Lending Club started its online peer-to-peer lending platform in 2007, which seemed like a great time for a financial tech startup to get its legs. That is until less than a year later when the real estate market bubble burst in 2008 and the economy tanked.
Fast forward to Dec. 15, 2014, seven years later, when the company’s stock went public and its IPO was valued at more than $1.2 billion.
How do you go from struggling startup in the worst economy in decades to over a billion-dollar initial public offering, all while creating an innovative platform offering that totally disrupts an entire industry (in its case the $420-billion consumer-lending industry)?
Here are three key success tactics and lessons to learn from Lending Club if you want your startup to succeed in a big way.
1. Make sure your market is massive
The consumer finance and lending market is massive – as in more than $420 billion massive. That was a huge competitive advantage in the marketplace because there was plenty of room in the sandbox for Lending Club to compete. Market size is a question every venture capitalist is going to ask you in a pitch, too, so aside from the opportunity for sales, you’ll also raise more VC capital if you’re playing in a market that has a huge scale.
Think of other large-scale startups playing in big markets like the small-business financing industry with On Deck and its $200 million IPO in December or the small-business software market with Infusionsoft raising a $55 million series D round. All these companies found markets that were massive and that would benefit from disruption. Can you clearly identify how big your market is?
2. Turn your obstacle into your offering
Often, the thing you’re personally or professionally struggling with can be your blind spot when it comes to innovation. If you can’t find a solution that meets your needs, why aren’t you creating it yourself? Lending Club knew that getting consumer loans is tedious, non-transparent and, after the crash in 2008, especially challenging to pull off. Its obstacle in 2008, when no one could get financing or credit, actually ended up being its enhanced offering: the company was offering financing to consumers, and yield for investors after the market tanked.
Can you see how obstacles are your way to enhancing your offering? There are countless others who are taking obstacles in large markets and transforming them into opportunities to disrupt and create better offerings. Leaders in emerging spaces continue to tackle big but challenging markets, such as Sofi with student-loan financing or AssetAvenue with commercial real estate investing. You can focus on your obstacle or focus on innovating a better offering to a whole market of individuals.
3. Structure your disruption
In the early days of Lending Club there were concerns associated with consumer loans on its platform because investors couldn’t sufficiently see or understand the risk associated with the loans. Who were the good borrowers and who were the higher risk investment candidates?
While Lending Club was disrupting a market by offering peer-to-peer financing, it still needed a way to structure that market disruption that made sense to people. Lending Club reached a platform turning point when it was able to apply a risk rating and risk rating description to the platform to help investors decide which consumer loans they wanted to back and which ones simply didn’t meet their portfolio criteria.
By applying a structure to its disruption that the consumer base could understand, Lending Club was able to catapult its growth and success. You have to totally change the status quo, but don’t forget you want to find ways to effectively and succinctly convey the structure of what you offer to your consumers.