Case Study – The rapid rise of mobile banking startup Clairmail
“Chasm crossing is not the end, but rather the beginning, of mainstream market development.”
“Entering the mainstream market is an act of burglary, of breaking and entering, of deception, often even of stealth.”
“To become a going concern, a persistent entity in the market, you need a market segment that will commit to you as its de facto standard for enabling a critical business process.”
“One of the most important lessons about crossing the chasm is that the task ultimately requires achieving an unusual degree of company unity during the crossing period.”
“You get installed by the pragmatists as the leader, and from then on, they conspire to help keep you there.”
– Geoffrey Moore, various quotes on the theme of crossing the chasm into the mainstream market
Sometimes the best company success stories only get to be told through informal anecdotes, press releases, Powerpoint slide decks, or video testimonials. In such situations, only those close to the company really benefit and the key learnings and best practices are never properly learned or leveraged by other entrepreneurs and management teams.
This potted history seeks to highlight, somewhat belatedly, a few of the key lessons learned from the rapid rise of mobile banking startup Clairmail from Zero to Hero during the early days of enterprise smartphone and mobile apps from 2009 on. As an external advisor to the CEO and management team during a good part of the company’s journey, I want to tell this story while the executives who played key roles in achieving this feat are still very much alive and kicking (*). As part of my preparation, I interviewed the company’s former CEO, head of worldwide sales, and VP of product and engineering, all of whom were hired in by the investors after the company encountered some obstacles to scaling up two years after the initial launch of its mobile banking application in 2007.
It’s important to point out here that the five quotes above attributed to my business partner Geoffrey Moore, author of Crosing the Chasm and several later books, are all illustrated in different ways by this story.
The Story in a Nutshell
Shortly after Pete Daffern was hired as CEO in early 2009 to replace the original founder/CEO, Joe Salesky, he asked me to help him and his new management team to figure out how best to scale up the company’s business. At the time, if the investors had tried to sell the company, they would have been hard pressed to get even $10m for it, which would have resulted in a major loss against the total of $20m invested in the 2005 Series A round, followed by the 2006 Series B round.
Following a spurt of early-market excitement, the emerging category of mobile banking technology seemed to be in the chasm. The iPhone had been launched during the same year, and the initial wave of adoption had been almost totally focused on consumer applications such as messaging, mobile search, and social media. Despite plenty of hype about mobile banking as a likely next-big-thing, adoption by bank and credit organizations was still in its very early days,
Just under three years later, Clairmail proved a textbook case of a hugely successful chasm-crossing strategy. Having decided to focus its strategy on pragmatist buyers in a head bowling pin (or beachhead) consisting of major retail banks, the company achieved dominant share in the segment within just a couple of years. As a result, its larger UK-based rival, Monitise, swooped in and acquired Clairmail in a stock transaction that was worth $400m by the time the transaction closed. This represented a massive 40x (or so) increase over the fire-sale price the company would have fetched three years earlier.
Key Lesson: Less Really Is More
The first lesson for every young startup to learn as it negotiates its way from the Early Market across the Chasm into the Bowling Alley is that “less is more”. Although this is a well-known mantra, it’s extremely difficult for startups to put in practice. All young tech companies are aware of the need to harness their scarce resources while trying to conquer the world, but few can resist the temptation to try to do too many things and serve too many different types of customer, too fast. Beset by an acute sense of urgency lest they lose the market to their competitors, and seduced by a certainty that virtually every business could/should adopt their breakthrough technology, they throw engineers at developing product capabilities, they hype the power of their technology (have you ever seen companies produce too little Powerpoint?) and they un-apologetically chase anything that moves to try and close deals.
This routine repeats itself hundreds of times every day in startups and scaleups everywhere, and in most cases it dramatically reduces their chances of success.
The Story Unfolds
To make Clairmail’s predicament feel real, let’s go back to early 2009. Shortly after selling his prior company, Purisma, to Dun & Bradstreet in late 2007, Pete Daffern became CEO of Clairmail, a startup based in Novato, California. Daffern quickly encountered a few surprises, as newly hired non-founder CEOs often do.
One of these surprises was that the product wasn’t yet a finished article; another was that there wasn’t yet any kind of real market for mobile banking applications, despite the earlier hype. Meanwhile, Daffern set about building his new management team. Overall, there wasn’t yet much of a business – revenues were around $500,000 and TCV at most $3m. – and this presented quite a quandary. It’s worth remembering also that the general business environment in 2009 was not too promising, being only months after the global financial crisis had blown up and major banks had experienced life-threatening crises.
