20VC Monzo's Tom Blomfield on The 3 Phases of Startup Scaling, The Secret To Building a 1.2m Community with No Advertising & How To Use Boards As A Tool To Instil Operational Excellence

In this episode of 20 minutes VC, host Harry Stebbings interviews Tom Blomfield, founder and CEO of Monzo, a UK-based fintech startup revolutionizing banking through its mobile app which allows users to open a full UK bank account in minutes. Tom shares his journey from co-founding GoCardless to launching Monzo, which has raised over $190 million in VC funding. He discusses the importance of building a product that customers love, the challenges of scaling in London, and the future vision for Monzo as a financial control center. The conversation also touches on the role of branding, customer acquisition, and the necessity of iterating based on user feedback. Additionally, Harry talks about various sponsors and offers available to listeners.

• Harry Stebbings introduces the podcast episode and himself.
• Harry is excited about the guest, Tom Blomfield, and the product he represents.
• Tom Blomfield is the founder and CEO of Monzo, a UK-based digital bank.
• Harry outlines Tom's background and achievements, including his previous ventures GoCardless and Boso.com.
• Harry also introduces several sponsors and their services, including Hims, Americommerce, Wepay, and Terminal.

You are listening to the 20 minutes VC with me, Harry Stebbings at H. Stebbings 90 96 on Instagram. And there you can suggest both questions and guests for future episodes.

This quote introduces the podcast and the host, Harry Stebbings, and how listeners can interact with the show.

But without further ado, I'm delighted to welcome Tom Blomfield, founder and CEO at Monzo.

Harry Stebbings expresses his excitement about having Tom Blomfield on the show and gives a brief introduction to Monzo.

• Tom Blomfield discusses the founding of Monzo and its mission.
• Monzo aims to improve the retail banking experience, which Tom found frustrating.
• The initial challenge was acquiring customers for a new banking experience.
• Tom highlights the importance of solving a real problem and testing ideas early with potential users.

It really started with an itch we had to scratch, you know what I mean?

Tom Blomfield describes the personal motivation behind starting Monzo – to solve a problem he experienced firsthand.

But the one thing we could never figure out on a sort of intellectual or strategic basis was how do we acquire customers?

Tom discusses the early strategic challenge for Monzo: customer acquisition.

• Tom Blomfield reflects on his experience with GoCardless and its influence on Monzo.
• He emphasizes the value of deeply understanding a complex industry like payments.
• The importance of creating a product that people truly want is highlighted.
• Tom contrasts GoCardless's B2B focus with Monzo's consumer-centric approach and the role of brand and marketing.

However complex something it is, if you understand it at a fundamental enough level, it becomes simple.

Tom Blomfield talks about the power of understanding complex systems, which can give a competitive edge.

Consumer products are often hard to explain in economically rational terms, but they're all about emotion and brand and feeling and these sort of slightly irrational ways that human beings make decisions sometimes.

Tom contrasts the rational B2B sales process of GoCardless with the emotional and brand-driven consumer market that Monzo targets.

• Tom Blomfield discusses Monzo's success in viral marketing and customer acquisition.
• He explains the skepticism from VCs regarding Monzo's projected customer growth and zero CAC (Customer Acquisition Cost).
• Tom advises that empirical evidence of growth is the best response to skepticism.

Viral mechanics will get us to our first million customers. And every VC who saw that was like bullshit, not going to happen. And here we are, 1.2 million customers and 99% through viral mechanics.

Tom Blomfield shares a bold claim from Monzo's pitch deck that was met with disbelief but ultimately proved true.

• Tom Blomfield talks about the distinct phases of a startup: before and after achieving product-market fit.
• He describes the pre-product market fit phase as a time of small teams and an incomplete product that may not be growing.
• The transition to the product-market fit is characterized by exponential growth and is unmistakable in hindsight.

Pre product market fit for me is sort of, you might be five or ten or 15 people, even with a little bit of seed funding, maybe an early product out there, but it's not growing exponentially.

