Appearing as a guest on the “For You Leaders” podcast, Kasasa CEO Gabe Krajicek talked with show hosts Kirk Dando and Chip Hanna about battling the Goliaths of the banking world. In Part One of this transcript Gabe talks about the genesis of Kasasa’s strategy and the challenges they faced early on.
|How to Beat Goliath…and win – Part 1|
|Chip:||I'm Chip Hanna and this is the "For You Leaders” podcast featuring Kirk Dando, where we truly go beyond the veneer. You'll experience the raw and the real of leadership. You'll see your feet nine miles away from the top.
The story of Goliath is another classic business fable. You've heard it: the little guy beats the big guy. It sounds like a great idea, but no one ever seems to talk about just how you beat Goliath. Today you'll hear about how to beat Goliath from our guest Gabe Krajicek, CEO of Kasasa. Kasasa is taking on some of the largest companies in the world. They're taking on the megabanks, like Wells Fargo and Chase, but they were really close to defeat, weren’t they, Kirk?
|Kirk:||Yeah Chip, they were actually really close. As you're going to hear Gabe say, they were only a handful of months away from running out of cash with a product that they actually found out was illegal. I'm not going to ruin this story here but obviously, they've turned it around. Today is a story of a great company in Austin. If you have a company that is competing in a market where you're taking on Goliaths, I think you're really going to enjoy this story.
Gabe's company has not only taken on Goliath – they are actually winning. To understand the full story, you need to learn a little bit more about Kasasa. It's a great name, isn't it? Kasasa. You're going to hear about why there is that name. Listen in as Gabe explains his unique business and how they are beating the Goliaths.
|Gabe:||It probably would be better to start at the beginning of the company: BancVue. We had one product called Reward Checking, which was an incredibly successful product for community banks and credit unions to be able to attract more consumers into their checking accounts and make those accounts more profitable and stay with the institution longer. We began selling that in 2004 and had an awesome run-up of the product up to about 2008.
At that time we looked at our client base and said, "this is pretty ridiculous. We've got so many customers that if they were a single bank they would be in the top five of the biggest banks in the country in terms of branch reach." And then we looked at how much money those institutions were spending to advertise their version of our product. It was about 60 million dollars and I know 60 million dollars isn't a ton of money for a national ad campaign, but it's enough that you can build a household brand awareness. But even with a branch network that big, even with 60 million dollars being spent, my own friends, who knew what I did for a living, couldn't tell me the name of the checking account that would pay you an above market interest rate and provide free ATMs nationwide, if you'd use your debit card, take any eStatement, and log into online banking, which is basically what Reward Checking was.
The reason why was because each institution was deploying their $25,000 annual marketing budget or their $50,000, their $100,000 marketing budget each advertising their own name for the product. One institution might call it, Super Rewards, or Ultimate Checking, or Cha-Ching Checking, but it was being so fragmented in the marketing spin that you really couldn't pierce through the clutter of all the other messages that consumers hear, and it just became static.
We had the idea to create a national brand for our products and try to get the institutions that offer those products to join into our product as a team where they'd all call it the same thing, they would all market it the same way, and we would therefore be able to provide better professional services to those institutions so that when they had deployed our products they would go to market with more of the professionalism and sophistication from a marketing point of view that the megabanks enjoy and is out of reach of most community FIs just because of the investment it takes to be able to build campaigns like that.
So in 2009 we launched this idea of Kasasa and we started with 10 institutions that changed the names of their products from whatever they used to call it to the different Kasasa products that we had, which are a variety of different checking accounts, Kasasa Cash, Kasasa Cash Back, et cetera. We saw a tremendous lift in the amount of accounts that they were opening and keep in mind these were the same institutions with the same marketing budgets, it's the same product essentially in the same markets that they were in just a few weeks ago.
Now, when they switch into the Kasasa marketing strategy, they're seeing 30-40% lift in account opening. When we saw that we were like, "My goodness we have really cracked the nut on something special here." We actually rented out the entire Dallas-Fort Worth Hilton and invited 400 banking execs and credit union execs — we paid for all the travel, we had awesome stage production, it was a really first-class event, cost us about a million dollars. The reaction was overwhelmingly positive. I left that event thinking we are easily going to sell a 100 of these guys on Kasasa.
