Building Flex, the AI Private Bank with CEO Zaid Rahman

22:40But then, you know, how do you build that sort of engine that knows how to sort of convert these, you know, coal leads, if you will, into sort of, you know, customers and how you build a sort of life cycle around that so that they're adopting, you know, your next product and product number three, four, and so on and so forth. Yeah, how do you do that? I mean, that's sort of the growth engine we've built at Flex. You know, one fun stat is our average customer uses four or more products, right? Which is very, very high. I mean, we have publicly traded fintech companies where, you know, after 10 years of being around and spending hundreds of millions on ads, they're only now getting to a point where they have three or four products being used by their average customer.

23:24Turner Novak:Yeah. I think you were like two and a half, less than a year ago, right? Yeah, exactly. Exactly. So the combination of things, right? One, we've shipped a lot of products, right? We have this sort of five pillar strategy around private credit, where we give you short and long duration capital that's sort of elastic to your needs. Second is a comprehensive business finance stack around banking and cards and expense management at the business level. Third is the personal finance stack, which manages your family transactions. Fourth is payments. So managing accounts receivables, so collecting funds from your customers, and then accounts payable, which is, you know, optimizing vendor payments and those types of things.

24:06And then finally, you know, we're building an ERP, which is sort of more nascent today. But, you know, the idea is to basically be the end to end stack for that business owner. Now, the reality is that when a customer sort of enters this sort of journey, it is really important for a multi-product company like ours to build the right lifecycle. And so we've spent a lot of time on growth engineering and sort of lifestyle, life cycle hacking to like really sort of figure out how we can introduce Flex to the right customer at the right moment with the right product.

24:40Turner Novak:And so I'm assuming being so modular, like multi-products like that, like I might be an anti-debt person. Like I never have debt in my life, but I'm like, this invoicing thing seems better than what my bank has. Like I'll try it. Right. We have customers today who start with an invoicing product, which we give away for free, you know, relative to a lot of the invoicing solutions that will charge, you know, 1 % of every sort of ACH transaction and very high credit card acceptance fees. What ends up happening is that, you know, that customer might start with invoicing and then they realize, oh, I have like a lot of AR built up, you know, a lot of customers who haven't paid me and I need some float for 60 days.

25:22Well, we have this sort of 60 day product that does really, really well, where every single transaction on our business credit card gets 60 days. And then you can also use that to fund your bill payments to your vendors. Right. And so that's an example of like how like a customer started with one part of our sort of ecosystem and over time, you know, moved on to a bunch of other things.

25:44Turner Novak:Because you typically can't do bill pay with on credit, right? Like, you don't use ACH. Yeah. So if I wanted to use credit, I would have to have a credit card and I'd have to pay the credit card fee typically if I'm doing that. And you guys essentially help somebody get around that. Most credit card companies like think in very sort of boxed ways. Like, hey, I'm a credit card and the use case is X and so on and so forth. We realized, you know, the credit card limit is an abstraction, right? Right. Like how it is used is sort of, you know, dependent on the products that you have. And so rather than giving you a credit card limit, we give you an account level limit.

26:26And the way you use it is up to you. So you can use it through our cards. We can use it through our bill pay product. You can use it, you know, for sort of future products that we're launching. And so what ends up happening is that, you know, let's say you have a situation where you need to pay a vendor and the vendor does not accept credit cards. right the way it would work today is you would basically have to send them a wire ach or you would have to use a third-party payment service that charges a very large transaction fee what we can do on our end is you know basically tap into your credit limit and process that transaction we'll charge you a small fee for that transaction fee for that but it'll be much lower than the sort of card acceptance fee that a lot of these platforms charge and you it's kind of related

27:12Turner Novak:I think to how you first kind of started the company. You started in construction and that's why I met you. I don't think you guys had launched yet. You were kind of like experimenting. Yeah. You're figuring out what can we do here. So why'd you start with construction originally? I'm Indian originally, but I grew up in Dubai. My family runs a medium-sized construction business in Dubai. And so - What kind of stuff do you guys build? Just a bunch of very tall buildings in Dubai. So when you see those aerial shots of Dubai. You think your guy's name may be on one of those? Not quite big enough.

27:48I mean, if...

27:50Turner Novak:I guess medium size. Medium size would be like what was a service provider on some of those bigger names, right? And so, you know, growing up, I would just hear my father complain about, you know, finance all the time, right? In an odd way, you know, this is my third startup. And in prior companies, you know, I sort of like was close to the sort of finance of those companies as well. I think that running a, you know, medium sized construction business is actually a lot harder than running a venture backed startup. Really? Right. Because what's so hard about it? First off, you're real goods. You're dealing with inventory.

28:28Turner Novak:To actually build a physical thing. You have to like build like a wall and, you know, you have to like, you know, get the right materials on time. and you have to sort of manage kind of working capital. And then you have a lot of like subcontractors and each subcontractor has its own kind of billing practice. And there's a lot of, you know, trade credit flowing around. So it's basically like, it's sort of like something like those open AI deals where it's like, I will pay you a million dollars when the deal is done, when the building is done in two years. I cannot tell you how great of an analogy that is.

29:00there's so much circular trade credit type stuff happening at these businesses that you can sort of like, you know, you can think of like, you know, a single transaction having 10 different parties involved. And so in many ways, you know, today's systems are just like not designed for that type of customer. Right. But the problem is that business owner is still not the most sort of tech savvy customer. Right. They often are, you know, sort of a construction person, as an example, that started that business and, you know, now building a pretty large business, but it still haven't sort of built out the tooling they need to sort of be an enterprise level business.

29:42And so how do you build enterprise level workflows in a consumer like user experience? Right. Which is a real kind of challenge. And so I started in the construction space initially with this company, Flex. And the idea was we'd build like, you know, an end to end sort of fintech for construction businesses. But what's really interesting is the problems that we saw from construction businesses oftentimes will be problems that, you know, other types of companies have as well. And one problem was, you know, we get paid late. Yeah, construction companies on average get paid 60 days late. And so we launched this 60-day credit card where you get 60 days in every single transaction.

30:26And if you pay us early, we give you points and cash back. Really successful, right? Like you literally have a gamification mechanism where you can drag a slider. And, you know, if you want... Oh, yeah, I've seen that. Yeah.

30:38Turner Novak:I never do it. I just pay it. I pay the latest as I possibly can. Yeah. Yeah, exactly. But you have customers who want that flexibility. Some are optimizing for rewards and some are optimizing for just cash conversion cycles. But it turns out this Net60 program was so successful with construction businesses, they started telling their friends about it. And when we started running ads, we started seeing non-construction businesses coming to us. And at one point, we had so many non-construction businesses coming to us that 60 % of our leads, about two-thirds, was literally non-construction businesses.

31:14And so at some point, we realized that while we were shooting ourselves in the foot, we should probably expand our horizon. And so we went horizontal from there. And now we are the sort of end to end sort of fintech platform, almost like a private bank for middle market business owners.

31:31Turner Novak:And so the other very first product was it was essentially like a credit card. Yeah. Is that kind of how you market like a credit card for a it was like a subcontractor most likely or was it a general contractor? Yeah. Subcontractors or like smaller general contractors right there in the sort of 50 to 100 million revenue range. So why'd you do a credit card specifically? Because you could have solved it other ways. What's funny is that we actually first started with a accounts receivable, accounts payable solution for these types of businesses. And a venture capitalist, by the way, love that product.

32:05You know, for some reason they think, oh, payment workflows, that's where we need to put money. Especially if it's a verticalized payment workflow.

32:12Turner Novak:Yeah, for construction, which is a massive town. Oh my goodness. That's like 10 % of global GDP or something. Yeah, yeah. They're like big numbers, payment workflows, except that is a vitamin. You know what people really care about? Money in their pocket today, right? And so we quickly realized that the painkiller was actually working capital. And the challenge with these business owners is that navigating credit is really, really complex. It's almost like a lot of companies companies in fintech, you know, avoid, you know, going into the credit space. It's almost like a aversion they have to understanding how working capital works.

32:56But big banks have done it for decades and decades and they're very successful.

32:59Turner Novak:I mean, isn't there just a massive graveyard of failed kind of SMB lenders in, in San Francisco? Like, I feel like there's, and we could probably spend the rest of this podcast just going through all the people that have died trying to do this. Yeah, yeah. Companies, not people. The companies that have died. Yeah, I mean, there's a lot to sort of unpack with that, right? So first off, you know, business lending is a very broad spectrum, right? You know, if you're lending to a small business owner who's technically an Uber driver, is very, very different than if you're lending to, let's say, you know, Blue Owl just did a$30 billion deal with Meta, right?

33:40And it's sort of technically a private credit transaction. That spectrum is very, very large.

33:47Turner Novak:So why is that relevant? So what I'm saying is that a lot of startups have gone for like, okay, let's build it for the lower end of the market. They're effectively consumers. And then when you go deeper into credit, you realize that a lot of these lenders really focus on the subprime market. These are folks that are not creditworthy. and they charge, you know, very high sort of APRs and those types of things. We don't, you know, want to spend too much energy there because A, you know, it's very risky to your point. There are lots of lessons of companies that have tried that and have not worked.

34:23What's really, you know, counterintuitive is that most people have avoided this sort of middle market space.

34:29Turner Novak:Why do you think they avoid it? You know, it's just hard. You know, underwriting these businesses is not a cookie cutter sort of formula. It's not like you just look at someone's FICO and you deliver a result. So you would literally need an analyst at a community. It's just doing my job, by the way, is a credit analyst at a community bank. Right. And there would be like a propane delivery company that did$100 million in revenue. They would have, I forget, it's like a couple term loans with us, a couple million each. And a credit of like$50 million. And it would like literally go up throughout the year and they would like drop to zero in, I'm trying to remember, it was like in the spring or in the summer.

35:06Turner Novak:When people delivered the propane, when they delivered all the propane to customers or something like that. Right. Right. That's an ICP customer. But you probably needed someone like me to go in and manually figure out if this propane company could actually pay back the loan and then have my boss sitting on top of me who was the relationship manager. Yeah. So what's funny is that you're describing the exact type of customer that needs this type of service. Right. That customer, by the way, has no other option other than go to a community bank. And the community bank oftentimes is just not the most sophisticated operation.

35:42Right. They don't really use much technology. You know, that sort of underwriting process would take, you know, months. Right. To sort of.

35:49Turner Novak:Yeah, I'd probably spend like a good solid 40 hours on that memo to re-underwrite the loan. Right. Right. Exactly. Now, the only reason why we're able to do this is to be completely transbent. it's because of AI, right? Where a lot of this information, and you'll recognize this from your credit analysis days, is very unstructured. It's not presented in like, you know, a singular database that is standardized for every single company. And every company's financials looks exactly the same as every other company out there. Yeah, the propane company, I do remember, had weird, I can't remember. But like the line items you'll see.

36:26Turner Novak:Yeah. Different companies are all different. Yeah. So the challenge with middle market private credit is that you actually need to go pretty deep. But how do you do that at scale? Right. And so, you know, at the top, the challenge is literally processing that data that you're getting from these companies, both in terms of structured data via API, you know, looking at their bank transactions going back several years and looking at their accounting ERPs that they're using already, like a NetSuite or QuickBooks or their revenue accounts. you know be it like a toaster or shopify or whatever and pairing that with unstructured data that you're getting from the business owner right so this could be stuff like their financials like pnls and balance sheet and tax statements and whatever they have you know their ar aging ap aging which is like you know get a lot of that who who hasn't paid you and what do you need to pay we have a gc they do like i don't know high eight figures low nine figures in revenue just a bunch of projects.

37:24They give us like their project pipeline.