Throughout 2009 and early-mid 2010 the newly-formed management team grappled with the challenging task of defining a winning strategy, attempting to answer questions such as “Is there a product here?”, “Is there a market for it?”, “How should we position ourselves?”, “What target segment should we focus on?”, “Do we have a solution that we can sell and implement?”, and so on.
By the time Pete Daffern and his team, now including Todd Clyde as head of worldwide sales, had re-committed the company to mobile banking as Clairmail’s raison d’etre for the foreseeable future, they had taken a significant “less is more” decision and narrowed their potential TAM from hundreds of thousands of businesses to a few thousand or so banks and credit unions, mainly U.S. based but some in the UK.
The team felt good about having taken this initial step to focus on what they believed to be an addressable number of target customers. But still adoption was slower than Daffern and his board needed to see in order to maintain the level of investment they had committed to building the business. True, they had closed deals with a small number of banks that were considering making big bets on mobile banking services for their customers at some point. But the majority were hesitant about taking the plunge, limiting themselves mainly to proofs of concept. An additional obstacle to adoption by banks was that they still needed to convince their banking customers to adopt this new and relatively unknown breed of application, all of which tended to delay adoption beyond small numbers of account holders in each bank.
At this point, the team made a painful but necessary assessment of where they were in the technology adoption life cycle, as popularized in Crossing the Chasm, Geoffrey Moore’s well-known book on market development strategy. Reaching the conclusion that their mobile banking offer was either hovering over the chasm, might soon plunge into it, or was actually deep in the chasm, they decided that they had to make a serious attempt to cross the chasm.
How to accelerate bank and consumer adoption? Market more aggressively, hire more salespeople and professional services staff..? Actually, no. The first measure was to dramatically reduce the number of target banks. During a formal strategy review, the idea of targeting only 50 of the top USA retail banks was mooted and then confirmed. The reasoning was that the major regional and national banks felt a stronger need to reconnect with their fickle customers in order to avoid losing them to their competitors.
Another factor was the cost of getting the product live – only the biggest banks could really afford it at this stage. As often happens with management teams during the early stages of technology adoption, the Clairmail team believed through faith more than hard evidence that they would find a way to deliver a repeatable solution to different bank customers within several months.
Though this decision to defer the pursuit of hundreds of other potential targets to a later time felt like the right move, it made Daffern and members of the team squirm with discomfort. What if they were wrong? What if it took too long to gain access to IT managers and business executives in these large institutions? Surely, they needed to target more than 50 banks if they were going to make the company’s sales targets? How quickly could they make their product and services enterprise-ready? At this time, they were struggling just to keep four or five of their early customers happy, having to improvise services and deliver missing features on a weekly basis.
But the strategy was underpinned by past evidence from other successful chasm-crossers that had achieved the rapid growth and increased valuations resulting from achieving dominance in tightly defined segments consisting of as few as fifty or so target customers. Cumulative revenue volume was generated mainly by expanding each account rather than by targeting a larger number of customers and win rates were eight out of ten or greater.
The prevailing wisdom was (and still is to this day) that if you manage to gain a share of 40% or more in a tightly defined target vertical, you would essentially become the default choice in that segment, with the pragmatically minded customers intensively referencing among themselves and creating powerful pull in your favor. In prior times companies such as Documentum and Sybase had built their first billion-dollar valuations via this strategy. More recently, Salesforce, Sybase (again in 2008-9, with their highly successful e-mobility initiative), and Splunk were achieving similar feats.
It would be inaccurate to assert that it was all smooth riding for Clairmail throughout the next thirty or so months from early 2010 to late 2012. There was many an occasion when I saw Daffern or Clyde or another executive go pale with worry when a major customer deployment was lagging badly. The organization was taking much too long to deliver anything approaching the promised “whole product”, itself an instantiation of less is more – the minimum set of products and services required to solve the customer’s main business problem – in this case, the need to provide easier access for mobile consumers and business customers to their accounts at a much lower overall cost than was incurred via branch banking, customer call centers, etc.
By the end of 2011, the Clairmail team had managed to close significant business with twenty-five of the targeted top fifty banks. By this point, they had increased the average size of their deals to over $1m or more. Revenues had climbed from less than $1m in 2009 to $35m, with TCV at an astonishing $55m. This is what made Clairmail the undisputed mobile banking leader in this highly visible major market segment – Clairmail’s victorious “head-pin” strategy.
To summarize the key lesson of this real-life case: To cross the chasm successfully, less is definitely more – less prospects (but the right ones), less features and services (just the ones that count for your target customers), and so on – and success is about depth and density, rather than breadth and volume. At this relatively early stage in their business growth, companies need to be specialists, in fact experts in their solving their customers’ problems, rather than generalists whose expertise is concentrated on the products they make.
