The Strategic Risk Facing Strart

Practice papers
The strategic risks facing start-ups in

the financial sector
Received (in revised form): 31st October, 2021
Patrick McConnell
Senior Manager, Australia
Patrick McConnell has been a Senior Manager in, and a consultant to, large international financial institutions, corporations and
governments on multiple continents, for over 35 years. His expertise is in information technology and operational risk management.
He holds a Doctorate degree in business administration with a thesis on finance and technology and is a Fellow of the British Computer
Society (FBCS). Pat has been published widely in risk journals and he has written a number of books including on trading room
technology and on strategic technology risk management.
PO Box 2103, Bowral, NSW 2576, Australia

E-mail: pjmcconnell@gmail.com
Abstract The majority of start-ups fail. But some succeed, and a very small number succeed
spectacularly. And it is the stories of the sometimes vast wealth unlocked by the rare successes
that drive entrepreneurs, with stars in their eyes, to embark on a start-up venture. Even though the
odds are stacked against them, people still invest their time, effort and wealth pursuing their dreams.
Start-ups are risky — very risky — and thus any efforts to reduce the enormous risks facing start-
up founders must increase the odds of ultimate success. Risk management, therefore, should be
a key focus for entrepreneurs and their investors. One of the many types of risk facing every firm is
‘strategic risk’, although for established companies this overarching risk is somewhat mitigated by
their deep knowledge of the industries in which they operate and not least by their ready access
to capital to grow their business (provided of course that the firm is not already in trouble). There
are very many definitions of ‘strategy’ in business, but one, from the guru of competitive strategy,
Michael Porter, is simple and clear: ‘[a strategy is] a broad formula for how a business is going to
compete, what its goals should be and what policies will be needed to carry out those goals.’ So,
if the founders of any company do not know how and with whom the firm is going to compete,
what the goals/objectives should be, and how founders plan to achieve those goals, then their
venture is unlikely to succeed. This paper identifies some of these critical ‘strategic risks’ by first
identifying what is ‘strategy’ and why it is important, especially for start-ups. Then, using common
strategy models, key risks for any company and some of the key strategic risks facing start-ups in
finance are described. In particular, one extremely important aspect of strategic risk, that of strategic
positioning risk, is covered in detail. There is no ‘magic bullet’ to eradicate risks, especially strategic
risks, but to illustrate how strategic risks may, to a degree, be mitigated, the paper references three
case studies of start-ups in the financial sector: one that has succeeded (to date), one that has failed
and one somewhere in the middle. In these cases, the paper does not claim that success or failure
is a result of formalised risk management processes, more that key decisions taken along the way
addressed some critical strategic risks. The purpose of this paper is not to frighten entrepreneurs
with the enormous task confronting them, but to provide a rough map of some terrain to avoid along
their journey. There will be many potential pitfalls for every start-up — it makes sense to try to avoid
some of the more obvious.
114 Journal of Risk Management in Financial Institutions Vol. 15, 2 114–141 © Henry Stewart Publications 1752-8887 (2022)
The strategic risks facing start-ups in the financial sector
Keywords: FinTechs, start-ups, strategic risk, strategic positioning risks, strategic execution risks,
strategic governance risks
WHAT IS STRATEGY AND where, when, who, how, and how much? And these
STRATEGIC RISK? are the sorts of questions that investors will/should
What is strategy? ask before investing in any venture and start-up
founders should be able to answer, although there
George Steiner,1,the so-called father of ‘strategic
will inevitably be caveats due to uncertainty.
planning’, described ‘strategy’ as answering the
questions: ‘(a) what should the organisation be
doing and (b) what are the ends we seek and (c) What is a strategic position?
how should we achieve them’. Kaplan and Norton,2 A ‘strategic position’ is a description of a place in
the gurus of ‘strategic implementation’, describe chosen market(s) as regards the products being sold
an organisation’s strategy as ‘how it intends to and the customer segments targeted, ie the so-called
create value for its shareholders, customers, and ‘competitive’ position,10 and a ‘business model’
citizens’. Johnson and Scholes3 define strategy as which is a ‘description of the proposed business
‘the direction and scope of an organization over the configuration needed to provide the value in the
long-term’. Michael Porter4 defines ‘competitive desired competitive position’.11
strategy’ as ‘a combination of the ends (goals) for In short, in the case of a financial start-up, a
which the firm is striving and the means (policies) strategic position is about which financial products
by which it is seeking to get there’. And Koch5 will be developed and sold to customers in the
describes ‘corporate strategy’ as ‘the strategy for the markets being targeted by the founders and then
entire firm [and] is about the evolution of a firm, how the start-up will be organised to achieve the
how it grows and develops over time’. desired strategic position.
Corporate strategy, therefore, is not only about While the detail behind the development of an
setting long-term objectives for the company as a achievable strategic position should be voluminous,
whole, but also articulating how the firm is going the articulation of a ‘desired strategic position’ can
to achieve those objectives. It is not merely about be concise; for example,12 the start-up will,
articulating a practical vision but, arguably more
important, stating how the vision is to be achieved. ‘Provide short term, fixed repayment, credit products
McConnell6 collected definitions of ‘strategy’, many to pre-vetted retail consumers who purchase goods
from the military sphere, such as Yarger,7 but also from from pre-approved Australian merchants. Services will
business, so-called ‘corporate strategy’,8 and identifies be provided by staff located in Australia, supported by
elements that are common across many definitions: computer systems developed to operate in the Cloud.’
a) Objectives, goals, directions, ends and intentions, Having articulated a high-level strategic position
describing the desired ‘strategic position’ that the (consumer credit in Australia) and an embryonic
board wishes the company to achieve; business model (services in Australia, Cloud
b) Plans, formula, pattern, policies, actions, decisions, technology), founders can then develop a ‘strategy’
methods, etc., describing how the company plans to achieve the desired strategic position, within a
to achieve its desired strategic position; reasonable time, at an acceptable cost.
c) Resources, describing the physical means through But in order to develop a strategy, founders will have
which the strategic plans will be achieved. to do a considerable amount of research, especially:
Whereas the related concepts of corporate ‘mission’ a) Which consumer segments are being targeted, eg
and ‘vision’ tend to be elegant, well-constructed, but female/male/both, affluent/median income/all,
often ‘muddled’9 aspirations, strategy, on the other metro/regional/all, high value/low value/all, and
hand, is about intensely practical considerations: so on?;
© Henry Stewart Publications 1752-8887 (2022) Vol. 15, 2 114–141 Journal of Risk Management in Financial Institutions 115
McConnell
b) Which product ‘families’ will be offered, costs and cash flows over several years into the
eg interest/no interest/both, fixed/variable future to determine: a) the breakeven period for
repayments/both?; operations (ie when annual income will exceed
c) What is the current market for such products annual expenses; b) the breakeven period for
and who are the main competitors?; initial investments (ie when initial and operating
d) What is the profit margin for such products?; investments are finally recovered); and c) the period,
e) What are the current costs of IT developers, if any, where the initial investment is exhausted.
service staff, marketing professionals, etc.? If the answer to any one of the critical questions
(suitable, acceptable and feasible) is ‘no’, a strategy is
And so on, with dozens of questions to be unlikely to succeed.
researched, in some detail. There are hundreds of books and academic papers
Rumelt13 argues that ‘good strategy is coherent on ‘strategy development’, such as Mintzberg15
action backed up by an argument, an effective mixture and McKeown,16 but most are, not unexpectedly,
of thought and action’, and identifies three main concerned with the strategic choices faced by
elements or ‘bare bones’ of what he calls a ‘kernel’: established companies looking to enter new markets
or sometimes, if in trouble, to leave them. Since
1) A diagnosis that defines or explains the nature of strategy is, however, inextricably linked to the
the challenge, and will identify the aspects of the industry into which a venture is being started, there
situation that are critical; is no ‘how to’ formula, but here we look at some
2) A guiding policy or overall approach for overcoming basic ‘how not to’ advice in the hope that may make
the obstacles identified in the diagnosis; the journey easier and more likely (but not certain)
3) A set of coherent actions or steps that are to succeed.
coordinated with one another to work together
in accomplishing the guiding policy.
What is strategic risk?
He argues that: Strategic risk management (SRM) is a relatively new
discipline. In a seminal article in the Harvard Business
‘A good strategy may consist of more than the kernel,
Review, Slywotzky and Drzik17 described SRM as a
but if the kernel is absent or misshapen, then there is a
‘means to devise and deploy a systematic approach
serious problem. Once you apprehend this kernel, it
is much easier to create, describe, and evaluate a for managing strategic risk’. As with the term
strategy.’ [Emphasis added] ‘strategy’, there is no generally agreed definition of
‘strategic risk’ nor of SRM. MacLennan18 points out:
Johnson and Scholes14 also describe some essential
attributes of a viable strategy and the critical ‘It is relatively recently that strategic risk
management has emerged as a distinct concern.
questions that must be asked:
Recognition that isolated risk management in
specific areas is inadequate and that many risks are
1) Suitable: Does the strategy make economic and
“strategic” in their nature and impact has led to the
business sense?; emergence of the field.’
2) Acceptable: Is the strategy acceptable to
stakeholders and, in particular, are the risk/return SRM is also relatively new in finance. An
objectives understood and satisfactory?; ex-member of the US Federal Reserve Board,
3) Feasible: Does the company understand the need Randall Kroszner19 noted that financial companies
to acquire the resources necessary to execute the do not always recognise and manage risks to their
strategy and have the time to do so? corporate strategies:
In order to answer these critical questions, it is ‘An effective overall corporate strategy combines
customary to build a relatively simple economic a set of activities a firm plan to undertake with an
model (eg in Excel) of estimated revenues, estimated adequate assessment of the risks included in those
activities. Unfortunately, many firms have forgotten 3) Strategic governance risk: The risk that a board
the second part of that definition. In other words, may fail to put in place the necessary policies
there can be no real strategic management in financial and processes to ‘govern’ the development and
services without risk management.’ [Emphasis added] execution of its strategy.
McConnell 20 collected a number of definitions
Within these three major categories there are a
of strategy and strategic risk. For example, for
myriad lower-level risks, such as ‘failure to set up the
the purposes of examining banks, the US Federal
process to identify and monitor achievable strategic
Reserve and the Office of the Comptroller of the
objectives’, which is a ‘strategic governance risk’.26,27
Currency (OCC) gave a comprehensive definition of
Obviously if founders do not have a process for
‘strategic risk’ as:21
developing a strategy, as opposed to a ‘product’, the
‘The current and prospective impact on earnings or
chances of success are diminished. It is also obvious
capital arising from adverse business decisions, improper that these risks must be identified and managed by
implementation of decisions, or lack of responsiveness the very highest level of management of the start-up,
to industry changes. This risk is a function of the typically a formally constituted board of directors
compatibility of an organisation’s strategic goals, the and executive management.
business strategies developed to achieve those goals, McConnell 28,29 expands on each of these
the resources deployed against these goals, and the categories in detail, but it should be obvious that
quality of implementation.’ [Emphasis added] because of the need to identify a viable ‘strategic
position’, there is an overriding need to address
McConnell 22 summarises this and other definitions, ‘strategic positioning risks’.
using the technical terminology of the ISO 31000 If the board of a start-up does not know where
standard 23 as the ‘effect of uncertainty on strategic they are going and/or how they are going get there,
objectives … [where an effect is the] … deviation they will not get there. As one of the following
(positive and/or negative) from the expected case studies (TransferWise) shows, they may end up
objectives’. Or colloquially as any risk that ‘results in somewhere with some degree of profitability, but not
a failure to achieve strategic objectives’.24 where they initially desired to be.
For any company there will be a myriad such So, this paper will concentrate on ‘strategic
risks, some relatively small, some potentially positioning’ and ‘strategic positioning risks’. That
catastrophic, but many more will be calamitous for does not mean that strategic implementation and
start-ups, because start-ups are operating on very strategic governance are not important — they are
thin margins of error. So, how to identify strategic — but that these activities and risks can be addressed
risks? by more conventional management disciplines, such
as programme management 30 and enterprise risk
management.31 Developing a ‘strategic position’ and
Categories of strategic risks identifying risks to that strategic position require
McConnell 25 identifies three types of strategic risks, very high levels of skills and experience in the
in summary: industry being considered.
1) Strategic positioning risk: The risk that, in defining

