Innovent: Making the business case for tech asset rental
FD Zakhe Khuzwayo says you want to keep pace with technology rather than sweating your tech assets.
InnoVent was founded in 2003 by two CAs who saw a gap in the market for an asset rental business. The trick has been convincing the South African market that there’s enormous financial benefit in leasing tech.
According to Zakhe Khuzwayo, the founder and financial director of InnoVent, the asset rental company’s motto is, “If it has an on button, we will finance it.” While this approach usually extends to computer equipment, the company has financed such obscure technology as an airborne camera that attaches to an airplane, and base stations for some of the cell phone companies.
While technology asset rental makes financial sense, Zakhe says that South African corporate (and consumer) culture can sometimes make the model a hard sell. “South Africans tend to want to own things. We’ve been taught that debt is bad, and that we must own our assets and pay off the debt as quickly as possible.”
However, Zakhe points out that this line of reasoning makes sense if you own a house that you live in for 20 to 30 years, and then endow to your children. “But when it comes to technology, that’s not the case. In a constantly changing environment, you are getting more powerful, more efficient, more cost-effective equipment or solutions. It doesn’t help you to have paid off a laptop that you bought two years ago, because in another two years, you have to buy a new one with better battery life and new technology. Technology is a commodity that you want to keep pace with rather than own and sweat.”
This approach to technology assets is prevalent in the US, the UK and Europe, where people rent everything from technology to vehicles. “They lease technology for three years and once they’ve had use of it, they give it back and get a new one,” Zakhe says. “We work on a refresh cycle of two years for mobile devices, and three to four years for non-mobile devices. You always need to transition from old to new, whether you own or rent.”
In the South African market, InnoVent have done the calculations on how much their customers can save by renting a laptop or a desktop as opposed to buying it. “It saves between 15 and 30 percent in terms of net present value cost. These numbers are supported by independent organisations like Gartner,” says Zakhe, who is a CA. “Over time, you’ve forgone the opportunity cost of using that money elsewhere in your business or investing it and getting a return.”
InnoVent’s leasing fees include insurance, maintenance and a warranty. At the end of the cycle, InnoVent will carry out all asset disposal and data wiping so that no company information gets out into the public domain. It will then be repurposed and introduced back into the market of secondary users – often schools or small businesses. And after it’s second life, when Zakhe says “It is generally worse for the wear, it will be disposed of in an environmentally friendly manner.”
Founding and growing InnoVent
InnoVent was founded in 2003 by Zakhe and a friend DJ Kumbula, also a CA. They had identified a gap in the market for tech asset rental. “This was shortly after Y2K, when a whole lot of companies had had to upgrade equipment, spending vast sums of money overnight with no alternative,” Zakhe recalls.
The environment made it easy to present the business case for asset rental. “It wasn’t that difficult to show that it was preferable to pay R3 million a month, rather than paying R100 million in one go. The cashflow advantage was obviously immense. So we educated our customers that there is an alternative – to lease with an upgrade path.”
Zakhe qualified as a CA with PwC in 2001, then worked for an Australian leasing company. After two years, he and DJ founded InnoVent. Growth, apparently, has been good at over 20 percent per year. “From a zero base, we now have assets of over R3 billion under lease,” Zakhe says.
In South Africa, they have 120 employees, roughly half of whom are techies, and the other half of whom are admin. They now have subsidiaries in the UK, Zambia, Zimbabwe and Tanzania. “The continental business is doing very well. A lot of our repurposed equipment from South Africa gets exported to the rest of our African branches, where there are lower spec requirements – mostly schools or small businesses. The credit market there is not so developed. You don’t want to put in a new device that costs R10,000 because the exposure to risk is so much higher, so you’ll put a R3,000 device in that environment.”
Generally speaking, the first-use client profile is blue-chip companies with user bases of 1,000 and upwards. “Then it makes sense, because the scale of savings you’ll make with 1,000 users as opposed to 10 users is much higher.”
Their clients choose which assets they require, from which suppliers. InnoVent doesn’t influence their decision, they simply finance the assets once the decision has been made. InnoVent will then structure a lease of the asset over its useful life. InnoVent does, however, have a relationship with Lenovo, and are their financial service partner.
InnoVent also has a very active internship programme, bringing in between eight and 10 graduates – not necessarily of a technology degree, but also from law or accounting. “We look for the right attitude, personality and culture fit, and then we train them up. We generally keep our interns. We spend a lot of time and resources training them up from scratch, so we don’t like to let them go,” says Zakhe. “They might also end up in business development or sales, depending on their background and interests.”
To find out more about how InnoVent can help your business to realise a 15 to 30 percent saving on asset expenditure, speak to one of their consultants today at [email protected]