The 5 biggest mistakes made by fintech founders

Missing niches, wrong assumptions and wanting too much too quickly – these are mistakes that often cause young startups to fail. What can fintech founders learn from this?

Actually, the headline is a little misleading. Because it’s hard to really tell what big mistakes Founders of fintechs do. Those who do things fundamentally wrong don’t make the headlines in the first place. These are not companies that bring in external development perspectives – they are companies that you never hear about again. But: if you get the following things wrong, you will end up with no more business. It is explicitly about fintech companies; however, some of the pitfalls are general in nature and apply to most or all of the digital industries.

Anyone who does not focus on a sufficiently clear niche from the start will lose. This is the basics of business administration. Of course, pitch decks look better at first glance when founders identify a ten times larger market as their target. But if you try to address all potential customers right from the start, you are wasting energy and resources.

Take the retail banking market as an example, which has been fairly saturated for a number of years. Anyone who does not have a clear USP for a clear niche is burning money and has to withdraw from the market after a short time. Without such a niche, the number of users will not grow as you need it. Your company then quickly fights not only with all other start-ups and scale-ups for the same customers, but also with traditional banks. And when in doubt, all other sides are even better financed than you.

2. Assume that fintech is like other industries

Do you think a fintech is like any other digital company? Because it is not. At least 50 percent of your resources – especially in the initial phase – will flow into the areas of law, licensing and regulation in order to keep up with AML, KYC and Co. Logically, this has a major impact on the go-to-market strategy and clearly on growth. This applies, for example, if you make the highly regulated onboarding process inefficient and thus create a high level of churn.

Fintechs always strike a balance between efficiency and customer friendliness on the one hand and regulation and compliance on the other. The really successful companies manage this balancing act. A tip: think about regulation and legal issues right from the start and plan conservatively. It always costs more money and always takes longer than you think.

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3. Lack of market validation

You need to validate your market as soon as possible. This is closely related to finding a niche. Make sure you are really sure before you go out of your way. Don’t hope that there is a user base waiting for you – be well prepared and know the target groups, market size and volume exactly. Realism and a solid factual base are important, otherwise the nasty surprise will come quickly.

Of course you want to bring “your” baby through on your own. However, in the first few years it is rarely advisable to build everything from scratch, regardless of whether it is core solutions, banking partnerships, AML and KYC technologies or back office software. Instead, you should find out what things you really need to keep in the company. First and foremost, this is your business-critical intellectual property.

After that, you can outsource things to specialized partners who just do better because they focus all of their resources on improving their technology one way or another. With a clear focus, you can invest significantly more in your specialty than you ever could – be it in cybersecurity, in clever HR tools or in legal expertise. Which brings us back to the niches.

Don’t let your team grow too fast before you’ve really validated your market. It takes time and resources to set it up, employees have to be hired, brought on board, managed and, yes, pampered with snacks and toys. All important things and possible early if you look at today’s financing rounds. However, rapid team growth is also an unnecessary effort while you are first testing whether your idea works at all.

Above all, it is important to have a core team of engineers. As soon as you have reached a certain milestone – usually marketability – you can start thinking about hiring more employees. From this point on you will know what you are looking for and where you want to go.

The fintech industry is tough – but one that is worthwhile. Many companies are successfully fighting for a bigger piece of the pie. The points described should accompany you on this path. Concentrate on your niche, on your core competencies and on what is really necessary: ​​on the validation of your market and your partners, the right employees: inside and on regulation. Then nothing stands in the way of your success.

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