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Demographically, I am about as “mainstream majority” as they come. I am a Caucasian, Anglo-Saxon, Protestant male who worked most of his career in the banking industry. An upper-middle class suburbanite heterosexual American to boot. No one would use the word “activist” to describe me. I’m apolitical to a fault, and I don’t talk about much of anything publicly that isn’t directly related to innovation, strategy and leadership in fintech and financial services.

So why should I care at all about this so-called FemTech Leaders movement that seeks to improve gender diversity in fintech and beyond? Why would I even show up at an event focused on empowering women in fintech, let alone promote it on social media?

Three very simple reasons.

First, it’s good business. 

Financial services is an especially cacophonous echo chamber, and I want to be surrounded by as many widely diverse perspectives as possible. Different mindsets, different experiences, different approaches. Views I would have never come up with on my own. 

It’s just a dumb business practice to exclude half of our population from the conversation. Especially during a time when so many threats and opportunities are impacting the entire industry in such huge ways.

Second, it’s more like the world where I grew up and live.

I had a strong grandmother and mother whose importance to my childhood would be impossible to overstate. My mom tells the story of my grandmother bringing home a pair of bright red shoes when she was younger. My grandfather told her they were too flashy and not very “ladylike”, and ordered her back to the store. So back to the store she went— only to return with a matching belt, purse and gloves in the same ostentatious crimson hue. Grandma didn’t need anyone’s permission to wear (or do) whatever she wanted. I always loved that about her.

My mom is naturally curious. She doesn’t have a lot of so-called formal education, but she has what we call “the figure it out gene”, and I wrote before that she has a PhD in common sense (2019 Update: my mom lost her decades-long battle with COPD this year). It’s not that she doesn’t appreciate formal education. She grew up in a different era in a blue collar family that worked early and often, but she made sure that I was the first person in the family to go to college. “When you go to college…” I always remember saying to me when I was young. Never “If you go”. She instilled in me my love of reading, learning, and traveling, and she encouraged me to explore, take risks and be an early adopter. I wouldn’t be who I am today without her.

My wife is a lot like my grandmother. She didn’t listen to anyone’s career advice about who paid the most or who had the best perks, she devoted her career to helping women who were victims of violent crimes. She has been paged to the emergency room in the middle of the night more times than I can count, got injured in a courtroom brawl, threatened with being thrown in the back of the paddy wagon by a police officer who didn’t appreciate her staunch advocacy for a victim’s rights at the scene of a crime, and helped survivors and their families deal with evidence and testimony that is truly unspeakable and heartbreaking. She could have made more money working at the local mall, and she wouldn’t have had it any other way.

I want more awesome women in my life, not fewer.

Finally, it’s more like the world where I want my daughter to work in and live.

There is another awesome woman in my life. She went from wearing diapers to school uniforms to college sweatshirts to an employee ID badge in what I swear could have only been a few short years. She went to an all-girls school where the motto was “Giving Girls Their Voice”. We, and she, saw first hand the power of every leadership position of every class and every club being held by a girl, and the power of every Ravens’ sporting contest being THE big game— not just the second-rate ‘Lady Ravens’ alternative to the boys’ teams. 

These leadership lessons stick with the girls through college and beyond, where the harsh reality of the other 50% of the population invade these artificial constructs. By then they are unafraid to raise their hand in a crowded lecture hall to answer a professor’s tough question, or even better— to disagree with a point in the book. They don’t think twice about whether it’s OK to run for class officer, or play sports, or start a new club on campus. They major in whatever the hell they want. 

My daughter found her own voice and I don’t ever want her to lose it.

More Work To Be Done

That’s why the FemTech Leaders movement is so important. It’s not about creating an exclusive group just for women to feel better about being in the minority, it’s about connecting the power of the minds and spirits in all of us to make this industry and this world just a little bit better than the way we found it.

Let’s not stop here though. We have massive under-representation of ethnic, racial, religious, orientation, and other minorities in fintech and financial services. The same benefits of diversity are only multiplied when we make a broader effort of inclusion.

So, my reasons may not be particularly high-minded or socially conscious. I’ll leave it to someone else to inform and inspire you with statistics on workforce participation and pay gaps, and the economic inequalities of non-inclusion. 

I just know the world that I want to live in.

In my last post Leaders, Learners and Laggards I talked of banking leaders who describe their approach to innovation as being a “fast follower, and how my typical retort is that they are half-right— most of them are definitely followers, but there usually isn’t anything fast about their approach.

This has spurred some great discussions on social media, including some comments from people who defended the fast follower approach as a sound strategy. So it appears some clarification is needed on my overarching point.

A fast follower approach in terms of making big public bets on new products is absolutely a proven strategy.

