Hello Tractor plans to use new technology to transform old technology into becoming the Uber for tractors. … [+]
The ratings for OpenAI, Mistral, and Character.ai are going through the roof. It's clear that AI is an area to focus on. When looking for the most promising ventures, it can be tempting to look for similar cutting-edge technology startups in Africa. This is wrong.
The infrastructure and institutions in the United States and Europe are not comparable to those in Africa. Consider access to smartphones. For example, mobile phone penetration in Kenya is over 100%, with more than half of those being basic feature phones.
I met Hello Tractor in Kenya* with a group of students. The startup is dedicated to leveraging technology to increase tractor adoption in Africa. To get the full picture, I spoke with various stakeholders, spent time with the company's team, and interviewed its fascinating founder and CEO Jehiel Oliver.
Lesson #1: Find the technology multiplier
Comparing sub-Saharan Africa's actual and potential yield gaps is depressing. The difference is 76%. The main reason is insufficient mechanization. However, purchasing a tractor is not practical for small-scale farmers.
This is where Hello Tractor comes into play. Think of it as Uber for tractors, with one important twist. Very few farmers have access to smartphones. Therefore, the key element is the agent. Many of them are young and have a strong affinity for technology.
At the same time, successful companies are well-networked within the farming community. Going from farm to farm creates enough demand to reserve tractors for this region. The Hello Tractor app allows you to get accurate dimensions of your field, which is not mandatory in Kenya, and manage reservations that include both tractor owners and operators. Their compensation is a 5% commission.
Technology is central to this configuration, but it is only effective in conjunction with the right agents. Hello Tractor also invests heavily in the training of these agents. Still, more advanced features can be cumbersome for some users. So you have to think about the technology multiplier.
Lesson #2: It’s the core that matters.
It's easy to understand the appeal of the overall idea. But the devil is in the details. For example, one of her girlfriends, an agent, told me she couldn't download the app. As it turned out, he wasn't the only one struggling with this problem. It's not that the app itself doesn't work, but I don't have enough space on my phone and I'm having a hard time deleting other apps to make the app. In other words, the question of capability arises when you start looking at the different actors in the system.
The second issue is incentives. With a mix of tractor owners, drivers, booking agents, dealers and farmers, it's no surprise that there is always disagreement. For example, most owners are accustomed to paying drivers a per diem rate, but the app bases it on a percentage of the amount the owner receives from the farmer for each acre he cultivates. It turns out that this is approximately double. Great for drivers, but not so much for owners.
Finally, there are path-dependent issues. Tractors are already common in some areas. No problem there. But in other regions, people use bulls. It's been done that way for generations, so why change? Economics are important, but there are other issues to consider. Families and community members are likely to lose their jobs on farms. If that happens, there will be a backlash.
None of these three issues are obvious at a macro level, but if you overlook one of them, your business model will collapse.
Lesson #3: Markets + Public Funds
A common challenge for startups in Africa is funding. Local entrepreneurs come up with effective ideas, but to investors they often don't seem to reach his 10x valuation. Westerners, on the other hand, were able to spin great stories and make money, but soon ran into problems.
Founder Jehiel Oliver came up with two solutions. He knew he was technically strong and sometimes overzealous, so he assembled a local team to make sure the idea actually worked, to look at the nitty gritty.
Because of this, he still has the dilemma of funding his idea. His solution is to partner with socially motivated others on specific issues. For example, his Heifer International, a leading development agency, is a partner in Hello Tractor's pay-as-you-go tractor financing scheme. This led to him receiving over $10 million in commercial loans to expand the program. Another example is the Mastercard Foundation paying for agent training through its One Acre Fund.
This does not mean that the market is ignored. For example, John Deere pays a commission on tractors sold through Hello Tractor's network. It's clearly a win-win situation.
In order to make the mixed system of commercial and social actors work, Hello Tractor turned down top investors. The hype would have been great, but it's impossible to scale quickly, let alone turn a profit in the time period investors expect. In Kenya he will not realize ten times soon.
victory in africa
It is simply impossible to predict the future of a startup. But Hello Tractor has certainly done a great job so far, currently serving over 1 million smallholder farmers. The average repayment rate for people who finance their tractors through Hello Tractor is a whopping 98%.
The continuation of this journey will largely depend on the ability to coordinate diverse stakeholders. In other words, sweat the small stuff instead of obsessing over the grand vision. If it works, new technology will continue to bring old technology, such as tractors, to thousands of farmers, allowing more farmers to benefit.
*The research was conducted in collaboration with a student group. We would like to thank Ed Adegboye, Mayumi Cornejo, Laura Knapp, Sai Vidya Krovvidi, and Claire von Loesecke for their assistance with the analysis.
