How to scale a FinTech 'sustainably'?

“To those who have, more will be given; from those who have little, even that will be taken”

This old saying which is famously known as ‘Matthew effect’ holds true for FinTechs’ growth as well. 

If a FinTech is not growing fast enough, the prospects of its future growth are bleak.

This is because high-growth companies offer a return to shareholders 5X greater than medium-growth companies. So, unless you’ve explosive growth numbers to show, not many investors would have the appetite to sign cheques that will pave the way for rapid growth. 

Clearly, the funda for FinTech startups seems to be “grow fast or die slow”. 

However, this is easier said than done. An idea transforms to a full-fledged enterprise in phases. And each phase is studded with distinct challenges that need distinct strategies. 

From zero to IPO

Initially, it’s a journey from an idea to a ‘start-up’ and then to a ‘scale-up’. Real growth can and should kick in only after you have evolved from a startup to a scaleup.

Any attempts at expansion before crossing the ‘growth chasm’ will prove unviable.

What’s the ‘growth chasm’?

It’s a flying leap startups have to make by overcoming market challenges. You have to understand that at first, it’s the early adopters that are buying your product; those who generally like to try new things. But after that, you need to reach the majority. 

The start-up phase is all about honing the product to perfectly fit the market, bringing acquisition costs below customer lifetime revenue, and getting those first revenue-positive customers in through the door.

Scaling ought to happen only after a startup's business model is tuned.

Credit: Tradecraft

More importantly, the metamorphosis of your company shouldn’t be dictated by fast growth alone, it's as much about ‘sustainable growth’. 

A good majority of fintechs don’t make it to the unicorn club or the IPO stage. Just 3% of software and internet-services companies touched $1 bn in revenues, according to McKinsey. Interestingly, on the other side of the spectrum, 85% of the super-growers were unable to sustain their growth. Clearly, scaling up is not easy. 

So, I have put together 12 rules of the road to keep in mind as you scale.

1. In digital services, customers must remain your North Star as you scale. Your customers got you here, so don’t lose them along the way. 
2. Hold on to the startup culture of moving fast and trying new things, or you will never discover the more efficient way of moving forward. 
3. Secure your funding, because you need capital for growth. Know the players who will bet on you. And know that everybody wants a return. No matter which developmental phase you’re in, your investors need to see the scope to make a buck.
4. Choose depth over breadth, always. Cross-sell, upsell, tweak, rather than be lured by the prospect of new products or new business opportunities. 
5. Don’t burn your ‘bottom line’ as you scale. The growth phase runs the risk of overspending and tends to add to inefficiencies. Having a streamlined administrative process is non-negotiable during expansion. 
6. Stay lean as you scale. Grow your manpower, but optimally. This is best done through a variable staffing model; outsource wherever possible. When it comes to development, if the cost of building is too high, then buy. 
7. Cooperate more than you compete. The average customer prefers the ease of a one-stop-shop such as a bank to the trouble of choosing individual providers for each financial product, no matter how great they are. So, see banks as the supermarket that offers shelf-space for your products. 
8. Collaborate at every opportunity. Don’t reject third-party integrations. Welcome them and build a comprehensive end-to-end suite of products for your clientele.
9. Understand the regulatory environment, and stay ahead of the curve. Regulatory complexity can be dizzying and has the potency to flame out thriving businesses. Case in point - Neufund, a Berlin-based blockchain platform that had to shut down due to regulatory uncertainty at the peak of its success. 
10. Invest in security, then invest more. A data breach can cost you heavily beyond recovery, along with inflicting reputational damage and denting customer trust. Make gains from your security investments, by marketing it as your strong point.
11. Delay your IPO in favour of a mega-round if you aim to achieve well-defined growth targets. When it comes to listing new-age businesses such as fintechs, IPOs should be treated purely as an exit strategy rather than a growth tool. 
12. Choose growth, but do not disregard profits. That’s one lesson from Paytm’s crash on debut. Ultimately, growth is more valued by the market than profitability, but only if the company has a viable path to profitability.

……….but don’t run before you can walk

Having said that, there’s no rush. Most startups fail because they scale prematurely. Scaling too quickly can cause you to burn out. Trying to enter a market you don’t fully understand is bound to overload your team and leave you short on capital. 

To know if rapid growth is breaking your back, here are a few questions to consider;

• Have you observed a rise in complaints from customers?
• Are you spending more time on operations rather than business growth?
• Is your workforce suddenly pulling all-nighters?
• Are you hiring well before new business comes through?
• Do you suddenly have a cash flow problem?

If your answer to some or all of the above questions has been a ‘yes’, then there’s enough reason to consider slowing down. Take the time to assess whether there’s demand for your product or service beyond motivated early adopters. Gather real-time financial data that will allow you to accurately forecast growth. Establish an independent board of advisors. And perhaps most importantly – don’t get swept up in the hype.