One of the things that constantly comes up when I am on a Fin Tech panel or even talking about Fin Tech is how to deal with big banks. In the crypto arena, they just all say they will topple the big institutional players and make them irrelevant. Sort of like Amazon did to Sears. In other venues, it’s how to sell to them.
It is incredibly difficult to sell into big institutions. When we look at data on sales cycles, sometimes it can stretch more than 365 days.
Startups generally cannot afford this. They don’t have the capital, nor do they have the time.
Yet, name a biggish bank that hasn’t spun up an “innovation arm” or an “incubator” or a VC fund, or a new department of innovation. At our fund, we actively seek them out and chat with them to understand what their goals are. Innovation at bank isn’t the same as innovation at another bank.
The big bank is like an aircraft carrier and the startup is like a dinghy. They don’t know what to make of it and if they haul it aboard, where the heck do they put it? This is why innovation often gets shoved aside. It really doesn’t matter that the price is cheap. The simple fact is a startup is a round peg trying to fill a square hole in many cases.
One of the things startups often do in pitches to VCs is tell them the big institutions they have pilots with, or are talking to. While that is interesting, that isn’t indicative of sustainable success. The bank is probably just like a car shopper and kicking tires. They probably aren’t actively engaged and jumping in with both feet. If you think about what they spend on the big SaaS service providers compared to what they are spending on the startup pilot, it’s chump change. That means it’s going to probably be easy to get rid of you and revert to the status quo.
One of the things that I have learned talking to entrepreneurs was what Dan Miller did at Workiva. It was genius. He built his company in Ames, IA near Des Moines. Didn’t really take on a lot of VC money but he IPO’ed.
He opened my eyes when he told me his strategy for attacking a market.
First step is just to get small users. These can be friends. You don’t charge for the product. You get feedback. You burnish it. You eliminate features and add features and improve the UX. In Workiva’s case, Dan had some local Iowa companies that were willing to support him.
Second step is to segment the market. How you segment the market will tell who you sell to. There are infinite ways to segment the market and you will have to decide how to segment it for your company. In Dan’s case, he segmented by top line revenue. If a company had a lot of revenue, they were going to be too big to sell to. They’d grind him up into dust. If they didn’t have enough revenue, they’d beat him up on price. He didn’t want to have to give margin away because he’d built a valuable product that wasn’t a commodity.
Once you figure out which segment you have to attack, you need to figure out a systematic way of going through it. You will have a lot of trial and error, but that trial and error ought to help you build a repeatable sales process.
Blow out that segment. Avoid distractions. You cannot be all things to all people.
Once that segment is dominated, you have the cash flow to go upstream. That’s when you can afford a longer sales cycle, and more importantly the dinghy you had isn’t a dinghy anymore when you sidle up to the aircraft carrier. It’s a cruiser or a battleship. You will have a different conversation, and you might even have some leverage in the conversation. They need you, you don’t need them.
The small side of the market will come along. You can pick up the scraps there last.
A lot of these incubators are sponsored by the big guys. But, the odds are good that they are doing that for marketing purposes. They won’t be your initial customers that will sustain the business.