate innovation programme but it didn't work out and we decided to go our separate ways".

Honeywell Group is in quite traditional businesses: real estate, hotels, residential and commercial power solutions, mid-stream and up stream in the oil and gas industry, flour mills (making pasta and noodles) and local foods, a security company and investments in different businesses in the financial sector:"We felt that it would not be in our best interest to ignore technology".

So what specific impacts are you looking for from technology?:"Ideas change almost daily and Itanna is almost a pilot. We have two theses: innovation integration and pure investment. Some companies like PowerCube have clear synergies with our business. Others like Accounteer have no direct synergies with the business. So it can work either way and also the options are not mutually exclusive".

A Nigerian company engaging with innovation in this way would have been almost unthinkable a decade ago. So what's changed?:" We've seen people do this successfully. For example, Interswitch launched 16 years ago. No-one really understood it. We've seen a lot of successful start-ups go out and get outside investors. We were maybe slightly late to the game compared to foreign investors. So we will need a level of discipline in the way we invest".

Why start with the fintech sector?:"We wanted to be very focused on one sector. Initially it was fintech. There's a lot happening in that space. For example, Paystack raised recently raised US$8 million. There are people doing interesting and impressive things but there are also a lot of people doing the same thing, usually 5-10 people with little variance".

"Fintech's critical because technology has leapfrogged things like mobile payments. There are things about how banks operate and we needed to find people doing unique things. We were looking for people at the top, the best of the best. For example, we looked at savings products". However, after initial investigation it decided to adopt a more sector-agnostic approach, reflected in its firs four start-up choices.

How easy is it to find the best of the best after the international investors have been there first?:"There have been plenty of people who have gone to things like Y Combinator and got Silicon Valley money. People have been throwing money at them. It does drive the price up for those who are not so good. The international investors become a benchmark".

"But we're clear on what value we add. There's a lot of value around our network. We will help with door opening. We've been around for something like 45 years and that's something you might not get from international investors".

"We used to work at First Bank. We noticed small Fintech companies trying to take a share of our product like savings companies talking the language of the young. It was an alternative to the bank. Big business can't afford to ignore technology and innovation. If you ignore it in the next 5-10 years, it will be too late".

"We have an in-house innovation strategy called M4C. We're actually thinking through about what to do in the next three years and for the next 10 years. Some have in-house innovation teams and some just invest in businesses and others do innovation outside the company".

The founder of The Workforce Group, the third largest HR company in Nigeria had the idea that he wanted to tap into the ecosystem. Toro Orero, CEO, Zone Tech Park told me:"It's looking for B2B-type start ups which can leverage on Workforce's existing business and clientele and back them by giving them access to market. Otherwise they start out as small fish in a big pond".

The physical space of Zone Tech Park is an enormous 10,000 sq m warehouse in which US$6.5 million has already been invested. It has 4 entertainment halls, one with 650 seats and the rest between 100-150 seats and a 150 space car park. The co-working space can house up to 80 enterprises at a time. There are currently the initial 4 companies in the space at the moment:"We're bringing in more people to work out of it. We want to develop great tech products and we'll run events associated with that". There are also plans to develop the other two warehouses on the site.

So what type of start-ups is it looking for?:"It's very specific. We are looking for B2B-type start-ups who already have a product and want to "plug and play". We can help them strike deals with potential customers. We'll introduce them say to Mr C of Big Bank Co and then help with the negotiations to make it work". It will consider start-ups from those that are a great idea on paper to those who already have customers on board.

Zone Tech Park can support its start-ups in preparing for funding rounds by giving access to a network of potential investors, accelerator programs, and ecosystem architects. So far it has built two products so far: Peerless, a learning management system that already has 10,000+ users and revenues of US$100,000; and Outwork, a staff on-demand solution with 7,000+ users.

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