Back to growth despite the triple-witching in banking & with a AAA regulatory recipe


What I heard at the Swiss International Finance Forum

Last week I attended the Swiss International Finance Forum organized by NZZ konferenzen and with a theme “Back to growth”.

Sergio Ermotti, CEO of UBS reminded the audience that all the “Regulations that are killing us” (us the regulated banks) have succeeded in reducing the systemic risk of “too big to fail” financial institutions. UBS specifically, had a balance sheet of CHF2.4 trillion and is now down to CHF 900billion.

The overall cost of regulation in Switzerland is 10% of the gross national product. This is an area still dominated by traditional IT companies (Swiss or global) and from looking into the Daily Fintech Regtech database, we only see Qumram as a Swiss Regtech startup.

On the other hand, even though Regtech doesn’t seem to be a the niche area that Swiss fintechs are focused on, S. Ermotti used the example, of the UBS Future of Finance Challenge from end of last year, that did select two Swiss fintechs as finalists (Embotech, optimization solutions for decision making and Biowatch; wearable authentication startup).

The 45 minute keynote of the UBS CEO, touched upon diverse issues. My take from the stage is that

Europe is in triple-witching in banking:

  1. Overbanked continent
  2. Over regulated continent
  3. Global tough macro environment; below zero conditions ++

The reality is that in Europe we do have overcapacities in banking and we run the risk of banks that are “too small to survive”; we have heavy regulation and we are also in a very difficult macro environment. On top of all this, the Capital Markets Union initiative has been wounded after the Brexit result.

At the same time, innovation is happening here and elsewhere, and technology is enabling us to redesign the back office and improve cost efficiencies.

Ian Goldin, the prolific author and Oxford professor, followed with his penetrating views, insights and voice. I am still hearing in my head “This is the slowest day of your Life” and “If you don’t like surprises, then you wont enjoy the rollercoaster”. In brief, he spoke about the current era as one of rapid innovation, which results from the democratization of the factory of ideas. As a result, our globalized world, runs new risks that can mostly be categorized under the BIG theme:

“Can we Manage the fast pace of changes?”

It is actually very questionable, because in this accelerated globalized world, more and more pockets in the society are left behind quickly (and are led to kick back); and more and more “people” feel that risks are coming from elsewhere; and without going into details, the result is inflexible markets, societies that immigration is rejected and nationalist ideas are gaining power. We are generating at a fast pace, endogenous risks (not black Swans; similar to Brexit that is a very recent example).

The new complexity of the world, can also be seen in realizing that countries are not interested in educating and filling the gaps that are continuously created (by being left behind) in societies. Neither are the tech companies (a la Google) that are bonding us all and co-creating the fast pace.

Remember “Today is the slowest day in your life”. Mark Branson, CEO of FINMA came on stage and was assertive and resonated with the “FAST” mantra of Ian Goldin (without having of course rehearsed or coordinated). He spoke about FINMA being lean, compared to other European regulators, and having overall a lite amount of regulation. He stressed the need to be flexible and to accommodate small companies with niche financial services offerings; by simply licensing them with a different principal based framework. He insisted that they as regulators need to innovate continuously as the market is changing; they need to balance their focus which has been lopsided towards Risk measuring and monitoring, and to give a proportionate importance to Opportunity.

My take from the regulator, is a AAA Regulatory recipe:

  • Be Fast
  • Be Flex
  • Be Forward looking

And the fourth man, Thomas Fortin from Blackrock, spoke about the myths and misperceptions around Digital advice. I was reminded again that the digitization of financial services is for the most part, not about the tech; but about how you use it. This is true especially in the digital advisory space.

Blackrock is a company that has gown through M&A and assimilating the businesses acquired. Thomas Fortin advocated the importance of the people in the business. He did it in two different ways that may seem contradicting but really aren’t. When answering to the question (self-imposed), “What is next in Digital advice?”; he advocated that Digital Only, will become niche and not “where the puck is headed”.

He then spoke extensively, about the acquisition of Future Advisor and their unique choice, first time for Blackrock, NOT to assimilate the business! Full acknowledgement from the leadership team at Blackrock that the value Future Advisor brings to the table is not 100% in the algorithms or UX; it is also in the leadership, business decision making and heuristics of the Future Advisor team, who come with different domain expertise.

The Swiss International Finance forum was evidence, that despite the challenges (e.g. the triple witching in banking) there is change at an accelerated pace happening everywhere. From the regulators, the incumbents and there is no slowing down. So, back to growth by being fast, flex, forward looking and using technology in new ways.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Help us decode the Fintech Genome

Genome A

Daily Fintech is 2 years old today. For the record, here is the first post on June 29th, 2014. It is worth a read and, as it had only a handful of page views, it is quite possible that you missed it 🙂 Here is our Happy Birthday Post on June 30th, 2015 (it is more about how to create high quality content in the digital age than about Fintech).

Today we are launching a peer to peer knowledge network that we call the Fintech Genome (using “genome” from genetics and DNA simply to connote the complexity and importance of Fintech). We need mass collaboration to decode the Fintech Genome. That is why, on our second anniversary, we are asking for your help to decode the Fintech Genome.

Anybody who is a parent will know that you start by celebrating days, then weeks, months, years, decades and that you celebrate all achievements no matter how small, but even this proud parent does not want to record how many eager readers we had on June 29th, 2014.

