#3 — How (not) to partner with a startup + a conversation with FFA
Startup-Corporate Partnerships in Africa: Beyond The Deal
This is the third and final essay in The Subtext’s three-part series on startup-corporate partnerships. Published in partnership with Founders Factory Africa.
I. A Tale Of Two Partnerships
It was the best of times, it was the worst of times. Through eight months of discussions, a retail-tech startup in Africa — let’s call them DukaShap — finally landed a partnership with AcmeCorp, a multi-national FMCG conglomerate. DukaShap provides in-store & online commerce tools for small businesses; they also monetize the sales data generated by sharing aggregated insights with brands. AcmeCorp had some ideas about how to leverage DukaShap to sample new products: the startup would have to build out new capabilities including managing inventory. But if successful, the partnership would expand the addressable market and earn DukaShap revenue for each SKU successfully sampled via their merchant network.
After signing the agreement, DukaShap met an unexpected roadblock: they had already committed resources to transport product for the pilot, but a standard system compliance audit by the security team in India required them to be ISO-certified before deploying the project. It ultimately didn’t matter that they were not informed before, or that a temporary waiver could have been secured for the pilot phase, requiring them to be compliant ahead of the full rollout. In essay #1, we said that compliance is the biggest killer of partnerships — this project ended up as one more casualty.
It’s easy to see how this happened. From inside the mothership, an early-stage ‘high-growth startup’ is often just another software vendor who has to play by the rules. While the partnership represented a major potential inflection point for DukaShap, AcmeCorp was merely testing out a hypothesis. So, even though there was excitement about the project internally, it ultimately failed because the corporate was not prepared to support it institutionally — or make the necessary adaptations to give it a fair chance.
It is not enough to simply recognize the opportunity for innovation. If the startup does not develop the right 🔌 plug (e.g. compliance), or the corporate does not expose the right socket, then the partnership usually ends up a poor use of everyone’s time. There must be a better way to approach things:
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In bank-led South Africa, EFTs (electronic funds transfers) are an increasingly popular payment method, comparable to bank transfers in Nigeria. For 🇿🇦 Capitec Bank, the existing business model for EFTs is 1/ a standard transfer priced around 2 Rand ($0.1) which usually clears within 24 hours, and 2/ a real-time transfer priced at 50 Rand ($2.6) and settled immediately.
Ozow, an open banking company launched in 2014, started out by reverse engineering bank login screens to orchestrate transactions on behalf of the customer making a payment. This enabled them confirm transactions for merchants without needing them to be settled immediately. As an example, Ozow checks that “John Doe” has the 500 Rand required to pay for a shirt, and that the money has been sent; meanwhile, the merchant can release the goods knowing that they will receive the money the following day.
Naturally, this cannibalized the more lucrative 50 Rand transfers, but Capitec responded by working with Ozow and other open banking companies to build an API with permissioned access — customers now only need to enter their cell phone numbers for a transaction. This is a win-win for everyone involved: the user gets a better, more secure experience; the startup gets more reliable access; and the bank can layer on value-added services like recurring payments which it charges a fee for.
The net effect of Ozow & similar companies entering the market is that transactions are now cheaper for the marginal consumer. In this example, Capitec responded constructively to the ‘threat’/innovation, and as a result, the addressable market has expanded for both the bank and the startups involved. (Lower transaction fees mean that more people can now transact)
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II. How to partner with a startup
African startups and corporates mostly don’t compete amongst themselves; if you zoom out, they compete against non-consumption. For the heft of the Nigerian banking industry, the primary effect of fintechs like OPay, Moniepoint, Paystack, PiggyVest, Carbon has been an expansion in the addressable market for financial services (not merely a shift in market share). It’s always worth considering a positive-sum approach.
Still, a running theme in this series is that startups and corporates are hopelessly misaligned — no two companies can work together productively without deliberate effort to keep them aligned.
The corporate largely determines the mode of engagement, so the onus is usually on them to create this enabling environment. Accelerators and other cohort-based programs are a step in this direction, but there are a few general principles to keep in mind:
A — Empathy for Entrepreneurs
Bruno Akpaka, Director of Strategic Partnerships at Migo, put it best:
“On the corporate side, I would say when partnering with startups, they must have realistic expectations in terms of the ultimate goals. […] While working for a bank, I once partnered with a startup that was brilliant. I had a big team. And we had say, ‘X, Y, and Z’ expectations. I didn’t consider that on the other side, it’s the same guy that will try to deliver X, try to deliver Y, and also try to deliver Z. It created a lot of frustration because I oversold the outcomes of that partnership to my internal stakeholders.”
While corporates tend to value stability, startups are by definition more dynamic. And that unpredictability, that high variance in outcomes is exactly what makes the startup valuable to the corporate in the first place. A company in search of a scalable, repeatable business model is hardly able to provide the scale or predictability that a multinational is used to getting from its peers. Corporates are often tempted to manage this risk by exacting onerous terms on their startup partners. Wiza Jalakasi:
“Corporates could sometimes use their leverage excessively in the beginning and set startups up for contracts that are unfavorable from the word go. When this happens, I think it’s because the corporate has been too aggressive in trying to get a lot of value up front. This makes it difficult for startups to stay committed sometimes because it’s like, ‘okay, these guys are making us jump through all these hoops for 10% revenue share’. To innovate in high risk areas, there really needs to be a balance of incentives and an adequate sharing of risk[…]”
I pressed Wiza on this a little during our conversation — aren’t the corporates right to try to protect their downside? His response:
“Absolutely. And that’s, that’s fair enough, right? Then the price that you have to pay for that is lower commitment from the startups. There’s a trade off here. There is obviously value that the corporate is bringing, and that value is easily quantified. But at the end of the day, startups are very unpredictable structures in general. And that’s a trade off that you make knowing that things could go either way. It’s often useful for corporates to hedge against this risk by pursuing multiple partnerships simultaneously, and seeing which ones really hold out.”
