Ask the expert: why do fintechs fail, and how can I improve my company’s chances of success?

In this fortnightly column, Ask The Expert, we aim to provide readers with practical advice on how to grow their businesses.

Greg Watts is our resident expert. He is the founder of Demand Creation Partners, a London-based growth consultancy that helps fintechs and paytechs to scale. A visiting lecturer at the American University in Paris and regular industry speaker, he was previously head of market acceleration at Visa Europe.

QUESTION: Why do fintechs fail, and how can I improve my company’s chances of success?

Despite headlines about the latest fintech unicorns and multibillion-dollar acquisitions – most recently with Revolut and Visa/Plaid – there are thousands more companies that don’t succeed.

According to The Wall Street Journal, about 75% of venture-backed startups fail. Fast-forward five years and there’s a 50/50 chance a business will survive.

So, despite all the disruptive potential of the financial sector, the odds aren’t stacked high for fintechs.

One of the most common reasons for failure is that many fintechs are growing at such a fast pace that they simply overlook the fundamentals.

In this column, we’ll take a step back and look at the basic elements for success for any fintech – and indeed, for any start-up or high-growth business.

1. Focus.

A recurring theme for many fintechs is the inability to focus, whether that’s creating clear messaging, determining target audiences or assessing international markets for growth and expansion.

Why is focusing so hard?

Quite simply, there’s often a tendency to forget that things take time – for example, forming a partnership with a retailer or bank.

If a partnership doesn’t materialise as quickly as you expected, the problem probably isn’t necessarily with your product or service. Remember that commercial agreements with retailers and banks often take around 12-18 months to complete. So, rather than panicking and making unnecessary changes to your offering that dilute your messaging, it’s a better idea – and use of resources – to spend more time telling your story to more stakeholders within the prospective organisation.

While it’s important to tweak your proposition based on feedback, don’t be tempted to change course too quickly.

2. Research target markets thoroughly – and don’t be tempted to start with the largest.

It’s surprising how many companies don’t undertake thorough research before they try to take their product or service to market.

Research doesn’t need to take long or be extensive, but it needs to be done well. For example: What are the characteristics of your target markets or sectors? How do you prioritise which to enter? What do your target buyers look like? How is your offering different from the competition?

Many fintechs set their sights on the UK and USA, but they frequently underestimate the time and level of investment required to compete in these mature markets.

It’s often a better strategy to target smaller markets with high growth potential and lower barriers to entry, then use those successes to create powerful case studies to facilitate entry into more established markets.

For instance, it may be worth starting with Central Eastern Europe or South American markets where mobile phone penetration is high, there are less barriers to entry, and where retailers and banks are looking for innovative ways to create digital payment tools that enhance the customer experience.

3. Clarify your target customers and partners.

Many fintechs target prospects too broadly, then get frustrated when their efforts yield little results.

Within retailers, for example, it’s vital to understand who you’re targeting. Put in place prospecting criteria before you initiate any outreach. Does your solution help increase conversion or basket size – or both? Are you targeting higher or lower frequency purchases? Does your solution help every sector or just a few? Once you have four to six criteria in place, you can allocate weightings and tier prospects into groups.

Your final target list should be visible throughout the business, with every staff member understanding who you’re going after and why. All marketing activities, from lead generation and PR to content creation, should be focussed on helping sales to get in front of targets. A good way to keep up sales momentum is to hold “command post” meetings focussed around the pursuit of particular prospect tiers.

4. Identify buyer personas and key decision makers – then create messages that resonate.

A lot of fintechs focus on one or two individuals in an organisation, typically at C-level, then wonder why they get little or no traction.

Try to go beyond the C-suite to identify middle and senior managers who have influence over purchasing decisions.

For example, a loyalty fintech could target the head of loyalty or a senior marketing manager. Support functions such as procurement and finance can also be useful. Having an advocate or two in support departments can often yield good results when it comes to getting commercial agreements over the line.

Once these stakeholders are mapped out, the next step is to create buyer personas. Understanding the goals and challenges of stakeholders will enable you to create targeted messages for your contact strategy and marketing.

Remember that your teams can help expedite outreach as it’s likely some stakeholders will reside within their professional and personal networks. Make it a group effort.

5. Demonstrate an understanding of your prospect’s business in the first meeting.

The majority of new business pitches I see is about the company’s business instead of how the company can help the prospect. Remember: it’s about them, not you.

In the first meeting, the sales lead should demonstrate an understanding of the prospect’s business. This can be achieved by looking at annual reports, LinkedIn bios and secondary sources. The first meeting is also an opportunity to validate your assumptions – for example: What are the prospect’s challenges? How can you help them?

Prospects will open up if they’ve seen you’ve done your homework. A little preparation will go a long way in establishing your credibility and create an opportunity for ongoing dialogue.

6. Show them the money.

Second meetings are ideal for showing prospects the size of an opportunity. This can be presented as a value model, using an interactive spreadsheet, which allows you and the prospect to have a conversation about how much they could potentially make.

For fintechs targeting retailers, there are often two considerations.

The first is: How many more incremental (new) customers can they bring to the retailer? The second is: How much more will existing customers spend as a result of engaging with this new product or service?

Bringing it all together

If growth is a priority, it’s imperative that a fintech knows its target market(s), clients, stakeholders and buyer personas – and frames its proposition in a way that helps prospects achieve their goals.

Taking the time to do this will make better use of resources and, ultimately, deliver better results.

If you have a question for Greg and would like a practical, no-nonsense answer/advice, please get in touch! We’ll be answering your questions in this column – free and open to everyone.

You can post your questions in the comments section below, email Greg Watts and/or FinTech Futures’ editor, Sharon Kimathi, or get in touch with Greg on LinkedIn.