#RVoSu — Lendico, Friedrich Hubel
The Real Voices of Scale-up Series.
Lendico was founded in December 2013 by the incubator and venture capitalist, Rocket Internet. The team are rethinking financing in Germany by offering companies an easy, fast and good value product.
Lendico’s mission is to enable small and medium-sized companies to realise their full potential by not having to focus on the hassle of raising funds in the traditional way. Together with ING, Lendico plans to take SME financing to the next level.
We sat down with Managing Director, Friedrich Hubel to hear about pivoting from a B2C to a B2B company, preparing the team for acquisition and building a sustainable business.
Listen to the full podcast here.
What is the biggest challenge that Lendico has faced as the company has grown?
Well, there are the typical challenges that every young company faces, for example continually challenging the concepts you’re working on and the way you do things. One of the biggest challenges specific to Lendico was the adaptation of the SME market.
We started off as a consumer marketplace but we quickly figured out that there were difficulties in some markets which did not quite fit with our concept. So we ramped up our SME efforts and moved away from consumer financing.
Eventually we had to stop offering consumer financing in order to completely switch to business financing. At that point we lost team members and a lot of knowledge because some employees who joined us at the start had come on board to support a consumer marketplace and loved doing B2C. They suddenly found themselves in a situation where they couldn’t do that anymore. That was one of the biggest challenges for us, first internally but also externally in terms of communicating the transition to our existing customers and adapting our brand identity.
How did you overcome that challenge?
Lots of communication! We had hard evidence that proved consumer financing was very challenging in the markets we were operating in. It was difficult to ignore those numbers. In some markets it worked well but in our core market (Germany), we were always facing a very fragmented banking landscape. B2B banking in Germany is highly competitive, banks compete for consumers by giving out cheap loans and use an anchor product to try and cross-sell to them. As a marketplace trying to deliver a superior product it was really hard because a lot of consumers are cost driven. If we couldn’t offer a cost competitive product we were only ever going to be able to address a small niche of the market. That was one of the difficulties and why, in the end, we made the decision to cut the consumer side of the business and focus on SME financing.
Lendico was acquired by ING DiBa in 2018. Tell us about that experience.
For us it was a really positive experience. We’ve always worked and interacted with banks, especially in Germany as it is by law necessary to do so. It was always clear to us that ING was the only bank in Germany which had a truly digital DNA. They grew as a digital bank and constantly challenged traditional banks’ approach in terms of how they structured their products and approached customers.
We quickly found that ING had the potential to be a game changer for us. We always delivered an easy and fast service for SMEs but ING has enabled us to provide better value for money. They have given us the ability to refinance loans that we give out in the way that a traditional bank can refinance in capital markets. That wasn’t possible for us before.
How did you prepare the team ahead of the acquisition?
We were always transparent about what was going on. As soon as our team saw that ING was also trying to change the game, we quickly found similarities and a common goal, so it was not that difficult to convince anyone inside that it was the right move. ING are a partner who will provide huge upside for us when we think about how we want to build the company over the next 5 years and beyond.
Lendico lends to a range of companies across multiple industries. What do the companies you lend to have in common?
A lot of our customers are businesses that have been passed through generations and are run traditionally. I believe there will be a shift in the market towards people being more accepting of a digital offering. That being said, we’re not going to wait until all of our potential customers convert to being digital innovators for SME financing.
We’ve listened very carefully to what our customers have to say and also to what the market demands. So what is the service that a typical SME in Germany really needs? Let’s say there’s a company which has 5–10 employees and he’s (the founder) out on the road the whole day working on a construction site. He doesn’t really have the time to think about how he can get his finances as it were. If we can provide him with the service so that he knows at any point in time how much access of cash or money he has to cover his bills or whatever, then he doesn’t have to worry because it’s just a click of a button away. Those are the types of customers we really want to target and who will really appreciate the value proposition we offer. There’s also a lot of customers who will require more intensive care and those customers need a different kind of product so we focus on the ones who will accept this kind of digital offering.
Other than to make money, for what reason does Lendico exist?
Well making money is not the reason why we’re doing this. The real reason why Lendico exists is to change SME financing. By enabling people to access this very simple and fast SME financing we will have a value proposition which is appealing. With an appealing value proposition comes success and with success comes a profitable business which is sustainable. If we were in the business of just making money, we’re probably in the wrong spot because we’re still investing and spending money today as we try to expand the business. It’s more about having a really good value proposition that we can get out there and if it turns out to be successful and we’re on the right track, I think that the financial success just fits in the picture at the end.
Listen to the full podcast here.
To learn more about Lendico, click here. To learn more about the Real Voices of Scale-up series, click here.