A Great Strategy When Well Executed

Apple is often cited as one of the world’s most innovative companies, but they are not known as a bleeding edge pioneer of new technologies. The Apple computer was not the first personal computer, the iPod was not the first digital music player, and the iPad was not the first tablet computer.The iPhone was not the first smartphone, but it controls 92% of the profits of the global smartphone market.

The Apple Watch is not the first smart watch either, as any Android fan will be quick to point out, but within the first quarter of its release it reduced Samsung’s global market share of smart watches from 74% down to 8%.

Within the first quarter of its release.

Within one year Apple became the second largest watch manufacturer in the world. (For way more detail on how Apple, Amazon, Google and Facebook are taking over the world, watch Scott Galloway’s breathless take from the DLD conference.)

The ‘first mover advantage’ theory established in the early days of high tech in the 1980s was pretty much dismantled by Peter Golder and Gerard Tellis at USC in 1993. They found the almost half of product pioneers failed, and even those that didn’t fail had lower average market share than later market entrants. Countless stories abound today of product pioneers being quickly supplanted by upstart rivals.

The Fast Follower strategy is viable, but the operative word is fast. At least in relative terms.

And that is what is missing from most financial institutions, who measure speed by the decade.

Where’s My Jetpack?

As a child of the 1960s, I was promised a jetpack and vacations on the moon. Those were scaled back to a hoverboard and a time-traveling DeLorean in the 1980s, but the future destination of Back to the Future has come and gone with no such improvements in my daily life.

But I do carry around in my pocket every day a the equivalent of a 1970s supercomputer, I regularly video chat with friends and colleagues all over the world on it, and I can now summon my self-driving car from my watch.

The Gartner Hype Curve is a useful construct to visualize how exaggerated expectations come down to earth in the short run. Some ideas die off, and others are iterated upon and adapted, and their lifespan is extended. Sometimes the passage of time can also help the market catch up to those that were initially ahead of their time.

 

Ideas don’t exist in a vacuum, they catch on (or not) in a society of humans through a fairly predictable pattern that Everett Rogers called the Diffusion of Innovation curve.

This bell curve shows how early or late segments of the population adopt new ideas. Innovators flock to new ideas, followed quickly by the Early Adopters. Over time some of these ideas are picked up by the Early Majority, followed by the Late Majority, and eventually even the Laggards.

Trailblazers, Traditionalists, and the Chasm Between

In 1993 Geoffrey Moore introduced to Rogers’ curve the concept of the ‘chasm’ that exists between the Innovators and Early Adopters and the rest of the segments on the curve. Left of the chasm, people live to explore new ideas, and they are willing to take a reasonable amount of risk in order to reap the benefits of being early. They are the first buyers of new products, the ones waiting in line overnight for the pride of owning version 1.0.

Right of the chasm is where phrases like “Nobody ever got fired for hiring IBM” come from. They want to take zero to very little risk, and they are willing to accept a relatively limited upside in exchange for this reduced risk.

These two broad groups— the left and right sides of the chasm— align closely with the groups I have highlighted before as Trailblazers and Traditionalists. Trailblazers want to explore the unknown and establish next practices, while Traditionalists want to master the known knowns and enforce best practices.

The picture becomes even clearer when you plot the two curves together. Ideas must cross the chasm to have commercial viability.

This highlights the challenges of truly being fast when you’re a follower.

The kinds of companies full of Trailblazers that come up with groundbreaking new ideas often do not have the very different skills of scaling up those ideas for mass market adoption. This goes a long way to explain why the first movers often fail to maintain commanding market share over the long run.

Likewise, mature organizations in mature industries full of Traditionalist employees, like, say, financial institutions, often don’t have the skills (or inclination) to develop and incubate new ideas. Hence the launch of new bank innovation teams and labs in recent years.

The Key to the Fast Follower Approach

The danger is in waiting too long so that the new idea— once groundbreaking and with the potential to set your institution apart from the pack— is now mainstream.

Before long, mainstream becomes table stakes. The longer you wait, the wider becomes the customer experience gap— the gap between what your customers have come to expect as a minimum, and what you actually provide them.

As Innosight’s Scott Anthony puts it in Harvard Business Review:

“But make sure that when you say that you want to be a fast follower you aren’t really saying, “Can’t I just go back to running my core business?” Too often people find that when it is a strategic imperative to respond, it is too late.”

So a fast follower approach can be a wise one, providing you’re actually fast enough to capture an idea on the upside of a growth curve.

Otherwise, it’s a riskier strategy than you realize.

 

I talk with a lot of banking leaders who describe their approach to innovation as being a “fast follower. My typical retort is that they are half-right— most of them are definitely followers, but there usually isn’t anything fast about their approach.

Pioneers are the ones who get hit with arrows, and it is only natural that bank executives who are (quite appropriately) concerned with avoiding and managing risk as a large part of their job duties don’t want to be out on the bleeding edge of innovation.