its strategy, a board may fail to identify a strategic Strategy models
position within in its industry that is sustainable McConnell32 argues that many of the models and
(in terms of its target business model and stra- tools used to identify strategic opportunities can, and
tegic objectives) and achievable (in terms of an should, be used to identify the other side of the risk/
executable strategic plan); return coin — that is, strategic risks. There are many
2) Strategic execution risk: The risk that, in executing strategy development models and toolkits. Evans33
its strategy, a board may fail to achieve its desired lists 88 such models and McKeown34 also describes a
strategic position; useful strategy toolkit, which covers some additional
McConnell
tools and techniques, but also discusses how a over a billion dollars’. Obviously, with such odds,
strategist should approach the complex process of entrepreneurs with available funds will be very
developing strategy. wary of investing in a venture that does not have a
Courtney et al.35 recognised, however, that reasonable path to success.
existing strategy models do not handle uncertainty This paper will not address access to funding
well, and, recognising that particularly applies to specifically, but argues that without a well-
start-ups, warns that: articulated, coherent and achievable strategy, it
will be difficult to convince investors and banks to
‘At the heart of the traditional approach to strategy provide the levels of initial and ongoing funding
lies the assumption that by applying a set of powerful required to sustain a start-up. Furthermore, other
analytic tools, executives can predict the future of any
key stakeholders, particularly employees and
business accurately enough to allow them to choose a
suppliers, will find it difficult to invest their skills,
clear strategic direction. In relatively stable businesses
that approach continues to work well. But it tends time and effort if they cannot see a long-term
to break down when the environment is so uncertain that future for the venture. In other words, a well-
no amount of good analysis will allow them to predict the crafted, credible strategy and identification of risks
future … The old one-size-fits-all analytic approach to that strategy are essential to obtaining sustainable
to evaluating strategy options is simply inadequate.’ funding.
(Emphasis added) Developing a plausible strategy to a reasonable
level does not itself require significant funding,
They then argue the need for taking a top-down but is a ‘thinking’ activity that can, and should,
perspective: be undertaken by a small number of people —
especially founders, initial investors and, when
‘All strategy making begins with some form of
needed, some external experts knowledgeable about
situation analysis – that is, a picture of what the world
the markets and products being addressed. It does,
will look like today and what is likely to happen in
the future. Identifying the levels of uncertainty thus helps however, require open and inquiring minds, brave
define the best such an analysis can do to describe each enough to ask difficult questions and ultimately
possible future an industry faces.’ (Emphasis added) courageous enough to recognise when a particular
strategic option is not viable and to shut down
The next section considers some strategy models that further investigations into such options.
apply to start-ups and identifies some of the major Nevertheless, even with a potentially viable
strategic risks. strategy, founders must realise that in order to
execute their strategy, they will almost certainly
need to give up some degree of management control
Funding in return for funding. Of course, key questions are
Before doing that, however, one must face up to the how much control, and to whom?
‘elephant in the room’: funding. The answer to ‘to whom’ is easier to answer: to
Lack of funding — from investors, in the people who can add value to the project, in terms
form of investment capital from venture capital of skills and knowledge lacking in the founders,
companies; banks, in the form of loans; or such as expertise in finance, accounting, corporate
founders, in the form of working capital — is governance, financial regulation, technology and
undoubtedly the greatest strategic risk facing any — probably most important — access to sources of
start-up. And lack of funding will eventually stop funding. In order to properly answer the question,
any start-up in its tracks. however, founders must take a long, hard, brutally
A study36 of start-up firms in the USA concluded frank look at themselves: what do they know, what
that ‘entrepreneurship is risky’ and that risk- can they learn quickly and what do they not know?
adjusted returns to investors were highly skewed, To do this, they should develop a ‘skills inventory’
to the downside, where ‘almost three quarters of assessing the skills of each member of the founding
entrepreneurs receive nothing at exit and a few group, and from that, identifying what are the
obvious skills deficits. This, at least, should produce structure of an industry and rivalry between
an understanding of which skills must be acquired existing competitors;
to move forward, and failure to bring those skills on 3) Buyer/customer power: The influence that choices
board will increase the risk of failure of the venture. by customers/buyers have to change the basis of
Determining how much control to give up competition in an industry;
is hard, however, because it is not so much an 4) Supplier power: The influence that suppliers have
economic question but a psychological one. The to change the basis of costs in an industry;
research of Nobel Prize-winner Daniel Kahneman37 5) Threat of substitution: The effect that potential
and others on so-called Prospect Theory38 shows substitutes for products used in an industry will
that people ‘feel’ the prospect of losses much more have on the structure of an industry and rivalry
than they ‘feel’ gains, even if they have not yet had between existing competitors.
anything to lose or gain. The prospect of losses, so-
called ‘loss aversion’, hurts emotionally. One way to To Porter’s basic model is added:
approach this problem is not to consider monetary
value (not least because that is unknown) but to a) Power of regulators: The financial industry is
consider a percentage of control (possibly expressed overseen by a whole range of general and
as a range between ‘acceptable’ and ‘maximum’ — specialist regulators that ensure that compa-
say 25–45 per cent). From that, founders can discuss nies in the industry provide safe, efficient and
how that percentage of control should be pre- fair services to their customers (who are also
allocated, such as x per cent for $y investment or z voters). And in particular, regulators tend to
per cent for management or financial expertise that construct fairly high barriers to encourage
is missing. While a somewhat theoretical exercise, stability in the industry, such as discouraging
such a discussion between founders will at least hone new entrants, unless they can be shown not to
understanding of skills and funding deficits. be too risky;
b) Power of governments: The financial industry
is critical to how governments execute their
COMPETITION IN THE FINANCIAL economic policies, controlling and often
INDUSTRY directing the flow of funds throughout the
Industry competitiveness economy. While, in most cases, governments do
Although similar to other industries in many not intervene in day-to-day financial operations,
respects, such as being subject to the same laws they sometimes intervene directly as, for
of supply and demand, the financial industry is example, occurred with the massive injections
also unusual because it is very highly regulated. of stimulus funding during the COVID-19
And regulation and government ‘intervention’ pandemic.
distort the competitive landscape, unfortunately
to the detriment of new entrants into the industry, Before proceeding, it should be noted that Porter’s
especially start-ups. model is, in fact, a ‘risk model’ identifying some
Figure 1 shows Michael Porter’s classic model39 of the key sources of risks for companies in any
of ‘industry competitiveness’ with the addition industry.
of regulation and government intervention. The Figure 1 illustrates that the greatest risks to
classic model consists of five forces that shape existing companies (or incumbents) are first from
competitiveness in an industry: other incumbents and then from the power of
customers not only to withdraw their custom but
1) Internal rivalry: Constant competition between also, because they are voters, they can pressurise
existing incumbents, as they jostle for share of a governments to intervene on their behalf, most often
particular industry sector; through regulators.
2) Threat of new entrants: The impact that new Unfortunately for start-ups, in Porter’s model,
entrants into an industry will have on the they are most often new entrants and hence
McConnell
Figure 1: Porter’s five forces model of industry of competitiveness40 (enhanced)
will experience hostility not only from existing of risks exhausts their capital. In general, the more
companies but also from regulators, until they can customers a financial company has and the wider
be proven to be safe. If, however, new entrants those customers are dispersed, geographically and
can win over customers with superior products economically, the safer and more profitable the
and services, they can use the bargaining power company will be.
of buyers/customers to help remove the barriers to The history of banking over the past 100 years has
entry built to exclude them. To break down the been of consolidation, through mergers or takeovers,
not-inconsiderable barriers to entry, the founders of creating larger and larger banking behemoths.41,42
start-ups must understand the many and significant Often this has been driven by government policies,
risks facing them. such as the deregulation agenda of the Thatcher
government in the UK in the 1980s, but has also
been driven by large financial institutions acquiring
Incumbents banks and insurance companies in several countries,
In the financial industry, scale is essential to success. to create so-called ‘universals banks’.43,44
For example, banks need very many customers to In many countries, this has resulted in a small
continue to pay their mortgages to cover for those number of banks (2–5) dominating not only the
relatively few who default. Similarly, insurance local financial systems but also local stock markets.
companies need the majority of their customers not For example, in 2021, four of the top 10 companies
to claim on their insurance policies to cover those by market capitalisation on the Australian Securities
who need to make expensive claims against their Exchange (ASX) were the ‘Big 4’ banks and five
policies. Financial companies, then, must work of the top 10 stocks listed on the Toronto Stock
constantly to diversify their risks so that no one set Exchange (TSX) were the ‘Big 5’ Canadian banks.
In addition to these extremely large banks, there are companies in financial services and have opened
often many quite substantial ‘second tier’ institutions what have been called ‘sandboxes’, such as that
and smaller banking groups, such as credit unions created by the UK Financial Control Authority
and mutual banks. (FCA).45 The concept of this regulatory sandbox,
It is extremely unlikely in such a situation, and others created by other regulators, is to allow
therefore, that, however well-funded, a start-up ‘businesses to test innovative propositions in the
would be able to displace even the smallest of market with real consumers’. The purpose is to
incumbent institutions, unless the business models ensure that start-ups have a realistic understanding
of those competitors are unsustainable. This would of what is expected by regulators of the operations
suggest that a start-up should aim for a less risky of the products they are planning to sell into the
‘niche’ strategy, concentrating on filling gaps in financial markets.
existing services. It should be noted, however, that access to
such sandboxes is severely limited, not least by the
amount of work required from regulators to monitor
Regulators the operations, and so, to be accepted, planning and
For all financial companies, regulation is a constant implementation must be already well advanced on
pain point. From their perspective, there appears the part of the start-up. A well-articulated strategy
to be a seemingly endless stream of proposals, that demonstrates understanding of the customer
consultations and directives for different regulations segments and products being targeted by the start-
from a myriad regulators. Figure 1 lists some of the up will be essential for acceptance into such a
important regulators that financial firms must by law programme.
deal with:
• Prudential: Ensuring that companies remain Customers

