Infectious

Get your credit score for free? Mint money? Get a personal loan?

 

What do all of these questions have in common? Well, I spent yesterday attending the Finovate conference finding that out. The conference has a similar format to DEMO but for the ‘financial technology’ space. Overall, 30+ companies presented for 7 minutes each. While there were more ‘features’ than companies there were some intriguing services. Interestingly, there was a void of companies in the B2B payment space and vertical payments space.

In case you're interested, here were the highlights:
-There were 3 types of companies that presented at the conference (personal finance, p2p lending and lead gen variants).
-There were several personal finance companies that have sprung up over the last year after Mint received so much publicity. Other companies in the space include Wesabe, Rudder and Green Sherpa. Basically, this space seems overly crowded at this point. Mint says they are signing up 25k users per week purely on word of mouth. Will it last without some major distribution partnership?
-The P2P lending space (Lending Club, Pertuity Direct, Prosper) is also crowded. The big news at the conference was that Prosper emerged after a six-month quiet period to register their platform with the SEC. Prosper has re-opened to borrowers in all 50 states and lenders in California. Currently, Lending Club and Pertuity Direct are the only two p2p lending platforms available to most investors throughout the United States. Prosper's model is different because, among other things, loan rates are determined by an auction among lenders.
-Lead gen models were prolific amongst this crowd. Interesting companies using this model include Mint, Credit Karma, and BillShrink. The interesting thing  is that these companies have created products that offer value to the user. They have turned the slimy lead gen model on it’s head by thinking about the user first.

The Nugget:
One of the most difficult problems amongst all of these startups continues to be distribution. In a space that isn’t viral and SEO/SEM is very difficult, startups are looking at ways to build traffic. Hence, there were several announcements of white label solutions and integrations with larger players. I doubt most of these companies will be able to build up enough traffic...fast enough...without these traffic partnerships.

Patterns of Startup Success

Over the last decade I've worked with dozens of startups and even participated at the inception of 7 of them from initial concept to funding. So, I've been meaning to capture some of my thoughts on 'patterns of startup success' as I've seen similar tactics that work across companies. Here are a list of items that I plan to write or tap entrepreneurs I've worked with to write about:

1. Have a perspective...vision makes a difference
2. Get to market quickly...that’s your market research...the product might initially be crappy...fail fast
3. The business model is critical...don’t overlook this exercise...but keep it simple
4. Know where you will get distribution, distribution, distribution
5. Marketing on the cheap...market to passionate users...build loyalty through community management
6. Hire carefully...keep it lean
7. Iterate quickly...customer development and data driven development
8. Focus initial product on instant gratification and frictionless first-time usage
9. There are always trolls...listen to your heavy users
10. Forget the 60 page business plan...develop a pitch...tell a story...10 slides...20 min long
11. Achieve key milestones that reduce risk before seeking funding

Calling the series 'Patterns of Startup Success' is a bit of a misnomer because a lot of the posts will be about missteps that led to an understanding of what works. Also, even knowing these patterns doesn't mean you won't make the same mistakes in the future. Building a startup is inherently difficult and you're bound to make mistakes but having experience hopefully reduces the chance of missteps.

I'd be interested in hearing from you if you'd like me to touch on any particular topic. I'll try my best to accommodate requests if I feel like I can do the subject justice.   

Big Company Innovation needs to Look Externally

There has been a tremendous amount written about 'How to Innovate at Big Companies' but internal development of successful web services are hard to come by. Take Yahoo! for example. Over the last decade, what was the last successful consumer service developed internally? You might say, Flickr or Yahoo! Groups but you'd be wrong. Both of these services came from acquisitions. In fact, the only internally developed service that can be considered successful in my mind is Yahoo! Answers.

This reminds me of an article about Yahoo and product innovation where Caterina Fake, co-founder of Flickr said:

“There are tons of amazing ideas in big companies, and no innovation deficit. But the obstacle to getting things built is mostly process. There is one kind of process developed for building and maintaining large-scale products… And the development processes for that are very different from what it takes to build a new product in a short amount of time.”

Caterina tried to foster the start-up process in an internal incubation lab called the Brickhouse which was recently shut down because it just didn't work. Internal innovation labs are tough because they can never really foster a meaningful lineup of entrepreneurs which I believe to be 'the' critical success factor in a start-up. Additionally, it's very difficult to provide a lot of 'skin in the game' for internal entrepreneurs. So, for the many big companies that are unable to create a culture of innovation and unable to adopt new processes, perhaps they should focus most of their innovation energy outside their four walls by fostering/investing in external development.

There are many ways to do external innovation and I'd be interested in what you've seen as successful and not so successful practices.