How to scale your fintech startup
Date: 9 September 2021
We’ve analyzed the current state of the financial technology startup industry. Here are some tips and tricks to navigate it — while still keeping your goals trained for the long term.
To the vast majority of startups, direct profit stands secondary to growth even after their admittance into the fabled Unicorn Club or on the verge of a widely expected IPO. Upward growth metrics inform how fast and how consistently — or explosively — a startup is establishing itself as a player in the business, and are taken as a valuable sign of how much potential startups hold, especially to investors.
While recent times were chaotic and the dust is still settling, as far as doomsday scenarios go, fintech investment is doing pretty well. The numbers went up: In 2020, Series A, B, and C rounds had increases of 12%, 21%, and 69% YoY respectively, as did the global number of fintech startups, which doubled over the year. The fintech market is ripe, and the new emerging leaders all have the same in common: agile, efficient, forward-looking scaling.
Scaling, however, comes with a lot of inherent challenges that demand the right answers. For growth-driven startups, regardless of industry sector or specialty, some tried and tested guidelines can be followed to enable steady scaling — and with it, expand their clientele, attract more capital, repeat.
Let’s have a look at what those guidelines are and how they apply to fintech startups in particular.
Know your funding and where to expect it from
A second glance at those Series rounds’ percentages reveals how VC investment had a lot more appetite for established startups than newcomers in 2020. Although exaggerated by a risk-ridden year, this pattern predates COVID in fintech — an industry where VCs typically want tangible proof of your development and growth before signing any checks.
Your startup’s development stage somewhat defines where funding originates from, but as a rule of thumb, the more you can diversify your funding, the better. Early-stage fintech startups lacking a robust Seed/Angel round should consider public financings like grants or accelerator programs. Later-stage startups might delay their IPOs in favor of mega-rounds, as they’ve been doing for the past decade to reduce their dependence on groundbreaking IPOs as the main strategy to scale.
Growth demands resources. A lot of resources
Scaling isn’t a side gig. It consumes an outstanding — and often surprising — amount of not just funding, but also man-hours, calendar days, and patience.
In fintech, great scaling is best achieved by carefully planning your budget strategy, funding solutions, necessary infrastructure, new potential partners and services, and a backup plan. Ideally, it should take the undivided attention of some of your best professionals, including a great HR department working full steam to find, vet, and hire new talent at every possible curve.
Balance efforts between acquisition and retention
Historically, growth for fintech startups has been synonymous with customer acquisition. But in an industry where acquiring new customers might cost up to twenty times as much as retaining existing ones, founders are heavily incentivized to focus on their early adopters to scale without overdependence on funding.
There are various ways your existing users can create extra value to compound your growth metrics. Personalized products and services, for example, entice users to stay more time on your platform, thus generating valuable customer data. Motivating your clientele with innovations catered to their needs, loyalty-based programs, and portfolio expansion is a powerful scaling tool that shouldn’t be ignored.
Future-proof your infrastructure
Patching up stack tech, migrating databases to the cloud, training employees into new systems — those are expensive, time-consuming activities that no founder wants to deal with repeatedly. So don’t!
Custom software companies are your biggest ally here. If you’re considering going into scaling mode, chances are you’ll be asking around for quotes, products, and services offered. A great provider must present ways to set up your solution that surpasses even your best case scenario projections, without overburdening your startup with unnecessary costs.
Embrace automation as much as possible
Artificial intelligence has come a long way to enable all sorts of cost savings for savvy startups. From natural language processing chatbots to big data algorithms, automation and the technologies that enable it are paramount to optimize your resource use.
From an operational standpoint, good CRM software is a major first step towards optimizing automation. Their in-house solutions can be paired with third-party integrations to automate small tasks, data management, marketing campaigns, and more, with every tiny improvement piling up into big, tangible results.
Invest in security. Then invest more
This is arguably the only area where operational cost savings should be leveraged very, very carefully — especially in fintech and regardless of your product. Customer trust is a key asset for any fintech startup, as is the observance of all security, compliance, and regulation policies state actors enforce upon companies, and going cheap on those often leads to wanton disaster.
Plus, you don’t have to. Security measures in fintech can be easily marketable as your company’s strong point, and as such, considered an investment instead of an expense. Despite being a necessary step to scale, robust safety protocols make it easier by lending confidence to your business and attracting more clients and partners like payment providers to your platform.
Nowhere to go but up
Scaling a startup might feel like an exercise in divination. It involves a lot of projections that may or may not come to pass, and navigating those on your way to the top is understandably scary.
But no one gets to think about scaling without having reached a solid foundation ahead of it. Your idea has already proven itself: now it just needs to prove itself a bit more.
Yes, you’ll need to think about how you expect your business model to look in the future. Attract capable leadership to your ranks. Look beyond your market — internationally, even — and expand your suite of products.
Isn’t that the raison d’être of any who dare to choose an entrepreneur’s life?
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