Tesco's silicon valley on Thames
These are the type of questions your average Joe starts asking himself after a visit to the "Rainmaking Loft", spectacularly located on London’s River Thames between Tower Bridge and St. Katherine Docks.
Behind this not-for-profit facility with a name like a Kate Bush song is a new technology entrepreneur incubator and behind that as main sponsor — who would have guessed it — Tesco.
The unorthodox project is best described in the words of Finnish co-founder Mats Stigzelius: "This 10,000ft² co-working space focusses on fast-growth start-ups. It aims to provide a fostering and collaborative environment where they can concentrate on building great companies."
The floor area has permanent seating and desk space for up to 180 people (across 40 to 50 start-ups), lots of meeting rooms and Skype pods, informal hangout areas, and an events venue for 150 people (seated/200 standing). There is even a tent to sleep in.
Young, hip & online
The design is minimalist-Scandinavian with some humour thrown in. Thoughtful and challenging sayings from Marconi to Mark Zuckerberg adorn the walls, and everyone looks outrageously young, hip and intelligent.
So why are these budding online entrepreneurs in their mid-20s to early 30s on a peppercorn rent and not paying through the nose for some of the best office space in Europe?
Cherchez Tesco as principal sponsor of this creative hub although one searches in vain for a glimpse of their corporate logo.
What's in it for Tesco?
The UK's largest retailer by sales has obvious reasons to support technical innovation. These range from its “Clubcard” customer loyalty scheme and Tesco.com home delivery service to its blinkbox digital entertainment platform, "Hudle" computer tablets, and in-store facial recognition scanners etc.
Robin Terrell, Group Multi-Channel Director, explains Tesco’s involvement: “Knowing your customers is the key. The entrepreneurs at the Loft are digital natives. They have grown up in the age of the internet. They are our new customers, creating for their peers.
By sponsoring the Loft we are bringing our business into contact with the innovators creating products for a generation of customers who will shop quite differently from their parents.”
CEO Philip Clarke developed these thoughts recently in a fascinating editorial for UK newspaper The Telegraph: "(Changes in the digital world mean that) we are undergoing the biggest generational change in consumer behaviour since the 1960s."
Clarke will obviously also be aware that he and his fellow board members are middle-aged and certainly not digital natives.
German retailers play catch-up
There is already a slight echo to this in Germany. At the Neocom conference in October Tengelmann CEO Karl-Erivan Haub spoke of how "retailers are increasingly becoming tech companies".
Rewe boss Alain Caparros also sees an urgent need to react to the challenge thrown down by online technology: "The ProMarkt experience was shock therapy for us. Despite all our efforts we have missed the online trend."
The Cologne-based retailer has therefore participated in Home24 and intends to joint venture with other e-commerce businesses in the future. "We want to learn how online kids tick…because when managers pass a certain age their hard disk drive gets full."
Significantly, Rewe has also recruited former Tesco manager Jean-Jacques van Oosten as “Chief Digital Officer” from December 1.
Despite this belated insight, nothing like the Rainmaking Loft is known to us here among Germany’s leading retailers. So let’s talk to co-founder Oli Johnson (30) and Charlie Casey (29), the CEO of one of Rainmaking Loft’s start-up entrepreneurs "Loyalty Lion":
"Young, hip and cool"
Effectively we've got 10,000ft² of space for 150-plus young entrepreneurs who are working in the tech sector. We have been open for three months, and, with the help of Tesco, we have got the whole project to the stage where it looks good and young entrepreneurs can rent a desk at an affordable price from us.
We don’t really optimise for any specific type of tech entrepreneur, but what differentiates us from other hubsite providers is that we only take on teams and now have about 30 of them.
Because teams are more forthcoming and helpful than individuals. Rather than just working on their own projects, they are inquisitive and curious as to what other teams are working on.
How attractive has your concept proved to date?
At the moment we have more than 115 people in here. We were expecting to be full by Easter 2014, but we are probably going to be so quite easily by this Christmas.
Where do your office tenants come from?
The UK, Berlin, Scandinavia, Italy, the States, we’re totally international.
Who owns the property?
The building is owned by Max Property and the floor space is managed by the Prestbury Group who rent it out to us. I am sure they are pleased to have young, hip and cool tenants from a burgeoning industry.
How have you arranged the floor space?
The floor is split into two main areas. The one closer to St. Katherine Docks is reserved for teams because the view is nicer. It is important to offer such a tranquil workplace as they are here pretty much all hours.
The middle area is for hanging out where people can have their lunch and breakfast or receive their guests etc. There is also a small library.
The other end of the floor is more functional. There are Sykpe booths where people can make their phone calls etc. Then we have meeting rooms and a 150-seater event room where we host entrepreneurial and tech-focussed events.
Sometimes teams will use this to pitch for financing or input. However, it will also host information seminars as many of these guys are very good at tech, but not so good on the financial side. So it is important to get them up to speed on things like tax structuring, corporate structuring etc.
What do the entrepreneurs who come here get beyond a pleasant place to work?
They have 24/7 access, free coffee and really fast internet access. We also offer things which are particularly important to younger-generation tech entrepreneurs such as cycle racks to park their bikes, and showers etc. So they can pretty much use this as a port of call.
But the main reason why the Rainmaking Loft is an important initiative is that young entrepreneurs starting a new company often have difficulty signing a traditional lease. They are usually cash-constrained simply by the sheer nature of the venture they are entering.
If they have finance, they want to put it into their start-up and don’t want to pay a large deposit just to obtain office space. More importantly, if things go badly, they don’t want to be stuck with a five-year lease.
