There is a crack in technology sales that some entrepreneurs miss, leading to startup failure. Unfortunately, venture capitalists can testify that there is a huge difference selling to early adopters and the majority of customers.
The crack in technology sales? For one, you need to sell. A lot. Endless product development will kill your business. Secondly, don’t try to cross the chasm before you sold enough with early adopters.
So, here’s a story I like to tell you about a brilliant product. Truly scalable on a global basis targeting one of the largest commodity markets in the world. The currency exchange market.
A truly scalable and brilliant financial services solution is born
Three years ago, I sat impressed listening to a fundraising pitch by a team of experienced finance professionals, turned entrepreneurs. They had developed a currency exchange process automation product for transaction intense businesses.
I thought it was a brilliant idea, and still do. From previous experiences I knew that this was a very manual process. I had quite a loot of currency exchange process exposure. In my previous career I have worked as a CFO with a multinational company and as a Head of Products at a major commercial bank.
The startup Chief Technology Officer came from the travelling industry. He had been the project manager for a similar global but proprietary currency exchange project for his employer. One of the world’s largest wholesale provider of hotel beds for companies like Booking.com and Hotels.com.
Currency exposure is a real problem for low margin high volume businesses. Huge number of beds are booked every hour but delivered weeks and sometimes months later. The currency exposure is large and, as often, managed with price mark-ups that limits the wholesale provider’s price strategy options.
A team of finance executives, including this startup CTO, had been assigned to re-build the currency exchange process, ground up. They targeted to automatically process and hedge their currency exposure on a daily basis with a partner bank.
The cost was much lower than the sum of all price market ups. The difference was used to ramp up gross margins in some countries while reducing prices in other markets.
The startup idea that needed funding to scale their technology sales
The startup idea this team was pitching was born out of the completion of this proprietary currency exchange system. This fintech startup had now developed their own currency exchange platform, scalable to third party customers.
Their platform was ready for launch and hence the pitch to attract investor money to help scale their business.
On one end they planned to sign with commercial banks that could provide currency exchange products. On the other end they planned to sign with multinational businesses with currency exposure. They themselves would operate the intermediary platform.
The founder’s ambition was to target high-volume online retailers but also industrial multinationals. These types of companies have huge amounts of international transactions.
The team had two other co-founders as well, one being the ‘CEO’ of the small team, the other the salesperson. Having developed their financial services platform, they were now gearing up for technology sales.
Their sales pitch was directed to the heads of treasury operations at multinationals, arguing about efficiency improvement potentials.
The challenges started to grow – this great product was not well received
The A-round fundraising closed successfully with $4 million raised. The product was brilliant and truly scalable on a global basis. Working on the investor side, I was as happy as everyone else.
Within industrial multinationals treasury executives barely know about currency exposures until subsidiary finance controllers ask for hedging.
The situation within most banks is not much better with legacy FX processes and systems that are still very manual: Selling and settling FX hedges.
This startup could automatically trace entries in customers accounting ledgers. They would find, aggregate and net their currency exposures in real time. Banks could automatically bid to hedge net currency exposures.
Soon after fundraising, however, a first set of problems started to materialize:
- The treasury heads of the multinationals were not keen to improve their efficiency with currency hedge automation. It was seen as a threat to their department. The number of direct reporting employees was very likely to be reduced. Furthermore, manual hedging was carried out with phone calls with bank ‘colleague’s’. Automation was seen as something techy whereas these professionals, financially skilled, was foremost personal relationship individuals.
- Banks was not keen either. Partly for the same reason viewing technology automation as a threat to internal processes and “professional skills”.
I participated in the discussions with the founders on how to solve the dilemma. It certainly helped having previously worked as a CFO myself, and responsible for products within a major commercial bank.
This is what we together came up with: With accounting ledger automation tracking, we argued that we could find much more hedging exposures and volumes than waiting for subsidiary controllers to call for individual hedges.
