What’s My Favorite Color?

Apologies for being so delinquent in posting but it’s been a busy start to the year.  In addition to working on time intensive projects with a few of our portfolio companies, QED formalized a very exciting relationship with Fifth Third Bancorp.  You might or might not have read about it (Fifth Third Bancorp Partners With QED Investors), but hopefully it explains why I’ve been a little light on the content recently.  More on this relationship soon.  With this said, back to the Blog!

Every once in a while I feel like I’m experiencing what I think of as “Advisory Deja Vu” (ADV).  It’s when I’ve had the same thematic conversation on multiple occasions over a short window of time but with different founders.  And more than once it’s become a theme for a Blog post, this being the case in point.  So, to convey my current ADV theme, I thought it would be best to start with a simple story.

A behavioral psychologist, a data scientist and a five year old walk into a bar.  All three belly up to the bar and order drinks (and in case you’re wondering, the five year old ordered milk – don’t hate on me!).  After a few minutes of complete silence, the bartender addresses the group.

“I can tell that you’re bored and can use a bit of a challenge to liven things up.  Do you see that woman sitting over there?  Free drinks for a year to whoever tells me her favorite color.”

The challenge is accepted and they agree to meet back in an hour to reveal their guesses.

When they return, the behavioral psychologist answers first.  “I spent the last hour analyzing her every movement and studying her attire and jewelry.  She must like muted colors because of her subtle shade of lipstick and very minimal use of makeup.  Her outfit is comprised of shades of black and gray as is her handbag.  But, lots of women like to wear black and gray so this doesn’t tell me much. What’s interesting is that she went to the bathroom half-an-hour ago and came out wearing a maroon colored hair clip.  It stands out nicely against her black outfit and her confidence increased once it was in place so it must be a color she really adores.  As a result, I can definitively say that her favorite color is Maroon.”

The bartender responds: “Sorry.  That’s not right.  The woman is my wife and I bought her that hair clip a year ago.  She wears it to humor me but I don’t think she likes it very much.”

The data scientist goes next.  “I spent the last hour hacking into her computer and analyzing all her purchase behavior on Amazon and her searches on the web.  I loaded all the data into a machine learning optimizer and using a random forest algorithm determined that her favorite color is Green.”

The bartender responds: “Sorry.  We share a computer so the data you analyzed isn’t quite right.  What’s funny is that you figured out MY favorite color, not hers!”

The five year old goes next: “Blue.”

The bartender responds: “That’s right.  How did you know?”

The five year old: “You’re a silly goose.  All I did was go up to her and ask.”

Why tell this simple story?  A recent string of conversations I’ve had with Founders have all centered around something not being quite right with a business with the Founder trying to diagnose the cause using complex data analysis or econometric trends or “theories”.  I’ve found myself giving the same advice over and over and a few Founders have actually taken my advice and started to report back pretty interesting findings.  The advice?

“Your customers know more about themselves than you do and are more than happy to share their thoughts if you ask.”

This is a simple but profound truth that I find is often neglected by Founders and Executives at small and big companies alike.  If you want to know why customers aren’t buying the high end version of your product — ask them.  If you want to know why customers aren’t making payments on your loans — ask them.   If you want to know why customers use your product once and never come back — ask them.

Don’t get me wrong — data is fantastic and very helpful in many contexts.  I love data and what it can teach a business.  I’m a big fan of tools like Full Story and Google Analytics.  But, when trying to understand why your prospects and customers are behaving a certain way I’d suggest you find a way to talk to them and listen to their answers.  Trust me: Ask and they will tell — Listen and you’ll learn.

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Down the Rabbit Hole

As a longtime fan of Alice and her Adventures in Wonderland, I can’t help but draw upon the well-known imagery from time to time.  And it just so happens that I find it appropriate to use for this post so feel free to smile like the Cheshire Cat and read on.

At QED, we pride ourselves on being operators disguised as investors with a keen focus on the FinTech sector.  From time-to-time we’ve found great businesses outside of FinTech that we thought we could guide, and (surprisingly) the entrepreneurs behind these companies seem to be happy with the advice and hands-on help we’ve provided.  Our experiences at building/managing businesses combined with our collective skills that range from customer origination to data analytics to managing complex, annuity oriented businesses have proven to be valuable to our non-FinTech companies.

So while it would be easy to stick to what we know best by taking the “blue pill”, we’ve gained the confidence that branching out into new sectors ripe for disruption was worth considering.  The result?  We’ve taken the “red pill” and started to learn as much as we can about two new verticals that are tangential to the FinTech space.  And what we’ve found is that the more we learn the more we like what we see.  It feels like we’re about to head down the rabbit hole which is scary and exiting at the same time.

MatrixBluePillRedPill

The first?  Insurance Tech.  It didn’t take much digging for the QED team to come to believe that the Insurance sector is ripe for innovation much like the banking side of FinTech was ten years ago.  You can check out an interview with my partner Caribou Honig on this topic here.

Insurance stats

And to do our part catalyzing the innovation, we’re pleased to be founding sponsors of an upcoming conference, www.InsureTechConnect.com.  It’s designed to bring together entrepreneurs, investors, and leaders from the industry incumbents.  I’ve procured discounted admission, $200 below the early-bird pricing, for the first twenty FinTech Junkie readers who register through this link.  Questions or sponsorship inquiries can be sent to Caribou Honig at: caribou@qedinvestors.com.

InsureTech Connect

The second?  I’m going to leave that for another post with additional detail. Those of you who know me probably can guess what my “second addiction” has become, but rest assured that my core focus is still and will always be the FinTech space.  But, once an addict always an addict….so stay tuned.

Dinosaurs and Banks

For those of you who have spent time with me, you know that I’m very much a “centrist” when it comes to the Banks vs. Innovators debate.  It’s not difficult to imagine a world in which some Banks find ways to reinvent themselves, some Innovators become household names, and some companies work together in harmony to create a one plus one equals three situation.

So, when my Business Partner (Caribou Honig) wrote a post as a rebuttal to an American Banker article entitled: “Banks vs. FinTech?  No Contest, Banks Win”, I had to link it here.

Caribou’s Article:  Dinosaurs and Banks

The American Banker Article:   Banks vs. Fintech

It’s a funny but fantastic analogy that I hope you’ll like.  Enjoy!