Meet James Alexander, one of three people who created Zopa, the world’s first peer-to-peer lending company. Established in 2005, Zopa has enabled numerous borrowers to save money. The company has won several awards over the years and, in 2017, became the first UK-based peer-to-peer company to lend more than £2 billion in loans.
You might think that James and his co-founders always had an inkling of an idea to start a peer-to-peer lending company. Actually, that is not the case. The idea was born out of a sense of purpose.
Prior to Zopa, James had worked as a strategy director at another banking institution. He left this company in 2003, along with a couple of colleagues, with one simple idea: to create a customer-centered business in finance.
“We had no idea what exactly we wanted to do, but we knew why we wanted to do this,” he explained.
Working with ethnographers and social economists, James and his colleagues were able to piece together a perspective on what was emerging around them. They had identified a growing group of consumers they had begun calling ‘free-formers’. These were self-reliant people who had given up on the government and were the forerunners to the current inhabitants of the gig economy.
James and his colleagues realized that the free-formers were going to become the dominant demographic in the 21st century. These free-formers did want to invest their money, but not through the conventional channels that big banks were offering. When asked questions about borrowing, they had a litany of complaints about the banking system. Their main concerns centered around bureaucracy and the disdain banks showed to people who didn’t have traditional, full-time jobs. In summary, the free-formers felt disenfranchised by the banking system, as they were termed ‘risky’.
James and his colleagues went back to the very roots of banking and asked the disruptive question, “What if eBay lent money?” James himself had to borrow money from his father and joked how he negotiated a better deal with his father than what his father was getting from one of the high-street banks. Moreover, he could repay his father whenever he could and not be charged for it!
When they studied the writings of the economist Joseph Schumpeter, James and his colleagues began to understand how disruptive forces work. James remarked how surprised he and his colleagues were about the time it had taken big banks to see the disruption that was imminent. The industrial consumer age was giving way to the digital consumer age and the technology that could transform borrowing and lending was already there. “A long habit of not thinking a thing wrong gives it a superficial appearance of being right,” Thomas Paine said in 1776.
“We wanted to make a difference; we wanted to make things better for people,” James said. “We have a choice and we can make up the rules.”
Through this discovery process anchored around purpose, Zopa was born. According to James, it took a long time to come up with a name. The team decided they would not leave a meeting until they had found one. ‘Zone of possible agreement’ (Zopa) came from a negotiation class that James had taken at business school. They went online and bought the name from someone in the Netherlands for $80.
Perhaps you’re an aspiring entrepreneur, intrapreneur or just generally want to be more innovative in your day-to-day work. The Zopa story serves as a nice example of how purpose can make this possible.
Here are some points to consider as you think about how you can practically deploy purpose to be more innovative:
1. In innovation, it helps to start with a question that starts with “why?” For example, “why do anything different?”, “why do we need a new approach?” or, “why change the status quo?” This is more powerful than problem-solving questions like “what?” or “how?” because “why?” and its twin, “why not?” have a tendency to focus our thinking on more fundamental issues and encourage us to explore. Design thinking expert Justin Ferrell says problem solving gets you incremental innovation, but problem exploration is what gets you to disruption. What would have happened if the Zopa founders had asked “What can we do to increase our loan portfolio?” They might have stayed in banking and made improvements to the system, but they probably wouldn’t have questioned the fundamental assumptions about banking.
2. For disruptive innovation, build on your ideas by prototyping through stories. James borrowing money from his father was a story about a prototype for an alternate lending model. It uncovered crucial issues such as cost and payback timing that helped the Zopa founders question further elements of traditional banking.
3. Do your history homework. Note how the founders went back in time to look at the industrial revolution and examined the writings of a historically significant economist, Schumpeter. History is not only a great source of inspiration, but it can help us step back from our current situation and inspire us to question the way things are.
4. Center on human issues. Zopa wanted to “make things better for people.” Nothing helps us to question an industry better than anchoring on the real-life experiences of people. Empathy is crucial to disruptive innovation. Also, purpose and empathy create a virtuous cycle. Purpose ultimately is about service and so it forces us to think empathetically, while empathy helps us frame things in purpose more easily.
Linked to all four of these points is the importance of patience. For James, it took considerable time and effort, but eventually, the business opportunity around purpose became very clear. As you go down your own purpose journey, don’t expect quick fixes. Heed James’ advice: “Innovation is messy. It’s about seeing the world ‘outside in’ and making choices. Innovation is finding new and better ways to fulfill your organization’s purpose.”
Michael Chavez is the Chief Executive Officer of Duke Corporate Education and faculty in the firm’s Building Strategic Agility online course. He is the co-author of the forthcoming book Rehumanizing Leadership.
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