When big IT companies look at new venture capital investments, you’d expect them to scrutinise the financials of target companies, along with the strategy, business plan and market outlook, before making a decision on whether or not to fund them. It’s not the job you would expect a cognitive psychologist to be doing. But IBM believes that figuring out how people will interact with technology is so important, it sends psychologist Deborah Magid around the world to scout out emerging business opportunities. Kathy Gibson found out more
Our relationship with technology is an interesting one: whether we love it, hate it or just tolerate it we are all using it more than ever in our business and personal lives.
Which is why it’s important to understand how people learn and communicate when deciding on whether a particular technology or application will resonate – and thus enjoy commercial success.
Deborah Magid is the director of software strategy at IBM Venture Capital Group. She represents IBM’s $25-billion software business in the company’s venture capital group, scouting for emerging business opportunities and sharing her views on innovation and future growth areas.
As a director of strategy in IBM Software Group, she also brings insight from the venture community to the development of IBM’s growth strategies. Magid is responsible for fueling the ecosystem pipeline in strategic areas related to building a “smarter planet” and contributes to filling out the IBM product portfolio through mergers and acquisitions.
She is also a cognitive psychologist.
So why would this particular skill be useful for someone responsible for technology investments?
“It’s important in technology and in business to have a better idea of how people behave,” Magid explains.
She stumbled into the technology environment while working on user interfaces and progressed into testing, then engaging with customers, sales support, marketing and then business development.
But it’s Magid’s initial training in how people think that is coming to the fore now, as she identifies companies and technologies that will be successful going forward.
This is because technology will only take off it resonates with the people it is intended to address; and it’s as true in Africa as it is anywhere else.
“A lot of the way we use technology has to do with instinct and the way people behave.”
So, while people may have different uses for technology in different parts of the world, they have more in common than might be expected.
“We are both the same and different. In Africa, there is a growing middle class where people have smartphone and Internet accounts.
“Enterprises can see what is being done internationally and learn from that, because people don’t really do things differently.
“In this way technology becomes an equaliser.”
What is different, Magid explains, is the specifics of customer engagement. “How people use the technology could be different in diverse markets.”
A global company like IBM, which operates in just about every market in the world, has to try to connect with its customers in ways that are appropriate for local cultures. Even though the basic products offered in every market are the same, the specific solutions could be very different.
“So big data is big data is big data – but where the data comes from and what you do with it could be different depending on where you are in the world.”
And so IBM has internationalised its search for startups to add to its venture capital portfolio. “There are start-ups everywhere, from Yemen to Nigeria to Kazakhstan,” Magid explains.
She is quick to point out that the more developed regions are arguably better targets because there is a critical mass that builds up in the presence of an ecosystem that includes start-ups, enterprises and universities.
“So we do tend to focus our energies in places like South Africa,” she says, referring to the fact that IBM’s first Innovation Centre in Africa went to Kenya.
Education and training is important in developing new business, and so IBM has academic initiatives with 10 South African universities where it offers training, operating systems, software and curriculum assistance.
“The universities here are very good and we have got some new academic initiatives underway,” Magid adds. “There is always more we can do to support the ecosystem.”
Among the challenges in Africa is the skills lag, Magid explains. “One of the talent gaps has to do with entrepreneurs being able to focus on the business and getting the business model right. It goes beyond the technology and has to embrace sales and marketing, positioning against competitors and how to get customers engaged. We see a lot of good products, but startups needs to realise they are not building a product but a business.”
It’s a sad fact that we see dozens of brilliant ideas or products, but few of these make it into successful business. “Evidently these are startups that are not serious enough to build themselves into businesses, that don’t go anywhere. Successful entrepreneurs have to have passion; their families have to understand what it means, they need the right people around them, and the right network. It’s hard, it’s a lot of work and people have to be committed.
“You also have to have great products, but that’s not sufficient on its own,” Magid says. “One of the executives told me what I joined IBM that research is brilliant but invention is not the same as innovation. Innovation is taking the inventions and putting them into a business context to get a great product.”
Magid’s main responsibility at IBM is to build a global network in emerging market hubs and identify where business will come from down the road.
“We don’t normally invest directly,” she explains, “But we do a lot of strategic work, identifying entrepreneurs who could be good partners with IBM and who we might want to consider for venture capital.”
It’s an exciting and fulfilling job, she adds. “It’s fun to talk to startup founders. They tend to be excited, committed and engaged. It is very energising to meet them and try to imagine what good might be accomplished.”
The strategy seems to be working. “One-third of the companies we’ve acquired have been companies we’ve backed with venture capital,” Magid says. “That’s a bit proportion.”
Part of the success is that Magid’s job isn’t a one-way street. IBM tries to help startups in making the transition to viable businesses; and the learnings from the startups and emerging markets as a whole is fed back into the corporate world.
“The this that makes this work, besides people’s desire to learn about new things, is the network and relationships that are built up.
“Venture capital is a relationship business. You have to get out there and see people. But the same is true within the corporation; a big company has a lot of executives and you need to build relationships with them or you’d never get anything done.”
The bottom line for IBM is that there is huge opportunity in Africa as the company continues to experience above-average growth rates.
“At the moment there is more activity in South Africa than in the other African markets in terms of exits and funding, But Nigeria is coming up – it’s a hub for entrepreneurs and there’s a lot of business going on there.
“IBM has also got an Innovation Lab in Nairobi and we’ve seen an increase in the number of investment and exits in East Africa over the last four or five years. But it’s not as big as Nigeria, and neither of them is as big as South Africa.”
Sceptics have questioned whether Africa’s growth is sustainable in light of the power constraints across the continent, but Magid believes this is less of an issue than it would be in the developed world. “How do people do business when the lights go out? They do it because they desire to,” she says.
There are also question marks over whether Africa’s growth has been overstated.
“Is this the real African renaissance?” Magid asks. “You can never know, but it certainly feels like it. I’ve never seen anything like it before.
“One of the things that really encourages me about Africa and emerging markets in general is the evolution of technology and the fact that we can now do things that we couldn’t do before.”
So the problems that are still facing Africa, and are possibly seen as detracting from its growth potential, could be solved using technology.
“And startups can be very creative,” Magid says. “If you can do things you couldn’t do before, you can build things that are new and sell in different ways.”
Societal problems could also contribute to solutions. “Food, water, traffic – there are technological solutions for these problems. They are important problems, but we are seeing a lot of startups in fields like ag-tech, transportation and sustainable irrigation that are tackling them.
“They are using modern technologies like predictive analytics and cloud computing to come up with creative solutions. If they can also get the business skills and market access right they will do very well.
“We are seeing the emergence of African solutions for African problems, developed by Africans.”