Let’s get one thing clear before we begin. While I’ve lived and breathed the startup world since founding BodeTree in 2010, I’m not your typical startup founder. First of all, I don’t live in the Bay Area, or New York, or any other hub of excitement. I grew up in the sprawling metropolis of Phoenix, Arizona and now live in the Mile High (in more ways than one) city of Denver. Up until recently I always viewed this as a weakness. After all, all of the hip, wildly intelligent, and dynamic entrepreneurs on the coasts must know something that i don’t, right?
I’m beginning to find, however, that isn’t exactly the case. In the rush to prove how disruptive and innovative they are, many entrepreneurs are inadvertently conforming around common assumptions and, as a result, missing a huge opportunity. I’ve written in the past about my love/hate relationship with business books, and I’m embarrassed to admit that I’ve yet to shake my addiction. My latest foray into the land of business nirvana was Malcolm Gladwell’s “David and Goliath,” and while we may be swiftly approaching “peak Gladwell,” I found David and Goliath to be almost perfectly tailored to what I’ve been seeing in the industry recently.
When my co-founder and I started BodeTree nearly four years ago, we had relatively humble goals. We simply wanted to help small business find success doing what they loved. We knew firsthand that business owners needed a better way to understand what was going on with their financials and make the right decisions. The alternatives were too complicated and too expensive for most people and more often than not, they simply did without. So, we set out to change that. As we grew and started to see success, people from all corners of the globe started to reach out to ask about who were disrupting, and how they thought we were the next billion dollar idea. It struck us as odd, because we never really thought of ourselves as disruptive. We were simply filling a need that we saw in the marketplace. Still, the concept of disruption stuck in my mind and I committed myself to exploring it further. When we branched out into the world of small business funding late last year, we found ourselves in the thick of the conversation yet again.
You see, there’s a huge problem with the way small businesses access capital. It’s an outdated and cumbersome process, and as a result, a lot of really smart entrepreneurs and companies like OnDeck, Kabbage, and FundWell have jumped into the space trying to, you guessed it, disrupt the status quo. They focus on supplying capital quickly and easily to businesses that need it in a way that traditional banks currently do not, and they do an excellent job in their niche. The interesting thing is that, in trying to be disruptive, the innovative players in the space are missing the underlying opportunity. I think that the fundamental flaw in their approach is the same as described in Gladwell’s David & Goliath. Gladwell’s argument boils down to the fact that David wasn’t really the underdog in the classic story. Instead of being a weak shepherd boy who didn’t stand a chance against a literal giant, he was in fact the ancient equivalent of a modern-day sniper, wielding an extremely accurate and devastating weapon in his simple sling. Goliath, similarly, wasn’t the unstoppable giant that we’ve come to expect. Instead, he was heavy infantry, weighed down by more than a hundred pounds of bronze armor and likely suffering from a debilitating disorder known as acromegaly, which causes extreme growth and even worse vision. David, unencumbered by armor, equipped with a devastating long-distance weapon, and facing a near-sighted and slow-moving enemy, clearly had the upper hand. Today’s disruptors view themselves as the traditional David, fighting against an entrenched colossus. However, the reality is that the powerful and strong are not always what they seem.
I am confident that these modern-day Davids will have no problem out-innovating and out-maneuvering the traditional banks in the immediate-term. However, as they begin to revel in their near-term success, it will become painfully clear as to why their Goliath was so easy to slay. You see, the source of the bank’s perceived power is the very thing that made them so easy to defeat: They’re slow-moving, risk-averse, and at least a decade behind in terms of technology. They have to be. The combination of the regulatory, logistical, and financial pressure that they face forces their hand. As the modern-day Davids move into the space and begin to expand beyond their niche of tech-savvy, high-risk clients, they’ll find themselves subjected to the same problems that caused the banks to become so lethargic in the first place. Faced with daunting challenges like risk management, regulation, and unsophisticated clients, the Davids will have to revert to some of the low-tech, human-centric strategies used by banks.
Gladwell asks an important question: When we see giants in our lives, why do we automatically assume that the battle is theirs for the winning? At BodeTree, we asked ourselves that very question before jumping into the funding space. That’s why we approached the challenge differently from the onset. Instead of following the herd and trying to disrupt the banks, we realized that banks are the underdog in terms of technology, flexibility, customer relationships. We focused our efforts on helping them overcome their Goliaths: the rising onslaught of newcomers and their apathetic-at-best customer base. We designed our system to fit into their existing process, leveraging their immense capital reserves and national footprint to help deliver capital more efficiently and more affordably than the disruptors. We let the banks thrive in the areas where they’re strong- capital, compliance, and geographic footprint - while overcoming their primary weaknesses, namely lack of positive customer engagement and inefficient processes.
It’s an important lesson that applies to both our business and personal lives. Too often we find ourselves setting out on a course that was determined by preconceived notions. It’s all too easy to approach problems traditionally, rather than digging deeper to reveal the hidden truths and advantages that exist just beneath the surface. That’s why our approach has been successful so far. The modern-day Davids are creating the pressure for our banking Goliaths to be more nimble, innovative, and flexible. We’re simply providing the tools and resources to transform the slow, lumbering, and technologically outmatched giants into the powerhouses that they should be.