Is Technology Still The Edge For FinTechs?
Now IT development costs are so low for start-ups I feel that technology is no longer the key edge for FinTechs. I read an interesting press release recently from an early stage vendor who was just announcing a strategic partnership with a large data vendor. I found it particularly interesting because they touch on the nub of the challenge that many FinTechs are facing. Despite the Tech part of the FinTech name, great Technology is now rarely the differentiator. Why is this? To a very large extent it is because of the Cloud and Open source software. Until recently, it would have taken many millions of pounds/dollars or Euros just to get an enterprise up and running. Start-ups would have had to buy - “Oracle database licenses, UNIX servers, a Sun Solaris operating system, loads of web servers/cabinets/coolers, load balancers, EMC storage, disk mirrors for redundancy,” and that was just for starters. Today, start-ups don’t need any of that. Nowadays one or two people can start their company without the large upfront costs that meant you needed to go to the VC industry. Time spent fundraising can now be diverted to building solutions. Amazon Web Services & Open Source give today’s firms cost-effective scale and speed that previous generations could only dream about. However, that has created a lot of great technology and products looking for clients and revenues. The downside of bypassing the traditional fundraising is that many early stage firms have not been pushed on where their clients are going to come from and how they will win them. Their pitches have moved from raising money to build product to raising money to buy more runway time. Their focus has not been on building the customer base, relying on the principle of “Build it and they will come”. This, however, is not a strategy for success. A shift in buyers’ perspectives has taken place. Their interest has moved from the technology that underpins the product (although the product demonstrably needs to be well built and scalable) to the company and its sustainability (will this firm survive to service me with their product). It may appear counterintuitive in this age of technology but the key differentiator between product companies is quality of execution. It’s exceptionally difficult to talk about superior technology as the long term competitive edge today. Instead, it’s really about the capabilities within the business, which usually comes down to the people, the plan and a good dose of adaptability. So, how do you get that edge? You need a roadmap for where you are going. You need to manage effectual decision making effectively. You need relentless client focus and above all you need sales. If your system is not in full scale implementation it is hard to claim technical superiority. This is particularly important because FinTechs (like all companies) are affected by the business cycle and the transitional economics of a disrupted commercial sector. The rewards can be high for those who get it right, but management risk factors are also high in a volatile economy. Growth itself is a risk as well as the opportunity. Research by the team at The Disruption House shows that small businesses are at their most vulnerable when they are growing. As they grow more rapidly: they become increasingly vulnerable. They find that to begin a business and grow it successfully - requires exceptional personal abilities in the leadership team. It also needs management teams and employees to function effectively as a group supported by the best possible advice, to facilitate making the right calls in a changing environment. Sustainable advantage comes when a firm gets enough customers on board quickly enough with no major failings or bugs or dangers to the client business process. It is far better to think in terms of the level of service that you will provide to customers as your competitive differentiator, rather than to rely on the technology alone.
