474: Why Market Uncertainty Is Good for Founders with Sebastian Siemiatkowski of Klarna

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2:42Hey Founder fam, welcome back to another episode of The Founder Podcast. Today we're speaking with Sebastian Siamatikowski, the CEO and co-founder of Klarna, the biggest buy now pay later company in the world, bringing consumers a low cost and low risk alternative to traditional high cost credit. Sebastian comes from humble beginnings and was able to build Klarna into a finance and banking industry disruptor that now has over 150 million users worldwide. In our conversation, we discuss overcoming a crisis, leading a business through uncertain times and challenging the status quo on a daily basis.

3:22Please welcome to the Founder Podcast, Sebastian Siamatikowski. First question I ask everyone that comes on is how did you get your job aka how did you find yourself doing the work you're doing today? Well quickly look I'm an immigrant kid, Polish background, born and raised in Sweden. For whatever reason I can't really explain why, but I did have this interest in entrepreneurship. I was reading these books of Richard Branson and the founder of Virgin and IKEA, the founder of IKEA, Inger Kamprad was a Swedish superstar from an entrepreneur perspective. So for whatever reason, I had this interest.

4:01I went to business school directly after the high school. My father wanted me to really be a doctor, so he was a little bit disappointed. I didn't really know what I was going to do there. when I went there everyone wanted to work at Goldman Sachs and Morgan Stanley McKinsey you know that was kind of the thing to do at the upper time nobody really wanted to start a company it was actually seven percent of of students back there wanted to start a company today it's 70 so it's changed quite a lot um and but I you know that was pretty much after two years I was like no I need a you know I think it's the Swedish and the Australians we all take a gap year out of university and go travel backpacking you always meet the Australians everywhere um and the Swedes and the Israelis actually they're over but anyways so I took a gap year we did some backpacking you know around the world without flying which was fantastic came back a little bit too late to continue my semester so I was just like unemployed back in my home city small city Uppsala but you know 250 ,000 people outside of Stockholm couldn't get a job and I found myself I was even getting you know welfare checks for a while But anyways, I found a job eventually at this factoring firm, right?

5:14Like factory. I didn't even know what factoring was. It was some kind of like buying accounting receivables and stuff. I had no clue what that meant. But I was like, great, it's a job. It was a sales job. Started picking the phone, started calling clients. And it was difficult. You know, most people, when you call about such services, you're going to call some person who's responsible for the accounting within some mid-sized company. And they're going to be like, look, we've used these services for 20 years with this supplier. I'm not interested, whatever. But I was fortunate back then. You got to remember, this is like, oh, three or four.

5:50I started following some e-commerce companies, which at that point of time was a growing entrepreneurial sector in Sweden as Amazon wasn't really present. And people realized that you put some Google AdWords out there and they would sell stuff more expensive than they bought. and so I called them and they were like look we may need some help but really we would need this kind of what ended up being buy now pay later type of service so I was like wow that's interesting I actually initially even didn't think I would start it myself I was more kind of trying to do it at a company I was at like suggesting to my managers we should do this you know this would really sell they were actually quite welcoming but the problem was the company was a fraud.

6:35It turned out later on it was like some gangsters running it and it was just like a mess. And so it became obvious to me like it wasn't going to work out. And I left the company. So I came back to school and unfortunately there was an incubator. It was trying to help students start companies, which was also quite uncommon at that point. I went to them, presented this idea, more like on a whim, really. but the CEO there she was like look this is a great idea you have to do it and then I felt a little bit ashamed not to try so to me like you know I had Nicholas was an old friend out of high school we used to work at Burking together we had done a lot of travel together Victor was just a guy I picked up in school who was the only student really who I spoke to about my idea who was like oh that's fantastic all the rest were like good for you go and do it but he was like oh that's fantastic I would have joined so that was kind of a recruitment process and then we kicked it off right and so it was I think what was important for us though to us at that point of time it was a major decision like it was like look everyone else is just focusing on getting to Goldman Sachs and Morgan Stanley on their careers and their grades in school and stuff and we're going to forfeit all of that and do this instead and it felt like a massive decision and as long as we thought about it as like a lifelong decision.

