It’s no secret that most startups fail. As the fintech revolution continues, plenty of newcomers will try to make their mark on the industry. Most will never catch on.
However, as an investor, customer, or entrepreneur, you may want to know what kinds of signs indicate that a fintech startup will succeed. While there are many factors to consider when evaluating the potential of a given company, the following are some of the more important signs to be on the lookout for.
Many experts who coach startups often express this counterintuitive sentiment: the company doesn’t necessarily need to have a great idea right away to be successful. Instead, they need to be flexible. Coaches look for startups run by people who are able to adapt to the changing marketplace. If they’re willing to evolve, jettisoning their original idea in favor of a better one, there’s good reason to believe they’ll also be able to make the necessary changes in response to industry shifts.
Fintech has shown that the financial services industry is especially prone to these kinds of changes. While traditional banks may have remained set in their ways for decades, new technology has disrupted the status quo. Winning companies know how to adapt. New hardware and software can render a once-valuable service obsolete in a very short period of time. Shifts in customer behavior can happen suddenly, forcing businesses to grow along with their customers. A startup that succeeds is a startup that’s flexible enough to do so.
Granted, it can be hard to determine if a startup has this quality in its early stages. If you’re able to work with the company directly as an investor, you may have the opportunity to learn if the people running it are open to change. If you’re just a potential customer, it’s not as easy to make an assessment. In those cases, all you can do is monitor the company’s growth, observe how the startup is developing, and compare this with current fintech trends. Companies that appear to be continuing on the same path, even when trends indicate that it would be smarter to adjust, are usually not the kinds of companies that thrive in this industry.
Experience with Regulations
Fintech startups face a challenge that many other young companies in other industries don’t have to contend with: navigating the tricky waters of financial regulations. Even if they offer what would theoretically be a valuable service, if they’re not able to sort through the regulations and achieve compliance, they’ll never get the opportunity to offer this service to a wide range of customers.
Therefore, when evaluating the prospects of a given startup, it’s important to look for signs that the team running the company has the know-how to overcome this obstacle. There are several ways they might be able to achieve this goal.
The first involves partnering with existing financial service providers. Many experts agree that collaboration is essential to the survival of traditional financial institutions. Luckily, when banks and startups work together, everyone benefits. The banks already have experience working through regulations. They can help the startup in this capacity.
Of course, not every fintech company will choose to partner with another financial institution. In these cases, you can study the background of the founders to determine if they’ve ever worked in the finance industry in any capacity, or if they have built other businesses that involved some degree of similar challenges. An entrepreneur who has experience in any highly regulated industry may be the type of business leader who is able to quickly understand the fintech landscape and do what it takes to adapt.
If you have access to this information, you can also find out if the company has employed anyone specifically for the purposes of helping navigate the regulations.
While the specific business goals of a startup may have to change as the services they offer evolve, the guiding principles driving what the company does should remain fairly constant.
To understand this idea, it helps to look at an example in a separate industry. Apple began strictly as a personal computer company. While Apple still creates computers, it also sells a wide range of other consumer electronics. The products and services Apple offers have changed with the times. But the company’s values haven’t. They still believe in offering products with a friendly design, intuitive interface, and features that give their customers the freedom to express themselves.
Startups in any industry, including fintech, benefit from this trait. Again, the exact products or services they offer are likely to change as the company develops. Their essential reasons for offering these products or services, however, shouldn’t.
None of these traits guarantees success. Again, there are many factors involved, and in business (just as in life), there are no guarantees. But you can be sure that no fintech startup can succeed without these qualities.