For our second anniversary we have something to celebrate – our baby can crawl! Yes we have a committed and influential group of subscribers. As of today, that number is over 10,000 (you can see the number on the right side of the front page where it asks you if you want to subscribe) and has been growing rapidly month to month. We are happy to report that we have used no marketing gimmicks to grow that subscriber base. We believe that organic growth is the only sustainable growth.In this way, we are very old fashioned – evan a bit purist. We reckon your time is precious and that as long as we keep delivering value, you will keep coming back.

But we discovered a problem on the Internet. 

The problem is how to have good conversations online. Comments are broken. So the conversation moved to Twitter, LinkedIn and Facebook. That fracturing is a pain because we don’t know where the conversation is taking place. We have to jump between comments here on the blog to LinkedIn, Facebook and Twitter because the conversation is happening in all those places. If somebody says something insightful and contextually relevant on Twitter, you won’t see this if you are commenting on Facebook.

Some entrepreneurs have tried fixing the comments problem, most notably Disqus. However Disqus feels too much like a Social Graph. Daily Fintech is more about the Interest Graph. Our readers are not interested in each other’s comments across all subjects in a chronological river.  We want to be informed by subject, in context,  by our peers. We want answers that will make us more effective at work, the digitisation of financial services.

That is why we are launching the Fintech Genome today.  It is a 24/7 digital party where you can have some great conversations about Fintech. We call it the Fintech Genome because the digitization and democratization of financial services is such a complex subject that matters to all of us (like the structure of human DNA). After two years writing every single day at Daily Fintech, the need for a place where everybody in the community had a voice and where we could all have a great conversation became apparent and pressing.  

Fintech Genome is where you can learn from each other and make connections. 

Anybody who has studied how college education works finds something interesting (and rather annoying to professors). We learn more from our peers than from our teachers. So we want the Fintech community to have that benefit. That is the 24/7 digital party that you are invited to. This is a party where you can stay as long as you like. You can come and go as you please. Hopefully each time you come, you will find some interesting conversations that make you more effective in your work and some people that you want to get to know.

The digital conversation problem

We have been studying the digital conversation problem for some time. It is an area where there has been remarkably little progress despite the massive growth of the Internet. If you go to forums and Q&A sites in 2016, you find yourself in a weird time machine, transported to a late 1990s era (an era that is now taught as history to people who were too young to experience it). Some sites, catering to a more technical and early adopter community have made great progress – think of Stack Overflow, Reddit and Hacker News. What all of them have done right is to use peer ratings to “float the good stuff to the top”. So, we have incorporated community ratings. The community will rate how knowledgeable you are on a specific subject based on what you write about on that subject. You benefit from writing insightful and useful stuff by getting the respect and attention of your peers (which may lead to profitable business). If you just want to consume content, that is perfectly OK, we understand that most people want to read and only a few people write; you use the Genome in whatever way suits you best. However, to gain the trust of your peers in the community that will allow you to go from simply reading, to opening a new topic, and later to editing a wiki topic, you need to engage on the Fintech Genome platform.

If blog comments are broken, why not simply use social media sites?

The people running Facebook, LinkedIn and Twitter clearly want us to do this. We will be using Facebook, LinkedIn and Twitter to amplify the conversations and bring more people into the conversations. However we don’t want those conversations fractured across multiple sites. It would like having a great conversation in one party and then running out to a different party across town because the conversation on the same subject has moved to that party – pub crawls are fun if you are walking with your friends, but frantic rushing between venues is just a time suck. We want to bring all the conversations about Fintech into the Fintech Genome. 

The Fintech Genome also fixes a problem we have been facing that has been created by our success. As Daily Fintech started to grow in reach and influence we were being inundated with requests to take guest posts or write about specific ventures or do more interviews or write about a specific news event. This was a conflict because we have a very firm signal to noise ratio policy. We only do one post per day. It is fun to remember the days of wondering if there would be enough material to fill a daily schedule! Today we could easily have 2 or 3 posts per day. The community is offering us the content and there is plenty enough happening that is interesting to write about. However, sipping from a firehose is neither fun or useful. We respect your time, so we don’t want to inundate you with information. Daily Fintech is highly curated. Our experts are hand-picked and work on a specific schedule on specific subjects. We can also see a large number of experts who have a huge amount to offer who do not want the constraints that Daily Fintech experts accept.

We created the Fintech Genome for busy people who have a lot of knowledge and insight to offer, but not the time to write full articles/research notes on a regular basis who want to contribute in little time snippets by:

  • offering an insight/opinion on an existing topic
  • answering a question by contributing to an existing topic
  • asking a question that starts a new topic
  • editing a wiki to contribute new data or augment or correct an existing data point.

The Daily Fintech experts play an important role in the Fintech Genome as peers, but we will not be curating or rating the content. The Fintech Genome is an open, permissionless network where any registered user can create and rate content from their peers. 

Our role is three-fold.