Tom Blomfield defines the pre-product market fit phase and its challenges, emphasizing the small scale and potential lack of growth.

• The early Monzo product had significant issues with reliability and functionality.
• Despite its flaws, users supported Monzo due to the mission it represented.
• Monzo resolved issues rapidly and added new features, shifting customer feedback from complaints to requests for additional cards.
• The tipping point for Monzo was when growth exceeded their ability to dispatch plastic cards, indicating a transition from pre-product market fit to scaling.
• Tom Blomfield discusses a third phase beyond scaling, which focuses on establishing a solid business model.

"But we fixed those so quickly and then added extra functionality that the main point of sort of customer feedback changed from why isn't my card working again? To can I have a second or third card for my husband or wife or friends or kids or whatever?"

The quote highlights the shift in customer feedback from dissatisfaction to increased engagement and demand, signaling a successful transition to product market fit.

"For us, the tipping point was when we started growing faster than we could even handle, faster than we could dispatch plastic cards."

This quote signifies the moment Monzo realized they had achieved product market fit, as their growth outpaced their operational capacity.

"And I think there's actually a third phase now of sort of business model."

Tom Blomfield introduces the concept of a third phase beyond product market fit, emphasizing the importance of developing a sustainable business model.

• Tom Blomfield stresses the importance of customers' love for a product when considering scaling.
• The intensity of customer reaction to the hypothetical removal of a product is a key indicator of readiness to scale.
• Many products are used out of convenience or peer pressure rather than genuine affection.
• Products like Slack are examples where customers have a strong attachment and willingness to pay for the service.

"Do your customers love this product? Is, I think, the only thing that actually matters at that point."

Tom Blomfield explains that customer passion for a product is the most crucial factor when deciding whether a product is ready to scale.

• Monzo's approach to adding new features is customer-driven, based on what customers feel is missing.
• Tom Blomfield shares past experiences where adding features to an unloved core product did not spur growth.
• Monzo asks customers directly what features they want, leading to the introduction of savings accounts, international payments, and cash deposits.
• The goal is to transform the current account into a comprehensive financial management tool.

"So we go to our customers and say, you're using this for a portion of your spend. What's stopping you making this your main account?"

Tom Blomfield explains Monzo's strategy for product development, which involves directly engaging with customers to understand their needs and improve the product.

• Tom Blomfield discusses the balance between following customer feedback and data versus using them to inform decisions.
• He believes product decision-making is both an art and a science, requiring a hypothesis followed by user testing and data analysis.
• There is a risk of reaching a local maximum if decisions are solely based on customer feedback or data.

"It's this sort of gut instinct that's informed by data and informed by user feedback."

Tom Blomfield emphasizes the importance of using data and feedback to refine instinct and intuition in product development.

• Monzo has focused on product expansion within the UK rather than international growth.
• The strategy is to develop the current account into a more sophisticated financial management tool.
• Tom Blomfield acknowledges the difficulty in knowing whether this strategy is optimal compared to companies like Revolut, which has expanded internationally.

"It's very hard to split test a company."

Tom Blomfield acknowledges the challenges in determining the best strategic direction for a company, as there is no way to test multiple strategies simultaneously.

• Tom Blomfield discusses the vast market for financial services and the relatively low brand awareness of new players like Monzo and Revolut.
• The financial services market is enormous, with potential for many billion-dollar companies.
• Market competition may or may not lead to a fight for particular geographies between companies like Monzo and Revolut.

"One thing that is obvious is that every single person in the world needs a bank account and then probably a dozen different financial services around the bank account."

Tom Blomfield points out the universal need for banking and financial services, indicating a large potential market for Monzo and similar companies.

• Monzo has reached 1.2 million customers, which is 2-3% of the UK adult population.
• The customer base has expanded beyond London, with 70% of customers outside the city.
• To reach older demographics, Monzo is broadening its range of financial products, such as savings accounts, and exploring simple investment accounts.
• Monzo is experimenting with above-the-line advertising, like tube and tram ads, to further expand its reach.