New ideas are unproven, while existing products generate today’s earnings from existing customers. The idea of diverting precious limited resources and managerial attention toward unproven ideas makes prudent managers understandably uneasy.

The risk of not taking risk

Today more than ever, though, leaders should also be concerned about the risk of not taking risk.

The risk of not taking risk is much harder to identify and manage. It’s the risk of not investing in new ideas that can keep the company competitive, or even leapfrog the competition or create new products or markets.

While the payoffs can be huge, this is not a risk-free investment.

Not all new ideas will pay off. Some will be be total failures, and this is a hard reality to accept for managers who spent their careers making safer bets and avoiding losses. That’s the core operating model of banking, where nearly 99% of loans made are expected to be repaid in full with no loss.

A Fixed Income Investment Approach

Traditional retail and commercial bankers are not venture capitalists, where five total losses and four break-evens in ten investments is simply the price to be paid for a shot at the one homerun that pays off all of the other bets and then some.

Bankers are more like fixed income investors, where the best outcome is a return of principal, plus a single digit interest rate spread on the principal.

The formula for winning that game is taking a large amount of relatively safe bets, with a pretty high confidence level that the risks involved are well known and quantified.

And so has gone the approach of most bankers, not only for their loan portfolios, but by extension their very business models, for literally centuries. This approach works well when the competitors are all similar and all are playing the same game by the same rules.

However, when new disruptive forces shake up the status quo, and new competitors this approach carries hidden risks.

Like the risk of not taking risk.

Enter the S Curve

Most businesses have S Curve growth cycles— a flattish early period during the business’s launch and early adoption, followed by a period of steeper growth which eventually declines as the business matures. If new products, customers or markets cannot be harnessed to jump to the next S curve, the business will die out.

How do they ‘jump the S-Curve’, as Paul Nunes and Tim Breen put it in their book Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top, and Stay There? I think this is an especially troubling question for banking leaders.

This is a new phenomenon for banks, whose fixed-income investment approach to management has led to a more stable (and lower) growth trajectory, once adjusted for economic and interest rate cyclicality. In other words, what has historically caused variability in bank earnings has been changes in interest rates and economic conditions (and therefore loan losses and reserves), rather than major competitive shifts in the marketplace.

Until now.

The rise of new competitors and new business models in financial services are forcing bankers to confront the S curve for the first time. Companies who thrive in dynamic industries are used to using innovation to effectively transition from one curve from the next.

Innovation is all about creating new options, and this is becoming increasingly important in banking.

Leaders, Learners and Laggards in Innovation

I have talked and written before about Leaders, Learners and Laggards in innovation.

There are just a handful of banks we could consider leaders in innovation. Leaders deeply understand the need to innovate and they prioritize ongoing innovation as a business activity just as necessary as compliance and asset-liability management. Senior leadership, from the CEO on down, require and reward innovative thinking, and they set a growth agenda for the company that puts emphasis on generating new sources of revenue. They try to disrupt themselves before someone else does it for them.

But Leaders don’t just rely on top-down strategies to improve and expand their business, they also encourage and invest in bottom-up innovation. Likewise, they supplement their internal innovation efforts with external involvement and investments in incubators, accelerators, hackathons, venture capital, and lots of other ways to engage in and help develop the broader ecosystem. Innovation is a 360 degree activity for Leaders.

A slightly larger, and growing, group of Learners have just begun to realize the need to innovate. Learners may even have pockets of innovation within the company currently, but they haven’t really embraced innovation as a business necessity. Early Learners may be infected by FOMO, the fear of missing out that arises from seeing others’ success, and they may be tempted to make token gestures to drive appearances rather than actual results.

Early Learners may also think that merely adding the word ‘innovation’ to someone’s job description is a major accomplishment. If they are truly committed to learning though, they will discover that ongoing attention and support is needed to get business results from innovation. Later stage Learners start to realize the benefits of their efforts, and start to make additional investments to accelerate results.

Unfortunately, there is still a long tail of Laggards, the institutions that still don’t even know why they should innovate. Laggards still have tunnel vision on the way things used to be, so they can’t even see the changes happening all around them. They are convinced that success is just about perfecting their existing products and services, and they very narrowly define their competition as just their peer group of similar institutions.

Moment of Truth for Laggards

As the release of loan-loss reserves is no longer fueling bank earnings, and interest rates and loan spreads remain low, banks must innovate new revenue sources and new ways of delivering customer value. The gap between the laggards and the learners and leaders will only expand, and many laggards will be acquired by faster moving institutions.

Many laggards are simply unable to sense the shifting landscape, while others have willfully disdained what they perceived to be the riskier path of trying new things.  The true cost of their inaction and ignorance will be borne out in the coming months and years.

As Warren Buffett says, “Only when the tide goes out do you discover who’s been swimming naked”.