This is a quick rant on the complexities and unique challenges fintech companies face as they grow, post series A, which can often baffle outsiders, like those from FAANG or various SaaS domains.
Some of the challenges include:
- acknowledging a quality component to growth. Early hockey-stick growth can be dangerous, the opposite of most categories people invest or work in.
- offerings often enter commoditized territory (competing on brand mostly and banking on stickiness).
- cultures evolve to be more risk-averse (rather rapidly).
- internal ops and dev reach gridlock internally (at series B+).
- hiring well is soo difficult.
From an investing perspective, it's a tough category, often requiring more upfront and ongoing capital, yet doesn't necessarily yield larger-than-large venture-sized outcomes (companies can only get so big within ~10 years). And most sub-sectors don't command multiples as rich as pure-software plays (by the way, I love this post on fintech valuations).
Fact of the matter is, fintech is a different ball game than other sectors.
With that said, growing companies inevitably find themselves thinking through how and when to cross these chasms:
- Single product to multi
- Single revenue stream to multi
- Single geo to multi
- Horizontal vs. vertical
- ... the list goes on.
These transitions catalyze many of the challenges highlighted at the beginning of this post, especially if the company has experienced rapid growth. Whether it's the new compliance hires, the recently hired experienced fintech exec, your bank sponsor(s), and/or outside counsel, your product development pace, culture, or speedy marketing/experimentation processes -- everything will change. And you'll likely reach some gridlock. This is a relatively natural, common, and difficult-to-avoid situation, especially if the founding team lacks financial services DNA.
Re: employees and candidates. Understanding the 'why' for getting to this point and figuring out how to operate effectively can be especially hard for those without fintech or startup experience (including those who have only ever worked at FAANG or a SaaS company outside of financial services). On the other end of the spectrum, it can also be a particularly tough environment for candidates who have only ever worked at an incumbent FI. Employees with a wide range of experience are beneficial at this stage, as they understand and accept the culture clash that's beginning to take place.
Re: product management. I have to call this function out specifically given my 13 year history working in fintech, and talking to friends and reading about the function outside of fintech. Product looks different at almost every company, and across sectors. It usually doesn't mean CEO of the product and it definitely doesn't mean that inside of fintech companies. You will not back into new product decisions purely through customer discovery or experimentation and iterating in 99% of fintech orgs. Your role will have a heavy component of program management. Getting stuff done will require creativity, but you will largely be told what to march towards, and won't be wandering in the wilderness for multiple sprints to find what to do. You will likely not have many GM-like responsibilities. This is the reality of PM within fintech orgs. My advice is to find and become close with the most creative and well-enough-respected legal and compliance folks in the org, with someone with production access in devops, with the best person in risk, with the most creative and nimble data scientist, and... the list goes on. You get what I'm saying by now, right?
Re: expansion. Companies often think about product and geographic expansion to expand revenue potential, among other reasons. Take Datadog as a non-fintech example. Their 2018 S1 highlighted international expansion as a key growth strategy (with 24% of their ARR already coming from international clients at that time). Application monitoring and security look pretty similar across borders. However, you can't just expand most fintech products across geos. There are regulatory differences, complex partner dynamics (like sponsor banks), and perhaps most importantly, customer needs and expectations for financial products often don't translate across borders.
So, now you realize why your company is stuck in a difficult maturation phase, or why you can't run marketing experiments like you could back at your last company, or why you can't just move fast and break things, or why you can't just be 'agile,' or why your product roadmap seems like it's on a collision course with every other fintech companies roadmap, and why reputation and branding is so important as a differentiating factor, and why you can't just expand your products outside the US to grow.
I want to highlight one area that flips this on its head a bit. Embedded fintech, payments-plus businesses, vertical SaaS – businesses offering some financial services in addition to other products. These companies will have unique growth challenges to overcome as they expand their suite of financial service offerings. Still, they have some advantages as well that the fintech-only companies lack. Perhaps fintech-first companies should strive to incorporate more non-financial services under the umbrella of their brand to help build resilience, prevent commoditization, and improve differentiation. Square may be the early GOAT in this case, with Rippling and Ramp serving as good recent examples – like Rippling launching their own ATS to compete with Workday, Greenhouse, Lever, etc.
Time to bring the rambling to an end. All these factors underscore why growing in fintech is uniquely challenging. A growing fintech is a complicated, dynamic environment. Fintech is indeed a different ball game, but it's a game well worth playing. Hopefully, this post helps those frustrated by their current situation see the big picture. Sometimes it helps to know the grass isn't always greener or that your company isn't the only one dealing with scaling challenges. If it's your first time in a growth stage fintech company, don't anchor to your experience at xyz non-fintech fast-growth startup. Startups are hard. Fintech startups are really, really hard.