Renny Popoola

2015 has seen lots of noise around the emergence of new challenger banks in the UK with much being said about the potential for emerging firms to take on the big players and provide a credible alternative for consumers. The outlook for the sector looks promising. Whilst Metro bank was the first business to obtain a full banking licence in 150 years, 6 new banks have been authorised since 2013 and dozens more on the pipeline.

Clearly, the industry is aching for a game-changer. A company, firm or idea that reinvents the way the public engages with firms and delivers banking and financial services to customers that is relevant and accessible.

We have seen such game changers disrupt the leisure industry (AirBnb, Housetrip), transport (ZipVan, Uber), communications (WhatsApp, Skype), entertainment, (Netflix) and to some extent health (Myfitnesspal, Fitbit). Most have become leaders in their own sphere paving the way for a new wave of brands to offer a traditional service with a modern twist.

With systemic changes occurring in many other industries, it does raise the question- what will be the financial industry’s uBer?

The digital age has completely revamped most spheres of our life in an enormous way. But, the impact on how we bank, invest, insure and save has been relatively minor. Whilst the concept of financial advice has undergone some change with comparison sites and online forums, many other facets of financial services have yet to experience their digital awakening.

This is surprising considering that we’re repeatedly reminded about customer dissatisfaction with financial services.  The fact remains, barriers to entry are significantly high despite the regulators’ efforts to encourage innovation and competition. Obtaining authorisation is more often than not a long and expensive process.

Historically, disruptive financial brands have tended to be spin offs or marketing exercises from the larger players. For example, whilst Sheila’s Wheels innovated how insurance could be marketed, it was part of the HBOS group. Even firstdirect, regularly heralded as a game changer in the UK banking sector due to its reputation for customer service, is owned by HSBC.

It’s not a surprise that innovation within the financial industry comes mainly from established players, but it does highlight the difficulty for outsiders to reinvent the market. To some extent, the increased regulatory and capital requirements placed on financial services providers for consumer protection is the biggest hurdle to true innovation in the sector.

What we are beginning to see are individuals, once part of the establishment, looking to shake up the industry.  We’ve seen Nutmeg founded by former stockbrocker Nick Hungerford,  offering an accessible alternative for wealth management, and Stockopedia started by a former investment manager, allowing DIY investors to beat the banks.  With the recent shake up of the pensions industry, such alternative investment services are likely to experience increased demand.

In banking, new players like Atom Bank, Starling and Fidor aim to capture market share through offering digital services. Again, what unites these brands are founders with significant experience with the big players exploring gaps in the market to innovate.

Financial services are still some way off from experiencing its version of Amazon, completely turning the industry on its head. There is a possibility, because of the risk involved within the sector, that it will never experience such upheaval. What is increasingly evident is that if such digital innovation is to happen, it most likely will from within- be it an experienced individual who wants to change the status quo or even a traditional firm with new ideas on offering financial services.

Narda Shirley

One of the defining characteristics of challenger brand start-ups in the food industry is that they are unencumbered by legacy. They can source from where they like and the entrepreneurs behind the brands can lay down any number of guiding principles that give their brand a feel good factor that helps it stand out. Whether it’s good for the environment, good for producers, good for you, or a combination of all three.

‘Doing the right thing’ and ‘making a difference’ are often cited by entrepreneurs as their driving motivation for the hard graft of getting a new business off the ground. So it’s vital that they weave that ethos into the brand communication, making their values part of their business DNA.

But what happens to these small companies when they grow? How hard is it to maintain an ethical stance that is pragmatic and profitable at scale? Is the cycle of growth and sale to a larger, deeper pocketed company in part about being able to afford to stay true to your founding values? Or is there always a compromise once the entrepreneur cedes control to a bigger corporation?

We took a cursory peek at 3 British brands that have sold out – in each case ending up in the hands of US corporations.

Husband and wife team Craig Sams and Jo Fairley launched Green & Black’s in 1991, the first Fairtrade chocolate in the UK, sourcing directly from farmers in Togo and Belize who were rewarded with higher prices for using environmentally sustainable practices. Green & Black’s worked with William Kendall’s then private equity firm, Nemadi which engineered a sale to Cadbury in 2005 (which in turn was acquired by Kraft in 2010). An interview with Fairley in 2013 revealed that Green & Black’s Head of Sustainability went on to do the same much larger job at parent brand Mondelez. Fairley also cites Green & Black’s influence as the reason Cadbury first went Fairtrade with Dairy Milk setting off a domino effect that also saw KitKat and others follow suit. So it would seem in this case, that an early adopter challenger brand became a Trojan Horse change agent inside the major brand that acquired it.

