Fidelity Investments, with more than $4 trillion in assets under management, is one of the world’s largest financial services firms. But the firm isn’t content with its current status. This privately-owned company founded in 1946, is seeking new markets that will power growth over the long-term. But how?
One key mechanism is Fidelity Labs, formed more than a decade ago to enable the company to grow new businesses flexibly and fast. While many large enterprises have incubation units, they are often felled by a common set of flaws: capture by pet projects, strategic misalignment, spreading attention too thin, and more. Not Labs. Here are lessons from Fidelity’s experience, seen through the lens of Rick Smyers, a Managing Director who has been in Labs since 2017.
Organize Around Teams: In his nearly five years inside Labs, Smyers has helmed many projects. The Labs organization is set up with individual teams that look much like a start-up in the outside world, with a “founder” (like Smyers) and a dedicated team representing functions required to make the business succeed, from developers to designers to salespeople. His current effort is called Fidelity ESG Pro, a software platform that helps financial advisors start and grow a sustainable investing practice, which incorporates Environmental, Social and Governance (ESG) factors into their investments. The platform enables advisors to look for opportunities, while also resonating better with some clients who may relate better to this than to the jargon of investing.
Market First, Company Second: Rather than looking for new ways to sell its typical products, the firm started by examining market trends, assessing strategically the types of customers it wanted to be closer to, and understanding what Jobs to be Done these people had but couldn’t satisfy. For instance, Smyers saw that there was a confluence of two trends – retail investor interest and increasingly available, high quality ESG investment products – combined with a frustration by smaller financial advisors that they couldn’t address this emerging area. Fidelity created customer-centric ideas first, then worked on how these concepts could fit with the core business.
Focus Early on Barriers: Many incubators – just like many entrepreneurs – fall in love with their early ideas. Beware. Smyers knew that even great ideas can face unforeseen roadblocks. He explains one for ESG Pro this way: “Financial advisors can be nervous about starting the conversation around ESG if they don’t know how the client is going to act. Most are interested, but a vocal minority thinks it’s hogwash. So we built a tool that’s an investing profile quiz, which they can send out to all of their investors. It asks about these topics but in a way that’s pretty neutral, as an info gathering tool to help get the conversation started.”
Minimize Dependencies: Smyers says “I can’t emphasize enough the mantra of minimizing dependencies. We were really strict about that, so we could move faster and be less of a headache to those around us. That also means they won’t object to what we’re doing. We created our own technology for instance, such as not using data feeds which were already coming to Fidelity in other businesses so we didn’t have to be dependent on them internally. You can move so much faster and pivot quickly if you don’t have internal dependencies. Then we added those links over time. Always have empathy for the core business, put yourself in their shoes, and know what this start-up should show before they’ll want to engage. We’d ask for help when we thought it was a win-win.”
He gives an example. “At the beginning we set up a project as a standalone entity with no dependencies on the other parts of the business, then we add dependencies when we think they’re going to help us. For instance, as we developed the ESG Pro product it became clear that advisors wanted our help not just with tools, and that would mean we’d be giving financial advice. We had told them how to build ESG models and given them lots of variables, but they wanted the answer. To become an investment advisor from a legal and compliance standpoint, we had to become dependent on a business unit with that certification.”
Manage the Sales Relationship Closely: Fidelity has a huge salesforce, but Smyers called on them sparingly. He explains: “We started completely independent and didn’t ask anything from existing channels until we were confident that we had something for them to talk about. As a startup your product evolves, and we were cautious not to bring in those sales teams to sell a product like that. They want to sell a product that’s well understood, and where there’s evidence that clients want it. So we waited until we had a couple dozen of our own clients that we’d acquired through our own staff, then we started to engage the sales teams. At first, it was just on a best-efforts model without targets and goals. They didn’t get any credit, just a happy client. Now we’re likely to have more targets and incentives. It’s taken a while, but this is where a lot of internal startups get into trouble, trying to get sales teams to push something too fast.”
Build-Measure-Learn: This is a key challenge area for many incubators – thinking that they need to make bold, fast strokes (in ways that smart entrepreneurs never would). Smyers says, “Our approach through the whole journey has been to engage with customers along the way. Build-Measure-Learn. We build in partnership with our clients all along the way. The product pivoted many times and it’s much better now because we were testing with and learning from our clients all the time. We communicated to our partners in the core business that we’d be pivoting, but we made clear it was on a small universe of clients and by the time we scaled it’d be a lot more stable. They’re used to dealing with huge numbers of clients, but this list of clients was on one page.” That humility earned Smyers the ability to move fast and put Fidelity in position to scale up when the time was right. Experimentation like this can be inexpensive, quick, and highly enlightening.
The time for scaling is now approaching. Through this deliberate approach, Fidelity has laid the groundwork for big moves this year. Smyers says, “We brought on a lot of clients in our first year, we have revenue, and now we’re talking to some bigger firms that can really have this business taking off in ‘22.” Seemingly fast successes usually build on a stable foundation, and Fidelity’s self-aware approach to creating this business has put it in on sound footing for the future.
Note: ESG Pro is an investment advisory service of Fidelity Institutional Wealth Adviser LLC, a registered investment adviser, and an affiliate of FMR LLC.