The burgeoning Canadian fintech sector is gaining
international attention, and with good reason: hundreds
of growth-stage companies are being established with the
goal of tapping into large financial institutions’ spending
or finding direct channels to market that disintermediate
traditional players. To be clear, “fintech” refers to
technology-enabled financial services organizations
that are looking to either disrupt a traditional financial
services model, or to enhance the products/services/operations of incumbent institutions. These businesses
are growing fast, and Canadian fintech companies are
receiving investment capital from across the globe.
However, we have found via our search work and industry
discussions that one element is proving to be particularly
challenging for these groups: Talent, which is a crucial
ingredient for scaling from ambitious startup to successful
company. This paper looks to share observations about
talent challenges and solutions that can help your
organization more successfully manage this transition.
Fintech investment is thriving
There are approximately 500 established fintech companies across Canada
and 60 percent of them are based in Ontario, according to the 2017
Canadian Fintech 2.0 Summit. And that number is only going to grow: the
Business Development Bank of Canada said it expects to see as many
fintech businesses established in the next three years as there were in the
previous decade. Investment in these homegrown companies is accelerating
rapidly, and the rate of growth is far higher in Canada than in the rest of the
world: While fintech investment fell by approximately 30 percent in the
United States and United Kingdom during 2016, figures compiled by
Thomson Reuters1 show an unprecedented 72 percent rise in Canadian
fintech investing between 2015 and 2016, from C$154 million to C$265
million. Despite these secular trends, supply-side constraints on talent
appear to be a persistent limiting factor of growth. While investment has
increased, it appears as though Canadian fintech businesses have had
greater challenges scaling relative to their international peers.
One possible reason for these challenges is that talent in these early-stage
companies is often technically strong but can lack the general management
skill set and experience to scale the organization. Additionally, on a
national level, Canada does not have a well-established pool of “accelerant
talent” — people who have built, scaled and successfully exited businesses
— while there is a large group of this talent in markets such as
Silicon Valley, New York and Seattle. Through our conversations, we have
also noticed that even those fintech companies looking to partner with,
rather than disrupt, larger incumbents often find it challenging to find and
cultivate talent that can navigate and sell into the incumbents. This talent
gap can hamper the growth of smaller organizations as they burn through
capital while spending valuable time trying to understand how to move
through the proof-of-concept process and identify the key decision makers
in a more complex organization.
... on a national level, Canada does not have a well-established pool of “accelerant talent” — people who have built, scaled and successfully exited businesses ...
Canadian fintech businesses also face serious competition for homegrown
talent. American companies often have the capital to offer more attractive
compensation packages, and they view Canada as a source of top talent: the
University of Waterloo was listed as one of the top three producers of talent
hired by tech companies in the San Francisco Bay Area, and there are
currently more than 350,000 Canadians working in Silicon Valley at the
senior level, according to The Globe and Mail.2
Finding — and retaining — executive level talent that can help to scale
growth-stage organizations is clearly a key issue for Canadian fintech
companies. To provide some guidance in this area, here are some lessons
we’ve learned through our work and research.
Structure your organization early
As part of your growth strategy, shift from recruiting generalists who can
wear many hats to recruiting around a particular function. A critical input to
scaling a business is the ability to transition leadership from generalists to
functional experts who can focus their expertise to drive results. When we
looked at 65 established Canadian fintech companies, we found that 85
percent of the founders also held the CEO position, and less than 35 percent
had established specific functional roles for the chief financial officer (CFO),
chief operating officer (COO), chief risk officer (CRO) or general counsel.
Mogo and Zafin, two of Canada’s most successful fintech companies, have
demonstrated success in functionally structuring their businesses:
- Mogo, a Vancouver-based next-generation digital financial services platform,
established a CRO role in 2015, elevating the importance of the risk
function rather than folding it into operations or finance. The current
CRO is a 20-year veteran of the financial services industry who has experience
across credit and operational risk from both established incumbents
and growth-stage organizations.
-
Zafin, a Toronto-based banking software company, changed its recruiting
strategy and increased its focus on bringing in the right talent to scale
the organization. Leaders determined the specific roles required to expand
the business globally, rather than recruit talented individuals and
give them a varied portfolio of responsibilities. Over the past two years,
the company has hired several new executives, each with a specific functional
mandate, including: a chief people officer, a president of digital
platform, a senior vice president of digital banking and an executive vice
president of global services, among others.
As part of your growth
strategy, shift from
recruiting generalists
who can wear many hats
to recruiting around a
particular function.
Creating more specialized roles will also aid in the recruiting effort, as we
often find that a key component to attracting talent is having a clearly
delineated mandate.
