New tech and old mech: a recipe for start-up success

OpenAI, Mistral, and Character.ai valuations are going through the roof. Clearly AI is the space to watch.

There is a temptation to look for similar, cutting-edge tech start-ups in Africa when hunting for the most promising ventures.

This would be a mistake. Infrastructure and institutions in the US and Europe are not comparable to those in Africa.

Just think of access to smartphones. Mobile phone penetration in Kenya, for example, is more than 100 per cent but more than half of them are basic feature phones.

I met with up with Hello Tractor in Kenya. The start-up company is dedicated to increasing tractor penetration in Africa with the help of technology.

To get a well-rounded picture I talked with different stakeholders, spent some time with the company’s team, and interviewed enthralling founder and CEO Jehiel Oliver. This revealed three key lessons:

1 Find a technology multiplier to grow your start-up

Comparing the actual and potential yield gap in sub-Saharan Africa makes for depressing reading. The gap is as big as 76 per cent.

A key reason is inadequate mechanisation. But buying a tractor is not feasible for small-hold farmers. They have to rely on tractor operators.

This is where Hello Tractor comes in. Think of it as Uber for tractors, with one important twist.

Few African farmers have access to smartphones. Hence, the key ingredient is agents. Many of them are younger and have a strong affinity with technology.

At the same time, the successful ones are well networked in the farming community. Going from one smallholder farm to another, they line up sufficient demand to book a tractor for the area.

Using the Hello Tractor app, they are able to get an accurate measure of the field – not a given in Kenya – and manage the booking that includes both tractor owners and operators. Their reward is five per cent commission.

Tech is central in this make-up, but only works with the right agents in the mix. Hello Tractor also invest heavily in training these agents. Still, the fancier features are tricky for some of them.

2 Why entrepreneurs should sweat the small stuff

The appeal of the overall idea is easy to grasp. The devil, though, is in the detail.

For example, one of the agents told me that he is not able to download the app. As I learned later, he is not the only one struggling with this.

It’s not that the app itself does not work, but he does not have enough space on his phone and struggles to delete other apps to create it. In other words, there is a capability problem when we start looking at different actors in the system.

The second problem is an incentive issue. With tractor owners, drivers, booking agents, dealers, and farmers in the mix, it is not a surprise that they are not always aligned.

Most owners, for example, used to pay a day rate for drivers while the app pivots towards providing a tractor service in return for a percentage of what the owners get from the farmers for each acre they cultivate.

This turns out to be roughly twice as much. Great for drivers, not so much for owners.

Finally, there is a path dependent issue. In some areas tractors are common already. No issue there.

But in others, people use a bull. Why would they change to mechanical farm equipment when things have been done that way for generations?

Economics is one thing, but there are other issues to be considered. Family members and others in the community are likely to lose their job on the farm. That’s likely to create push-back.

None of these three issues are obvious on the macro-level, but miss one of them and your business model will crumble.

3 Combining market forces and public funding can spark SME growth

A common issue for African start-ups is funding. Local entrepreneurs come up with ideas that work, but for investors these do not look like they are on the path to being 10 times their valuation.

Westerners, on the other hand, can spin a great tale about their tech companies and get the money, but soon run into problems.

Jehiel, the founder came up with a two-fold solution. Knowing that he is strong and sometimes over-enthusiastic on the tech side, he assembled a strong local team that makes sure the ideas actually work, ie they look at the nitty-gritty stuff.

This still leaves him with the dilemma of funding his ideas. His solution is partnering with others that have a social motive on specific issues.

The Bill & Melinda Gates Foundation, for example, is helping to create connections to manufacturers from the Global South that come with a substantial cost advantage.

This does not mean that markets are ignored. John Deer, for example, pays Hello Tractor a commission for tractors which are sold via their network. Clearly a win-win situation.

To make a mixed system of commercial and social actors work, Hello Tractor turned down top investors. While the publicity would have been great, their time is too short and reaching 10 times their valuation is not going to happen in the agriculture sector in Kenya, full stop.

Hello Tractor: a success story for other African start-ups to follow

Predicting the future of any start-up is simply impossible, but Hello Tractor has certainly had a great run so far, currently serving 85,000 smallholder farmers. The average repayment rate of those who finance their tractor via Hello Tractor is an impressive 100 per cent.

Whether this journey continues will depend to a large extent on the ability to align a diverse set of stakeholders. In other words, sweat the small stuff instead of getting obsessed with a grand vision.

If that works out fine, new tech will continue to bring old tech such as tractors, to thousands of farmers, allowing many to reap the benefits.

This article was originally published by Forbes.

The research was conducted with Ed Adegboye, Mayumi Cornejo, Laura Knapp, Sai Vidya Krovvidi, and Claire von Loesecke.

Further reading:

How to overcome employee's resistance to new technology

Do the rewards of AI outweigh the risks?

Are managers going to be replaced by AI?

The authentic founder: How to stay true to your values

Christian Stadler teaches Strategic Advantage and Strategy and Practice for the Executive MBA and Global Online MBA.

Learn more about strategy on the four-day Executive Education course Creating Strategic Advantage at WBS London at The Shard.

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