So… let’s talk about Brex. Have you heard of them? I hadn’t – until they appeared everywhere due to shutting down their small business offerings. Brex is a fintech startup that grew from an initial focus on technology startups and larger companies in the corporate spend management space. One of the offerings is corporate credit cards and they expanded to a “financial operating system” for companies. Two years ago, they announced they were going more broadly and adding traditional small businesses to their offerings… and last week, they abandoned the segment. The quote from Protocol: “Brex was abandoning smaller, slow-growing businesses because it wanted to focus on its core market of startups.“
They had discovered they had overreached and notified customers awkwardly that they were firing them as customers. The qualifier is now funding – to be a Brex customer; a business must have venture capital, angel money, or funding from an accelerator. Businesses affected are mostly brick-and-mortar businesses such as bakeries, restaurants, and small design agencies. “It’s really, really hard to do both because of the sheer volume,” the CEO of Brex told TechCrunch.
TechCrunch themselves noted, “one can only assume as market conditions have shifted it no longer wants to take the risk of serving less cash-rich customers as a way to limit their own credit risk. Talk about a fair-weather friend.”
Why do we care?
Let’s note that, yes, an enterprise company and an SMB company have very different needs. The reactions have been pretty harsh – especially considering those “less cash-rich cusomters” are precisely the ones who need the kind of services Brex offers.
I believe that a business needs to focus on what it can be very good at. Thus, it would make sense for me to praise their focus and get out of a market if they can’t serve it. That said, this move has a real stench to it. From a distance, it appears they didn’t do their research on the market, and did not think about the actual reality of smaller customers who are valuable in bulk. There’s a big difference between a volume offering and a boutique one.
The big takeaway here is two part. First, businesses often don’t really understand SMB. They are not just smaller versions of big companies. Those that specialize in SMB know this – which leads to the second statement. If you’re picking partners for your customers, have some healthy skepticism for those looking at the SMB. If it’s not in their DNA, they’re likely to be pretty bad at it.