More fun being a dealer than an addict
Lessons from the street
Yesterday, I spoke to some guys building a new financial product — an up-to-date alternative to a product that hasn’t innovated for years. A product that will transform the existing industry.
The product has a great UI, many features, and I’m sure that consumers will like it. If it delivers half of what it claims, great times are ahead.
Few products live in a vacuum. Most rely on a network of suppliers and associated services. This product is no different. Running a financial platform necessarily involves connections to other systems — banks, card schemes and so on. The ‘current buzz-word’ for this old concept is APIs.
Yet, with dependence on APIs comes dependence on the API supplier.
This financial services company has total dependency.
Their supplier is providing virtually all of the back end systems, but more than that, will be holding all customer data and controlling the business processes behind them. The supplier is issuing the necessary approvals, and even the ‘account number’ to the customer.
There is no way that the startup gets any control of business processes, or even insight. There is no way to change supplier without involving the customer. There is no way to negotiate on costs for the future.
And, most importantly, there’s no way to change a process to stay agile.
The startup is building a front-end for someone else. They will be100% dependent. Just like an addict. Hoping to fuel their habit with VC money.
Contrast this with the Mobile Virtual Network Operator model that I pioneered nearly 15 years ago.
Here, we also relied heavily on 3rd parties — we had no spectrum, and were begging to buy airtime from a carrier. We had deep integration — into IT systems, into call processing systems — into SMS and IP connections. Even into the security services.
Yet, our structure was set up so we were not dependent.
At any point we could move our customers from one airtime provider to another.
It took more up-front work. Invisible work. Back-end work. Boring stuff. It probably cost us a month or two, it probably cost us a few hundred thousand in investment. We issued SIM cards ourselves, we issued phone numbers, we controlled even the data that went to the phone book.
But, when we reached scale, we could reach out and negotiate with our suppliers. They couldn’t cut us off. We could move. We could use two networks, and buy from where we got the best deal.
I could take my 10 million euro per month purchasing power, and take it to the competitor.
Actually, I never did, but simply being able to kept everyone honest.
Our investment was rewarded well. The better negotiating position yielded a better financial performance, but more importantly, we had more buyers when we wished to exit
We could simply pack our customers up , and take them somewhere else. They were an asset, a valuable asset for someone else.
I could deal.
It’s a lot more fun being a dealer than an addict.
