The Startup Incentive Construct

In this video piece, I explain why startups win, despite the efforts of older companies who challenge them in new areas they are pioneering. The older companies can come with money, experience and technology, but most times, they are solving problems, with the wrong incentives.

Consequently, they adjust the problems to accommodate their incentives and in the process, solve an entirely different problem, resulting in a loss. You read it from me: African and specifically Nigerian startups, you can win over the big players. Your incentives are different, and those are inherent advantages for you.

The established companies have what I have called Innovation Hangover which is an inertia to cannibalize existing revenue sources for new opportunities. See it this way: If you run a treasury operation in a bank which will yield $5,000 profit but your fintech unit (a subsidiary) can do the same for $200, would you dismantle that treasury unit, and allow the fintech unit to serve the public because one fintech startup has started offering the service for $200?

That is not what we do most times because of the revenue/profit hangover. So, what happens is this: to fix that problem, the bank has to create a new market friction, and try to solve it. Possibly, that new problem can yield for the bank $1,000 profit, and it can feel that it has innovated and has challenged the startup on pricing. Indeed, it could offer more features and services than what the fintech startup is offering for $200.

Yet, that is not the original friction which the standalone startup went for. Typically, over time, the startup can still win because the incumbent is hanging onto the established profits, and solving entirely new problems. I have called this Startup Incentive Construct.

*the GTBank Fintech in the video is just a way to explain the fintech effort of the bank. There is nothing official there.