How Startups Can Overcome Red Tape - Nima Ghamasari + Alex Rampell

it's good to be here thanks thanks for having us thanks for coming everyone yes I thought it would be great for you to maybe give everybody a sense of like how blend started and what blend does because I think that will become a good backdrop when we talk about red tape and how you overcame it so I wanted to give a little bit of background about the company sure we were found in 2012 before the word FinTech existed and actually the last three speakers in the mainstage were stripe Robin Hood and Credit Karma and so I think there's a big FinTech Renaissance happening right now which is great I think for people's financial futures but with the thing the problem that we saw back then when we started the company was just how complex and opaque the home-buying process is and so we set out to go and fix that to make it a simpler and more transparent process not just for consumers which i think is a big part of the puzzle but we were coming off the tales of a big recession that was caused by the mortgage process you know 2008 was heavily had something had a lot to do with the mortgages that were given out there prior to that in the 2000s and so how do we make it simpler and more transparent for consumers better experience for consumers but then also have it be done more responsibly so that it's the investors are getting a better loan higher-quality loan and they can continue to fund loans and basically create a lower friction economy for people so again the name of this this panel as far as the fireside chat is is red tape and I think if the two managers of the entrepreneur our number one is move fast and break things because otherwise we'll never get something off the ground and number two is I hate to say it but fake it till you make it so if you go into a client and you say hey I have precisely zero clients and I only have one week of funding left what do you think you want to sign up they're gonna say no so what you would say is you project strength you say oh I've got lots of clients they're all over the place and that's the fake it part until you make it neither one of those seems very very well suited for financial suit services or medicine because you know working with banks and I run a payment company working with banks is very very difficult you can't fake it till you make it and you certainly can't move fast and break things because you're talking about people's data you're talking about actual transaction so how do you think about you know normal startup like photo sharing for cats versus you know financial services start up where you're working with in your case you know banks which have both a lot of red tape but also have very very high demands in terms of performance yeah I mean it's it you know at the end of his talk just now Vlad said you know focus on something and do that thing really well unfortunately with financial services there's more overhead because there's the government and it's heavily regulated and the space has a lot of things you need to do to ensure that your customers are protected and the economy is protected and so in FinTech there's a lot more you have to do to do a good job so I guess the first question I would say for us the first decision that we were faced with was should we work with the existing ecosystem the banks the lenders that are out there or should we go and build a lender ourselves and do the lending ourselves and in either case by the way there's a lot of regulation if you're gonna do your own lending you have to do you deal with the regulator's just as much as if you're gonna partner with big regulated lenders and so the first question for us was do we do that at the time I mean if you think about the home buying process for us it was that's a really big decision in a person's life a financial decision and as a consumer you want to go somewhere that you really trust and trust means a lot of things it could mean that you've been banking somewhere for 20 years and you want to get your mortgage with them it could mean that you've seen the name a thousand times and your friends did it there and now you feel good about it but in something as important as buying your home and moving into your next home or maybe raising a family there or whatever you you need to have that trust and so the two options where should we build something ourselves and build that trust over time and we thought that would be a really slow ramp and a lot of red tape with consumers or we could partner with the existing ecosystem there is one counter case to what I'm saying which is Quicken Loans which I don't have to be heard of the rocket mortgage but Quicken Loans created this massive market presence that are probably the third largest lender by volume right now but they piggybacked off of a trusted brand name they license to name from one of the biggest most value names in America into it and built the quick and brand off of that they are probably still paying for that license today and so anyways long story short we chose to go and work with the institutions knowing that there's a lot of red tape and knowing there's a lot of things that we have to do but knowing well that was also the right business strategy if we could overcome that red tape so then the next choice was you go top-down and bottom-up the the short version of it is big banks big financial institutions have a lot more process and a lot more rigor around what they ask you they ask you for your financials to this point if you have one week of runway left you know they're not going I think one thing that they look at look at with us is do we have the financial backing do we have the good backers that are gonna keep us around for a long time and then when you think about so it's not just bottom up or top down like there's decision-making within the organization so it's funny at trial pay I would always call this the janitorial services problem which is if you go to a massive organization and you say hey CEO you have an hour with the CEO you somehow corner them and get their time I can make your toilets five percent cleaner for two percent less money like they're not gonna care right so you kind of have to find the right person in the organization that actually cares about you enough to start working with you so that's kind of like part one but then there's do you go to the smallest Bank in the world which might not give you that much credibility I can hear you fine but I guess you're right next to me do you go to the smallest bank in the world which might give you credibility and not just Bank this could be anything like take any any organization or any set of organizations you go to the smallest guy or do you go to the very very large one because like in banking you can go to JP Morgan which is great they're the biggest bank or Wells Fargo biggest bank where do you go to the little guy down the street like where do you start and then kind of who within that organization do you try to determine who can be your champion and how do you determine that yeah I mean and I think it's probably different for different companies in our case I can speak to our case it happens at the top 10 or 20 institutions in lending had an outsized impact on the entire economy and by that I mean they were the ones who were impacting Fannie Mae and Freddie Mac they were the ones who are impacting the regulation and it's because having 10% is more than times as valuable to the economy as having 10 companies who have 1% each for a variety of reasons but the short version is there's a whole bunch of different interconnections and there's a big network of money that's being moved around to make these things happen and so in the mortgage industry it made a lot of sense to go and work with at least some of the big guys and that doesn't preclude us we work with small guys we have two of the biggest guys and we have many of the smaller guys and I think for us it's really about figuring out the right way to get the most impact and so we chose it I would say like a very we're gonna focus in the larger guys first and get that outsized impact and then use that to continue to go down and then simplify our product as we go down markets that it can be easier to make it easier to adopt etc and then for finding the person within the organization to your point about the janitor you got to find somebody who it's one of their top three problems that they're facing today you know I get emails all the time from companies that are selling me marketing automation software and it's not that I don't think marketing is an important part of our company but I'm not the right audience for that query like I'm just not the right audience for you to send that inquiry to and have me respond to it engage in that discussion because if I'm doing a good job as leader I'm you know sort of hopefully distributing responsibilities appropriately and those people the ones doing that and so at the biggest organization that's even more true because the CEO has 10,000 things in their plate and if you're not one of the top three things they can't even talk to you and so I think for us it's it was really an art of figuring out who is that right person we were very fortunate at the time that rocket mortgage launched in 2015 right when we were going to market so it was very senior people in the organizations were engaged in hey we want to build a digital first experience for our customers we want to have a digital first experience for our customers that any one of our customers can come in and work online and work with our bank in a new age modern way and so we ended up finding the right person for us just so you guys know is the head of mortgage and that's usually somebody who reports the head of consumer lending usually reports the CEO and we've happened to map that out by going through hundreds of conversations with you know the the dozens and dozens of customers that we work with so was rocket mortgage your very first customer they were never they went out of customers they were free marketing but so who is maybe talk us through like who is your very very first client and how did you get them and what was the biggest challenge that you dealt with particularly from a you know the guy I always think of like in companies there are blockers and then the blockers are likely to take football like they're trying to block you from actually scoring and then there are people that are allies and in many cases like at a large organization business development even though it's called business development it consists almost entirely of blockers like let me figure out a way to say no yeah oh you know you're you're using you're storing all the data in the cloud I don't trust the cloud the cloud is dangerous but they'll come up with all sorts of crazy reasons to say no so maybe walk us through that whole journey of how you got the mend and sure it was the biggest challenge it was a top ten lender they were heavily regulated and they wanted to build you know they wanted to roll out a digital and experience and this is probably I would call it I'll call it early product market fit days which really to me is actually pre product market fit this is three three plus years ago at this point we were launching 2012 for context and the organization we had a unfair connection where we knew the chief risk officer of the organization from a long time ago and he said you know this is a really interesting concept I don't know if we'll go for it but one ami with these people and so he met with a few people we had that helpful introduction by the chief risk officer which I think was critical because otherwise we had no credibility and then the interesting part happened where they were really interested in their products and they wanted what we were doing but that was just the start them but them agreeing that this was the right thing for the organization was about I remember we were high five and we were so excited and we were like we were still 12 months away from doing our first loan with them and that was because that was just the start of the journey then we went to through procurement and when we were going through procurement I remember this very vividly they asked us do you have your sock - it's an audit you know terminology and I remember I looked over at the guy who's in the room with me and we had no idea we had I was like we had no idea what he was talking about and we kind of left and so before we were very fortunate that that person was like hey I'm will I will be a person who will help you and I'll handhold you through this process and we sat in a room with him for three months straight and went through every aspect of getting our sock - which is essentially audit the tracks you know how what are your policies around security what are your policies around compliance etc so that you have everything documented so that a regulator could look at it and say hey you're doing a good job and I really appreciate looking back that was a huge moment for us because that packet that information that we put together every conversation in the future the banks that we were working with in the future they looked at us and that was now a weapon for us we walked in with a packet full of information that represented how serious we were about regulatory compliance information security their data being in the cloud we looked at what we took all that stuff very seriously and by the way that also inspired us early on as a company to build those parts the organization going back to focus I was something that as much as it's nice to have you know a small lean team do all these things if you have a lot of boxes you need to check to get through things and you as the founder don't want to have to focus all of your efforts on filling out a sock tube questionnaire you know we built a compliance team and a security team at our company very early on so that knowing that I was such a big deal to this lender was gonna be a big deal down the line so we spent a ton of an inordinate amount of time working through those problems we're very fortunate to have that person walk us through it early on and do you think you could bootstrap your way in to that because the problem is that like at a very early stage company you're either the one making the thing or you're the one selling the thing those are kind of the only two roles in fact before you're ready to even sell the thing is you haven't made the thing you only have one role which is making the thing and then if you think about organizations where you're selling into companies where there is a lot of red tape there is kind of this third like compliance and legal and if you ever have an organization I would always always joke about this at visa visa about my company trial pay and I think they had more lawyers than engineers and if your lawyer to engineer ratio is over one like that's probably a bad sign in terms that your ability to actually make things so if you think about like alright imagine you have a million dollars in the bank you just got your seed funding you probably wouldn't have the resources to go do all of that like how how do you how do you proceed because if you're going or is it just not possible you have to be pretty well-funded if you're going and selling into an area you know whether medical or financial services where you just need like the name of the game is compliance I mean the name of the game is compliance I would say if you have a million dollars and you need to figure out where to spend it it's gonna be really difficult to go and sell to the big banks cuz it's gonna cost you more than million dollars all into cells in that big bank it just is unfortunately that's just how expensive it is now of course the payout is great they're paying you five ten twenty million dollars a year to license your services but but it costs more than a million so you can't go and build but now that that being said I don't think that early on when you are bootstrapping it that you shouldn't think about those things I think think about those things build those things and sell them given the constraints that you have if you have a million dollars and that's your constraint go sell to the little banks they'll walk you through the compliance stuff and they'll work with you on it as long as you take it seriously and they feel that you're taking it seriously they will work with you through those problems because they want your product in their organization they want the impact that you make for them to happen and maybe most importantly they want to feel like they're part of your journey I know that sounds weird but our best customers are the ones that feel like they're contributing to the company as much as the company is contributing to them as in they it's like they had this idea that they wanted to build a payments company or a trading company or in our case a mortgage lending company or whatever it is they wanted to build this 20 years ago and I always hear these stories but hey in 2001 I tried to build this thing and I'm so glad somebody's doing it those are the ones who will become your champion that's how you get in the door you need somebody like that and it's and I will just go back to the original point it's not gonna be with the big banks it's not gonna be cheap to get it it takes time and it takes effort and you have to have the runway to do it which is I think kind of a little bit of a catch-22 because you as an investor we talked about this you know around our last the timing of our last round which in 2015 you want to see all the funding and success from the big bank or not the fun I should say the licensing fees from the big bank but in the flipside takes 18 to 24 months to get a big bank ramped up with something and so how do you then as I'm curious to get your perspective as an investor how do you balance those two things how do you give them enough funding and runway to go and get those big banks and give them the benefit of the doubt while also making the right bets yeah it's it's tricky because we always want to see a like there's infinite runway for this company and they have a rinse washed repeat model so that they can take their product and they can go sell it one of the big dangers is when you go into a set of organizations where there is a lot of red tape and compliance issues there's a lot of professional services like think custom consulting work that you have to do so part of product market fit is the same product is fitting the same market as opposed to it's not product market fit where you just have to keep changing your product and then you actually don't have one product you have a hundred products you really have 100 clients and you're kind of like Accenture extent you're less that I checked is worth you know 30 or 40 billion dollars so there's nothing wrong with being Accenture but it's it's not necessarily like a reproducible product if you get there so what do you think about you know if you think about what you do the thing that really amazed me in terms of your journey to getting here is that you go to banks and you say okay I'm a brand new company and I'm gonna take how much money people earn like their bank balance information all of the most confidential information that you could possibly imagine consumers giving up to banks and you're gonna give it to me and I'm gonna keep track of it I'm also going to intermingle it you know this is what multi-tenancy means from a cloud perspective so I have one database I'm not going to set up 50 different databases I'm not gonna have anything on premise it's all gonna be in the cloud and the cloud was actually I mean even though we don't take it for granted now I mean there were plenty of banks that still today do not believe in it they require everything actually be audited on premise like AWS is verboden for some financial institutions you probably know this because amazon will not let them actually send a representative into the floor of the data center whereas Rackspace bonus about different topics so how did you pull this off I mean it's so amazing to me and I don't mean this to be like an infomercial for aneema and blend but I mean you're asking these financial institutions to give away the keys to their kingdom to a company that didn't exist you know a year before you know when you launched what was the hardest part about getting that off the ground or like how did you get them to trust you yeah I mean one I think we again we going back to the first thing we we took compliance and information security more seriously than any company that they had ever seen that wasn't a 50 year old you know technology company in them in the finance space so we did take it very seriously which I think helped a lot yeah I mean five years ago there was nobody going into the cloud in most of our customers we are the first-ever cloud vendor they work with first ever they don't use Salesforce which is a much older much bigger brand name they don't use these other things I think for us it was about picking our battles not being on premise not being misspoke not having singleton architecture those are things that don't actually affect the security of the data but they get I feel like they get kind of bundled into the same thing by somebody who says yeah that's it's less secure to do it that way and I'm like why actually it's not actually more secure to do it this way because we can apply the same security policies and build a huge security fortress around things that were storing and it is really confidential and financial you know financial data of consumers so it has to be something that we treat like it's a fortress and the only way to do that is for us to build that with technology I always say security is a technology problem for everybody and so we take it very seriously and we've we stood our ground I mean yes they could have said no but our software creates a lot of value for them and you know we know that and they know that and we're really great partners for them on everything that doesn't that we don't hold as a core principle we work with them on if they're like hey because of disability laws we need you to support your app to the adn compliant this happened to us one of the bank said hey we need your have to be a DEA compliant and we feel strongly about accessibility that's one of the core principles of blend and so despite the fact that ad a compliance wasn't day one of our roadmap we said you know what for you guys we're gonna move this up and we're gonna we're gonna build this in a way that's used about all of our customers we're not gonna build it just for you and that's turned out to be a great success we're eighty eight compliant we have lots of accessible users using our software today to get their loan to get their mortgages and it's it made them look good to the DOJ so it's a win-win I mean it for us it's a partnership model at the end of the day and we stand our ground where it makes sense and they sort of you know sometimes they're willing to work with us on those things which is great so and we talked about this earlier but often in large organizations you have this kind of system that unfolds which is nobody can say yes but anybody can say no and that's what often makes it very very hard to get the deal done so you might even find the right person in the organization who it is one of their top three priorities but then the security person that has never heard of the cloud says no no I don't want to do this and they don't have the ability again to say yes but they do have the ability to say no I mean maybe walk us through like you probably had an early blocker in your history that you encountered that almost derailed things and how did you overcome that yeah there was a time when I think this is our second customer one day I woke up to an email saying hey we're shutting off all access to blend and and I was thinking it myself first of all wide and second of all could we have known that this was coming and it turns out that somebody at that organization didn't realize that there was customer data in blend and so that person found out this is somebody who was nowhere near the project found out and said we got to shut off all access to blend and the only thing you can do there is be extremely cooperative I mean obviously I called some people and I called our sponsors there and by the way this going back to the concept of having somebody whose wants to live your journey with you the journey of your company and help your company the first person I called was that person I called him a champion you know I called him whatever you want but calling that champion and having that person give us advice on how to cooperate best was critical because we didn't have that we would have just been flying wine but I got some good guidance on that champion guided us through this and we were able to work with them to quickly get it resolved I mean quickly I mean a matter of a couple weeks but that stuff for a company that's trying to move quickly which we are trying to move quickly despite all the red tape is gonna happen and so I think for us it was just about being very mature about it and being very open and transparent with them but everything because if they find something that you didn't tell them afterwards or you they ask you a question you give them a misleading answer you can't do that you can't fake it in this world they're gonna find out and then you're gonna get in a lot of trouble whether it's by them or by the government so we work very closely with them and we just work through it took us a few weeks but there's definitely a stressful time when do you know kind of when to fight and when to hold so I'll give you one example for my experience there is a they'll remain nameless but a large financial institution we were working with them and they thought that PHP Python and C were dangerous programming languages I assume the middle was dangerous because it actually could strangle you and something bad can happen if you're using Python right and it was just so absurd but and you know we fought about this and went back and forth and it's just like it was clear the guy just wasn't it just wasn't well informed but if you go and kind of attack head-on and say no you're an idiot Python is not a snake it is a snake but it's also a programming languages that's used by millions of people you make him look like an idiot then you might not want to work with you or you could go say alright fine I really want this client I'm gonna recode everything in Java which is what they wanted we we stood our ground there and eventually kind of got things got things going the right direction although that guy's still thinks that PHP Python and C you're dangerous so you must have run into situations that it's like well when do you kind of like fold and given to client pressure because that's the hard thing is that you see okay wow I really if I get this biggest bank in the world if Wells Fargo says tomorrow I will go with you and replace my internal system but you have to do X Y & Z where X Y & Z are totally orthogonal to what you're thinking about doing like what Wendy when you adapt what posture do you adapt yeah I guess part of it is figuring what principles you have and one principle that I would have is I'm not gonna rewrite my entire programming language you know to be to fit what you think is secure so I think I would almost reframe the question that they're asking you and say this is we've done this a lot of times because they'll a lot of times they'll say well we don't think that you know the cloud is our multi-tenancy or whatever is secure and I don't say I don't try to fight them on that ground because that's almost a religious argument in some ways it's like what is the cloud and what define who defines what the cloud is and what's it what's secure and I say actually what I say is what is your security checklist what do you look for in security what do you look for in a programming language and we can if we can't achieve all those things that check all those boxes we will we will make it happen or we'll switch to your way and so a lot of times it's about getting there getting there definition of why they want the you'd get out of the cloud or switch Guardian languages and the thing behind it and if you can get them to articulate that which is often like they believe that you know keep things running on Python in Python could you know in fact the system and create a virus that destroy things and you're like well no that's actually not here's here's why and here's all the descriptions of it and and here's why Python is a secure language or whatever it is in our case here's why you know having customer data in this cloud actually is fine and here's why the security used all the security controls that are in place that match your security guidelines that you have internally for your own systems and so we must turn the question on them and say okay what do you look for in security and not fight them on the religion she reminded me of one other thing which is replacing internal systems one of the hardest things to do in terms of overcoming red tape is to get a bank or a health care company or wherever it is to replace an entire internal system and the reason for that is pretty obvious there's a hundred people who are like eh they've built this thing over fifty years B they've spent a ton of time and money in it and it has 300 times the complexity of the simple system that use you built and handles 50 times the number of cases that that you can handle as a company at your stage and so I would say that strategy of replacing internal systems if you're gonna go into a bank I would say try to work with what's there wherever you can or a healthcare company we work with what's there we don't go to you and say replace everything with blend and you'll run we work with what's there we conform to the common standards and we get you up and running in a matter of weeks and that's a really strong part of our selling proposition / replacing what's there because a lot of that goes into first approached a large organization especially a large organization prone to lots of red tape there's build versus buy and versus partner you larger and more regulated the company the less likely it is that they just go make an acquisition these they don't really understand technology that's one of the reasons why they're partnering with tech companies to begin with but they often have this kind of knee-jerk like we can build this i mean chase famously has tens of thousands of engineers that work there and they think that they can fill the iphone or something so there's um you know how do you how do you try to navigate towards the right because you obviously don't want them to build you know who knows maybe you do want them to buy your company but but you really want them to kind of say okay our internal building failed now it's time to partner these if you just give them the idea and this out we're gonna go build this you might have to come back three years later and then they've failed on their internal quest there's somewhat quixotic adventure to go build the thing and then now they're ready to partner an i'm sure you've dealt with this a lot where's okay I'm gonna build my best I'm gonna build the best online mortgage experience ever six years later on a hundred million dollars down the tube it still doesn't work and then they come back to you but you have to know when to approach them right and and by the way you're never gonna force timing with these guys if they're convinced a hundred percent that they're gonna build it there's plenty of financial institutions out there you don't have to focus all your energies on convincing them even if they're wrong being right is not valuable you know it's just not worth the fight so I'm gonna end this will kind of be a good I guess commercial for why it's important now to get into FinTech if you're not or even healthcare tech there is more momentum behind partnering now than there ever has been before even the traditional fintechs the Lending Club is the on decks of the world that you've heard of in the previous generation their focus is on partnering and the banks are very open to it now and the big reason if they're open to it now is one they see the acceleration that's happening outside of their walls which is huge if you're getting outpaced by a FinTech then you want to work with them to get the same acceleration to I think it's a long term it's a existential risk and three to your point they've been burned building these things these things I mean they're expensive enough for us to build with very little overhead they're really hard for a bank to build and so they've been burned now's the time if you want or if you're thinking a building of in tech startup or a healthcare tech startup I highly recommend now is the time to start think about how you can partner with those guys because I've never in the ten years we've been doing this I've never felt more of a willingness to partner than today all right well great well we're out of time so thank you very much thank you thank you everyone

Channel: Startup Grind

Views: 2,297

Keywords: startup grind, entrepreneur, entrepreneurship, billionaire, documentary, motivation, inspiration, how to, how to be an entrepreneur, how to start a business, startup company, startup tips, startup ideas, startup business tips, silicon valley startups, startup stories, startup advice, technology, silicon valley, venture capital, investing, fundraising, innovation, public policy, government, regulation, united states, trump, Nima Ghamasari, Blend, Alex Rampell, a16z, andreessen horowitz

Id: -eaUaXdJlt4

Length: 29min 12sec (1752 seconds)

Published: Wed Apr 05 2017