Culture Eats Strategy For Breakfast | Five Insights From Our Fireside Chat With Nigel Morris & Yusuf Özdalga, QED Investors

Last week, Fidel API was delighted to welcome QED Investors’ Co-Founder and Managing Partner Nigel Morris and Partner Yusuf Özdalga to the London HQ for a ‘fireside chat’ with the team.

Since being founded in 2007, QED has made over 180 investments in its time and has helped produce 26 ‘unicorn’-status companies around the world. They specialize in targeting high-growth companies guided by data-driven strategies, which has included the likes of Credit Karma, Klarna, NuBank, Wagestream, and Clearscore. QED also participated in Fidel API’s recent Series B funding round.

In a wide-ranging discussion, our guests covered many topics from the importance of culture to the challenges of carving out a new category in fintech. Here are five key takeaways from the talk.

🍽 Culture eats strategy for breakfast

Building companies is really hard and building financial service companies even more so. Product and market fit, user experience, net promoter score and knowing how to sell your products are top priorities for any company. In financial services, add to that list fraud risk, credit risk, treasury risk, regulation, capital markets and compliance obligations, to name a few.

Yet, something QED Investors has witnessed over the years is that the biggest growth-related challenges companies face don't entirely boil down to raw numbers or data science - a lot of it is to do with human beings. In short, if companies get culture right, they’ll reap the benefits.

For those looking to experience hyper-growth, know that businesses, and their cultures, are not formed linearly. A scientific theory known as the Dunbar number states that 100-150 people is the ideal social grouping size, as demonstrated throughout history. Once a company exceeds that number - as Fidel API soon will - aligning, collaborating and operating like a collective unit become incrementally harder. You’ll need flag-wavers and torch-bearers of the culture to sustain a semblance of the environment that got you where you are today.

Over the years, QED has encountered many great ideas, brilliant people, and different approaches to success. But one of the major ingredients to getting company-building right, especially in fintech, is a culture that attracts the right people at the right time. It’s still not easy, but when you’re a business that has grown beyond that 120-150 people, a unifying culture will take you further than a smart strategy often can.

🥇 Carving out a new category

Fintechs have their work cut out for them: they’re democratizing a huge amount of financial services, and putting personal financial power, autonomy and control back into people’s hands through their phones and laptops. However, the journey is that much harder when you’re starting out in a new space, with no clear competitors or a definitive proof of concept. You have to know when to act, when to pivot, and stay focused on delivering customer value.

Before QED, something that used to help Yusuf & Nigel decide on whether a new products’ customer centricity was sufficient, was the ‘Mom Test.’ Imagine your mother was offered a proposed product and askes you if she should buy it. If you can’t unequivocally say the product is a great one, don’t sell it to your customers.

Be proud of and believe in the difference your products can make - and don’t be afraid to drop things that aren’t working, especially while you’re still small and not hit by the inertia or momentum that we associate with the ‘bigness’ of established financial service players like banks.

QED often looks to invest in those businesses that are ‘fin’ first and ‘tech’ second. This means that your founders, and leaders, have to be obsessed with the journey or the overarching reason they are starting a business. A great piece of technology behind a product doesn’t guarantee success. It’s vital to it, but won’t get you there on its own.

⚽️ ‘Play the full 90 minutes’

You can play 85 minutes in a football match, winning 2-0 and still lose 3-2 in the last 5 minutes. QED has businesses that they invest in all the way from a seed round to a series C or D, before eventually exiting. The process might take ten years or more, along with huge amounts of effort, energy and ideas. Then, in the last 2 minutes, a companies’ valuation could drop significantly. Maybe it’s an unfriendly market, or an emerging competitor, but it's not uncommon.

QED has witnessed that happen in the first two and the last two minutes of the game, and knows it doesn’t matter how far along in the journey a company is. Therefore, QED has made it a part of their approach and commitment to investing in companies they truly believe they can help grow in the first place and remaining present to consult and support every step of the way.

🤔 What makes a great founder?

People won’t follow a CEO because they’re the smartest person in the room. They follow because they trust you; because you’re authentic, real and you show you’re listening. It’s a truth that goes for a good leader at any level in a business. Being real and human leads to long-term trust between leaders and their teams and that allows a business to scale much further. In the same way, humility goes a long way, especially when things don’t go well.

In a few words, the things that make great founders, and leaders; openness, courage, authenticity, humility and audacity.

🌅 Developments on the horizon

One thing that really has really excited Yusuf, Nigel and their team at QED is embedded finance. Simply, taking a business or process that’s analog and clunky, digitalizing it, and then wrapping financial services around it. It can be very broad in application, from payments, to insurance, to lending.

An example of this is a startup called NuvoCargo, who digitized the administrative process for cargo trucks crossing the US’ southern border, making the process seamless and faster for the drivers and their companies. The logistical data from all those journeys being made was being inputted into the NuvoCargo app, allowing NuvoCargo to also approach the trucking companies and offer revenue-based loans or insurance policies based on the in-app data they collected.

Partnering is also an interesting one. More fintechs are partnering with banks in India than in the UK and US. Why? What banks in India are noticing is a rapidly growing bubble of salaried millennials, who are digitally native and they can’t reach via physical branches. These Indian banks are also agile and ambitious enough to do something about it. They're turning to fintech partners to create the great UX they've become renowned for building. It’s a sign of a possible, wider shift in the relationship between fintechs and banks; one where they can compliment, rather than rival, each other to find better solutions for consumers.

You can follow Nigel Morris and Yusuf Ozdalga on Linkedin here, and don’t forget to subscribe to Fidel API’s blog to never miss a beat.