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August 18, 2008

Lessons learnt by doing a startup in financial industry

Filed under: Business,Readings — Fei @ 5:41 pm

Fei: copied from an email from SVCEF

=== What we wanted to do

1. Build Vertical Search Engines For Financial Industry.
2. To give money managers edge against competitors.
3. To let money managers gain deep insight of market.
4. To help money managers to improve their investment return.

=== Targeted Customers
1. It is for Enterprise Customers
2. Potential customers are hedge funds, investment banks, financial institutions, fund managers, and other money manager.

=== The reasons why we started this effort
1. This business is close to money (and lots of money in the financial industry). We assume that people are willing to pay to gain edge. Because the cost of our product and services is negligible comparing to the potential extra investment return they will get.
2. Founders have been interested in finance and investment activities.
3. We had implemented vertical search engines for other industries.

=== Reasons caused our failure:
1. Personally, we did not know many people in the financial industry, therefore, we cannot get early customers. We know how to build vertical search engines, but we do not know the market well.
2. We were not well known in the industry before we started this business. Marketing is expensive and there were no easy and low cost way to get our name out. (Low cost methods, SEO and Google Adwords, Adsense did not work).
3. We did not have a sale channel to sell our products and services. So we had do direct sales. Founders took lot of time to do direct sales.
4. The market is smaller than we expected. For example, there are total 8000+ hedge funds. However, only these engaged in quantitative and short term trading are interested in our services, these solely rely on fundamental analysis are not interested in our services. The accessible market is a much smaller market (and we do not know people in the fields to help us accessible the market).
5. We can show potential customers that we have a better search engine, but we cannot prove this will increase their investment return.
6. We are not in New York City, instead in Silicon Valley.
7. Lots of money managers has some kind of in-house development.
8. The “rule of thumb” in the investment community is that, if something works (which can increase your investment return), you will keep secrete for yourself; If you are selling it, very likely it does not work.
9. Financial industry is a very old, very matured industry. It is highly competitive. Anything under the Sun had been tried before. (Just thinking about how many technical indicators have been created and how many finance related websites on this world). Other vendors had approached our potential customers with  something similar to ours in the past. Our potential customers were really skeptics about the value of our services.
10. Some potential customers asked exclusive right of our products. One requirement they imposed before they were willing to pay for our services was that we can not sell the products to other customers in next 6 months or 12 months. Theyed claimed that if everyone uses this, it became useless.
11. We could not get outside investment. We tried to grow this business organically. Without funding make it hard to hire good sales people and to do marketing promotion.
12. The technical entry barrier of our business was low. Anyone from Google or Yahoo can build similar search engines. It is hard to differentiate us technically, which further proves the importance of marketing and sales channels.
13. Founders did not have sales experience in the past.
14. We could not leverage our previous experience and connections.

=== What we have got right
1. We build a vertical search engine in very short time, collect more than 10 Tera-Bytes text data. Our crawler is powerful and faster.

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