Monday 20 November 2017

Today Europe, tomorrow the world: Collison tees it up for tech startups

'I will be very unhappy if Stripe does not get us to a place where it is appreciably easier for money to move online,' says John Collison Photo: David Paul Morris
'I will be very unhappy if Stripe does not get us to a place where it is appreciably easier for money to move online,' says John Collison Photo: David Paul Morris
Adrian Weckler

Adrian Weckler

Should startups ditch Europe for Silicon Valley? Are valuations of tech firms overhyped? And how will payments with social media services such as Twitter pan out? There are few better qualified to talk about such issues than John Collison. Together with brother Patrick, the Limerick-born entrepreneur sits atop one of the world's most successful startups: online payments firm Stripe. In a week when the four-year-old firm extended its reach into four new European countries, our technology editor sat down with Collison to talk about startups, valuations and the future of mobile payments

Adrian Weckler (AW): There's a persistent narrative that Europe badly lags Silicon Valley when it comes to innovation and technological entrepreneurship, As a European who has built a company in the US that has now expanded into Europe, do you agree?

John Collison (JC): In general, I think that the differences are overplayed. I mean, it's hard to seriously believe the hypothesis that Silicon Valley is the only place to see innovation. There are just so many counter-examples, whether it be Spotify in Stockholm or Skype in Estonia or Waze in Israel or Soundcloud.

There are so many companies that we use today which come from all over the world. So Silicon Valley clearly doesn't present a silver bullet.

That said, there are some things you notice when you go over to the US. For example, in the early days when we were raising money for Stripe, we were in college and it was not immediately clear that we would be able to stay in the US and work on Stripe. Never once during the investment process, when people were getting Stripe to give us money, did anyone ask: 'can you stay in the US?' So the investment process there is very upside-focused as opposed to being focused on all the ways that it may fail.

And that's a very particular mindset that you find in the US and you find it there in spades. And it exists even when eight out of ten times, the investor might lose money. But those other two times it will be very productive for them.

One other difference I've noticed is in the sharing of ideas. In the Valley, people are very free and open, to an almost problematic extent, with their ideas. I haven't seen as much of that at home. In Ireland, you might go talk to someone about something and they'll give you a few details or a few bits that they're comfortable talking about.

But when you go talk to someone in the Valley, it's just like everything spills out. The general mindset is that everyone is off doing their own ideas so no one will have time to go work on yours. So even if I tell you all the details of my idea you're not going to go and copy it because you're working on your own thing. And that turns out to be very helpful from a networking point of view because it helps ideas to germinate.

AW: What about the markets that tech startups should be targeting? Some argue that emerging Irish and European startups need to think about the US market from the start...

JC: No, I'd say it's quite the opposite. One of the advantages that European startups have when building a business here is that they don't have the inward-looking navel-gazing disposition that some American companies have. Europe is a large market in itself, but it's a complex market too, with different things to take into account and different norms. So as a European startup, if you can target the European market successfully, you're probably much better equipped to compete than companies in the same space in the US.

AW: What about valuations? Stripe is now regularly speculated on in terms of multi-billion dollar valuations. Is this a valid metric to measure a startup or do you think too much is made of it?

JC: In general, I think that startups get way too caught up with valuations. And I think that the Valley has helped to cause this problem because it's often the only number people there talk about. But there's too much meaning put on it. It ends up getting used as a scoreboard, whereas it's just a cost of capital.

And it's just one of many, many metrics that businesses should be looking at. If anything, it's actually far down the list of metrics they should be looking at. Especially as so many startups today are not that capital intensive.

Internally at Stripe we emphasis that people should not be valuation-focused because we have so many other better metrics that we can track. Like how many customers we're serving, or how happy those customers are, or revenue or profits.

But the problem is that the valuation is the only metric that the press finds out about, because we're a private company. And so people use a valuation to infer all sorts of other things, like revenue or whatever. And so you end up in this smoke-and-mirrors game where people ascribe a lot of meaning to valuations. I think there's too much meaning put on it.

AW: You're launching in four new European countries this week in a kind of Scandinavian big bang. Are you looking at more partnerships with European fintech companies?

JC: Yes. I think if you look at us in two years time, we'll have more European partners than we do today. Commerce is a team sport, so there are multiple parties involved by definition. We already aggressively look at the European market trying to sort between companies and find the ones who would be good partners for us.

What's really cool about Europe is that there are already a bunch of interesting companies up and running here. You have companies Transferwise in the UK which is on a rampage getting foreign transfer rates cut in a classic internet disruption story. Or you have Klarna in Sweden who have an ungodly share of the ecommerce market there and who took a country that wasn't doing much ecommerce and made consumers comfortable with it. So yes, I'm pretty psyched about the European fintech market in particular.

AW: Facebook, Twitter and Pinterest have all included Stripe as a platform for their own 'buy now' social commerce plans. Are there any early indications of how any of those are going?