safe, ie have sufficient capital to fulfil their legal It is obvious that customers are critical to any
requirements; industry, as they purchase the products and services
• Conduct: Ensuring that companies deal fairly with that make incumbents in an industry profitable
customers; in the long term. It is also obvious that unless the
• Competition: Ensuring that companies do not products and services offered by a start-up appeal to
indulge in anti-competitive practices; a particular need for a particular set of customers (ie
• Money laundering: Ensuring companies comply customer segments), it will have difficulty achieving
with all anti-money laundering (AML) laws; its strategic objectives.
• Corporations: Ensuring that companies comply
with all corporations laws, especially shareholder
and market reporting; Customer segments
• Privacy: Ensuring that companies comply with all Not all potential customers of a start-up have the
privacy legislation; and others. same financial needs and, what is more, the financial
needs of customers change over time, typically,
This means that start-ups aiming to provide but not exclusively, as they age. It is not a complete
products and services to financial companies and/ parody to suggest that predominantly younger
or their customers must take into account the customers seek experiences, for example travelling,
regulations involved. And to further complicate this and financial assistance to undertake education and
already complicated situation, regulations are not to gain employment; younger adults require help
consistent across jurisdictions, which means that it is in saving towards purchasing a home and starting a
difficult to move services and products easily across family; middle-aged customers seek financial help to
borders. provide for their family and to expand their homes
Recently, some regulators have recognised and, if appropriate, businesses; whereas the elderly,
the significant barriers to entry faced by start-up if they have saved for their retirement and are
McConnell
comfortable, again seek experiences such as travel. • Internet: Online websites through which customers
These are average experiences, however, as there are can make enquiries and complete transactions;
many customers who will desire experiences and • Mobile phone: Access to Internet capabilities
continue their education throughout their lives. through mobile phone applications (apps);
The point is that potential customers tend to fall • Call centres: Services supplied by operators working
into broad segments, based, for example, on age. But in telephone call centres;
age is not the only segmentation; disposable wealth is • Agencies: Third-party companies that sell products
another, since, as a generalisation, richer people have or service customers on behalf of a financial
more disposal income than poorer people and have institution;
different financial strategies and needs. Although • Brokers: Agents who work on behalf of customers
technology does break down some geographic to identify solutions to their financial needs across
barriers, geographic location of customers is also multiple institutions — for example, mortgage
important, as differences in regulation then becomes brokers.
an issue, and hence a strategic risk.
When considering customer segments, it is often Each of these types of delivery channel has very
a mistake for founders of a start-up to consider different cost structures and will support different
themselves as being somehow representative of a customer preferences and also different product
particular segment (typically demographic): ‘if I types. For example, a simple payment service can
don’t like a particular service, “people like me” will (and often is) delivered over the Internet and mobile
also not like it, and there is a business opportunity’. phones, but high-end financial advice products
This might well be true, but cannot be ascertained are invariably delivered as a result of face-to-face
with any degree of certainty without objective interactions, such as offices/branches, agencies and
research. brokers. Invariably, all firms today will need some
And of course, commercial businesses come sort of call centre capability but that can range
in all shapes and sizes and have quite different from producing information as simple as an account
financial needs, such as factoring (ie selling invoices), balance to offering complex advice over the phone
trade finance and foreign exchange. Furthermore, (itself risky from a regulatory perspective).
businesses differ from industry to industry, especially Again, wary of being caught ‘in the middle’,48
as regards finance for developing factories, mines, founders of start-ups should understand the costs,
real estate, etc. benefits and risks of each type of delivery channel
In short, customers come in all shapes and sizes and neither support channels that add little value nor
and have quite different financial needs that change abandon channels that are attractive to the target
over time, and hence access to different financial customer segments.
products. It would therefore be risky (and expensive)
for a start-up to target a cohort of customers that was
too wide, at least initially, and, as Porter warns,46 Suppliers
end up getting ‘caught in the middle’. In traditional industries, suppliers typically supply
the raw materials that incumbents transform into
products to sell to customers. Suppliers also supply
Delivery channels the means of transformation, such as machines,
How will a start-up first engage and then sell to the and services, such as computer software. Suppliers
customer segment(s) it chooses to focus on? There tend to be a distinct set of companies that compete
are several mechanisms, or delivery channels,47 with other suppliers on the basis of cost and quality
through which customers can be engaged, including: of service where their customers are the industry
incumbents.
• Offices/branches: Physical locations to which In the financial industry, the model is a little
customers can go, the classic being a bank branch different, since suppliers can also be customers. The
network; raw material of finance is ‘money’, but that is also
the product supplied to customers. It is not unusual, will necessarily be limited in the range of knowledge
for example, for a customer to have a long-term and expertise in the markets they wish to tackle.
mortgage with a bank but also to supply the bank This is true even if the founders have significant
with short-term liquidity, in the form of money experience in one or more relevant area, since after
deposited in current and savings accounts or fixed- a time, as the company grows, they will need to hire
term deposits. In effect, the customer is, in small new less-experienced staff.
part, funding their own mortgage. This is part of So, even though it is obvious, start-ups must
one of the key functions of financial institutions, start small and then grow, but ‘growth is a risky
ie ‘maturity transformation’ or ‘lending long and strategy’.49 Where to start and where to grow? And
borrowing short’. To be allowed to take these equally, where not to start and where not to grow?
deposits, however, financial institutions are subjected As a starting point, Figure 2 shows four well-
to very tight prudential regulation to ensure that known models that are often used in strategy
they do not fail and hence lose their depositors’ development.
money. Box 1 in Figure 2 shows Porter’s four ‘generic
Any start-up that is planning to accept customers’ strategies’50 or ‘strategic directions’51 which ‘actively’
money, even for a short time, must become position a company within the context of a generic
reconciled to the fact that they may be subjected to strategy. These four ‘generic strategies’ are organised
possibly stringent regulation and practical constraints along two dimensions:
on their operations. Regulation costs money and
start-ups must plan, if they will be regulated, to 1) Competitive scope: Whether the company is target-
address the very real costs of regulation, as they ing a ‘broad’ market, such as retail customers, or a
develop their strategy. ‘narrow’ one, such as high-net-worth individuals
(HNWIs);
2) Competitive advantage: Whether the company aims
Substitutes to achieve ‘lower costs’ than its competitors or to
As noted previously, financial regulators tend to ‘differentiate’ itself from its competitors.
be wary of, and hence limit access to, financial
markets, by both new entrants but also substitutes. These dimensions are distinguished by:52
An example of potential substitution in the financial
industry is the rise of cryptocurrencies which after 1) Cost: Strategies to become the ‘lowest-cost’
some time have begun to enter the ambit/spotlight organisation in a company’s selected market
of financial regulators often cracking down on the segment(s);
activities of crypto markets (which is beyond the 2) Differentiation: Strategies to develop a ‘uniqueness
scope of this paper). along some dimension that is sufficiently valued
by customers to allow a price premium’;
3) Focus: Strategies that ‘target a narrow segment or
domain of activity [that] tailors its products or
GENERIC STRATEGIES FOR services to the needs of that specific segment to
START-UPS the exclusion of others’.
Strategic positioning
Inevitably, start-ups start with a fairly ‘clean sheet’. The four generic strategies in Porter’s model53,54 are:
They do not, however, have the funding of existing
players in the markets they are considering entering, 1) Cost leadership: Becoming the lowest-cost organ-
meaning many strategic options, such as building a isation in a broad market segment, such as low-
huge factory or opening a number of new offices to cost payments in retail banking;
serve new markets, are just not available to them. 2) Cost focus: Becoming the lowest-cost organisation
Because start-ups are usually limited initially to a in a narrow market segment, such as low-cost
small set of skills, often those of the founders, they international payments in corporate banking;
McConnell
Figure 2: Some strategy development models
3) Differentiation: A strategy that involves developing many sides as the customers’ perception of the value
unique products and services to a broad market, provided becomes blurred’.56
such as ‘global custodian’ services provided to Box 2 in Figure 2 shows what is known as
investment institutions and hedge funds by an Ansoff’s Growth Matrix.57 This model, which is
asset management business; in fact a ‘risk model’, shows a way of considering
4) Differentiation focus: A strategy that involves how to grow a business along two dimensions:
developing unique products and services to a markets and products; depending on whether the
(usually very) narrow market, such as ‘concierge’ markets and products are ‘existing’ or ‘new’. For a
services provided to HNWIs in a private bank. start-up, however, everything is new, so the only
real option is what Ansoff calls ‘diversification’ or
It is obvious that taking a lead position in any market ‘differentiation’, which is recognised as being the
is implausible for any start-up, especially a sector riskiest of the four alternatives.58
dominated by large and profitable incumbents. In short, Boxes 1 and 2 show that unless a
Therefore, it is extremely risky for any start-up to start-up is positioned to take a narrow focus of
target a broad market and should, for the foreseeable the products and markets in which it plans to
future, concentrate on a narrow market segment, compete, and to truly ‘differentiate’ its product(s)
preferably by providing differentiated products. from competitors, it will, even with funding, face
It is important to note Porter’s warning that probably insurmountable risks from the presence of
perhaps the greatest risk in any strategy is being incumbents.
‘caught in the middle’.55 If a company selects ‘a Box 3 in Figure 2 shows what is called the
strategic position that is neither lowest cost nor truly product life cycle, which illustrates how all products
differentiated, it can be attacked by competitors from go through a life cycle from growth to eventual
decline. So, the ideal timing for a start-up to disruptive technology is beginning to appear. But,
introduce a new product to market would be just as unfortunately, although elegant, neither the product
the product is taking off in popularity. Too early and life cycle (Box 3) nor S-curve (Box 4) show real
the company will need to wait possibly too long to timeframes, and so the times to achieve maximum
obtain reasonable returns and potentially run out of growth or possible replacement are unknown. In
funds; whereas too late and too crowded (at the top effect, this means that a start-up must not only have
of the curve), the returns will tail off, possibly not a deep understanding of the current market for the
covering initial investments. Of course, the time to types of product that the founders are thinking
grow and the point of decline are not known until of introducing, but also have some understanding
much later so the optimum position is uncertain. In of what competitors and future competitors are
short, introducing a new product into any market developing.
will inevitably be risky. If, as Boxes 3 and 4 show, unless the founders
The final Box 4 in Figure 2, the so-called of a start-up take the time and make the effort to
S-curve,59 shows another risk, that a new product understand how their specific products will not only
may not reach full maturity but be overtaken by grow but, more importantly, survive in the markets
new, and better, products or so-called ‘disruptive being targeted over the next several years, they will
technology’. Competition increases the rate of face significant, even potentially devastating, risks of
innovation in an industry and Clayton Christensen60 failure.
identifies what he calls the ‘innovator’s dilemma’,
in which, despite being first into the market,
an innovation is fairly quickly overtaken by
STRATEGIC POSITIONING RISKS
copies from nimble competitors, often before the
Strategic competitive risks in finance
development costs of the innovation are recouped.
Innovation, then, is like a military arms race, where In the financial industry, there are a number of
technological superiority can be fleeting. key external factors, or ‘risk drivers’, that may
In such a rapidly evolving environment, it be grouped into four ‘risk domains’, of ‘strategic
becomes very difficult to remain profitable as competitive risks’, as described by Simons:62
products may not even return their development
costs (ie break even) before they become obsolete. 1) Customers: The factors related to customer seg-
Christensen also warned of what he termed ments that create risks for a company’s strategy,
‘disruptive technology’, which refers to technology such as customers’ preferences for accessing
that has been developed in one firm or industry services, or the rate of adoption of new technol-
that displaces the technology in another industry, ogies by customers;
making the existing products obsolete. An example 2) Suppliers: The factors related to suppliers of
of such disruptive technology in the banking services and resources, especially capital and
industry was the automated teller machine (ATM), liquidity, which create risks for a company’s
which displaced the cumbersome teller systems strategy;
that dominated banking before the computer era.61 3) Regulators: In financial services, regulators are
In turn, many of the functions of the ATM have both key enablers and constraints, determining
been replicated by merchants’ electronic funds how companies can operate, especially as regards
transfer at point of sale (EFTPOS) terminals, which customers and the products sold to them;
allow retailers to dispense cash directly to bank 4) Competitors: In financial services, competitors play
customers. Increasingly, the functions of the ATM a number of other roles, as noted above, not least
and EFTPOS terminals are also being replicated by providing liquidity in the financial markets.
Internet banking.
From a start-up perspective, an ideal time Each of these four domains of competitive risk gives
to introduce a product to market might be just rise to many other types of risk — in particular,
as new products are replacing older ones, or significant strategic risks.63
McConnell
While it is obvious that some key risk drivers customer segments, product sets and delivery
will be unique to a particular domain, such as the channels, including estimates of uncertainty;
impact of demographics in the customer domain, c. The current cost structures of customer
other drivers, such as technology, will affect all delivery channels and most plausible estimates
domains. Common risk drivers will have quite of the expense variability of operating in these
different consequences, however, and hence create markets, customer segments, delivery chan-
different strategic risks in each domain. For example, nels, product sets and delivery channels,
Internet technology will permit customers to access including estimates of uncertainty;
products and services faster and less expensively, d. The costs of initial entry and potential early
potentially moving to a competitor if a firm does exit from these markets, customer segments
not react positively. On the other hand, technology and product sets, including estimates of
in the supplier and regulatory domains will involve uncertainty;
standardisation of information exchange, rather than e. The regulatory characteristics of these mar-
innovation. Of course, competitors may be adept at kets, customer segments, product sets and
using new technology, not to affect a firm directly delivery channels, including estimated cost
but to target its customer segments. structures;
Appendix A, Table A.1 gives some examples of f. The costs of funding to support entry into
generic strategic risks in these four domains. these markets, customer segments, product
So, in summary, to reduce the risks of failure sets and delivery channels, including esti-
to develop a viable strategic position, founders of a mated liquidity costs;
start-up should clearly: g. The likelihood and costs of ‘defaults’/failures
to deliver by customer segment, including
1) Identify, with some degree of specificity, the estimates of uncertainty;
markets in which they wish to compete and h. The costs of management overheads and bor-
customer segments they wish to target, ideally with rowing costs, including estimates of uncer-
a narrow, rather than a broad, focus. The wider tainty;
the set of customer segments, the greater the risk i. The costs of operations such as staff remu-
of failure; however, the narrower the market, the neration, premises, information technology
greater the risk of not making sufficient returns; hardware and software and borrowing costs,
2) Identify, with some degree of specificity, the set including estimates of uncertainty as business
of products they wish to develop and introduce is ramped up over time;
to their target customer segments, ideally with a j. Other costs/income that are specific to the
clearly differentiated set of product capabilities. venture, such as, for example, royalties or
The wider the set of products, the greater the branding.
risk of failure, but the smaller the product set, 4) For each strategic option, develop a model of
the greater the risk of not making sufficient profitability over time (to the ‘strategic horizon’),
returns; ideally using Monte Carlo Simulation (MCS)
3) Analyse in great depth the characteristics of the techniques to illustrate the effects of uncertainty
markets, customer segments, product sets and to the viability of the strategy, as described in
delivery channels that the founders wish to McConnell.65
develop and market to, over time (eg five years)
— in particular: This, of course, is a huge and daunting amount of
a. The current size and most plausible growth information to be collected, validated and analysed.
estimates of these markets, customer segments, The failure to collect such critical information,
product sets and delivery channels, including however, opens the founders of and investors in a
estimates of uncertainty;64 start-up to significant risks of failure and personal
b. The current revenues and most plausible costs in failing to identify a viable strategy for their
estimates of price variability of these markets, venture.
STRATEGIC EXECUTION RISKS ‘The fascination with strategic planning is built on the
Most of the funds, toil and sweat expended in any mistaken belief that if the strategy is right, exceptional
start-up will be in the execution of the original performance will automatically follow.’ [Emphasis added]
concept, whether articulated in a formal strategy
Strategic execution is primarily about the
or not. But executing any strategy is replete with
management of resources (skills and capital) which
risks. It is obvious that if strategic objectives are
will inevitably be scarce even in a large successful
not articulated then they will not be met, and the
company.70 For a start-up, wasted resources will
start-up will likely fail. But it is equally obvious
decrease the resources needed to succeed; the greater
that even if objectives are clearly defined, without
the waste, the more likely a start-up is to fail.
the necessary resources (including funds, skills and
The topic of strategy execution is enormous
importantly, time) they will not be achieved, and the
and beyond the scope of this paper, other than to
venture will fail or at best limp along with minimal
emphasise that without clear strategic objectives
returns to investors.
articulated in a coherent strategy, the chances of
In their classic work on strategic execution,
success are greatly diminished, or in this context
Kaplan and Norton66 summarised the dilemma:
the risks of failure are greatly increased. There
‘A visionary strategy that is not linked to excellent are, however, good practical references as to how
operational and governance processes cannot be implemented. to improve the success of strategic execution,
Conversely, operational excellence may lower costs, especially MacLennan,71 Kaplan and Norton,72 and
improve quality, and reduce process and lead times; McConnell73 identifies some of the major strategic
but without a strategy’s vision and guidance, a company is execution risks.
not likely to enjoy sustainable success from its operational
improvements alone.’ (Emphasis added)
In a comprehensive study of the research into, and STRATEGIC GOVERNANCE RISKS

