Neo incumbents | Fintech Inside - Edition #79 - 25th Sep, 2023

A growing breed of competitors will make it tough for early stage startups to thrive and win. But there's a small window of opportunity.

Sep 25, 2023

Hi Insiders, I’m Osborne, Principal at Emphasis Ventures (EMVC).

Welcome to the 79th edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.

Will you be in Jakarta tomorrow (26th Sept, 2023)? Join us for the Jakarta Fintech Happy Hour! We're excited to host our fintech founders, investors and friends in Jakarta. Details in today's edition.

A growing breed of competitors will make it tough for early stage startups to thrive and win. But there's a small window of opportunity to compete. Today’s edition is a short read. Would love to hear your thoughts and feedback.

Thank you for sticking around here. Enjoy another great week in fintech!

Raising funding for your early stage fintech startup? reach out to me at os@em.vc

✨ Jakarta Fintech Happy Hour presented by AWS, Quona and B Capital

Please join us for the Jakarta Fintech Happy Hour presented by AWS, Quona and B Capital! We are excited to host you on Tuesday, 26th Sept in SCBD, Jakarta.

Event Details:
🗓️ Date: Tuesday, 26th Sept, 2023
🕕 Time: 6pm to 9pm
📍 Venue: SCBD area, Jakarta.

Panel: Building a Sustainable Fintech Startup
- Ganesh Rengaswamy, Managing Partner, Quona
- Kabir Narang, Founding General Partner, B Capital
- Claudia Kolonas, Cofounder, Pluang
- Ghazanfar Iqbal, Head of BD, Startups, AWS ASEAN

🤔 One Big Thought

The Competition: Neo Incumbents

(this is a short post on a topic I've been thinking about deeply lately. I hope this post inspires deeper thought in the products early stage companies think of building.)

If you were starting up in early 2010's, or anytime in the past decade, in India, your closest competition was typically a large, offline company. We called this an incumbent.

The most common question to founders was why wouldn't HDFC Bank/Google/<insert favourite incumbent here> do this?

Some startups didn't even consider these incumbents as real competition because incumbents were clearly in a league of their own - in terms of scale, product focus etc. Startups weren't really a thing back then. Incumbents didn't care what startups were doing - they were "cute projects" according to incumbents. I remember a time when banks didn't think Paytm could come close to taking business away from them.

In early 2010's, if you were building:

- a lending product, your competition was HDFC Bank or SBI Bank or some other large co.
- an ecomm marketplace, your competition was BigBazar or the local store.
- a cab hailing app, your competition was the local cab/rickshaw.
- a travel booking platform, your competition was the offline travel agents

There are many more such examples of incumbents and industries which I'm clearly forgetting, but you get the point.

Early 2010's incumbents were largely characterised as being entirely offline, sometimes fragmented in scale, ferociously rigid to change and glacial pace of decision making

That's changed in the 2020's. Now, early stage startups have to compete with, what I call, "neo incumbents". Neo incumbents are a new breed of competitors to early stage companies.

In this decade (2020's), one would rarely characterise incumbents by those features of "offline, rigid, monolithic, slow".

If you're building:
- a retail lending product, you're competing against Paytm, Slice in addition to HDFC Bank and SBI Bank
- an ecommerce marketplace, you're competing against Amazon, Flipkart in addition to BigBazaar
- a cab hailing app, you're competing against Uber, Ola in addition to the autorickaw/cab.
- a travel booking platform, you're competing against MakeMyTrip in addition to the offline travel agents.

Today, early stage startups are not only competing against incumbents who are thriving, but also against large tech startups/companies that are entirely digital, nimble in decision making, fast to innovate and provide baseline user expectations. It's not a simple "digital, better UX, fast execution" value proposition anymore.

As a founder, it was far easier in early 2010's to anchor the conversation against incumbents. Startups offered significantly better digital interfaces, Delta 4 experience and faster execution. What took days/weeks to do with incumbents, now took seconds with startup products. The entire standard of a product - financial or otherwise, was elevated. These experiences - instant bank transfer, same day/next day delivery, online KYC/onboarding, fast and affordable data speeds, which were once Delta 4 experiences, are now baseline expectations.

How then, do early stage startups compete against incumbents and neo incumbents? Honestly, I don't know. It's super tough to anchor a conversation against neo incumbents. The argument of faster than, better than or even slicker than neo incumbents doesn't hold water.

IMO, the only way to compete against neo incumbents currently is completely outside the control of an early stage founder. What I mean by this is, the macro environment, where profitability and sustainability are the new buzzwords, has made every company focus only core product offerings and reduce organisational resources on anything that's non-core. Neo incumbent companies need this focus to improve revenue and focus the entire organisation only on those products that contribute directly to revenue generation. This also means that neo incumbent companies will move slow, reduce spends on customer acquisition and delay decisions on new/innovative/risky products for a later time.

Focus on core has created a small window of opportunity for early stage startups. This small window will not be open for too long as market sentiment reverts to positive. It could be the only opportunity for early stage startups to launch new/innovative/risky products with a better experience and capture critical mass of users.

I guess what I'm trying to say is:

this is an ongoing thesis and I could be entirely wrong and how things will play out.
if you're an early stage startup founder, you've got a small window to play on the offensive. Capture it!

If you're an early stage startup founder, how do you think about competition? How do you communicate your value proposition to your users? how do you compete successfully?

1-min Anonymous Feedback: Your feedback helps me improve this newsletter. Click UPVOTE 👍🏽 or DOWNVOTE 👎🏽

🎵 Song on loop

Fintech updates can get boring, so here's an earworm: In a chill vibe these past few weeks and Rush by Troye Sivan is my mood. (Youtube / Spotify). Enjoy!

👋🏾 That's all Folks

If you’ve made it this far - thanks! As always, you can always reach me at connect@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.