Developing your own FinTech strategy (Part 1) - Start Up's

' A journey of a thousand miles begins with a single step.'

People are full of great ideas and yet most of these ideas never see the true light of day. They sit and fester in draws and minds, yet if we simply followed a few key steps, many of these ideas could be picked up and fostered. Whilst the article covers the broad topic of ‘developing your own FinTech strategy’; I will break the discussion down into two particular segments. This week I shall focus on steps to take when you are starting out from a simple idea. Next time we will look at some key strategies established business can take to ensure they are tech proof and retain a competitive advantage for the future.

The aim of this article is to outline those key steps and give individuals a simple road map to follow. Each step forward, is a step in the right direction along a path that will no doubt have many twist and turns. One needs to get started somewhere, and hopefully this guide will give you the confidence to do just that. As the saying goes, a journey of a thousand miles begins with a single step – so where do you start?

Define a Problem

First, you must define a problem that you seek to resolve. For illustrative purposes, you consider there will be a flood of new FinTech companies entering the market that will require KYC and on boarding of clients. You might therefore believe there is an opportunity to start a company that provides these services. New API technologies would allow you to integrate your product easily into the potential customer’s interface, resulting in a quick fix solution at a cost effective price. The key here is to think about a real world example that affects you and those around you. You don’t necessary need to be a tech expert to see that there is a need for a product, and you can outsource the expertise to develop the software; you just need to be able to define the idea and see if there is a market for it.

Research Potential Customers and Market

Next you have to define your market. For me that has often been Africa. It is important to analyse the market and think of providers that would use your product and benefit from the cost and time savings. There is enough data out there to be able to see trends. If something is working elsewhere in the world, can that idea be tweaked and adapted for the domestic market. Check out the competition both locally and internationally. You may not even need to build your own product; you may be able to franchise this. I would say that research is the key element here, as it will allow you to develop your idea from a critical perspective. Do not be afraid to use this research to challenge and change your original idea. Along the way you may encounter a problem that requires a solution and your new business idea could actually be born out of critical analysis of your original idea. This is often where the ‘lightbulb’ moment comes into play.  Also, don’t be afraid to approach businesses and say you are providing this solution for a problem you feel they have. If the feedback is positive it says quite a lot.

Business Plan.

The previous step should naturally lead you to the stage of being able to write a business plan. This is the exciting part as it collates all your ideas and research on one document in a structured and practical manner. This process is a valuable way to actually think about things that you are going to need in the first few years such as staff, marketing and the budget for all of these items.

Cash Flow Planning

As important as the business plan, is cash flow forecasting. I always suggest a 3-year forecast. This is as vital, if not more so than the business plan. A business without a cash flow is an just an ‘idea’. At this stage you are more aware of what costs might or might not be, and you are realising the cash flow numbers from an income/expenditure perspective. The aim is to achieve profit and evaluate whether there is profit to be gained. You are about to spend a lot of energy building something from an idea - if we are not going to make any money from this, is it really worth the effort? The cash flow will help you make this important decision. If you are struggling with the document and inputs, use a website like UpWork to hire a freelancer on an hourly basis to check your numbers and help you prepare the sheet.

The cash flow is the lifeblood of any business. It’s the most important document to be able to read and understand. Every decision should be made using the cash flow and every outcome looked at from a viewpoint of cost and income. For a KYC company, they will have certain upfront fixed costs and they are then able to work out how many KYC packs they need to sell before they become profitable and at what price. The exciting part is when you see the potential revenue stream in 12 months, 24 months and you can see how the business would potentially grow. It’s a very motivational way of working.

I generally tend not to invest in any companies that do not have a cash flow as the directors are unlikely to really have their fingers on the pulse of how to monetize what they are selling, or indeed when/if they are going to run out of money. I can’t really have faith that the business is in control of its finances and running out of cash is one of the biggest reasons most starts ups fail.

Raise Funds

Now we have the idea, the business plan and a detailed understanding of how we are going to monetize the business, we now proceed towards the fund raising stage. I won’t spend a lot of time covering this, but raising money through VC’s, ICO’s or Crowd funding can be a way to start outside of your usual family and friends network. What I would say is that you should have a great whitepaper and investment deck which you understand inside out. A point to note is that ICO’s raised around 3.5x what VC funding did in 2017 although, you may need or wish to incorporate an element of blockchain technology into your idea if you opt for this route.

Growing the business

Network, network, network but make sure that you are going to the right places and meeting the right people. The CEO of a listed entity is unlikely to be able to provide as much guidance as say a peer that is also involved in his or her own start-up.  Try and house your office in a Fintech incubator, socialise with other starts-ups, meet the company that provides accounting software to these start-ups, provide the KYC for them. Talk at road shows, get your message out there via Facebook, Twitter, Linkedin and other media outlets and influencers. The main thing to do is to become the “go-to” person that people think of when they have a problem that you have the solution for. For KYC providers there are literally hundreds of new Fintech companies opening globally and thus hundreds of road shows. Speak to other third party service providers such as compliance companies, lawyers, google and use Linkedin to find MLRO’s for small finance related start-ups. Make sure to immerse yourself in your field. Eat, sleep breath your industry.

Mentors and Board of Directors

The difference a good mentor and proficient board can make is huge. There are some really good mentors out there and a competent board member can open many doors.  If you can’t afford them, offer stock as this aligns their motivation. If they believe in your project, then they will be more than happy to take equity as part of the role.

When I decided that I wanted to master the business world, I had to start somewhere; we all do. If there are two things I would suggest to always keep fresh in your mind, they would be: on stressful days remind yourself that it’s the journey that ‘maketh us’, and that every step forward is a step in the right direction.

N'Gunu Tiny