JC: It's really just getting under way. Twitter only announced theirs recently and Pinterest only announced theirs the other week. And so we're in the very early stages of it. But if you want to measure the excitement around it, just go talk to any retailer. A very large portion of their referral traffic will be coming from channels like Google or Facebook or Twitter where people are spending large amounts of time.

But they don't have a good way to capture that business right now. You can't buy things in the place where you're spending the majority of your time. So the problem we're trying to solve is that mobile convergence sucks. For retailers, their desktop sites work fine and people are buying on those and are happy.

But then when people go onto the mobile apps, the whole thing works badly. So there's this real divergence where people are spending their time on mobile phones, pawing their pieces of glass all day, but then have to go to the mobile web or to the computer to buy. And so that's what this is about for us, letting you buy stuff on the apps where you actually spend your time and discover things. Soon, most commerce will happen inside of apps. We're still not that set up for it, the tools we have aren't fully developed. And fixing that is a big part of what we want to do.

AW: What about Apple Pay, which just launched in the North and Britain? Stripe is an integral payment partner there. How is all of that going?

JC: In the US we're seeing a ton of growth. There are a lot of apps we see where Apple Pay is the primary priority for them and they're getting a significant chunk of their transactions from Apple Pay, if not a majority yet.

AW: How about more traditional retailers? Do you think that any of these new routes to market will pass them by?

JC: This shift from desktop retail to in-app and mobile retailing is a smaller shift than earlier ones from bricks and mortar to general internet buying. But in any tech shift there are winners and losers. And this shift will require people to adapt. If a customer is buying something from you in someone else's app as opposed to within your app, that's a different relationship you have with that customer. So I think that is something retailers will have to get to grips with.

AW: What can we expect to see in the future from Stripe?

JC: I will be very unhappy if Stripe does not get us to a place where it is appreciably easier for money to move online. And I mean both on the consumer side, to buy things and pay for things, and on the business side. I think if we do not do that then we will have failed. Anyone, anywhere should be to start a business. The way that money works on the internet right now, it's like being only able to send email within one country. Or if you want to send that email internationally, having to use a different system and it taking three days. You have a situation where information flows freely online and then when money gets involved, whoosh, the barriers come down.

AW: But even if those payment barriers go down, won't others take their place?

JC: No, I don't think so. It's an interesting framework. Some industries do have higher or lower barriers than others. But look at them a little more closely. In industries that have really high barriers to entry, the service really sucks. Look at airlines. Look at mobile carriers. Now look at the industries with low barriers to entry, like the restaurants business. It's pretty easy to start a restaurant. And the result of that is that no matter where you go, even a really small town, you'll find a pretty good restaurant. We believe this basic fact, that the higher the barriers to entry you have in an industry, the more you favour incumbents and the easier you make it for them to get fat and happy and lazy and not have to compete.

And the worse off all of the consumers are. We're trying to make online business about just the merits. We don't want you to have it so that some companies have all these artificial advantages just because they can accept money from people. We want to make it so that everyone can accept money, a level playing field. And then let everyone compete on that basis.

AW: Stripe has a name for connecting startups and SMEs to payments technology. How is your relationship with enterprise sized companies?

JC: Often big companies start using Stripe when they have something to launch. Because it's an easy way to get going no something fast, they start using Stripe for that. And over time, we find that they start to bring it more into their business. I was actually chuffed when RTE started using Stripe. They started using it for a GAA web player. They rolled it out really quickly, I was really impressed. I think we may be able to do more with them.

AW: Do you find that you have to pitch to bigger companies or do they come to you like startups do?

JC: We definitely do outbound stuff, but some of the larger companies are paranoid about being on the cusp of new trends. Those companies, we find, come to Silicon Valley to meet with companies, even if they don't yet see the relevance to their own business yet. But they just want to keep a pulse on what the Silicon Valley companies are doing.

AW: Is there even a little bit of a culture clash between a company like Stripe and bigger conservative enterprise firms?

JC: When we started out, everything was very conservative. Big companies were very banking heavy with lots of insider jargon and stuff. And so when we came along talking about APIs and iOS frameworks, people in those kinds of large companies just found it all a bit batty. But I think now that we're five years in, those same people are starting to realise that this stuff really matters.

It means that they might be able to bring something to market in three months rather than in 12 months. So it's been a journey from developers taking to it to business executives starting to see its value. And so the large companies we work with tend to be ones who care about moving quickly. If a large company is completely happy where it is and doesn't want to change a thing, then Stripe probably isn't for them. But luckily there aren't many businesses in that position.

Collison on...

Media hype on valuations: "Startups get way too caught up with valuations… the Valley has helped to cause this problem."

Silicon Valley v Europe: "The differences are overplayed. Silicon Valley doesn't present a silver bullet."

Markets that Irish startups should target: "If you can target the European market successfully, you're better equipped to compete than companies in the US."

Future of payments: "Soon, most commerce will happen inside apps."

Stripe's future: "I will be very unhappy if Stripe does not get us to a place where it is appreciably easier for money to move online."

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