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What do Square and Credit Karma Teach Entrepreneurs About Innovation?

How a tiny change of pace and infinite determination can cause an existential threat to the tech giants of the past

People equate company size and valuation with market control and dominance. And, while that is true, smaller technology companies not only survive, but also end up reshaping the market’s ecosystem.

Why is this the case?

Because of mismanagement and poor guidance.

Think about PayPal for a second.

When Elon Musk ultimately left PayPal, he had a vision that included PayPal becoming a quick way to transact, making mobile payments and merchant services seamless.

Sometime after 2003, PayPal dropped the ball.

Today, services like Square exist. Square is exactly what Elon thought PayPal should have been. PayPal is doing much of the same they were doing back in 2003–2004.

Elon even invested in Square himself.

Square has a 26 billion dollar market capitalization.

PayPal has a 125 billion dollar market capitalization.

From the head start that PayPal has had, they’ve had over two decades to own that space. Two decades to develop technology and get ahead. Two decades of a lead.

Two decades to find talent.

Two decades of infinite cash flow through eBay.

Yet, competition has propped up around it.

Smaller companies aren’t the ones that need to survive at all. It’s the larger ones that seem to have trouble when they stop innovating. Not all big tech is meant to last. Management can get lazy, or, more accurately, grow complacent.

Larger companies also have a natural management issue. Great talent isn’t always easy to find. The best leaders and engineers are by their very nature impossible to find and recruit. Sometimes, they don’t exist. A larger company presents irregularities in management and inefficiencies down the road. They’ll present themselves in the company’s revenues years down the road.

When that happens, other companies will sprout with powerful investors backing that vision.

When you’re new, your back is against the wall. You’re constantly working and consistently attempting to innovate. Failure is nothing new, and you’re graceful with each problem you need to troubleshoot. You have something to prove to everybody else. Your team is working harder than everybody else.

While turning a start-up into a billion-dollar unicorn is an impossible task, it’s that much harder for a tech giant to hold on to its lead permanently.

If you don’t believe that fear is real, consider that Credit Karma had been growing for a good while now. People signing up, seeing their free credit scores. Recently, they also started to provide free tax services. And they do absolutely everything — whereas Intuit will charge you a variety of fees they feel they’re owed.

Intuit, the people who own TurboTax and QuickBooks, purchased them for $7.1 billion in cash and stock.

Intuit felt threatened, primarily because Credit Karma was very seriously considering going public. Had that happened, they may or may not have been able to challenge Intuit’s market share. Intuit surely felt that was a possibility and provided a substantially high purchase price.

As of 2015, Credit Karma had raised about $368.5 million in financing. They were worth approximately $3.5 billion. Had they gone public, who knows what that valuation would have looked like.

On February 24, 2020, Intuit announced that it was acquiring Credit Karma for $7.1 billion.

Using market value to stay in control.

It’s true that Intuit is obviously using its valuation as a bargaining chip to maintain its dominating position. However, the other side of the coin is that it does end up costing them over $7 billion to keep that dominance. Going forward, it’s hard to tell that these valuations will hold. With so much uncertainty in the markets and the recent technology brigade within the stock market, it’s hard to not make comparisons to the dot-com era.

A 7 billion dollar exit plan is never a bad play, no matter what angle you choose to take. By any trajectory, it’s a testament to the idea that innovation is highly possible and aspects of today’s technology giants are far from being complete products without serious imperfections.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries:

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