APIs, Strategy

Digital Transformation – A Case Study: Kabbage

Digital Transformations are hot, so hot that they produce Unicorns -at an unprecedented rate.

In this post I’d like to share some insights about answering two key questions:

  • What do we mean by “Digital Transformation”?
  • Is there a simple case study that could help me understand how to drive a digital transformation?

I found that the following definition works quite well when people ask me what a Digital Transformation is all about:

A Digital business is a business that seeks to collect and use every bit of data as a competitive advantage.

But that’s still pretty abstract so I qualify that definition with a simple example: Kabbage.

Kabbage looks like an underdog. They targeted one of the oldest financial product on the planet: small business lending. I bet not much has changed in the last two or three thousand years in the process of lending a bit of cash to a small business.

What’s Kabbage unfair competitive advantage? they use some plain old B2B integration to pull historical data from the customer from a handful of partners (QuickBooks, PayPal, Square…), then they crunch these numbers in a simple algorithm (probably pitched as AI) and the small business owner gets a loan to buy some equipment, run a marketing campaign, or add some staff and inventory.

I don’t believe one can come up with a more mundane idea for a startup! That being said, I also believe they have the potential to become a unicorn: the Uber of small business lending (should they choose to).

Why on earth would a company like Kabbage disrupt such an establish market?

The way you need look at a digital transformation is through the customer journey (or as I call it the Business Outcome Lifecycle).

The diagram below is a representation of the customer journey in Kabbage’s ecosystem (Kabbage, its partners and its competitors). The white rounded rectangles represent the outcomes the customer is trying to reach (“the jobs to get done” in Christensen’s words). These outcomes generally form a lifecycle, as the customer comes back for more. It is actually vital for any business to make it a lifecycle and connect the last outcome of the business model to the initial one(s).

In the present case, the customer journey is very simple: a loan is “requested”, then the customer “links” its online accounting/sales data to Kabbage’s platform, which evaluates it and upon a positive response the customer can “withdraw” some cash, with which the small business owner will purchase some equipment, and so on. The customer journey ends when the customers repays the loan.


The most visible aspect of the the customer journey’s transformation achieved by Kabbage is to bypass the “wait” states of traditional lenders.

That in itself, has some value, of course, but it would be legitimate to ask what’s truly “Digital” about Kabbage’s platform? Accounting and Payments have been some of the first pieces of information that were digitized, decades ago. Any established lender could implement, within weeks, what Kabbage has done. That alone would not qualify as a successful digital transformation. IMHO, the question one should ask is:

which are the bits of information that Kabbage could collect and use that could give them a competitive advantage?

I’d like to disclose that I never talked to someone who works at Kabbage, let alone worked at/for Kabbage, so I cannot be certain about what I am saying in the next paragraph.

If I were Kabbage, I would use the bits of information I already collect to understand how effective a customer is at using a loan (for instance, as they come back for a second loan). The lending industry’s trust model is/was based on someone’s historical ability or willingness to repay a loan (credit checks), but that’s a poor way of looking at the problem. The customers that Kabbage want and can hand-pick are the ones that are capable of transforming a 10k loan into a 50k profit. Kabbage could then become the Uber of small business lending by sensing market conditions and tell their customers:

based on your analysis, if you borrow 10k next week to run a marketing campaign, it should approximately return 25k of profit to your business within two weeks, and by the way please visit the site of our marketing campaign partner, Autopilot

That is what I would consider a Digital Transformation!

You can learn more about the BOLT methodology on our website.

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