otto group digital solutions | 06.06.2018
Michael Backes, Managing Director of Liquid Labs and CTO of Otto Group Digital Solutions, spoke to Payments&Cards Network about OGDS, how everything began, what is OGDS's role within the Otto Group and what topics we do have in our pipeline. In addition, Michael gives interesting insights into company building approaches in general.
PCM: How did Otto Group Digital Solutions start?
Otto Group Digital Solutions (OGDS) is the next evolutionary step in the Otto Group's strategy for tomorrow. It was started 6 years ago by Michael Backes and Paul Jozefak out of the company-builder Liquid Labs with €10M and a pure focus on Fintech. They started out to answer one question: How could a large corporation, with vast know-how and resources, compete against smaller start-ups that don't have these advantages? Both Paul and Michael had a variety of experience with VC, corporates in the US and EU, as well as their own companies. They believe that corporations do have a lot of tangible advantages that can be leveraged into creating the next generation of opportunities.
It is now a group of seven companies, with a total value of over €200M. This latest step includes €85M to fuel further company-building and finance growth. The focus is now not only Fintech but spans across the entire value chain that the Otto Group touches, from finance and logistics to retail.
PCM: Can you tell us about the different branches of OGDS?
OGDS is divided into two key areas: Company development and portfolio management.
In the early-stage we are finding ideas and determining which assets the group has in order to accelerate those ideas. Here there is a constant stream of deal flow coming from both inside the group as well as market trends that we draw upon. Here it is very hands-on for everyone in the team. People are expected to bring not only their expertise to the table, but also a drive to push themselves outside of their comfort zone and drive a concept forward. We quickly look to bring in the first key hires that will build and run the company when it goes out the door, and it is off to the races.
Once a concept has proven itself, it is spun off into its own entity and the team is now like any other start-up out there, except that it continues to have our full support with every issue that they face. In addition, they continue to have the full back office support infrastructure of the group at their disposal. During this phase our role with the company evolves from very hands-on to very much advisory. We are sparring partners for our teams and expect them to be completely independent. As time goes on and the company evolves, we act as the portfolio manager, checking that the companies align with the overall corporate strategy, and when not, we sell the companies, or bring in external investors.
PCM: What can you tell us about the different companies that are part of OGDS?
An important part of OGDS are our two company builders: Liquid Labs that focuses on fintech and logistics and into-e that focuses more on e-commerce. In addition to the company builders, we have a portfolio of companies with a variety of outcomes. The oldest to-date is RiskIdent. This company focuses on anti-fraud solutions that are built upon Machine Learning as well as other strategies. It currently services over €33 billion in transaction volume in DACH region across retail, telecommunications, and banking. By leveraging the massive transaction volumes inside the Otto Group, we were able to take this company from concept to live to data leadership in a matter of months.
Another Fintech company that we have built is collectAI. As the name implies, it focuses on collections, starting with the initial e-invoice all the way through to global debt collection services. It too leverages Machine Learning and the ever-changing digital landscape to improve their clients' account receivables. Some are making the leap from paper-based solutions to collectAI and seeing drastic improvements in collection rates as well as fewer good customers being handed off to debt collectors.
Lastly, to show some diversity, we built a global cross-border virtual logistics company called BorderGuru. The company leverages technology to allow a merchant to sell globally and his customers can see all the logistics and customs/tariffs right in the basket during checkout. The platform then takes care of all the paperwork and payments, so that the consumer receives their package delivered to their home instead of having to travel to a customs office. The platform is now the preferred solution for German merchants selling in China.
PCM: How is the role of OGDS within the Otto Group?
OGDS is a strategic arm of the Otto Group's core strategy moving into the future. We play a key role in the digital transformation by allowing older core businesses to focus while we pursue the new opportunities leveraging all of the great assets the company has built up over time. Whereas others might produce ideas and slides, we produce companies that are required to become profitable over a five to seven-year period.
PCM: How does this compare to intrapreneur style programs?
The first difference is that we get a different profile of person to do what we do. They are not so concerned with the proper career. They want to really move things and be given the chance to do so. But they also are not going to actually go take their savings and found a company, for a variety of reasons. Most programs are designed such that the people can fall back upon their old job. We don't do that. You are making the active decision to move into a high-risk, high-learning environment, where there is no fall-back plan. It means you are all-in with us, but you don't have the large financial risk if you did it on your own. In a way, you can't go back to old habits once you have walked in our door.
PCM: How does this compare to Venture Capital?
We are not a fund. Although we have a large commitment of capital to use towards building companies, we don't operate like a fund. We won't take on external teams or business plans and finance them through to an exit. Our primary goal is to build long-term, future-oriented businesses for the Otto Group. If your primary goal is financial return, then invest in a fund.
PCM: Do you think every corporate should be involved in similar company-building activities?
My recommendation to every corporate is to first decide what you really want to achieve and then take a real look in the mirror at how the situation is. If you are designed purely for financial return, like a holding structure, with no focus on being the biggest retailer, or manufacturer, or whatever the case could be, then just invest. If you are one entity, with a series of products, and want to innovate new products or potentially add services, then company building would add a lot of overhead that you don't really want or need. But if you are already in a structure where you have multiple companies, whether they are in the same industry or not, then you have a lot of the basics already in place to leverage the concept.
If you are then going to try it, then you most-likely are going to have to look outside the organization to find the people to run it. These are not your typical careerists. They are not the people who set up a corporate VC so that they can play VC on Friday afternoon. They are typically driven by something else, and both sides will be pushed outside their comfort zones.
There are also a lot of natural conflicts in these kinds of structures right from the start. These will depend upon how your particular corporation is set up and what kinds of culture and processes rule the day. Your normal HR policies will not be able to keep people incentivized. You will have old processes that restrict things based upon a reality that doesn't exist anymore. You may be forced to wait for things from internal resources that you could get externally within a day. You will even run into things people "have just always done that way."
PCM: Do you have anything in the pipeline that you would like to share with us?
We recently launched two businesses: one focused on tech-driven fulfilment and data-driven returns; the other is to create the global transactional layer for IoT-driven commerce. We've never left things as-is, so you can be guaranteed that in six months, something bigger and better is coming.
Michael Backes provides hands-on leadership in innovation as CTO
of Otto Group Digital Solutions
and Managing Director of the Company Builder Liquid Labs. With an entrepreneurial-mindset, Michael has recognized expertise in finding technical and business solutions.
Otto Group Digital Solutions
Otto Group Digital Solutions is the Corporate Company Builder of the Otto Group. We focus on establishing start-ups in the areas of logistics, e-commerce, and FinTech, with the goal of identifying and employing digital business models. Otto Group Digital Solutions’ strategy combines the best of both worlds: entrepreneurial spirit and innovative ideas with the solid backing and assets of the Otto Group.