Treasury heads seem to become a bit moer optimistic. Banks bought in to the arguments and started to sign up as hedging counterparts.
The challenges kept growing – technology sales were not the strength of these founders
Having convinced product owners, treasury’s and FX-bankers, sales still did not fly. There were no increased sales in sight.
Time went by. The founder’s remained optimistic and argued with investors that it was a matter of time.
Also, adjustments had to be made to the product as the founder’s learned more from their handful of friendly early adopter customers.
Here was the second set of challenges: One of the strengths at the fundraising pitch was the ability to prove that the company had already attracted a handful of customers. A handful of early adopters. A proof of concept.
The problem though was that only one very small company had actually tested the new currency netting platform. The other where signed but not yet implemented.
From the investor side we argued to focus on selling to more early adopters and spend less time on product development.
There was a discussion to invest time and effort in selective marketing to spread the word, half-hearted with little effect.
Additionally, we argued that sales cycles take time, in particular in disruptive technology sales. We wanted the small team to work on their customer relationship journey’s.
In hindsight the product was and is still brilliant, but the team seems not to focus on marketing and sales. At a lunch, one of the investor’s have told me that the small team is run like a large corp with internal meetings and little time is spent on actual selling.
Unfortunately, this is not unusual. A brilliant truly scalable product but a team that seems to believe that customers will come themselves because of the brilliance of the offering.
Disruptive technology sales does not work that way.
Read more how to grow with early sales.
Read more about how to grow beyond early adopters.
The learning on how to sell, and increase sales, with disruptive technology
With disruptive technology sales it’s more obvious than in other businesses that sales cycles are long. But also, that the majority of customers will be sceptic.
Technology sales like this needs to focus on early adopters. They are the likeminded friends. They dare to test new solutions and they will become needed reference cases before crossing the chasm targeting enterprise customers.
Recognizing that some of your early adopter customers are long-term personal friends is also important. One needs to attract other customers as well to increase sales. Introducing a truly disruptive technology and process in the financial services industry probably requires at least $15 – 20 million in early adopter sales.
Geoffrey More wrote a book 30 years ago, in 1991, Crossing the Chasm, about the phenomena. Much has happened since, but the basics still apply.
Experienced serial-entrepreneurs and many of us that work with venture capital investors can testify that there is a lot of really good products that have not taken off.
In academia, the technology life cycle curve looks perfect, whereas in real life there is crack, a chasm, to cross. This currency technology startup had their minimum viable product but seems to believe that more product development is the key to product market fit.
You learn about customers true pain points while selling and delivering to paying early adopters. Increase sales with early adopters and you will eventually reach product market fit. That’s the time when you can increase sales with the majority of customers, on the other side of the chasm.
This particular financial services technology startup is still around, end of 2020. Investors made another equity contribution in late 2019. Sales however remain less than $700k, of which $500k is a non-cash flow P&L accounting effect from software development expenses accounted on the balance sheet.
Cashflow is deeply negative and sales remain less than $200.000 per year. Unfortunately, I do not predict much change with team and focus.
I like their offering. They address a true pain point of manually data-tracking and processing currency exposures and hedging. There offering is truly scalable. It’s one of the worlds largest commodity market, the currency exchange market.
The founders seem to have three options left, in my opinion:
- Sell the technology – emotional loss but likely to recover all or most of the funds invested.
- Stop product development, re-focus on a structured early adopter sales process – a funding and founding team challenge as time passes.
The team has a fantastic offering, but it seems the team have yet not fully understood the need to sell. Something investors encounter too often.
I sincerely whish the team the best of luck. The last chapter is yet to be written.
The purpose of the story is to serve as a learning for other entrepreneurs. Focus on early adopters. Spend time on sales and learn how to execute sales, building relevance, trust, urgency and action.
One can easily develop a product to death, literally, unless one do not focus to increase sales. Not least in the business of disruptive technology sales.