So the Rainmaking Loft gives them a platform where they can make a start and toy around with their idea without being too worried about where they are spending their days in terms of office space.
How do you vet potential candidates?
We vet tech-focussed start-up teams according to whether they are nice enough people and would fit in with ethos of this space. Then, of course, it would depend on how exciting the idea is.
Just young people?
The average age is mid-twenties to early thirties, but anyone can apply who has a good idea, and we do have some entrepreneurs who have taken a leap a little bit later in their careers. Inevitably, however, it is harder to take entrepreneurial risk when you have a family and mortgage to support.
What do you charge for renting space?
We charge only £299 per desk or seat per month. That’s why it’s important to have good partners such as Tesco.
How heavily is Tesco involved in sponsoring the Rainmaking Loft?
I’m sure they wouldn’t want me to say, but it is substantial, and this project wouldn’t have been possible without a sponsor like them. In fact, their digital team is having a meeting in our events place at this very moment. They have done that a few times with both public functions and internal offerings in this space.
Do you have other sponsors?
We have a few silent partners who don’t want to be named. We also have smaller sponsors with whom we are holding ongoing discussions as to what level they want to be involved.
Could other sponsors come in?
How would you react if a big German retailer was also interested in becoming a sponsor?
We wouldn’t want a direct competitor with Tesco, but someone from a different sector. We are always looking to bolster what we are doing here for the applicants in the space. Obviously, the more partnerships we can make, the more we can do with this.
Could you start up something similar in Germany?
I haven’t really had a conversation with Tesco yet about this, and there is nothing on the cards at the moment. We would at least run the idea by Tesco as a major partner to see what they thought. And, if they didn’t see it as competitive and we could differentiate it enough from Tesco’s offer here, then possibly.
What do you think Tesco is sponsoring this project?
There is no shortage of companies who want to be involved with tech, and for some of them the writing is on the wall as it is a disruptive industry.
As one of the world’s largest bricks & mortar retailers, Tesco already operates via a number of different sales channels including online, click & collect etc.
They gain access to interesting teams that are working on things which might impact their retail business. And embracing start-ups in this way furthers their innovative corporate culture.
Are your tenant-entrepreneurs in any way obliged to submit their business plans exclusively to Tesco?
There is absolutely no obligation on them to accept anything from Tesco or us or even to inform them.
However, if you are working on something which could be of interest to Tesco, I think you’d be pretty foolish at least not to have a conversation with them, given their size and potential to transform your business. So we do encourage entrepreneurs to start a conversation with them.
In what other ways does Tesco involve itself with the project?
They also run a number of initiatives with us including “Tesco Surgery” with open office hours for start-ups. Anyone can sign up and get feedback from Tesco on what they are working on and to establish a relationship with them. After all, it can be daunting to approach a large Plc.
What happens if Tesco likes a particular idea? Where do things go from there?
They are free to make a suggestion or proposal, but the entrepreneur can decide one way or another whether that is an attractive proposition for them. There is absolutely no obligation to actually take Tesco up on any offer they might make.
Are any of your entrepreneurs currently working on specific retail projects?
Yes, there are two at the moment. One is called “Viewsy”. They are doing bricks & mortar analytics using a device which captures customer movements within a store. This provides empirical evidence as to hot and cold spots and gives some remarkable insights.
Everyone knows, for instance, that high-margin impulse products should be placed by the cash-till, but that is often as far as retail knowledge goes. Viewsy, however, can show why a promotional campaign is not working or why customers don’t buy certain products.
This is something which particularly smaller retailers with less access to analytical tools are looking at increasingly closely.
The other retail project here is “Loyalty Lion”, co-founded by its CEO, Charlie Casey. As he is here today, let me pass him over to you now.
Mr. Casey, why is your start-up company here?
The problem that we are trying to solve at the moment is that e-commerce stores find it incredibly hard to get the online customer to come back and to engage them, especially when all one’s competitors are discounting and making special offers etc.
So our solution is what we call “social loyalty”. Essentially, this is a bit of software that can be added to any e-commerce store and which will allow it to reward any customer activity.
For example, creating an account, making a purchase, clicking a Facebook-“Like”, writing a tweet, comment or review, recommending a friend — absolutely anything. And, if a customer collects enough points, he or she can redeem them for vouchers, spend in-store, or get discounts off his or her purchases.
Any other advantages?
Retailers can add our software to their online store site in only 15 minutes, and, because it's white label, they can brand it how they like.
Are you happy with your rental arrangement here?
Rather! I can look out everyday at the yachts and be motivated! Contact with the other teams is also useful because one can just share ideas with them, network, and go to the events they put on. They had an anti-hackers event at the weekend, so I met a few people there who will certainly be useful going forward. Co-working actually works!
Could you imagine Tesco as a potential business partner?
Tesco are actually dropping in mid-December sometime and come on a regular basis. We are talking to them, but it will be more of a knowledge share and not a sales pitch.
Obviously, however, they have their “Clubcard” which is all about rewarding what people buy, so we could bring a social element to that and increase engagement across their e-commerce platform.
Tesco CEO Phil Clarke recently admitted that his c-suite managers need to work increasingly hard at understanding the young tech-oriented generation. Presumably, this was water to your mill?
Tesco started in bricks & mortar, but e-commerce is growing at 20 per cent a year in the UK, and an increasingly large percentage of retail on the High Street is moving online. So he’s right, he does need to engage people online and especially younger audiences because they will obviously become older audiences in due course.
Which is why they are now courting young techies like you?
Retailers and suppliers can’t start marketing early enough to their customers these days. Even if they start with customers over 21, that may be too late! Teenagers have already developed their loyalties. So it is good to reach customers younger and make them loyal.