37:26Turner Novak:Like we got 10, 12 projects we're working on. Like this is it. That's what we're working with. Right, right. So what do you do with that type of, you know, unstructured data and sort of a hodgepodge of information? Well, you need to build a system that actually understands this information. And so what we spend the past three years doing is really kind of building kind of an end-to-end sort of engine that actually uses LLMs at every single step of the way to truly understand what's going on under the hood. And then it's sort of normalizing that data. And then we convert that information into our cache models that then spits out a recommendation for then our sort of underwriting team to go and evaluate.

38:14So an underwriter is only spending a couple of hours looking at a company, but our systems and sort of the back and forth, our sort of gamified sort of data collection system is, you know, user experiences is sort of using that to collect as much information as possible from these companies, which is why, you know, we have, you know, really sort of our sort of credit book performs really, really well relative to even like a much larger like Craig Card business like Amex, right? Because we were working with these fundamentally credit-worthy, cash-flowing, high-net-worth owned business owners and businesses.

38:52And so from that context, a lot of the secret sauce here is sort of the unsexy sort of data wrangling engines that we have built, which frankly is very, very hard. And to be honest with you, I think pre-AI could not have been built. It would take us just hiring an army of credit analysts and trying to do this sort of in a tech-enabled way, which takes, you know, even the best case scenario would take, you know, many, many weeks for you to process that data. With our systems, we're able to do it in days, right? And do it at scale.

39:27Turner Novak:Is that why it hasn't worked historically? Is it because it just hasn't been possible? Yeah, just historically, combination of like regulation, you know, companies unwilling to sort of go outside cooking cardio formulas and sort of just being really difficult to underwrite, you know, these sort of middle market businesses. I mean, even if you think about large banks or even like larger fintechs, you could spend all this energy underwriting, you know, a business doing a billion dollars in revenue. Or you could spend, you know, underwriting a business doing 20 million in revenue. Right. So a lot of larger fintechs would just like focus on the much larger deals.

40:05Turner Novak:You can lend them more money, which makes you more money, more efficient. Yeah. Yeah. Yeah. And so there's sort of like a kind of new form, newfound sort of efficiency that we have today that didn't exist sort of sort of like our why now. Yeah, it's kind of interesting too. I remember when you told me about the personal banking, I was like, oh, interesting because you kind of like win their business and then you also get their personal, which it's like when you think of like personal consumer banking, the best customers are probably high net worth individuals that own businesses that generally a lot of cash and you like acquire them through their business and get them personally.

40:44Turner Novak:I mean, that's kind of the model you might have seen from like Morgan Stanley, Maryland, Bank of America throughout. Exactly. It's very counterintuitive. And it's really difficult to do a B2B fintech, let alone a B2B fintech and a consumer fintech. And so we've had to do a lot of work to make this work and then build the kind of underlying credit models and internal tooling to kind of do the servicing and processing of these applications in a timely way. But to your point, we're going from this sort of uni-wedge ecosystem of being a business credit card to a business finance platform to now an end-to-end finance platform for high net worth business owners.

41:27And so we can acquire them from their business end. We can acquire them from their personal end. You could just start with us just using a personal credit card for your family life. And then over time, attach on to our sort of net new products.

41:41Turner Novak:Yeah, it reminds me of I had a Will Gabrick from Stripe on a couple weeks ago. And he was he spent a lot of time talking about how, you know, with the with Stripe way to evolve, there's just payments and like you probably sign up because you're a developer and you start using it because it's the best way to just like accept payments. But now they have like a billing product that's basically replaces your spreadsheet to have fraud detection. And some people just use the fraud detection. And they have just a bunch of like they have stable coins now and like some people just use it for stable coins.

42:09Turner Novak:But it's again, it's just like a whole suite. and it's kind of the advantage of being multi-product like that where you can like acquire people from different wedges or different entry points because that's like if you only needed one product you kind of have to wait for the customer to need that thing versus they might need one of 10 or 20 or 50 different things that you offer and you can like acquire one any day of the month yeah no exactly i parker conrad off rippling formerly zenefits coined this phrase compound startup. Yep. Where if you're a company that's building multiple products around a very specific type of customer, where each incremental product actually makes the platform better.

42:53Yep. Right? Which has like a lot of value. The underlying data works better with each other, right? Like you're using us for banking and cards and your personal life and you're giving us like credit. Like all this is sort of feeding into the engine so that we can give you a higher credit limit for example, right? And so the incremental kind of value you get from the product at large gets better as you use more stuff. And then the other kind of business model advantage is that, you know, retention of these customers tend to be much, much higher, where, you know, Flex has, you know, in sort of the history of Flex, you know, this is sort of probably too much information, but in our middle market kind of ICP, we only had three customers ever churn for software reasons.

43:37And all three of those customers were missing integrations that since then we have plugged. So the retention of these customers tend to be really, really high and they stay with you for a lifetime.

43:51Turner Novak:Did you announce any public numbers on how you're doing in the press release? What's the current state of the business? So we launched Flex in July of 2023. And so in that time, we've gone from zero in TPV, total payments volume, analyzed to now we're doing about$3 billion. And so that business has grown considerably. And we are nearing$100 million in analyzed revenue run rate. We think we'll cross that in early Q1. And so the business is growing something like 15 % month over month right now, quadrupling year over year at scale. And, and yeah, and then that's sort of thanks to like our kind of multi-product engine where, you know, our average customer is using multiple products from us.

44:41Turner Novak:I know, so you mentioned you've launched in, I think you said June or July of 23. What was 23 like? I mean, we're talking January of 2023. Yeah. I mean, tell me about what that year was like for you. Flex launched in July of 2023. we had, you know, like a beta product with a few of our friends doing, you know, a little bit of ARR in late 2022, early 2023, prior to our Series A. It was, you know, an interesting sort of journey. I mean, startups are, is really sort of, you know, really like a lesson in, you know, how much pain you can withstand, right? Like the amount of resilience and persistence it takes to sort of get it to the point where it is today, it was, you know, it was sort of crazy just kind of look back at it, right?

45:31You know, our internal sort of value is, it's sort of like a very counterintuitive one. More of our values is bulldoze, which, you know, you kind of have to bulldoze through any blocker that comes up. And so, you know, in early 2023, you know, the bear market just started, right? So you had like 2021, 2022 sort of crazy bull market, you know. We know companies in our space that we're doing half our revenue and raised at like$4 billion in, you know, valuation and those types of sort of crazy things that happened in the Zerp era. And then, you know, Zerp, you know, goes away and interest rates go up and the bear market starts and fintech funding completely dries up.

46:16And our business requires debt facilities. The debt investors also dry up.

46:20Turner Novak:Yeah, 23 was the worst because 22, there was like, people were still alive. And then people started dying in 23 because everyone started running out of money. Yeah, it was a crazy time, like looking back at it. It was only like two and a half years ago. So it's like not that long ago. Not that long. Even Zurb was like, the peak was four years ago. Yeah, it was crazy. We are literally, it's November, December of 25. We're literally four years back. Yeah, yeah. The top. And so just like, kind of like looking back at that period, right? it's like, you know, we raised a seed round, right? And, you know, we had spent a lot of time building this engine and sort of figuring out like what, you know, customer to go after and kind of what band of revenue we want to focus on and the credit models and, you know, specifically on that first product, which was the business credit card that gives you 60 days on every transaction.

47:10And then, you know, the bear market starts and, you know, no series A firm, you know, wants to invest in fintech. A lot of our fintech peers were getting significantly revalued with massive valuation haircuts and those types of things.

47:26Turner Novak:Public comps were down 80-90 % depending on the company sometimes. Yeah, yeah. And there was just a lot of misunderstanding. If you look at Affirm and Klarna and those types of companies, they're doing pretty well now in the public markets, right? And yet, like, you go back to sort of like 2023, 2024, you know, some people thought that, you know, these companies would go bankrupt based on like the headlines that, you know, CNBC and others were sort of publishing. And so, you know, in that period of time, it just took like a lot of resilience because we knew that this customer exists. We knew that our customer is extremely valuable.

48:01And we knew that if our customer adopts multiple products with us, they'll stay with us for a long, long time. And so it just took a lot of wrangling of like, you know, putting together a series A and putting together the first debt facility. And to be completely honest, you know, there's a high degree of probability we wouldn't have made it beyond that point.

48:22Turner Novak:You're saying if you weren't able to pull that off? Yeah, if we weren't able to pull off, thanks to our friends who came in the Series A and Saxon for a funder sort of led that round alongside a couple of our investors like New Lens, which is Jan Coombs Venture Fund and Companion and a few others. When they came on board, we basically were able to put together enough equity capital that's needed to go close these debt facilities. and since then you know we haven't looked back I mean we've gone from near zero and transaction volume in July of 2023 to now we're doing billions of dollars you know forexing year over year right and so I think from that standpoint you know it just goes to show that this game is about surviving and if you can survive long enough good things will happen so one thing you just mentioned was you kind of like put together this the series a like was it hard i guess of course it was hard you just alluded to it but like how did you kind of pull it off in because it was in like the pretty much depths of the fintech bear market to be honest like a lot of venture is who you know right um in that context you know hearing from my friends who were having difficulty fundraising running fintech businesses you know i actually made the decision at a time which you know at the time was pretty controversial.

49:46I actually skipped going to a lot of the bigger VC firms and went to, you know, people who knew me really well.

49:53Turner Novak:And, uh, so there's Florida funders. Yeah. Yeah. So specifically Saxon there who I knew well from just a bunch of different contacts, you know, I called him up and said, Hey, like we're building this company and we have some pretty good sort of beta traction. And, you know, there's a pretty like formulaic model here where, you know people want this and you know we need sort of the right equity debt so stack to make this happen and he sort of took a leap of faith and yeah and that was sort of like you know sort of the depth of you know the the bear market trough if you will um and since then you know like i i think you know that round was done at like i want to say like 40 million pre-money or something like that, right?

50:40Yep. And, you know, the company has grown considerably since.

50:43Turner Novak:Yeah. Yeah. I think I invested in... You're right. I invested in a couple... I think I invested three different times in three different rounds. I have three line items on my spreadsheet. So hopefully this works out for me. I'm pretty deep in flex at this point. I know it was pretty significant to kind of land like kind of like your first big customer. Did you have like, quote unquote, small customers initially or like how did that kind of like evolve over time? Yeah, no, that's an interesting story. So when we first launched, and this is akin to like any startup launching their product, right?

51:17So you go out and you have a bunch of like small customers who are mostly your friends, right? You're calling whoever you know in your phone book and saying, hey, try this thing. And so we had a couple dozen, you know, small customers that were just kind of like doing a favor, right? And we started seeing, you know, early sort of traction where some of these friends were then referring us. And so we realized referral channels was a huge sort of channel of growth for us at the time, referring us to other customers. And, you know, we got this sort of random, very large customer in the logistics industry that does, you know, 150 million in revenue at the time.

52:00Since then they've grown as well. And they were referred in. And they were referred in, you know, And, you know, sort of like, you know, that particular customer sort of came on board and we didn't know them. We actually did not know anything about their industry. Like they were in a pretty niche part of logistics. And they came on board and they basically helped us sort of build kind of the early version of our expense management product where they wanted us to, you know, sort of use our sort of net 60 credit card in tandem with expense management. We're buying a lot of supplies that they need wholesale.

52:40And so they have this business that's pretty interesting where they buy stuff wholesale and then they sell it retail, right? To a bunch of smaller retailers. So not everyone has the ability to buy products in large quantities for very, very large sort of 45-year businesses, like thinking, you know, you're sort of large electronics manufacturers and those types of things.

53:05Turner Novak:So they're kind of like a middle level wholesaler kind of serving a lot of smaller retailers. Exactly, exactly. And so they wanted, you know, working capital to further expand their business, but they also really needed expense management. And so they sort of became kind of sort of a marquee sort of client. And since then, they've grown considerably with us. But they then introduced us to 10 of their friends. Right. And then something like six of their friends became customers of ours. And they're all very large. and they all happened to be, you know, on this one street in Houston. Okay. That was actually where you guys first launched, right?