"I think it's a classic adoption cycle really. You start with the early adopters and the early mainstream and sort of crossing that chasm."

This quote explains that Monzo is following a traditional market adoption strategy, beginning with early adopters and then moving to the mainstream market.

"We've already spread outside London pretty well. So something like 30% of our customers are in London, but 70% are outside London."

This quote highlights the geographic expansion of Monzo's customer base, indicating successful growth beyond the initial city-centric user group.

• Competing with big banks on customer acquisition costs (CAC) is unsustainable for Monzo due to high costs.
• Monzo focuses on product growth and improving the pirate metrics funnel: awareness, acquisition, activation, retention, referral, and revenue.
• The company's growth rate has doubled in recent months through product improvements alone, without incurring customer acquisition costs.

"We spend really all of our attention on product growth."

This quote emphasizes Monzo's strategic focus on improving their product to drive growth rather than spending heavily on customer acquisition.

"It's awareness, acquisition, activation, retention, referral, and then eventually revenue."

The quote outlines the stages of the pirate metrics funnel that Monzo uses to measure and drive growth across different aspects of their business.

• Early Monzo team members, particularly Hugo (head of design) and Tristan (head of marketing), were instrumental in shaping the company's design and brand voice.
• Community building was achieved through in-person events and direct engagement with the first 5,000 customers.
• Tom Blomfield acknowledges the hard work put into building Monzo's community and brand.

"Those two for me, really embody the design spirit behind Monzo and then the brand and community tone of voice."

Tom Blomfield credits team members Hugo and Tristan for their significant contributions to Monzo's design and marketing approach.

• In the early days, Monzo team members made significant sacrifices in time and emotional energy.
• There is debate on whether working longer hours is necessary for success or if it leads to diminishing returns and potential burnout.
• There are different perspectives on work-life balance, with some companies like Slack claiming success without overworking.

"It's certainly true that in the early days of Monzo, a lot of people sacrificed a huge amount."

This quote acknowledges the personal sacrifices made by the Monzo team during the company's early growth phase.

"I think can certainly take it too far and really push people to work crazy, crazy hours."

Tom Blomfield expresses concern about the potential negative impact of overworking and the importance of finding a balance.

• Monzo's recent funding round was led by General Catalyst and new investor Axcel.
• Fundraising can be emotionally exhausting, with a high likelihood of facing rejections.
• Building a great business with a product people love is the key to easier fundraising.

"We didn't need to raise money until early to mid 2019. The market seemed good and we'd made a lot of progress, particularly on contribution margin."

Tom Blomfield explains the timing and reasoning behind Monzo's fundraising strategy, highlighting the importance of a strong business position.

"Just build a product that loads and loads of people love and want to pay you money for, and then it'll be easy to fundraise."

This quote suggests that the focus should be on creating a valuable product, which will in turn facilitate the fundraising process.

• Effective board management is challenging, and few boards are well-run.
• Board members should limit their comments to only the most critical points during meetings.
• Mickey Malcolm, an investor, advises to speak up only if the point is crucial and otherwise to communicate with the CEO outside of the meeting.

"His advice was to, as a VC, as a board member on someone else's board... is this one of the two or three points I really want to make this board meeting, and if not, I'll just stay quiet and I might ping the CEO a note later..."

Tom Blomfield shares advice from investor Mickey Malcolm on how to be an effective board member by focusing on making only the most impactful contributions during board meetings.

• Board members like Miles and Eileen Burbage contribute significantly despite being less vocal; their input is highly valued for its insightfulness.
• Boards can be used to drive operational excellence rather than focusing excessively on strategy.
• Strategy can often be succinctly described, while the execution and iteration are where the real impact is made.
• Board meetings can be structured to assess and push operational performance by involving executives and priming board members to challenge them.

"I think that's something I see from Miles and also Eileen Burbage, who's on our board. We don't hear a lot from her, but when she talks, everyone else listens because it's so insightful."

This quote highlights the value of board members who speak less frequently but offer profound insights when they do, influencing the discussion significantly.

