I remember years ago hearing the story of a start-up that wanted to be acquired by the big incumbent institutions. The founder was struggling to succeed, and felt that an easy exit through acquisition was the best way to go.
The young CEO went to the big old incumbent company and said: “Hi there. Look at my company. We have designed the next generation of you. Why don’t you buy us?”
The big incumbent went: “so, how many customers have you got?”
The CEO replied: “25,000.”
The incumbent laughed a deep laugh and said: “come back when you’ve got two million”.
A year later, the young, struggling CEO knocked on the big old incumbents’ door again. The conversation was repeated but this time the start-up had 250,000 customers. The incumbent still laughed as they had 25 million. Again, the big old incumbent told the upstart to come back when they had two million customers.
Another year passed, and a new CEO took over the incumbent firm. The new CEO could see that the firm was very stuck in its old, traditional ways and looked around the market for a way forward. She noticed that there was a bright young firm doing well out there, offering the next generation service and went to meet their CEO.
“Hello”, she said. “You seem to be doing well, offering the next generation of what we do. Can we buy you?”
The young CEO laughed a laugh that lasted a week. Eventually, he said: “not by the hair on my chinny-chin chin”.
The start-up was onboarding over 250,000 customers a month, most of them from the big old incumbent, and had already reached over three million customers. The start-up had now grown up and didn’t need the big, old incumbent anymore.
Soon after, the big old incumbent was acquired for a peanut and now no longer exists. The start-up has grown up and has taken most of their market.
I recount this story because I get the sense that most big financial firms look at the FinTech world a bit like the big old incumbent looked at the start-up. They see new, challenger banks, peer-to-peer lending firms, payments innovators, robo-advisors and think: “They are new companies with no customers, no history and no trust. Let’s just watch them. After all, if they pose any threat to our business, we can just buy them or copy them.”
The trouble with this stance is that, if the young bright thing has a half decent idea, by the time they become notable for acquisition, they don’t want to be acquired. In particular, if they are privately held, well-funded and can see a fast-track to success, why would they be interested in selling out?
Therefore, my advice to the bank CEO’s who are talking about co-creation, co-operation and collaboration: make sure that if you are working with a bright young thing that could kill you, acquire it now, whilst you can. Don’t wait until it’s too late.
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