Pret a Manger hit on a successful formula based on principles of product freshness, avoiding additives. Pret also started its own foundation to help feed the homeless. In 2001 McDonald’s bought a third of the business, which was later sold to private equity firm, Bridgepoint. In the meantime, McDonalds has successfully turned its own brand credentials around in terms of building a reputation among consumers of having an ethical supply chain. But back then, the perceived differences in values perhaps helped prompt this quote from Pret that “McDonald’s has never had any day-to-day role in Pret, nor has it had any say over what we do, nor how we do it.” (NB. Julian Metcalfe, one of Pret’s original founders went on to open Itsu. Proof perhaps that there’s a certain type of entrepreneur for whom once is not enough).
Paul Lindley founded Ella’s Kitchen, the UK’s bestselling baby food company, without a shred of retail or food industry experience. He did however have a background in media and children’s brands from Nickelodeon. He is quoted as saying “What has always driven me is the idea that business has a responsibility to be good for society.” Founded in 2006, Mr Lindley sold to US food company Hain Celestial for $103.5m last year. Hain’s main website offers up a slightly dated CSR Report from 2012, but it is front and centre on the home page which at least demonstrates the emphasis the company puts on its sustainability credentials.

In each of these situations, the challenger brand has led with its values and sustainability message. As an entrepreneur growing your own business, you get to decide what you stand for, and how you communicate it, without having to justify it to analysts or shareholders. It’s heartening to think that brand values that were once perhaps viewed by the city as a potentially costly indulgence by entrepreneurs are now increasingly priced in at a premium when it comes to a sale.

Beverly Amira

This last week has been consumed in a flurry of activity for Maarifa in Nairobi – a company set up by a serial entrepreneur who believes in the power of education to lift and propel a nation. Maarifa’s CEO Scott Royster is a man on a mission. He is already successful, having floated a media company in the US, so he has nothing to prove, so what is it that now drives him? Like many other entrepreneurs working in Africa today, I believe Scott is driven by profit with purpose. He won’t deny he wants to make money – in fact it is essential to his private equity investor, ECP, that he can show a return on capital. And it’s essential to the universities that Maarifa invests in that Scott and his co-founders know how to make money. World class tertiary education is not sustainable on a shoestring.

Being able to challenge the status quo, make a difference and turn a profit is a tall order. But entrepreneurs – successful ones, at any rate, are extraordinary people who can do just that. Which brings me to another entrepreneur, Njeri Rionge. Gong has been working with Njeri for a while now, helping put the power of her personal brand to work. Oscars night was made all the more special for having a Njeri on the red carpet. She hasn’t added film producing to her impressive skillset, but she has appeared as the ‘talent’ in a new ad for Cadillac. ‘Dare Greatly’ is a new multi-channel campaign that features a diverse mix of talented people from Silicon Valley entrepreneur Steve Wozniak to Boyhood film director, Richard Linklater. Njeri is there for her great daring as a former hairdresser who propelled herself to the point where she brought internet connectivity to ordinary Kenyans in the form of Wananchi – the company she founded. It’s extremely gratifying to see Kenya represented in that line-up, let alone a black woman. We’ll watch the fortunes of Cadillac with interest on the back of this new campaign – who knows, it may just qualify as a ‘challenger brand’ with all this edgy new attitude!

Staying with cars, I want to highlight the work of a very different marque – Mobius Motors, a Kenyan company that makes affordable off-road vehicles. They came to our attention through our work for Garden City. Behind the brand is social entrepreneur, Joel Jackson who discovered the big challenge facing rural Kenyan communities is immobility. His vision is to build more affordable cars designed for degraded road environments.

To keep costs down Mobius strips the vehicle of non-essentials, such as power steering, air conditioning and even glass windows (!), and instead invests in suspension and handling. As such, Mobius has dramatically reduced the cost of its cars putting them within reach of small business owners. Like all successful entrepreneurs, Joel has a bold vision; to build Africa’s first mass-market car brand to aid economic growth and create a positive social impact. That’s what I call a driving ambition.