the literature on, strategic execution, MacLennan67 What skills are needed to develop and implement a
described the difficulties of strategy execution as workable strategy for a start-up? McKeown74 argues
relating to: that superior skills are needed to develop a strategy:
‘Strategists think about the big picture. They consider

‘How planned strategy is translated into the concrete
more than the list of things to do, or the production
activities that will actually cause its realisation and
schedule, or the plan for the next few months.
how more emergent activities can be aligned with
Strategists are interested in the long term – what’s
overall objective [….] Strategy execution is not only
going to happen in a year, decade and century.
difficult; it is poorly understood, intertwined with many
They are also interested in things that are happening
organisational processes, takes a long time, involves lots of
outside of their company, country and industry.’
stakeholders, and often must reflect the decisions made
by others (e.g., executives and strategic planners). It
requires discipline, persistence, and patience.’ (Emphasis MacLennan75 describes the ‘unusual skills and
added) personality traits’ needed for strategy execution:
‘Managers [must] be able to connect concepts and

It also appears that many boards do not have a
concrete actions – to see both the big picture and
systematic approach to executing strategy. But that
the detail. It necessitates enthusiasm for the creative
is hardly surprising, because even the boards of large novelty of planning, the discipline of delivery, and
companies do ‘not do strategy very often’68 and attention to detail for completion. It is probably the
many starry-eyed founders of start-ups will never case that few people possess the personality traits
have managed large-scale efforts. MacLennan69 and learning styles that cover this diverse range of
found that many directors and senior managers requirements.’
appear to assume that having developed a strategic
plan, the job is done: McConnell76 notes that
McConnell
‘formulation of a workable strategy requires deep l. Analytical skills: Ability to diagnose prob-
understanding of the industry, the firm’s competitors, lems in the internal and external
technological advances, customer demographics, environments;
regulatory initiatives, economic drivers and a host of m. Operational skills: Ability to effectively operate
other factors.’ ‘business as usual’ and, at the same time,
integrate new processes.
Development and execution of any strategy, then,
requires some highly sophisticated skills that are The deployment and management of the skills
difficult to find and necessarily must come with a needed to achieve long-term strategic goals forms
deep understanding of, in this case, both finance and part of what is called ‘corporate governance’, which
technology.77 There is a need to maximise the use is a huge field of activities, ranging from ensuring
of such rare skills to achieve the desired ends of the that a company obeys all relevant laws to ensuring
company. that activities are geared toward maintaining
McConnell78 identifies some of the ‘hard and shareholder value over time.81,82
soft skills’ needed to be successful in developing and Here, we are looking at just one very important
executing any strategy, which include: part of corporate governance — that of the
governance and management of the strategy
1) Strategic positioning: process.83 Developing and executing a strategy
a. Strategic thinking: Ability to see ‘the big is a ‘process’, albeit a complex, messy one, that is
picture’;79 replete with so-called ‘strategic governance risks’.84
b. Industry knowledge: Experience in and deep Here, we do not describe in detail the complex
knowledge of the industry and sector(s) in governance processes, which oversees all aspects of
which the company operates; the development and execution of a strategy and
c. Analytical skill: Ability to analyse complex the monitoring and mitigating of the many risks
situations; to its execution, but focus on strategic governance
d. Creativity: Ability to think ‘outside the box’, risks.
yet with a degree of common sense that Apart from failing to recognise that a strategy
rejects unreasonable ideas; is needed, one of the most obvious — but often
e. Financial expertise: Understanding of finance overlooked — risks to developing a workable
as it relates to the company and the industry; strategy is to fail to recognise that ‘strategy is a
f. Communication: Ability to communicate process’ that requires a formal beginning and
complex concepts to experts in other fields; end and outputs, especially describing: a strategic
g. Influencing: Ability to construct persuasive position; a target ‘business model’;85,86 a set of
arguments for and against strategic options. strategic objectives; and a high-level plan to achieve
2) Strategic execution: these objectives.
h. Project management skills: Ability to manage Developing a strategy is not about dreaming up
complex and overlapping programmes of a snappy ‘mission statement’ but, instead, doing the
work;80 hard work needed to ensure that when scarce funds
i. Negotiating skills: Ability to negotiate are being disbursed, they are being allocated with
sustainable outcomes with internal and a clear objective in mind. It is the responsibility of
external groups; the directors and managers of a company to ensure
j. Change management skills: Ability to make that the necessary due diligence is undertaken to
significant changes to an organisation, in ensure that their corporate strategy is developed
particular its corporate culture; in such a way to maximise success and minimise
k. Monitoring skills: Ability to monitor execution failure.
of the strategy, in particular to identify McConnell87 describes key questions that help
potential problems before they become identify a large number of strategic governance risks,
serious; which include:
Strategic positioning: Governance risks examples of companies that have succeeded in

• Is there an agreed process for developing the a particular industry niche or venture, with the
strategy?; implication that if a start-up follows that recipe,
• Have the responsibilities for developing and they will inevitably succeed. But all companies face
agreeing the strategy been clearly articulated?; different problems, based on their unique position
• Have any skill deficiencies been identified and and capabilities, so case studies that illustrate only
action taken to acquire the necessary skills?; successes do not show the whole picture.
• Have dedicated and appropriately skilled resources In this section, we consider three start-ups,
been assigned to developing the strategy?; in different parts of the financial industry. The
• Has a formal strategic risk management process companies have been chosen deliberately because
been agreed and set up?; funding has not been a problem. It makes little sense
• Has a formal audit and review plan been agreed?; to compare start-ups that have failed because of lack
• Has a plan for formal assessment of the strategic of access to ongoing funding as, without a detailed
execution plan been agreed?; knowledge of internal discussions (typical for a start-
• Has a formal documentation system for up), one cannot determine exactly which factors led
recording assumptions, discussions and decisions to the failure to find long-term funding.
been set up?; For the first case, that of Stripe, a US-based
• And many others. payments provider, the founders were linked into the
Silicon Valley venture capital eco-system early on
Strategic execution: Governance risks and had some well-known mentors from the outset.
• Has a formal mandate been agreed by all The second case, that of Egg PLC, was backed
stakeholders for implementing the strategy?; from the outset by a very large insurance company,
• Is there an agreed process for executing the strategy?; with deep pockets. The last case, TransferWise, a
• Is there an agreed process for monitoring the successful European international payments start-up,
execution of the strategy?; originated out of a previous success story, and which,
• Has a process for conducting formal strategic at the time of writing (early 2021), is rebranding to
reviews been agreed?; address new markets.
• Have processes for conducting a detailed strategy By necessity, any analysis of a case is at a ‘point
assessment been agreed?; in time’ and does not indicate that future events
• Has a process and criteria been agreed to may not dramatically change the nature of the case;
determine why, and in what circumstances, a however, this does not only apply to start-ups, but
strategy may have to be abandoned and a new also to established companies — for example, the
strategy development initiated?; spectacular fall from grace of Lehman Brothers,
• And many others. which was a leading and well-respected Wall Street
company until its well-publicised failure due to
Without understanding the critical roles of corporate failure to manage its strategic risks.88
governance and risk management in strategy
development and execution, founders of start-ups
will not know whether their efforts will create Stripe
success or identify the risks to achieving success. The backstory of the payments provider Stripe is the
stuff of start-up dreams. The company was founded
in 2010 by two young IT whizz-kid brothers from
CASE STUDIES Ireland, Patrick and John Collison, who had dropped
Because strategy is so complex and tied to the out of prestigious universities to set up an online
specific situation of a specific company in a specific website company, before starting Stripe. Although
industry, examples tend to be generic, which is why in 2020, the company was still held privately, the
case studies are often used in explaining concepts. brothers, in their early 30s, were already estimated
Most often, however, case studies are used to show to be multi-billionaires.89
McConnell
So, what did the founders and managers of As a benchmark, in 2021, both Stripe and PayPal
Stripe do right (or not do wrong), to achieve this charged a not-insubstantial fee of 2.9 per cent of
spectacular success? the transaction value plus a fixed fee of 30 cents for
As noted earlier, a key strategic risk for start- domestic payments (and more for international). One
ups is failure to obtain funding. Here, the brothers can see, then, that payments provision is a typical
have been very persuasive, or lucky, in that they retail banking business of both scale and scope:
were able to obtain early backing from well-known scale, in that profitability will be determined by the
Silicon Valley investors, including Elon Musk and volume of payments processed; and scope, in that
Peter Thiel, the co-founders of PayPal, an early the more markets and payments types are supported,
and successful payments provider. Stripe continues the greater the overall revenue will generally be.
to successfully attract funding from a variety of And while it is the merchant that pays the fees for
professional investor sources, valuing the company in each transaction, at least some of the transaction fee
2021 at some US$95bn.90 will be passed on to the end customer in the form of
Before discussing how Stripe became successful, it higher product costs.
worth describing the sector of the financial industry It is a relatively simple equation; provided that
in which the firm operates: the online or ‘merchants’ overall processing costs are less than fees charged to
payment sector. When a customer makes an online merchants, profitability will follow and the greater
purchase, they are usually asked for details of how the scale and scope of the operation, the more
the product is to be paid for. Likewise, when in a profitable the company will generally be.
physical store, if the customer does not want to pay So, with many firms trying to enter the payments
with cash, they are asked which card, or ‘electronic sector, how has Stripe seemed to have been so
wallet’, they wish to use at the merchant’s point-of- successful (to date), especially in attracting investors?
sale (POS) terminal. Stripe appears to have made some good strategic
As use of hard cash for payments for goods in stores decisions that reduced some of the major sources of
is (slowly) declining,91 the number of mechanisms strategic risks, depicted in Figure 3.
for paying electronically have grown enormously.92 First, as regards ‘strategic customer risks’.
In 2021, there are a multitude of ‘payment cards’ Although ultimately they provide the revenue for
of different types, including debit, credit, pre-paid, Stripe, the retail clients who purchase from the
store and charge cards. There are also ‘mobile phone websites or stores are not Stripe’s direct first-line
wallets’, from services such as Apple Pay and Google customers, but the merchants who operate the stores
Pay in which payments for goods can be made merely and websites that sell to those retail customers.
by swiping a mobile phone close to a POS terminal. Stripe has to keep these merchants happy. And,
In countries such as China, payment technology notwithstanding the fees charged, which must be
has ‘skipped a generation’ and customers have gone competitive in the market, merchants will be happy
straight to using mobile phone payment technology, when customers are able to pay for goods quickly
and offerings such as Tenpay and Alipay have gained and easily. On the other hand, merchants will be
dominant market share. unhappy if customers are unable to pay because their
The payments sector, then, is large and preferred method of payment is not supported and
growing larger, very fragmented, crowded and merchants will lose sales. So ‘scope’ — in this case,
is profitable, as payment service providers (PSPs) the number of different payment methods supported
typically charge the merchant a percentage of each — is a key customer (ie merchant) requirement. It
transaction’s value to execute the payment. It is is also vital that the service provided is efficient, fast
also a very opaque market, as PSPs’ fees are not and very secure, as real money is being exchanged.
always made public, but can range from around 0.5 While the merchant is the ultimate customer,
per cent to 2 per cent or more.93 Fees also differ Stripe chose to target not the sales but the IT
according to whether a POS terminal or online function in the merchant’s organisation, on the
mechanism is used and whether a payment is principle that if access to payments was made
international or not. relatively easy and reliable, IT developers could get
Figure 3: Key dimensions of strategic risk in finance
on and develop programs to handle real business the product because the company understands their
priorities. Stripe did this by specifically targeting development problems and also produces a suite
IT developers with easy-to-use technical tools and of additional tools, such as billing, to aid them in
superior documentation, and that ‘developer-centric’ developing technology solutions for their company.
strategy appears to have worked.94 As regards ‘strategic supplier risks’, Stripe made
So, in terms of Figure 2 (Box 1), Stripe’s generic a decision that, by choosing to implement their
strategy was a low-risk ‘narrow/differentiation focus’ technology on the Cloud, their financial risk would
and in Figure 2 (Box 2) with ‘existing products’ in be reduced. McConnell95 argued that, by utilising
‘existing markets’ was a somewhat risky ‘market so-called Cloud technology, companies can change
penetration’ strategy, competing against strong the capital expense (Capex)/operating expense
incumbents such as PayPal and major commercial (Opex) equation:
banks. As regards the product life cycle (Figure 2,
Boxes 3 and 4), the strategy was very much in the ‘Acquiring IT resources is no longer a matter of
middle of the product curve (Box 3) and also in the trying to estimate how much technology will be
middle of ‘disruptive technology’ (Box 4). required to support a business strategy when it is
The overall generic strategy for Stripe, then, fully operational, but instead becomes a problem
could be classed as ‘medium risk’, since by targeting of dynamically matching IT resources to business
a narrow customer segment, in which they were demands as they arise.’
also expert, customer risks were minimised,
provided that those customers were profitable. By utilising Cloud technology from Amazon Web
Stripe’s customers, ie IT developers, appear to like Services (AWS), Stripe has been able to closely tailor
McConnell
its IT hardware/software expenses to the actual Egg PLC

