How This Fintech Founder Succeeds by Taking the 'First Risk'

    In international finance, banks take as few risks as possible on customers. If Shivani Siroya wanted her microfinance startup to truly disrupt the model, she'd have to embrace risk-taking first. Shivani Siroya had built her Los Angeles-based small-business lending platform Tala methodically. The founder and CEO created a mobile platform for unbanked individuals those without formal credit histories that analyzes their likelihood of repaying their loans, which vary between $10 and $500. In 2013 and 2014, the business successfully expanded throughout Kenya. But customers weren't happy. Siroya had a realization: "I don't think I'm having the impact I want us to be having," she told Inc.'s What I Know podcast. It was her startup's partnership with traditional banks that was slowing down communications with and lending to customers and the banks weren't always taking Tala's advice to re-lend to existing customers, Siroya says. They were similar problems she'd encountered early in her career, working in international microfinance. So, Siroya decided that since her business model was based on trust, she and her investors would have to be the ones willing to take on more risk. She turned Tala into not just the platform for lending, but also into the bank. "It was deciding to say, 'okay, we're doing this and sure it's working, but are we really moving the needle?" Siroya says. "It was deciding to take the first risk." Lending the company's own equity capital directly to small business owners who used Tala's Android smartphone app worked. Within years, the company was ready to expand to new markets. But, in doing so, it didn't take the obvious or easy route. "We didn't want to just launch another country in East Africa, because when we think about taking that first risk, what are you doing? You're really needing to prove out that this can work globally," Siroya says. "And so we wanted to pick a completely different continent. We wanted to pick a different culture. We wanted to think about a market that didn't have the infrastructure that Kenya had." It followed up its launch in the Philippines with a launch of services in Mexico, and then India. Today it operates across the four countries and is delving into deeper services, including banking operations, for its customers. Tala has 540 employees in the US and around the globe and has raised $360 million in venture capital. Question 1 (25 Marks) Characteristics and success factors play a major role in the success of an enterprise. Identify and discuss at least five such characteristics / success factors that Shivani Siroya is demonstrating in the case study. Question 2 (25 Marks) Illustrate how Shivani Siroya can leverage the five bases of competitive advantage to achieve a distinctive edge for her venture. Evaluate which base she is most likely adopting based on the details presented in the case study. Question 3 (25 Marks) Discuss the five (5) ways to "get" into business and based on the case study, examine how Shivani Siroya entered into business. Furthermore, through your own research, identify and discuss five (5) most applicable legal aspects to be considered when running such a business. Question 4 (25 Marks) Differentiating internal from external growth, analyze the growth strategies that Shivani Siroya has employed and intends to implement in the future.  

Sample Solution

       

The prompt focuses on Shivani Siroya's entrepreneurial journey with Tala, a microfinance startup. It highlights her risk-taking approach, the company's expansion strategy, and its success factors. The questions delve into characteristics, competitive advantage, business entry, and growth strategies.

Question 1: Characteristics and Success Factors

Shivani Siroya demonstrates several key characteristics and success factors in the case study:

  1. Visionary Leadership: Siroya's ability to envision a disruptive model in the microfinance industry and her determination to overcome challenges are evident.
  2. Risk-Taking: Her willingness to take calculated risks, such as lending the company's own capital, is a crucial factor in Tala's success.
  3. Customer-Centric Approach: Siroya's realization of the need to prioritize customer satisfaction and improve communication highlights her customer-focused mindset.
  4. Adaptability: Her ability to adapt her business model based on customer feedback and market conditions demonstrates flexibility.
  5. Global Perspective: Siroya's decision to expand Tala to different continents and cultures showcases her international outlook and ambition.

Full Answer Section

        Question 2: Competitive Advantage Shivani Siroya can leverage the following five bases of competitive advantage:
  1. Cost Leadership: By streamlining operations and leveraging technology, Tala can potentially achieve lower costs than competitors.
  2. Differentiation: Tala's unique approach to microfinance, including its risk-taking and customer-centric model, can differentiate it from competitors.
  3. Focus Strategy: By targeting specific market segments, such as unbanked individuals, Tala can develop a deep understanding of their needs and tailor its products accordingly.
  4. Innovation: Tala's continuous innovation and development of new products and services can give it a competitive edge.
  5. Strong Brand: Building a strong brand can enhance customer loyalty and attract new customers.
Based on the case study, Shivani Siroya is most likely adopting a differentiation strategy. Tala's unique approach to microfinance, its focus on customer satisfaction, and its willingness to take risks set it apart from traditional financial institutions. Question 3: Business Entry and Legal Aspects Shivani Siroya entered the business through entrepreneurship. She founded Tala and built the company from the ground up. Legal Aspects to Consider:
  1. Business Structure: Choosing the appropriate business structure (e.g., sole proprietorship, partnership, corporation) is crucial for legal and tax purposes.
  2. Licensing and Permits: Depending on the jurisdiction, Tala may need to obtain specific licenses and permits to operate in the microfinance industry.
  3. Data Privacy and Security: Protecting customer data is essential, especially when dealing with sensitive financial information.
  4. Regulatory Compliance: Adhering to local and international regulations, such as anti-money laundering and consumer protection laws, is vital.
  5. Intellectual Property: Protecting Tala's intellectual property, including its technology and brand, is important for long-term success.
Question 4: Growth Strategies Shivani Siroya has employed both internal growth and external growth strategies. Internal Growth:
  • Organic Expansion: Tala's expansion into new markets through its own resources and operations is an example of internal growth.
  • Product Development: Developing new products and services, such as banking operations, is another internal growth strategy.
External Growth:
  • Mergers and Acquisitions: While not explicitly mentioned in the case study, Tala could potentially acquire other microfinance companies or fintech startups to accelerate its growth.
  • Strategic Partnerships: Collaborating with other businesses or organizations can provide access to new markets, technology, or expertise.
Shivani Siroya's future growth strategies likely involve a combination of internal and external growth, with a focus on expanding Tala's reach and services while maintaining its core values of risk-taking and customer-centricity.  

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