Narda Shirley

I heard the story that Jo Malone used to be a beauty therapist working for private clients in London before her fragrance empire took off. Listening to Desert Island Discs, I was intrigued to discover that she had learned about cosmetics as a child going to work with her mother and later taught herself from books. In this case, an entrepreneur’s inspiration was forged from early life experiences rather than the yearnings of an executive at a big fragrance house to go it alone.

So I started thinking about the ways that entrepreneurs are inspired and whether there’s a particular profile of person who manages to launch the definitive challenger brand of their time. Let me define that a little bit better – I count Soho House, Green & Black’s, Sipsmith, Daylesford Organic, Firmdale Hotels, Moneysupermarket.com, Lastminute.com and Workspace among great challenger brands in that category.

When I think of all the entrepreneurs I have worked with, they do seem to fall into two camps: People who are industry or sector experts who start their own business to improve on an existing product or service (these are the SYC entrepreneurs – keep reading, all will become clear). And then there are the people who seem to just appear from nowhere with something so fresh and new that it redefines a category. I call these the NSYC people because you – never saw them coming. Of course technology, and more specifically the internet has massively increased the ranks of the NSYCs. The tech stuff is well documented. From Ariana Huffington to Jeff Bezos, I’m not going to give a second’s more thought in this blog to ‘digital disruptors’. As a group, the SYCs are generally much less feted by the media, but I’m willing to hazard that their overall success rate is much higher in aggregate.

Another way of thinking about this is whether people sit down and try very hard to invent a challenger brand, or whether the idea is etched into them by their daily experience of working in a company that just can’t or won’t step up. I think that there are many professional services businesses that fall into this latter category. From what we’ve seen of lawyers, management consultants, search firms and innovation teams, it’s very hard to truly innovate in the service sector without sacrificing margins, mainly because it’s people who deliver your brand experience. And if you want the best people in a competitive sector, you need to develop them, or be able to afford to pay market rates.

From a communications perspective, the NSYCs are a dream to PR because they satisfy our constant hunger for the next ‘new’. But let’s be honest, we Brits like a challenger brand, full stop. There’s something deeply attractive about the idea that an earnest entrepreneur is out there somewhere burning the midnight oil trying to create a much better customer experience. Perhaps it’s being cared about as customers rather than the incremental service gains that we really fall for.

11th  November 2014

Sarah Caddy

Having recently blogged on the dearth of innovation in insurance, it seems only fair to give stage to those ‘disruptors’ that have emerged to create new opportunities.

A few years ago, industry experts predicted that specialist insurers would disappear. Insurance was becoming more commoditised, heralded by the advent and potential threat of non-traditional industry players, like Google, which purchased BeatThatQuote.com (a one-time Gong client and insurance aggregator) in 2012. Speculation around the internet giant’s threat to the insurance industry through its ability to innovate at speed was well documented (here).

And yet we have witnessed a specialist insurance boom. Players don’t have to go on to aggregator sites to keep costs low. Distribution is key; capturing the various distribution channels is the pathway to success. Carving out space alongside the aggregators in a distribution landscape – which, let’s not forget, many thought would be dominated by aggregators only – are a few stand out specialist brokers, such as Hastings Direct (with its low operating cost base and focus on car, van and motorbike insurance) and Brightside Group (which has grown through acquisition since its launch in 2001 as a provider of motor insurance for small businesses).

So what do these companies bring to the insurance space, to make them grow so successfully? So often it is coming down to marketing and technology.

To focus on one small point, take Simply Business, a UK small business insurance broker. From a twitter account (@simplybusiness) opened in 2008, the firm now has 30.6k followers. These followers are attracted to the specialist content targeted to its SME customer base:

Look too at The BGL Group (@The_BGL_Group; 712 followers) – just named “one of the largest mid-market private companies in Britain”, according to the latest Sunday Times Top Track 250. The firm has turned comparethemarket.com into a household name, and is set to shake up the life insurance market with a new marketing campaign for Beagle Street.

We may not be able to predict the future of the UK insurance industry, but these companies are proving that it’s not time to chime the death knell yet.