Bill Cilluffo sits down with co-founder & CEO of Capchase, Miguel Fernandez Larrea, to discuss critical lessons learned from his early entrepreneurial ventures, creating a category with Capchase, the importance of talking to customers early-on and the importance of managing risk in lending in order to succeed.
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Speaker 1 (00:19):
Thank you.
Venture capital firm focused oninvesting in fintech companies
all the way from pre-seed to IPO.
Fintech Thought Leaders bringstogether the most talented
entrepreneurs tackling today'sbiggest problems.
If you're looking to learn moreabout what motivates our
founders and team members tosucceed, you're in the right
place.
Hello and welcome to theFintech Thought Leaders podcast.
(00:40):
I'm Bill Salufo, head of earlystage investments at QED
Investors.
Today on the podcast, I'm veryexcited to be joined by Miguel
Fernandez, co-founder and CEO ofCapChase.
Miguel, thanks for joining ustoday.
Speaker 2 (00:52):
Thank you for having me here, bill, it's a pleasure.
Speaker 1 (00:54):
Last time I guess we saw each other, we were riding
bikes in the ShenandoahMountains, so that was awesome,
it was a good time.
So, look, we're going to gointo a lot about both CapChase
and about your background.
But just so the listeners get alittle bit of an orientation, I
wonder if you can give us abouta 60-second commercial into who
CapChase is and what CapChasedoes.
Speaker 2 (01:14):
Great.
So CapChase is a fintechcompany and what we do is we
offer lending and paymentsolutions to B2B software
businesses both in the US,canada, so basically North
America and Europe.
We've been around for fouryears, so I'm very excited about
what we're doing.
Speaker 1 (01:31):
Awesome and I know we've been with you guys for a
good chunk of that ride.
Speaker 2 (01:34):
Yeah, pretty much all of it.
Speaker 1 (01:36):
It's been very exciting to watch you guys'
massive progress over the years.
So look, before we get intoCapChase, I know that you've got
a long background inentrepreneurship.
This isn't your first startup.
I'd love to hear a little bitabout what caused you to get
attracted to entrepreneurshipand maybe hear a little bit
about your first couple startups.
Speaker 2 (01:54):
Yeah.
So I think that since I wasvery little, I love to see
things grow, you know, like thetoys that I would use and
everything was just like youcould see, like growth right and
visually and also, you know,from a progress point of view.
And then I was lucky that my mygrandfather was an entrepreneur
and my father as well, so theyboth launched their own
companies.
Some of them went well, some ofthem didn't go well.
(02:16):
So I think that I was fortunateto just grow accustomed to risk
, you know where, where you likeI would just see, like my
family, you know, taking risks,and sometimes those risks would
pay off, sometimes they wouldn't, right.
So I think that that was anincredible privilege and a good
position to be in.
And then I started engineeringright Again, like trying to
(02:38):
understand how things work, youknow, and and and how things are
built.
So I did it because of that.
I had no intention of workingas an engineer ever and in fact
I actually joined consultingright after school, but I had
always ideas of how things couldwork.
I was doing the typicalentrepreneurship courses and
seminars during engineeringstudies and when I graduated I
(03:01):
started working in consultingand I saw that what I was doing
in the day-to-day wasn't thatfascinating In my mind.
I was working on problems forsuper large companies and I felt
that if I wanted to have acompany in the future, those
things that I was solving werenot really going to transfer so
much to a company, because I wasworking for imagine, fortune
100 companies, right?
(03:21):
So huge, huge businesses.
So on the side, I tried to workon different entrepreneurial
ideas and I launched twostartups with friends and I
always say that, you know, whenpeople ask me if I'm a Casio
entrepreneur, I don't reallyconsider those two early
ventures as proper startupsbecause they were just so small,
you know, and they failed soearly.
But they were both really goodlearning lessons.
(03:44):
So one of them was imagine likean Airbnb for sports equipments
and gadgets.
So, for example, imagine thatyou're going to go to Utah this
weekend and you want to bringyour skis or you need to have
skis.
Instead of renting them from ashop, you could rent them from
somebody that have skis in Utahand that way, that person has
(04:04):
like a spare asset that they'remonetizing and you can get a you
know, like better equipment ata cheaper rate and you don't
have to buy it.
So the lessons learned therewas that renting peer to peer is
is is really really hard,there's a lot of friction in a
transaction.
And we only figured out once webrought the product to market.
Because you know like we haddone all the research, all the
(04:26):
user research, with all of ourfriends and all of our families
right, so kind of like classic,you know, first time founder
mistake.
So you know, when push came toshove, we saw that we would make
$2 worth of transaction andeach transaction costed us about
$17 to take place.
So, like unit economies wereupside down and we stopped.
And the second one was anothermarketplace, which also made me
(04:48):
realize how hard marketplacesare.
It was a marketplace where wewould hold in storage and
deliver within two hours up andcoming brands, apparel within
the city of Madrid, so you couldgo and like, buy a really cool
jacket, you have delivered inyour place in two hours.
The problem there, I think, wasthe time.
Time was tiny.
The union economies were reallygood actually, but the time was
(05:11):
very small.
After all, you don't needfashion on a two-hour timeline.
So anyways, we shut those down.
It was super interesting.
And then I actually joined thestartup, a pre-revenue startup
where I thought I could learnfrom people that actually knew
how to do it.
Speaker 1 (05:28):
No, that's really cool.
I mean it's ironic.
You mentioned the ski idea.
I literally am leaving tomorrowmorning for Colorado.
So I have had this debate withmyself.
I don't really want to bring myskis, I don't really want to
rent, so I settled on bringingmy boots and renting the skis so
I could see where it's not.
It wouldn't be very profitable,but you can see where there's a
consumer idea there.
That's pretty good.
Is there anything, as you lookback over that period, that you
(05:51):
learned that you could point to?
That was particularly importantto you as you eventually
started CapChase.
Speaker 2 (05:56):
Yeah, so one was talking to a customer In the
first case.
We didn't talk to a customeruntil we had built the website,
the marketplace and everything.
We had talked to some customers.
They we didn't talk to thecustomer until we had built the
website, the marketplace andeverything.
We had talked to some customers.
They just didn't happen to bethe ICP that we were trying to
make money off of.
So that was a massive learning.
And then I think it was focus.
We launched the tool, basicallythe marketplace, and we had
(06:19):
people uploading bicycles inMadrid, which is where we were
based out of, but then peoplewere adding apartments in Cuba
or motorbikes in Laos andVietnam, right.
So like it didn't make a lot ofsense.
We should have like focused onlaunching, on like saturating
one market first before going toothers.
I think the idea is bad, butregardless, you know, we should
(06:39):
have focused on launching in amuch more focused kind of way.
And then also the power of fulltime, you know, and and we were
both, I mean the founders were,I was working in consulting, so
like really long weeks, and myco-founder was working in energy
trading, so pretty long weeksas well.
So you know, after we're justworking on this at nights and
the weekends.
So, yeah, we're putting a bunchof hours, but, like you need to
(07:01):
be putting all your hours andall your attention in any kind
of venture, because it's goingto help you to have way faster
feedback loops and also, to youknow, to like move it to the
next stage or, you know, learnway quicker you know.
Speaker 1 (07:15):
maybe now you look back and like why did I do that?
Or you know, whatever it's, uh,it's got to be fantastic
learnings.
I mean it's almost.
You know, when I talked to afew people that started up x, y,
y or Z business when they were16, you know, didn't turn into a
business, but just the amountthat that kind of carries
through over time is justawesome to get rolling.
Yeah, so you mentioned you thenkind of after these couple
startups and your consultingdays went on to get this job
(07:38):
working for a SaaS company inEurope, can you talk a little
bit about what that was and I'massuming that that had a much
more direct impact on whatcaused you to eventually see the
opportunity with CapChase.
Speaker 2 (07:52):
Yeah, I learned so much there and also we
experimented most of the painsthat we're trying to solve right
now.
So the interesting thing isthat I had never worked in sales
ever, and when I applied tothat company, I applied for a
role as a business developmentassociate, and if you look at
the description of the role, itwas all about figuring out how
to enter new verticals, newindustries, new clients and so
(08:13):
on.
I was like, okay, this isperfect, this is what I've been
doing as a management consultant.
Speaker 1 (08:17):
So a perfect job for an ex-consultant.
Speaker 2 (08:19):
Exactly.
I was like, okay, this isexactly the same that I've been
doing, but for a startup, thisis.
I was like, okay, this isexactly the same that I've been
doing, but for a startup, thisis going to be amazing.
So then I got the job.
When I joined they were like,okay, so you're going to be cold
calling this list of prospects.
I'm like, oh, I guess this is adifferent job than I expected,
anyways.
So I'd never been comfortablecold calling people, but I just
(08:40):
had to do it right.
So I started doing it and I wasdoing a consultative sale,
trying to understand theproblems really well, and it
worked.
And then I was promoted quicklyand ended up running the sales
and customer success teams.
And then, when it was time totake the company international,
I moved to London to set up theinternational team and
international go-to-marketstructure and everything.
And so I learned the thunder tothe company from zero to a few
(09:04):
million ARR and then left afterthree years to go to business
school.
But that experience three yearslike scaling a SaaS company was
super, super helpful because wewere suffering most of the pains
that we're trying to solveright now as a SaaS company and
the seminal learning that we hadthere was that we were selling
(09:24):
to a mix of SMBs and enterprise,so everybody wanted to pay late
, either monthly or quarterly orbiannually or just late like
net 90 or net 120 days and so on.
So we couldn't afford to do thatbecause as a SaaS company you
have all these upfront coststhat you need to incur to
(09:45):
develop the product, to sell theproduct etc.
And then you need to recoverthose as quickly as possible.
And just allowing people to paylate or monthly or quarterly,
meant that we needed to plugthat cash gap with something
else, with our equity money, andwe wanted to preserve that for
R&D, research etc.
So the only tool we had backthen was to give discounts and
(10:08):
we would really give bigdiscounts to get paid up front
and to recover that cost ofcustomer acquisition, those
upfront costs, as quickly aspossible.
So that would destroy a lot oflifetime value.
It would hurt our growth rates.
It was kind of like short-termgain, long-term pain, but it was
the tool that we had and thenwent to business school, started
looking at different ideas andwe ended up launching CapChase
(10:31):
to try to solve all the painsaround the let's call it like
revenue value chain of a SaaScompany, starting with that
precise cash cap problem.
So yeah, it was a really goodlearning experience.
Speaker 1 (10:44):
Yeah, man, it's interesting to hear you say that
.
If I think about a SaaS company, it makes sense why there's a
working capital thing.
Right, you spend money on allyour salespeople, you sell these
contracts.
They pay you over time.
You've got to fill that gap.
I guess what you're raisinghere is it's almost a double
problem, in that not only do youas a SaaS company have this
issue, but your clients alsohave a similar kind of issue,
(11:05):
and so somebody is going to havea working capital issue to
solve probably both of you, andit's pretty insightful to think
of that as both.
What caused you to go tobusiness school in the first
place?
Was this just the opportunityyou were doing, knew it wasn't
for you, or you wanted to go toschool and find some co-founders
?
Or what was your logic on whyyou decided to head to Boston?
Speaker 2 (11:26):
Yeah, so a mix of things really.
So, on the one hand, like beingfrom Spain, like you go into
business school in the US, it'slike it's the closest thing to
going to the moon, right, likeyou're going to access, like a
totally different universe, youknow, and like you're just going
to be able to open doors thatwere closed.
Also, you know, I thought I hadreached my ceiling at that
company.
I had learned a ton over thelast three years, but you know,
(11:46):
like I just didn't have veryclear you know, like what we
need to do as a company to getto the next stage.
And then I also wanted to runmy own thing.
Right, I learned a lot and Ifelt that I was closer to
running my own thing andbuilding my own thing, but I
thought I wasn't ready yet.
So I to business school tolearn how to do it.
And, yeah, I landed in Boston.
It was amazing.
I met my co-founder there andthen we actually launched
(12:09):
CapChase during the second halfof the first year, and then we
never finished business schoolbecause CapChase took off.
It was just too much to do boththings at the same time.
And again, the power of focus.
I learned that lesson and wedecided to focus on CapChays.
So business school was the bestpossible thing that I could
have done at that time and itreally served the purpose that I
was looking to do.
Speaker 1 (12:30):
When you left to go to business school, did you have
the idea that you wanted to dosomething related to this SaaS
thing, or it was more hey, Iwant to start something.
And then, as you started towork with your co-founder, you
kind of came back to this idealater.
Speaker 2 (12:41):
So I knew that I wanted to do something in
fintech actually, and the reasonwhy is I had experienced those
working capital pains and thatpain at the point of sale of a
SaaS company and I knew thatcash really solved it.
Right, we were solving it withdiscounts, some kind of payment
terms there, with VC money,right.
(13:01):
So that was something that waslurking in the background.
And then, actually preparingfor business school, doing an
accounting course, we wentthrough the cash conversion
cycle.
You know where you go through,like you know paying your
suppliers, and then you know,like how much time you hold
things in inventory and thenlike, when do you get paid by
your customers in theenvironment of a retail company,
right, and the different leversthat you have to solve for that
(13:23):
cash conversion cycle.
And then things started toclick and obviously, if you have
a company, you have a negativecash conversion cycle, then your
bottleneck will never becapital.
It will be anything else, butit will never be capital.
So we started looking into thatand we looked at different
spaces where we could solve acash conversion cycle.
We looked at healthcare clinics, we looked at bed care, you
(13:46):
know, we looked at e-commerce.
And then, when we're looking atsas, which was pretty like
coincidental.
Then everything clickedtogether.
The cash conversion cycleclicked together with our pain
while running the sales team inthat sas company and then we
started exploring that.
So it was like a I guess that.
I guess that's when youexperience your passion, your
(14:08):
insights and the incrementalbits of learnings and iterations
, you start to get together andsuddenly you're like oh, I can't
stop thinking about this thing,so let's talk to customers
about it.
Speaker 1 (14:19):
Yeah, that's perfect.
So as you started to take thatleap and talk to customers,
obviously you learned yourlesson about friends and family
and presumably went to adifferent set.
But anything in particular fromthose interviews that changed
your thinking or altered yourapproach?
Obviously this was one whereyou had hands-on experience
already as a potential client.
How did that research shape youin a different way than it did
(14:41):
in your prior startups?
Speaker 2 (14:43):
That's an interesting point.
We definitely didn't talk toour family and nobody had
experience in SaaS and ourfriends didn't either.
So we did reach out to ournetwork, both from our previous
experiences and Shemek, who's aco-founder as well.
He was doing growth equityinvesting before business school
.
So yeah, we had a few people totalk to.
What we didn't know is whichcompanies this would be the best
(15:06):
option for.
We didn't know if it was SMB,early-stage startups, late-stage
startups, if it depended ontheir final customer, etc.
And also the original idea wasmore like a firm for B2B SaaS,
so actually point-of-salefinancing for SaaS companies so
that their customers could paymonthly for an annual license,
(15:28):
so kind of solving the workingcap for the buyers.
And then, when we startedtalking to SaaS companies, we
started to narrow down the ICP,the ideal customer profile and
the ideal segment where this wasreally valuable.
We started understanding moreabout the competition and about
different options.
And we also recurrently got thequestion of CFOs saying like,
(15:48):
hey, I love this, but instead ofme getting the cash up front
from every new customer that Isign, is there any way in which
I can get this samefunctionality for all my
existing customers?
So actually people werethinking of how can I turn all
my recurring paying customersinto a source of funding today?
(16:10):
So we thought that that wasgoing to be an easier way to
start, as opposed to trying tobuild all the integrations and
so on to enable a point-of-salefinancing product.
That is still our main product,so a financing product for SaaS
companies that depends basicallyon their ARR, on their
retention, on their efficiencymetrics, et cetera, and we ended
(16:33):
up launching the Affirm for B2BSaaS much later.
We actually ended up launchingit last year and now it's one of
our fastest growing productsever, but only because we have a
platform to make it possible.
It would have been way harderto do at the beginning.
Speaker 1 (16:48):
So when you went to jump into the business, some
people start businesses and it'slike they're number seven
person to do the same thing.
I studied this one company andI think I can do it a little bit
better.
You weren't really in thatsituation.
Right, at some level it was anexisting industry, because banks
exist and banks do commercialloans, but the idea of a custom
product didn't really exist.
(17:09):
How did you find really kind ofjumping in and creating
something quite new, recognizingthat there were some analogies
from e-commerce out thereCertainly, banks have products.
I mean, how did you reallynavigate through the, the notion
of being kind of a pioneer inthe, the specific, uh,
innovation that you created?
Speaker 2 (17:28):
yeah, I think that being a pioneer was an advantage
, because we didn't know howhard it was.
So we like we sort of just likedid it, but we knew that the
business was going to be asuccess or not.
Let's see like there are a fewthings that could give us an
option to be successful.
If we didn't figure them out,we'd fail for sure.
And the main one was risk, andwe knew that all the lending
(17:52):
companies that died typically isbecause they miss on risk.
It becomes an afterthought.
So what we did at the beginningwas we tried to nail that we're
going to be giving money tocompanies and that's the easy
part, but we really needed toget it back and make money off
of it.
We started talking to prettymuch everybody that launched a
(18:12):
lending or factoring receivablefinancing company.
We're talking to people thathave been successful, people
that have failed to risk, teamsto data analysts, just to try to
understand what we needed to doin order to build a model, to
understand a vertical, and thathelped us to narrow down a bunch
of things.
One should we focus on just onevertical?
(18:33):
What could we learn from SMBlending, what could we learn
from revenue-based financing inother verticals, and so on and
we started getting advisors thatwould help us with those
different things and, in fact,like most of our hires were
dictated by what we were gettingin those initial stages.
And then we decided tounderstand what were the levers
that we had as a company to growright.
(18:55):
And those levers in a lendingcompany, in a fintech company,
are more complex than a regularB2B SaaS company.
We needed to figure out capitalmarkets.
We need to figure out a fintechcompany are more complex than a
regular B2B SaaS company.
We needed to figure out capitalmarkets.
We needed to figure out thecapital structure and then we
needed to learn how to operateas a team.
So that was kind of like theframework that we used to figure
(19:16):
out what we needed to learnabout as quickly as possible and
also who we needed to have onboard from the point of view of
investors and team who we neededto have on board from the point
of view of investors and team.
And yeah, a lot of the thingsthat we did, we did quicker than
anybody because we didn't knowhow hard they were.
We did have a more or lesssimilar stage company targeting
a similar problem with a verydifferent approach.
(19:37):
So this company called Pipe.
They were doing somethingsimilar.
They had raised a bunch ofmoney.
I think that when we raised ourseed round, they announced like
a 60 million round, like thefollowing week, so like they
were like one or two steps aheadof us from a capital point of
view and they had a totallydifferent value proposition,
right?
So you know, we didn't let thatdistract us, but we always,
(20:00):
like, knew that there was goingto be competition down the road
and in fact at the beginning itwas quite competitive, and then
we eventually out-competedeverybody in the space, which
was super interesting.
Speaker 1 (20:10):
Now, thinking back to those early years, I mean I'm
sure you've learned a ton, right, you've been at it for almost
four years now.
What's one thing as you thinkback that said, wow, we weren't
sure we were jumping in, but youknow what, we assumed something
and we really got it right.
And then is there somethingthat you think back and like,
wow, we really screwed that up.
If I had to do it over again, Imight have done something very
(20:30):
different.
Speaker 2 (20:31):
Yeah, so we assumed one thing we assumed that the
market was going to be waybigger.
So we assumed that the market,that at the market, that we
could really access all thelet's say seed to series B
companies in the US and inEurope.
But I think we forgot toactually focus on the SAM
instead of the TAM.
Out of everybody that was outthere, who could we really work
(20:54):
with?
Because in a lending productyou typically don't want to work
with the companies that want towork with you or the people
that find you.
Those are the ones that youreally want to avoid, because a
lot of them are desperate.
So our sum was smaller than wethought.
So that was probably somethingthat we should have figured out
much better or much earlier, andit would have dictated our
(21:16):
go-to-market efforts muchearlier and we would have
probably gained a few even likea year or a year and a half in
terms of go to market experience.
And then it would have helpedus to go like multi-product
earlier as well, which you knowlike eventually we needed to do
to like enlarge our time and beable to go further up market, et
cetera.
And then another thing thatthat probably was a mistake is
(21:40):
that we treated equity and debtinvestors as the same, or
expecting it would be the same.
You just raise money fromdifferent pools for different
purposes, but you can kind oftreat them differently and it's
so different.
That's been a learning even now,as we've gone from, let's say,
(22:01):
equity investors are all aboutthe upside right, and their
investment can go to zero.
They can lose one X or they canmake you know three, 10, 20,
100 X, right, but dead investorsthey can.
The best that can happen isthat they make, I don't know,
like 12, 15% in return per year,right?
And of course that means thatthey cannot lose their principal
(22:23):
, right?
If they make on average, let'ssay, 15% return.
So you know, they look atcompanies in a really different
way.
They want to see a boring,predictable, you know,
slow-growing plan that has verylittle room for failure, and
equity investors want to seeexactly the opposite.
They want to see you like, kindof you, trying to reach for the
moon as quickly as possible.
(22:43):
So that was a big mistake and abig learning and also, as we've
graduated from private creditfunds to investment banks and so
on, that learning compounds.
Those investment banks want tosee things that are more boring
than private credit fundsbecause they're making lower
returns, so their capital needsto be at less risk than others.
(23:04):
So that's been a really, reallybig learning from a fintech
immersion point of view.
Speaker 1 (23:12):
Totally.
I mean that's relevant, I think, to so many companies out there
that need various debt products.
I mean it's funny.
I feel like I'm stillcontinuously learning that same
point from almost the inversepoint of view, right?
So many of us at QED came fromCapital One, spent years doing
lending at Capital One, kind ofwe're excited to get into equity
where we care more about upside.
But I think sometimes we haveto catch ourselves.
(23:34):
I think the kind of lending gameis so ingrained that it's like,
yes, I know, intellectually myjob is to find companies that
have massive upside and we focuson that.
But I also think just thedynamics here of at some level
lose a little bit on thecompanies that don't work in
hopes that you can make a lotoff the companies that do is the
exact opposite of lending andit is interesting, whereas on
(23:55):
the surface they're both riskmanagement businesses and you
put your capital out and youhope to get it paid back a lot
later.
But then you sort of getunderneath the the covers and
it's very different dynamics andyou're dealing with both at the
same time.
So it's kind of interesting.
Speaker 2 (24:09):
Exactly and actually, when we were talking to VCs at
the beginning and they wereasking us, hey, how are you
evaluating these companies?
Because VCs were saying thatthey were evaluating the same
companies that we're lending to.
A VC would think differently.
And what we always said thesame companies that we're
lending to.
Obviously we think differentlyand what we always said is look,
we're looking at thesecompanies from a lending point
of view.
We don't care about thesecompanies being a unicorn in
(24:31):
five years, we only care aboutthese companies continuing to
exist in the next 12 months.
So it's like a totally, totallydifferent lens and, yeah, good
learnings overall.
Speaker 1 (24:41):
Well, let me go back to one of your stories a bit,
from when you spent time in theSaaS business and you thought
you were getting hired to dosome strategy work and you wound
up doing a bunch of coldcalling.
If I understand correctly, thecold calling skill actually
turned out to be quite useful.
It was pretty important in theearly days of CapChase.
Obviously, you've got a muchmore sophisticated go-to-market
today.
I wonder if you can just talkthrough the journeys there's so
(25:06):
many B2B companies go throughthis of cold-calling,
founder-led sales and thenultimately have to do a more
sophisticated version and thenhire salespeople and figure out
the model.
I just wonder if you can walkthrough a little bit of your
go-to-market journey, because Ithink that's very useful to a
lot of different entrepreneursstarting up.
Speaker 2 (25:20):
Totally.
Yeah.
So it has changed a lot, right,but kind of like the
fundamentals still apply.
Basically, what we did when westarted is we wanted to always
grab the low-hanging fruit,right.
So when you start, that's thepeople that you know.
Then the next low-hanging fruitis the people that know, the
people that you know, right.
So like your network's networkand then try to find, like the
(25:43):
next easiest connection to thesecompanies.
So at the beginning it was allfounder-led sales.
We had no sales team.
I think that we only hired ourfirst salesperson once we
reached about a million ARR,something like that, and we
really did it to just scalethings you know and also like to
be able to, let's say, likefarm the existing companies and
get them to continue drawing andcontinue scaling, etc.
(26:05):
At the beginning we were justtrying to sell to our network,
then to our network's network,and then trying to scale that
and try to understand where thebottleneck was at any given
point so that we could continueto scale the machine.
So at the beginning we prettymuch looked at our LinkedIn.
We were connected with ourprofessors' contacts as well,
(26:26):
trying to validate the idea andfrom those conversations we
started to get our firstcustomers.
And then, whenever we got acustomer, we would ask the
customer if they had any othercompanies or any other friends
that were running companies thatwe should talk to, and there
was some kind of referral circlegoing on.
And then what we did is westarted to look at all the B2B
software companies, for example,in Boston, which is where we
(26:48):
were and we could meet people inperson et cetera, and then New
York, and then we announced aseed round.
It got featured on TechCrunchand started to get a bunch of
inbound.
And then I think that for thefollowing three, four months it
was pretty much inbound all thatwe got, and we were also like
continuing to reach out, youknow, like looking at PitchBook
(27:11):
and like trying to look atdifferent contacts et cetera.
And then that evolved.
At some point we started to tryto understand what was the
universe that we're trying tosell, to map it all out and put
it in our CRM and start enrichqualification and intent data,
so understanding who are thebest companies to work with and
(27:32):
how can we understand the riskcriterias, even before we
actually contact them, so thatour funnel was more like a pipe
than a real funnel, so that weweren't losing too much along
the way.
And then also understanding theintent.
So, for example, have theyraced around recently?
Are they hiring salespeople?
(27:52):
Are they increasing their adspend?
Have they hired a new CFO or anew head of finance?
So it's hard to understand thatand enriching the database.
And then we actually built areally robust outbound machine
that nurtures people in ourdatabase, reaches out
automatically, et cetera.
And we also built a very, verystrong referral network.
(28:13):
So we set up a referral teamthat would go to VCs, to
strategic advisors, to otherCFOs, accelerators and so on,
and would introduce Capsace.
And what we were trying to dowas try to get people that were
aware of the pains to recommendcap chase to their networks.
(28:34):
And today 40% of our revenuecomes from the automated
outbound and about 40% comesfrom the referral network and
the other 20% comes fromtraditional, paid and inbound
channels.
Speaker 1 (28:47):
Wow, that's pretty phenomenal if you're able to get
sort of that many alternativechannels to work.
Does formal partnerships playan important role for you or not
so much?
I know that's one of thecommonly talked about subjects
for these B2B type businesses.
Speaker 2 (29:01):
Yeah partnerships are important.
We loop them in the referralteam.
But, yeah, they're definitelyimportant, although most
partnerships are more amarketing play than really like
a business generation play.
You know, like I would say that8 out of 10 or 9 out of 10 is
the best thing you get out of apartnership is the announcement,
and then there's this like 10%of partnerships that you really
(29:23):
get embedded and they become areliable source of revenue.
So, like, you just have to likeincentivize those partners
accordingly.
And I would say that as we'velaunched the second product,
we've had to reinvent all thisthing, because suddenly routing
doesn't work that well and thenyou need to train your team to
sell to different products andto different motions and so on.
(29:43):
So actually we have evolved andnow we have separated the teams
so that we have one teamselling the grow product, which
is our core product, and thenone team selling the grow
product, which is our coreproduct, and then another team
selling our new product, whichis pay.
So I have different ICP,different stage, different value
prop, and we just didn't findanother way to do it.
You know we had to separate it.
Speaker 1 (30:05):
So one other aspect I know that's been a big part of
your success is internationalexpansion.
I mean you guys are, as youmentioned.
I know that's been a big partof your success is international
expansion.
I mean you guys are, as youmentioned, you're in US, canada,
europe obviously a big you knowstarted in the US but then have
grown.
I know that's one topic that isalways controversial.
Some people really believe inlet's go global, some really
want to stick to when you,especially when you start in the
US, you're obviously in areally big, big place.
(30:27):
Have you had to make majorchanges to your business as
you've gone international or doyou feel like you've had a very
similar approach that's kind ofworked everywhere?
I mean, I'd love to hear alittle bit of that journey
because I know that's one thatagain lots of widely divergent
views on international expansionand widely divergent success
stories.
Speaker 2 (30:44):
Yeah.
So we went international superearly on and the premise that we
had to do so is that a SaaScompany in Stockholm is very
similar to a SaaS company in, Idon't know, in San Francisco,
right, or Oklahoma, whatever.
So that was, you know, like a,it's like the main incentive to
go international.
Also, we're seeing well, westarted seeing a bunch of
(31:06):
copycats like coming up.
That happens a lot, right, westart a company in the US and
then you have the x company inspain and the, the captives of
france, the captives of germany,whatever.
So we decided to gointernational.
We did.
We haven't entered every marketin europe, because whenever we
went, we were goinginternational.
Before entering a market, wewould look at, we basically do a
(31:29):
framework, we would look atregulation, I would look at, we
basically do a framework, welook at regulation, I would look
at capital availability, atcompetition, at size of the
market, right, and also atlocalization.
You know, like how hard was itgoing to be to sell in the
market?
So, for example, in Europe, weentered Spain, uk, benelux and
Nordics and we avoided, forexample, germany and France.
(31:50):
Germany and France, from aregulatory point of view, are
insane and we avoided, forexample, germany and France.
Germany and France from aregulatory point of view are
insane, and we avoided Italybecause the market was tiny for
B2B SaaS.
The rest of the markets arefine.
So, international, it doesenlarge your time.
It adds a lot of complexity aswell.
In a lending businessspecifically, I think, around
money flows, right, moneymovement, capital markets for
(32:10):
international is still yet notsuper developed.
So we've gone from servingeverything from a Unitrans
facility in the US to actuallyhaving to set up facilities both
sides of the Atlantic.
And then I mean regulation is acomplication as well, right, so
you know, for us it has worked,but we've had to figure it out.
And yeah, we have not expandedmore internationally because any
(32:33):
other market addsdisproportionate amounts of
headache and also most marketsare not that big for B2B SaaS.
Speaker 1 (32:42):
Now you've spent this time doing product
diversification in the US,starting with your core lending
product and then the BNPL andnow the payments.
Are you really focusing yourbroadening efforts mostly on the
US, or have you also been ableto scale some of these alternate
products to other geos as well?
Speaker 2 (32:57):
Good question.
So we start everything in theUS.
I think it's where we have thebiggest base of customers.
It's the biggest market as welland the most sophisticated
market too.
So we start everything in theUS.
We try to find product marketfit too.
So we start everything in theUS.
We try to find product marketfit.
If we don't find product marketfit, we don't, I mean we just
shut down the product.
If we find product market fit,then we bring it internationally
.
So our BNPL product, which isgrowing super fast now, we
(33:21):
launched first in the US, thenwe brought internationally and
now it's kind of like justscaling it as quickly as we can.
So, yeah, I would say thatthat's kind of like the path
that it takes.
You know, we talk to customerseverywhere because, again, like
a SaaS company in Spain is thesame as a SaaS company in San
Francisco.
But when you think aboutgo-to-market, aversion to risk
and so on, like the US isdefinitely a few decades ahead
(33:44):
of Europe at this point.
Speaker 1 (33:46):
Well, hey, for our last segment here.
I mean I'd love to transitionto talk a little bit about the
team and kind of leadership ofthe team that you have.
I mean, I know that you guyshold your mission and values
very important.
I wonder if you can give alittle bit of a taste of what a
couple of those might be andwhat a couple of your general
principles might be and related.
How do you wind up successfullydriving those through the team,
(34:08):
especially in a world ofinternational expansion in
multiple countries and I knowyou've got some people sitting
there in the office with you inNew York and plenty of people
spread how do you think ofreally the kind of mission and
values and how you use that toreally rally the team members?
Speaker 2 (34:22):
Absolutely.
So, yeah, I'll talk a littlebit about the values and then
also about the mistakes thatwe've made as well,
inadvertently, with these valuesand and culture and so on.
But in in values, I mean we, weset our values quite early on.
So let's call it like sixmonths into a journey, basically
because we're seeing that, youknow, when we were starting out,
the people that we're hiringwere were really determining who
(34:46):
we're hiring next, right?
So the first three peopledetermine, like, the next 10
people.
The first three peopledetermine the next 10 people,
the first 15 people determinethe next 50 people, et cetera.
Right?
So we wanted people to have acommon set of values and we
wanted to define that.
So we came up with the valuesearly on.
It's three values courageousspirit, build an attitude and
service mindset.
And then what we did is wetried to highlight them all the
(35:10):
time and try to motivate peoplewith them, try to draw examples
with them, like promote peopleaccording to them, etc.
So, for example, in everyall-hands meeting since day one,
we've talked about our valuesin the form of somebody in the
team talking about somebody elsein the team highlighting one of
the values.
So, for example, like giving anexample of somebody showing a
(35:32):
courageous spirit or a servicemindset, you know, or a builder
attitude, and and then like whythose is because we really
wanted people that were doersand not just planners and, and
you know, like something.
Maybe that's like one of ourpet peeves, but I really I get
nervous when people are like weshould do this, we should do
that.
I really like people that arelike hey, we did this, you know,
(35:54):
and this is the result, right,as opposed to just like having a
bunch of ideas.
Ideas are good, but like,unless those ideas are executed
and you get data, they're kindof like worthless.
Right, I'm very temporary.
One of the mistakes that we didis that, for example, like, the
way I operate is that I tend tofocus on what's not working, to
try to solve it as quickly aspossible, so then that means
(36:17):
that there is more attention onwhat's not working than on
celebrating the wins.
So that's something that I wasgiving feedback on we need to
celebrate the wins as a team aswell, because it's great to
solve when the things are notworking, but when things work,
let's celebrate it and like, getthis culture of winning, and I
think that at some point, likepeople thought that bringing
mistakes or things that were notworking actually like put you
(36:39):
kind of like in the spotlight ina negative way.
I think that that is like stilla change that we're doing where,
like, we want to celebratemistakes, we want to celebrate
things that are not workingmistakes.
We want to celebrate thingsthat are not working because you
know, like, if you don'tcelebrate them, if you don't see
them, if they remain likeobscure and people don't raise
them, then they never get fixed.
Right, people are afraid tobring up things that are not
working and they never get fixed, whereas, like, we want to have
(37:01):
a culture where bringing upthings that don't work it's
actually celebrated so we canput all our effort in solving
them and again, like celebratethe wins.
So, yeah, trying to instillthis culture of people wanting
to own things that are screwedup, that don't work, and solving
them as being a catalyst fortheir career, as opposed to,
(37:22):
like, getting fired.
Speaker 1 (37:23):
Yeah, that's a great insight.
I mean, at Capital One we hadthis thing called Eureka Moments
, that sort of back whensomebody sort of found something
in the business.
They thought they could make itway better, and you know, that
was kind of a really interestingway to both celebrate the
improvement but also celebratethe hey, you found some problem,
and that was great.
And everyone makes mistakes,obviously.
If you make the same mistakefive times, that's a problem.
(37:45):
But you know, learning fromthat's pretty critical.
So it sounds like you reallyinvested in this very early on
in the journey.
You're a much bigger, morecomplicated company now.
Have you found that you've hadto make changes to your values,
as maybe different things areimportant now than they were
then, or have you found it to bequite consistent and really
(38:05):
work through different stages ofgrowth?
Speaker 2 (38:07):
So we actually had five values at the beginning and
then we reduced it to threebecause five was too many and
too complex.
And then we also saw that insome cases the leader for each
team really influences that teamand the culture and the
subculture in that team.
So we did see in some casesthat we hired the wrong leader
(38:29):
and then the wrong values, let'ssay, were being permeated
across that specific leader'steam, and then you need to take
action quickly, or then thingsdeteriorate and then you need to
change the whole team, right.
So yeah, those were somepainful learnings along the way,
but but yeah, we've been tryingto be consistent with the
values, because I mean once thevalues.
(38:49):
I mean if you attract peoplebased on values and then you
change them, then what does thatmean?
Does it mean that now you needdifferent people?
Does it mean that the peoplehave changed, that you value
different things, or like Idon't know.
I feel like consistency is soimportant that, yeah, like we've
kind of like kept them prettystable.
Speaker 1 (39:07):
So one last question about values, and then I'm
looking at the clock and we'vekept you for a while here, so
we'll be wrapping up.
I've certainly both felt myselfand talked to many others that
one of the most difficult thingsabout being a values-led
company is what happens to thosefairly few people that are
absolutely unbelievableperformers, that delivering
results, but really don't fitfrom a values perspective or
(39:31):
maybe from a culture perspective, and figuring out how to deal
with that.
When do you give a little bitof permission to be a little
different, when do you not?
How do you think that through?
I mean any lessons on thatfront?
I mean, I find those are someof the most difficult
conversations to be had.
Speaker 2 (39:44):
Yeah, they are 100%.
I think that Ben Horowitz talksabout this in a book called the
Hard Thing About Hard Things.
And yeah, basically you'regoing to have those right.
You're going to have peoplethat are really good, are making
a difference, but they don't,let's say they don't, embody the
values.
I think that it's easy to livewith it for a while, but then
(40:07):
actually things start gettingrotten on the surface and then
suddenly people don't want towork with that person and then
if that person is an IC, thenit's somewhat easier.
But if that person is a leader,then it actually becomes really
damaging to the organization tothe point that people start
leaving.
And then if suddenly you'relosing people because they can't
(40:28):
work or it's just toounpleasant to work with a
brilliant, let's say like personthat doesn't embody values,
that's really bad.
And then you start looking attrader right, like is this one
person more valuable than threepeople, than five people, than
10 people?
You know like where does thisend?
Right?
And then typically these peopleare also they know they're
(40:49):
really good, right, and thatthat's like gives them like some
kind of they're like earth ofsuperiority or they're
condescending or whatever right,but they know they're really
good, they're ambitious as well,so they want to get promoted.
And then, like, that's when itgets extra complicated, because
if you promote somebody thatdoesn't embody the values, that
says a lot about your values,right, right, right.
If you're promoting people,then like, people are going to
(41:10):
want to do what that person isdoing and then suddenly that can
corrupt your organization a lot.
So it is really painful andthat's a lesson that we've had
to learn and people have talkedabout it.
Right, sometimes it's easy,it's it's less bad to have an
empty seat than to have thewrong person in a seat.
And having somebody that can'twork with others, which is
(41:31):
pretty much like the embodimentof somebody that doesn't embody
the values, that's really badfor an org, really really bad.
And again, this is alwayseasier to say than to do, but it
has been one of our learningsfor sure.
Speaker 1 (41:45):
Yeah, actually, the quote you made I think is useful
in many contexts.
It's way better to have anempty seat than the wrong person
, and there's one version of theissue that we just talked about
.
I think it's useful in manycontexts.
Right, it's way better to havean empty seat than the wrong
person.
And there's one version of theissue that we just talked about
hey, when do you understand howto get rid of somebody?
But then there's another one onhiring that hiring is difficult
and at times people I see youknow subconsciously almost lower
(42:08):
the bar for who they're tryingto hire to fill a seat, and so
it's one of the hardest thingsto do is understand okay, when
have I seen enough people thatI'm just going to hire the best,
versus when do you feel likeyou've got to keep the absolute
bar in the right spot?
We've done all those mistakesMore than once.
It's awesome, miguel.
Well, I know you've got a verybig and complicated business to
go run.
We really appreciate youspending the time with us today
(42:30):
and we've obviously, at QED,loved our experience working
with you guys at CapChase, bothin the office and cycling in
mountains, and I'm sure it'll begreat to come.
I'd love to ask one morequestion as we wrap up.
I mean, we try to ask the samequestion to anyone.
You're now a three-timeentrepreneur.
Hopefully we've got a bunch ofprospective entrepreneurs
listening.
What's one piece of advice youmight give to someone thinking
(42:52):
about starting their firstcompany?
Speaker 2 (42:54):
I would say just talk to customers, talk to potential
customers, because that'sreally going to make you jump
into it.
The moment you start talking tocustomers and they start
demanding what you're thinking,that makes you much more
motivated to actually do it andit's going to make you jump the
gun and just do it.
One thing that we did at thebeginning like there's a lot of
(43:14):
like endless analysis you can doto try to refine the idea, the
business model and everythingNone of those matter unless you
talk to customers and they aregoing to tell you what you
really need to do, like thisanalysis.
You'll do that at some point,but it's definitely not the
place to start.
So just spend all your timetalking to customers and
understanding the pains.
Really, that's just the thingto do at the beginning.
Speaker 1 (43:37):
I love it and something that applies very
broadly.
Right Almost just abouteveryone starting a business can
relate to that.
Anyways, miguel, I reallyappreciate you spending the time
with us and to all youlisteners.
Take care, and thanks forlistening.
(44:06):
Qed is proud to provide thebest fintech advice you can get.
To learn more or to read thefull show notes from today's
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Thanks for listening.
Thank you.
Venture capital firm focused oninvesting in fintech companies
all the way from pre-seed to IPO.
Fintech Thought Leaders bringstogether the most talented
entrepreneurs tackling today'sbiggest problems.
If you're looking to learn moreabout what motivates our
founders and team members tosucceed, you're in the right
place.
Hello and welcome to theFintech Thought Leaders podcast.
(00:40):
I'm Bill Salufo, head of earlystage investments at QED
Investors.
Today on the podcast, I'm veryexcited to be joined by Miguel
Fernandez, co-founder and CEO ofCapChase.
Miguel, thanks for joining ustoday.
Speaker 2 (00:52):
Thank you for having me here, bill, it's a pleasure.
Speaker 1 (00:54):
Last time I guess we saw each other, we were riding
bikes in the ShenandoahMountains, so that was awesome,
it was a good time.
So, look, we're going to gointo a lot about both CapChase
and about your background.
But just so the listeners get alittle bit of an orientation, I
wonder if you can give us abouta 60-second commercial into who
CapChase is and what CapChasedoes.
Speaker 2 (01:14):
Great.
So CapChase is a fintechcompany and what we do is we
offer lending and paymentsolutions to B2B software
businesses both in the US,canada, so basically North
America and Europe.
We've been around for fouryears, so I'm very excited about
what we're doing.
Speaker 1 (01:31):
Awesome and I know we've been with you guys for a
good chunk of that ride.
Speaker 2 (01:34):
Yeah, pretty much all of it.
Speaker 1 (01:36):
It's been very exciting to watch you guys'
massive progress over the years.
So look, before we get intoCapChase, I know that you've got
a long background inentrepreneurship.
This isn't your first startup.
I'd love to hear a little bitabout what caused you to get
attracted to entrepreneurshipand maybe hear a little bit
about your first couple startups.
Speaker 2 (01:54):
Yeah.
So I think that since I wasvery little, I love to see
things grow, you know, like thetoys that I would use and
everything was just like youcould see, like growth right and
visually and also, you know,from a progress point of view.
And then I was lucky that my mygrandfather was an entrepreneur
and my father as well, so theyboth launched their own
companies.
Some of them went well, some ofthem didn't go well.
(02:16):
So I think that I was fortunateto just grow accustomed to risk
, you know where, where you likeI would just see, like my
family, you know, taking risks,and sometimes those risks would
pay off, sometimes they wouldn't, right.
So I think that that was anincredible privilege and a good
position to be in.
And then I started engineeringright Again, like trying to
(02:38):
understand how things work, youknow, and and and how things are
built.
So I did it because of that.
I had no intention of workingas an engineer ever and in fact
I actually joined consultingright after school, but I had
always ideas of how things couldwork.
I was doing the typicalentrepreneurship courses and
seminars during engineeringstudies and when I graduated I
(03:01):
started working in consultingand I saw that what I was doing
in the day-to-day wasn't thatfascinating In my mind.
I was working on problems forsuper large companies and I felt
that if I wanted to have acompany in the future, those
things that I was solving werenot really going to transfer so
much to a company, because I wasworking for imagine, fortune
100 companies, right?
(03:21):
So huge, huge businesses.
So on the side, I tried to workon different entrepreneurial
ideas and I launched twostartups with friends and I
always say that, you know, whenpeople ask me if I'm a Casio
entrepreneur, I don't reallyconsider those two early
ventures as proper startupsbecause they were just so small,
you know, and they failed soearly.
But they were both really goodlearning lessons.
(03:44):
So one of them was imagine likean Airbnb for sports equipments
and gadgets.
So, for example, imagine thatyou're going to go to Utah this
weekend and you want to bringyour skis or you need to have
skis.
Instead of renting them from ashop, you could rent them from
somebody that have skis in Utahand that way, that person has
(04:04):
like a spare asset that they'remonetizing and you can get a you
know, like better equipment ata cheaper rate and you don't
have to buy it.
So the lessons learned therewas that renting peer to peer is
is is really really hard,there's a lot of friction in a
transaction.
And we only figured out once webrought the product to market.
Because you know like we haddone all the research, all the
(04:26):
user research, with all of ourfriends and all of our families
right, so kind of like classic,you know, first time founder
mistake.
So you know, when push came toshove, we saw that we would make
$2 worth of transaction andeach transaction costed us about
$17 to take place.
So, like unit economies wereupside down and we stopped.
And the second one was anothermarketplace, which also made me
(04:48):
realize how hard marketplacesare.
It was a marketplace where wewould hold in storage and
deliver within two hours up andcoming brands, apparel within
the city of Madrid, so you couldgo and like, buy a really cool
jacket, you have delivered inyour place in two hours.
The problem there, I think, wasthe time.
Time was tiny.
The union economies were reallygood actually, but the time was
(05:11):
very small.
After all, you don't needfashion on a two-hour timeline.
So anyways, we shut those down.
It was super interesting.
And then I actually joined thestartup, a pre-revenue startup
where I thought I could learnfrom people that actually knew
how to do it.
Speaker 1 (05:28):
No, that's really cool.
I mean it's ironic.
You mentioned the ski idea.
I literally am leaving tomorrowmorning for Colorado.
So I have had this debate withmyself.
I don't really want to bring myskis, I don't really want to
rent, so I settled on bringingmy boots and renting the skis so
I could see where it's not.
It wouldn't be very profitable,but you can see where there's a
consumer idea there.
That's pretty good.
Is there anything, as you lookback over that period, that you
(05:51):
learned that you could point to?
That was particularly importantto you as you eventually
started CapChase.
Speaker 2 (05:56):
Yeah, so one was talking to a customer In the
first case.
We didn't talk to a customeruntil we had built the website,
the marketplace and everything.
We had talked to some customers.
They we didn't talk to thecustomer until we had built the
website, the marketplace andeverything.
We had talked to some customers.
They just didn't happen to bethe ICP that we were trying to
make money off of.
So that was a massive learning.
And then I think it was focus.
We launched the tool, basicallythe marketplace, and we had
(06:19):
people uploading bicycles inMadrid, which is where we were
based out of, but then peoplewere adding apartments in Cuba
or motorbikes in Laos andVietnam, right.
So like it didn't make a lot ofsense.
We should have like focused onlaunching, on like saturating
one market first before going toothers.
I think the idea is bad, butregardless, you know, we should
(06:39):
have focused on launching in amuch more focused kind of way.
And then also the power of fulltime, you know, and and we were
both, I mean the founders were,I was working in consulting, so
like really long weeks, and myco-founder was working in energy
trading, so pretty long weeksas well.
So you know, after we're justworking on this at nights and
the weekends.
So, yeah, we're putting a bunchof hours, but, like you need to
(07:01):
be putting all your hours andall your attention in any kind
of venture, because it's goingto help you to have way faster
feedback loops and also, to youknow, to like move it to the
next stage or, you know, learnway quicker you know.
Speaker 1 (07:15):
maybe now you look back and like why did I do that?
Or you know, whatever it's, uh,it's got to be fantastic
learnings.
I mean it's almost.
You know, when I talked to afew people that started up x, y,
y or Z business when they were16, you know, didn't turn into a
business, but just the amountthat that kind of carries
through over time is justawesome to get rolling.
Yeah, so you mentioned you thenkind of after these couple
startups and your consultingdays went on to get this job
(07:38):
working for a SaaS company inEurope, can you talk a little
bit about what that was and I'massuming that that had a much
more direct impact on whatcaused you to eventually see the
opportunity with CapChase.
Speaker 2 (07:52):
Yeah, I learned so much there and also we
experimented most of the painsthat we're trying to solve right
now.
So the interesting thing isthat I had never worked in sales
ever, and when I applied tothat company, I applied for a
role as a business developmentassociate, and if you look at
the description of the role, itwas all about figuring out how
to enter new verticals, newindustries, new clients and so
(08:13):
on.
I was like, okay, this isperfect, this is what I've been
doing as a management consultant.
Speaker 1 (08:17):
So a perfect job for an ex-consultant.
Speaker 2 (08:19):
Exactly.
I was like, okay, this isexactly the same that I've been
doing, but for a startup, thisis.
I was like, okay, this isexactly the same that I've been
doing, but for a startup, thisis going to be amazing.
So then I got the job.
When I joined they were like,okay, so you're going to be cold
calling this list of prospects.
I'm like, oh, I guess this is adifferent job than I expected,
anyways.
So I'd never been comfortablecold calling people, but I just
(08:40):
had to do it right.
So I started doing it and I wasdoing a consultative sale,
trying to understand theproblems really well, and it
worked.
And then I was promoted quicklyand ended up running the sales
and customer success teams.
And then, when it was time totake the company international,
I moved to London to set up theinternational team and
international go-to-marketstructure and everything.
And so I learned the thunder tothe company from zero to a few
(09:04):
million ARR and then left afterthree years to go to business
school.
But that experience three yearslike scaling a SaaS company was
super, super helpful because wewere suffering most of the pains
that we're trying to solveright now as a SaaS company and
the seminal learning that we hadthere was that we were selling
(09:24):
to a mix of SMBs and enterprise,so everybody wanted to pay late
, either monthly or quarterly orbiannually or just late like
net 90 or net 120 days and so on.
So we couldn't afford to do thatbecause as a SaaS company you
have all these upfront coststhat you need to incur to
(09:45):
develop the product, to sell theproduct etc.
And then you need to recoverthose as quickly as possible.
And just allowing people to paylate or monthly or quarterly,
meant that we needed to plugthat cash gap with something
else, with our equity money, andwe wanted to preserve that for
R&D, research etc.
So the only tool we had backthen was to give discounts and
(10:08):
we would really give bigdiscounts to get paid up front
and to recover that cost ofcustomer acquisition, those
upfront costs, as quickly aspossible.
So that would destroy a lot oflifetime value.
It would hurt our growth rates.
It was kind of like short-termgain, long-term pain, but it was
the tool that we had and thenwent to business school, started
looking at different ideas andwe ended up launching CapChase
(10:31):
to try to solve all the painsaround the let's call it like
revenue value chain of a SaaScompany, starting with that
precise cash cap problem.
So yeah, it was a really goodlearning experience.
Speaker 1 (10:44):
Yeah, man, it's interesting to hear you say that
.
If I think about a SaaS company, it makes sense why there's a
working capital thing.
Right, you spend money on allyour salespeople, you sell these
contracts.
They pay you over time.
You've got to fill that gap.
I guess what you're raisinghere is it's almost a double
problem, in that not only do youas a SaaS company have this
issue, but your clients alsohave a similar kind of issue,
(11:05):
and so somebody is going to havea working capital issue to
solve probably both of you, andit's pretty insightful to think
of that as both.
What caused you to go tobusiness school in the first
place?
Was this just the opportunityyou were doing, knew it wasn't
for you, or you wanted to go toschool and find some co-founders
?
Or what was your logic on whyyou decided to head to Boston?
Speaker 2 (11:26):
Yeah, so a mix of things really.
So, on the one hand, like beingfrom Spain, like you go into
business school in the US, it'slike it's the closest thing to
going to the moon, right, likeyou're going to access, like a
totally different universe, youknow, and like you're just going
to be able to open doors thatwere closed.
Also, you know, I thought I hadreached my ceiling at that
company.
I had learned a ton over thelast three years, but you know,
(11:46):
like I just didn't have veryclear you know, like what we
need to do as a company to getto the next stage.
And then I also wanted to runmy own thing.
Right, I learned a lot and Ifelt that I was closer to
running my own thing andbuilding my own thing, but I
thought I wasn't ready yet.
So I to business school tolearn how to do it.
And, yeah, I landed in Boston.
It was amazing.
I met my co-founder there andthen we actually launched
(12:09):
CapChase during the second halfof the first year, and then we
never finished business schoolbecause CapChase took off.
It was just too much to do boththings at the same time.
And again, the power of focus.
I learned that lesson and wedecided to focus on CapChays.
So business school was the bestpossible thing that I could
have done at that time and itreally served the purpose that I
was looking to do.
Speaker 1 (12:30):
When you left to go to business school, did you have
the idea that you wanted to dosomething related to this SaaS
thing, or it was more hey, Iwant to start something.
And then, as you started towork with your co-founder, you
kind of came back to this idealater.
Speaker 2 (12:41):
So I knew that I wanted to do something in
fintech actually, and the reasonwhy is I had experienced those
working capital pains and thatpain at the point of sale of a
SaaS company and I knew thatcash really solved it.
Right, we were solving it withdiscounts, some kind of payment
terms there, with VC money,right.
(13:01):
So that was something that waslurking in the background.
And then, actually preparingfor business school, doing an
accounting course, we wentthrough the cash conversion
cycle.
You know where you go through,like you know paying your
suppliers, and then you know,like how much time you hold
things in inventory and thenlike, when do you get paid by
your customers in theenvironment of a retail company,
right, and the different leversthat you have to solve for that
(13:23):
cash conversion cycle.
And then things started toclick and obviously, if you have
a company, you have a negativecash conversion cycle, then your
bottleneck will never becapital.
It will be anything else, butit will never be capital.
So we started looking into thatand we looked at different
spaces where we could solve acash conversion cycle.
We looked at healthcare clinics, we looked at bed care, you
(13:46):
know, we looked at e-commerce.
And then, when we're looking atsas, which was pretty like
coincidental.
Then everything clickedtogether.
The cash conversion cycleclicked together with our pain
while running the sales team inthat sas company and then we
started exploring that.
So it was like a I guess that.
I guess that's when youexperience your passion, your
(14:08):
insights and the incrementalbits of learnings and iterations
, you start to get together andsuddenly you're like oh, I can't
stop thinking about this thing,so let's talk to customers
about it.
Speaker 1 (14:19):
Yeah, that's perfect.
So as you started to take thatleap and talk to customers,
obviously you learned yourlesson about friends and family
and presumably went to adifferent set.
But anything in particular fromthose interviews that changed
your thinking or altered yourapproach?
Obviously this was one whereyou had hands-on experience
already as a potential client.
How did that research shape youin a different way than it did
(14:41):
in your prior startups?
Speaker 2 (14:43):
That's an interesting point.
We definitely didn't talk toour family and nobody had
experience in SaaS and ourfriends didn't either.
So we did reach out to ournetwork, both from our previous
experiences and Shemek, who's aco-founder as well.
He was doing growth equityinvesting before business school
.
So yeah, we had a few people totalk to.
What we didn't know is whichcompanies this would be the best
(15:06):
option for.
We didn't know if it was SMB,early-stage startups, late-stage
startups, if it depended ontheir final customer, etc.
And also the original idea wasmore like a firm for B2B SaaS,
so actually point-of-salefinancing for SaaS companies so
that their customers could paymonthly for an annual license,
(15:28):
so kind of solving the workingcap for the buyers.
And then, when we startedtalking to SaaS companies, we
started to narrow down the ICP,the ideal customer profile and
the ideal segment where this wasreally valuable.
We started understanding moreabout the competition and about
different options.
And we also recurrently got thequestion of CFOs saying like,
(15:48):
hey, I love this, but instead ofme getting the cash up front
from every new customer that Isign, is there any way in which
I can get this samefunctionality for all my
existing customers?
So actually people werethinking of how can I turn all
my recurring paying customersinto a source of funding today?
(16:10):
So we thought that that wasgoing to be an easier way to
start, as opposed to trying tobuild all the integrations and
so on to enable a point-of-salefinancing product.
That is still our main product,so a financing product for SaaS
companies that depends basicallyon their ARR, on their
retention, on their efficiencymetrics, et cetera, and we ended
(16:33):
up launching the Affirm for B2BSaaS much later.
We actually ended up launchingit last year and now it's one of
our fastest growing productsever, but only because we have a
platform to make it possible.
It would have been way harderto do at the beginning.
Speaker 1 (16:48):
So when you went to jump into the business, some
people start businesses and it'slike they're number seven
person to do the same thing.
I studied this one company andI think I can do it a little bit
better.
You weren't really in thatsituation.
Right, at some level it was anexisting industry, because banks
exist and banks do commercialloans, but the idea of a custom
product didn't really exist.
(17:09):
How did you find really kind ofjumping in and creating
something quite new, recognizingthat there were some analogies
from e-commerce out thereCertainly, banks have products.
I mean, how did you reallynavigate through the, the notion
of being kind of a pioneer inthe, the specific, uh,
innovation that you created?
Speaker 2 (17:28):
yeah, I think that being a pioneer was an advantage
, because we didn't know howhard it was.
So we like we sort of just likedid it, but we knew that the
business was going to be asuccess or not.
Let's see like there are a fewthings that could give us an
option to be successful.
If we didn't figure them out,we'd fail for sure.
And the main one was risk, andwe knew that all the lending
(17:52):
companies that died typically isbecause they miss on risk.
It becomes an afterthought.
So what we did at the beginningwas we tried to nail that we're
going to be giving money tocompanies and that's the easy
part, but we really needed toget it back and make money off
of it.
We started talking to prettymuch everybody that launched a
(18:12):
lending or factoring receivablefinancing company.
We're talking to people thathave been successful, people
that have failed to risk, teamsto data analysts, just to try to
understand what we needed to doin order to build a model, to
understand a vertical, and thathelped us to narrow down a bunch
of things.
One should we focus on just onevertical?
(18:33):
What could we learn from SMBlending, what could we learn
from revenue-based financing inother verticals, and so on and
we started getting advisors thatwould help us with those
different things and, in fact,like most of our hires were
dictated by what we were gettingin those initial stages.
And then we decided tounderstand what were the levers
that we had as a company to growright.
(18:55):
And those levers in a lendingcompany, in a fintech company,
are more complex than a regularB2B SaaS company.
We needed to figure out capitalmarkets.
We need to figure out a fintechcompany are more complex than a
regular B2B SaaS company.
We needed to figure out capitalmarkets.
We needed to figure out thecapital structure and then we
needed to learn how to operateas a team.
So that was kind of like theframework that we used to figure
(19:16):
out what we needed to learnabout as quickly as possible and
also who we needed to have onboard from the point of view of
investors and team who we neededto have on board from the point
of view of investors and team.
And yeah, a lot of the thingsthat we did, we did quicker than
anybody because we didn't knowhow hard they were.
We did have a more or lesssimilar stage company targeting
a similar problem with a verydifferent approach.
(19:37):
So this company called Pipe.
They were doing somethingsimilar.
They had raised a bunch ofmoney.
I think that when we raised ourseed round, they announced like
a 60 million round, like thefollowing week, so like they
were like one or two steps aheadof us from a capital point of
view and they had a totallydifferent value proposition,
right?
So you know, we didn't let thatdistract us, but we always,
(20:00):
like, knew that there was goingto be competition down the road
and in fact at the beginning itwas quite competitive, and then
we eventually out-competedeverybody in the space, which
was super interesting.
Speaker 1 (20:10):
Now, thinking back to those early years, I mean I'm
sure you've learned a ton, right, you've been at it for almost
four years now.
What's one thing as you thinkback that said, wow, we weren't
sure we were jumping in, but youknow what, we assumed something
and we really got it right.
And then is there somethingthat you think back and like,
wow, we really screwed that up.
If I had to do it over again, Imight have done something very
(20:30):
different.
Speaker 2 (20:31):
Yeah, so we assumed one thing we assumed that the
market was going to be waybigger.
So we assumed that the market,that at the market, that we
could really access all thelet's say seed to series B
companies in the US and inEurope.
But I think we forgot toactually focus on the SAM
instead of the TAM.
Out of everybody that was outthere, who could we really work
(20:54):
with?
Because in a lending productyou typically don't want to work
with the companies that want towork with you or the people
that find you.
Those are the ones that youreally want to avoid, because a
lot of them are desperate.
So our sum was smaller than wethought.
So that was probably somethingthat we should have figured out
much better or much earlier, andit would have dictated our
(21:16):
go-to-market efforts muchearlier and we would have
probably gained a few even likea year or a year and a half in
terms of go to market experience.
And then it would have helpedus to go like multi-product
earlier as well, which you knowlike eventually we needed to do
to like enlarge our time and beable to go further up market, et
cetera.
And then another thing thatthat probably was a mistake is
(21:40):
that we treated equity and debtinvestors as the same, or
expecting it would be the same.
You just raise money fromdifferent pools for different
purposes, but you can kind oftreat them differently and it's
so different.
That's been a learning even now,as we've gone from, let's say,
(22:01):
equity investors are all aboutthe upside right, and their
investment can go to zero.
They can lose one X or they canmake you know three, 10, 20,
100 X, right, but dead investorsthey can.
The best that can happen isthat they make, I don't know,
like 12, 15% in return per year,right?
And of course that means thatthey cannot lose their principal
(22:23):
, right?
If they make on average, let'ssay, 15% return.
So you know, they look atcompanies in a really different
way.
They want to see a boring,predictable, you know,
slow-growing plan that has verylittle room for failure, and
equity investors want to seeexactly the opposite.
They want to see you like, kindof you, trying to reach for the
moon as quickly as possible.
(22:43):
So that was a big mistake and abig learning and also, as we've
graduated from private creditfunds to investment banks and so
on, that learning compounds.
Those investment banks want tosee things that are more boring
than private credit fundsbecause they're making lower
returns, so their capital needsto be at less risk than others.
(23:04):
So that's been a really, reallybig learning from a fintech
immersion point of view.
Speaker 1 (23:12):
Totally.
I mean that's relevant, I think, to so many companies out there
that need various debt products.
I mean it's funny.
I feel like I'm stillcontinuously learning that same
point from almost the inversepoint of view, right?
So many of us at QED came fromCapital One, spent years doing
lending at Capital One, kind ofwe're excited to get into equity
where we care more about upside.
But I think sometimes we haveto catch ourselves.
(23:34):
I think the kind of lending gameis so ingrained that it's like,
yes, I know, intellectually myjob is to find companies that
have massive upside and we focuson that.
But I also think just thedynamics here of at some level
lose a little bit on thecompanies that don't work in
hopes that you can make a lotoff the companies that do is the
exact opposite of lending andit is interesting, whereas on
(23:55):
the surface they're both riskmanagement businesses and you
put your capital out and youhope to get it paid back a lot
later.
But then you sort of getunderneath the the covers and
it's very different dynamics andyou're dealing with both at the
same time.
So it's kind of interesting.
Speaker 2 (24:09):
Exactly and actually, when we were talking to VCs at
the beginning and they wereasking us, hey, how are you
evaluating these companies?
Because VCs were saying thatthey were evaluating the same
companies that we're lending to.
A VC would think differently.
And what we always said thesame companies that we're
lending to.
Obviously we think differentlyand what we always said is look,
we're looking at thesecompanies from a lending point
of view.
We don't care about thesecompanies being a unicorn in
(24:31):
five years, we only care aboutthese companies continuing to
exist in the next 12 months.
So it's like a totally, totallydifferent lens and, yeah, good
learnings overall.
Speaker 1 (24:41):
Well, let me go back to one of your stories a bit,
from when you spent time in theSaaS business and you thought
you were getting hired to dosome strategy work and you wound
up doing a bunch of coldcalling.
If I understand correctly, thecold calling skill actually
turned out to be quite useful.
It was pretty important in theearly days of CapChase.
Obviously, you've got a muchmore sophisticated go-to-market
today.
I wonder if you can just talkthrough the journeys there's so
(25:06):
many B2B companies go throughthis of cold-calling,
founder-led sales and thenultimately have to do a more
sophisticated version and thenhire salespeople and figure out
the model.
I just wonder if you can walkthrough a little bit of your
go-to-market journey, because Ithink that's very useful to a
lot of different entrepreneursstarting up.
Speaker 2 (25:20):
Totally.
Yeah.
So it has changed a lot, right,but kind of like the
fundamentals still apply.
Basically, what we did when westarted is we wanted to always
grab the low-hanging fruit,right.
So when you start, that's thepeople that you know.
Then the next low-hanging fruitis the people that know, the
people that you know, right.
So like your network's networkand then try to find, like the
(25:43):
next easiest connection to thesecompanies.
So at the beginning it was allfounder-led sales.
We had no sales team.
I think that we only hired ourfirst salesperson once we
reached about a million ARR,something like that, and we
really did it to just scalethings you know and also like to
be able to, let's say, likefarm the existing companies and
get them to continue drawing andcontinue scaling, etc.
(26:05):
At the beginning we were justtrying to sell to our network,
then to our network's network,and then trying to scale that
and try to understand where thebottleneck was at any given
point so that we could continueto scale the machine.
So at the beginning we prettymuch looked at our LinkedIn.
We were connected with ourprofessors' contacts as well,
(26:26):
trying to validate the idea andfrom those conversations we
started to get our firstcustomers.
And then, whenever we got acustomer, we would ask the
customer if they had any othercompanies or any other friends
that were running companies thatwe should talk to, and there
was some kind of referral circlegoing on.
And then what we did is westarted to look at all the B2B
software companies, for example,in Boston, which is where we
(26:48):
were and we could meet people inperson et cetera, and then New
York, and then we announced aseed round.
It got featured on TechCrunchand started to get a bunch of
inbound.
And then I think that for thefollowing three, four months it
was pretty much inbound all thatwe got, and we were also like
continuing to reach out, youknow, like looking at PitchBook
(27:11):
and like trying to look atdifferent contacts et cetera.
And then that evolved.
At some point we started to tryto understand what was the
universe that we're trying tosell, to map it all out and put
it in our CRM and start enrichqualification and intent data,
so understanding who are thebest companies to work with and
(27:32):
how can we understand the riskcriterias, even before we
actually contact them, so thatour funnel was more like a pipe
than a real funnel, so that weweren't losing too much along
the way.
And then also understanding theintent.
So, for example, have theyraced around recently?
Are they hiring salespeople?
(27:52):
Are they increasing their adspend?
Have they hired a new CFO or anew head of finance?
So it's hard to understand thatand enriching the database.
And then we actually built areally robust outbound machine
that nurtures people in ourdatabase, reaches out
automatically, et cetera.
And we also built a very, verystrong referral network.
(28:13):
So we set up a referral teamthat would go to VCs, to
strategic advisors, to otherCFOs, accelerators and so on,
and would introduce Capsace.
And what we were trying to dowas try to get people that were
aware of the pains to recommendcap chase to their networks.
(28:34):
And today 40% of our revenuecomes from the automated
outbound and about 40% comesfrom the referral network and
the other 20% comes fromtraditional, paid and inbound
channels.
Speaker 1 (28:47):
Wow, that's pretty phenomenal if you're able to get
sort of that many alternativechannels to work.
Does formal partnerships playan important role for you or not
so much?
I know that's one of thecommonly talked about subjects
for these B2B type businesses.
Speaker 2 (29:01):
Yeah partnerships are important.
We loop them in the referralteam.
But, yeah, they're definitelyimportant, although most
partnerships are more amarketing play than really like
a business generation play.
You know, like I would say that8 out of 10 or 9 out of 10 is
the best thing you get out of apartnership is the announcement,
and then there's this like 10%of partnerships that you really
(29:23):
get embedded and they become areliable source of revenue.
So, like, you just have to likeincentivize those partners
accordingly.
And I would say that as we'velaunched the second product,
we've had to reinvent all thisthing, because suddenly routing
doesn't work that well and thenyou need to train your team to
sell to different products andto different motions and so on.
(29:43):
So actually we have evolved andnow we have separated the teams
so that we have one teamselling the grow product, which
is our core product, and thenone team selling the grow
product, which is our coreproduct, and then another team
selling our new product, whichis pay.
So I have different ICP,different stage, different value
prop, and we just didn't findanother way to do it.
You know we had to separate it.
Speaker 1 (30:05):
So one other aspect I know that's been a big part of
your success is internationalexpansion.
I mean you guys are, as youmentioned.
I know that's been a big partof your success is international
expansion.
I mean you guys are, as youmentioned, you're in US, canada,
europe obviously a big you knowstarted in the US but then have
grown.
I know that's one topic that isalways controversial.
Some people really believe inlet's go global, some really
want to stick to when you,especially when you start in the
US, you're obviously in areally big, big place.
(30:27):
Have you had to make majorchanges to your business as
you've gone international or doyou feel like you've had a very
similar approach that's kind ofworked everywhere?
I mean, I'd love to hear alittle bit of that journey
because I know that's one thatagain lots of widely divergent
views on international expansionand widely divergent success
stories.
Speaker 2 (30:44):
Yeah.
So we went international superearly on and the premise that we
had to do so is that a SaaScompany in Stockholm is very
similar to a SaaS company in, Idon't know, in San Francisco,
right, or Oklahoma, whatever.
So that was, you know, like a,it's like the main incentive to
go international.
Also, we're seeing well, westarted seeing a bunch of
(31:06):
copycats like coming up.
That happens a lot, right, westart a company in the US and
then you have the x company inspain and the, the captives of
france, the captives of germany,whatever.
So we decided to gointernational.
We did.
We haven't entered every marketin europe, because whenever we
went, we were goinginternational.
Before entering a market, wewould look at, we basically do a
(31:29):
framework, we would look atregulation, I would look at, we
basically do a framework, welook at regulation, I would look
at capital availability, atcompetition, at size of the
market, right, and also atlocalization.
You know, like how hard was itgoing to be to sell in the
market?
So, for example, in Europe, weentered Spain, uk, benelux and
Nordics and we avoided, forexample, germany and France.
(31:50):
Germany and France, from aregulatory point of view, are
insane and we avoided, forexample, germany and France.
Germany and France from aregulatory point of view are
insane, and we avoided Italybecause the market was tiny for
B2B SaaS.
The rest of the markets arefine.
So, international, it doesenlarge your time.
It adds a lot of complexity aswell.
In a lending businessspecifically, I think, around
money flows, right, moneymovement, capital markets for
(32:10):
international is still yet notsuper developed.
So we've gone from servingeverything from a Unitrans
facility in the US to actuallyhaving to set up facilities both
sides of the Atlantic.
And then I mean regulation is acomplication as well, right, so
you know, for us it has worked,but we've had to figure it out.
And yeah, we have not expandedmore internationally because any
(32:33):
other market addsdisproportionate amounts of
headache and also most marketsare not that big for B2B SaaS.
Speaker 1 (32:42):
Now you've spent this time doing product
diversification in the US,starting with your core lending
product and then the BNPL andnow the payments.
Are you really focusing yourbroadening efforts mostly on the
US, or have you also been ableto scale some of these alternate
products to other geos as well?
Speaker 2 (32:57):
Good question.
So we start everything in theUS.
I think it's where we have thebiggest base of customers.
It's the biggest market as welland the most sophisticated
market too.
So we start everything in theUS.
We try to find product marketfit too.
So we start everything in theUS.
We try to find product marketfit.
If we don't find product marketfit, we don't, I mean we just
shut down the product.
If we find product market fit,then we bring it internationally
.
So our BNPL product, which isgrowing super fast now, we
(33:21):
launched first in the US, thenwe brought internationally and
now it's kind of like justscaling it as quickly as we can.
So, yeah, I would say thatthat's kind of like the path
that it takes.
You know, we talk to customerseverywhere because, again, like
a SaaS company in Spain is thesame as a SaaS company in San
Francisco.
But when you think aboutgo-to-market, aversion to risk
and so on, like the US isdefinitely a few decades ahead
(33:44):
of Europe at this point.
Speaker 1 (33:46):
Well, hey, for our last segment here.
I mean I'd love to transitionto talk a little bit about the
team and kind of leadership ofthe team that you have.
I mean, I know that you guyshold your mission and values
very important.
I wonder if you can give alittle bit of a taste of what a
couple of those might be andwhat a couple of your general
principles might be and related.
How do you wind up successfullydriving those through the team,
(34:08):
especially in a world ofinternational expansion in
multiple countries and I knowyou've got some people sitting
there in the office with you inNew York and plenty of people
spread how do you think ofreally the kind of mission and
values and how you use that toreally rally the team members?
Speaker 2 (34:22):
Absolutely.
So, yeah, I'll talk a littlebit about the values and then
also about the mistakes thatwe've made as well,
inadvertently, with these valuesand and culture and so on.
But in in values, I mean we, weset our values quite early on.
So let's call it like sixmonths into a journey, basically
because we're seeing that, youknow, when we were starting out,
the people that we're hiringwere were really determining who
(34:46):
we're hiring next, right?
So the first three peopledetermine, like, the next 10
people.
The first three peopledetermine the next 10 people,
the first 15 people determinethe next 50 people, et cetera.
Right?
So we wanted people to have acommon set of values and we
wanted to define that.
So we came up with the valuesearly on.
It's three values courageousspirit, build an attitude and
service mindset.
And then what we did is wetried to highlight them all the
(35:10):
time and try to motivate peoplewith them, try to draw examples
with them, like promote peopleaccording to them, etc.
So, for example, in everyall-hands meeting since day one,
we've talked about our valuesin the form of somebody in the
team talking about somebody elsein the team highlighting one of
the values.
So, for example, like giving anexample of somebody showing a
(35:32):
courageous spirit or a servicemindset, you know, or a builder
attitude, and and then like whythose is because we really
wanted people that were doersand not just planners and, and
you know, like something.
Maybe that's like one of ourpet peeves, but I really I get
nervous when people are like weshould do this, we should do
that.
I really like people that arelike hey, we did this, you know,
(35:54):
and this is the result, right,as opposed to just like having a
bunch of ideas.
Ideas are good, but like,unless those ideas are executed
and you get data, they're kindof like worthless.
Right, I'm very temporary.
One of the mistakes that we didis that, for example, like, the
way I operate is that I tend tofocus on what's not working, to
try to solve it as quickly aspossible, so then that means
(36:17):
that there is more attention onwhat's not working than on
celebrating the wins.
So that's something that I wasgiving feedback on we need to
celebrate the wins as a team aswell, because it's great to
solve when the things are notworking, but when things work,
let's celebrate it and like, getthis culture of winning, and I
think that at some point, likepeople thought that bringing
mistakes or things that were notworking actually like put you
(36:39):
kind of like in the spotlight ina negative way.
I think that that is like stilla change that we're doing where,
like, we want to celebratemistakes, we want to celebrate
things that are not workingmistakes.
We want to celebrate thingsthat are not working because you
know, like, if you don'tcelebrate them, if you don't see
them, if they remain likeobscure and people don't raise
them, then they never get fixed.
Right, people are afraid tobring up things that are not
working and they never get fixed, whereas, like, we want to have
(37:01):
a culture where bringing upthings that don't work it's
actually celebrated so we canput all our effort in solving
them and again, like celebratethe wins.
So, yeah, trying to instillthis culture of people wanting
to own things that are screwedup, that don't work, and solving
them as being a catalyst fortheir career, as opposed to,
(37:22):
like, getting fired.
Speaker 1 (37:23):
Yeah, that's a great insight.
I mean, at Capital One we hadthis thing called Eureka Moments
, that sort of back whensomebody sort of found something
in the business.
They thought they could make itway better, and you know, that
was kind of a really interestingway to both celebrate the
improvement but also celebratethe hey, you found some problem,
and that was great.
And everyone makes mistakes,obviously.
If you make the same mistakefive times, that's a problem.
(37:45):
But you know, learning fromthat's pretty critical.
So it sounds like you reallyinvested in this very early on
in the journey.
You're a much bigger, morecomplicated company now.
Have you found that you've hadto make changes to your values,
as maybe different things areimportant now than they were
then, or have you found it to bequite consistent and really
(38:05):
work through different stages ofgrowth?
Speaker 2 (38:07):
So we actually had five values at the beginning and
then we reduced it to threebecause five was too many and
too complex.
And then we also saw that insome cases the leader for each
team really influences that teamand the culture and the
subculture in that team.
So we did see in some casesthat we hired the wrong leader
(38:29):
and then the wrong values, let'ssay, were being permeated
across that specific leader'steam, and then you need to take
action quickly, or then thingsdeteriorate and then you need to
change the whole team, right.
So yeah, those were somepainful learnings along the way,
but but yeah, we've been tryingto be consistent with the
values, because I mean once thevalues.
(38:49):
I mean if you attract peoplebased on values and then you
change them, then what does thatmean?
Does it mean that now you needdifferent people?
Does it mean that the peoplehave changed, that you value
different things, or like Idon't know.
I feel like consistency is soimportant that, yeah, like we've
kind of like kept them prettystable.
Speaker 1 (39:07):
So one last question about values, and then I'm
looking at the clock and we'vekept you for a while here, so
we'll be wrapping up.
I've certainly both felt myselfand talked to many others that
one of the most difficult thingsabout being a values-led
company is what happens to thosefairly few people that are
absolutely unbelievableperformers, that delivering
results, but really don't fitfrom a values perspective or
(39:31):
maybe from a culture perspective, and figuring out how to deal
with that.
When do you give a little bitof permission to be a little
different, when do you not?
How do you think that through?
I mean any lessons on thatfront?
I mean, I find those are someof the most difficult
conversations to be had.
Speaker 2 (39:44):
Yeah, they are 100%.
I think that Ben Horowitz talksabout this in a book called the
Hard Thing About Hard Things.
And yeah, basically you'regoing to have those right.
You're going to have peoplethat are really good, are making
a difference, but they don't,let's say they don't, embody the
values.
I think that it's easy to livewith it for a while, but then
(40:07):
actually things start gettingrotten on the surface and then
suddenly people don't want towork with that person and then
if that person is an IC, thenit's somewhat easier.
But if that person is a leader,then it actually becomes really
damaging to the organization tothe point that people start
leaving.
And then if suddenly you'relosing people because they can't
(40:28):
work or it's just toounpleasant to work with a
brilliant, let's say like personthat doesn't embody values,
that's really bad.
And then you start looking attrader right, like is this one
person more valuable than threepeople, than five people, than
10 people?
You know like where does thisend?
Right?
And then typically these peopleare also they know they're
(40:49):
really good, right, and thatthat's like gives them like some
kind of they're like earth ofsuperiority or they're
condescending or whatever right,but they know they're really
good, they're ambitious as well,so they want to get promoted.
And then, like, that's when itgets extra complicated, because
if you promote somebody thatdoesn't embody the values, that
says a lot about your values,right, right, right.
If you're promoting people,then like, people are going to
(41:10):
want to do what that person isdoing and then suddenly that can
corrupt your organization a lot.
So it is really painful andthat's a lesson that we've had
to learn and people have talkedabout it.
Right, sometimes it's easy,it's it's less bad to have an
empty seat than to have thewrong person in a seat.
And having somebody that can'twork with others, which is
(41:31):
pretty much like the embodimentof somebody that doesn't embody
the values, that's really badfor an org, really really bad.
And again, this is alwayseasier to say than to do, but it
has been one of our learningsfor sure.
Speaker 1 (41:45):
Yeah, actually, the quote you made I think is useful
in many contexts.
It's way better to have anempty seat than the wrong person
, and there's one version of theissue that we just talked about
.
I think it's useful in manycontexts.
Right, it's way better to havean empty seat than the wrong
person.
And there's one version of theissue that we just talked about
hey, when do you understand howto get rid of somebody?
But then there's another one onhiring that hiring is difficult
and at times people I see youknow subconsciously almost lower
(42:08):
the bar for who they're tryingto hire to fill a seat, and so
it's one of the hardest thingsto do is understand okay, when
have I seen enough people thatI'm just going to hire the best,
versus when do you feel likeyou've got to keep the absolute
bar in the right spot?
We've done all those mistakesMore than once.
It's awesome, miguel.
Well, I know you've got a verybig and complicated business to
go run.
We really appreciate youspending the time with us today
(42:30):
and we've obviously, at QED,loved our experience working
with you guys at CapChase, bothin the office and cycling in
mountains, and I'm sure it'll begreat to come.
I'd love to ask one morequestion as we wrap up.
I mean, we try to ask the samequestion to anyone.
You're now a three-timeentrepreneur.
Hopefully we've got a bunch ofprospective entrepreneurs
listening.
What's one piece of advice youmight give to someone thinking
(42:52):
about starting their firstcompany?
Speaker 2 (42:54):
I would say just talk to customers, talk to potential
customers, because that'sreally going to make you jump
into it.
The moment you start talking tocustomers and they start
demanding what you're thinking,that makes you much more
motivated to actually do it andit's going to make you jump the
gun and just do it.
One thing that we did at thebeginning like there's a lot of
(43:14):
like endless analysis you can doto try to refine the idea, the
business model and everythingNone of those matter unless you
talk to customers and they aregoing to tell you what you
really need to do, like thisanalysis.
You'll do that at some point,but it's definitely not the
place to start.
So just spend all your timetalking to customers and
understanding the pains.
Really, that's just the thingto do at the beginning.
Speaker 1 (43:37):
I love it and something that applies very
broadly.
Right Almost just abouteveryone starting a business can
relate to that.
Anyways, miguel, I reallyappreciate you spending the time
with us and to all youlisteners.
Take care, and thanks forlistening.
(44:06):
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To learn more or to read thefull show notes from today's
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