  • First we intervene where needed to ensure a civil conversation. Spammy and hateful stuff will usually get down voted and ignored, but the ingenuity of promotional spammers, scammers and haters is unlimited. So we may occasionally have to intervene to ensure good behaviour.
  • Second, more positively, we create the content structure. This is needed because Fintech is such a broad subject (and we take a broad interpretation of Fintech as outlined in this post). Fintech includes technologies such as Blockchain and AI. Fintech also encompasses range of business models and is changing the landscape of the financial industry directly and all business indirectly (as Finance is so important to business).  Fintech also encompasses societal and demographic change, as well as economic development and economic empowerment. These are all good conversations. Our job in structuring the content is to help you find the right rooms where these conversations are taking place. We will show you linkages. For example, you may decide to go in the room where the Blockchain conversation is happening and then hear how it is being used for real time clearing in capital markets and so you decide to go to the room where the real time clearing in capital markets conversation is happening. Some other folks from the Blockchain room may join you in the other room. What we are doing by creating the content structure is simply putting a sign on the doors to each room so you can easily see which room to enter. For now, we start with only three categories – WealthTech, InsurTech and General FinTech.
  • Third we invite people from the Fintech Community to make contributions. 

Click here to join conversations happening right now (email us at if you need help).


The 4 wrenching leadership pivot gates that entrepreneurs face

By Bernard Lunn


There are 4 gates that entrepreneurs have to pass through:

  • Gate 1: From Concept to Minimum Viable Product.
  • Gate 2: Prove the Concept = Product Market Fit.
  • Gate 3: Make it work as a business.
  • Gate 4: Expand and dominate as a public company.

It takes totally different leadership skills to go through each of these four gates. Few founders have all the four different skills needed, which is why so many ventures fail as they attempt to pass through these gates. Even harder is the fact that the skills, techniques and attitudes that make you successful going through one gate are exactly the opposite of the skills, techniques and attitudes that make you successful going through the next gate.

Each Gate requires a wrenching leadership pivot.

This is like a ski race where you have to change from downhill to slalom to telemark to langlauf skis as you go through each gate. Yes, that is very, very hard!

Gate 1: From Concept to Minimum Viable Product.

Many people have an idea for a world-changing company worth $ billions. Some people have multiple ideas. As the old saying goes “ideas are a dime a dozen”. However, the concept does matter. The concept behind Uber and AirBnB and Lending Club and Facebook was good.

There has been a lot of fruitless debate about whether concept or execution is more important. This debate is silly, because you must have both. A bad concept that is brilliantly executed will be nothing more than a tough uphill slog with relatively little reward at the top. On the other hand, a brilliant concept with weak execution is nothing more than “woulda, coulda, shoulda”.

Conceptual clarity must tick these 4 boxes:

One: Massive market. A small niche might make for a great little venture that can be bootstrapped, but scalable ventures need massive markets. The good news for entrepreneurs is that, if you get traction in a massive market you will have exit opportunities from companies in that market with the scale to realize the value potential that you have created, even if you don’t master the wrenching leadership pivot challenge as you pass through these gates yourself. If you go after a small niche you will be a “bolt on acquisition”. If you go after a massive market you will be a “platform acquisition” and the valuation multiples are totally different between bolt on and platform. What confuses some entrepreneurs is that first wrenching leadership pivot as you go through Gate # 2; this is when you have to focus not just on a small market but on a ridiculously tiny market.

Two: Massive disruption hitting that market. This is the kind of disruption that creates an existential threat to the major players in the market – think of Skype vs telephone companies or Google vs traditional advertising or AirBnB vs traditional hotels. If it is not disruption of that scale, the existing vendors will add the features they need to stay competitive (“adding that feature” may mean acquiring your venture, so this is fine for ventures that will be acquired before they go through all these gates).

Three: You have a 10x proposition. You have to be 10x better or faster or cheaper than the incumbents. That seems like a high bar, but it needs to be this big to overcome the start-up risk that you are asking customers to take. Tactically you may start by offering say 3X knowing that as the technology rolls onwards you have much more in reserve, but you must see where that 10x is coming from.

Four: Timing. Watch this great TED talk by Bill Gross of IdealLab on the “single biggest reason why startups succeed”. The punch-line – timing matters more than Idea, Business Model, Team or Funding. I would phrase it slightly differently – an idea where the timing is wrong is not a good idea. I have seen and worked on unique ideas that failed and years later seen somebody create a valuable business from that idea. The timing may relate to something like how many people have access to the Internet, or bandwidth or economic necessity or a technological breakthrough (such as blockchain). You need total clarity on the “why now?” question.

Here are the two things you do NOT need to have at this stage:

  • A strategy that seems viable to most people. Most great ventures look totally ridiculous to most sensible people in their founding days. After you have passed through Gate #2 a few investors will take notice. After Gate #3, lots of investors are clamoring to get on board. After Gate #4, everybody always knew that the idea was brilliant because hindsight is always 20/20. However, at Gate # 1, nobody cares about your venture and most people will think it is a lousy idea. You do need a couple of smart people to believe in the idea, whether they be co-founders, early employees, partners or investors. But get comfortable with the fact that most people will think you are crazy. Unless you actually are crazy, there will be plenty of times when you doubt yourself and when you think that most people may be right.
  • Any proof that any of the things on that checklist are true. Anybody who asks for proof at this stage does not know how this works and does not deserve to be your partner. Proof only comes later.

Many great entrepreneurs have conceptual clarity but are weak at articulating it, or are too busy executing on the next phase. At this stage nobody cares about your concept. Only after you have passed the next gate does anybody care.

