Sanjeev Kriplani is a Scale executive-in-residence and fintech product and marketing leader. Previously, he led teams at Intuit, PayPal, and Bill (formerly Bill.com).
In making the jump from nascent company to market leader, fintech startups face unique hurdles. Money is high stakes, so there’s a lot you have to get right early that startups in other industries could think about much later in the game.
Conventional wisdom can lead you astray. Over decades of launching fintech products, here are four mistakes I’ve learned to avoid.
Mistake 1: Celebrating product market fit too early.
This is both the most important and the most obvious. At least it should be. But, in my experience, not setting the bar high enough on product-market fit is a common issue for fintech startups. Customers—rightfully—care about what happens with their money. It’s harder to get users to try something new and move on from incumbents, and they’re less willing to roll with the startup learning curve.
This is not a problem that can be solved with great marketing. As Geoffrey Moore famously notes in Crossing the Chasm, early adopters need trusted recommendations in order to buy. Moore’s “innovators” segment buys products without recommendations, but they represent only 2.5% of TAM. Truly great products build that trust on an individual and community level in a way that even the best marketing can’t replicate.
A good signal that you have an actually good enough product is that you have customers coming to you without being touched by your sales and marketing activities. If that isn’t happening, you probably don’t understand your customer well enough. With products I’ve launched that didn’t get traction, the problem wasn’t in the feature set or product specs, but they didn’t inspire the level of enthusiasm that drives recommendations from existing customers. Those recommendations should lead prospects to come knocking on your door. Welcome them… and thank your customers.
Mistake 2: Prioritizing growth ahead of risk management.
Getting early growth drives everything at young companies. For fintech startups, however, managing risk should carry similar importance. There are three categories of risk startups must manage.
- Regulatory risk: Mismanagement of this risk can put a financial business in jeopardy. In 2010, personal payments via PayPal were suspended in India, the fifth largest economy in the world, due to new regulations on money laundering. The UK is proposing regulations on crypto that bring it in line with other financial services.
- Credit and fraud risk: In fintech, you don’t just lose revenue or customers. You can lose actual cash. We saw this with PayPal. In the early days, PayPal lost $2,300 every hour to fraud. After they got it under control, fraudsters focused their energy on emerging competitors to PayPal, so PayPal became known as the safer option.
- Reputational risk: Because money is so sensitive, trust is critical for customer acquisition and retention, so reputational hits are more painful. And, they have a trickle down effect. Your channel partners will worry about their reputations if they partner with your company. At Bill (formerly Bill.com), our strong reputation made accountants leery of recommending a different product and risking their own reputation in the process.
The good news is, if you manage risk well, you not only build a more resilient business, you also build a competitive moat. As the examples above illustrate, regulators, partners, and even fraudsters will respond to you differently vs. your less careful challengers.
Mistake 3: Keeping the focus on your first winning product.
One startup guiding principle is that anything that isn’t the core focus of the business is a distraction. However in fintech, a one-product focus has not led to massively successful companies. You generally don’t see single product banks, for example. Fintech is a particularly good candidate for land-and-expand with customers. While it is more challenging to get customers to trust you with their money, once they trust you with some of their money handling, they’ll likely trust you with more of it.
So, how do you know what to build next? By looking at what the customers are doing, not what they’re saying. At Intuit, we saw Quicken, a product designed for personal finance management, being used for small businesses, so we launched QuickBooks, Intuit’s most successful product to date. At PayPal, we saw money being sent outside of the eBay ecosystem, so we launched tools for selling off eBay, and this became the biggest revenue generator. At Bill, we saw customers recording international payments made with other services, and so we built that capability, which helped accelerate revenue growth pre-IPO. In all three examples, the company growth rate accelerated (despite previously trending down) as a result of the new products.
We tracked usage patterns to guide the vision for the next product. Customers are notoriously bad at identifying their needs, but once you have them in your product, you can see clearly what unintended problems they are solving through workarounds and unexpected usage.
Mistake 4: Focusing on beating the competition.
Fintechs are almost guaranteed to have several competitors with similar feature sets. Your investors and employees will urge you to achieve feature parity to avoid losing out to other nimble hot startups. Resist. Fintechs compete on trust, not features.
The best way to beat your competition is to focus on your customers. At Bill, we saw many competitors emerge, but few of them invested enough in seamless synchronization with accounting software. This was a super boring feature, but getting it perfectly right built trust, and carried more importance than the rest of the bells and whistles the competitors were investing in. At Intuit, competitors to Quickbooks emerged every three months in the early days, many with longer feature lists. Instead of trying to compete feature by feature, we focused on core customer experience and built the business to 80+% market share.
Use competition as fuel to work hard and push you forward, but don’t let someone else determine the direction you take your product. Impress your customers first, and let your board members be impressed with the resulting growth metrics.
