Does the “Lean Startup” approach make sense for payments?

Does Eric Ries’ “Lean Startup” concept apply to those innovating in the payments industry? That was the central question behind the first panel of Day Two of The Innovation Projection 2013 today, as Ries himself joined a diverse group of payments players in a discussion and debate on the practicality, philosophy and future of payments innovation. Jeff Bussgang, partner at Flybridge Capital, served as moderator, and led by prompting Eric to give a basic explanation as to how his theories apply to payments. “I think we can go much faster than people think. We can get customers involved much sooner than people think. And we can ship products way before you’d usually consider them to be ready,” he said. “Let’s make some new mistakes, was kind of our attitude.” Ries went on to emphasize that the size or setting of a company – be it corporate or startup – didn’t really matter: employees need to constantly be acting as entrepreneurs to improve their products, and to push out “minimally viable products,” or MVPs. He also went on to criticize the current way companies build and project, noting that sending out forecasts and then spending only to meet those forecasts makes little sense. “The traditional ways we build companies is much closer to astrology than to science,” Ries said. Jordan then invited Mark Lavelle, SVP at PayPal and co-founder of Bill Me Later, to rebut Ries’ statements. After joking that Ries had “walked into a trap” by treating payments like other industries, Lavelle made some interesting counterpoints. “This isn’t about normal startups … this is about payments, and payments are hard,” he said. Lavelle then went on to describe the “holy grail” of the payments industry: the two-sided business model. “You have to simultaneously have a value prop for a consumer and a merchant, at the same time. They must have some catalyst to get together and transact to begin with, because they believe in that value proposition. And then there needs to be some ignition strategy, something that makes this explode and create that giant network effect that we are all in search of in the payments industry,” Lavelle noted. “What we deal with in the payments industry is a chicken and egg problem, and anyone who dares to take on the chicken and the egg problem has the chops to be in the payments business.” Bussgang then opened up the discussion for to the rest of the panel, which consisted of leading executives from a nice range of companies. Joining Ries, Lavelle and Jordan on stage were: Ken Paull, CEO of ROAM, Eric Remer, Founder and CEO of PaySimple, Scott Thompson, CEO of ShopRunner, Henry Helgeson, CEO of Merchant Warehouse, and Jacob de Geer, founder and CEO of iZettle. One of the more interesting reactions to Ries’ and Lavelle’s debate came from Thompson, who stressed the dual importance of moving to market quickly but without forgoing consumer trust. “Let me remind you of something that you already know. If you are in payments, you are in a business that involves money. Money brings with it a necessity to have trust, both on the consumer side and merchant side. Trust is a very important concept,” Thompson said. “I do know that if you build something and the consumer or the merchant cant trust that their not being served by this product, you don’t have a business. However, if you don’t go really fast in today’s world, you may as well not invest the time. So what do you have to do to maintain trust, have a fantastic experience that adds value to both sides of the network and do it very, very quickly? How fast can you go to build something that works,” Thompson asked. Paull added that he agreed with plenty of what was being said, and pointed out that innovation often pops up where you least expect it, even within larger, established businesses. “We’re unique in that we probably have about two-dozen customers in the audience, including Merchant Warehouse up here, who are doing some very innovative things with our solution. So were trying to innovate within our own product, but then we have customers here who are taking our solution and innovating further,” Paull said.
“But we’ve had to do some things that are relatively counterintuitive to how we usually do things.”
Ries ended the panel on an interesting – and perhaps controversial note – by saying that the biggest obstacle to innovation in most companies lied with an unlikely source: upper management.
Comparing management to the “immune system” of a company, Ries pointed out that management is forced to weed out so many bad ideas that it’s unfair to ask them to process the good ones as well.
That being said, he suggested that companies restructure in order to change management’s role from a sort of gatekeeper to a facilitator, giving employees the ability to innovate on their own terms. “If you want innovation in your company, look in the mirror,” Ries said. “That is the problem.”

(article by B.Carsley)


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