Startup Advice

The banking royal commission is a masterclass in how not to run a startup

Benjamin Chong /

Benjamin Chong

Right Click Capital partner Benjamin Chong. Source: Supplied.

If deciding what not to do in business really is as important as deciding what to do, then the lengthy Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is a masterclass in how not to run a business, particularly not a $68 billion dollar bank. The 1000-page final report delivered by grim-faced commissioner Hayne contains extensive criticism, recapped explosive revelations from the hearings and dealt condemnation to one of the cornerstones of Australia’s economy, the financial services industry. But among the 76 recommendations are valuable lessons that are relevant for all businesses, regardless of size or sector.

For startups and growing businesses, ensuring commissioner Hayne’s wisdom is built into a business model from an early stage will set a startup up for future success.

Lesson one: The customer is always number one

The royal commission heard horror stories of ‘fees for no service’, advisors offering poor advice to maximise commissions, and deceased people being charged fees (to name just three of the worst offences).

A business that only thrives when doing wrong by a customer is a business that won’t survive unless it corrects course. Of fundamental importance to every business leader (from a founder to an ASX 100 chief executive) is that the product or service provides a real benefit to their end-customer.

This process should include a customer feedback loop whereby the business seeks customer feedback and then evolves their offering to meet customer needs.

Lesson two: Risk management is your friend

The royal commission exposed governance failures due to grossly inadequate risk management within the financial services industry.

For founders the lesson is clear: establishing robust risk management procedures from the get-go is actually a competitive advantage and allows businesses to weather the storms they face.

This might require having a serious conversation about how risk impacts a business, engaging consultants or employing regtech to ensure their respective businesses can keep on top of complex and ever-changing regulation.

Lesson three: Competition is good

Competition forces improvement in all industries.

Early-stage founders have the benefit of agility, enabling them to pivot and change direction, so should look to their competition to find out how they can improve and stay ahead of the game.

Competition is often the catalyst for innovation.

Lesson four: Culture and incentives are entwined

Hayne called out the greed and dishonesty that was driven by employees being incentivised to do the wrong thing. He specifically noted: “Rewards have been paid, regardless of whether the person rewarded should have done what they’ve done.”

For founders, this speaks to the need to ensure incentivisation rewards what is right for the customer, not what makes money for their company.

Lesson five: Profit is not your purpose

Profit is the reward for doing something well but it is never the business’ primary purpose.

Building a team that shares the same values, vision and passion will drive success and these qualities must be integrated into the business.

If founders get the foundations right and the customer piece is in place — meaning there is a great product or service that meets their need — then profit will follow.

Lesson six: The buck stops with you

This is the biggest lesson of all: the buck stops with the founder, and the respective leadership team as the business develops.

Founders are responsible for driving the right behaviours and a culture of integrity, honesty and doing the right thing from the top down. Enabling or tolerating bad practice is as much a crime as if it was committed by the founder and the leadership team.

It will take the banks considerable time to rebuild trust in their industry but for those at the beginning of their startup journey, this should serve as a cautionary tale to never underestimate the importance of retaining the trust and belief of your customers.

A loss of trust in an early-stage startup would be almost impossible to recover.

NOW READ: Why the royal commission is good news for startups

NOW READ: Viva la neobank: Big banks might be ignoring the meteor, but extinction is inevitable

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Benjamin Chong

Benjamin is partner at venture capital firm Right Click Capital.

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