7:59We just couldn't make it. But then we started thinking about it as like, hey, you know what, let's try this for six months, see where it goes. And then we'll see after six months, like either, you know, worst case, it fails and we go back and we finish our studies and, you know, whatever, and we'll get jobs at Morgan Stanley, maybe if we're lucky, you know, where it actually works out, right? So I think that was really the start of it. It really helped to think about it that way so that we uh you know uh could kick it off what happened in those first six months that made you keep going with it well the thing is that again a little bit different like one of the biggest you know the biggest regrets i may have life potentially is i'm not an engineer right i couldn't code myself we none of us could code right so we had to find somebody to kind of code the first version of our system for us and so to us it was like more like okay let's start a company what does the name of the company could be you know things like that i remember having this this whiteboard and we realized quickly look one thing was obvious which was that like we were three 23 year old kids and now we're asking these merchants to trust us with a lot of money like you know that's a pretty big thing so we said we won't be able to we can't be big and trustworthy but we can act as if we can you know look at it as if we're trustworthy so we put a lot of effort on like how thick are our business cards and how serious does our website look like i even remember we specifically got a phone number that had a lot of zeros at the end so it would look like there was a switchboard with a lot of connections um so you know we really we chose a name at that point of time our name was creditor so it was like supposed to sound very serious um so we spoke you know just spent a lot of time on making an impression of looking very professional know um and and then at the same point of time we're out fundraising trying to find somebody who would support the idea was basically a powerpoint um and then we were fortunate the school arranged this event where there was a few business angels nicholas my co-founder pitched a 30 second elevator pitch and then jane our first business angel kind of said oh this sounds interesting she approached me we started talking and then she basically you know signed us a check for um for sixty thousand uh dollars uh you know ten percent of the company so so thus and i think the other thing that was very important for us in the first six months right because we were in this incubator so there's a lot of other startups there um but you could clearly see and i remember to this day that like you know some for some of them entrepreneurship was this fun side exercise like they would come in between some exams do an hour or two sit and brainstorm in some room and then they would you know um go home and none of these companies survived right for some other people in that incubator this was like it right and that was also something we agreed among us as co-founders we said look if we're going to do this for six months let's do it full heartedly right so we had this rule we had to eat breakfast together we had to show up at 8 a.m eat breakfast together work and then we worked till 11 p.m and we did that every day saturday sunday all the time right so we we just never left that office there's even a funny picture because they didn't have any air con in that office and it became very hot in the summer so there's this old picture of us sitting in our underwear working that summer and so it's like uh you know it was just we were extremely focused to put in the hours to make this happen um and that was really it for the first sorry for the first six months um and then finally jane who was our business angel she also connected us to some engineers that could build the first kind of version of our of our system right and and that eventually allowed us to go live.

11:56So I think we kicked it off really seriously around October, November, and we went live in April with our first client. And since we couldn't code, most of what we did, we were lifting the phone and calling potential clients. So we were very early talking to potential clients that could be important in order to start growing the business. So we were out there getting feedback from customers, talking to them, pitching them the idea, hearing what they had to say um and that was extremely helpful in order to be able to you know create a system that would actually satisfy those requirements so that was back in 2005 right when you kind of yep okay so then uh wait was was buy now pay later kind of like lay buys online was that a thing back then or or was it was it when we started um you know i'm not sure that anything is really new.

12:52We basically, when we started, there was obviously old mail order and catalog companies where you will order things from a catalog. And when you did so in a country like Sweden, which was primarily a debit card market, it's not really a credit card market. Most people have debit cards. So in that environment, when people were shopping online, in catalogs, they would order and then they would get a bill and then they would pay for the items that they kept. So it was very clear that this made a lot of sense for the consumer because it was nice to touch and feel something before you paid for it. And especially when you buy something at a distance or a mail-order company.

13:31But online, it didn't really exist. And most of the online merchants only offer debit cards and consumers didn't really like it. So it was very clear that this traditional payment method, I've been around for hundreds of years, really, actually over 100 years. Actually, our company, Ikea, even started as a mail-order company. So they were even offering it. It made sense to offer that in an online environment. But obviously, the merchants were worried. What if the customer doesn't pay? What if I end up losing a lot of money and so forth? So they really appreciated the idea of a middleman that would come in and take all the risks and solve these issues for them.

14:09So it was actually, that was the inspiration for it. So it had existed it just hadn't been done the digital environment in a way that made sense online. You see and you guys started tackling the European market first right? Well you know I don't know how it is in Australia but in Sweden at least it's like at that point of time we were like oh okay now it seems that we have done really well in Sweden let's go to the massive market of Norway which is like half size of Sweden. I mean Sweden is 10 million people I mean always like five or six um so you know i mean with the benefit of insight i would probably have gone to larger markets quicker it to some degree it's the same effort but a very different reward in a larger market um but yeah no so we started expanding it in in kind of the neighboring countries uh you know and eventually came to germany as well hey founder fam i want to talk to you about something super exciting.

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15:45All right, now let's jump back into the show. And at what point in time were you kind of like, we're onto something? Like, When did you know that you guys were like, okay, yeah, this is going to be big? Did you ever imagine that Kalano would be as big as it is now? And yeah, tell us when you kind of realized. In regards to that question, I think that like, you know, there's the biggest football player out of Sweden is Zlatan Ibrahimovic, right? Fantastic superstar. Well, I think about him sometimes when I get that question and ask myself, like if you would have asked him as a kid, did he expect himself to play you know in the champions league in the best teams in the world i don't i don't think they also would have been of course i knew i was going to do that i don't think they also would have been i wasn't dreaming about it right like obviously he was dreaming about it and i think the same the same applies to us it's like obviously we were dreaming of clana becoming this massive company at the same point of time it felt you know crazy right but what was a little bit different is that we were not in Silicon Valley and at that time there wasn't a big tech scene in Stockholm and so to us this even this idea of like let's burn through a lot of money and then eventually show profitability that wasn't an option to us it was like the first thing we focused on is becoming profitable and the irony is that when we went to our business angel we said we need$40 ,000 to reach profitability.

17:21And she said, no, you're going to need 60. And so we basically, you know, and then, but the irony of the thing was that we were so bootstrapping and we were paying ourselves very low salaries and we were very focused on cost. So actually we only burned through about$30 ,000 before we turned the company down around and we were making a profit. And we were profitable. So that was quite cool in the sense that we were showing a good profit from day one and we could support ourselves in our growth. And then obviously, again, we didn't have massive salaries or anything. We started increasing them a little bit eventually, but at that point of time, it wasn't really much more than you would have gotten as a student loan studying.

18:10so I think that that was a little bit different than how you see companies do today but to us it was really really nice because it created a comfort and a sense that this business works so like you know obviously it doesn't promise you scale doesn't promise you that you're going to be massive but created a massive sense of freedom of being able to control your own destiny as opposed to working at Morgan Stanley or whatever it was our company, it was under our decision we decided what to do with it and to some degree I think that liberty is when I meet like last weekend I was out in our country place and I met a local entrepreneur running a local restaurant in this place and whatever I can see the passion in his eyes and I can see that sense of like I am responsible for this, this is my place I run it, I decide and there's something fantastic liberating about that.

19:10And so, you know, I think that was the first thing. But then secondly to that, the irony is that, you know, I was once looking through my old emails because I've saved every email that I've sent to this company. So it's, you know, a lot. And I was going through some old email. I found this old email. I think I wrote about six months into the business. And the email is goes something like this. It's like, it was at 11 p.m. And it's two Victor and Niklas back co-founders who obviously weren't there, but they worked as much as I do. But anyways, they went there and said, hey, Victor and Niklas, I've been sitting here.

19:47And I started thinking about, you know what, this business model seems to really work. And I think there's a massive opportunity. I think we can scale this internationally. I think we can grow this into multiple markets. I think we can really compete with the banks eventually. I think we can become a real competitive threat. I think we can grow a fantastic business out of this. I mean, it's just so fantastic. But then the funny thing is that I end with it. I said, wouldn't it be cool if like we grew this into this amazing global worldwide business with customers around the world, whatever. And then one day we go down, we close down the servers, we shut down the business and we go home.

20:27I was like, I don't know where I got that. But it was like this crazy idea that we were just like, oh, let's just close it down. and that was it and so you know but so so obviously those ideas of like doing you know of of building it into something like an ikea or whatever it's always been there the dream has been there but i don't think you know you'd be crazy to think you know or feel certain that you could accomplish it nobody's certain about anything right did you believe though in your mind like was it done like was there a part of it done already in your mind well i think i believed it in the sense that But my father, with all his pros and cons, he really, one thing that he really, really did for me was he really believed 100 % all men and women are equal.

21:19Everyone is equal. And so there was this very strong part of my upbringing where it doesn't matter if I'm talking to the Swedish king or a president or an entrepreneur, whatever. We're all just humans. We're all equal value. And part of that was also that means that it's in your hands. It's your destiny. And you decide what to do with it. So from that perspective, that, at least to me, created this feeling that I don't really see a reason why I couldn't. Why couldn't I? Other people have done this. Why shouldn't I have been able to do this? right and that may sound a bit arrogant or crazy but i think that was definitely there this belief like okay but there were other entrepreneurs that had managed to do this so why wouldn't i been able to do it yeah thank you for sharing so um you're now co you're now the ceo and your co-founders aren't active in the business are you able to share kind of how that came about and kind of your journey is now a solo founder as well is it and yeah i'd love to hear your experiences there no i think look at this the stories with victor and nicholas are slightly different right so victor was with us about it was six seven years uh i think that and nicholas was with me about 10 years right i first and foremost like today when i when i i've met a lot of founders and so forth.

22:49It is not uncommon that over time people grow apart. You grow apart especially if you, I think, get financial success. To some degree, it's one of the most interesting, challenging, and fascinating experiences to be in your early 30s, to realize that you don't actually have to work anymore, to realize that you can do whatever you want. And I think that, you know, we all, a lot of what, at least of us as founders, were brought up in an environment where like, you have to go to school, you have to get a job so you can support your family, et cetera, et cetera, right? So you're brought up with that concept and then suddenly you realize like you're out of it.

23:31Like, you know, I had this experience, remember, going down to 7-Eleven where I was like, I loved fresh squeezed orange juice and a Snickers, but I could never afford enough of it and then suddenly i walk into a 7-eleven and like wow jesus i could buy everything in the store like you know so when you're in the early 30s and you realize that you don't have to work anymore and that you actually could do something else i i think it's actually in a way a challenging thought because you suddenly start asking yourselves what do i want to do what's the purpose of life you know like a lot of questions that you may not have necessarily thought of as deeply before.

24:11And I think it's not uncommon in the founders, when you have multiple founders, that people come to different conclusions to that. What is it, why were they really doing this? I know Sequoia, my main investor, once told me that one of their representatives, Sequoia said, one of our questions we ask founders is, what's your target? What's your target? In the sense of like, what's your financial target? and I remember they asked me that question and you know one of my co-founders asked answered you know 30 million sec or something like that or three million dollars right and my also was there is no financial target because the purpose of what I was doing wasn't to create financial success I really enjoy it and it's amazing and it's a fantastic byproduct of of what I'm doing but the purpose of what I was doing was to create this business and if the money is the target you eventually are going to hit a level where you have enough in that sense so you can clearly see among my co-founders as well and I see that at other co-founders it's very critical what's driving you because it is extremely demanding and challenging and so in our case what ended up happening is Victor after a few years was pretty much done you know he um didn't enjoy it as much i think he also you know was challenged to some degree by you know managing people as the company started scaling wasn't his strength his his strength was more numbers than the analytical side and then over time that became you know a bigger challenge so it became quite natural and he left and and stayed on as a board member uh which he was a great ball member for many years.

26:00With Nicholas, then we created this duality, right? So it was me and Nicholas. And initially that worked really well, but over time, and I think it's almost like I laugh about it because I compare this to an old couple, right? A married couple. But over time, there is a risk in their relationship that you stop listening to each other. and you will recognize it when you're like you only say that because right you know each other so well that you stop listening to what the other person says and you start second guessing their thoughts uh based on your you know perceived or decided perception of their who they are their characteristics as an individual and me and nicolets really ended up in that and you know we didn't really go to marriage council maybe we should have had maybe that would have helped but But it became more and more obvious that it wasn't a healthy partnership between us.

27:01And the irony of things is that it wasn't really about who was right. At that point in time, I would have said, oh, because I'm right or he's wrong about this decision or that decision. But that wasn't really the thing. Because the truth is there are many past success. You can do things in a lot of ways and still be successful with it. the problem you have is when you have lack of clarity of decision making and so forth and there were also some people in the organization at that point of time who clearly saw the divide between myself and him and started playing us against each other started playing politics on us and you know and utilizing the fact that you know we had this rift in our relationship and that obviously further you know it created not a great environment.

27:50It became a political environment to some degree where there was too much rumors and blame gaming and stuff going on. And then eventually one day I think we both had come to the conclusion but it was Niklas who took the formal initiative that he was not going to stay. And that was obviously sad but it was a tremendous improvement for the company. And not because I'm smarter or have better decisions, because I'm not. Because he has fantastic decision making and he understands the business really well. But it created clarity. It made it crystal clear, who's calling the shots? There was no politics to play anymore.

28:32It's my decision. And also, you got to remember from that what's important. It's my mistake. Because the biggest problem you have when you have lack of clarity is that when something went wrong, I could blame Nicholas, either verbally or at least mentally say, ah, you know, it was because Nicholas didn't let me do it the way I would have liked to do it, you know, whatever. And so when that went away, there was no place for me to hide. Only me could bear the accountability and the responsibilities for things that had gone wrong. And that really massively accelerates your learning cycle because one of the most common things that we do as humans is we say it wasn't me it was somebody else now it's nice in the short term to avoid accountability to avoid responsibility but in the long term we are actually you know stopping ourselves from learning um in every situation and i say that like that's part of being a ceo you know everything is my wrong it's my fault like In the end, everything that's wrong about Klarna is my fault eventually, right?

29:40Now, obviously, somebody else in the organization may have taken a poor decision. But in the end, I was the one who hired somebody who gave them that responsibility. So everything tracks back to me. Not everything that we do that is great and that works tracks back to me. There's tons of things that have nothing to do with me. That's fantastic. But everything that went wrong is my fault. But the amazing thing about it, I don't see that as a liability. I see that as an asset. It is teaching me so much. I'm developing and evolving as an individual. I can be at such an accelerated path if I'm smart about that, if I listen to that, if I reflect on that.

30:17And so, yeah, so I think that, you know, becoming one founder eventually created that clarity. Is it sad? Of course, yeah. I sometimes miss having a co-founder in that sense and, you know, the partnership and the friendship that that meant. It's different, right? So it's not just positive, but I do think that the company reached a specific size and maturity, it was the right thing. If you started another company again, would you go solo or would you bring on co-founders? No, I might consider co-founders, but what I would do differently and I've gotten this advice from some, I've heard some fellow co-founders of large companies give this advice to entrepreneurs.

30:57In the end, don't create, like you can be three co-founders, but make sure somebody have the final vote. somebody can override eventually so that you don't create that because if you have a structure where everyone has veto rights or everyone is exactly equal that usually over time creates problems it is good to in the end be able to say well if shit hits the fat if we can't agree or whatever there's a clear mechanism what happens then, right? Doesn't mean that that person will call all the shots and everything but when there is a stalemate in decision making. Don't let that hurt the company because the company can go through a lot of pain and tough times and good times, but it cannot be paralyzed in taking decisions.

31:47That is never going to be a good thing. Hey guys, I hope you're enjoying this episode and learning a ton. As you know, in this series, we interview some of the greatest founders of our generation to find out how they did it. However, if you're thinking of starting your own business and you want to hear from some incredible stories from everyday people like you or I who are actually in the trenches, only been building their business for maybe one year or two years, like they're building right now and they're really in the early stages but they're getting success. You should come and check out our new podcast From Zero to Founder, hosted by our community manager Molly Flynn.

32:27These are in the trenches stories from our very own successful students that have gone through some of our programs. People just like you who are deep within the process of building their very own successful business. These are the founders of tomorrow. You can find the From Zero to Founder podcast on all platforms. And remember, it's founder without the E. All right, now let's jump in the show. Let's talk about like disrupting an industry. What's it been like to disrupt the finance and banking industry? like with all the regulations it must be extremely challenging right like and and there must have been times where you've just hit a brick wall and been like geez like how are we going to get through this one right yeah i mean i mean many times but i think first of all was like i don't think honestly like i appreciate you saying that it's kind of you say you know disrupting you know we're still a tiny tiny tiny uh thing of a massive industry but that's also part of what's fun about it right like i i really appreciate that like we are in a trillion market opportunity.

33:32There are these banks, these incumbents, they are so gigantious. They're the longest. They're so big on a global level. And so there's just so much opportunity. That's what I think is fantastic. The addressable market is never a problem in this company. So I think that excites me a lot. But I still think we've done, we've Obviously have challenged industry to some degree. Look, so banking I think is the perfect industry to disrupt. It has high barriers of entry. It has a lot of red tape, a lot of regulatory requirements. Both in the sense of a banking license itself, but also tons of legislation around consumer credit.

34:20We've seen that recently in Australia with the new buy now pay later law coming. I mean, it's like there's so much. and it really creates a fascinating complexity. So I think to some degree, it's like, I think there are a lot of easier businesses to run in a sense. Like, I don't think any business is easy, but I think there are so many businesses that, you know, doesn't have as many outside requirements on you. But to me, that's also the fascination, right? I've not been a big puzzle guy, even though I used to play Myst as a kid, But I definitely enjoyed intellectual stimulation and challenge of like, my God, how do you build a credit business that isn't actually, you know, predatory on consumers, that is good for consumers?

35:09And at the same point of time, follow all the local regulations in 20 markets and build a business around it and make it profitable and make our investors happy and our employees happy and our customers happy. It is just mind-boggling fun. It's amazing challenging of trying to balance all of that effectively. And you want to move fast and you want to be agile, but at the same point of time, you need to keep your risks in shape because this is a bank. And in a bank, if you take the wrong decision, you can blow up the bank. So there are a lot of things to consider. Look, I find that extremely fascinating and fun.

35:45I think that's what's part of this challenge. So, and then, you know, it's also an industry that really needs disruption. It's been, I mean, I think the more I learned about it, the more time I spent in it. And I spent so much time with regulators in Australia, but also in Europe, in Brussels, in Washington, in the US. And I see that there's a misconception that people think that, you know, you are going to put silly requirements on these banks of how they should behave or what they should be doing in a very prescriptive way. And you think that that's going to solve the problem. The true problem of this industry, same as technology industry, is lack of competition due to lack of customer mobility.

36:28It's simply too hard to switch banks. It's simply too difficult, too many steps. It's not simple. If all of us by the switch of a click of a button could take all of our data, all of our payroll and our bills and our recurring subscriptions and all that, if we could just move all of that to a separate bank by a click of a button, you'd see some real competition. You see this industry compete, not by trying to lock us up as customers and benefit from the fact that this is a low engagement product. People don't think about this every day. It's not like the new drone they want to buy or a pair of clothes or whatever.