There is no exit opportunity at this Gate. Only when you get to Gate 2 do you have any value. If you fail to get to Gate 2, you could still exit through an Acquire-Hire deal, but this is no pay-window exit for entrepreneurs. This a “put it down to experience and put the best spin on it” exit. Investors get some of their money back and everybody gets the optics of an exit. The founders get a pay check and a chance to learn more and make maybe a chance to make their dreams happen within a larger company.

There is lots of free content and free software and free data that entrepreneurs can use at this stage (when they have no cash to spend).

A Minimum Viable Product is essential to show your concept. Don’t think about approaching people with just a presentation deck. Without a Minimum Viable Product, the only people who will talk to you are people who will want to take your idea. The good news is that it is ridiculously cheap to build a Minimum Viable Product today.

Gate 2: Prove the Concept = Product Market Fit.

This is the “fit to today’s market” phase. This is also what VCs call “traction”. This is where the failure rate is massive.

This is the Product Market Fit chasm.

Investors understand this chasm and that is why nobody wants to fund the pre PMF stage. This is why Accelerators have value; they help guide ventures to the PMF stage. Of course even Accelerators would prefer to invest post PMF, but the competition among investors post PMF is intense.

The failure rate of pre PMF ventures is massive. For example, only a tiny % of Y Combinator applicants get into the program and only a small % of the ones that graduate create a valuable business.

The wrenching leadership pivot getting to Gate 2 is from massive market conceptually to tiny market for real.

Peter Thiel explains this very well in Zero to One when he describes PayPal going after the tiny (at the time) market of power sellers on eBay.

This where you focus on the immediate needs of customers who are ready to make a commitment now, leaving out all the futuristic, big picture stuff which would only scare potential customers. These tiny niche customers will be ready to do that because they have a real problem to solve and that need is not being solved because they represent a tiny market that established companies are not interested in.

At launch, all the market will see and all the entrepreneur is thinking about is that tiny market.

Somewhere in the back of their mind, the great entrepreneurs carry a conceptual vision that is a lot bigger than the immediate solution that they offer to get through Gate 2.

Many entrepreneurs stumble at this point because they are not consciously making the transition from thinking about the future to executing on the present.

The future that you envisage may or may not come to pass. If it does, you may strike gold. However, that won’t help you get traction with customers today. All those customers are concerned about is problems they have today. Your customers may be happy to “shoot the breeze” about the future, but they will only spend their money on problems that they have right now.

This process of focusing 100% on the present day needs of a tiny market is a vital step in turning dreams into reality. It is also 100% opposite to what you do to get through Gate  1.

In B2B markets, getting through Gate 2 means getting the first three paying reference customers. This is a tough job because most customers prefer to wait until you have these three references before committing; one way to drive the founders of enterprise software ventures crazy is to ask them about this chicken and egg problem. These reference customers need to be real enterprise-wide deployments with customers paying 6 figures. A few logos of customers deploying the software in one small area and paying a few thousand dollars won’t make the grade. Lots of enterprise software ventures reach this stage and become cash flow positive without raising any VC, but then stumble at the next Gate. The difficulty of getting these first references is why so much of the innovation in enterprise IT is coming from ventures using B2C techniques to slip into enterprises “under the radar” such as Slack and Atlassian.

In consumer ventures or media ventures with an indirect monetization model, getting through Gate #2 means month to month growth rates in attention. I am using the word attention because the specific metrics such as page views, unique visitors, downloads, active users tend to change a lot as publishers “game” the old metrics.

If you pass Gate 2, you typically have two opportunities:

  • A Series A VC round.
  • A small Trade Sale Exit.

To put this in perspective, this is like getting to Everest Base Camp. It is a big achievement, but you still have a long way to go and most don’t make it all the way to the summit.

Trade Sale acquirers know that the price will go up after a VC round. They might be happy with this if the VC round leads to growth and reduction in risk. Or they may want to avoid the risk of a competitor acquiring you. Series A investors understand that you may have this choice and that is why they will sometimes allow founders to do some personal de-risking by selling some shares into this round; it is in the investor’s interest for the founders to be ready to “shoot for the moon”.

Entrepreneurs have to assess the choice between Series A and Exit based on age, motivation and the offers coming in. If you get to Gate 2, you have choice.

If you bootstrapped to Gate 2, the value you will get from the trade sale will still be life-changing, because you don’t have to share the spoils with investors. However, the big money is reserved for those who make it to Gate 3. One way to look at this is, don’t raise VC unless you are determined to make it to Gate 3.

Media ventures can sometimes exit for great multiples at Gate 2 without any revenue, as deals like Instagram and WhatsApp show. However, it only ends that way if you get massive growth in attention at a time when a big acquirer is facing massive disruption – think of Facebook facing disruption from mobile and thus paying a big premium for both Instagram and WhatsApp. Fortunes are lost trying to emulate this when those rare stars are not aligned. For most ventures, you need to get to Gate 3 and make it work as a business.

Gate 3: Make it work as a business

Here I will go against the Silicon Valley grain. I think revenue and profit generation is a muscle that needs to be exercised. Postponing both worked for Facebook and postponing profit may or may not work for Uber, but this postponing strategy makes you totally dependent on the whims of investors (who are totally dependent on the whims of central bankers).

In Gate 2, you got Product Market Fit in a tiny market. You cannot build a business in that tiny market. It is just a stepping stone to a real market that that you go for in Gate 3.

