For several months, I’ve been gathering information for a personal project. I wanted help digesting all the information, and I wanted holes poked in what I’ve done so far. So, I spent today in a multi-hour whiteboard session with others. I wasn’t sure what to expect, but I was excited heading into this meeting.
As it turned out, it was very helpful. It was great to get the perspectives of credible outsiders who could look at the problem and the information gathered with fresh eyes. We identified some great insights and are energized about the problem.
Today’s session reminded me of the strategy sessions I had as a start-up founder. There’s a problem to be solved, we believe it can be solved, but the solution isn’t obvious. After debate and a thoughtful exchange of ideas, a solution is formulated.
Today was a reminder that I need to do these sessions more often.
iBank? Apple Bank?
I’ve been paying close attention to Apple’s push into financial services. It’s a huge company. Financial services for consumers and small businesses is one of the few markets large enough to move the needle for a company of Apple’s size. I’ve thought that Apple becoming a financial services company makes a ton of sense. Everything is going digital, and consumers are shifting from in-person banking to digital banking. This has created an amazing opportunity for Apple that it can’t ignore. Apple’s products, such as the iPhone, are the perfect distribution network for digital banking products and services.
Apple officially announced its Apple Pay Later loan product this week. The interesting revelation is that Apple is handling key financial tasks internally and has created a separate legal entity to do so. This is a first. It’s usually partnered with other firms, such as Goldman Sachs, to handle these types of tasks. Read more here.
Banking for consumers and small businesses is overdue for disruption. Offerings from banks don’t meet the expectations of their smaller customers. The banking experience for consumers and small businesses will improve drastically over the next few years, and I can’t wait!
Velocity Matters More Than Speed
I had a debate with someone about speed of execution and its impact on entrepreneurial success. Oversimplifying, he believes that speed of execution increases founders’ chances of success. People who move fast and get a ton of stuff done will be more successful—or so he believes.
Getting stuff done matters a lot in companies of all stages. If you can’t execute, you’re dead in the water. But what you get done matters more than how fast you move. I like this analogy: Two people are rowing a boat. Imagine that Person A is rowing south toward their destination, but Person B is rowing north as fast and hard as possible. Not only does B negate A’s effort (they’re at a standstill), but B could take them in the opposite direction of where they intended to be. Ideally, partners will agree on a destination and row, in sync, in that direction. Rowing in the right direction is more important than how fast you row. You should row (a) as fast as you can (b) in the right direction.
"Velocity is different from speed. Velocity has a direction. You have to know where you’re going. Sometimes going really really fast is negative velocity, because you’re going the wrong way."
The people who have outsize success focus on velocity, not speed.
Can’t Be Unprofitable Forever
A few years back I chatted with someone at a corporation about a company it had acquired but later divested (i.e., sold) for a loss. I asked why they sold it and was told that “the business looked great on the surface, but we later realized there wasn’t a path to profitability.” I recently read something about the company they divested. It never reached profitability and has since been sold again. A few years into ownership, the most recent owners couldn’t get it to profitability either and opted to sell it for a loss.
I’m not sure what’s in store for this company, but I imagine the day of reckoning is coming. A company exists to solve a problem in a way that’s profitable and creates value for shareholders (as well as for customers). Sure, for a while, you may be investing ahead of growth, which will make the company unprofitable, but the goal should always be profitability. If a company can’t provide its product or service in a profitable manner, it’s essentially subsidizing the cost of the solution to customers, which isn’t a sustainable long-term business model.
Two Paths to Outsize Success: Hustling and Strategy
I spent time walking with a founder friend. One of the things we talked about were two paths to success that we’ve seen be successful. One was high activity spread across many paths, and the other was low activity focused on a single or limited number of paths.
The high-activity path is a hustler’s path. Hustlers are constantly working on a variety of things and doing lots of activities. This approach is highly iterative and reactive. There isn’t much deep reflection or many predefined goals at the outset. It’s more go where things take you. These folks are constantly evaluating what new paths to take based on the results of the last activity. They repeat the cycle until it ends (hopefully) in whatever the hustler defines as success.
The low-activity path is strategic. Strategists spend time deciding on a destination on the front end. Activities that align with the goal are taken on; those that don’t (even if promising) are declined. They reflect along the way to determine if the things they’re doing are having the desired results. They continually dissect failures and adjust. This approach focuses on a goal and tries to determine the best path to it.
We concluded that success can be achieved in various ways. These are just two we’ve seen up close that resulted in outsize success. In each instance, the person’s personality fit their approach. The extroverted and high-activity person we knew took the hustler’s path. The deep-thinking and reserved person took the strategic path.
Whose Customer Are They, Anyway?
