# FiDi Enterprise Plan FY3 S1

# Origin

I came up with the Deposit Financing idea when I was in a conference room in San Francisco Financial District (FiDi). I was at an event, hosted by J. P. Morgan, for the hosts and the fans of the Acquired Podcast. 

During the event, a man representing J. P. Morgan mentioned the Starbucks app, which the podcast had discussed in a recent episode, and remarked that Starbucks has a cash deposit balance exceeding $1B which is greater than the cash deposit balances of 90% of the banks in the United States. The cash deposit comes from the change remaining in the customer account due to the gap between the deposit amount and the coffee price. For example, if a customer deposits $10, then buys a $9 coffee, then $1 remains in the account balance. To buy another $9 coffee another day, the customer will deposit another $10, then $2 will remain after the purchase. This will go on until the customer has $9 remaining in the account, then the customer will take out the deposit in the form of purchasing a $9 coffee without depositing any amount that day. The interesting point is that the cash deposit in the hand of Starbucks, between the moment the customer makes the deposit and the moment the customer takes it out, is a 0% interest rate loan from the consumer to the Starbucks company. Even if the Starbucks company keeps the cash deposit in a risk-free bank savings account, the interest on the deposit becomes pure profit for Starbucks. 

I was already familiar with this story. But the familiar story hit me at an interesting moment. That week, I was busy trying to figure out how to monetize the app to finance the business operations of my company. The app was generating cost in proportion to usage, but I was having trouble monetizing the app using either of the 2 ways to monetize software applications: subscriptions and advertisements. Also that week, I had explained an idea that is familiar to the Koreans but not to the others. In other places such as the United States, a person has 2 options to pay for housing. The person can either pay a monthly rent (e.g. $3K in California) or buy the house (e.g. $1.2M in California). In Korea, most people pay for housing using deposit. To move in, a Korean person may deposit $600K, then live in the apartment indefinitely without paying any rent, then get back the $600K deposit when moving out. If the person had purchased the apartment, then the price of the apartment may have gone up or down over time, but the deposit remains constant, safe from the volatility of the housing market. The contract also allows a person, who has made a small deposit last year, to enjoy living in a unit in the apartment complex while new residents this year have to make bigger deposits to move into the same apartment complex. Since a deposit is a big amount, a person may take out a loan to make the deposit, then make monthly payments to repay the loan (e.g. $3K every month). The difference from paying $3K monthly rent is that the person who has made a deposit will be getting $600K in cash after finishing repaying the loan. 

In such new context, the familiar story resonated different. An idea struck my mind, and I hurriedly pulled out a notebook and wrote down the idea that might not just change the fate of my own company but also possibly change the way businesses operate. 

In this Enterprise Plan document, I present Deposit Financing and how we may make the most out of it. 

# Intro

Deposit Financing is a new business model. It provides a new way to monetize a service product as well as a new way to access capital. 

## Present Day Baseline

Today, there are 2 ways to monetize a consumer application:

- Selling Subscriptions: Consumers pay money to use the product every time period. An example is ChatGPT ($20 per month).
- Selling Advertisements: Consumers do not pay any money to use the product. Instead, advertisers pay to display ads to the consumers using the service product. Examples are Google search engine and Facebook social media.

Selling ads is a powerful business model in comparison to selling subscriptions, not only because the business can decrease the price to consumers (”$0”) thereby making the product infinitely price-competitive in comparison to a comparable product that costs money, but also because the business can increase the price to advertisers as the number of consumers using the product grows thereby creating an enduring advantage. 

For small businesses, relying on ads-based business model makes them earn less money than competitors who operate at bigger scales. Furthermore, small businesses relying on getting ads from the ads inventory controlled by Google ads network risk losing access to the ads inventory any moment. It is not realistically possible for a small business to bypass Google and sell ads directly to advertisers, because that path will force the small business to invest similar fixed cost as Google into developing tools for the advertisers, and even then the small ads network will have difficulty enticing advertisers to spend a dollar to advertise on the small ads network instead of spending that same dollar to advertise more on the bigger ads network. Abandoning ads-based business model in favor of subscription-based business model is also not realistically possible since a business selling subscription will face difficulty persuading consumers to choose to pay for the subscription, no matter how cheap the subscription price is, instead of choosing to not pay any money for a competing product that is monetized using ads. 

Junwon Company is one such small business facing this dilemma today. To survive, we need to invent a new way to monetize our app, to pay for the cost of providing service to the customers of our product, and, in order for us to be competitive, the new monetization model must be as cheap to our customers as “free”, must not be as complex for us to operate as operating an entire ads network, and must not take dependency on Google’s ads inventory. 

## Deposit Financing for Valencia

We will explain how we plan to apply deposit financing to Valencia, our upcoming product, not only because we invented deposit financing specifically for Valencia, but also because a specific example can help us explain how deposit financing works. For context, see [Product Plan FY3 S1](Product%20Plan%20FY3%20S1%20f68696fab6b04e2ebfa4eafcd130a04c.md). 

A consumer who is interested in using Valencia will be able to pay for the access to the service by making a deposit which they can get back anytime. Let us use the following annotations: “$C = the cost of providing service to 1 user for 1 year”, “$D = the deposit that 1 user makes to access service”, “$G = the gain we can generate while we are holding the deposit by using the deposit”. Now, we can set a price for the product, because we just have to set the deposit price to satisfy the constraint: $D such that $G > $C. Notice that the deposit duration is unimportant, because the deposit duration is exactly the same as the service duration, and therefore we start and finish generating both the gain from the deposit and the cost from the service on exact same days. 

If done correctly, deposit-based monetization can be a better choice than subscription-based monetization or ads-based monetization. Take Valencia for example. Based on the current market condition (”ChatGPT = $20 per month”), I am planning to set the deposit at $200, or possibly even $300. A consumer at first may notice that $200 is 10 times $20, but will ultimately understand that $200 deposit is a much better price than $20 subscription, because $20 goes away forever whereas $200 can come back anytime. Consumer will observe that the price is $0 since the consumer is placing $200 somewhere, then getting back that same $200 in whole anytime, making the experience no different from placing $200 on a table or in a wallet. Without discussing the best ways to utilize the cash deposit while it is in our hands, let us assume we are placing the cash deposit in a savings account. Today, banks offer ~5% APY for savings accounts. This means $G=$10 when $D=$200. Without having made any meaningful efforts to lower the cost, we expect upper-bound for $C to be $7.3 ($0.02 per day). 

Therefore, all following statements are true: 

- $200 deposit is a “better price for consumers” than $20 subscription.
- $10 gain is a “better revenue for us” than expected earnings from ads. Whereas Google and Facebook enjoy $50+ ARPU, others, including very popular apps, have ARPU under $10. (Pinterest ~$7, Spotify ~$5, Reddit ~$3). We will be also free from depending on Google’s ads network and free from distractions that come with operating our own ads network.
- Given our estimated $C, if our customers accept our proposed $D, we will be cash flow positive using this monetization model, at any scale.

Finally, one more advantage of deposit financing we shall note is the implication for the company in the context of getting access to capital for funding its business operations. Today, there are 2 ways to finance a business: debt, equity. We present another way. Deposits from customers will add up to be a big sum of money that acts like a loan we got at a 0% interest rate for an indefinitely long time without giving away any equity. If we set $D to be $200, then by time we reach 1M customers, we will have $200M in deposit and then also earn $10M from that $200M (assuming we are placing all $200M in zero-risk savings accounts. Most apps with 1M users do not get to enjoy $10M in yearly revenue, and the valuation of a company that gains access to $200M usually exceeds $1B in market cap. If this works, then we will not only have made a great business for us, we will also have paved a new trail for all the dreamers who wish to start and grow new businesses in the future! 

# Theory

We already discussed the biggest benefits of deposit financing which are 1) zero observed price to customers, 2) zero dependency on ads inventory. In this section, we will discuss important details that will matter when we actually use deposit financing.  

## Interest Rate Arbitrage

The deposit financing model gives us the power to perform interest rate arbitrage. This is because deposit financing gives us the power to borrow money cheaply. Very cheaply. In fact, at zero percent interest rate regardless of what the interest rate is for other businesses. Another way to understand deposit financing business model is to think that we are borrowing money without becoming a bank. A bank persuades customers to deposit money by offering them that they will be getting more money in the future in return. A product company using deposit financing persuades customers to deposit money by offering them, in return for the deposit, that they will be getting access to the great product. 

Income from deposit financing will be proportional to the interest rate when we are investing borrowed capital into risk-free savings accounts. When the interest rate is high, which means when the cost of borrowing money is expensive, we can borrow money cheaply from customers, then lend it out to businesses that need money desperately. 

This also means using both deposit financing and ads can be a great hedging strategy. When interest rate is high, deposit financing generates greater income. When interest rate is low, advertisers will buy more ads from us. USA interest rate has been pretty high in the past several years in comparison to the past couple decades, and we must anticipate that the interest rate can go down over the next several years. Even if that is the case, we expect that deposit financing model will be able to generate income per customer that is at a similar level in comparison to ads model for the next three years. When interest rate is low, borrowing money cheaply from customers may lose appeal in comparison to borrowing money also cheaply from banks. Yet, deposit financing will bring the added benefit that customers will be forming a trusting relationship with us. In anticipation of decreasing interest rate, we do plan to grow total deposits to a level at which we can invest the entrusted capital to a more critical enterprise strategy. See Company Roadmap at the end of this document. 

## Applicable Situations

The times that can benefit most from deposit financing have following traits: 

- The interest rate is high (and therefore the cost of borrowing money otherwise is high), and
- There exist great ways to deploy lots of cheap capital.

The products that can benefit most from deposit financing have following traits: 

- Customers understand utility but feel hesitant about price
- Customers benefit at least once in between deposit withdrawal chances

For example, Valencia is in a great situation to use deposit financing:

- The interest rate is at 5%. At this level, we expect that we will be able to use deposit financing with zero-risk savings accounts to generate an income that exceeds the income that can be generated by the ads model (not just specifically in our case but also in comparison to income per customer reported by apps that have existed for over a decade, have more users than the entire population of the United States, and make money only from ads.
- Generative AI market is growing rapidly. It is possible, not only to make risky bets like trying to invent a new Generative AI model, but also to make safe bets like purchasing data center computing capacity to sell to the Generative AI model developers. Former is like trying to dig up gold, and latter is like selling jeans to gold diggers.
- A majority of the consumers are excited about Generative AI, persuaded that Generative AI can benefit them greatly on everyday tasks, but unsure about the market price ($20 monthly subscription).
- We are developing Valencia to be a product that consumers use daily. And we plan to offer consumers the opportunity to withdraw any “day”.

# Practice

## Changing Deposit Amount

A business may need to change price over time. We also may need to increase or decrease deposit amount as the economic condition changes over time. 

- Increasing Deposit Amount
    - Let existing depositors keep using product for the same deposit amount.
    - Ask new depositors to deposit bigger amounts for the same product. If we keep increasing deposit amount over time, then potential customers will understand that it is better to become our customers sooner than later, and stay with us over time.
    - Introduce a new higher deposit level which provides access to new product features.
    - When old products must be deprecated: upgrade existing depositors to a different deposit level without asking for any actions (such as asking for more deposit), deprecate features from existing deposit level, or give back money (thereby terminating relationship with customer and just hoping that the customer will come back to us).
- Decreasing Deposit Amount
    - Provide a button for existing depositors to get back the difference immediately.

Decreasing deposit amount and decreasing product price (such as decreasing subscription price) equally decrease income per year per customer. But deposit financing must take into consideration that cash must be made available in advance in preparation of existing depositors taking back the difference in the needed deposit amount. This liquidity concern might make it more difficult for a business using deposit financing model to change prices as nimbly as a business only letting customers pay in cash. 

## Enduring Competitive Advantage

I do not expect to face challenges due to others also choosing to use deposit financing as their business model. I will celebrate it as our impact on the economy. I want to be able to teach others better ways to do business. It is okay for businesses in an industry to have the same business model. Chanel and Hermes have the same business model and compete fairly by constantly trying to make great products for customers. 

At the same time, deposit financing is similar the advertising business model in that the business model inherently generates an enduring advantage for the pioneer. In the case of ads, 1) existing businesses with existing business models and existing sunk costs were not able to shift to ads, because ads generated less income than sales or subscriptions, and 2) bigger ad networks deliver greater benefits to advertisers than do smaller ad networks. Following scenarios are expected for deposit financing: 

- Existing businesses based on subscription business model will not be able to abandon subscription model in favor of deposit model, because deposit model generates less income than subscription model. Even when they can see that customers are preferring deposit model, they will probably try to invest more money into developing a better product in order to justify the higher price which is the subscription model instead of abandoning the bloated product that customers do not want. They may be able to introduce an additional small product that uses deposit financing, for price discrimination, but such decision will not only fail to pay for sunk cost but will also harm their own more expensive offering.
- Existing businesses based on ads business model may be able to introduce deposit financing since ads also only generates small income similar to deposits. But doing so will invalidate their past investments in building out great ads networks. In ads model, an app with more users can make more money not just overall but also from each user in comparison to an app that provides the exact same utility, but a dollar is a dollar in the deposit model. So forcing the big businesses to compete fairly is already a big win for us and a great detriment to them. Their sunk cost might even kill them the way sunk costs in printing presses killed newspapers in the internet era.
- If a new entrant also uses deposit financing, then we will be able to compete fairly but with the advantage that we have been making the products for a longer time and therefore can make better products. The newer entrant might ask for a lower deposit amount. But in comparison to sales model in which paying $100 for a decent jacket instead of paying $200 for the superior jacket might be a pretty attractive option to consider for many consumers, I expect that consumers will not be very sensitive to the difference between placing $200 somewhere until they want all $200 back sometime later or placing $100 instead of $200, so our superior product will be even more robust to later entrants if we make our industry use deposit financing model. Whether the deposit amount is $200 or $100, the observed price to the consumer is probably equally $0 in both scenarios. If anything, we can further increase the deposit amount to our advantage. Say a new entrant has a product that is exactly as good as ours and therefore can ask for the same deposit amount. We can increase the deposit amount to $300 instead of $200, but let existing customers keep using the product without depositing the additional amount. Existing customers will not move to the new product since doing so then coming back will cost them additional $100 in deposit. We are also creating an observed discount, because existing customers will have the option to either go use the $200 product by depositing $200, or use our $300 product by depositing the same $200. For new customers, we can signal that our product is superior using the higher deposit price, then use the bigger income to make the product even more superior.

Above advantages I listed are applicable to any businesses planning to use deposit financing in any industry. On top, I plan to use a strategy that is applicable specifically to us, in order to fully benefit from our deposit financing model invention. See the section in this Enterprise Plan in which I discuss our plan to make a conglomerating company. 

## Mitigating Liquidity Risks

When using the deposit financing model, liquidity is a concern. To mitigate, consider imposing time gap between withdrawal request and actual withdrawal transaction. For example, on the 15th of each month, we wire the money to the customers who asked for deposit withdrawal on or before the 15th of last month. This gap gives us time to get liquid cash. For example, if we are investing all deposits in a savings account, banks usually limit withdrawals to 6 times a month. If we wire money to each customer as soon as they ask for withdrawal, then we have to pay penalty for each withdrawal after the 6th withdrawal. If we use the time gap tactic, then we can combine all deposit requests, wait until the 1st day of the month to make one withdrawal for all the amounts we need to send back on the 15th, thereby saving money on withdrawal penalty as well as making some more money by prolonging the deposit duration. Considering that the deposit amount we are considering is $200 and the customers who will be willing to try depositing $200 for advanced AI programs will be in certain economic statuses, I am expecting that customers will prefer waiting several days to get $200 back in comparison to losing money to get back $200 immediately. 

Even if using time gap tactic, make sure to make withdrawal request process feel easy and immediate. Ideally, it must be a single button that says “Withdraw”, and clicking on it must immediately show them “$200 will be back in your bank account on YY.MM.DD” with a cancel button to save them from a mistaken click. In reality, this ease will not be feasible since we will need to ask for which bank they want money to be sent to and we may not be able to guarantee money getting back in bank account since we do not control transaction process after we finish sending the money from our end. However, what matters is understanding that we must make it feel as easy as possible for customers to get back the deposit, because this ease will make them feel comfortable entrusting their money as a deposit to us. Easier we make it for people to get their deposits back from us, more deposits people will end up giving us. 

# Roadmap

## The Conglomerating Company

We dream to be a conglomerating company one day. 

We present the conglomerating company as a form of a company that is different from a holding company. Whereas a holding company generates added economic benefit during the time it is holding subsidiary businesses, a conglomerating company generates added economic benefit at the moment it is bringing in a new business into its collection of businesses. 

Traditionally, when a company is available to be purchased, following entities may be interested in purchasing the company. 

- Another company in the same industry may be interested in purchasing the company in order to lower the cost of business operations. For example, a company with many car brands may purchase another car brand, then enjoy cost benefits when purchasing materials or developing car frames that can be shared among multiple car brands.
- An investment fund, such as a private equity firm, may be interested in purchasing the company to sell it again at a higher price in the future. For example, a private equity firm may purchase a hotel chain, then make changes such as adding operational efficiency, then sell the company again at a higher valuation.
- A holding company may be interested in purchasing a company to take its earnings. For example, a holding company may purchase a chocolate company, then make the chocolate company generate its own positive cash flow.

A conglomerating company may be interested in purchasing a company without an intent to sell it again in the future, or to change its business operations within the same industry, or to keep its business operations the same without adding any benefits in addition to mere financial support.  The primary business of a conglomerating company is to generate economic benefit to the society immediately at the purchasing moment. This leads the conglomerating company to behave differently. For example, say that two businesses have become available for sale: a coffee machine maker and a coffee dripper maker. The coffee machine maker business is a great business. It has a loved brand, stores at malls, patents, and it is generating earnings at a high profit margin by selling machines and capsules that are only compatible with each other. In contrast, the coffee dripper maker is objectively a bad business. Each coffee dripper is made by hand, using expensive ceramic, and it takes years to train an apprentice to perform the craft. Yet, a coffee dripper is just a commodity product and not even a necessity to the consumers. Since coffee drippers cannot be made to be compatible only with specific coffee powders, it is also not possible to generate profit from selling coffee powders to the customers who have purchased a coffee dripper. In this scenario, all will choose to purchase the coffee machine maker. All but the conglomerating company. The conglomerating company will take note that the coffee machine maker is already a great business on its own, and choose to purchase the coffee dripper company, because the conglomerating company focuses on added value it can generate by purchasing the company. If it can increase earnings of the coffee machine maker from 100 to 110 and the earnings of the coffee dripper maker from 10 to 30, it will not focus on “110 vs 30” but instead focus on “10 vs 20”. 

To make a conglomerating company, the company must develop a way to generate economic benefit just by adding a business to its portfolio. There may be multiple ways to do so. As for us, in order to make the overall portfolio worth more than the sum of its parts, we plan to conglomerate media, story, and craft. 

For example, Instagram is an example media, 007 is an example story, and Omega is an example craft. 

- Media: Media has distribution power. Media can inform people that there exists this specific story or that specific craft.
- Story: Story can generate demand. Story can make people feel a desire to purchase a product.
- Craft: Craft can provide supply. Craft can satisfy senses.

Separately, each kind of business has its limitations. An expertly handmade watch may look great, may feel great, and may even produce a ticking sound that is especially beautiful to hear. But a craft, no matter how great it is at delivering the core utility, cannot charge above the commodity price without a great story. To sell a great watch at a great price, the watch must also have a great story. Perhaps the watch was made by a Swiss watchmaker company that has been making watches for over a hundred years. Or perhaps the watch was the first watch to be worn on the moon. Or perhaps the watch was worn by James Bond in the latest James Bond movie. A great craft needs a great story. The converse is also true. A great story needs a great craft. Say the latest James Bond movie depicted a classy charming man successfully and turned many men into fans. Even if the story resonated extraordinarily deeply with the fans, it is now limited in its ability to generate concrete economic income from its big success, because a movie ticket is just $20, no matter how great the movie is, no matter how much the customer is willing to pay additionally for the movie he fell in love with. Craft, such as an Omega watch made specifically for this James Bond movie, can provide an option for the customers who are willing to pay more to pay even more then get even more benefits from the story they love. Finally, media needs and is needed by story and craft. Without media, story and craft cannot be discovered by customers. But also customers will not visit any media sites that lack interesting contents. 

In above example, we discussed big brands like Instagram, 007, and Omega, only because it is easier to explain the concepts using brands that are already familiar. But the conglomeration of media, story, and craft can generate synergy even at small scales. It is easy to see that we can help both small brands by bringing together a tea lover YouTuber who is only making a small income from YouTube ads despite having 10K fervent fans and a tea cup maker who is currently only able to sell extraordinary tea cups only at an ordinary commodity tea cup price. The tea lover YouTuber will be contributing to the society by telling a great story; the tea cup maker, by making great tea cups; and our business, and therefore our contribution to the society, will be introducing businesses to each other. 

We are interested in helping small businesses, and becoming a conglomerating company orients our interests with our interest, because the conglomerating company model that we present naturally favors small businesses for which we can more easily generate big added benefits. Another way to understand is to observe that we, as a conglomerating company, are different from a holding company in that a holding company buys to grow earnings but we, as a conglomerating company, buy to grow pricing power. We can enjoy a greater pricing power when selling by making products deliver greater benefits to the customers, and we can enjoy a greater pricing power when purchasing by aggregating the demands of the businesses in our portfolio. 

Greater pricing power during purchases is not the only way we can lower the cost of business operations for our portfolio businesses and therefore the prices that consumers will end up paying. Having many businesses in our portfolio can also help us invest better in great infra, such as software tools or data center computing capacity. 

We expect that we will be able to grow at an accelerating speed over time. This is because trust grows exponentially. As a conglomerating company, the most critical input material we need for our business operation is access to capital with which we can purchase other businesses. We expect that deposit financing will be a great way to get this capital we need. And then having many businesses in our portfolio, especially when they are managed and conglomerated in a way that delivers even greater benefits than when they were operating separately, will let us deliver greater benefits to our customers. Increasing benefits to customers will increase the amount of deposits customers are willing to entrust to us. On top, operating at a bigger scale and demonstrating a history of great business management will help us get capital at favorable terms also from other stakeholders. We will also have stored savings from income we generated so that we can endure any unexpected hardships until we can trend up again. 

In summary, we plan to become a conglomerating company that conglomerates brands in media, story, and craft. Doing so will help us get better infra and get more money with which we can generate even greater added economic benefits when we purchase more brands in media, story, and craft. We expect this enterprise plan will not only help us make business decisions that are correct and contrarian, but also help us grow at an accelerating pace over time. 

![FY3 The Conglomerating Company.png](FiDi%20Enterprise%20Plan%20FY3%20S1/FY3_The_Conglomerating_Company.png)

| **FROM:TO** | **Media** | **Story** | **Craft** | **Infra** | **Money** |
| --- | --- | --- | --- | --- | --- |
| **Media** | = | Channel ↑ | Channel ↑ | Demand ↑ | Capital ↑ |
| **Story** | Demand ↑ | = | Demand ↑ | Demand ↑ | Capital ↑ |
| **Craft** | Demand ↑ | Profit ↑ | = | Demand ↑ | Capital ↑ |
| **Infra** | Cost ↓ | Cost ↓ | Cost ↓ | = | Capital ↑ |
| **Money** | Invest | Invest | Invest | Invest | = |

## The Starting Point

We posit that we can grow to be a conglomerating company one day by starting from a small media site without ever borrowing any external capital out of necessity. 

We make this possible using Generative AI. A media site can prosper only if it can deliver differentiated contents. We plan to operate sites that deliver the interesting story of distant cultures to American consumers. Doing so is a meaningful contribution to the society, a concrete way to fulfill present desires of consumers, and an economical way to prepare contents for the media site. We can try selling a small set of craft products using dropship business model, but we will have to make sure we pick and only relay truly great craft products. If our thesis is correct and the conglomeration of media, story, and craft can indeed deliver great benefits to the consumers, then they will be happy to give us capital with which we can grow the scale of our conglomeration and deliver even greater benefits to our customers. 

See [Product Plan FY3 S1](Product%20Plan%20FY3%20S1%20f68696fab6b04e2ebfa4eafcd130a04c.md). Valencia will be a small media site. We plan to operate at most 3 sites introducing distant cultures to American consumers, and we might end up operating just 1 site by the end of this season. It might not be an impressive feat on its own. But the site may be small. Yet our ambition is great! We dream that our small media site will grow to be a big conglomerating company one day!