This is the “make it work as a business” phase. This is the point where you will need the sales and marketing skills and techniques that I describe in Mindshare to Marketshare. You will need to scale your sales and marketing with replicable processes without losing the passion and creativity that got you to this Gate.

This is another wrenching leadership pivot. During the PMF phase, you do things that don’t scale. You do whatever it takes to get customers including things that are totally uneconomical at scale.

All of that changes when you get to Gate 3. Now you need to make sure your unit economics work and that Customer Acquisition Costs are OK. You may defer profit and cash flow if your investors support this, but the unit economics have to be right. You have to scale revenue but it must be the right type of revenue (high margin, predictable, low customer/partner dependency etc).

This is when you start to scale your team and accelerate growth by making acquisitions.

For ventures with an indirect revenue model, there are now trade-offs and conflicts to be managed between the needs of free users and the different needs of paying customers (e.g. advertisers). That is a wrenching leadership pivot for entrepreneurs who won in the last Gate through their self-proclaimed single focus on user experience.

For direct revenue SAAS models, you now need to move from pilots to enterprise wide deployment and in small business to become the market leader in at least one substantial niche market.

Businesses that make it through Gate 3 are “in the catbird seat”. You have a profitable, scalable business that you can grow with internal resources as long as you like. You will be fending off acquisition offers all the time, both from financial buyers (private equity funds) as well as strategic buyers. You get to choose when and who you sell to. Or you may choose to go all the way to Gate 4.


Gate 4: Expand and Dominate.

This is the post IPO sustainable public company phase.

The “expand and dominate” Gate 4 is about pivoting back to that original founding conceptual clarity, of realizing the big picture potential.

All the long years of the earlier Gates are simply laying the groundwork to make this possible. This is another wrenching pivot. The skills, techniques and attitudes that got you through Gate 3 are all about constraining ambitions for the future while concentrating on the immediate opportunities. If you have done a good job in the transition through Gate 3, you will be able to leave the quarter-by-quarter growth to a highly competent team. That frees the founder CEO to focus on expanding into adjacent markets and dominating the market.

Dominate may sound harsh to some ears, but that is what public market investors expect; that is what the high valuations given to fast growth tech companies are based on. Another way of saying this is what Peter Thiel describes as natural monopolies in Zero To One, the kind of monopolies created by network effects (think of Google, Facebook, Uber, AirBnB).

Entrepreneurs that make it through Gate 2 get the opportunity to exit and that can be a good result if they have bootstrapped to that point. Entrepreneurs that make it through Gate 3 get the opportunity to exit and that is a good result for founders, investors and management; this is when those stock options become life-changing. Gate 4 is for a handful of companies that get fame as well as fortune (founder faces on the front page and on TV). This is a very small elite club.

The changing game of Innovation Capital

The Silicon Valley VC orthodoxy for a long time was that no founder has the right profile to make it through all the 4 Gates. Therefore, VCs historically tried to either sell the business at each of these Gates or find professional management to replace the CEO with one who is more suited to the next gate. I refer to the Founder CEO as the key, because even though there are often co-founders, there is usually one of them who emerges as the leader.

That conventional wisdom was overturned after the failure of “professional managers” from big companies to drive the growth of start-ups. When you look at the really great success stories, you see one highly charged entrepreneur who takes it all the way through these 4 Gates – think of Gates, Ellison, Page, Zuckerberg, Bezos, Jobs, Benioff, Kalanick, Chesky. Their ability to pivot and personally change at each of these Gates is the story of their success. It would be crazy to see these entrepreneurs in their founding days and envisage them as the CEO of a multi-billion $ publicly traded company. Yet some of them actually do that.

This is now the accepted wisdom in Silicon Valley – to back founders all the way. It has gone a bit too far. The primary job of the Board (usually run by VCs) is to change CEO when needed.

By shirking that responsibility in order to appear “founder friendly” they are hurting their real customers (the LPs). Too often these days, a founder CEO is only ousted after a scandal that does reputational damage that is hard to recover from.

Also, the impact of this new orthodoxy – to back founders all the way – is not reflected in the business realities of the VC business.

The current VC fund structure, with its need for exits to return money to the Limited Partners, is not conducive to backing entrepreneurs all the way through these four Gates. For example, this has led to “premature IPO”, when the company really is not ready to operate in the public eye and this damages the reputation of the VCs and I-Bankers who promote the IPO. Now many investors prefer to wait at least until after the 6-month lockup period or when a scandal breaks in an otherwise sound company. It has also led to a game of “pass the parcel” among VC and PE funds, so that one fund can book a profit during the time window of their fund.

So we are likely to see some innovation in this area, with more evergreen capital, because the reward for backing entrepreneurs through all four gates is very big.

These are 4 pivot gates:

  • Gate 1: From Concept to Minimum Viable Product.
  • Gate 2: Prove the Concept = Product Market Fit.
  • Gate 3: Make it work as a business.
  • Gate 4: Expand and dominate as a public company.

If you are coming up to one of these gates, be very conscious of the wrenching leadership pivot that you will be encountering.

If you are building a Fintech, don’t forget to join thousands of your peers and the banks, brokers, insurance companies and investors who can help make your dream happen, by subscribing to Daily Fintech. It is free and all we need is our email.


Find The Moment Of Sales Truth

This is a Chapter from my book, Mindshare to Marketshare.

