Upstarts as a category are generally those who, for one reason or another, decide to leave their original company and start up something new. These new companies usually have one of two attributes. Either they are relatively well known in the industry they are emulating, or the company was one of the first to market a given technology. Both of these are strong points in selecting a startup and hiring employees.
In terms of technology, upstarts tend to copy successful technology from one area or market to another. For example, there are a number of upstarts that have invented products that eventually get made by larger companies. The new upstarts may do an excellent job of marketing their products and services, so the product-market fit may be great. However, many startups fail shortly after launching because the product or service is not marketable. There’s nothing wrong with that if you are investing money in the startup, but you must be careful to not select based solely on profitability.
There are also a few large financial upsets that often discourage startups, especially if the customer experience isn’t particularly good. Examples of this include large financial transactions like leveraged buyouts (LBOs), large acquisitions, and failures to retain key employees. Often, large financial upsets can cause a large customer inconvenience and may cause a company to fail. Although these are bad things, you must consider all these things in your portfolio when evaluating the risk/reward potential of your prospective startup.
One other common area where upstarts tend to come from is the realm of internet technology. Internet technologies, including e-commerce, have been a huge part of the growth in consumer spending over the last decade or so, and a startup that looks to provide financial services on the internet may be well positioned for success given current trends. There are several opportunities to provide financial services over the internet today, including investment in affiliate marketing, search engine optimization, or website development.
In terms of a startup’s target market, typically, there are two factors that will have a significant impact: either the upstart’s business model has a clear strategy for targeting customers (and the benefits that customers gain from using the service) or the upstart has gained social approval by creating a positive image. If the upstart has clearly outlined a plan for targeting customers, this can be seen as a very strong endorsement of the services. On the flip side, if the business model has not been built around a clear strategy for targeting customers, then the upstart may be making a mistake. In this case, it may be time for the upstart to either rebuild its strategy or find a new clientele.
One of the reasons why the startup movement is particularly interesting is that the types of services offered by fintech startups are typically very similar to those offered by established banks, credit card companies, and online lending institutions. Therefore, attracting venture capital and gaining large financial backing can be much easier for these types of businesses than they are for smaller businesses that need to obtain traditional financing. However, with a large investment capital, there are also some potential pitfalls to the upswing. Usually a large financial services upstart will face significant barriers to entry because it requires access to resources that were previously difficult to acquire.