Solve for C by going B2B – TechCrunch

Fintech founders who set out to solve big problems for consumers almost always start with the best intentions: they want to help people. But they often miss that mark by a country mile, raising questions about how well other fintech founders are helping consumers. Believe me, when you name your for-profit, venture capital-backed fintech startup “Altruistic,” a certain healthy skepticism follows you.

This skepticism is understandable because, in many ways, the world of fintech is built on a foundation of internal conflict. The vast majority of fintech founders deeply appreciate the power and value of hyper-profitable business models to achieve less clearly profitable goals. Many come from a finance background, which gives them an insider’s edge in identifying the ways in which financial tools and institutions fail to benefit — and sometimes exploit — consumers.

Founders quickly identify problems and have the skills to solve them, so they step up and start building a solution to help people. Their intentions are, on the whole, altruistic.

This is where things start to get tricky for fintech founders. The same industry savvy and business understanding that helped them identify problems to solve will lead many down a path that abandons their original mission.

So where do altruistic fintech founders go astray? What market forces are transforming their “disruption” into the same archaic business models? And above all, how to avoid them?

Avoid the path of exploitation

The first step any fintech founder should take is to properly size their addressable market, and that doesn’t just mean identifying a widespread need. “We want to help people start saving” is a great mission statement, but any founder needs to be realistic about how to meet that need.

If your business model means you need to generate revenue equal to more than 200 basis points from your addressable market, it may be too expensive for the people you want to help. In short, you have to do the right calculation.

Whether it’s solving savings, budgeting, or investing problems, all of these solutions are well-intentioned and well-executed, but are the financial equivalent of “solving” insomnia with bedding.

The unit economics of your business is such that it costs too much money to acquire customers based on that customer’s assets. For the math to work, you have to generate a huge amount of LTV, and because the clients you want to help don’t have enough money, you have to charge huge fees.

If you really look at the business models of many mainstream fintechs, especially savings products, their fees are often 5% per year. It’s not far removed from predatory lending.

In effect, they say, “We’re going to make you use our product and charge you on such small transactions that you won’t notice you’re never really moving forward.”

Worse, many founders go down this exploitative route without ever realizing it. Doing the math right should be your first step, but there’s no bad time to sit down and give it another hard look to see if there’s another way.

Venture pressure and shiny objects

If you find yourself on the wrong side of the “math” of the addressable market, you expose yourself to the next dangerous trap of fintech founders: the “get big quick” scheme.

Venture capital markets have made fintech so frothy, and there’s huge pressure to use the same playbook to grow an organization to raise big bucks. Unfortunately, this approach often leaves the client hanging out to dry.

For example, a large fintech company that automates investing, purchasing, and spending has a lofty mission and has also publicly stated that it expects to earn 1% on all assets. That’s high fees and almost twice as much as many non-digital platforms.

But if you really do the math and charge a truly “disruptive” quarter percent, $5 billion in assets is only a $12 million business. Investors don’t want to start small businesses, and $12 million is a small business. At 1%, all of a sudden, you’re a world-changing unicorn.

Getting big quickly like that can lead to overpriced products that hold consumers back and “mission creep.” The founder who sets out to help people save money can become the founder who adds a high-fee crypto investing service to their product. Why? Because crypto offered a faster path to growth and funding at that time.

This eagerness to raise funds is another quick way to go astray. When founders complete a series of quick financing rounds (safe notes or traditional senior capital raises), they often find themselves owning a de minimis percentage of their own company.

At this point, you’re locked into “growth at all costs” and need to build a monster to see the benefits.

Solve for C by going B2B

Of course, some of the founders reading this column are probably already mid-flight. You have sized your addressable market as well as possible, you have taken out the financing you need and chosen your investors. There may not be much you can do to manage the risks already outlined above.

That said, there is still an all-too-often-overlooked path for an altruistic founder to help consumers: addressing the root cause rather than the end result.

There are few issues more complex and personal than a consumer’s relationship with their money. Too many companies think they can carve out a pain point for consumers to somehow create systemic change and a better financial life for someone – they identify a consumer problem and think the solution has to be a direct-to-consumer gaming.

Whether it’s solving savings, budgeting, or investing problems, all of these solutions are well-intentioned and well-executed, but are the financial equivalent of “solving” insomnia with bedding.

I don’t mean you should ignore consumer issues, but you could help them more by focusing your view beyond what the average person deals with in their day-to-day life.

The difficulties people face in saving money can be solved by developing new banking systems. The challenges people face getting to payday can be solved by working with employers and improving their payroll solutions. The difficulties of wealth management can be eased by giving advisors better technology to help their clients.

Even better, solving business problems means you can better avoid other fintech founder pitfalls. Resizing the addressable market of a B2B solution is much less subject to delusions of grandeur. There are far fewer annoying shiny objects and “quick grow” tricks in the B2B world. Investors backing B2B fintechs tend to be more patient and reasonable in their lead and ARR expectations.

You may still find yourself releasing a consumer product, but you will have achieved the appropriate stability and scale to serve consumers effectively at that point.

In many ways, the best way to help consumers is to look beyond them.

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