The “moment of sales truth” is that moment when you clinch a sale. Even in a 6 month long sales cycle with multiple stakeholders, there is a moment of sales truth when you can “see it in their eyes” that they are sold.

Thought-leadership sales guys find the moment of sales truth at the intersection of Secret Sauce, Customer Pain and Relationship Leverage.

Your secret sauce is your competitive differentiator. It could be technology or process or people or data or business model or any combination of those. The product centric sales guys can talk about this “until the cows come home” – and until the customer yawns and looks at her watch.

You must connect that secret sauce to your customer’s pain. That is what makes it solution selling. This requires a deep understanding of the market that you are selling into. You can hire folks from your customer base as sales people. For example, if you sell to Banks, you can hire an ex Banker with the right drive and personality and teach them about your product. These ex-customer sales guys will be able to talk about the issues that drive their market – and they will still be having those great conversations long after the sale was supposed to be closed.

You must have that conversation about how your secret sauce is key to solving your customer’s pain with the right people. This requires a talent for building human relationships – in meeting rooms, on the golf course, in the coffee shop, in the restaurant or wherever humans like to hang out. That relationship building is a core competency of sales people. The great relationship sales guys will be able to call high and get meetings with the people that matter – and they will still be playing golf and spending the expenses budget long after the sale was supposed to be closed. These relationship sales guys won’t win in today’s market unless they also have a deep understanding of your secret sauce and the customer’s pain.

That is why thought-leadership sales guys operate at the intersection of that venn diagram – your secret sauce and the customer’s pain and your relationship leverage.

Thought-leadership sales guys move up and down the management hierarchy with ease. They are equally comfortable with a technophobic CFO and with the guy who can wear a goatee and an earing in a buttoned down corporation, because the CIO totally relies on what this techie influencer is saying.

In the Internet age, these conversations happen too fast for the old sales process manuals.

In the slower-moving Before Internet sales world, the relationship sales guy had enough time to schedule meetings that connect your experts (either product experts or market domain experts) with your customer’s middle managers.

This still happens, but only if the sales guy was there to nudge the buying process in your favor at that critical moment of truth. You need to intervene in real time to influence the conversation that is happening within your customer.

The relationship sales guy must be sharp enough on product and market issues to nudge the sale along in the right way when they find a precious moment with the key influencers, such as that technophobic CFO or that deep tech influencer.

Those two conversations will sound totally different. For example, imagine that you are selling a Governance, Risk and Compliance solution:

  • The CFO conversation might be about the impact of what you are selling on the Stock Buy Back plan that the CEO recently announced. This conversation will be full of accounting terminology.
  • The “deep tech influencer” conversation might be about the finer nuances of what real time means within the context of your product. This conversation will be full of technical jargon.
  • To both of these conversations you drop in a reference to the headline disaster that just hit one of your customer’s biggest competitors. Then you explain why your company has a solution that would have prevented that.

The sales guy will later have to bring in experts from your company to discuss those issues in depth, but if your sales guy is not comfortable and credible at both of those levels, your company will have missed a critical nudge opportunity. Done right, this nudge will lead to a conversation at an internal meeting (no vendors invited) that goes along these lines:

 CEO: Fred (CFO), how is the stock buy back coming along?

CFO (Fred): I think we may have an opportunity to make it better than we had planned by yyy (CFO language) Jim, can you comment?

CTO (Jim): Yes, I have been briefed by my team on this (meaning the goatee guy found him in the corridor as he was coming into the meeting) and, if we invest a bit of money in some xxx technology (CTO language) that we have been looking at, then we can do what Fred is talking about.

CEO; sounds interesting. Fred, please work with Jim to come up with a proposal for next week’s meeting.

Coming out of this meeting, your sales guy gets a call from the CTO. You now have the inside track on a deal that the CEO is highly motivated to sign off on. Your nudge paid off because the sales guy was able to operate at the intersection of that venn diagram. In two quick conversations, your sales guy:

  • Explained the secret sauce to the goatee deep tech influencer (who then explained it to the CTO).
  • Connected this to what she knew was top priority for the CFO using accounting language.

Your sales guy had this opportunity because she was a superb relationship sales person and tireless networker. So she was often “lucky enough” to be in the right place at the right time because she was always out there, meeting and networking. She had credibility at both the tech and accounting level, so both the tech influencer and the CFO where willing to listen.

Incredibly simple 1,2,3 go to market plan

By Bernard Lunn

bangkok chatuchak market

I use “incredibly” deliberately. It is not credible that something as important as a go to market plan should be simple. This is so critical, so it has to be complex and difficult. Or does it?

Making something simple makes it easier to get everybody aligned and focussed. Simplicity is key to execution and go to market plans are 1% inspiration and 99% perspiration. Constraints are good.

Note: this refers to paying customers i.e. a direct revenue business. To get a lot of free users and then monetise via advertising is a totally different game plan. Those free users have to find you. That is a totally “build it and they may come” model. Write a blog post and somebody might find it and read it.

Your go to market plan must be based on social networks. You can only get the right unit economics if one user leads to another user in an organic way. Without this your Customer Acquisition Costs (CAC) will be too high. Seth Godin calls this Tribes. Or we can say “birds of a feather flock together”. This is as applicable to enterprise as it is to consumer. Your first reference customer in enterprise in a new market segment will typecast you. You will get more customers like that. Do you want that type of customer?

