Fostering true innovation in the financial services industry

This post originally appeared on Moneyweb in April 2015

The recipe for entrepreneurial success goes something along the line of this: Create significant economic value for an industry by commercialising an innovative product or service, scale that platform to acquire market share quickly, while tapping a network of connected, experienced captains of industry to further the momentum and obtain valuable feedback to refine the value offering.

The corporate recipe for success is often built on an entrepreneurial premise, but add company size, staff and governance procedures and things slow right down. Improvements in corporate systems and products offer marginal contributions to earnings or market share growth, typically because the way things are done is the way they’ve always been done. “Brand new innovation” doesn’t sit well with clock-watchers and an old guard holding onto their positions that they’re riding out until retirement. Corporates don’t change the world we live in as much as entrepreneurs do.

It’s rare that a corporate can execute new business thinking as well as entrepreneurs can. For this reason, corporates have always tried to make space for entrepreneurs within their businesses to hatch and scale those “10 times the growth” propositions. This is often the place that entrepreneurs’ ideas and fledgling businesses go to die quiet and uncelebrated deaths, suffocated by red tape and a lack of risk appetite from those holding the purse strings.

The Rand Merchant Bank Class Of programme was founded by Paul Harris when RMB was growing rapidly and bringing on new products and services. Lateral entrepreneurial thinkers had the freedom to aggressively deliver and commercialise the outputs of their “20% time”, much like Google encouraged their staff to work on sideline projects while they were scaling the J-curve of growth and new market entry. Harris was onto something, as a study on the S&P 500 between 2001 and 2010 illustrated that investment in the top 50 brands seeking a high hanging purpose fostered by innovative “intrapreneurs” yielded returns 400% ahead of the S&P 500 index.

As an ex-RMB Class Of myself, I have to say that Michael Jordaan and Herman Bosman are two shining examples of Class Of’s best exports. I read with much satisfaction this week that Bosman, now leading RMI, has said that he’d be looking to bolster innovation in the RMI stable by incubating entrepreneurs in the financial services industry and, where it made sense, invest into these businesses with the same view that saw Outsurance and Discovery deliver returns to their seed funders.

I think this is an incredibly sound approach for corporates to integrate their businesses with entrepreneurs, where together they are best placed to conceptualise, formalise and grow ancillary products or services that will contribute significantly to the bottom line. By giving these young businesses the purpose and the exit strategy from early on in their lifecycle, both the corporate partners and the entrepreneurs are incentivised to make meaningful strides in creating shareholder value.

A common misunderstanding about entrepreneurs is that they only need funding to succeed. If a minimum viable product is floated to the market and there’s a demand shown for it, it’s not normally cash that’s needed in isolation. It’s the other components of that success recipe I mentioned – mentorship from corporate leaders, feedback, network, momentum and scale that are the real demand.

It’s exciting to see what Bosman and his team are proposing as their strategy for the business and bringing to bear some of his experiences as a Class Of. I’m certain that small businesses in the financial industry are taking notice of this, and I hope other industries follow a similar blueprint if they want to stay agile and foster true innovation.

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