Define the needs of the sales function
Many fintech companies seek sales roles to complement the founder/technical
talent in the organization. When analyzing your needs within sales, ask
yourself: are you seeking talent with proven sales skills, or do you need
someone who can navigate large financial institutions and identify the decision
makers? If it is the latter, consider leveraging consultants who have
likely mapped out the organizational structures of these larger companies, or connecting with recently departed talent from incumbents who can
advise you on how the RFP process works and who to connect with. At an
early stage, the best-suited sales or business development person is likely a
member of the founding team who can articulate the product and process
to market. At a later stage, it may make sense to recruit an experienced
professional into a head of sales role. However, we would caution against
having this person act as the sole owner of all potential key client relationships
— particularly when one new client account may impact the trajectory
of the firm and its potential for raising future capital. Failing to mitigate
against this can lead to “key man/woman” risk and could negatively impact
your client relationships with your business.
When analyzing your
needs within sales, ask
yourself: are you seeking
talent with proven sales
skills, or do you need
someone who can
navigate large financial
institutions and identify
the decision makers?
Plan for succession
As companies scale up, the founding team’s skill sets — which are often
defined based on functions such as technology, product or sales — may
need to be complemented by a leader who has demonstrated success in
scaling operations. In our experience, private equity firms that invest heavily
in growing organizations often look to round out the founding leadership
team in order to scale. Founders who want to be a significant part of the
process of recruiting a new CEO or key members to the executive team
should assess the current leadership’s (including their own) strengths and
gaps in skill sets, and should be open to accepting candidates outside of
their own network.
When planning for succession, it’s beneficial to seek established executives
who have scaled businesses and participated in successful exits (such as an
IPO or a strategic sale). Unfortunately, this is often a difficult combination of
skills to find. An alternative option is to look at executives who have led
similar-sized operations to the desired scale level of the growth-stage firm
and have demonstrated success working in an entrepreneurial environment,
such as launching a new business or market with limited resources. We
encourage the founding team to proactively plan for succession early on,
or investors may plan it for you.
Leverage your unique culture
Highly coveted talent tends to weigh culture heavily when considering where
to work. Use your company culture as a recruiting tool, market it and be
fiercely protective of it as you grow to ensure it does not become diluted.
The CEO and members of the founding team should play an active role in
marketing and recruiting for culture.
Use non-traditional sources to find talent
When developing a search strategy, organizations should look beyond their
own network and consider the following additional talent sources:
-
Look outside the Canadian market: As is the case for obtaining financial
capital, talent is becoming more fluid across borders and working remotely
is the norm for many organizations. Growing businesses should
access a more global pool to find the best talent, and operate across
borders, if necessary. An added benefit: investors and outside talent will
view your company as being a global organization as opposed to one
that is solely Canadian focused.
-
Take advantage of the growing “gig” economy: It’s estimated that temporary,
flexible employees will make up 43 percent of the workforce by 2020,
and the interim executive category is seeing 20 percent growth in some
markets.3 There are many executives who have significant experience and
are nearing retirement but are not fully ready to exit the workforce, and
they may be looking to add value to growing organizations on a part-time
or short-term basis. This can be an affordable source of talent as you
look to round out your leadership teams and scale.
-
Leverage well-networked professional services firms: Connect and
share your talent needs with consulting, venture capital and search
firms that have established or emerging fintech practices. Many firms
will willingly make proactive talent introductions to growing firms
when they see the potential to be helpful to their own network.
Conclusion
In the rapidly changing world of fintech, a more traditional approach to
recruiting and retaining talent will not be sufficient. Growth-stage organizations
must continuously disrupt their own talent model as they face
changing markets and different stages in the growth cycle. The flexible talent
that can wear many hats at the onset of developing a business is no longer
necessarily the right talent for a sophisticated organization that requires
functional leadership. And when your organization has successfully found,
scouted and obtained that elusive high-potential talent, focus your efforts on
creating an environment that will help you retain that talent. Without a
retention strategy, organizations run the risk of recruiting and training innovative
talent — only to have it leave a few years later for a more compelling
opportunity that may offer increased equity or less risk. These factors all
underscore the imperative for fintech companies to develop a purposeful
recruitment and retention talent model.
1 Ho, Solarina. “Canadian Fintechs Shine as Investments Near Record.” Thomson Reuters,
January 2017.
2 Scott, Alec. “Lessons from Canada’s Silicon Valley Diaspora.” The Globe and Mail,
March 26, 2017.
3 Straus, Karsten. “What is Driving the ‘Gig’ Economy?” Forbes, February 21, 2017.