volume of transactions processed and hence to its The year 2004 was stunningly successful for the
revenue growth. Provided that a company closely 4-year-old FinTech start-up, Egg PLC.96 The
manages financial overheads, it is able, using Cloud Internet-only bank had just been listed as a separate
services, to tie profitability to growth. By relying so company on the prestigious London Stock Exchange
much on a third-party software service, however, (LSE) by its owner, the large UK insurance
Stripe opens itself to being copied easily by even company, Prudential. Despite reporting an overall
newer start-ups. loss of £17m for the whole Egg group, Egg UK
Stripe approached ‘strategic regulator risk’ delivered its first annual profit before tax of £35m,
by attempting to adhere to approved industry with much of the overall loss being due to the
standards, such as Payment Card Industry Data start-up costs of some £46.7m to enter the French
Security Standards (PCI DSS), as closely as possible. market. Two years previously, the Prudential annual
Adherence to such international standards has report97 stated:
additional benefits in that international expansion
is greatly eased and Stripe claims that it can handle ‘Egg continues to go from strength to strength.
payments in over 130 currencies from multiple The UK business is now profitable as well as
cards with automatic foreign exchange (FX) having almost 2.6 million customers and a five per
conversions when needed at a fee, over the mid- cent market share of credit card balances. This is a
market rate (see TransferWise below for further strong performance considering the business was
explanation). only launched just over four years ago. Egg has
Perhaps the greatest risks facing Stripe are now also successfully launched the first stage of its
‘strategic competitor risks’, as its competitors are international expansion in France.’
other intentional payment start-ups and large
incumbent banks. If a price war were to break In 2003, Egg reported ‘excellent progress’, with its
out, large institutions would have the scale and customer base rising to 3.2m with some 6 per cent
diversification of revenues to absorb losses for longer of the UK credit card balances. But 2004 was the
than Stripe in order to gain market share. apogee of Egg’s business trajectory and by 2006,
In 2019, Stripe decided to develop and sell a Egg had been sold to Citigroup for some £575m
merchant POS terminal. This is an initiative to in cash98 and was soon to disappear as a standalone
introduce a new product, which is similar to other entity.
products in the market, such as those of another What happened to derail such a seemingly
FinTech, Square, but, more importantly, similar successful company?
to those services provided by large banks. In other First, funding was not a problem, as Egg’s founder
words, the company is following a broad market and initial owner was Prudential PLC, a large and
deployment strategy with a low-cost focus (see deep-pocketed UK insurance company. Nor was
Figure 2, Boxes 1 and 2) near the top of the product technology, which appears to have been efficient
life cycle (Box 3). It appears to be a low-risk, low- and stable throughout Egg’s life; nor was it customer
return strategy designed to harvest some additional service, as Egg’s operations and call centres operated
income from its core infrastructure. effectively throughout its short spectacular life.
As with all start-ups, even those as apparently McConnell99 argues that the problems arose
well-established as Stripe, the future is uncertain. through failures to identify and manage strategic
The very attributes that have made Stripe successful risks, in particular strategic positioning risks.
to date — use of the Cloud, strict adherence to In 1998, at the very beginning of the Internet
standards, and a well-understood customer segment revolution, the far-sighted board of Prudential
— can be replicated, at a lower cost, by new decided to set up a new banking subsidiary, to be
start-ups and experienced incumbents alike. This called Egg, which was not to be burdened by the
illustrates that strategic risks do not disappear; they costs of a branch network as customers were to
merely change shape. interact with its staff via the Internet and call centres.
These platforms were to be used to ‘cross-sell’ the Egg’s management, however, were ignoring the
company’s insurance and investment products into signals and, in particular, appeared to be in denial
a new younger market.100 It should be noted that about the possibility of incurring significant credit
Prudential were far from banking neophytes as losses, repeatedly reporting that, for example, ‘the
they already operated a small traditional banking degree of deterioration in credit quality was at a
subsidiary and put in place extensive banking level substantially below the market’. But Egg’s
expertise in the new subsidiary. credit losses continued to grow, because the target
In its first year, Egg signed up almost 1m customer segment (young and technology-literate)
customers, and importantly appeared to be successful were no more likely to manage their debts than any
in attracting its desired customer segment:101 other demographic.
McConnell104 argued that Egg failed to manage
‘We have been able to reach a new type of customer, the credit risks in their chosen customer segment:
one who is computer literate and financially
discerning and who wants to benefit from the ‘Egg’s initial strategy was also based on a behavioural
combination of the best financial products the market bias called “denominator neglect” … in which
has to offer, and who uses internet services which fit people fixate on a numerator, such as the ‘number
in with their lifestyle.’ of customers acquired’, but ignore a denominator
such as “that are good credit risks”. For most of
In 2000, the board of Prudential had been just as Egg’s existence, management’s performance was
optimistic about Egg’s performance:102 measured on increasing the number of customers, not
increasing “good” customers – volume trounced risk
‘Customer acquisition has continued to grow rapidly management.’
with 559,000 net new customers joining Egg during
the year, giving an impressive customer base of To make matters worse, Egg appeared to be losing
just over 1.35 million at the year-end. Cross-sales money on each new customer that was acquired:
numbers are also showing encouraging signs, with
nearly 400,000 products cross-sold since launch ‘Hidden in the euphoria over Egg’s initial ramp-up
… Egg remains at the forefront of adopting latest of customers … was the fact that many of these
technology to open up new channels for customers customers were attracted by the high deposit rates
to access its services.’ offered by Egg at the outset. Egg was in fact losing
money from the start. Subsequently, in ramping up
In 2000, Egg had also announced an innovative joint its Internet credit card business, Egg offered below-
venture with Boots, the UK’s largest pharmaceutical market lending and zero-switching rates.’105
retailer, to market a joint loyalty/credit card aimed at
its target demographic. In 2005, when Egg began to implement industry
So, in terms of Figure 2 (Box 1), the generic standard credit risk management practices as regards
strategy was a ‘broad/differentiation focus’ and in loan repayment delinquencies and to revert to
Figure 2 (Box 2) with existing products in new market-level deposit rates, the growth in business
markets was a (risky) ‘market deployment’ strategy. stalled dramatically, income fell, losses mounted, and
As regards the product life cycle (Figure 2, Boxes 3 Prudential finally sold Egg in 2007, just short of its
and 4), the strategy was very much at the beginning tenth anniversary.
of the product curve (Box 3) resulting from So, in short, Egg failed because it did not manage
disruptive technology (Box 4). The overall generic the strategic customer risks resulting from an overly
strategy, then, would be classed as ‘risky’, which optimistic assessment of the quality of the customer
would have come as no surprise to the Prudential segment targeted in its strategic positioning.106
board. One lesson from the Egg case is ‘be careful
McConnell103 documented the dramatic growth of what you wish for’. Egg set out to capture a
of Egg’s customer base reaching over 3m customers particular customer segment and was fairly successful
in 2004 but then growth slowed dramatically. in doing so, but it underestimated the profitability of
McConnell
that segment and made losses sufficient to derail the communications company. The goal of TransferWise
entire strategy. Some of the more important strategic was laudable: to reduce the costs of international
risks with Egg’s strategy were: money transfers by charging a fixed fee (initially £1)
for a transfer at the ‘mid-market FX rate’.108
• Customer risk: As noted above, Egg made an FX is the largest financial market is the world. In
overly optimistic assessment of the profitability its 2019 triennial survey, the Bank for International
of its target customer segment. In 2003, flushed Settlements (BIS) reported that some US$8.3tr worth
with initial success, Egg announced that it had of FX contracts were executed each and every day,
‘launched the first stage of its international mainly through large international banks.109 Markets
expansion in France’ but had to retreat within for international FX transfers aimed at retail, rather
a year because that market segment was quite than business, consumers are also provided by travel
different from the UK and the ‘pivot’ failed; companies and specialists in small cross-border
• Supplier risk: One recurring issue for Egg was remittances, such as Western Union. It is an efficient,
the increasing cost of its IT equipment base, as secure and cost-effective market for medium to large
business volumes grew. It was compelled to keep business transfers but is perceived to be relatively
buying new equipment to match volume growth; expensive for small transfers. One of the reasons
• Regulator risk: As a UK bank, Egg was subject to for perceived high costs is that conversion rates are
stringent regulatory requirements including how normally quoted on a ‘spread’ basis, with companies
companies manage customer relationships, and offering to ‘buy’ a particular currency at a lower rate
was subject to fines resulting from the Payment than when ‘selling’; the midpoint between these rates
Protection Insurance (PPI) scandal;107 is called the ‘mid-market rate’. FX traders do this
• Competitor risk: Egg was competing directly with because FX rates are notoriously volatile, and traders
much larger incumbents and so was subject to do not want to be holding a currency when its value
intense competition, not least as regards deposit is falling as they will lose money on the ‘sell’.
rates, which Egg had to meet and which it chose, The founders of TransferWise hit upon the idea
