When building something new, founders tend to get criticized for two things: building products for themselves; and building products for people unlike themselves. Common targets of the first line of attack are, for example, the “mom-replacement” businesses. These are the ones that seem to offer largely irrelevant services that appeal to demographically tiny slivers of affluent, urban-dwelling twentysomethings who work eighty-hour weeks — otherwise known as people who are likely to be software developers. The second line of attack, that they’re building something for people unlike themselves, tends to be more common in fintech. As entrepreneurs try to build products for people in very different circumstances and with very different kinds of financial problems from their own, it is easy to criticize these founders for being clueless as to the real problems that exist for their customers.
In my view, the first criticism, while entertaining, is unimportant. After all, if the products really are silly and the problems nonexistent, the companies will fail and the talent that worked for them will be repurposed into better companies.
The second criticism — that entrepreneurs are building for people unlike themselves — represents a more serious challenge. In financial services especially, the most interesting opportunities are often to be found serving less-affluent customers. There are a host of reasons why, but perhaps the primary one is simply that technology’s primary benefit is enabling scale, and scale provides more relative value in financial services when the quanta of capital are small. If a tech founder wants to solve a big problem in financial services, consumer, small business and other markets that serve people of lesser means are among the most compelling. The challenge that some founding teams face — I know that I did in my previous company — is that they may not personally have experienced the challenges of the demographic that they’re serving. While building diversity into teams early can help tremendously, doing so might not be practical if there are only one or two of you and you don’t have the capital to make new hires.
So how can founders get it right? The standard advice here is always some variant of “listen to your customer.” That’s not wrong, but it’s not quite right, either.
I think the better advice is: acknowledge that your customers are probably better at solving their problems right now than you would be in their position. At my old startup, Prism Money, we had assumed — based on the statistics around late fees and overdraft fees — that most people were terrible at paying bills. We learned quickly that most of our customers were, in fact, exceptionally savvy.
One experience drove this lesson home especially clearly: at one point, we wanted to help our customers figure out how to prioritize which bills to pay and which ones to defer if they didn’t have enough money to cover everything by the respective due dates. It’s an impossible problem. Late fees are inconsistently enforced, billers have variable tolerance for delinquent payments before shutting off services, different customers have different priorities, and the small print legalese of payment-related disclosures is basically impossible for anyone to understand. We gave up. But before we did, we saw that our customers actually had this problem nailed; they were shockingly adept at avoiding what fees they could.
Seeing our users’ competence eclipse our own forced us to stop trying to “revolutionize” how they paid their bills, and we also recognized that we couldn’t automate away all of their stress. We lacked the ability to accomplish the former, and our customers lacked a sufficient income-to-expense ratio for the latter. We could, however, reduce the effort they expended each month, and we could massively lower their error rate. Our customers knew what they had to do and how to do it, but they were working with terribly poor tools. We gave them a better one.
I have found this experience to be highly generalizable in fintech. Financial solvency is pretty important to most people, and expensive mistakes hurt. In many ways, the less money a family has, the better they must become at managing it (notably, this cognitive overhead presents real costs at the extremes). As an entrepreneur, if you see your users acting in a way that seems completely nonsensical, you’re probably wrong. You might be right, but I’d bet that your customers are smarter than you.