This is what playing for power really means for young startups and scaleups.
How Did Each Executive See Clairmail’s Success?
Once the company’s strategy was set and the focus was on gaining dominant share of the mobile banking business from the top 50 banks in the U.S., Canada, and UK, former CEO Daffern describes how this translated to the main mission of the marketing team headed by Carl Tsukahara, VP of Marketing: “The big thing that came out of marketing was a maniacal focus on the accounts that mattered and a measurement of our progress against those. It was a masterpiece of marketing, providing well qualified leads to the sales team.”
Over the years I’ve seen how much frustration sales leaders and sales teams can experience about the poor quality of the MQLs (Marketing-Qualified Leads) they get from their colleagues in marketing. The primary problem is that what Marketing defines as ‘qualified leads’ (sometimes as unhelpful as contact details of prospects who have shown up at a trade show booth and may have seen a brief product demo by staff) is often worlds away from what Sales calls a qualified lead (i.e., solid information about a prospective customer whose job title fits the company’s target customer profile and declares an interest in meeting with a sales team to find out more). Clearly, the comprehensive and cohesive approach at Clairmail was a critical element in the company’s later success.
Todd Clyde, SVP of worldwide sales at the time, pointed to an additional factor: “It was critical that the sales team understood where the market was with regard to the technology adoption lifecycle – realizing we were on the edge of when every bank would need to launch a mobile channel or risk losing customers.” Clyde also stated that knowing Clairmail’s points of differentiation enabled salespeople to talk to bank executives about the importance of the (new) mobile channel differently and more convincingly than other providers.
Clyde described how the sales team “adjusted its selling approach from the passive one of responding to RFPs and elephant hunting to focusing on much more proactive territory coverage”. Territory coverage in Clairmail’s structured sales approach meant, as Clyde explained, “speaking to every major bank in the segment, a) setting the requirements and b) ensuring we did not miss competing for a single bank when they were ready to buy.”
When I asked Clyde what was the biggest obstacle that the company didn’t manage to (entirely) overcome, and whether or not they managed to navigate around it, he stated without hesitation: “Completion of the whole product. Because we didn’t do this well for a while, the effort required for each implementation did not scale with the pace of sales and made for expensive implementations and ongoing maintenance.” Clyde completed his description of the hurdles the organization encountered to deliver a satisfactory solution to each customer by pointing out how this impacted Clairmail’s ability to effectively target new segments once they had achieved dominance among the top 50 banks: “Flexibility of product to enable us to scale to other use-cases industries (targeting the next bowling pins in the bowling alley) was limited. Mobile banking became a stampede, but the market size was limited. Our vision was to mobile-enable channels for other industries, but we never had the flexibility in the technology to do so.”
On this issue of whole product completion, which I believe was Clairmail’s achilles heel right up until they agreed to Monitise’s offer to acquire the company, Kaj van de Loo, the company’s VP of engineering from late 2010 on, asserts to this day that the biggest change that he believed was essential from the moment he joined the company was to repair the schism between the Product & Engineering (P&E) organization and Professional Services (PS). Van de Loo noticed immediately that “each of the two functional groups had a disjointed view of the product”.
He goes on: “The Product Management and Engineering teams, including QA, were operating as if we had a normal software product. Roadmaps and plans were made and published. There were significant problems in development execution, but there was some execution happening (we removed those problems and became good at execution, but that is not the main point here). QA had a set of tests they ran. Technical writers wrote documentation about the product. Once the product passed all tests and some other checklist items had been completed, the organization declared victory and handed it off. A very normal process for shrink-wrapped software in the days of on-premise software.”
Meanwhile, Van de Loo continues: “Professional Services (PS) saw a different picture: Virtually all implementations were handled by Clairmail’s PS team. Their view of the product was very different. The PS team viewed the “product” as a collection of pieces and a starting point that had to be not only implemented but actually completed in the field. The PS team employed developers to build what was missing or create workarounds for things that did not work. They wrote new documentation targeting the customer teams that would operate the solution once implemented. The PS team had a strong hero mentality where they were handed a problem and turned it into live customers by working all night.”
Digging into the Critical Whole Product Issue
When I further explored the painful problem concerning the difficulties the company experienced in completing the whole product, Van de Loo responded: “I think there were three key things to note about this struggle to transform project to a product company:
- There was virtually no communication between the two teams. The P&E team never followed up on what happened to the product once “delivered”. The PS team never gave feedback to the P&E team. There was very little trust and no shared objectives. Two entirely different views of the world could exist in parallel.