to its eventual detriment, to exceed. of cutting out the middleman and putting people
who want to buy some foreign currency in contact,
The history of the growth, then demise, of Egg also through the Internet, with persons who are prepared
provides a warning to the founders of other start- to sell that foreign currency. For example, someone
ups. Risks and rewards are not contemporaneous. in the UK who wants to visit Europe (which uses
Often, as in the case of Egg, rewards, in the form Euros) would be put in touch with someone in, say,
of profits, come first, but in the background, risks Germany who wants to visit the UK (which uses
are growing and may eventually overwhelm the GB pounds). Because no actual foreign exchange
venture. took place, TransferWise would charge a fixed fee
Could the outcome for Egg have been different? for the ‘introduction’. In truth, this was not a new
Possibly. If the management of Egg had paid more idea, as it is the basis of the centuries-old ‘Hawala
attention to banking basics, such as managing money’ systems used in Asia,110 but TransferWise
credit and liability risks, the growth may have been brought the concept to the Internet. The strategic
less spectacular, but losses would not have been as risk to such a business model is that there are just not
eventually debilitating. enough customers wanting exact or near matches for
currency transfers to cover costs. And that happened
to TransferWise.
TransferWise/Wise In order to make such a transfer system work
TransferWise, which changed its name to ‘Wise’ in practice, an intermediary company, such as
and rebranded itself in 2021, was founded in TransferWise, must take a risk and hold currency
2011 by two Estonian technology entrepreneurs, for a time (sometimes seconds) before it can find
Kristo Käärmann and Taavet Hinrikus, who were a matching buyer or seller. This is the role of the
instrumental in developing Skype, the successful traditional ‘international payments’ company in
financial markets and, to continue to operate, retain property in their home countries. Compared
TransferWise became another company in this very to a domestic population, this is not a huge customer
crowded market, albeit one that maintained very segment, unless inroads are made into the foreign
low fees for small volumes of a narrow range of worker remittances markets (usually to third-world
currencies. countries). Parallel to the new branding, Wise has
It would be churlish and incorrect to call also established a relationship with Visa to permit
TransferWise’s business strategy a ‘failure’, especially easy access to Visa credit cards.
since the company has been profitable for four In terms of corporate strategy, as shown in Figure
years111 and the founders may be considering what 2 (Box 1) this appears to be a ‘differentiation focus’
looks to be a sizeable initial public offering (IPO) on a relatively small specific customer segment with
in future. But it is true that the original concept a ‘growth diversification’ strategy, Figure 2 (Box 2),
did not, and probably would not, work without the into relatively ‘new markets’ with relatively ‘new
company taking a small amount of currency risk. products’. As regards product life cycle, in Figure 2
In terms of market positioning, as shown in (Boxes 3 and 4), Wise appears to be positioned near
Figure 2 (Box 1), TransferWise has changed its the beginning of a new wave of multi-currency
‘generic strategy’ from differentiation to cost focus accounts, so growth is possible, even probable.
and within focus, is focused on being market leader What are the strategic risks with this new
in transferring smaller transfer amounts for a small strategy? There are, typically, many on each of the
number of currencies.112 This is a highly risky dimensions in Figure 3, including some of the most
position as it can be attacked relatively easily by new obvious:
entrants (ie other start-ups) and also incumbents
since, as shown in Figure 2 (Box 2), TransferWise • Customer risk: In particular, will Wise be able
it is now operating in ‘existing markets’ with well- actually engage a significant slice of the narrow
established ‘existing products’, so subject to intense customer segment it is targeting? For example,
cost management pressures in order to penetrate Wise does not provide any credit facilities and
well-established markets. it is possible, even likely, that, say, an expatriate
Before moving on, it must be noted that will not only need payments services but also
TransferWise operates in the so-called ‘spot’ market, credit services, such as overdrafts, in the country
ie transfers are ‘immediate’ (although many take 1–2 that they are relocating to;
days to actually complete). BIS113 reports, however, • Supplier risk: In particular, from MasterCard in
that only some 30 per cent of FX transactions are that the benefits of a MasterCard multi-currency
done at ‘spot’; the remainder are ‘forward’, such as debit card will be available to other competitors,
to pay for goods and services to be delivered at some including large incumbent banks;
time in the future. • Regulator risk: As Wise is actively targeting accounts
It would appear from their rebranding that the in addition to payments, anti-money laundering
founders of TransferWise, now Wise, are well aware (AML) regulations will become more important
of the strategic risks they are running and are planning and hence more expensive for Wise to handle;
to change at least some of their focus, while retaining • Competitor risk: Wise is at risk not only from
their existing international payments business. The incumbents, such as wealth management
main changes to date revolve around a new multi- subsidiaries for wealthier clients, but also from
currency account and a MasterCard debit card. new entrants that may be able, through trusted
It appears that a new customer focus for Wise third parties, to provide additional services, such as
is on individuals and businesses who ‘live, work, relocation support or multi-language translation
travel, or support family around the world’,114 such support for business.
as students, expatriate employees, small businesses
that operate in or sell to several countries, and As with Stripe and Egg, TransferWise is at an
frequent travellers. It is also aimed at people who inflection point in its growth, having ‘grown out’ of
have bills to pay overseas, such as expatriates who its original strategic focus to contemplate changing
McConnell
the direction of its strategy. The decisions the are radically changed, such as beyond the predefined
founders take and the risks that they recognise and range, then a formal strategy review should be
mitigate will be critical to Wise’s continued success. initiated, including updating and rerunning strategy
models with updated information.
The general principle, as noted above, is that
EVOLUTION OF STRATEGIES thinking is generally much less expensive than
For no other reason than every strategy is developed making mistakes, especially in haste.
in an environment of extreme uncertainty, it is
inevitable that somewhere during the evolution of a
start-up’s growth there will be a need to re-evaluate SUMMARY
and make adjustments to its strategy. Such ‘pivots’ Recognising that success is far from guaranteed
are dangerous, however, as without discipline they for any start-up, this paper argues that without
may be made in reaction to short-term problems managing the strategic risks that start-ups
or sometimes worse, successes. For example, Egg’s will inevitably face, the chances of failure are
disastrous foray into the French markets was in significantly increased. Development of a coherent,
reaction to a success (which turned out to be viable strategy is difficult even for seasoned
temporary) in the UK market.115 management professionals, but is necessary for
This means that any strategic objectives set for founders of and investors in any new venture. In
a start-up should not only be SMART, ie specific, particular, if the founders of a new start-up do not
measurable, attainable, realistic and time-related,116 understand exactly where in the markets they plan
but also SMARTER, ie SMART plus elastic and to position their products — their strategic position
range-bound. — they will waste their scarce resources in targeting
‘Elastic’ means that an objective can be moved up unachievable opportunities.
or down within a ‘range’ depending on a predefined The strategic opportunities open to start-ups,
condition. For example, an objective might be” especially in the financial industry dominated by
huge and profitable ‘incumbents’, are few, simply
‘Computer code for new functional features will be
because start-ups are small and just do not have
released once per month unless it is classified, and
the funding available to their major competitors.
agreed by senior management, as a “major” release
which may take three months (if estimated at more Developing a strategy, although a complicated
than three months, functionality must be split up undertaking, is, however, a ‘thinking activity’
across releases). Releases for bug-fixes are permitted requiring not a lot of capital, other than intellectual
weekly at the weekend, unless the system has failed, capital, and the courage to face reality and, where
in which immediate updates are permitted.’ necessary, dismiss cherished pipe dreams.
Having developed a ‘desired’ strategy that is
Such changes are operational and relatively minor, suitable, acceptable and feasible, the founders and
however, and the question of what happens if a managers of a start-up must critically analyse the
major SMARTER objective is missed, either well many and varied strategic execution risks that arise
below or well above expectations/specifications, in trying to achieve their desired strategic position.
must be addressed. While the tendency for a start-up The paper provides some references that discusses the
might be to grab every opportunity that arises, even complex issues encountered in executing a strategy
if it drags the long-term strategy off target, founders for a start-up in the financial industry.
must be wary of being dragged too far off course. To illustrate the concepts and pitfalls in
One way to ameliorate this is to undertake a formal undertaking such a risky project, the paper then
review of progress towards objectives (especially describes three start-ups and some of the risks that
costs and income) on regular basis, such as monthly, they encountered and either overcame or fell foul of.
and to undertake a formal strategic review of all It was not the purpose of this paper to frighten
objectives on a regular basis, such as six-monthly. If, entrepreneurs by the enormous task confronting
during a review, it is proposed that key objectives them, but instead to provide a rough road map of
some of the many pitfalls along their evolution, 10 Ibid., ref. 4.

