When George Clooney sold his four year old tequila company for $1 billion this week, one ad exec summed it up best by saying:
“Because you’re selling something that’s hard to differentiate from other brands, you have to create a world around it. The promotional cost around this brand will be much lower [because Clooney is built in]. That increases the value.”
Also this week, four year old mortgage firm Sindeo folded despite differentiating well in a commoditized industry.
Even if you haven’t heard of Sindeo, when a fintech brand like this falls, you better hear the sound because there are lessons here for all of us. Let’s start with the ‘fintech disruption’ narrative that’s dominated lender and bank marketing in recent years.
Fintech means financial technology and it’s the been the sexiest way to “create a world around” your financial brand because it makes consumers think you’re really smart and your investors think you’re really valuable.
For example, fintech startup lenders like Better and SoFi* only recently passed $1 billion in total mortgage fundings since inception yet are valued at $220 million and $4 billion respectively.
Meanwhile back on earth, more mature players like LoanDepot, which funded $38 billion in mortgages last year alone and was only valued around $2 billion when they last eyed an IPO.
And don’t forget another mature player QuickenLoans, which funded $96 billion in mortgages last year alone, and almost never mentions valuation or IPO.
Another thing QuickenLoans doesn’t mention is fintech. In their narrative, fintech is just assumed, and the message is about simplification.
Push button, get mortgage.
But they drive this message as hard as any firm in any industry with ubiquitous advertising, arena naming, and celebrity messengers.
Not quite the Clooney model of the celebrity actually owning the brand, but close because $96 billion in funded loans can afford plenty of celebrity faces, plus their founder Dan Gilbert is a business celebrity in his own right.
Then there’s LoanDepot founder Anthony Hsieh who’s invested a lot of effort in creating both business celebrity and fintech narratives. He’s got a strong entrepreneurial record so LoanDepot has made him the face of the firm—and if you follow him on LinkedIn, you know it’s fintech day every day. Heish also has scale, so you can expect ubiquitous ads to begin soon.
Now back to newly defunct lender Sindeo. In this context, how the hell will a startup without scaled loan volume stand out? It begins with the startup playbook:
-Define problem/solution for VCs: Mortgages suck, our technology solves that
-Create marketing narrative: We make the world a better place by reinventing the stone age mortgage process
-Hope fintech narrative sticks, work asses off building business
Like tequila, consumer lending is very hard to differentiate, so the fintech narrative has been the elixir of choice for startups to stand out, and Sindeo was very creative in this area.
But under the hood they were a broker, not a direct lender, which means they were sourcing customers then presenting customers profiles to larger institutions that actually approved the loans.
From a messaging standpoint, this makes it all the more impressive that Sindeo built their brand as a fintech disruptor—it takes a ton of conviction in your customer service message to be truly convincing when you know you’re not actually approving, funding, and servicing most of the mortgages you’re selling to customers.
From a business model standpoint, they had plans to become a direct lender but ran out of time, and I believe Sindeo folded for two main reasons:
1. The mortgage business doesn’t scale well as a broker because a broker’s technology vision is subject to the whims of third parties they don’t control. The consumer message starts the same for a broker and a direct lender: “We make your mortgage application as easy as ordering from Amazon on your phone.” But for a broker that’s relying on a bunch of other lenders to actually approve their loans, all they can do is build an awesome mobile-friendly application for their borrowers. They can’t truly trick out the entire borrower experience by having borrowers direct-connect to bank statements, tax returns, and pay stubs because it’s still too early in the mortgage automation era for most third party lenders approving brokered loans to accept documentation that way. So the broker’s business model undermines their own technology vision which ultimately causes their message to be compromised.
2. Sindeo acquired customers primarily through loan officers, real estate partnerships, and lead buying. To scale loan officers takes years of recruiting or large scale M&A (like LoanDepot did). Regulators hate real estate parterships. And buying leads is an entire scientific business unto itself. Of these three growth tactics, I was impressed by Sindeo’s lead activities because they were smart about muscling in with emerging lead platforms early. But when you’re competing with juggernauts like QuickenLoans and even SoFi which has a giant war chest, they can win the war of attrition because lead buying is a long game with low conversion.
In the mortgage automation era, a successful lender needs deep and fully integrated infrastructure across four broad areas: lending platform, legal/compliance, technology, and marketing/sales.
Sindeo was strong on legal and marketing. And because their marketing was rooted in the fintech narrative, it was believed that their technology was strong. I know the technology vision was strong, but their lending platform surely slowed this vision and they ran out of time.
So to Nick Stamos, Ori Zohar, Ginger Wilcox, my old friend Jim Stewart, and all other Sindeo team members who fought hard the past four years, I raise a glass of Clooney tequila (or bottle as he recommends in his marketing) and salute you.
I salute Nick especially for always acknowledging how hard our industry really is. In his closing letter, he said: “Startups are hard and simplifying the highly regulated, complex business of mortgages is even harder.” And even before this, he was very open about how hard mortgage lending is, self deprecatingly questioning what the hell he’d gotten himself into.
I will always remember and respect that sincerity as I march forward in my consumer lending journey.
– *In fairness, SoFi might be the only fintech lending startup worthy of its valuation because mortgage is just one of many lending and other business lines.
– Props to my man @h1ghway for the Clooney tequila photoshop help.