Partner, Build or Ignore

Yesterday, I was on a panel in Chicago on Fin Tech. We were chatting about startups working with corporations.  I had a bit of a different perspective that was probably a bit contrary to the mainstream.  I guess that is why we are independent venture capitalists.

When it comes to big corporations like banks, there are all kinds of problems that can come up.  They are similar to working with any big company.  Banks can wear you down.  Banks can try to dominate you.  Banks can overwhelm you.  This goes for any big company in finance. Insurance companies, exchanges, and any other major company will use similar tactics when working with startups.

The thing is, they all want innovation.  They love the idea of innovation.  They just are really clumsy at incorporating it.

There are plenty of accelerators and efforts set up by companies to try and streamline the adoption of innovation.  Startups flock to them.  I don’t think that is necessarily bad but I’d go in with my eyes open.  There are some certainties when you try to sell into a majordomo corporation.   One issue that can be a problem for startups is that if they contract with one big company, you run the risk of pigeonholing your business.  That limits your upside.

You can make a decent living building little one-off companies and selling into big corps if you really understand the market and what you are doing.  But, you won’t build a billion-dollar firm.  If you choose that path, do not ever think about pitching institutional venture firms.  Friends, family, and angels are your source of capital.

Here are a few rules about selling into big companies:

Rule 1:  Find a champion inside the company that has the credibility to shepherd you through the process.

Rule 2:  Do not pencil sell a corporation.  By this, I mean showing them a spreadsheet of how much money they will save by using your service.  If it’s only about the money, they don’t need you and you are a commodity.

Rule 3:  If you can’t articulate passionately why you do what you do, learn.  Give the champion the words to use to bring you up the chain of command. This is your company’s center.  The true calling.  It is NOT how you do what you do.

Rule 4:  Specifically have a target market in mind.  Narrow target market.  I have spoken with banks that said, “If the startup has $10MM in top-line I will chat with them but if they don’t forget it.”  Think of the entire market as a piece of paper.  Dominate one small corner of the piece of paper.  Then build and dominate more.

There are other tricks of the trade to selling to big companies. Too many to list in one blog.

Sometimes, you run into a different sort of issue.  Suppose you have a brand new core banking code.  It’s way better than FIS, FISERV and John Henry.  Banks are still going to be reticent to buy it because when a government regulator shows up, they will ask the bank what they are using.  If the bank is using one of the regular codes, no problems.  If it’s a new one that is unproven they are likely to spend a lot of time snooping around.  No big company wants a government regulator hanging around spending a lot of time looking under the hood.

I like the idea of ignoring them.

Ignoring them allows you to create your own market.  You have a better potential of building a big blow out company as well.

The thing is, sometimes it is impossible to sell to them. Instead, make em hurt. If you start to get into the cash flows of the big institutional player to the point where it hurts, they will figure out a way to make it worth your while to be bought by them.  It might take some time.  They might try to use regulatory capture against you or put up other barriers.  But, if you have built a great product and are delighting customers, especially taking their customers away or at least diverting some of their attention, they will knock on your door.  They you make em pay for ignoring you in the first place and ring the cash register.