I completed the “Emma” post with the following lines – Many of the WealthTechs will be sold or shut down. They don’t love this business or your clients like you do. 

So, I was not surprised to learn last week that iFast Financial decided to shut down their primary platform and close its India business. While regulatory changes have been cited as the reasons behind their decision, the real reasons seem to have been a series of strategic mistakes and blunders right from the start. The objective of this post is not to cover these strategic mistakes but to highlight some insights for you.

Just because a business is successful in one market (with one business model and offering) does not make the firm successful in another market (with the same business model and offering). The Starbucks Australia story highlights this very well.

With around 34,000 locations (including other segments such as Siren Retail and Teavana), Starbucks is the largest coffee company in the world. But since entering Australia in 2000, they have lost hundreds of millions of dollars and struggled to expand.  

The Wolf of Franchises @franchisewolf (twitter account) explains why the king of coffee lost in Australia.

“Starbucks was founded in Seattle in 1971. It started as a single shop selling coffee beans and equipment to gourmet coffee lovers. After an early employee named Howard Schultz visited Milan in the eighties, he bought out the original 3 founders to reinvent Starbucks. He noted 3 characteristics of Italian café culture:

• Smiling baristas
• Customer camaraderie
• A wide-ranging menu of espresso-based drinks

So, he converted the existing Starbucks into cafes to replicate what he saw in Italy. He expanded aggressively and Starbucks IPO’d in 1992 with around 140 stores.

By 1999, they had around 2,500 stores and a presence (besides the US) in China, Japan, UK, New Zealand, Philippines and so on. They seemed invincible.”

What could go wrong then? Nothing – Australia would be a cake walk too. Until Australia happened in July of 2000 when Starbucks opened their first store in Sydney. Just like the US, they quickly grew to 87 stores by 2008. But there was one big problem – $105 Million in Losses and $54 Million in Loans from US Starbucks.

In less than a year, they closed 70% of their stores and were down to 26 stores only. Even though Australia is a small market, 87 stores is still loose change. To understand the context, KFC has 650 stores, Dominos – 700 and McDonalds has 970+ stores.

So, what went wrong?

@franchisewolf tweets “Thanks to Italian + Greek immigrants that moved to Australia after World War 2, the Aussie’s have one of the most advanced coffee cultures in the world. Even with a population 13x smaller than the US, the Australian retail coffee market is still 20% the size of the US.

Similar to what Howard Schultz (CEO of Starbucks) saw in Italy, Australians value:

• Specialty espresso drinks
• Knowing your local barista
• Conversing with friends over espresso

Starbucks assumed that their popularity in the US would carry them in every nation regardless of cultural differences.

But Starbucks in America grew to serve a large customer base that departed from Schultz’s original vision: The morning worker rush.

Office workers are in a hurry to grab their coffee and get to work so Starbucks optimized service for them above all else.

Thus, coffee as a product and experience became commoditized (Imagine Starbucks getting Commoditized).”

This is exactly what happened to iFast (neither were they as big as Starbucks – even if they were, they would have faced the same fate) and will happen to the WealthTech platforms who ignore the cultural nuances of the business. 

Who is the typical Indian customer?

What is his/her exposure and literacy of financial products? 

What does a typical Indian customer value in a relationship with a distributor /advisor? 

Is it more products? Is it Access? Is it a relationship? Is it pricing? What is it?

I am not going to answer this here, but the way business is done in Singapore or for that matter in the US (including the structure of the industry, participants, business models, competition, pricing and cultural nuances) is quite different from the way it’s done here. There are so many finer cultural nuances that are not captured in any excel sheet for that matter. 

Even Dominos had to come up with a Paneer Tikka to be successful and not just be stuck with Pepperoni Pizza.

The Indian Wealth Market is a very different market so you can’t just Ctrl-C and Ctrl-V business models and value propositions to become successful. Even global giants such as UBS, Morgan Stanley, and Royal Bank of Scotland (to name a few) have all exited the country. The latest one as we all saw is Citibank and now iFast. 

Like I mentioned at the start of the post, they don’t love this business or your clients like you do. When comedian Jerry Seinfeld was asked by Howard Stern whether he willed his way to success, he responded, “I am going to adjust your perspective a little bit. That was no will. What you use, what Michael Jordan uses and what I use, is not will. It’s love. When you love something, it’s a bottomless pool of energy. That’s where the energy comes from.

But you have to love it sincerely. Not because you are going to make money from it, be famous or get whatever you want to get. When you do it because you love it, then you can find yourself moving up and getting really good at something you wanted to be really good at. Will is like not eating dessert or something that’s just forcing yourself. You can’t force yourself to be what you have made yourself into. You can love it. Love is endless. Will is finite.”

A business is a by-product of love.

These Wealthtechs as well as many firms in this space neither have the will nor the love.

What about you?