arguing that it makes sense to try to avoid some of 11 Ibid., ref. 6.
the more obvious dangers. 12 Such a statement of a strategic position could
apply to, for example, so-called ‘Buy Now
Pay Later’ (BNPL) start-up Fintechs, such as
AUTHORS’ NOTE Afterpay.
The author reports no conflicts of interest. The 13 Rumelt, R. (2011), Good Strategy, Bad Strategy,
author alone is responsible for the content and Profile Books, London.
writing of the paper. 14 Ibid., ref. 3.
15 Mintzberg, H., Quinn, J. B. and Ghoshal,
S. (1995), The Strategy Process, Prentice Hall,
References and Notes London and New York.
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& Schuster, New York; Porter, M. E. (1985), Federal Reserve board, Washington, DC,
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5 Koch, R. (2006), The Financial Times Guide to Comptrollers Handbook’, Office of the
Strategy, 3rd edn, Pearson, Harlow. Comptroller of the Currency, Washington, DC.
6 McConnell, P. J. (2016), Strategic Risk 22 Ibid., ref. 6.
Management, Risk Books, London. 23 International Standards Organization (2009),
7 Yarger, H. R. (1985), ‘Towards a Theory of ‘ISO 31000:2009 – Risk Management –
Strategy: Art Lykke and the Army War College Guidelines on principles and implementation of
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College, Carlisle, PA, pp. 107–113, available at: 25 Ibid., ref. 6.
https://sta.uwi.edu/iir/normangirvanlibrary/ 26 Ibid., ref. 6.
sites/default/files/normangirvanlibrary/ 27 McConnell, P. J. (2017), Strategic Technology Risk,
documents/Toward%20a%20Theory%20 Risk Books, London.
of%20Strategy%20Art%20Lykke%20and%20 28 Ibid., ref. 6.
the%20U.S.%20Army%20War%20College%20 29 Ibid., ref. 27.
Strategy%20Model.pdf (accessed 27th October, 30 See programme and project models at Project
2021). Management Institute (2009), ‘Practice Standard
8 Ibid., ref. 5. for Project Risk Management’, Newtown
9 Collins, J. and Porras, J. I. (September–October Square, PN; Office of Government Commerce
1996), ‘Building Your Company’s Vision’, (2010) ‘Understanding Programmes and
Harvard Business Review. Programme Management’, UK Government,
McConnell
London; Office of Government Commerce 48 Ibid., ref. 4.

