Q – “Will the big banks crash the party that FinTech entrepreneurs started?”
A – “No, for elephants can’t be shrews”.
This is a translation, with much poetic licence, of something I heard during a panel session at a recent Innovate Finance event. Flying the flag for the shrews was Giles Andrews, CEO of Zopa, a startup that has grown to become the largest UK peer-to-peer lender.
Perhaps more interestingly, the reverse might also be asked: can the midgets take down the giants?
In Technology, where great ideas can come to life in a very short time with little capital, the odds of winning David vs Goliath fights are not so extreme. The ability to innovate – regardless of size – is the core differentiator and there is certainly a question of whether large financial organisations can compete in this respect. “Innovate or die” stories get plenty of coverage in social media (for the FinTech sector, check out @JPNicols, a prolific amplifier on this topic).
While we can all think of tales of the stratospheric success of disruptive innovators and of the sudden collapse of clay-footed behemots, reality is rarely straightforward. We all want to create new amazing products, but – unless we jump ship – we cannot forever avoid exposure to the elephantine: after all, a successful small firm will end-up growing big.
The Boston Consulting Group’s Growth-Share Matrix – which predates FinTech by a few decades – suggests that established companies will have a mix of “stars, cash cows, problem children and dogs” and that the successful ones will be able to manage this portfolio appropriately.
Well, if – like me – you run a small company, you need to create the portfolio in the first place. Circumstances can helpfully steer decision-making: when you start up, you have no choice but to innovate in some way or other. As the revenues start flowing in, it becomes essential to “industrialise” your processes, for both efficiency and credibility’s sake. If you manage to get over this hill, you can start reaping the rewards of much hard work.
The bad news is that, as soon as you have created the successful machine, for your business to be sustainable you really ought to go back to the beginning. The bigger you are, the harder it gets: the job of oiling the cogs and replacing worn-out components is very different to blue-sky thinking and setting off on new adventures.
To turn the big wheel of (A) big effort, little or no cash coming in hopefully followed by (B) smaller effort, good money, the theory is easy: you re-invest some of the money coming from B into a new A, using separate teams with clear, distinct goals and off you go.
In my experience, however, once you got to B, switching back to A is not at all obvious.
The first challenge is people: your best employees, the ones that helped you create the profitable business in the first place, are now busy operating the machinery. Should you hire new resources to free them up, creating risks for the money-making side of the business, or should you go for a new “new innovation” team? This is not a black-or-white decision: wise owls understand the ins and outs of the business but may be running “low” on creative energy; new blood will be ready to charge, but lacking precious experience. Also, whilst creating necessary boundaries between “innovation” and “operation” teams, too sharp a separation can be dangerous for productivity and morale: ivory towers of architects and product specialists can quickly lose sight of “what really works”, something that the customer-facing, operational teams are exposed to every day.
Another hurdle is legacy: as you come up with new, better (but as yet unproven) products, how do you go about integrating them on your existing platforms? Whether innovation is coming from inside or forced from the outside, the status quo can be crippling: it is easy to picture how, for example, a new wave of regulations, effortlessly complied to from day 1 by a startup, will be a costly nightmare for an existing operator that needs to upgrade all its processes.
Finally, there’s you. Are you ready to start another cycle? Can you cope with divergent priorities? Do you perform best running the operation, on the creative seat or as acting as the enabling fluid somewhere in the middle? Being clear on how best you contribute can have a profound impact on both your and your company’s success. The lesson I am still learning is that kickstarting new waves of innovation is hard: opposed but inter-dependent forces are at work. As I am writing this, I can picture the beautiful representation of yin and yiang: a flowing balance, not a straight split.
Small or large, I think that firms in FinTech are experiencing an accelerated version of how it’s always been in business: shrewd elephants will win. When times are good, remember to roll-up your sleeves, ready to start again!