Why believing in a better outcome makes all the difference
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 Two Gabe shares how the company almost folded due to an illegal product and what he did to face the challenge. Missed Part One? Read Gabe’s story of how the company finally rallied behind a single strategy.
|How to Beat Goliath…and win – Part 2|
|Kirk:||If we stopped right here, the value of what you just said is so significant because as organizations grow, the opportunity to get that scattered focus, whether it's disbursement of that 60 million dollar ad budget or it's just the focus on which strategy we're going to pursue, we feel like covering all of our bets is a safer way to do it, but then we look up and we're getting scattered results. And being able to step back especially when you have momentum — you had absolute momentum, it wasn't like this was a startup, week one type of deal, you guys had momentum. What kind of push back if any did you get from the company?|
|Gabe:||It was really hard to shift the entire company to believe that we really meant it that Kasasa was the core strategy. It's an audacious idea what we're trying to do. We have a vision of what we call K1K, which stands for Kasasa 1000, and that's when we would have 1,000 Kasasa institutions. Our institutions are small. They usually have about 7 branches, but if you had 1,000 institutions with 7 branches, that's 7000 branch locations across the country. That's bigger than the Wells Fargo branch distribution network, so Kasasa products would be available in more places than the biggest branch network in the country.
We also power the websites for those institutions, so we'd have this big digital network. Collectively between what we can spend on business-to-consumer advertising and what our institutions spend, at a 1,000 institutions, we've got about 100 million dollars in business-to-consumer marketing. With our data and marketing automation platform that we have in place, we're able to advertise on behalf of our clients at the very high-level of air cover, PR, TV, Radio, Print that kind of stuff all the way down to targeted one-to-one marketing.
With millions and millions of consumers and those institutions, that's a pretty grand vision and you're really creating a new household brand name for a banking product. And whenever I was trying to convince the company that we could do this, we had been successful up unto that point but we were still a relatively small company — few hundred employees — and when you say, "We are literally going to challenge the biggest banks in the country and try to create a credible threat for them by aggregating the collective scale of small institutions," there's just a little bit of disbelief naturally that an employee would have and “Is this a safe bet? Is it too crazy?”
I think that when I was kind of hedging my bets back and forth when I would communicate with the employees that really bolstered their belief that “Gabe even thinks this is a little bit crazy and maybe we shouldn't really go all in.” I remember I had this slide in my presentation in the all-hands (meeting) and I went down all the reasons the white label was a bad strategy for us, all the reasons Kasasa was the right strategy, and when I absolutely said “We can do this,” it's the weirdest thing about being a leader sometimes just saying that you absolutely believe it, something clicks inside of them and they go like, "Well, okay, maybe we can." I think that had a big part to do with it.
|Kirk:||That is so true. I even think about, and as a leader obviously in a business — that's the context we're talking about — I even think like with my kids sometimes they just need to hear from me that I believe that they can do it, or that we're going to do something and it is the weirdest thing because I'm like, "I can't believe that those words were the thing that kind of tripped it."|
|Gabe:||I could tell you the darkest moment of my business career was about a year after I had joined BancVue, we had about a million dollars left of the money that we had raised, and by the way we had raised that money from the investors and the previous business that I ran and so these were my friends. They were betting a lot on me as a person to get them a return. I was nervous about the million dollars we had left because we were also burning about $300,000 a month in cash flow, so I kind of had three months to turn the ship around.
And right at that moment, we got word from the Federal Reserve that the original version — which we've since corrected — the original version of our Reward Checking product was not a compliant product, and I had just moved my wife down from Nashville, she can't find a job. I've taken about a 70% pay cut, I've invested most of the money that I made from the previous sale into — the previous company that I ran in to — BancVue, so I've got all my chips on this bet. Now the Federal Reserve is saying the one product that we have to sell isn't legal and bankers are real sticklers for the products that they offer being legal.
I was scared to death and I called up Don Shafer, who was our chairman at the time, and I told him, “I think our goose is cooked, I don't know how to turn this around this fast with an illegal product, we can't go out and sell anything. We're going to run out of money in 3 months. What do we do?” Don, he laughed, which I thought was an inappropriate response and I could tell that he moved the phone way far away from his mouth because he was yelling and he said, "Hallelujah! Thank you, God, for giving us another chance to show you how awesome we are."
I started laughing I was like, that's not at all, the response I was expecting. Then he said, "We hired you because you are smart right?" I said, “Well I guess,” he said, "Go figure it out." What was funny about that is at that moment I was ready to quit, and I'm not proud to admit that but I needed him to say, “You can figure it out,” and once he did I went home that night and shaved my hair off because we were going to war with Washington and I moved my desk from the corner office to the center of all the cubes so everybody could see me working so they wouldn't quit. They'd see that we were working on this.
Three months later literally, we got a letter from the Federal Reserve saying that the new version of our reward checking program would work. It was a touch-down-take-off on cash flow, but the rest is history. Thank God someone was there to tell me I could do it.
|Kirk:||That literally just gave me chills, that is an awesome story... Kudos to Don, I'm not sure that would have been my response, so I would like to think it would have been but that's a great example.|
|Gabe:||Especially at the time I was 27. I was young and scared and just having somebody believe in you means a ton.|
|Kirk:||Yeah, it absolutely does. One of the things, it is a heavily regulated industry no doubt and it provides ... Each industry provides its own dynamics. What made you think that getting into this was going to be a good idea, what was that?|
|This answer is so unsophisticated, I'm almost ashamed of it, but I had worked in the previous company I was in called [Dealer Skins] and we did website development and hosting and some inventory controls systems, car configurators for about 1,200 car dealerships. On the high-end our websites would cost maybe 800 bucks, and when I looked at the business plan for what we could do with BancVue I was like, "This is monthly recurring revenue, it's a very similar industry," even though you wouldn't think community banks and car dealers are the same. There is about the same number of them and everything in the business from a revenue standpoint was just 10 times bigger because our product was so valuable.
I was like, I was pretty easy to grow to 1,200 car dealers and if we could do the exact same thing in an industry that's very similar with monthly recurring revenue charged 10 times more, that seems like a great idea. I wish I had been smart enough to even consider regulation because it has been a huge thorn in our side over the last 11 years, but I didn't even think about it, and actually the first interaction I had with the regulators was that call where they said our product was illegal.
Since then I've been absolutely obsessed with regulatory compliance. We spend an inordinate amount of money working with all the regulatory agencies. We frequently meet with congressmen and senators to make sure that they know how our products work with the leadership at the FDIC, the NCUA. We actually have a bill that's about to go to the floor in Congress to try to offer some regulatory relief for our clients.
It's become a huge part of our business and I have to say that in my next life, after I leave Kasasa at some point, one of my stipulations is that I don't want to be in a highly regulated industry. There are at least 10 less employees that we have in this business that I would love to put to work but we can't afford them because the regulatory expenses eat up so much cost that would otherwise go to staff.
Check out Part Three where Gabe discusses the research behind the company’s strategy.