3 is a magic number. You need 3 customers. Sure, you need a lot more, but you have to start somewhere. And # 3 creates a tipping point. To see this in an entertaining way, watch this Ted talk about the “first follower”.

My mantra is:

▪Once means nothing

▪Twice is a coincidence

▪Three times is a trend

By far the hardest is the first one. If you want to drive founders crazy, talk about the chicken and egg problem. Customers all say “call me again when you have your first customer”.

How do you make that First Follower get up and dance? In the video, it looks like “dance and they will come”. But in an ADD world that is crowded with great propositions trying to get attention that is not enough. This is where you have to “do things that don’t scale”. You have to deliver crazy amounts of value to those first three and go the extra mile and then some. You do whatever it takes to win over those early customers, no matter how crazy the lengths you go to do that. This is a phase – “this too shall pass”.

The net profitability of these early customers does not matter. The gross unit profitability does matter. Selling a dollar for 99 cents is easy; your revenue traction will be amazing! However if you want to sell to millions and have good unit economics, spending expensive founder time on winning the first few customers makes total sense.

Look at that first follower video again. You will see something happen after the third dancer joins. That is what could be called tipping point, or take off or traction or any number of words that basically says “its working”. Three times is a trend.

Of course that does not mean you only need three consumers. This is where you need to figure out your “bundles” of customer. That is a deliberately simplistic word to cover many types. For example a bundle could be a:

  • vertical domain (Fintech or Cleantech for example).
  • functional job type (e.g accountants or programmers)
  • business customer type by size or stage of maturity
  • tribe (types of consumers that think the same way and hang out together, which is much more actionable than traditional Lifestage or Age targetting).
  • geographic region with linguistic, regulatory and cultural similarities – marketing speak for a country

In each bundle, you have the same 1,2,3 challenge. For example, if your first enterprise customer is BMW, other car companies will be a relatively easy sell and once you have 3 car company references you are established (but a Bank or Retailer or Government customer still won’t see you as relevant).

If your first tribe is young single guys in Brooklyn who play Magic The Gathering, you will be credible when three who are influential start singing your praises (but a middle aged Mom/Dad in Brooklyn may still not view your product as relevant and will be useless as referrals).

Or think of Facebook growing through College networks. Once they were entrenched in three Colleges, all the others saw it as an inevitable trend (and only later did they break out of the college niche into the mainstream).

Once you have 3, start planning your organisational strategy in 10x increments – from 3 to 30 to 300 to 3,000 to 300k to 3m etc. That is how you scale using simple, repeatable processes. But you don’t get the opportunity to scale unless you get those first 3.

For example, if you have 3 car manufacturers, it is pretty simple to hire sales guys to go after the other car manufacturers.

Or, if you have 3 young single guys in Brooklyn who play Magic The Gathering, scaling that via community marketing is a process you can scale.

Choose the first three wisely, for they will typecast you. If you aim to eventually grow beyond a niche, they must be aspirational. For example:

– SAP got BMW as its first customer (a clearly world class manufacturer that other car companies wanted to emulate)

– Facebook started at Harvard and then Stanford, top tier colleges that are aspirational.

Car companies and colleges are all networks. Your job is to find the hubs in those networks and win them over. For example, if your first tribe is young single guys in Brooklyn who play Magic The Gathering, find somebody who is a community magnet, respected and liked by his peers. If he adopts your product, he is your first follower and others will follow you.

Once your scaling within one bundle, you can grow into adjacent bundles. This is where 3×3 is the magic number. For example if you want to be a leader in a product for manufacturing you can start with Automotive (# 1) and move into Electronics (# 2) and Pharma (# 3). Or, you can start with oung single guys in Brooklyn who play Magic The Gathering and expand to Berlin (# 2) and San Francisco (# 3). Or you can stay in Brooklyn but expand into other geeky games such as Go (# 2) and Battlestar Galactica (# 3).


If you enjoy reading the Daily Fintech insights by our experts Subscribe to this newsletter.

If you want to engage and converse with the Fintech community Register on Fintech Genome. 

Turn Secret Sauce Into Unfair Advantage

This is a Chapter from my book, Mindshare to Marketshare.

Fast Moving Consumer Goods (FMCG) companies are masters at avoiding commoditization. Think of Coca Cola selling sugared water at high prices or Gillette charging a premium for razor blades.

Coca Cola is worth around $182 billion and is one of Warren Buffet’s core “forever” stocks.

What is Coca Cola’s secret sauce?

Coca Cola looks like a physical product-based company; consumers buy physical cans and bottles. Yet Coca Cola is as light in business model terms as Google, eBay or Facebook. Coca Cola is really a licensing business, like a software business. The way they have done licensing points the way to the future of the software business (and with “software eating the world”, we are all software businesses with different skins).

Of course, Coca Cola is not revealing their secret sauce. Could it be, shock horror, cocaine? The technical “secret” is probably totally banal. There may not be any secret at all. The secret is really a business model secret. The secret is how Coca Cola turned the concept of a secret ingredient into a massively scalable business with a huge competitive moat.

Coca Cola’s secret is business model innovation.

Coca Cola’s innovation was to combine two strategies that are rarely combined:

  1. Sold through channels (bottlers in their case).


  1. Created a consumer brand.

Doing one is normal. Doing both was unusual when Coca Cola pioneered it (it is less unusual now that Coca Cola is such a well-known success story).