53:42Turner Novak:Yeah. I remember. Yes. Yes. Yes, exactly. We actually, you know, this was, you know, it's embarrassing looking back at it. You know, we have this like our initial brand was, you know, really terrible. It's like orange color and like, you know. I didn't think it was that bad. Yeah. Maybe it was good for construction. Yeah. Well, you know, I guess like I'm pretty self-critical, But it was sort of like, you know, for construction companies and we're like, OK, you know, Home Depot is a construction business there. You know, let's like have like a variation of that color. It was like a it was like a it was like a darker orange than Home Depot, right?

54:15Turner Novak:Like slightly darker. Right, right, right. And and yeah. And so, you know, they came on board and and they started referring us to other customers. And that was also our first big non-construction customer. Right. Because we had a bunch of like smaller construction businesses using us at that time. But and so that sort of really paved the way for us to sort of think bigger beyond the construction industry. And we also realized from that sort of interaction is if you do well by one of these sort of middle market companies, they will bring, you know, five to 10 of their sort of friends on board, either directly via in products of distribution.

54:55You know, they send an invoice to a customer and or they pay a customer using our bill to pay functionality or they literally tell their friends, you know, word of mouth. Yeah. And so, you know, 85 % of our, you know, growth happens through organic channels today.

55:12Turner Novak:So this is events, word of mouth. Events, word of mouth and sort of referral channels. What's the weirdest part of the customer acquisition strategy? Is it the event? Yeah, I think the weirdest, like probably, well, there are a bunch of weird things, right? The entire sort of thesis around Flex is that we have, you know, someone said, you know, what do you think about product focus? And I said, I don't really give a shit about product focus. Where we really, really care about is customer focus. So we have a very, very narrow customer profile we serve, which is this sort of middle market business owner doing call it three to a hundred million in revenue, right?

55:53Why is that so significant?

55:55Turner Novak:Like why that band? Yeah, it just happens to be the band beyond which big banks don't think of you as a small business anymore. So once you cross three million revenue, they're like, you're a big company. Yeah, you're outside our credit box and we need to do real underwriting on you. those types of things. And it's just not worth it. Yeah, yeah. And so and then, you know, beyond 100 million, you know, bigger banks come back into the picture, because it's big enough that they, you know, are interested in sort of those types of companies. And there are lots of fintechs building, you know, piecemeal sort of workflows for those larger businesses, right.

56:29And so we had this sort of thesis that, you know, broad sort of, sort of products, very narrow ICP, right. And so in order to win these sort of customers, you had to do a lot of weird things, right. So So it is pretty weird to build so many products at once. And we got a lot of advice from VCs that, hey, you may be building too many things, right? Which is one of the reasons why we're winning today is actually because we've built, you know, this sort of multi-product ecosystem across multiple sort of entirely different workflows that sort of all work well together, which is leading to our average customer using four plus products, right?

57:08And so the other kind of weird thing we did was we realized that, you know, actually spending a lot of money on digital marketing, which we do, is not the best way to acquire customers, right? Because the CAC, you know, over time just gets worse and worse and worse, right? And so...

57:26Turner Novak:Plus, you're probably advertising to like, not the prime borrowers. Like, somebody Googles, give me a loan, and you're bidding for that ad space. Right, right. Right. You know, there's certainly an adverse selection, right? Now, look, we want to be, we as a company don't mind saying that we're not for everybody, right? You turn a lot of people down? We turn a lot of people down. Our acceptance rate is 3%. Oh, still, I know. Yeah, I remember it was like 3 % a year ago. It stayed pretty consistent. I mean, a lot of people said, oh, over time, will you just approve a lot more customers? And we've often said no to that, right?

58:05Like, We don't want to be a platform that can be used by anybody because we want to serve the customers who become customers and go through our whole system really, really, really well, you know, almost like a private bank, right? And so that kind of thesis has led us to this sort of customer acquisition strategy that is very sort of community based. And so we've set up sort of, you know, localized, we call it city managers, where we literally hire city managers in, you know, middle America to go and acquire, you know, the seed network of customers in that city. And then those customers then refer net new customers to us.

58:46Turner Novak:So is that person an account rep? Are they like a lender? Is like an events organizer? Like, what is an ideal person? Like if I'm a person in Phoenix or Denver, what would the ideal person kind of look like? we're hiring a bunch of city managers right now. Some are more on the earlier part of their career where they're really good at community sort of management. And, you know, they have sort of a community oriented job where they're hosting events and they're sort of a pillar of their community. Right. Then we have other folks that, you know, are really well known as folks who can solve problems for business owners.

59:21And, you know, we bring them on and sort of give them give them the resources to really sort of expand that community outreach that they already have. and sort of like build a much larger kind of ecosystem of customers that they could work with, right? And so, you know, we have a spectrum of people from all the way from like, you know, younger folks in tech working community jobs all the way to like bankers from larger sort of regional banks joining us.

59:52Turner Novak:What seems to be the best fit at those roles? Like, is it somebody who enjoys talking to people, that enjoys problem solving? Like, who seems to be best fit for those? You know, it's become really popular now, right? You know, the adage around, the phrase around founder mode, right? We need every single person at Flex to have founder mode sort of abilities, right? What does that mean? And so what that means is, you know... The ability to sort of see a problem and figure out a solution with absolutely no support whatsoever is a very kind of unique skill set. That could sound miserable to some people trying to do that.

1:00:45Right. And it sounds very exciting to people who want to start companies.

1:00:49Turner Novak:Yeah. You know, actually, you know, we like to, we tell people all the time that, hey, like, if you want to start a company, come to Flex for a couple of years, you know, do a bunch of founder mode projects, and then go start another company, right? And so that happens all the time. And so, you know, our thought process is that, you know, we want these sort of, you know, self starters who can kind of own the mission end to end. And, you know, I think the founder of Revolut said this phrase, which I really liked, you know, the best people are the types of people that are self-guided mizels. What's a mizel?

1:01:26Like a self-guided mizel. Oh, missel. Okay. Did I say that wrong?

1:01:32Turner Novak:You said missel. Yeah. Missel. Yeah, I think that's the Indian way of saying mizel, right? Did you grow up speaking English? When did you first learn English? Uh, no, I, I went to an English medium school, but you know, my parents speak Hindi. So my mother tongue is Hindi, right? Oh, fair. I moved to the U.S. when I was 18. You kind of have like, did you, you kind of have like a little bit of a British accent? Yeah. It's like a Dubai accent. You're, you're people in Dubai, the, you know, folks there have like this, like international accent because they went to like an international school. Right.

1:02:08So, yeah.

1:02:10Turner Novak:Like it kind of, you kind of sounds like I have a couple of like friends that are like British Indian, you have like a slight flavor of that, but not quite, I guess, to the point, it's like the Dubai accent. Yeah. Which I guess I don't, I don't know too many people that grew up in Dubai. Yeah. Yeah. It's, it's, you, you, you'll find people from like Dubai, Hong Kong, Singapore, you know, places like that have like this like amalgamation of accents, right? So, yeah. Like Hong Kong kind of throws me off a bit sometimes because it's like kind of Australian, It's kind of British, but they also have a little bit of a Chinese accent sometimes because usually I grew up speaking Mandarin or Chinese.

1:02:46Yeah, makes sense. You know, like Dubai has a lot of Filipinos.

1:02:50Turner Novak:Oh, I actually did know that. Yeah. Yeah. Yeah. It's got a lot of Indians and then a lot of Filipinos. And then it's, you know, got like a lot of Europeans. And so you blend these things together, it kind of becomes a pretty unusual accent. I actually saw this one. This is a complete sidebar, but I'm going to try to find this video and stick it in the show notes for people. I saw this one. there's this guy on tiktok who he finds people's accents and it's all americans so it's like an american and they and like one of the videos was like a woman who i think she was like from somewhere in florida was like eastern middle of her west side of the state middle of the state florida like sarasota maybe he painted down her accent but she like talks and she's just like where do you think my accent is from and this guy it's one of those like investigative like three minute videos where he like did a bunch of like analysis and like pieced together and he literally pinpointed two places he's like i think you're in northeastern north carolina because of this or this part of florida and she responded he's like that she's like that's it i was like holy shit that's insane even in the u.s we have such different accents wow that's crazy i mean i'm in michigan we're both in michigan right now and i i feel like i feel like yeah you can you You can tell, I started to gather like the American accents, right?

1:04:07You can tell if someone's from New York or someone's from like Los Angeles, you know, it's like very, very specific kind of variations. Miami too, like you have the sort of Hispanic kind of Spanish, you know, they call it Spanglish, right? You know, you mix the two.

1:04:22Turner Novak:So one thing you mentioned, actually, I wanted to hit on you, you guys kind of rebranded the company about six months ago. Yeah. You used to be called Flex Base. Yeah. And now it's Flex. What was the decision to kind of rebrand? You changed the colors. You're dark green now. Yeah, it's a really interesting exercise. First off, like we had a really hard time figuring out what we should call the company when we first started it. Right. We knew we wanted to build, initially we knew we wanted to build something in fintech, but the first vertical was construction. And so this is the stupidest thing.

1:04:53The way we came about naming it was, you know, we thought, you know, construction has a base, right? You're, you know, sort of a foundation, right? Right. And, you know, what if, you know, this fintech was the flexible base to a construction business? Right. That's how we sort of named it Flexbase. Right. And I'm not making this up, but, you know, in 2023, when we're, we just closed our Series A and, you know, we're sort of gearing up to sort of do a kind of a rebrand of the colors and those types of things. what was funny was you know i was listening to the song rich flex from drake okay i've heard that one and i was like i was like why the heck are we called flex bass we should just be called flex and what's funny is that it was sort of like a random moment at the time you know to be completely transparent we put very little thought into it but then you know the the it just stuck you know customers like oh flex we get that right and and a lot of customers do think of us

1:05:57Turner Novak:as this like flex as inflexible right yeah and that's sort of like you know grown over time so a lot of our products and in fact even our user experience where you can you know gamify the way you sort of pay back your card and those types of things like is is there on this sort of principle around offering flexibility to customers and then the other thing you asked about colors um we did this sort of this this piece were pretty methodical about you know what what what the feel of the brand should feel like right yep one of the aspirations we had was this needs to be like a consumer grade experience and should have you know a consumer grade sort of brand feel to it but we didn't want to be a brand that was sort of too kind of mass market right we we did want to have sort of an affluent feel to it.

1:06:49And so we started like researching a lot of brands that, you know, describe themselves as quiet luxury, right? These are like clothing companies and whatnot that sort of, you know, are going after an example, an example. This is, I'll give you a random one. I can't believe I'm talking about this. Actually, a random example is Wall Street Journal did this article on the most worn shoe Billionaire's wear on private jets.

1:07:19Turner Novak:Okay. And it's the Xenia shoe. Never heard of it. Yeah, yeah. It's like this like... Quiet luxury, I guess. Yeah, yeah. The whole point is it's not super well known. It's very comfortable and looks good. Right? And it has like a sort of a premium feel and kind of aesthetic to it, right? Yep. And so a lot of that is being very neutral with your color palette and sort of, you know, your typeface. It sort of gives you an immediate recall that this is sort of an institution I can trust, but still have elements of it that, you know, is modern and sort of, you know, has elements of like speed and, you know, reliability.

1:07:58And it just works. Right. And so we actually, you know, I think we're one of the few fintech companies sort of branded in sort of a classic motif.

1:08:08Turner Novak:Yeah, that's a good way to describe it. Yeah, it kind of does. Because like when I think of most fintechs, it's, I say, oh, that's a tech company. Yeah. Versus with flex setting of like, oh, that's like private wealth or like a private bank. Yeah. Almost. Yeah, and that's sort of, you know, and our tagline sort of plays into that as well, where we really believe philosophically that we want to help business owners succeed. So our tagline is flex fuels ambition. Yeah. Right. And so when you think about that, just from every aspect of the brand, right, the way the brand kind of looks and feels to the way our products work, it's all around, you know, fueling ambition.