- The result of this situation was that every customer implementation was different. Support was costly, slow, and inefficient. The Support team also had a hero mentality and (tried to) identify and fix and work around problems instead of handing them over to Engineering. Engineering had a hard time fixing issues because they often were caused by some combination of the product and custom code. PS did not scale because every project was considered different.
- Sales were impacted because the cost distribution between licenses and services was unfavorable. Customers were fine with the total number but balked at the high services content which hinted at a lengthy implementation with high risk, the exact opposite of why they were considering packaged software in the first place.”
Van de Loo started to correct this disconnect a few weeks after joining Clairmail. To his surprise it was easier than he had initially expected. As he goes on to explain: “With a few exceptions, neither the PS nor Support team members had an interest in perpetuating a working model that was stressful for them. The P&E team was very interested in how the product was implemented and used. We did some possibly unorthodox things such as having senior engineers support implementation projects from the kickoff, so they would understand what customers wanted from the product, so that in turn implementation projects would be based on the product as designed. We re-targeted the product documentation from some imagined and ill-defined ‘user’ to the PS team implementing it, and we talked to our own colleagues in order to learn about their needs.”
Continuing his story, Van de Loo describes the positive impact of the changes: “Together with rapid improvements in our ability to reliably plan and deliver, this changed the relationship between the teams. QA testing was based on real world use cases rather than imagined ones. The tested product was ready to be implemented. PS knew how the product was intended to work. Bug prioritization became a collaborative task between PS, Support, and Engineering. All these changes quickly transformed Clairmail from a project to a product company. The deployment at Desert Schools CU (a customer) was the watershed. It was the first time we implemented the product as designed. While we were far from a whole product, we at least had a product we could evolve. Without this, we likely would have collapsed under the weight of problematic deployments, ultimately dragging the whole engineering team into fire-fighting mode.”
This story of disjointedness between product and PS teams is hardly a new one; indeed, this type of silo behavior between functions from sales, to engineering, tech support, PS, and customer success, hinders the growth of many if not most startups and scaleups to one degree or another. What van de Loo’s testimonial tells us is that the problem must be recognized and addressed if a company is to make sustained forward progress. For example, while you are stuck in a custom-project mode it’s virtually impossible to develop an effective partner ecosystem, which is exactly what Clairmail discovered to be a major handicap for their later growth.
Why Clairmail Agreed to Be Acquired
Every success story has its ups and downs and some have their fatal flaw that eventually weighs too heavily on a company, and forces them to modify their strategy. In Clairmail’s case, the management team eventually acknowledged that they were going to find it difficult to expand into other use cases or verticals. Van de Loo says that “We knew we would run out of Top 50 and then Top 250 banks to sell to and never made a decision on what to do next. Options included another industry/use case, such as insurance claims management, international expansion, a down-market SaaS offering, and a platform business model. We never made that decision so were poised to run out of targets.”
Daffern’s sees things a little differently: “I saw the next bowling pin as Payments, and since I was convinced that we were going to get clobbered by larger players, I came to the reluctant conclusion that it was time to sell the company.”
Nonetheless, as Daffern says, what Clairmail achieved was the result of strong leaders on his executive team, notably the three executives quoted here – Todd Clyde, Carl Tsukahara, and Kaj van de Loo. Each of them “made something that seemed insurmountable to others look easy. As Carl did with Marketing, Todd did with Sales, and Kaj did with Product. The point being, this is what good leaders do.”
Key Lesson: You Can be Spectacularly Successful without Getting Everything 100% Right
Voltaire was one of the first people to remind us that “The best is the enemy of the good.” Undoubtedly, it is vital that the CEO and management team commit to a coherent strategy and apply rigorous discipline in their execution. But not everything will line up perfectly just because you all want it to. One additional lesson that I think came out of Clairmail’s experience was that companies can be extremely successful even if they aren’t able to get everything right according to the “template” for Crossing the Chasm.
As long as you have a clear definition of an accessible, well-funded target customer and you apply single-minded focus to serve them effectively; you understand their compelling reason to act to solve a painful business and process problem; and you do your utmost to deliver a complete solution – including services you provide to assist their decision process, to implement the solution, and to support them and their users – you stand a good chance of being extremely successful.
In Clairmail’s case, failure to deliver the whole product solution sooner than they did didn’t prevent them from achieving spectacular success in their chasm-crossing endeavor, even if they lost some conviction about their ability to leverage that success for continued growth into new market segments, as an independent entity.
(*) Footnote: Today Pete Daffern is a venture partner with Peakspan VC and Octopus Ventures and serves on several boards. Todd Clyde is CEO of fintech company Token. Kaj van de Loo is CTO of CX testing company UserTesting. Carl Tsukahara is CMO at Optimizely, a digital experience experimentation company.