However that art of combining is more unusual in technology. It’s like cooking. You have lots of components that go into a dish. You might even have a secret ingredient that defines it. Yet the whole is obviously more than the parts.

Consider the greatest entrepreneur the tech world has ever seen – Steve Jobs.

When Steve Jobs innovated, he did so using multiple components.

At one level he did that to create a device like an iPod, iPhone and iPad with lots of components sourced from all over the world. However, if he had only created “insanely great devices”, Apple’s business would be more vulnerable to competitors like Samsung and Xiaomi. The reason that Apple is so valuable is that Steve Jobs combined great physical devices with digital services like iTunes and AppStore into a combination that still mints money long after he died. That is why Apple has massive amounts of Unfair Advantage (aka moat, aka competitive differentiator).

Think about how the software business is evolving through Past and Present to the Future:

  1. Past = Perpetual Licensing. Close a sale and send a disk with the software. The software was the secret sauce by itself. This is like selling yeast to people who want bread; yeast is the active ingredient, but it is useless on its own.
  1. Present = SAAS. You add hardware to deliver the software over the Internet. In cooking terms, you add water, salt, flour (commodity ingredients) to offer a loaf of bread.
  1. Future = Software Enabled Business Services. This includes hardware – that is now the baseline. Software Enabled Business Services also typically include, 24/7 guidance by experts and business process innovation and digital media that attracts customers to your customers and co-branding partnerships and proprietary data. To stretch the analogy, this is now a restaurant where bread is one item (given free while waiting for your appetizers).

As an example, think of a payment network such as Visa, Mastercard and Amex. These are Software Enabled Business Services. Yes, these payment networks have software at the core. Yes, they own the hardware servers that the software runs on. Yet they don’t license that as a SAAS product to banks. They wrap it into other services to deliver transactions to consumers via Banks. That is how Visa, Mastercard and Amex turn their secret sauce into Unfair Advantage.

What Coca Cola, Apple, Visa, Mastecard and Amex have in common is the art of the chef – to combine commodity ingredients into value.

7 Point Checklist To See If You Have A Fintech Unicorn

This is a “bonus chapterette” from my book Mindshare to Marketshare.

This is deliberately simplistic. It is a 7-point checklist. If you really have all these 7 items, you should aim to raise a lot of money and create a Unicorn. If you don’t, somebody else will. An honest evaluation is critical. If you have all 7, dilution matters way less than having the right investors and being properly capitalized; your end result maybe a small % but it will be a small % of a huge exit. However don’t fool yourself. You might be able to persuade investors that you have all 7, but unless you really have all 7, it would be smarter to raise less, dilute less and have a bigger % of a smaller exit.

I will illustrate this formula using Klarna as an example:

  1. A List Need of Buyer (faster checkout). A List means it is a the pain point that users will refer to all the time.
  2. A List Need of Seller (less abandoned shopping carts). In Fintech, you are always an intermediary (e.g. between buyer and seller or lender and borrower). You must make both parties happy. The same A List rule applies; the Seller must see this is as top priority.
  3. A big wave driving the need (the move to mobile). Before the move to mobile, faster checkout was not a huge concern, neither was abandoned shopping carts. The move to mobile made these into A List needs. Note, this is not saying “we are a mobile e-commerce company” which is meaningless. It is saying “this is the problem we are solving and the problem has become acute because of the move to mobile”.
  4. A massive market (e-commerce). If you have 1,2 and 3, you have the potential for a small but still highly valuable company. To create a company worth $ billions, the market must be massive.
  5. Timing. You do have to be early. You might spend a long time waiting for the market to recognize the need, but you must be 100% ready when the market comes around. This explains the trend to raising very small amounts of capital (while waiting for the market) and then raising a “monster round” when the demand suddenly kicks in. Klarna spent a long time in a market (Sweden) that was not on most people’s radar screen.
  6. Secret Sauce (minimize fraud by only shipping to a user’s confirmed physical address on a national ID system). This should be simple enough that it seems obvious once you see it in action.
  7. Execution.

Mindshare to Marketshare focuses on the Execution part, because this is where the hard work lies and the devil or God resides in the details. With huge markets and obvious waves and secret sauce insights that are easy to copy, speed of execution is the key.

In Mindshare to Marketshare, I call the execution part “Combining”, because this is “art of the chef”. You go to a great restaurant because the chef cooks great meals. The chef may have a secret sauce that is a differentiator, but the chef would never serve that alone.

The art of the chef – Combining – is using ingredients that anybody can use such as:

  • Capital. Klarna has raised $282m. They could probably have raised a lot more if they wanted. Money is a commodity and there is a lot of it looking for a return.
  • Talent. Each human is unique, but there is a lot of talent in this world waiting to be paid and led, wanting to join great teams.
  • Acquisitions. Anybody could have bought Sofort. All they needed was Capital, which is a commodity. Most companies are for sale at the right price. Acquisitions are key to speed of execution but are a waste of money if that 7 point check-list is missing.

Rome was not built in a day. Nor are Unicorns. For context, read this post about the 4 Pivot Gates that Unicorns Pass Through. This is the context for understanding timing. Gates 1 and 2 require very little capital and maybe done before the demand becomes massive.