MVPs & Start-ups in Financial Services

Chris Lees 8th May 2019
5 min read

Small Business Best Practice

Read books on start-ups or on lean/agile methodologies, and you will quickly see a recommended trend in which software vendors should use the technique of rapid-iteration to building complex products.

Let's imagine that we were building a smartphone app for example. The idea would be that we quickly push out a "Minimum Viable Product" (MVP) as quickly as possible which has the bare-minimum set of features that we believe that users will need to use it. Anything that is complex or in any way a luxury or refinement on the core product is pushed off until later. Some authors even take this to the extreme, suggesting that it is OK to have a (small number) of bugs in the MVP.

"If you are not embarrassed by the first version of your product, you've launched too late." Reid Hoffman - founder of LinkedIn

The methodology then advises the use of feedback loops to immediately - and continually - iterate and extend the product based on data-driven customer feedback only. Techniques may include:

  • Customer focus groups to get reactions
  • Mining usage data such as which functions are used or how users navigate
  • "A-B testing", which involves creating two different versions of a page or function, randomly assigning users to one alternative, and see which version gives a better outcome.

The mantra of MVP and rapid iteration is now taught in business schools around the world as a tried-and-tested approach to innovating new products and services, and ensuring a good product-market fit (for more on this, see FIX Software - past, present and future).

... Except that rapid-iteration doesn't really work in wholesale financial services ...

There is one key ingredient to the rapid iteration approach that is completely missing in wholesale financial markets, and that is volume. This volume is vital because rapid iteration assumes and expects that some customers will reject your product as unsuitable; it is this customer churn that allows the learning to happen, and in many ways, customers are "expendable" if there is a sufficiently large pool of alternatives. To say this another way, learning from your mistakes works well when you get lots of chances.

When you are selling a wholesale or niche product, however, then the cost of upsetting a customer is enormous, because they either may not be easily replaced, or the cost of selling to another firm is too high in a market where year-long sales cycles are too common. Unfortunately for the sellers, your buyers already know this, and use it to demand richer functionality and lower prices right from the start...

And unfortunately, the negative cycle continues. Because if MVPs don't work, and vendors can only find a market for very feature-rich (preferably customisable) products, then vendors must increase the prices of those products to cover their higher costs. And when buyers face higher prices, the internal budget justification is harder, causing both sales cycles to lengthen and even more demands for full functionality and customised solutions.

To cap it all off, such high barriers to entry make it difficult for new entrants to enter, which in turn allows the dominant incumbents to apply monopoly pricing, and prices continue to rise.


Time to turn this blog post around and end on a positive note! So what are the key takeaways to buyers and sellers of financial services technology here?

To the existing or would-be entrepreneurs out there, I have four key pieces of advice:

  1. It will be much harder than you think. I know that you've probably already heard this, but it's true and you really need to listen to it! Getting traction will always take longer than you even your worse estimate, and probably be much harder than you think. If you are a small company, the odds are stacked heavily against you because you are unlikely to have sales/marketing/brand presence to cut through the noise of press-releases and conference announcements that clutter everybody's social media feeds.

  2. You need to bin the idea of building something in your "spare-time" while keeping the day-job; while I commend those who try this, I've also seen far too many part-time activities fail to gain real traction as a result of lack of development speed.

  3. You need to plan for the long term, which means making sure the numbers indicate profit, and that you aren't burning through cash too quickly. It's glamorous in these days to think that you can simply "raise funds" to float your business, but the fact is that you are handing over control to someone who is expecting a fast return on their money. This ramps up expectations, pressure and stress, and means that you will have someone breathing down your neck all the time.

  4. You need to have a strong belief and vision in what you want to achieve. This is vital for long-term success because you will meet firms who will be quite happy to try bending your product/service into areas that it is poorly designed for, in order to resolve a niche problem for them. You need to either resist such distractions or find a way of accommodating them without diluting your core vision and purpose.

For the buyers, my request is to work with innovative companies as true partners, and not as corporate buyers. Now the word "partner" is often used rather glibly - an empty promise to dazzle the start-up into thinking that there's something special about what is really just another contract which doesn't justify a discount. Instead, I mean a partnership model which tries to genuinely remove barriers to doing business, such as asking procurement and IT security to take a risk-based view instead of applying one-size-fits-all policies of Fort Knox-style IT security (unless it is strictly required) and millions on the balance sheet. And it means trying to rein in your natural instinct to customize their product/service fit your bespoke need (instead of flexing your process to use their methodology) or extending the functionality into areas that they don't want to go.

I'll leave you with one final thought.

The word "start-up" has acquired a series of unhelpful stereotypes in recent years;

  • Start-ups are predominantly interested in raising funds
  • Start-ups are populated by IT folks who value guidance on our industry (and are therefore keen to join incubators)
  • Start-ups have the goal of being acquired or to IPO in 5-10 years

These are often untrue in fact. There are start-ups who don't need funds, and don't intend to sell after 5-10 years and are often staffed by folks with deep industry experience (FixSpec is all of these three!).

Start-ups are young companies that need customers who can help/guide and support them in delivering their vision. So work with them and partner with them, but don't try to control them!

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