As Fuloria and his team continued to refine their machine learning algorithms to better serve Fundbox’s core demographic of small business owners, some members of the team began to wonder if it was time to look at serving larger businesses who needed access to larger lines of credit. Fuloria commented, “We have achieved success in a certain market segment, and we can keep growing in that segment, but at the same time, there are two broad vectors of growth beyond our current product offering.”

Option 1: Grow up market

To Fuloria, moving up market simply meant opening up Fundbox’s aperture, as he explained:

We’ve served customers of a certain size, with revenues ranging from anywhere between $50,000 to $100,000 on the low end to $5 million to $10 million on the high end, with an average revenue size of about $600,000 to $700,000 a year. There are tons of businesses at this size, so it is a huge market. So one option for us is to grow up market incrementally by adjusting our customer acquisition strategies to bring in customers that are a little bit larger. Additionally, we can add more data sources incrementally as they come along. So by connecting more data and adjusting our acquisition strategy, we can begin incrementally moving up market from an average customer size of $700,000 in revenue to, say, $1 million.  

Option 2: Grow to better serve current customers

Fuloria recalled learning an interesting thing when he joined Fundbox and entered the world of lending—“It wasn’t obvious to me when I joined the company, but adverse selection is really interesting. Let me differentiate between the world of SaaS and the world of lending. In the world of SaaS, you want a customer who needs your product. In the world of lending, you want somebody who needs your product, but not somebody who is desperate for your product.”

He explained how customer acquisition strategies could greatly change the risk profile of customers that a company like Fundbox interacts with. “Intuitively, a person who is responding to an ad that talks about cash flow issues is likely to be more risky than somebody who hasn’t reached out for working capital, but may be looking at working capital more as a growth opportunity.”

Fuloria realized that by varying Fundbox’s customer acquisition strategies, he could drive down the company’s credit risk. “If you’re trying to acquire a certain kind of customer who needs your credit for growth, as opposed to someone who needs it because they are desperate, you can improve your business.” This realization had important technological implications, particularly when it came to thinking about how Fundbox might be able to integrate additional services via APIs to increase the amount of attributes that the Fundbox model could use to underwrite customers and assess their creditworthiness.

To test this notion of expanding the company’s potential market by increasing the amount of data available to underwrite new customers, the company began allowing users to link their business’ bank account and underwrite based on the strength of bank account data.

Fuloria explained this process: