The Driving Force: How Founder Motivation Determines Mortgage Lender Strategy

Written by Julian Wells —
Julian Wells, Director & FinTech Lead at Whitecap, recently completed a Doctor of Business Administration (DBA) and is publishing a series of blogs. His research explored the strategic management models adopted by new entrants to the UK residential mortgage lending market, with a focus on how FinTech influences these strategies and their role in achieving competitive advantage.

This is the second blog in a series about the key findings from my DBA research, which I recently completed at Leeds Business School. These blogs are written primarily for a business audience, and aim to summarise my thesis into a set of concise articles.

Introduction

In any highly competitive sector, strategy is paramount. But in the specialised, tightly regulated UK mortgage market, my research revealed that strategy is less about market position and more about the fundamental reason the business was launched: the founder’s core motivation. This initial impetus dictates how adaptable a firm must be, defining its strategic management model from inception.

My study found two dominant primary motivations among founders of new entrant mortgage lenders: those driven by the ambition to create profit/value for shareholders (profit-driven) and those motivated by the desire to exploit a perceived gap in the market to deliver a better product/service (purpose-led). My analysis demonstrated that these motivations correlate directly with the level of strategic stability or volatility the company experiences over time.

Strategy: Pivot vs. Persistence

The strategic journey of new entrants is overwhelmingly dynamic; only 16% of new entrant mortgage lenders retained their original strategy, with nearly two-thirds (63%) making significant or complete changes since launch.

However, when segmenting this change based on motivation , a clear pattern emerges:

  • Profit-Driven Lenders: Respondents primarily motivated by profit / shareholder value were nearly twice as likely to have completely changed the strategy of the business. They were also six times more likely to completely change their strategy compared to those focused on exploiting a market gap. Overall, 90% significantly or completely changed the business strategy.
  • Purpose-Led Lenders: These respondents were more than three times as likely to retain their original business strategy versus those motivated by profit/shareholder value. 46% retained the same strategy, or slightly adapted it. Lenders with purpose-led motivations for starting the business are unlikely to make significant change to their strategies, benefiting instead from incremental adaptation.

The primary drivers cited for these necessary changes reinforce the motivational link, as they were predominantly external: market conditions (79%) and funding/pricing issues (68%). This suggests that profit-driven ventures, being primarily financially sensitive, react aggressively to underperformance or shifts in capital availability in pursuit of stronger commercial outcomes.

The Business Model Impact

This divergence also extends to the resilience of the business model. While 68% of all founders changed their business model to some degree post-launch, profit-driven entities were significantly more volatile:

  • Profit-driven lenders: Only 11% retained the same business model, and 78% significantly or completely changed it.
  • Purpose-led lenders: 47% retained the same business model, with only 20% experiencing a significant or complete change.

The stability seen in mission-driven organisations highlights that those focused on exploiting a market gap experienced less pressure to pivot, keeping their business model the same nearly eight times more often than those primarily seeking to create profit/shareholder value.

Strategic Motivation Impact Matrix

This strong correlation between initial motivation and subsequent strategic evolution led me to to develop the Strategic Motivation Impact Matrix, an initial conceptual framework for analysing how these core motivations influence strategic outcomes.

The Matrix maps new entrants based on the innovativeness of their business model and the magnitude of change their strategy has undergone (high/low). This approach categorises new entrants into four archetypes:

  1. Explorers (48% of Sample): Typically profit-motivated (58%), utilizing traditional or hybrid models and undergoing a high degree of strategic change. They were the least likely to retain their original competitive advantage.
  2. Entrants (20% of Sample): Overwhelmingly purpose-led (80%), operating with traditional/hybrid models and experiencing a low degree of change. This strategic discipline resulted in 80% successfully sustaining a competitive advantage.
  3. Developers (20% of Sample): Exclusively purpose-led (100%), deploying innovative models but maintaining a low degree of change. They were the most successful group at retaining their original competitive advantage (80%).
  4. Innovators (12% of Sample): Primarily purpose-led (67%), deploying innovative models and experiencing a high degree of change.

The Matrix demonstrates that focusing on exploiting a market gap (Entrants and Developers) often leads to greater stability and success in maintaining competitive advantage (80% success rate in both categories). Stability and sustainability are maximised when the initial strategic direction is intrinsically tied to solving an unmet customer need.

#Strategy #FinTech #Mortgages #Innovation #Regulation

I chose to research this subject areas as they align with my personal areas of interest and expertise. It also reflects where Whitecap Consulting has worked extensively with established mortgage lenders and challenger brands, as well as tech providers, FinTech firms, and other suppliers to the sector, in addition to regulators and trade bodies.

To discuss this blog, my DBA research, or how Whitecap might help you with strategic challenges relating to any of these topics, please email [email protected]

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