Waters Wrap: The tough climb for startups

Over lunch, the global head of tech at a tier-one global bank bemoaned the institution’s struggle to onboard innovative startups. The problem they describe is three-sided. 

First, the bank heavily relies on a small number of big vendors: Bloomberg, Broadridge, and S&P Global. Those essential, end-to-end systems take priority over niche, nice-to-have tools.

Second, internal “pet projects” tend to get more backing in the budgeting process over specialist solutions. Internal tech teams feel the need to “prove their worth” by building something, rather than buying something off the shelf.

And third, when it comes to dealing with small vendors, “the main issue is prioritization.” While large banks are interested in working with small vendors, especially where an equity stake exists, they are not prioritized because “the onboarding process is very long—in some cases, years,” the global head of tech said. 

You have to be willing to accept the really hard message. Maybe you’re not good enough. Maybe your product sucks. But it’s better to know that sooner rather than later and make modifications to make your product not suck

Bill Murphy, The Contract Network

“Ownership of relationships with startups isn’t always efficient—at least at [our bank]—where they are managed centrally in an innovation team, which is further removed from the [bank’s internal technology department]. Innovation teams are focused on sourcing everything and integrating vendors, but this hasn’t been done effectively,” they said. 

They also mentioned that in addition to the central innovation teams, each silo’s tech team has separate resources that scan vendor markets and manage the availability of new, potential, and existing vendors. This fragmented approach means a lot of duplicative resources performing the same work.

During the course of reporting on our “Voice of the CTO” series, this push-pull challenge of running the bank and changing the bank, but getting lost in turf wars, was a common lament. 

Some experience here

In 1999, Bill Murphy joined Capital IQ as its founding CTO. He went on to become Blackstone’s CTO for almost nine years. He serves as an advisor to a handful of startups and sits on the boards of several others. He’s currently the managing director of Cresting Wave, which creates connections between startups and technology leaders at large banks and asset managers. And he’s in the process of getting his own startup off the ground: The Contract Network, which uses AI to speed up the contract negotiation process. 

To summarize, Murphy has been part of a startup that eventually sold to (what’s now) S&P Global for a reported $200 million in 2004. He ran tech at the largest private equity firm in the world. He makes connections between startups and large end-users. And he has his own AI-driven startup. 

I think his bona fides are clear. 

For a recent episode of the Waters Wavelength Podcast, I asked Murphy—25 years since he joined Capital IQ—what he’s learned and what he would do differently. One of the things that immediately jumped to the front of his mind was the idea of tough love.

“You have to be willing to accept the really hard message,” he said. “Maybe you’re not good enough. Maybe your product sucks. But it’s better to know that sooner rather than later and make modifications to make your product not suck.”

Murphy, who is also an angel investor, said he’s had numerous conversations with startup CEOs who are living in a haze of ego and yes-men. They’ll tell Murphy they’re doing great and amazing things, but they have only one client who isn’t even fully live.

“Everybody’s ego is so sensitive that they don’t want the tough story that you still have a way to go,” he said. “That wishful thinking—if I could go back, I probably would’ve avoided a bunch of dumb investments we made along the way, in a lot of ways.”

But there’s also the flip side of the coin, which is that no one wants to tell an aspiring company that their product is garbage. 

“A lot of people are deluding themselves because they want to love their idea so much that they just can’t let it go. … It’s hard for anybody to be the villain and say it doesn’t have a chance in hell. People don’t want to hear that and get angry. Because of that desire to be liked, they’re not getting the story in the way they should,” Murphy said.

Muddy waters

So, what is the takeaway from these two vignettes? Well, here’s my take, and it starts with an old tune of mine. The proliferation of cloud, APIs, and open source have made it easier to deliver new tools and services. 

These technologies make it easier for a startup to deliver their services, but at the same time, it’s become easier for internal teams to do the same. Or to build a platform internally, then spin it out in cases where the bank would be a built-in client, and maintain an equity stake in the spin-off. 

Additionally, an endless stream of new products coming to market makes it tough to stay on top of what is innovative. 

Differentiation is becoming increasingly difficult, even as it’s becoming easier to breathe life into a product. At the same time, the pace of technological advancement is dizzying—just look at the explosion that is generative AI. The half-life of what is unique is diminishing, and large banks and asset managers are not very good at being nimble. 

So, I think the upshot is this: As the tier-one bank technologist notes, end-users struggle internally over whether to buy or build—there are turf wars, confusion, and constantly changing champions. Your product has to be laser-targeted and easily onboarded. If you can tie your product to an internal project to speed up delivery, that would be all the better. 

And as Murphy notes, you have to be honest about what it is that you’re building and not be afraid to adjust on the fly. Listen; don’t get defensive.

None of these ideas are novel, but from what I can tell in the many conversations I’ve had with technologists over the years, people get blinded to the most obvious truths.

The painting accompanying this column is “A large chained dog howling while puppies try to climb onboard a sinking dog house” by Miguel Pacheco, courtesy of The Met’s open-access program.