What ended up happening actually was we sold about five or six and the reason that we failed was ... I have to admit I think I just failed to anticipate the difficulty in overcoming the most fundamental objection in creating a national brand. That objection was, "Hey Mr. Banker we'd like you to start using our national brands for your products," then the banker says, "You don't actually have a national brand — you have a name and logo but it's not a national brand."
I said, "Yeah we know that now, but lot's of other institutions are going to sign up and it's going to be a big deal." Then they would just say, "Call me when lots of institutions sign up and I'll join." It was just incredibly difficult in addition to the fact that we were in a deep recession to be able to get institutions to move forward on a brand that wasn't proven yet. In 2012 we only sold 25 new Kasasa institutions, and out of that 25 half of them were just our old white label institutions converting over.
We were really selling one new bank or credit union a month, and it was a pretty dark time for the company, we actually considered shutting down Kasasa but instead, we just said, "Look it's time for a Hail Mary. Let's put everything we've got into marketing Kasasa and try to see if we can push it towards a tipping point." In 2013 we tripled sales and 2014 we had record sales again, '15 was record sales. This year we'll be up about 30/40% over last year.
I think what finally happened was: today if Kasasa was a single bank, if all of those Kasasa institutions, which now there are about 400 of, were a single bank they'd be about the sixth largest bank in the country. Whenever you have that kind of clout, when you can say "we've had thousands of articles on the internet from the Wall Street Journal, Kiplinger, Consumer Reports, Fox News, things like that, that are really credible." It's no longer, “Hey, one day this idea is going to be something big,” it's “This idea is something big and it's only going to get bigger. If you don't join Mr. Banker you're going to have to compete with this force, so would you rather it be an ally for you or would you rather it be something that you have to compete within your market?”
|Kirk:||That's an incredible story, so you kind of recognize that there was kind of a scattered focus and you guys were thinking that if we could get people uniquely focused those dollars, even for 60 million like you said, that it would have a big slice, you tested with 10 got great results. Then the next step was you rented out the whole entire Hilton?|
|Gabe:||Yeah, we figured go big out of the gates.|
|Kirk:||That's awesome, that's what I love about you, Gabe. You have a great track record of making that work, so then when it didn't work you didn't just throw in the towel, you just kind of hit it from a bunch of different angles. Well, it didn't happen overnight, that's for sure.|
|Gabe:||It didn't happen overnight and actually as I look back, I'm always trying to look back and see what mistakes did I make and what did I do wrong or what could I do better. I think the biggest thing that I personally did wrong after we launched Kasasa was we still had all of our revenue coming from our white label institutions because they were a lot of them out there that still call their products Cha-Ching Checking, Super Rewards, and whatever. And those were paying all of our salaries so it was really difficult to say our strategic true north is just Kasasa and that's what we're going to focus all of our bets on. It was too scary for me to be able to be that resolute in our strategy and so I kind of sat on the fence a little bit and sent mixed messages to the company. The biggest thing that we changed from 2012 to 2013 was I remember giving a speech in one of our all-hands meetings and it was just like dropping the gauntlet — we are only going to focus on Kasasa. If it doesn't get us to a thousand Kasasa institutions faster, it's not something that we need to focus on.
It was amazing that that shift in focus, along with the scale of Kasasa growing and the economy recovering, but I really attribute a ton of it to the focus that was created by just really saying one thing matters and this is what we all have to chase. Once we did that, having sales triple, is, I think, a pretty cool testimony to the value of being a focused executive.
|Kirk:||What got you there, because you had to get there first before you could stand up in front of everyone and be that resolute, what pushed you over the edge?|
|Gabe:||I think one of the things that you've told me in the years of coaching me, is that sometimes you have to go through… How’s it go? The road to heaven runs through hell?|
|Kirk:||The road to heaven does, in fact, go through hell.|
|Gabe:||I think I just had to take myself emotionally through that hell of saying, “You're going to lose the business if you don't make up your freaking mind.” It came down to me, would I rather lose the business chasing what I believe was the correct strategy or would I rather lose the business because I'm unwilling to call the shot in a clear, resolute way, and for me, if I was going to go down, I was going to go down fighting for what I thought was the right thing for the company and our clients.|