Goldman Sachs’ Bid to Become a 140-year-old Tech Startup

Marty Chavez was cleaning toilets at a Monastery when God told him to go and work at Goldman Sachs.

Since then, Marty worked his way up to become CIO of the world’s most revered investment bank.

What’s amazing to me is that a third of Goldman’s global headcount are software engineers. That’s 11,000 people. That’s more than the total number of employees at Facebook: including non-tech staff.

Watch this video for a fascinating insight into how Goldman intend to effectively turn the bank into a software company.

Startups

Goldman have invested in more than 60 startups since 2008. With a typical equity stake of 10%. Many are of course in #fintech but their portfolio includes Spotify and Uber.

Here’s a sense (courtesy of CBInsights) of Goldman’s fintech investments and themes.

Earlier this year they announced a move into consumer lending to compete with Lending Club et al.

This is a two-way street of course with several prominent staffers quitting to join or start their own startups.

Strategy

What I find fascinating in the interview is an insight into Goldman’s strategy, which seems to be:

1. Automate what they do now. Marty gave the example of how in 2000 there were 600 traders making markets in US stocks, whereas now there are just 4. He admitted that Goldman need to become more like Walmart in terms of efficiency. (Are Walmart efficient? I don’t know.)
2. Open-up access to the outside world. I loved the analogy of a search company that would for a hefty fee, take your keywords, enter them into a closed system, and send you back the results. He likened this to how Wall Street works today. Instead, he sees a future where Goldman becomes a software platform offering open API and other software services.

What’s more, Marty talks about leveraging startups that offer complementary services that plug-in to the Goldman platform. Smart.

Differentiation

As Marty says, software alone is worthless without world-class sales and distribution.

Reengineering internal processes for maximum efficiency is merely table stakes in a 21st ‘fintech’ century. Hence all the banks being all over blockchain for the efficiencies it promises.

Could Goldman have figured out that the key to survival for legacy banks is to collaborate with new fintech players to find truly innovative ways to better serve the end-customer?

Marty says he hasn’t heard from God since that time in the monastery, but we shall see what happens next…