In Search of Opportunity

When hunting waves, you’re more likely to find large, valuable ones, outside the domain of pure, traditional software.

In Search of Opportunity

By Capital Thinking • Issue #882 • View online

If you’re optimizing for impact, choosing a material problem matters far more than your personal effort and your ability to execute.


Wave hunting


I don’t know where I heard the analogue, and it’s not perfect, but it’s stuck with me as a way to think about choosing problems to work on.

It goes something like;

“if you had to bet on two swimmers in a race, and one was an exceptional swimmer in calm waters, and the other was an average swimmer riding a tsunami, which would you bet on?”

In case it’s unclear, a tsunami carrying an average swimmer will win 10 times out of 10 in a race with even Michael Phelps.

This resonated as I thought of what didn’t work at my last startup and where we could have done better. We spent 4 years building an incredible amount of things and doing a (in my opinion) better than average job of micro-optimizations to make the product and business work.

We read all the things, worked all the hours, spent all our savings and it still didn’t matter.

I think our biggest headwind was working on something that didn’t matter, in a domain that wasn’t growing in any macro sense.

I spent 2014 through 2019 working on Cash App, and I think we out-executed for the most part and did (and still do) a good job. I also think Square/Cash App rode (and are still riding) a few massive waves that cut across rapid technology adoption, new technologies becoming widespread that weren’t before, and discontinuous changes in the economic structure of financial services.

A large domain with lots of growth and macro change is a force multiplier for strong execution. Example waves (from my time on Cash) are below, but they’re meant to be illustrative.

Time to money

The money movement system in the US has long imposed a tax on the most vulnerable.

Most money in the US moves via wire, followed by ACH - the ACH network processed $55.8 trillion in volume in 2019. By comparison, Visa processed $11 trillion in volume in 2018 (actually this volume also moved over the ACH network - Visa was merely the messaging system for these payments).

From an end user perspective, money moved via ACH moves relatively slowly (1 - 2 business days, not at all on weekends) relative to money moved by the card networks (instantly for all intents and purposes).

There’s a lot to unpack here which I won’t get into for the moment. In terms of utility, consumers in the US know that they cannot depend on money moved via ACH in an emergency. This means that there’s always been a high value placed on being able to move money instantly.

In the past this was wires; most banks would charge you $25 to wire money to another bank, and it would only work if both banks were open.

This meant that the slowness in the ACH system was a tax on the most vulnerable Americans - if you’re living paycheck to paycheck and something catastrophic happens, and you need to access to funds really quickly, you’re either paying a really high fee or its just not happening for you. And heaven help you if it’s the weekend.

Over the last few years, the card networks and NACHA have invested heavily in making it possible for consumers to access their money faster. There have been several iterations of innovation here.

Next Day ACH

Square & Stripe productized this in merchant payments first; before they came along, most small businesses would get access to funds 5 - 7 days after processing a credit card payment. Square and Stripe gave you your money within a day or 2.

There is some element of credit risk to doing this, but the risk is embedded in the system (Square/Stripe would be out of the money if the system failed) rather than an attribute of the merchant (ie, whether the merchant was a bad actor or bad credit, had no impact on whether they should receive funds the next day).

Instant Push to Debit

The next iteration was making the instant push-to-debit transaction type widely available. Cash App was the first to do this broadly for consumer, but everyone from Venmo, Apple Cash, Paypal, Dave and several others have since followed suit.

This iteration took a transaction type that had existed for a while but wasn’t really applied in consumer use cases (if I remember correctly, the transaction type was typically used for to push gas station refunds or something of that nature. Don’t quote me on this).

The transaction type essentially enabled a merchant acquirer to push funds onto a card with a realtime message, and the SLA on making funds available was functionally instant (sometimes could take up to 30 minutes, but the card issuer would make the funds available for the customer to use generally right away).

Prior to the 2010s, this transaction type existed on some payment networks some times and was only sometimes honored by some banks. Over the latter half of the decade, a lot was done to standardize and distribute it for broad, straightforward use, primarily starting with Cash App.

Now, you can access it via Stripe instant payouts:, and lots of companies use it for lots of things.

Mobile & impact on distribution

There’s tons of writing on the internet about the impact of mobile on various industries. The rise of mobile phones (and the app store in particular) had (and are continuing to have) a pretty transformational effect on the banking industry.

Over the last hundred odd years, in order to succeed as a bank you needed the best distribution, and the way to win in distribution was to have branches near the most potential customers. The winners over the last hundred years (Bank of America, Chase, and Wells primarily) built and acquired their way to victory, by building a massive branch network.

As mobile has saturated the market, there’s become a new way to win distribution.

Every consumer has the functional equivalent of a “branch” in their pocket;

the App Store/Google Play. Branch in this context means an access point for a large variety of services - deposits, credit cards, mortgages, investments, retirement products and more are already available in the App Store today.

The analogue for foot traffic is App Store visits.

By being a top 20 app, consumers are just more likely to come across you when going about their business, it’s an impression you don’t have to earn, and as a result when they are having a problem that you solve, you benefit from being there, and the cost of trying you is relatively low.

This new way of winning distribution is quite different from the old way. Yes it’s also capital intensive, but you’re not buying real estate. You have low fixed costs, and variable costs that scale with usage (vs. real estate servicing that you pay regardless of use).

And where branch-banking might have had winner-take-all dynamic regionally, there is now at least the possibility that it has a winner take all dynamic nationally; it’s not as though banks in Kansas and banks in Alaska did fundamentally different things for the last 100 years. They did mostly the same things, and just differentiated on literal geography.

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Wave Hunting
When optimizing for impact, it’s far more important to find valuable problems, than to work hard.

Photo credit: Jeremy Bishop on Unsplash