In the Summer of 2020, my INSEAD friend, Tingting, and I joined the Summer Start-Up Tour (SSUP) by digital@INSEAD and investigated on how corporates and start-ups collaborate. This article covers the learning from the start-up side, and the next one will cover the corporate side. We interviewed firms that served the financial services industry across France, Germany, the Netherlands, the UK, and Austria, and we ask them a few key questions:
- How do you sell to financial services firms?
- What is the difference between selling to financial services firms and other firms?
- How do you start a partnership with a firm that is much bigger?
- What are the key challenges and learnings?
Here are 5 learnings that we learned!
Lesson 1. Clearly target the customer segment and the business problem
All of the start-ups that we talk to have clear targets of what kind of clients they are looking for and what type of business problem they could help solve. In general, the segments could be divided into four big categories:
To select a segment that fits the start-up product offering, start-ups should have client discussions and product-trialsearly in the product development phase to ensure a good product-market fit.
“The common mistake is to use innovation as a buzzword but not thinking about how the solution is useful for the clients.”one of the FinTech start-up interviewees
Although start-ups understand banking or corporate clients are lucrative with its long-term partnership and significant deal value, the competition is tough and challenging for most financial services start-ups (FinTechs). It becomes even more critical when the financial services industry is currently focusing on cost reduction over the entire operations cycle. A careful examination and a clear demonstration of the business value would be critical for start-ups to acquire banks and other large organizations as clients.
“Some ventures and start-ups scale their solutions with a wrong sequence: funding, technology, and customer at the end. This sequence would not help validate the business case and often end up in too many iterations burning the funding.”An experienced venture builder shared the view about the importance of engagement with potential clients to test out the product-market fit since the beginning
Lesson 2. Intermediaries between corporates and start-up can add value by matching the demand and supply of innovations
Acquiring large corporations as clients is not an easy task for start-ups, and as the start-ups’ businesses grow, the method they use to reach the corporates change. We found a few ways that start-ups use to sell to corporates for the first time. It is also important not to rely on only one of these methods, but to utilise as many channels as possible.
This is common for the start-ups’ first business clients. They utilised the connections of their investors or their friends and families’. A referral dramatically helps to get a start-up into the door of the discussion, and then it is up to the start-up to prove their value and seal the deal.
When the start-up offerings have low commitment and directed towards specific team, start-ups typically opt to go to the targeted users directly. Low commitment means that the offering doesn’t cost a lot of money, does not require a lot of integration, and could be terminated easily.
A good example of this is a start-up that provides recruitment software. Instead of going after the whole corporate, it made more sense to start with a smaller subsidiary of a corporate that are interested to try out the offering, and then scaled the offering to other subsidiaries or organisations.
When used appropriately, cold-calling people in LinkedIn could work well. A start-up that we interviewed whose main clients are the data and security team in a bank noted that they approach new clients on LinkedIn based on their positions, and it yields a relatively high success rate compared to their other channel.
An intermediary can sometimes be more effective compared with the traditional inbound (whitepaper access, events, newsletters) and outbound sales (LinkedIn connect, sales navigators, cold call, cold emails) approach. This intermediary could be in the form of an external firm such as 27Pilots and Stryber, or internal team such as innovation labs or venture teams.
For example, an intermediary that connects big banks and start-ups could help start the conversation with their expertise in banking. This is even more apparent when the intermediary has previous engagement with the bank’s existing projects, so they are aware of the bank’s infrastructure, technical policies and business needs. It also creates a win-win situation such as re-sell opportunities for the intermediary, which are often consulting partners or implementation partners for the start-up and banks.
In some other cases, the intermediary acts as a “broker” by consolidating a menu-like catalogue of start-up solutions, which allows banks and other financial institutions to have structured information about the innovation market.
In our discussions, ventures or innovation team in corporates were actually similar to a venture client model. The ventures teams’ role is to understand business problems that the organisation are facing, search the start-up world for solutions, drive pilot projects, and scale the partnership when it’s successful.
Start-ups have noted that going in to a company through their ventures team is preferable and could expedite the process of discussion. One of the start-ups we interview also noted specifically that it is much more effective when the Ventures team has a lot of relationship in the organisation and are not people who are new to the organisation. Without those relationships, it could be hard for the Ventures team to push forward pilot projects or initiatives within the organisation.
Lesson 3. Stand out with the start-up’s core expertise
From the start-ups’ interview, we could classify the start-ups in the financial services into two categories: those that touches core banking business and those that impact non-core business functions, such as human resources and finance operations.
No matter which category, the start-ups must prove their core competencies with specialized knowledge in either banking product or functional expertise. Startups who impact non-core business functions typically target across industries, not only financial services firms. They mentioned that working with financial services firms are similar to other sectors, and there are no stark differences other than minor company-to-company differences. 2 examples for non-core business functions:
- Recruitee works typically with the recruiters of the company, and all recruiters typically have similar issues, no matter the industry.
- Bynder works typically with the marketers of the company. Although marketers are different from recruiters, all marketers share similar issues.
On the other hand, start-ups that impact core business functions typically specialise in the financial services industry, and they need specialised banking knowledge. A good example is a start-up that provides a core-banking platform as a service. As they work directly with business managers and senior-level bank executives, it is important that they are experts on topics such as bank regulations, operations, and risk management. Without a strong knowledge of those and the ability to convey how they comply with governance requirements, they would not be able to sell their services to financial services firms.
Lesson 4. Start with smaller businesses to build trust
The typical partnership models between start-ups and banks often start with the “first foot in the door” through pilot projects with innovation labs. Reference projects and other validations are also crucial for start-ups to gain credibility and trust to start a partnership with large financial institutions. As the industry players are well connected to each other, word of mouth could play a significant role.
Lesson 5. Be prepared to handle interface with legacy applications
Almost all start-ups that we interviewed need to handle some interfaces with the client’s legacy applications. A great example is a start-up that provides a cloud-based core banking platform, where they need to interface their modular solutions and APIs with different parts of the bank’s operations. Thus, they require expert knowledge and experience working with legacy systems to ensure the solution implementation runs smoothly.
When a start-up sells anything to corporates, they should take note of any legacy application the client has and wants to integrate with the solution and come prepared. It is better to discuss and set expectations regarding this as early as possible in the process.
If you want to learn more about start-up & corporate collaboration and entrepreneurship visit the SSUP website with blogs and articles from the teams that participated in the summer of 2020.