"You can use it as a really useful tool to drive operational excellence."

This quote emphasizes the role of board meetings in driving the company's operational performance rather than getting bogged down in lengthy strategic discussions.

• Board management practices can evolve over time.
• At Monzo, the initial informal approach with board discussions among founders and advisors has shifted towards a more formal structure due to regulatory requirements.
• Finding the balance between formal governance and startup-focused discussions is a challenge.
• The search for a new chairperson is underway, indicating a strategic shift or evolution in the board's composition.

"I don't think our board management, I don't think it's something I've yet been very good at and I'm looking to get good at it at go card."

Tom Blomfield admits his need for improvement in board management, reflecting on his experiences and the differences between past and current practices.

"We're actually in the process of searching for a new chair, so we'll hopefully have some exciting news in the next two or three months."

This quote indicates a significant development in the governance of Monzo, with the anticipation of a new chairperson joining the board.

• The book "Hard Thing About Hard Things" by Ben Horowitz resonates with Tom Blomfield due to its portrayal of the tough realities of startup life.
• Making timely decisions, even if they aren't perfect, is often necessary in the fast-paced startup environment.
• The concept of "violent execution" is endorsed, emphasizing the importance of taking multiple steps in the right direction rather than waiting for the perfect move.

"I think the brutal, almost warlike reality of his startup experience really resonated."

Tom Blomfield connects with the harsh realities of startup life as depicted in Horowitz's book, finding comfort in the notion of making the "least bad decision."

"A good decision made today is better than a perfect decision made tomorrow?"

Tom Blomfield agrees with the sentiment that timely decisions are preferable to waiting for perfect solutions in the context of startups.

• The transition from pre-product market fit to scale-up phase requires different skills and experiences.
• Hiring executives with previous scale-up experience can significantly ease growing pains.
• London lacks a pool of experienced scale-up executives compared to Silicon Valley, presenting a challenge for growing startups in the city.

"Or if you can find those executives who've done it before, it makes your life a lot easier."

Tom Blomfield stresses the importance of having experienced executives who can preemptively address common scale-up challenges.

• "Make something people want" is a core principle that Tom Blomfield adheres to, influenced by Y Combinator's philosophy.
• This principle underlines the importance of creating products that meet real user needs and desires.

"It's on the t-shirt that y combinator gives every new intake. Really, I think that's the only thing that matters."

Tom Blomfield quotes Y Combinator's motto, emphasizing its significance as a guiding principle for startups.

• Over time, Tom Blomfield's thinking has evolved to appreciate the importance of brand, mission, and values.
• Understanding human behavior and emotions is crucial for decision-making, as supported by the field of behavioral economics.
• Traditional economics does not fully capture how people make decisions, highlighting the need for a more nuanced approach.

"I think you've got to really just understand emotion."

This quote reflects Tom Blomfield's realization that emotions play a critical role in how decisions are made, a departure from purely analytical thinking.

• Tom Blomfield identifies his strength in synthesizing complex information and providing clear direction for the company.
• He acknowledges his weakness in line management and expresses a desire to improve in this area.

"My biggest strength is the ability to take in a huge amount of varying information... and then to concisely articulate a direction for the company."

Tom Blomfield describes his aptitude for processing diverse inputs and setting a clear course for the organization.

"I don't think I'm very good as a line manager."

Here, Tom Blomfield candidly assesses his own management skills, recognizing areas for personal development.

• Monzo has spent years establishing a solid banking foundation, comparable to the Nokia 3310 of the banking world.
• The next phase for Monzo involves creating a marketplace for third-party financial products, positioning it as a comprehensive financial management platform.
• This shift represents a move from traditional banking services to a more integrated, technology-driven approach.

"We've got the pinnacle of current accounts. It's sort of finished. And so I'm really, really excited about building out this marketplace of products from third parties on the Monzo platform."

Tom Blomfield shares his enthusiasm for Monzo's future direction, emphasizing the transition towards a broader, more innovative financial ecosystem.