1:08:55And part of that, you know, our business owners, going back to how we started this podcast, right? Our business owners, frankly, just don't care about like how amazing your solution is, right? Because they're busy people. They're building incredible companies. Their expectation is your product should just work. The Steve Jobsian thing, you know, it just works. And so it's really kind of important, you know, for us to sort of think about the brand and the product experiences in that sort of like, how can we build kind of the best customer experience that just works for a customer? And they don't need to sort of think twice about it.

1:09:33Turner Novak:So is customer happiness something you guys think about a lot? A lot. You know, it's our sort of first and foremost kind of value is, you know, making the customer happy. and we're willing to do that, you know, even if that means, you know, working on Thanksgiving and, you know. Yeah, this podcast being recorded the night before Thanksgiving. Yeah, exactly, right? And so, you know, I see on X all the time, you know, working 996. Like, if you're working 996, something's wrong with you. You need to work seven days a week, right? And so - You should be working like 9 to 12, 9, 12, 7 or something like that.

1:10:13Yeah, yeah, yeah, yeah. Yeah, or at least 997, right? Something like that, right? And so, you know, our view is that, you know, our customers are really busy people. They're running affluent businesses. They're also not the types of people who necessarily are early adopters, right? Like they're not the types of people who are like going out of the way to, you know, adopt the first new tech thing that came out, right? And so from that standpoint, like it's really important that, you know, our sort of customer success teams do an incredible job of making our customers really happy. And so we have this sort of contrarian thing where we slightly overhire account managers at Flex just to provide incredible customer service, right?

1:11:02Our customers, believe it or not, you can make the best piece of UI. You could build agents that do all your taxes for you, the thing that they will remember is when they needed something, they picked up the phone and called a number and someone answered in two rings. And so we've really optimized our sort of entire servicing team for that sort of rapid response and really track, you know, time to first response and time to resolution on any issue that pops up. And then over time, building software to completely eliminate that from ever happening again, right? And so combination of these things is really, really important.

1:11:46So, you know, our head of customer experience, you know, even who runs that team, will tell you that we just sort of spend a lot of time, you know, often at inconvenient times, sort of figuring out how to sort of deal with these customer problems. We've had issues where, you know, customer wants to send like a$10 million wire in the middle of the night to China. And like, you know, they need to make that happen. Right. And so, you know, to the extent we've been able to sort of, you know, provide them the rails to do it, we will do it.

1:12:23Turner Novak:Yeah. You're going to sell me too, who is by, I think, by the way, my account manager, I'm probably like the smallest customer. and also have a direct texting relationship with the head of customer experience, I think his title is. Yeah. He was telling me that you're also like the top salesperson at Flax, which I guess like he's like, oh, that's really surprising. So why are you still jumping into sales calls all the time? Because don't you have other stuff to do? Yeah, no, I'm kind of unusual where, you know, I just like, I like to be super involved in the weeds of the business, right? And so every sort of founder has a different way of operating.

1:13:01And kind of my whole thing is that there's so much data that a customer gives you. Every time I have a customer conversation, it's sort of an opportunity for me to sort of learn what their problems are. And I'm trying to figure out if there's a pattern amongst customers that we can abstract away with new products or new features. right and that's not possible if you're not you know really close to the customer and so in order to be really really good at product you actually be you need to be really really good at talking to customers and and and helping them and sort of retaining them over time right and so kind of i view my my job as like you know talking to customers and building products right and so and so you know the only way you can do that is you know being a pretty good salesperson over time

1:13:50Turner Novak:And a lot of times, that's what sales ultimately is. It's just like, what's your problem? How can I solve it? Yeah. Do you guys have any custom tooling that you built on the internal customer getting data points side? Are you using off the shelf? There's a lot of these customer service tools out there. Yeah. You know, what's crazy is that actually, this is one of our more contrarian decisions. We've done a lot of stuff that, you know, sort of like, this is not the best practice. Why are you doing it? But, you know, I believe, you know, I was saying that if you're ever interviewing someone and they use the phrase best practice, they're probably not a good hire.

1:14:27Right. And so we do a lot of stuff at Flex that, you know, you know, often will sort of question, you know, what the sort of norm is. And one of the norms is that, you know, a lot of people will use third party sort of dashboarding tools and, you know, use sort of no code solutions to sort of put together like an internal sort of tool to manage customers or things like that. Right. Even companies at scale, frankly. And so we were sort of unorthodox where literally at the seed stage, we build this internal platform we call Alfred.

1:15:00Turner Novak:I have seen that in the board decks before. Yeah, yeah. And so if you think about Alfred, right, it uses the same UI kit our customer products are. So it looks just as good as our customer facing products, but it's only for internal operations. And so we do everything from, you know, originating, you know, loans to, you know, sort of approving customers across, you know, multitude of products we have to servicing them to sort of, you know, building gamification so that they use, you know, our products further to building sort of new types of risk. controls and sort of monitoring fraud and even building sort of LLMs to sort of give us context on customer conversations and, you know, transactions customers are doing and, you know, how we can help them even better and, you know, identifying opportunities to our salespeople to sell more products to our customers, right?

1:15:50And so kind of all those things is sort of powered by sort of Alfred, which has become sort of an unfair advantage to the companies. But as we scale, Well, you know, our Alfred team basically is responsible for being sort of like the nucleus of the company where a lot of new products, you know, wouldn't be possible if we didn't have sort of, you know, granular control that a non-engineer could sort of like log in and kind of manipulate, you know, how a customer behaves on the platform. That wouldn't be possible if we didn't have like this robust internal tooling. It's a pretty contrarian decision that was even internally non-consensus.

1:16:31Turner Novak:Did you want to do it initially? Yeah, I actually pushed for it. Some people are like, oh, couldn't we just build something like, nothing against these companies, but couldn't we use a combination of Salesforce, Airtable and Retool? Incredible Airtable, Retool, incredible Silicon Valley companies. But the problem is that like, you know, if you, it sort of creates a culture of like, if you want to create this sort of vertically integrated platform for your customers, you need to control every single part of that. You know, sort of like the going to the philosophy of like an Apple, right? Like, you know, an iPhone is just as pretty on the inside, which no one sees as it's on the outside.

1:17:15Turner Novak:Is it? I didn't know that. That was a philosophy of Steve Jobs, right? Oh, interesting. Okay. Yeah. I got one right here. We could take it apart. Yeah, actually, Jobs believed that you shouldn't take it apart. So he actually made it really hard for you to open your MacBook and those types of things. And I think the same kind of philosophy applies to banking. Like if the internal tooling is not good, when a customer calls in the middle of the night and something's not working and you don't have the right tooling, foundationally, it's like actually quite hard to sort of help them solve their problems.

1:17:48Turner Novak:You almost make it more fun to like help them when the products you're using internally is good. Like I remember when I worked at the bank, the things we used to look things up were not the most elegant products in the world. I can't even remember the names of them because they were like nameless, faceless, like ugly products, sometimes hard to use. Couldn't like search. Like for example, I don't think you could search for transaction. like I couldn't search Burger King or like whatever like I literally have to go through click page numbers and you maybe have to like copy and paste it into Excel this is obviously 10 years ago at this point so maybe no one had that back then but one of our principles is we like to ship user experiences that have zero UI right like basically as little software as possible that's customer facing to do a specific task.

1:18:47So for example, you want to send a wire, can I send a wire in three clicks, you know, even the verification of that from a control standpoint is sort of seamless and, you know, very simple and, you know, feels like you're doing a Venmo transaction, right? That's not possible if you don't have robust controls that are sort of on the other end of the spectrum where internally you can monitor these transactions and kind of double click on anything that stands out, right? The other part of the zero UI experience is, unfortunately or fortunately, our customers are the types of folks that may not even want to open, you know, the software because they just want to talk to a human to solve a problem.

1:19:31There's a certain kind of ICP that, you know, is not, you know, biased towards just picking up the app or web app and sort of doing something, right? And in that context, you know, it's, I think there's a huge opportunity for us where we're building sort of agents where a customer sort of says something and the agent basically does it using the internal tooling that we've built on their account, right? Which is really, really hard to do if, to do the right sort of, you know, API integrations and those types of things would take a long time. But then, you know, you build sort of agentic workflows for the customer support team so that, you know, either human responding or even like an agent responding could resolve a problem much, much faster.

1:20:21Turner Novak:So it's me saying, hey, I want to send this$10 million wire to China. And there's an AI can swap in. And it's also fully connected to all the internal system because it's all built in a seamless way. So in theory, maybe an AI agent could handle like the software could actually handle that request, not you on it, you know, 2 a.m., whatever. Yeah, yeah, exactly. I mean, in that context, we would want you to sort of be the one originating that transaction. So we would ask you to sort of log in to confirm your identity. But even in that context, you know, there's a lot of sort of clicks that happen with these types of basic workflows.

1:21:00I'll give you a simple one that comes to mind, changing your address. Right? It's actually like, you know, there's a lot that happens. There's a security concern. You know, there's a user experience problem. Why are you changing the address? Are you just changing your business address? Are you changing the card issued to you as a business owner? Do you want every single employee's address to change? Like simple kind of thing like that.

1:21:25Turner Novak:And that'd be a classic, like if I hacked into your account, first thing I'm doing is changing email and address so you can't get any records. Exactly. So how do you create user experience that is intuitive, right? It's as few clicks as possible, especially if you're using our customer support or something like that. You're able to do those things without you having to log in and having to figure things out, right? And so, you know, it's sort of like come handy. The internal tooling has come handy in ways that we didn't even expect. And the place where it truly shines is underwriting. right? Like when you take all that unstructured content and you, you know, feed it into this beautiful user experience, the experience is, you know, so robust.

1:22:09It almost looks like an investment bank report on a business, like a kind of a sell side report that you'd put together, like a memo on a company. Yeah.

1:22:19Turner Novak:I have to do that manually in Word. Yeah. Yeah. Read the financials and I forget what the name of the software was. Maybe you'd have to make an Excel spreadsheet one-off for each customer yeah now imagine doing those kind of one-off excels and like you know writing these memos and word where like now the software is doing it and there's the fields for like manual input and that we've sort of built it's so good that we realize we actually have a very deep understanding of the business and the business owner if you have such a deep understanding of the business and business owner why not tell them those insights so they can get better.

1:22:55And so early next year, you know, giving something away, we're launching Owner Insights, which will take all of this underwriting kind of intel that we have built and package it in a consumer grade experience that reads like a report that business owners get for free with actionable feedback on elements of their business that need to be improved.

1:23:18Turner Novak:Interesting. So why don't you sell this software? Like, why do you go through this whole headache of acquiring all these customers? Like, you should sell this software to another company that wants to do the same thing. Yeah, no, I think maybe it's a philosophical thing. Maybe it's like a character flaw. Not sure. We think that in order to provide incredible user experiences, you need to control the end-to-end workflow. In order to be the best sort of, you know, financial advisor you actually need to be a pretty good credit underwriter in in order to like be a pretty good credit underwriter you actually need to do credit as an example right so there are also sort of all these kind of interlinked pieces and and you know our customers like really appreciate that like focus on vertical integration which again is like it's really really hard to build these like vertically integrated companies you know it's it's easier to sort of like just pick kind of a lane and like, you know, keep iterating on that lane, right?

1:24:21Versus like, you know, pick a bunch of lanes and, you know, figure out how to sort of integrate these lanes together and create these kind of seamless experiences that follow the entire life cycle of the customer.

1:24:32Turner Novak:Was there a moment where you felt like you guys finally had product market fit? Yeah. I think, was there or are you thinking about it right now? No, no, that definitely was. Like, I think we knew, like, even before we launched in, so we launched in July of 2023. We had beta customers starting 2022, right? So what does that mean, beta customers versus actual customers? Just like friends of ours who are using, like, an early version of our credit card. You know, there's so many problems with that early version. What were some of the issues? Opening the kimono here a little bit. I haven't talked about this in years.

1:25:10You know, it's like, you know, The first card was built on just like, you know, in the fintech space, you have all these fintech infrastructure companies that help you launch products really quickly. And in 2021 and 2022, there was like, you know, a lot of hype about these fintech companies that could help you launch card products and banking products and those types of things. So we launched this first like credit card product on Stripe completely on their rails with like basically no rails built kind of in-house. right and they were just like you know that that sort of experience i know dig on stripe they're an awesome company but it was really just designed for like you know a very different use case than you know fitting it into this sort of 60 day credit cycle that we wanted to use for and so you know there were there occasions where like the card would decline because we did something wrong on our end and so on and so forth and so that actually meant that we had to you completely scrape using third-party sort of platforms and actually have to build an in-house, end-to-end stack that we are the program manager, we control every single element off the transaction, and we work with bank partners directly.

1:26:28And so that was sort of like a whole kind of journey itself. It was not like an overnight thing. It took a while, right, to go through that transformation. but you know product market fit to answer your earlier question is not like a data point

1:26:47Turner Novak:it's a feeling what was the feeling like for you like you know it when you have so much demand that you don't know how to keep up with it right you know it when there's like a sort of like market pull that it doesn't feel like you're rolling a boulder up a mountain, right? You know, in our business, we offer net 60 credit terms, sort of like our wedge product, right? That's how we started. And, you know, since then we've expanded, but that product required credit. It turns out you need to raise credit facilities for that. What was that like? And so, so, so, so, so what's crazy is that we had so much demand that for something like four or five months, we were not able to onboard net new customers.

1:27:46Turner Novak:Because you were just funding this off the balance sheet, like with equity, right? We were just using sort of equity balance sheet. And then, you know, the 2023 fintech winter started and that made things really, really challenging. Right. And so we had to effectively pause like net new customers for a while and still like you know we were growing with existing customers we're sort of kind of using our balance sheet the best we could and you know sort of paused hiring and those types of things to really create it like a actual like almost like financial engineering problem which was really interesting right and so you know but but but what was clear to us was you know it felt like imagine like a restaurant i don't know like a bagel shop or something like that.

1:28:29And they're selling like bagel sandwiches. And, you know, I don't know, the New York Times or something like that has written like a positive article on them. And some like famous influencers posted them. And now there's like, you know, a 10 block line outside that bagel shop, right? And the cook in that, you know, restaurant is like, I can't keep up. I don't have enough ingredients, you know, too many people, I don't have enough staff, right you know we use that analogy a lot at flex it felt like we were like this hot restaurant that had just a lot of demand and we just couldn't keep keep up with that demand and so i think you know going back to sort of fintech companies that don't work out right a lot of our sort of learnings came from you know companies in 2023 that had to shut down they were forced to and the learning there was you also have to sort of manage growth correctly right like you know in in this industry unfortunately you could do things that are irreversibly wrong right like there's no way you could come back so you cannot mess up risk you cannot mess up legal and compliance and so we actually had to you know to go fast you have to go slow first we had to actually slow down for a few quarters to sort of catch up both in terms of product infrastructure to make sure there was not a super buggy experience you know when you swipe your card it you know goes through all the time yeah yeah yeah yeah and and i think you were one of the early beta customers i don't know if you remember this but you know we emailed you a couple of times that hey the card sorry about the card declining we made a mistake on our end right i mean i said i definitely did happen sometimes yeah yeah yeah yeah so in the early days there's a lot a lot of stuff like that Right.

1:30:16So in order to like really like, you know, build a system for scale, once we realized there's a ton of demand, basically, you know, almost like shut down the door, like kind of like a restaurant shutting down for like a quarter to like rebuild the kitchen and like set up the right kind of processes and infrastructure. and then reopened after the Series A and then just like, you know, hit the gas from there. And we've had, you know, gone from zero to several billions of dollars in payment volume pretty rapidly since.

1:30:48Turner Novak:And so what is it like raising a credit facility versus raising equity? Like this is debt versus equity. Can you just like help people understand maybe like if they wanted to figure out how to do that, what's the difference in just like how that works? So for context, we just closed$60 million, which we just announced today as our Series B. That brings our total equity financing to date to$105 million. And we have raised two credit facilities to date, which would bring our credit funding to$300 million, right? And so, you know, the difference between equity and debt, to answer your question, is equity is all about storytelling.

1:31:28telling. I mean, yes, there's diligence. Yes, like, you want to look at numbers and look at a data room and those types of things. But, you know, raising for venture capitalists is, you know, are you building a big thing? And does this have the possibility to be, you know, a hundred billion dollar company as an example, right?

1:31:47Turner Novak:With credit. That's basically what you said to Saxon. You're like, this is working. Like, trust me, we just need some money. Yeah, no, honestly, like this, The conversation with Saxon, it's actually hilarious. The conversation with Saxon was like, look, I feel like I have a restaurant that has a lot of demand. I can't keep up with the demand. And I either shut down the restaurant or have the right capital stack to go and solve that problem. It was a two-part problem. The one problem was having enough equity because the credit folks are looking at two things. They're looking at how much equity the company has, you know, what is the balance sheet of that business.

1:32:27And they're also looking at, you know, what is the sort of quality of underwriting of that business. So unlike, you know, there are lots of different types of debt. We play in this very specific niche called asset-based finance, where effectively they are funding the underlying receivables that is originating from credit cards and loans and those types of things. So you're basically, you're almost like a middleman for them.

1:32:54Turner Novak:Yeah. You're like helping them reach all your customers at the end of the day. They're like raising billions of dollars from LPs. Then they're like giving it to a bunch of fintechs like us and any others in the space that have raised, you know, billions of dollars as well. They give them the capital to then go originate and find, you know, these smaller sort of, you know, buyers of that desk. Logistics company. Yeah, like random logistics company doing wholesale in Houston, right? Yeah. And so the challenge kind of at that point was that, you know, we didn't have the right equity stack, you know, given that there was a VC bear market for fintech companies.

1:33:37And we didn't have much performance history on, you know, our underwriting and risk and compliance and those types of things. And so both of those stories required a lot of leap of faith. But we were able to pull it together. And then over time, you build a book and then you show to the sort of debt, sort of capital markets that you know what you're doing. And at that point, it becomes sort of a numerical thing where once a week, I think every Thursday, we send out a report with like all our numbers to these debt investors. And then you use that to then go raise even more debt and reduce your cost of capital and enjoy times of scale and those types of things.

1:34:22Turner Novak:Yeah. Well, you mentioned you've done a couple of things. Maybe there were a little bit not consensus. Are there any other things you've done that you think are probably not the most consensus thing? You know, it's hard to sort of answer what is consensus and not consensus. What about you, FinTech, more broadly? Yeah. Is there anything you kind of disagree with? There's so many things. So first off, in order to build a great fintech business, you also need to build a great business. And the heart of building a great business is hiring the right people. And so there's a lot of learnings. This is my third company.

1:35:02I've been building startups for 12 years, something like that. In that period of time, there have been a lot of highs and lows. and the common denominator of, you know, low moments turning into high moments was having the right people around you, right? And so it's really, really important to get the sort of recruiting of a company really, really right. And there's just a lot of effort we put into our sort of hiring in general. And we're the type of company that actually doesn't like to hire, right? We have a very kind of high bar and low acceptance rate, if you will. and every single person at Flex who's full-time goes through a final interview with me, which often annoys many of my colleagues, but it's almost like a gamification mechanism where you want to almost create this kind of artificial barrier to just hyper growth in headcount.

1:36:11where you want to prevent people from hiring way too many people too quickly, right? And so, and then you also want to sort of ensure that the quality of candidates coming your way is really, really high, right? And so you hear, you know, folks like Sigur Bren, you know, Mark Zuckerberg, et cetera, like interviewing people until there were nearly a thousand employees, right? That's like a lot of interviews. Because, you know, in terms of final interviews, you know, maybe one in three candidates sort of go through right and so from that standpoint you know i'm saying no a lot and so you know you have to sort of literally interview hundreds and hundreds of people every every year in order to sort of get to the point you want to be right and so does that slow things down absolutely and that that maybe is non-consensus right but does that improve the long-term health and quality of the team and, you know, long-term durability and endurance of the culture, absolutely.

1:37:12Turner Novak:What is the culture of Flex? If I were to, like, pick a single word for Flex culture, it is intense with, you know, and if I were, like, you know, pick a sentence or it's, like, it's the culture of Flex is really, really intense with a strong focus on first principles thinking. Because there's so many distinct problems that we're solving for now. It really requires you to sort of think outside the box and how can you solve for these problems by zooming out and thinking through the first principles. There's an Elon quote that we really like at Flex. everything is a recommendation unless it's the law of physics right and so from that same point right like if you think about it you know you hear about you know hiring practices and best practice for this and that and you know you know it's sort of like how do you like actually like question the norms to build stuff that like actually works right and so we made a lot of decisions that, you know, frankly, like even in fintech, right?

1:38:29Like, you know, for example, even lending, right? Like a lot of people want to stay away from credit. There's no first principles reason for that. Like there's demand for this. You know, people have done well, i.e. big banks and incumbents, right? Why can't you do it as well, right? And so building that engine, you know, requires like, you know, a culture that's willing to sort of question, you know, these sort of truths that sort of just percolate and no one questions them.

1:39:01Turner Novak:Speaking about lending specifically, because yeah, I mean, it's a good point. Like you got that from a lot of investors, right? It's just like, we don't invest in lending businesses. Period. It was just like a, we're not even going to entertain this. So why is that? Like if you were to like dissect why somebody might think it's not a good company or not a good investment. When you think about venture capitalists, venture capitalists are looking for large distribution and large amounts of revenue generated from that large distribution. But what has incredible demand that could generate that incredible amount of distribution?

1:39:43Turns out it is credit. The world works on credit. Like every transaction you do has a credit underpinning to it.

1:39:53Turner Novak:Like if every single transaction was required to be settled right now today, like the world would be bankrupt. The world would end. And what's crazy is that what most people don't realize is that most credit transactions actually are private credit transactions. So what does that mean? So let's say that you swipe a credit card. Technically, that's not a public credit transaction. That's like a private company dealing with a private individual deciding privately if that transaction can go through or not. So it's like if I'm swiping my Flex or Amex, it's like Flex is saying, you're making this purchase at Target or making this purchase at Ins or whatever.

1:40:39Turner Novak:and you're like saying like Target will pay you. Exactly. And then this person will pay us back. Right, right. Or even if you're like, let's say like you hire a consulting company and consulting company says, you know, pay me net 30, right? That is technically a credit transaction as well, right? And so credit runs the world, right? But there has been this kind of massive philosophical kind of scar, really built on top of scar tissue from failure where a lot of companies have tried to build lending businesses by doing novel and kind of innovative things around credit and failed. One of our kind of philosophical insights was that actually, in order to do credit well, you should not innovate.

1:41:27You should just do stuff that works really, really well already.

1:41:31Turner Novak:So how have you not innovated? So it's sort of like a paradox, right? You're saying we're a tech company, and we're also saying that we're not innovating on credit. So what that means is that we're not innovating on credit models, but we are innovating on credit processes. So can you give incredibly great middle market business owners more credit, faster, cheaper, more efficiently, more seamlessly, without, you know, fundamentally changing the laws of physics around what is creditworthy and what is not creditworthy, right? And so we really, really focus on, you know, super prime borrowers that have incredible cash flows, that have durable businesses, that have survived recessions and survived dot-com bubbles and those types of things and still around.

1:42:25And, you know, will be around in 20 years from now, right? And so when you do business with those types of companies, the credit risk inherently is much, much lower. And so we're not really innovating on that credit box. What we are innovating on is how do you serve these companies far more efficiently.

1:42:44Turner Novak:I feel like that's what a lot of people say in any of these successful financial services companies that have sprung up over the past. I mean, really, if you just look at historically, you're finding new underserved customers or using technology to serve them in a new or different way. So even what's the company, Wells Fargo, I think emerged from, I may be getting the story wrong, but they emerged from the San Francisco fire. Basically, San Francisco burnt down. Nobody wanted to touch it. I think it was Wells Fargo that just was like, we'll bank these guys. Now it's like a big public company because you start like serving a customer that literally nobody else wants to touch or is able to serve.

1:43:32Turner Novak:There's probably so many banks were created when America was discovered. And there's all these European legacy institutions back in 1700, 1800s. We don't bank American companies. Well, guess what? JP Morgan becomes one of the richest guys in the world, just like serving American businesses. Or you look at like Chime. Probably so many cases where, you know, somebody looks at Gen Z and they're just like, who gives a shit about Gen Z? Like we don't need an app. Yeah. Nobody's going to use phones. Yeah. And it's like, turns out everyone uses a phone. And I think, did Chime go public? They went public, right?

1:44:09Yeah, public.

1:44:09Turner Novak:Yeah. How big of a company is, I think? Yeah, it's in the 20s. Circa 8 to 10 billion market capital. Oh, 8, 10, okay. Still pretty big. I might be wrong about that. Yeah. I can actually probably double check right now. So yeah, I feel like there's, that's kind of, I feel like one of the, one of the things with anything in financial services, you like want to figure out like a customer that's being underserved. What's the ticker of this thing? Chime Financial? There we go.

1:44:41Turner Novak:Market cap, 7.5, 8 billion. Yeah. markets and then markets are happening. I got that right. I mean, going down though. Yeah. No, I mean, yeah. Yeah. There's, yeah, with those types, you know, with consumer fintech, it's quite hard. You know, you got to figure out how to acquire customers and then you got to figure out how to, you know, retain them long-term. They're an incredible business. They've built a great sort of distribution engine and, you know, a lot of, just a very large customer base. Yeah. So on this kind of note around, you know, finding white spaces, right? And then tying it back to like lending.

1:45:20Yeah. So what's interesting is a lot of fintechs, I think, especially in this kind of Zerp era, 2021, 2022, a lot of these fintechs emerged that were, oh, we'll go after the underserved and unbanked segments of the market, right?

1:45:39Turner Novak:So what would examples of those things? Underserved would be like, you know, you have a bank account, but, you know, the bank has not really tailor-made products for you, right? Because you're in a niche that they don't quite like serve, you know, as deeply as other niches. For example, you know, if you think about like wealth management, right? If you have, let's say,$500 million of liquidity, there are quite a few solutions focused on that segment. But let's say you have, I don't know,$3 million of liquidity. Actually, you'll be surprised. There's a population of these types of individuals that are kind of in this no man's land where they're not rich enough to deserve the highest end wealth management service, but also not poor enough to have just like...

1:46:28Turner Novak:Robinhood. Yeah, Robinhood. You're probably stuck using like Schwab. Right. That's what I think about. It's like a premium brokerage or something like that. So that's an example of an underserved customer. But then you have customers who are unbanked, right? So these customers straight up don't have any access to financial services. Maybe like an immigrant or like a kid. Right, right. And so a lot of fintechs, I think, really went after the underserved and unbanked kind of segments. We think that the opportunity in the middle market, like this business owner that's high net worth and already sort of affluent, counterintuitively is in the underserved segment.

1:47:09right no one's really really focusing on building for them outside the community and regional banks right and so we think that like you know like this underserved segment is kind of counterintuitive because you know they serve 40 percent of a bank and payroll you know you would expect like you know 40 percent of a bank and payroll is a large enough market for someone to sort of tap into but there are structural problems with you know regulatory problems and then there's sort of problems around, you know, efficiency of underwriting these, especially pre-AI, right? And sort of like this sort of like bias that a lot of Silicon Valley founders have that, hey, I'm going to do one product and I'll do that one product really well.

1:47:50And so it kind of puts you in the silo and you're not really able to solve the end-to-end problem, you know, problems that require vertical integration and multi-product systems becomes really tough.

1:48:02Turner Novak:What do you think was the most crucial product decision that you guys made?

1:48:11I think there are two that come to mind. The first was like pre-Series A when we initially were focused on just payments as a problem, right? Payment in itself is really complicated.

1:48:22Turner Novak:So this is the ARAP type dashboard. Yeah, exactly. Like managing your accounts receivable and accounts payable, you know, especially if it's, you know, vertical like construction, which has a lot of red tape and a lot of approval. So we thought we'd build way better workflows to sort of manage these processes. What we learned in that kind of first sort of iteration that it was not a painkiller enough, right? It was sort of like it helped a pain point, but it was not like necessarily the largest pain point. And so we realized the biggest problem was cash flow. And so how can we help alleviate cash flow problems?

1:49:00Well, we realized, what if we give you, you know, 60 day credit? And that sort of led us to the business credit card. To this date, the 60-day sort of wedge is our best performing wedge. It's doing really well. And so whenever we run an ad for it, we get thousands and thousands of signups. Like, you know, it's sort of like very efficient kind of product decision. The second kind of major, you know, pivotal product decision for us was last year when we realized in 2024 that our business owner combines business and personal transactions.

1:49:32Turner Novak:So what does that mean? That sounds like committing fraud almost. No, it's like, so you have to understand, like, you know, if you're in venture, right? Like if you have VC investors, you're technically running like a corporation with other people's money, right? So in that context - You can't just like take your balance sheet and just like transfer yourself a million bucks. That's not legal. You can't do that, right? So sort of the boundary wall is far well-defined. Because it's like you just own the company. And if you need money, you just... Exactly. Versus if you're like a business owner that fully owns the business, or if they're two partners and there's an agreement between the two partners, that dynamic is very different.

1:50:14And so we come across a lot of business owners who will spend$200 ,000 in the morning on inventory for their business. And then in the afternoon, check themselves into a super nice Four Seasons in Hawaii or or something like that, right, on the same sort of day. And so in that context, you need to build a lot of products that, you know, is not necessarily creating additional boundary walls around the business and personal life, but actually integrate these things into one place. Example of this is, you know, with the Flex Elite card, which we launched today, you'll be able to use a single card for all your entities and personal life.

1:50:58So, you know...

1:50:59Turner Novak:No, it's actually pretty nice. I mean, there's so many times where like, you know, I run a pretty small venture fund. I'm not sitting on a shitload of capital and like we'll have a couple thousand bucks at the personal account. There'll be like insurance goes through, dance class goes through. My wife's like, hey, can you wire more money into the account? I'm like, oh God, I didn't realize it went that low. It'll be like a Friday. You're going into the weekend. You're like, man, you know, you don't want to overdraft going into the weekend because it's like, but I have like 20 grand like sitting there in the other account or you have like a million bucks sitting there and it's like, it should all just be one.

1:51:33Yeah, no, it's so infuriating that you're not able to just like mesh these things together. And, you know, we hear this as a complaint all the time, right? Like, you know, there's this use case of like, hey, like I have 20 accounts and one account like went down to zero. And, you know, now there's like a negative balance problem.

1:51:53Turner Novak:And you can charge overdraft fees in a lot of banks. Yeah, and like, why can't you just like reconcile these things? And the same thing applies to spend, right? Like when you're spending, you know, let's say you and I have dinner right after this conversation. And, you know, after the dinner, we're like, hey, 50 % of the dinner was work related and 50 % was personal, right? Well, maybe you could allocate those transactions accordingly. So we build this feature called Flex Allocate, where you can literally via SMS, you know, type the word allocate to us. And, you know, automatically it'll sort of show all your entities in your kind of personal account.

1:52:31And you can choose how much you want to put in what. Right. And so that simple feature like solves so many expense management problems that sort of, you know, these sort of commingled, you know, business owners who commingle their personal and business life together have to face. Even the venture fund context, you have your personal life, you have your management entity, you probably have a GP entity, and then you have an LP entity. There may be transactions that may be relevant to more than one entity. Right?

1:53:01Turner Novak:Only the management company and personal. Because obviously, LP, it's just like that is capital. It is. Since in my fund admin, in that girl, like I can't talk. Imagine like you're doing a legal expense, right? Like, are you putting the legal expense in the management entity? I actually do pay it off in the management entity. Some people actually expense that to LPs. I'm like, I don't know. I also am the person who will literally pay the lawyers as little as possible. Like, I will say, like, chat GPT, give me, like, you know, pretend you're like a professional lawyer who charges$1 ,000 an hour.

1:53:32Turner Novak:Tell me exactly what needs to be said. And then I will, like, send that to the lawyer. Be like, can we add this to the docs? Minimize the cost. And it's still like 20 grand. Yeah, no, it's fascinating. Like, you know, think about these use cases, right? You know, you just have so many different problems that a business owner that is transacting in the millions of dollars has to face that doesn't have... One of our philosophical points that we make internally all the time is even if you're an enterprise, you have an incredibly sophisticated finance team. But if you're like this middle market business owner that's sort of in this no man's land, they're not too big to be an enterprise, not too small to be called a small business.

1:54:11In that context, you probably don't have a really large finance team. You may have one or two accountants, right?

1:54:17Turner Novak:You probably have like a controller and then like an accountant or something like that. Yeah, and oftentimes like, you know, they could be one person and their title is kind of ambiguous, like finance or something like that. You know, we even see like office managers and stuff like that, right? And so imagine like giving them the tool set that like a larger enterprise would have, but just for their finances. across both their business and personal life. Talking about kind of all this like personal banking, you guys actually kind of got into this through, you acquired a company. Yeah. And you did it around when you raised the Series A too.

1:54:56Turner Novak:You can probably explain this a little bit better. Yeah, yeah. No, so the context that we did this kind of, again, non-consensus thing, you know, a year after our Series A, we realized that we want to build a consumer platform in addition to our business platform. that we had a couple of challenges, right? The first challenge was, well, in order to build a great consumer fintech product, you need a consumer fintech DNA. And the team was very much designed around a B2B motion, right? And so we noticed kind of through self-awareness, we just like being introspective, realized that we didn't have that consumer DNA per se at the time.

1:55:34And the second problem we noticed was We'll see you next week. And that, you know, when you think about like consumer customer acquisition, it's quite different from a B2B sort of motion where you almost need to sort of build a consumer brand. Right. And so we were sort of lacking kind of that element as well a year ago. And so we realized that, you know, we need to go and sort of bring new teammates on board because we were pretty convinced that this sort of personal wedge, in addition to the business net succeed wedge, would work really well together.

1:56:14Turner Novak:So you thought about hiring some people initially? We initially thought about hiring some people. But then what happened was, you know, through sort of, I guess, you know, unusual circumstances, right? One of our friends, they were building a consumer fintech business that was backed by Andreessen Horowitz and a few others, you know, had some sort of, you know, had sort of had built a pretty good platform, initially going after sort of, you know, the Latin population in the United States, right? But they were sort of at a point where they were noticing in their sort of customer base that a lot of the consumers who were coming on board were really using the product for business purposes.

1:57:02Stuff like payroll, like disbursements of payments of contractors. And so they were starting to build like a B2B platform. And so, you know, we were sort of shooting the shit one day and, you know, came to the sort of idea that, hey, what if we did, you know, an M &A? and brought our business platform, which was pretty large in terms of revenue scale and their sort of consumer platform and sort of merged these things together and created a sort of a finance super app, right? Initially started as a joke, but they actually got pretty excited about this idea, right? And, you know, three months later, you know, we did a full sort of M &A with them and brought that team on board.

1:57:46And now they not only run our consumer team, but they also run our growth team. And so Luciana and Robbie, they're great founders themselves. And so they came on board and joined our exec team. And so we realized in order to build this sort of multi-product ecosystem, we have to sort of lean into this playbook of M &A. Not necessarily to grow organically, but just to add net new capabilities. If you want to sort of, not that from a first principle standpoint, we could have figured this out ourself. would have just taken us a year longer, you know, to sort of figure out who the right people were and like what the right serve strategy is and so on and so forth.

1:58:28And, you know, the companies have done this really well. You know, I would say like, you know, in the HR space, I would say in the, you know, the compound startup, right, is rippling for sure. They've done this incredibly well. They have something like 40 founders acting as GMs, right? Deal, you know.

1:58:46Turner Novak:They've done some acquisitions. They've done a few acquisitions, right? Like they've done, I think, if I remember correctly, they've done like a dozen acquisitions or something like that, right? And so if you think about it, right, fintech is such a broad kind of ecosystem and across our customer, right? Once we acquire these customers, they're so valuable. Why wouldn't you want to solve every single problem from the time revenue enters their life to the time it leaves it as personal spend, right? That journey is like 25 chapters. And in each chapter, there's probably a different fintech solving a piecemeal problem.

1:59:24So we kind of thought about this as sort of, okay, what's sort of like the elements that we can kind of bring on? And so we're sort of building up this kind of M &A playbook in addition to our sort of core sort of product team building net new products and how we can merge these things together to move even faster. so we can achieve things in a quarter of the time than otherwise would.

1:59:50Turner Novak:Why would somebody sell to Flex just because like Pfizer, publicly traded company, pretty sure they've acquired like, I mean, I think the meme is that it's just like a conglomerate of a thousand acquired products. Like there's companies out there that have like downed quite a bit more than you guys have like a bigger scale. What's kind of like the value prop that you'd be able to, I don't know, give to somebody who might want to sell? First off, you know, Mazza, the company that we brought on, they had multiple offers from much later stage companies, including public companies. And, you know, they chose to go with us.

2:00:28And it's kind of, you know, two reasons, right? First, would you want to go work at, you know, a large company that has sort of a large company culture and like, you know, it's just another job and you're just sort of going to the beach for like a year? while you're sort of earning your earn out and those types of things. That's sort of like, you know, an outcome and it's a respectable outcome.

2:00:51Turner Novak:You probably don't want those people. Right, right, exactly, right? No offense, I mean, that's great life, but. But if you're a company that's ambitious, you know, in our case, we're very ambitious at Flex and you want to hire, if you, hire is not the right word, if you want to sort of team with killers, you almost need to sort of recruit net new co-founders right and in order to recruit net new co-founders you need to sort of give them very large missions right and that is attractive to a certain type of founder who's excited about you know building very large things and you know possibly having the resources to do that right and so our playbook and how we have done this is, you know, the way we think about this is that we can bring in a team through this sort of M &A playbook, you know, initially offer a beta list of customers, their product, you know, over the next, call it three to six months.

2:01:55But over the course of six to 12 months, completely rebuild their platform with our sort of infrastructure and our sort of tooling. So it's a completely unified experience. So down the line, you don't have a situation where you have a thousand distinct startups sort of like creating a thousand distinct experiences. And so creating that cohesion is really, really important. But, you know, this allows you to sort of, you know, when you're in the market with a product, you're learning data. You know, customers tell you what works and what doesn't. And so even with our consumer product, We've had a bunch of consumers, you know, iNetworth individuals using us for their family spend.

2:02:37And they have told us like, you know, this is stuff that we need. And this is sort of very distinct qualities of like expense management at the family level, right? And so we've had to sort of like learn from those experiences. And now we can sort of do a broader launch.

2:02:52Turner Novak:I think one interesting thing about fintech companies in general is they kind of all look the same under the hood. What's interesting is that like, You know, the reality is that fintech in itself is a commodity. It's just giving money. Yeah, like sending a wire is sending a wire. Like it doesn't matter if you send it with a big bank or you send it with, you know, a fintech. Sexy fintech company. Right. You know, a card is a card. You know, you know. Does it get declined or not? Right. You know, it's sort of like, you know, these individual Lego blocks are all commodities. Right. So kind of two hot takes on that is the first is, in order to create something unique, it is really the sort of combination of these Lego blocks brought together in a cohesive user experience, such that you're building a better experience with the customer by integrating these things in a much better way.

2:03:51And I think a lot of fintechs get that wrong where they think that, oh, we're just going to build this one thing really, really well, but we want to do 99 other things. And that'll be a good experience for the customer. Actually, that ends up being a poorer customer experience.

2:04:06Turner Novak:Do you think you should actually be building a lot of custom tooling and software? You should be building a lot of custom tooling and you should be building a lot more net new products that are adjacent to that core product because customers want a multi-product kind of experience where everything sort of works together, at least in the SMB. And I think that goes along that is the second kind of hot take there is most fintechs, you'll be surprised. I'd say like 100 % of fintechs probably have to solve the same 50 % of problems. Right. So stuff like KYC, KYB, compliance, regulatory licensing and managing customer disputes and those types of things, which are highly regulated and there's a lot of legal around it.

2:05:03you'll be surprised how much of these processes look similar you know just to give like a wild example at like let's say a chime which is a publicly traded you know consumer fintech with tens of millions of customers who are consumers or and a like a ramp that is like a 32 billion dollar like you know private market company that you know serves enterprises expense management they both have to do the same sort of compliance and kind of you know adhere to sort of licensing and those types of things and of course they have different customers so they have to solve slightly different problems but you know from a from a focused standpoint there's a lot of overlap and so the the thing that's often not said when you when you talk to fintech vcs is how much you know in order to build a great consumer fintech or b2b fintech you need to build a great financial services business, right?

2:05:57Which big banks have done for decades, right? And so a lot of this work is like really like not glamorous, unsexy, and somewhat like undifferentiated, right? Like you're doing literally the same thing over and over again.

2:06:12Turner Novak:You're saying each company is just doing the same thing over and over again? Yeah, because the underlying kind of hood requires you to do similar things that are undifferentiated. Like, yeah, I'll give you another example, like, you know, you swipe a card and let's say that was a fraudulent transaction and you want to report that as a dispute with the networks, i.e. Visa and MasterCard. Yeah. Right. Well, that process across a bank, a fintech or, you know, a community bank is all the same. Right. You know, some are better at managing the customer service and maybe the user experience of like reporting that dispute but the back end of that process from a process standpoint is very similar and so it's actually like it's actually kind of like crazy how much of the work fintechs have to do is unsexy undifferentiated like kind of like boring um but but but the unique insight is that, you know, I think the insight is that like, if you lean into that work and you build a culture that is fine with that work and is, you know, to my point earlier, like, you know, innovating on making things efficient and more simple for customers, but not innovating on things that work in terms of legal risk and compliance, I think there's a lot of edge that can be found.

2:07:42And so you'll come across these stories in fintech where, you know, they kind of like under did the sort of compliance part of their business. And I heard this phrase yesterday where, you know, I was at a fintech lunch and, you know, we were commenting on another fintech, you know, fast growth. And we were like, oh, you want to grow as fast as well? You can just fire your head of compliance. Right. And so it's like that type of thing can get really like troubling over time. and it sort of catches up onto you. And so I think, you know, and that's sort of hard to sort of like, from a narrative standpoint, you know, explain that to, you know, future employees, future investors and so on that, you know, this sort of like, there's a lot of work to be done that's just like operating.

2:08:30Turner Novak:One thing I want to ask you about, you mentioned like, this is your third company, you've started some other companies. I actually met you from a mutual friend, Eric Bond, at Hustle Fund. Yeah. He said that he first met you in kind of like a group therapy session. What were you doing group therapy for? Yeah, no, it's funny. So I actually recommended it. It's a leadership development thing called Pathwise where, you know, 10 founders, public market CEOs sort of get together and just talk once a month very honestly about their business and challenges they're facing and not only in their business but also in their personal life and and and in the the goal of pathwise is to over the course of several like monthly classes if you will teach you how to become almost like a mini psychologist yourself and so i actually first learned about it from michael errington the founder of tech crunch yeah and and and so so a lot of incredible like you know if you if you tweeted about it you know a lot of incredible founders have gone through it um and so you learn how to not only sort of understand you know the kind of basics of psychology and you know personality types and those types of things but you also get to sort of become more self-aware and the idea is that if you're more self-aware you understand kind of your own deficiencies in your own personality type and then perhaps you can manage it a little bit better so you can be a better CEO, better executive, whatever, better investor.

2:10:13And also, you know, possibly manage your sort of teammates a little bit better so that, you know, the kind of cumulative effectiveness of your organization improves. And so Eric and I, funnily enough, we're in this group therapy sort of session. And yeah, Eric, I think, was our first seed investor.

2:10:34Turner Novak:Oh, nice. Amazing. Yeah, I know he, when he first introduced us, he was like, ah, got to check this guy out. Actually, when I was looking back, I feel like I've gotten some really great founder introductions from Eric over the years. Eric is such a nice guy. So yeah, we need to be investing together more often. Yeah, Eric is a sort of sleeping giant. Like he's invested in a lot of incredible founders who are, you know, he's great at sort of finding talent that's under the radar. And, you know, everyone has their edge. I think your edge is that you're building up a media empire that, you know, could be really interesting in the kind of early state space.

2:11:16And then, you know, Eric's great sort of talent is that he, you know, finding people that, you know, perhaps are not as well-discovered.

2:11:24Turner Novak:I think I actually found Eric, he did an AMA on Reddit nine years ago, eight years ago, something like that. I was trying to get a job in VC and reached out to him. And I think I was sort of already doing this, but he was like, oh, you should get really big on Twitter. And I was like, all right. That was, I mean, I was, this is a long time ago, but I was sort of already working on it. Yeah. Well, I want to talk about the Teal Fellows. So you, I'm trying to remember when you actually did the, you did the Teal Fellowship. Yep. What is that like for people who don't know? Peter Teal started the fellowship in 2012, 2011.

2:12:00and his kind of big sort of contrarian thesis was that you know you don't really need college like k-12 is sufficient to sort of help you kind of achieve your goals and you know college is a huge scam right and so you know he selects he and his team select 20 15 20 people every year to go through the teal fellowship and the premise is they give you a hundred thousand dollars which you know, after inflation, they've increased it to$200 ,000. No, I didn't know that. With, you know, a single condition that you have to drop out of college. And literally don't take any equity. It's a grant. And through that sort of program, just for context, over the course of the last, you know, let's say 11 or 12 years, there have been about 300 TL fellows.

2:12:55and from the 300 TL follows, something like 30 billion dollar companies have emerged. Many very successful companies you've probably heard of like Figma, Loom, Ethereum and a bunch of others. And so it's probably the best kept secret in Silicon Valley, right? Where, you know, point me at another program that has a 10 % hit rate to hitting a unicorn valuation. right and so i went through that you know in my class you know you know there were a bunch of like very successful founders there but honestly when we first started we were just like these college dropouts and it's like an interesting experience like you know we host an annual

2:13:43Turner Novak:reunion in miami every april is it for every fellow yeah yeah and yeah about 60 come to it right and it's just awesome like seeing these folks where you know you know the teal fellow could be you know billionaire very successful you know with you know very successful sort of company and yet you know i think i think the sort of common denominator is that we all dropped out of college and you know went straight into building companies and raised venture capital and those types of things. And so it's just been like a really kind of special kind of bond. It's closest thing to like a college frat, but it's not a frat, right?

2:14:26It's like just a bunch of builders who are actually like, you know, opposite of what you would imagine a frat to look like.

2:14:33Turner Novak:Yeah. How do you, how do you like get in or apply? What's the process generally like for people who don't know? Most people apply. Some people get, you know, if you like are famous on Reddit or something you'll get applied rather you'll be invited um and so most people apply and you go through this like interview process and the interview process you know it's not like a it's like not like a yc right like yc has like you know what's your company and those types of things it's a bit of that it's also like you know understanding like who you are as a person because a tail followership is betting on you the individual versus you the company um and and you know you don't go through with like a company idea you do you do go through a company idea because it's sort of like representative of like how you think and what you think about the world and those types of things but often there are lots of tail followers who are successful with their first idea but often it's usually the second or third idea that is really the slam dunk right and so you know when you sort of catch them early if you will like you know you can kind of see them over time and see how they develop but there are lots of sort of you know Figma for example you know I think Dylan has been working on this idea since like he was 18 years old or something like that do you do you have like a favorite like CEO or business or you know company or anything you've like learned from the most over time and whether this can be like Napoleon, this can be like, you know, IBM, you know, insert whatever.

2:16:05Turner Novak:Would you have like any favorites? Yeah, no, there, I like reading biographies of founders and CEOs in general. And, you know, I'd say like, you know, I've drawn like a lot of lessons from a lot of different leaders. Obviously, like, you know, you know, there's definitely, there's definitely a first principles

2:16:31like just like learning how to think through first principles that one can learn from like an Elon Musk but then there's like Jeff Bezos who runs really sort of complicated operationally intensive businesses with a lot of elegance right and so there's a lot to learn from them but then there's you know you know I grew up in Dubai right and the ruler of Dubai this probably doesn't come up as often as Elon the ruler of Dubai I think is one of the most underrated CEOs in the world. Why? So I don't even know who that is. First of all, the ruler of Dubai calls himself the CEO of Dubai Incorporated.

2:17:09Turner Novak:Okay. Because he thinks of Dubai as a business. And you think about Dubai, right? It's got incredible tourism, incredible buildings, infrastructure, transportation, the tallest tower in the world. Energy, business. Well, energy is in its sister city, Abu Dhabi, but the country at large has a lot going on and they're very active in investing in technology and emerging frontier tech and those types of things. And so, you know, one of his sayings that really has stuck with me as I grew up is, you know, you really need a can-do attitude. There's literally nothing impossible. So if you think about Dubai, like when my family moved to Dubai just to set the picture, it was sort of the 90s.

2:17:59And in the 90s, most of Dubai didn't exist. It was mostly a desert, right? And now you go there and you drive through the sort of main highway and you have these like really tall 100-story buildings on either side. And there are even more cranes building even more buildings. and just like this sort of entire sort of you know city that didn't exist 20 years ago and so you know i think growing up you know when you think about it from the lens of like psychology right like that that does something to you where you just sort of like you know you if you will it you can do it right you will it to existence right and so So I think that is sort of like really stuck with me.

2:18:48But part of that, you know, kind of drawing this sort of Elon parallel is life is all about, you know, just overcoming problems, right? Like there's so many things that go wrong. And as a founder, you know, it's just like really difficult on a day-to-day basis to sort of just like constantly overcome challenges. And I think if there's like one kind of learning as a founder and sort of, you know, when I think about, you know, CEOs and, you know, leaders that I respect a lot, the common denominator is never giving up.

2:19:24Turner Novak:What's the hardest thing you've had to overcome with building Flex? I think, you know, we talked about this a little bit, but pre-Series A, you know, after a seed and the sort of 2023 bear market, it was really, really hard to sort of get it off the ground. but there have been hard moments since like you know it's really difficult you know even so far kind of risk engine you know it performs extremely well today to build this engine you know we had to learn a lot and you know sort of like throw a lot of darts at the wall and you know we to you know just just as an example to bring on a chief risk officer who thinks like, you know, who thinks like a, you know, sort of a startup founder mode kind of person and brings sort of the best of like the knowledge from the big banks.

2:20:13We had to go through over a hundred interviews for the chief risk officer role. Right. And so, and that's from like hundreds of like, you know, people that we screened. And so that type of thing, like just has required like a lot of, you know, painful lessons but they're not necessarily like you know existentially challenging like you're not dying per se but they're still very very difficult yeah and that you know continues to compound

2:20:41Turner Novak:it's an interesting problem where somebody who does risk management it's like the opposite of startup hyper growth like risk management is like removing risk versus startup is like attacking risk. Yeah. Yeah. It's, it's, it's a very, very challenging problem. And, you know, to be honest, it's actually a very intellectually stimulating problem. Like if you're willing to like dive deep into the numbers and understand the fundamentals of these businesses and the underlying individuals running the businesses, it's a very interesting math problem. And so if you're a math person like you know we interview a lot of quants and i say if you're a math person you really enjoy flex there's so much math to do i mean what's the math it's just isn't it just like a automated pipeline just spit out some numbers like what's what's the math that was in all this the math is like just you know building the models and ab testing the models on a monthly quarterly basis to see what works and what doesn't.

2:21:50Turner Novak:What kind of tweaks have you guys been making, like changes? Like, I guess I would have thought they were just like set and done. Yeah, no, what's interesting is like, you know, one thing I learned, you know, building these things is that the way to think about it is you have to think about use cases and buckets, right? So like you have a, I'll give you like three separate buckets that are credit worthy individuals and businesses, but entirely different underwriting, right? So one bucket might be you have a business that has, you know, it's selling like, you know, like plumbing supplies and has like 70 % gross margin and it grows, you know, 20 % year over year and has$5 million in the bank.

2:22:36And the underlying individual has a FICO of 800, right? That's one case. Another case might be you have a business that has 5 % gross margin, but does$200 million in revenue and has extremely fast revenue growth. Right? Sounds like an AI company. What kind of company is this? Yeah, yeah, yeah. Yeah. Third might be company has absolutely no profit, right? But has incredible demand and revenue growth and has not raised outside capital, right? So what might be an example of that kind of company? Not to go into specific customer names, but, you know, that we come across, you know, these bootstrap founders that, you know, built like, I don't know, let's use a generic one, like an ice cream brand and they like secured a massive deal with like whole foods and they never raised any outside capital whatsoever and they use they reinvest every single dollar that comes to the business so they run their business with like a zero cash balance effectively or as zero as it possibly could be yep right and and and but they're doing well like you know they They have a deal with Whole Foods and people seem to be buying their products.

2:24:01Turner Novak:You probably could raise outside capital for something like this. Yeah. But I feel like you change the risk profile of the business by doing that. I mean, you see so many of these kind of bootstrapped brands that were no longer bootstrapped and then got fucked. Yeah, you see the, you know, so that's certainly the case. But then there's some, you know, there's some people that just don't want outside capital. And so we see a lot of that. Yeah. You know, I'd say like 90 % of our customers are profitable companies, right? So we have a very different kind of appetite. And so you have to build models that are specific to each use case and each kind of flavor of that use case, right?

2:24:41And you have to sort of build kind of mathematical kind of formulas rather than kind of storytelling formulas that is qualitative. Yeah. to sort of figure out, you know, a binary decision, you know, do we work with this company or not? And, you know, at what capacity do we work with them? It is actually a really interesting problem. And sometimes we get it wrong, but, you know, luckily not too often. But you do it in such a way that it's within the thresholds that are acceptable, right? And so it's like a constant, like, iterative sort of modeling problem. And then, you know, the problem of like, you know, efficiently collecting all this data is also like really, really challenging.

2:25:28Right. And so there again, we have had to build a lot of sort of internal sort of AI models that we have fine tuned over time that we're constantly sort of iterating on to figure out how can we, you know, normalize the content that we're collecting from our customers, you know, across, you know, third party APIs. across data that they send us in an unstructured form and also through ongoing use of Flex products. The combination of these things is quite challenging, right? And so, yeah.

2:26:03Turner Novak:Interesting. Is there anything else you want to try to hit on? I think you've been very confident. This is probably the most comprehensive, not only podcast, but like, you know, VC conversation I've had. I guess like last, just to throw this out there. And how do you edit this? Like, do you like, is it like one conversation or do you like? Oh yeah. It's one. So it's one conversation. I might even leave this part in the specific part. Like these last, this like 30 second exchange, I cut a lot of clips up and throw them up on social. So like something more interesting, like two minute segment, going to post like 10 of those on LinkedIn, Twitter, et cetera.

2:26:40Turner Novak:Yeah. The actual, the full length podcast, you know, I'm trying to think how long we've been recording for people are just going to hear most of it. Like we, I don't really cut a whole lot. Yeah. Yeah, I guess we didn't talk about AI. We talked about AI a little bit, just well and through. Yeah, yeah, yeah. Is there anything else you think people would want to learn about just generally, you know, things that you've learned about AI? Yeah, no, I think our vision to become AI native is, it's sort of like kind of a three-part vision. So first is we want to automate all the internal tooling that, you know, especially around underwriting and customer servicing.

2:27:21And there's a lot of work to do that because, you know, in order to do that, you need to sort of really understand the kind of knowledge that's coming from our customers. But then the second part of that is if you have a very good understanding of the customer, then can you like help them become better business owners? And I think that's a very kind of interesting problem space where could you be almost like an AI CFO? And if you are the AI CFO, then why go, and that's the third part, why go to sort of third-party tools to do your accounting and tax and financial planning and budgeting and those types of things?

2:28:07and so could you almost almost sort of generate scenarios where you tell the business owner that hey in this scenario this is what's going to happen to you um and this is by the way your p &l and this is where your balance sheet and here are a couple different versions of that you know in terms of books and here here is sort of like your tax done for you you know, January 1, you wake up and your tax is already done, right?

2:28:38Turner Novak:Oh, that'd be nice. Saves me a lot of time. Yeah, yeah. And all you got to do is like, just like validate, you know, and that future is possible. And it's possible because A, now the sort of LLM models have gotten pretty good and they're getting much better on stuff like financial data and, you know, Claude has, you know, pretty good model around financial data and there are a bunch of others working on it like you know there's a lot of like you know ai excel companies coming out and those types of things that's one part of the thing the other part is like you know you need to sort of understand and own that data right because oftentimes this data is sort of sitting in disparate systems which are very fragmented and so in order to do something like taxes like for us to do taxes where like all this information is sitting in one place across your entire life business and personal So it's a pretty exciting opportunity to sort of just kind of consolidate these things and just do it for you.

2:29:39Turner Novak:Yeah, because I think about, I mean, I do have accountants that do a lot of this stuff kind of manually. And even then it's like, hey, you know, we figured out, do you want to like contribute 15 ,000 to like the 401k, you know, SAP this year and like reduce your taxes by 7 ,000? And there's like all these different scenarios that they send me. and sometimes just like no but other times i'm like oh but what if could i do like 4 000 instead or can i do like 20 000 like what's the what do i need like what's that threshold i can hit this year right it's like somebody who can like automatically kind of do that back to you it's like asking you to be t we're building an agent for flex allocate you know the feature i described earlier where you can carry a single card and after the fact allocate that transaction to different entities in your personal life.

2:30:27Imagine the agent was suggesting how to optimize your taxes on that transaction, right? And that could be another kind of use case to sort of make things more efficient for you over time.

2:30:40Turner Novak:Nice. Well, yeah, I mean, there's been a lot of fun. How can people follow Flex more closely? I feel like you don't really post much. You maybe LinkedIn a little bit. No, to be honest, I've always been, you know stealth mode kind of you know we were a couple months out from hitting 100 million run rate and you know we've sort of been very kind of under the radar right like the opposite of me yeah yeah and so well you know yeah you're building a media empire right and so so no i think i think you know in order to sort of you know find flex our website is www.flex.one and we are flex super app on all the socials.

2:31:26Turner Novak:Awesome. We'll throw links in the show notes too for all the stuff we talked about. But yeah, this is a lot of fun. Thanks for doing it. Awesome. Thank you, Turner. This was really nice. And I hope you thought it was nice. If you like this conversation, please like, comment, subscribe and share this with a friend who owns and operates a middle market business doing between three and a hundred million in annual revenue. If you missed it, make sure to check out last week's episode with Matteo Franceschetti at 8 Sleep and the weeks before that with Rahul Vora at Superhuman at Will Gaber at Stripe.

2:31:53Turner Novak:If you don't want to miss a future episode, subscribe to my newsletter, The Split, linked in the description to get each episode plus the transcript emailed directly to your inbox every week. Thanks, Sam, for listening. See you next time.