(2011), ‘Best Management Practice Portfolio’, 49 McConnell, P. J. (2013), ‘Strategic Risk – The
UK Government, London. Beanstalk Syndrome’, Journal of Risk Management
31 Ibid., ref. 23. in Financial Institutions, Vol. 6, No. 3, pp. 229–
32 Ibid., ref. 6. 252.
33 Evans, V. (2013), Key Strategy Tools, the 80+ Tools 50 Ibid., ref. 4.
for Every Manager to Build a Winning Strategy, 51 Ibid., ref. 3.
Pearson, Harlow. 52 Johnson, G., Whittington, R., Scholes, K.,
34 Ibid., ref. 16. Regnér, P. and Angwin, D. (2013), Exploring
35 Courtney, H., Kirkland, J. and Viguerie, P. Strategy Text & Cases, 10th edn, Pearson, Harlow.
(November–December 1997), ‘Strategy Under 53 Ibid., ref. 3.
Uncertainty’, Harvard Business Review. 54 Ibid., ref. 4.
36 Hall, R. E. and Woodward, S. E. ( June2010), 55 Ibid., ref. 4.
‘The Burden of the Nondiversifiable Risk of 56 Ibid., ref. 6.
Entrepreneurship’, American Economic Review, 57 The Ansoff Matrix was developed by H. Igor
Vol. 100, No. 3, pp. 1163–1194. Ansoff and first published in the Harvard
37 Kahneman, D. (2011), Thinking, Fast and Slow, Business Review in 1957, in an article titled
Allen Lane, London. ‘Strategies for Diversification’.
38 Kahneman, D., Slovic, P. and Tversky, A. (1982), 58 Ibid., ref. 6.
Judgment Under Uncertainty: Heuristics and biases, 59 Christensen, C. M. (2000), The Innovator’s
Cambridge University Press, Cambridge. Dilemma, Harvard Business School Publishing,
39 Ibid., ref. 4. Boston, MA.
40 Ibid., ref. 4. 60 Ibid., ref. 59.
41 Gardener, E. P. M. and Molyneux, P. (1993), 61 Ibid., ref. 27.
Changes in Western European Banking, Routledge, 62 Simons, R. (2013), Performance Measurement and
London. Control Systems for Implementing Strategy – Text and
42 Boot, A. W. A. and Thakor, A. V. (2010), ‘The Cases, Pearson Educational, Harlow.
Accelerating Integration of Banks and Markets 63 Ibid., ref. 6.
and Its Implications for Regulation’, in Berger, 64 Grant, R. M. (2015), Contemporary Strategy
A. N., Molyneux, P. and Wilson, J. O. S. (eds), Analysis: Text and Cases, 9th edn, John Wiley and
Oxford Handbooks in Finance, Oxford University Son, Chichester.
Press, Oxford. 65 Ibid., ref. 6.
43 Morrison, A. D. (2010), ‘Universal Banking’, 66 Ibid., ref. 2.
in Berger A. N., Molyneux, P. and Wilson, J. 67 Ibid., ref. 18.
O. S. (eds) Oxford Handbooks in Finance, Oxford 68 Ibid., ref. 6.
University Press, Oxford. 69 Ibid., ref. 18.
44 McConnell, P. J. (2015), Systemic Operational 70 Ibid., ref. 6.
Risk, Risk Books, London. 71 Ibid., ref. 18.
45 Financial Conduct Authority (2017), ‘Applying 72 Ibid., ref. 3.
to the regulatory sandbox’, London, available 73 Ibid., ref. 6.
at: https://www.fca.org.uk/firms/innovation/ 74 Ibid., ref. 16.
regulatory-sandbox-prepare-application (accessed 75 Ibid., ref. 18.
27th October, 2021). 76 Ibid., ref. 16.
46 Ibid., ref. 4. 77 Cummings, S. and Angwin, D. (2015), Strategy
47 Osterwalder, A. and Pigneur, Y. (2010), Business Builder: How to Create and Communicate More Effective
Model Generation: A Handbook for Visionaries, Strategies, John Wiley and Sons, Chichester.
Game Changers, and Challengers, John Wiley & 78 Ibid., ref. 6.
Sons, Hoboken, NJ. 79 Ibid., ref. 16.
80 Ibid., ref. 30. 95 Ibid., ref. 27.

81 Organization for Economic Co-Operation and 96 McConnell, P. J. (2014), ‘Strategic Risk
Development (2004), ‘Principles of Corporate Management – Scrambled Egg’, 29th
Governance’, OECD, Paris. International Business Research Conference,
82 Financial Reporting Council (2014), ‘UK Sydney, 24/25th November, available
Corporate Governance Code’, FRC, London. at: https://papers.ssrn.com/sol3/papers.
83 Ibid., ref. 64. cfm?abstract_id=2535685 (accessed 27th
84 Ibid., ref. 6. October, 2021).
85 Magretta, J. (May 2002), ‘Why Business Models 97 Prudential PLC (1998–2007), ‘Annual Reports for
Matter’, Harvard Business Review. different years,’ London, available at: http://www.
86 Ovans, A. ( January 2015), ‘What is a Business prudential.co.uk/investors/download-library/
Model?’, Harvard Business Review. annual-reports (accessed 27th October, 2021).
87 Ibid., ref. 6. 98 Ibid., ref. 96.
88 Ibid., ref. 49. 99 Ibid., ref. 96.
89 Bloomberg (2019), ‘Stripe brothers become 100 Ibid., ref. 96.
Ireland’s richest self-made billionaires’, available 101 Ibid., ref. 97.
at: https://www.bloomberg.com/news/ 102 Ibid., ref. 97.
articles/2019-09-20/stripe-brothers-become- 103 Ibid., ref. 96.
ireland-s-richest-self-made-billionaires (accessed 104 Ibid., ref. 96.
27th October, 2021). 105 Ibid., ref. 96.
90 Stripe (2021), ‘Stripe has raised a new round 106 Ibid., ref. 96.
of funding to accelerate momentum in Europe 107 McConnell, P. J. and Blacker, K. (Spring 2012),
and reinforce enterprise leadership’, available ‘Systemic Operational Risk the UK Payment
at: https://stripe.com/newsroom/news/stripe- Protection Insurance Scandal’, Journal of
series-h (accessed 27th October, 2021). Operational Risk, Vol. 7, No. 1, pp. 1–60.
91 Fortunly (2021), ‘Paper or Plastic? The Definitive 108 Techcrunch (2011), ‘TransferWise wants to be the
List of Cash Versus Credit Card Spending Skype of currency exchange’, available at: https://
Statistics’, available at: https://fortunly.com/ techcrunch.com/2011/01/24/transferwise-wants-
statistics/cash-versus-credit-card-spending- to-be-the-skype-of-currency-exchange/ (accessed
statistics/#gref, (accessed 27th October, 2021). 27th October, 2021).
92 McAndrews, D. H. (2010) ‘Payments Systems’, 109 Bank for International Settlements (2019),
in Berger, A. N., Molyneux, P. and Wilson, J. ‘Triennial Central Bank Survey of Foreign
O. S. (eds), Oxford Handbooks in Finance, Oxford Exchange and Over-the-counter (OTC)
University Press, Oxford. Derivatives Markets in 2019’, BIS, Basel.
93 RBA (2020), ‘The Cost of Card Payments for 110 Corporate Finance Institute (2021), ‘Hawala’,
Merchants’, Reserve Bank of Australia, Bulletin available at https://corporatefinanceinstitute.
– March 2020 Payments’, available at: https:// com/resources/knowledge/finance/hawala/
www.rba.gov.au/publications/bulletin/2020/ (accessed 27th October, 2021).
mar/the-cost-of-card-payments-for-merchants. 111 CNBC (2020), ‘$5 billion fintech firm
html (accessed 27th October, 2021). TransferWise posts fourth straight year of
94 Varon, l. (2020), ‘The Forrester Wave™: profitability’, available at https://www.cnbc.
Merchant Payment Providers, Q3 2020 The com/2020/09/22/transferwise-reports-fourth-
10 Providers That Matter Most and How They straight-year-of-profitability.html (accessed
Stack Up’, Forrester, Cambridge, MA, available 27th October, 2021).
at: https://www.forrester.com/report/The+F 112 Transumo (2020), ‘Top 6 UK Money Transfer
orrester+Wave+Merchant+Payment+Provide Companies’, available at https://transumo.com/
rs+Q3+2020/-/E-RES157319 (accessed 27th uk-money-transfer/ (accessed 27th October,
October, 2021). 2021).
McConnell
113 Ibid., ref. 109. 115 I bid., ref. 96.

114 Wise (2021), ‘World, meet Wise’, available at: 116 Day, T. and Tosey, P. C. (2011), ‘Beyond
https://wise.com/au/blog/world-meet-wise SMART? A new framework for goal setting’,
(accessed 27th October, 2021). Curriculum Journal, Vol. 22, No. 4, pp. 515–534.
APPENDIX A – SOME EXAMPLES OF STRATEGIC POSITIONING RISKS

Table A.1. Examples of strategic positioning risks
Strategic positioning Examples of risks Consequences
risks
Strategic customer Examples of risks that result from
risks interactions with customers
Failure to clearly identify target customer Will waste resources on unattainable customers
segments
Failure to clearly identify target products Targeted customers may not buy products and
and services services
Failure to clearly identify target delivery Will not reach potentially profitable customers
channels
Delivery channels may be too inefficient, Targeted customers may not use targeted delivery
costly or difficult for customers to use channels
Failure to identify customers’ needs Customer experience is unsatisfactory and
throughout the life cycle, from customers may not take up a product
advertising to post sales service
And many other risks
Strategic supplier Examples of risks that result from
risks interactions with suppliers
Failure to clearly identify target suppliers Supplies may be volatile and inherently unreliable
Failure to engage target suppliers Suppliers may increase costs
Supply may be constrained by market Supplies may be volatile and inherently unreliable
forces/regulation
Strategic regulatory Examples of risks that result from
risks interactions with regulators
Failure to clearly identify regulators and/ Regulators may refuse a license to operate
or their attitude to start-ups
Failure to maintain sufficient regulatory Regulators may increase/change capital
capital requirements
Failure to identify suitable customer Regulators may introduce sales restrictions
segments
Failure to adhere to product marketing Regulators may impose large fines for misselling
regulations
Strategic Competitor Examples of risks that result from
Risks interactions with competitors
Failure to clearly identify competitors, Competitor(s) may introduce superior products
their competitive strategies and/or their Competitor(s) may introduce new/better delivery
attitude to start-ups channels
Failure to clearly identify potential new New competitors, not burdened with expensive
competitors, their target markets and infrastructure, may emerge
products
Failure to identify potential new New technology may disrupt the industry and
technologies and its potential impact on derail the start-ups’ business strategy
target markets and products
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The strategic risks facing start-ups in

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1) Strategic positioning risk: The risk that, in defining

Figure 1: Porter’s five forces model of industry of competitiveness40 (enhanced)

• Prudential: Ensuring that companies remain Customers

Figure 2: Some strategy development models

In a comprehensive study of the research into, and STRATEGIC GOVERNANCE RISKS

‘Strategists think about the big picture. They consider

‘Managers [must] be able to connect concepts and

Strategic positioning: Governance risks examples of companies that have succeeded in

Figure 3: Key dimensions of strategic risk in finance

its IT hardware/software expenses to the actual Egg PLC

some of the many pitfalls along their evolution, 10 Ibid., ref. 4.

London; Office of Government Commerce 48 Ibid., ref. 4.

80 Ibid., ref. 30. 95 Ibid., ref. 27.

113 Ibid., ref. 109. 115 I bid., ref. 96.

APPENDIX A – SOME EXAMPLES OF STRATEGIC POSITIONING RISKS

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