Hiding Your Secret Sauce

They say every product or service must have a secret sauce. Some startups take the secrecy part of this advice to the extreme by going into stealth mode until they launch. While others point to today’s open world of startup events, mentoring sessions, Twitter and TED talks and question if it’s even possible to have anything secret.

Before sharing my perspective on this topic in this post, here’s a disclaimer: Frequent readers would be aware that my blog posts don't distinguish themselves with rigorous research and analysis. Even by that standard, this one takes personal observation and connection of random dots to unprecedented heights. Proceed with caution.

For those who’ve come this far, here's my claim: It's indeed possible to hide your secret sauce. My conviction comes from my recent deep-dives into a few products / services.

#1. SQUARE

By launching a card reader attached to a smartphone and accompanying POS software, SQUARE expanded the market for debit and credit cards to merchants who were hitherto restricted to cash. In the early days, it appeared that Square was successful because it obviated the need for merchants to buy costly point-of-sale terminals to accept card payments. Later on, co-founder Jack Dorsey talked up the company’s success to the deep insights delivered by the Square POS software to merchants.

Without belitling these critical success factors, Square took off for a different reason: It was the first product / service that allowed merchants to accept accept card payments without a merchant account. For the uninitiated, this is a line of credit extended by an acquirer bank and it carries the risk of merchant going insolvent. While you can find more details here, the key source of acquirer risk is fund reversals. Merchants targeted by Square are micro and small businesses that wouldn’t qualify for merchant accounts from banks because of their higher risk profiles. Against this backdrop, Square stepped in between the acquirer bank and merchants and, using its well-funded status, got a merchant account for itself. It then signed up individuals and small businesses with minimum fuss and took the risk of letting them accept card payments – without having to “toil hard to get this privilege”, as an investor in a Square-clone startup writes in this MEDIUM article.

With this innovative model, Square created a win-win situation for everyone: Merchants who left business on the table before because they couldn’t accept cards were now able to win those sales. Banks who got nothing from such merchants’ cash transactions in the past now started earning incremental merchant fees without the additional acquirer risk. Square has, of course, become a modern day payments legend.

#2. PAYTM

PayTM is a mobile wallet prefunded by debit or credit cards (or bank accounts) of users who can use the credit to pay electronically at participating merchants’ sites without undergoing the friction of entering credit card information for every transaction on merchant websites. Tired of failed payments, consumers lapped up the frictionless alternative offered PayTM quickly. The initial success of PayTM inspired a lot of clones. However, with 100 million users, PayTM is clearly the biggest mobile wallet player in India. Its leadership position is often attributed to early mover advantage, massive funding and superior execution.

Without undermining these factors, I attribute PayTM’s popularity to a major difference in how it operates compared to the other mobile wallets. To illustrate this with an example, let’s say I initiate a payment of INR 1000 to a merchant when my wallet balance is only INR 700. My transaction would fail on all other mobile wallets because of insufficient balance. I’d have to quit the payment, go back to prefund my wallet with the deficit of INR 300 (being 1000 – 700), and then come back and reinitiate the transaction. What a pain! In sharp contrast, PayTM seamlessly switches over to its other role of electronic payment gateway, takes me to my funding source, asks me to fund the additional INR 300, and completes the payment in a single smooth pass. No error message. No need to retrace my steps. Very frictionless.

*****

As the above examples illustrate, the secret sauce of a product or service could be hidden in a

• New business model that empowers people to do something they couldn’t before, or
• Change in customer journey that delivers superior CX.

While this list is by no means exhaustive, it does suggest that it’s possible to have a secret sauce and hide it too. But that's only me. I'm keen to know what others think. Please share them in the comments below.