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April 20, 2016updated 05 Sep 2016 10:52am

How to grow a fintech start-up – from industry knowledge to finding the right investors

List: Cut out the risk of failure by following this advice.

By James Nunns

The financial services industry has long stood stagnant, unchanged and rarely bringing innovation to the table. In the past couple of years this has changed as wide ranging regulations and the rise of fintechs have forced banks to change.

It is estimated that there is anywhere between 5,000 and 7,000 fintech companies in existence globally, but while they are numerous, many will fail.

To help reduce the number of failures, CBR has produced a list of best advice for budding fintech startups looking to break into the market.

 

1. Know the market

According to research by CB Insights, the top reason why start-ups fail is because there is no market needed. We’ve all had a bright idea come to us only to later on realise that the idea you had is already being done, and done well. The upside for most people is that they realise this before piling in a heap of their own money to fund a project.

This is a problem that a large amount of start-ups face when they approach investors or try and break into the market.

Although application development now is relatively cheap and easy, it still costs some money and can be time consuming.

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Yes there are numerous other problems to be thinking about, what technology to use, regulations or how to be omni-channel – but none of that will matter if you don’t know the market.

If the big idea is to offer a consulting service to banks through an app, but you don’t factor in that there are consulting firms already in the market, then the business is doomed to fail.

Understanding the market means that the start-up can identify who else is doing what, discover what gaps in services or technologies there might be, and help to figure out where the start-up can be better.

 

2. Think big

The idea that a start-up can disrupt a market is great, but if the ideally is truly brilliant then the purpose should be to disrupt as large a market as possible.

Breaking into the big time means that the technology solution that is being put forward must be able to scale. If it doesn’t scale and it is forever limited to 1,000 users then it is unlikely to be widely adopted or be picked up by FS companies that are looking at dealing with millions of users.

Think Big

The point is to properly architect the technology so that it can scale. While this can potentially be done at a later date it could be a lot more time consuming, costly and it could result in potential investors backing away.

Don’t think local, don’t think national, think global.

 

3. Know what you’re pitching and who you’re pitching to

Having a plan links in to the previous two points and can be one of the key factors behind whether or not investment is forth coming.

Getting investment is easier said than done, which is why the second biggest reason for start-ups failing is that they ran out of cash.

Investors are unlikely to put any money in a start-up if they have no idea of its market, how they are entering it or don’t know if there is any interest.

Having attended a number of start-up pitches I have noticed that it is quite common that the company pitches an idea which is already being done, by a company with much deeper pockets, and in a dominant position in the market.

Start-ups are able to be flexible and agile, partly due to necessity as financial resources are often thin on the ground, so being intelligent with what money they have is an important factor in building a company.

If the pitch is to take on PayPal, then there had better be a solid idea in place, key differentiators and money.

 

4. Find the right partners

Although not having the right partners is not one of the biggest reasons for failure, it can be a key to success.

Having the right partners is not just about trying to align with the biggest names in the industry, but is about aligning with companies that understand the market, how to improve and can work well with the start-up.

Companies like Accenture run Innovation Labs that can help advance start-ups and give them expose to the market in programs that run for three months. SAS recently launched its own Fintech Incubator program that will give fintechs free access to big data technology assets in addition to industry expertise.

SAS has a zero cost of entry model which provides access to approximately $5m worth of software assets, but it does have a revenue share model that may not be to every company’s liking.

Often having the right partner can mean access to larger companies that the technology vendor works with; this can help build in-roads into running proof of concepts at global organisations.

 

5. Hire the right team

Not having the right team is the third biggest reason why start-ups fail. Experience can really matter in the financial services industry, so having someone that understands the space is invaluable.

CB Insights

It is necessary to identify who is needed in the team to help drive the business forward and sometimes this means that the founder may not be the best person suited to being CEO, sometimes they are better positioned as a CTO or other position, depending on their skills.

Having the right team in place can be the difference between success and failure and working with the right partners will help to influence this.

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