A fellow investor told me about one of his better-performing portfolio companies. It’s executing well, hiring amazing people, and seeing a path for scaling if things go well. One area of uncertainty right now is the customer relationship. The company generates revenue by performing work on behalf of other companies. Translation: it doesn’t know or own the customer. The other company has a direct relationship with the customer. This investor believes that to unlock exponential growth, this portfolio company must develop a strategy to own the customer relationship.
Acquiring a direct customer can be hard and expensive for start-ups in some industries. Partnering with a larger company that has an established customer base and can funnel those customers to you is attractive in the early stages of going from zero to one. The cost to acquire them is usually low (if not zero), and the customers can be plentiful if you solve a pain point.
However, this usually isn’t a reliable long-term strategy. It can have lots of downsides. A major one is lack of feedback. You need feedback to make your product better, which you must do to achieve product–market fit—but it’s difficult to get feedback from customers you don’t know. Most companies don’t provide you with their customer contact information (email address or phone number), so it’s hard to reach out after the transaction is completed. You never really know what the customer loves or hates about your solution.
Another downside is concentration. You’re at the mercy of someone else to acquire customers, and they can make a change that severely and negatively affects your business without warning. You could see your business evaporate overnight and not be able to do anything about it. Conversely, if you’re ready to scale, the bigger company can limit your growth if it chooses to not play nice.
Customer relationships are key, and there should be a plan to have direct relationships. It’s OK to have partnerships and other go-to-market strategies, but the core strategy should be a direct relationship.
What Should We Pay Attention to in a Sea of Information?
I listened to a podcast today. It was about start-ups. One of the guests said something that stuck with me: there are no secrets in the world anymore (I’m paraphrasing). Everything is in the public domain. The question is how you find what to pay attention to.
Twitter, Facebook, YouTube, and other platforms distribute information in ways we haven’t seen historically. It’s done quickly and isn’t filtered by larger media organizations. And they empower people to share knowledge with a click or tap. The upshot? A flood of information accessible to anyone. Some has substance, and some doesn’t. It’s become harder to know what information should be taken seriously.
Access to information is important, and historically, most people haven’t had much of it. Knowledge is power, and I’m a fan of more people having it so they can make better-informed decisions. How you determine what you should and shouldn’t pay attention to is important. It’s something we’ll have to solve for in this new world of more accessible information. The solution could have major implications for how we learn and absorb information. It’s a large opportunity, and I can’t wait to see how entrepreneurs solve for this problem at scale across various platforms.
Apple Officially Announces Tap to Pay
Today Apple officially announced its Tap to Pay product, which will allow merchants to accept payment simply by tapping their iPhones. I read this was in the works and shared it a few weeks back. Today’s announcement contains more details, including that Stripe will be the first platform to offer this product to its customers, including Shopify’s app, Point of Sale.
I’ve thought for some time that Apple could become a consumer bank. Apple already has a distribution network deployed to consumers via iPhones and has been adding financial products steadily over the last few years. As I think about this more, I believe it has a broader vision. Apple will become the bank for consumers and small to midsize businesses. It’s a massive market in a less-than-cutting-edge industry. This strategy will create a bigger moat around the iPhone and other hardware products while growing a new line of business. It’s ambitious and ingenious. Can’t way to see what other products Apple releases to support this strategy.
Apple’s Latest Banking Move
I’ve shared my views on the digitization of distribution and its impact on banking. Today I read about Apple’s new service that will allow small businesses to accept payments on their iPhones. No hardware (i.e., payment terminal) will be required. Consumers will be able to tap a credit card or another iPhone against the business’s iPhone to send payment. The service hasn’t been launched as of today, but it’s coming, and it shows how Apple is inching closer to being a bank.
Helping consumers and small businesses with financial services is an enormous market—one of the few that could move the needle for a company the size of Apple. Banking is about to go through rapid change. Don’t be surprised if Apple ends up being the go-to bank for consumers and small businesses.
Early Founders Should Make Time to Get Out of the Weeds
Today I had the opportunity to participate in an event whose purpose was to give early founders candid feedback on their businesses. The founders got real-time as well as written feedback and rankings in core areas, such as vision, execution, and storytelling.
These founders have small teams, so they’re still involved in the day-to-day combat of building a company. But they spent most of today away from operations to focus on their businesses at a high level. We went over everything from go-to-market strategy to vision to hiring plans.
It was great helping these founder consider things from this perspective, and I think it was much needed by some of them. Today was a reminder of how important it is to get out of the weeds of running the business. Early founders can find themselves on a hamster wheel if they work in the business too much. They must be intentional about making time to regularly work on the business from a high level. I know this because I learned it the hard way when I was a founder.
I’m excited for these founders and can’t wait to see what the future holds for them!