B — You Get What You Incentivise
Wiza, again:
“If the incentive structure is not appealing for the startup, it is likely that priorities will shift over time. But like, if [the commercial opportunity] is something that can change the trajectory of the startup entirely, it’s very unlikely that that thing is going to change.
C — Create An Interface (An Interview with Founders Factory Africa)
To conclude, I had a conversation with Ayotunde Aladejana, Global Partnerships Lead at Founders Factory Africa. Ayotunde started his career in banking, working on education and healthcare financing before transitioning to partnerships at FFA over the past two and a half years.
This journey led him to build relationships with SMEs, startups, DFIs (developmental finance institutions), and large corporates across FMCG and financial services. He’s bringing that experience to bear for startups in FFA’s portfolio, and as you’ll see below, I found him especially insightful about how corporates can build a bridge to enable them get the best out of the startup relationship.
The conversation has been lightly edited for clarity.
Osarumen Osamuyi:
“Thank you so much Ayotunde for taking the time. I’m gonna jump right in. The first thing I want to know is: why does FFA have a partnerships function in the first place? It’s not every day you see an investment firm also doing partnerships work.
Ayotunde Aladejana:
“Okay. So, partnerships exists at FFA to create value for our portfolio businesses. And how do we create value for them?
It’s by creating opportunities to engage with large corporates that they may otherwise not have had access to. Because what we’ve seen is that startups don’t necessarily have the capacity to do a lot of things at the same time. The ethos of FFA is providing the right resources at the right time to founders. We know that an early stage startup can’t hire a 10-man team or a 3-man team for partnerships. Which is why we have the team that we have, to create those opportunities for them through pilots.
After validation, we’re able to introduce them to potential partners so that they can distribute their product; partners to help them learn; also partners for revenue, for assets and debt, and so on. The idea is to create opportunities that lead to commercial value, revenue distribution, customers, and assets that they would otherwise not have access to. That’s why we have a partnership system and that’s why we do what we do.”
Osarumen Osamuyi:
“Excellent, thank you. What should startups know about partnering with large corporates, or what learnings do you have to share from the past two and a half years driving this at FFA?
Ayotunde Aladejana:
“I think what people don’t realize is at the end of the day, you’re pitching to a corporate, but you’re also pitching to an individual within that corporate who has their performance goals, who has their own KPIs. You should both be focused on how your solution adds value to the strategic goals of the organization, but also how it adds value to the person you are presenting to. That’s what I call identifying a champion within an organization. Who in the organization looks good from working with us and how does my solution help them achieve their own goals? Otherwise, it just goes really cold very quickly. Even with that champion, you’re still going to come up against blocks and delays. And so, that’s always the first step.
The other part is also making it easy for the corporate to say yes or no to you. And what that means you need to provide them with the minimum viable partnership. What is the easiest way to start this out? So that they can say, ‘all right, we can do this’, or ‘no, we can’t do this’. What is even worse than a ‘no’ is a really long maybe, where you’re just having meetings and meetings for nine months. And so ensuring that you have a minimum viable partnership to prescribe to them saves everyone time.
Obviously the last part is just ensuring that your solution provides quantifiable value to the organization and to your champion. At the end of the day, corporates want a solution that helps them either reduce costs, get more customers, generate more revenue, generate more fees. You have to show how your solution helps achieve that goal in a quantifiable way.”
Osarumen Osamuyi:
In a similar vein, what advice do you have for corporates who want to partner effectively with startups?
Ayotunde Aladejana:
I think it’s important to have a culture of innovation in the organization as well as a team that understands how its different parts work. So that when startups come, they’re able to plug the startup easily into the org and say, ‘this is how we partner’.
Within that culture of innovation is allowing your people to experiment with different solutions so that you learn something at the end of the day. Which is why, again, the startups need to help them by describing that minimum viable partnership and clearly defining the value if they get it right. It’s creating a team that can guide the startups through that process because a corporate is so large, it can be a challenge to even identify whom a startup should be speaking to.
It also means having processes that ensure that you can test and integrate with startup really quickly. One of the frustrations we have had is how long it can take to engage a corporate from sign off to integration. If there is an existing process and team in place, there’s that culture of innovation, then that makes it easier to get value out of the relationship.
Acknowledgements
This series would not have been possible without the editorial team at FFA; they provided the inspiration, resources, and a hard deadline. Thank you to 1/ Andile Masuku, 2/ Adam Wakefield, and 3/ PAWA Africa, who wrote the initial partnerships playbook that served as the jump off point.
I’d like to thank you all for taking the time. I hope you have learned a thing or two in the process — I certainly have.
With love in my heart, and satisfaction from completion in my belly,
-Osarumen
