Swinging cats and cricket Bats: FinTech startups and growth

November 7, 2015 Adam Oskwarek

You cannot swing a cat without hitting a FinTech startup in London right now. It is unsurprising as Venture capital investment in London FinTech has rocketed from £24m in 2010 to £312m in the first six months of this year alone. Over the last 10 years, London has attracted 1000 international tech investment projects – which is not only more than any city, but more than any other country in Europe.

Startup on blockchain? Here’s a million seed round. Off you go. Seriously, the world has gone mad for blockchain. What’s next?

While FinTech might be red hot, the principles of building startups in this space are the same as others. There is just the added complexity of significant regulation. However, if you crack it there could be a market of people waiting for your nicer, shiner financial service: the highest rate of FinTech adoption is those earning over £50,000 aged between 25 and 45.

Wait! Stop right there! I have had the privilege of working with and on numerous startups, some of which were in the FinTech sector. Entrepreneurs, take a tea break and pause…

Building and growing a FinTech startup is not going to be like shooting ducks in a barrel. Normal validation and Lean methodologies still apply in the same way as they do in other markets. Yes, you have read Lean Startup and many other 21st century ‘get rich quick’ equivalents, but did you fully hear the message? The truth is that there are no shortcuts for most, unless you create, what author Nassim Nicholas Taleb terms a ‘black swan.’ But that applies to the top 1% of tech startups and you cannot plan to be one, so just ignore that possibility.

Financial services is, of course, rapidly disrupting into a melèe. And sure, it is fun to take a run at a single service line of a slow moving incumbent. However, this industry, more than many, has significant barriers for you to overcome. For B2C startups there exists a certain indifferent mistrust to anything financial institution, while for B2B or infrastructure endeavours, the traditional players are just waking up to the fact that they now have an exponential number of competitors, rather than just a handful. Selling anything to them will take a lot of time and even more patience, as well as a lot of help.

However, if you know these things, and have a credible strategy to overcome these obstacles (or work outside of) them, then you have a decent chance of swinging the FinTech bat and hitting a six (or at least a four) in the present environment. That is, if you execute like a wizard.

Remember two things for me: you need validation and you need customers. The sooner the better. There are no tricks to this, just graft, trial and error. Rinse and repeat. Find that beachhead audience. An idea is not enough. Execution is everything and ‘growth’ comes from smashing it.

Here are some hints on questions to ask in order to validate your business, de- risking yourself and your project.

A bunch of use cases that are understood:

You know your target audience.
You know how to reach them, or a decent sized subset of them.
You understand the technical and regulatory risks around what you want to do.

Once you know the answers to those questions, go and create your first minimum viable product (MVP) and ensure that you note the assumptions you’re designing the MVP by. Treat this version of your product as throwaway. It should not be perfect; it is the start of a journey, meaning that you will rebuild based on real user data once the product itself is validated.

When doing this, be wary of falling into this trap that I see a lot:

Start by having an idea->build tech->”oh crap” ->marketing scramble ->product scramble->product rebuild (what you should have built originally->Money crisis ->kill/continue->marketing->*yaaaay, maybe customers!*

I should know, I did this myself many years ago. It was painful.

It should look more like this:

Start by having an idea ->research->mini experiments to validate assumptions ->review and revise plan with real data->build MVP product ->marketing->*customers* ->incremental product iterations->growth approaches->if successful at this stage the world will open up!

As building technology is the most expensive part of a digital product, it should only be undertaken when there is clear evidence that you are building the right thing, for the right people, at the right time.

Ensure that you always bias towards not just action, but action in the right order. Never ask prospective customer segments hypothetical future behavioural questions because the answers you get are invalid. Instead ask them about the area of their life that your product will impact, to get a better view of if they will use what you are planning to build and what is important to them in that area – early stage gold dust; hopefully you will find some nuggets of real insight.

This said, do not expect larger investment organisations to be responsive – they see a lot of pitches. If you are early, unvalidated or do not have customers, the best you can hope for is ‘Come back when you have those things’. And, they are right. Try communities, incubators and accelerators instead if you need help and access to networks.

Here are some things to watch out for stage to mid-stage startups:

Ideas are not worth anything. Execute like a wizard.
Do not do it on your own. The team is everything. Likewise, startup experience in the team is everything.
Just because you spent money on it does not mean it has value.
Act – don’t plan.
Know what you don’t know and when in doubt, find out.
If building tech: always have a tech co-founder that gets the vision. These skills are not a resource, they are your business.
Cutting corners is ok as long as you know that you are doing it, as well as why (and how it impacts your risk).
Stealth is pointless. It is never too early to go talk to people and start ‘marketing’ your idea.
Just remember you are not alone: the startup community are a pretty helpful bunch. Find some people or communities with knowledge of your market and possibly (but maybe not) domain expertise in the general area of your startup. Most would likely be happy to have a coffee and chat.

Now, hustle on. You have read enough. Time is ticking. Go and build something incredible.