Issue No. 3: Stripe

Stripe is a great example of what happens when you focus on solving a specific problem for a specific buyer – all things that a strategic narrative can help you clarify.

In case you’re not familiar with Stripe, it’s the go-to solution for processing web payments. Other than PayPal (which we’ll cover later), Stripe easily has the top market share spot in the United States. Chances are pretty good that if you bought something online, Stripe handled the transaction.

In this issue, I want to walk you through how Stripe’s decision to focus exclusively on solving problems for developers was key to helping it dominate the web payments category and become a $45B company.

My hope is that by studying Stripe, you can gain some clarity on who the right target audience is for your own business.

Stripe Was a Latecomer in Web Payments

The first thing to understand about Stripe is that it was not a first mover in web payments. Here’s how the web payments space evolved before Stripe launched in 2010.

In the late 1990s, startups like Authorize.net and CyberSource first built solutions to process payments over the Internet. So did Verisign, Vantiv, Fiserv, Visa, MasterCard, Google, Yahoo!, and Microsoft. However, those solutions were built on top of legacy infrastructure and were difficult to implement.

All this could have changed when PayPal launched in 2000. But it didn’t.

Instead, PayPal focused on peer-to-peer payments. It was a kind of digital wallet, where you easily pay anyone, as long as they had an email address. It worked great for selling your old baseball cards on eBay.

Later, PayPal did attempt to create a web payments product, but it wasn’t very well conceived. Consider this take from Wired:

Fast forward to the late 2000s, two categories had emerged.

The first was the web payment solutions for larger businesses. Complex, yes, but it worked, and companies like Adyen, 2Checkout, and Checkout.com would continue to make improvements. The second category was peer-to-peer payments, which was led by PayPal, and later, Venmo. But there was a sizable (and growing) market segment that had been overlooked - one that Stripe would identify and exploit better than anyone else.

Category Evolution Creates Opportunity

That market segment was tech startups. More specifically, developers at tech startups. Here’s how that turned into a meaningful niche.

But by the time Stripe launched in 2010, three major shifts were happening in the startup landscape (my friends at Category Design Advisors call these shifts “changes in context.”)

First, the availability of venture capital funding accelerated. A long period of low interest rates meant that investors were desperate to find higher returns. Many of them turned to venture capital, which fueled a surge in the number of newly minted startups (see the chart below).

Second, this increase in software startups meant that software developers were increasingly in demand. And when scarce developer time is spent on managing payments infrastructure (instead of building products), that imposes a huge opportunity cost.

Finally, the number of online transactions was growing rapidly during this period. Between 2010 and 2020, e-commerce sales grew from less than 5% of total retail sales in the U.S. to 18%. Within a few years, web payments went from “interesting” to “too big to ignore.”

Put these three changes in context together and what do you get?

A growing startup landscape that increasingly needed to process transactions online, where the very developers needed to facilitate those transactions were expensive and in short supply.

Stripe Obsessed About Solving Problems for Developers

Stripe recognized this early on and leaned into it.

A story published by Bloomberg Businessweek speaks to this best. In their feature on Stripe, they ran the headline: “Seven lines of code.” The idea was that a developer could get a startup to successfully accept credit card payments with just seven lines of code. According to Stripe…

If you look back in the web archives, you can see that Stripe applied this thinking very early on.

Take a look at its webpage from 2011. Not only does the headline make it abundantly clear who they are targeting, but the way the rest of the features and benefits are explained is aimed right at the needs of developers.

Stripe’s developer orientation is clear in its developer relations, content marketing, and product roadmap. For example, it later launched a product called Atlas, which makes it easy for a startup to instantly set themselves up as a U.S.-registered corporation with a U.S. bank account, regardless of where they’re located in the world.

When you see such strong alignment between a company’s product roadmap and its market efforts, it’s almost certain that they have alignment on their strategic narrative – the story that explains why the company matters and how it’s different.

What About Stripe’s Competitors?

Was Stripe the only company to recognize the needs of developers? No. But it pursued that market with an intensity and focus that other companies simply didn’t match.

Take Braintree. It was supposed to be the “disruptive” player, but that didn’t quite pan out. The company was acquired by PayPal in 2013, and perhaps the company’s investment in incorporating PayPal functionality meant taking its attention away from developers. Braintree also fell short in earning the trust of developers, leaving it in a weak position.

As for the other web payment solutions, like 2Checkout, BlueSnap, Repay, Skrill, and WePay, I never found much evidence of a developer-first mindset when combing through their website archives.

Wrapping Up

Every brand is tempted to expand its appeal by targeting a broader audience. But instead of accelerating growth, that strategy can have the opposite effect. A solution designed for no one in particular risks being a mediocre solution for everyone. And mediocre solutions don’t enjoy pricing power, customer word-of-mouth, or high retention.

It takes a bit of courage to focus on a specific audience, but doing so gives you the advantage of understanding your customers’ problems deeper than anyone else. This puts you in the enviable position of having customers who feel like you “get” them. That’s what Stripe did. When that happens, it’s easier to know what to build and easier to sell.

3 Questions You Can Discuss With Your Team

What is an unsolved problem in your market?

Stripe could have gone in many different directions with its business. But Stripe’s founders saw how general-purpose solutions weren’t cutting it for developers, and used their deep understanding of the space to become the only obvious choice for developers. Chances are, there is a similar dynamic in your industry. Have you put the effort into finding it?

Are you trying to address too many types of buyers?

On the surface, it might seem like Stripe was thinking too small by focusing solely on developers. But such a clear swim lane helped the company grow extremely quickly and efficiently early on. That deep understanding of developers gave Stripe insight into other, adjacent problems they could solve for their customers. That’s how they went from $1B to $45B. Do you have such a clear definition of who to focus on?

Where is your category in its evolution?

Many companies believe they need to create a new market category from scratch to win. And sometimes that is the right move. But when Stripe was founded in 2010, the web payments category already had lots of players. Stripe didn’t need to create a new category so much as it needed to find a niche that others had overlooked. That turned into a gold mine for them. What’s the right category strategy for you?

The One Thought to Leave You With

Thanks for reading.

If there’s a brand you'd like me to cover in a future issue of The Narrative Field Guide, then just reply to this email with your suggestions.

And I’d love to know your thoughts so I can continue improving this newsletter. You can just reply to this email with your thoughts. ✌️

Cheers,

John Rougeux

P.S. Thanks to Kevin Maney and Mike Damphousse for their contributions in editing this article.