Invest Like the Best with Patrick O'Shaughnessy - Assaf Wand - Innovation in Static Industries – [Founder’s Field Guide, EP. 36]

Episode Date: June 3, 2021

My guest today is Assaf Wand, CEO, and co-founder of Hippo, a homeowner insurance startup founded in 2015. In March 2021, Hippo announced a SPAC merger, valuing the business at over $5bn. In our discussion, we cover how Hippo approached innovation in the highly regulated insurance industry, unique strategies for building brand trust, and how direct relationships with homeowners has opened up Hippo's business model to a wide range of opportunities. I was excited to speak with Assaf, given his experience as a serial entrepreneur, and he did not disappoint. Please enjoy my conversation with Assaf Wand.   For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Klaviyo. Klaviyo is the ultimate marketing platform for e-commerce. With targeted segmentation, email automation, SMS marketing, and more, Klaviyo helps you create your ideal customer experience.   See why Klaviyo is trusted by more than 50,000 brands, like Living Proof, Solo Stove, and Nomad, to help them grow their business. For a free trial, check out klaviyo.com/founders. ----- This episode is brought to you by Eight Sleep. Eight Sleep's new Pod Pro Cover is the easiest and fastest way to sleep at your perfect temperature. Simply add the Pod Pro Cover to your current mattress and start sleeping as cool as 55°F or as hot as 110°F. To embrace the future of sleep and get $150 off your new mattress, go to eightsleep.com/patrick or use code "Patrick." ----- Founder's Field Guide is a property of Colossus, Inc. For more episodes of Founder's Field Guide, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:02:44] - [First question] - His philosophy on business [00:04:04] - His first experience in entrepreneurship [00:05:03] - Lawyers vs entrepreneurs [00:07:03] - Major lessons taking risk in entrepreneurship [00:11:14] - Importance of speed in business [00:15:02] - Increasing urgency into the business as a leader [00:18:59] - What the insurance sector was like at the start of Hippo [00:24:49] - Steps he took to bootstrap trust [00:27:03] - Convincing partners [00:29:04] - Building the products and distribution [00:32:49] - Thoughts on innovators dilemma [00:35:00] - Flaws within the insurance industry [00:34:57] - Vision for the firm  [00:37:44] - Importance of culture in company building [00:41:19] - Storytelling as an essential piece of company building [00:41:50] - Building and managing a roadmap [00:43:19] - What does it mean to respect the customer [00:46:11] - Defensibility of the insurance industry [00:49:34] - Rewards of the trench warfare of entrepreneurship [00:53:33] - The feeling of getting wealthy  [00:55:29] - Kindest thing anyone has done for him

This episode of Founders Field Guide is sponsored by Clavio. Want to deliver marketing moments that last a lifetime, Clavio is the ultimate marketing platform for e-commerce. With targeted segmentation, email automation, SMS marketing, and more. Clavio helps you create your ideal customer experience. See why more than 50,000 brands, like Living Proof, Solo Stove, and Nomad, trust Clavio to grow their business. Keep your customers coming back.

Get a free trial at clavio.com slash founders. That's K-L-A-V-Y-O.com. slash Founders. This episode of Founders Field Guide is brought to you by 8 Sleep. Eight Sleep's new Pod Pro cover is the easiest and fastest way to sleep at your perfect temperature. It pairs dynamic cooling and heating with biometric tracking to offer the most advanced solution on the market. Simply add the Pod Pro cover to your current mattress and start sleeping as cool as 55 degrees or as hot as 110 degrees. It also splits your bed in half so your partner can choose a totally different temperature. I was so impressed after using

Eighth Sleep that I became an investor. To embrace the future of sleep and get $150 off your new mattress, go to eightsleep.com slash Patrick or use the code Patrick. Hello and welcome everyone. I'm Patrick O'Shaughnessy, and this is Founders Field Guide. Founders Field Guide is a series of conversations with founders, CEOs, and operators building great businesses. I believe we are all builders in our own way, and this series is dedicated to stories and lessons from builders of all types. Founders Field Guide is part of the Colossus family of podcasts. And you can access all of our podcasts, including edited transcripts, show notes, and resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed

by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunicee asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunosate Asset Management, may maintain positions and the securities discussed in this podcast. My guest today is Asafwant, CEO and co-founder of Hippo, a homeowner insurance startup founded in 2015. In March 2021, Hippo announced a SPAC merger valuing the business at over $5 billion. In our discussion, we cover how Hippo approached innovation in the highly regulated insurance industry, unique strategies for building brand and trust, and how direct relationships with homeowners has opened up Hippo's business model to a wide range of opportunities.

I was excited to speak to Asaf, given his experience as a serial entrepreneur, and he did not disappoint. Please enjoy this great conversation with Asaf Wand. So maybe we can begin with what I'll call your philosophy of business. I know you love building things. You've built a lot of things. Just talk us through your high-level view on entrepreneurship and business. Wow. That's a heavy start.

Not that I ever add my philosophy for business, but I'll give you what I usually tell entrepreneurs. And excuse my French, I might curse a bit in this discussion. Go nuts. I think that entrepreneurship is hard. It's shit. It's crap. It's trench warfare. But the good thing about entrepreneurship are basically three things. You choose what you're going to work on. So it's your choice. You didn't join someone else to do whatever they wanted. You can wake up every morning and choose what you're working on. You can choose who you work with because you have a choice if you're hiring a person, you're not hiring a person. It's up to you. Not that you always have all of the options,

but it's up to you and you can build the culture that you want. It's kind of like the epic thing of independence to carve something for what you want to do. You pursue what you want with the people that you want and then build the culture that you want. That's the biggest benefit of entrepreneurship in my mind because you need to find a good reason why you wake up in the morning every day. As I told you, it's trench warfare. I always tell the team, this week is going to be a week that we're just going to put the helmet and put the vest on. and we're going to start being bombarded. What was your first taste of entrepreneurship?

And how did that contrast with what you had done up until that point in your life? I was born to be an entrepreneur. And the reason I was born to be an entrepreneur is because I'm the worst employee you can find. I'm the worst in politics of an organization. I don't understand them. I would always break a rule if something doesn't make sense. I believe in meritocracy. Put me in kindergarten and someone says something.

It doesn't make any sense. I'm going to fight it. It's an embedded thing. I cannot accept that someone above me doesn't do a good enough job, but because it's senior, it's senior. And like, that doesn't make any sense. I'm not set up for it, which the weirdest thing is because I'm Israeli, I was also in the military. So you can say, fine.

You're like, okay, fine. You didn't like this company. And you shift to another company. You didn't like this. Fine. But you're in the military. It's kind of an hierarchical kind of organization. So you can't really go to the general.

So that's the dumbest thing. It just doesn't work like that. But the good thing is that the Israeli military is a lot less hierarchical than a lot of other places. That's one. And even within that rigid organization, there are specific units that are a lot more meritocratic. Hence, why is it actually enforcing for entrepreneurship? Can you say what you think about the mindset of lawyers versus entrepreneurs as a contrast? Yeah.

Over the span of your life, you kind of find there is a certain linear line of different kind of mindsets. I'm going to give you another remark afterwards about another mindset that I found very interesting for me. I think entrepreneurship is about optimism. You wake up every morning and you are building something that you think are going to have an impact and change the world and going to be a force of positiveness or it can be even economic, whatever you want. And then you have on the other side, lawyers. And lawyers, their mindset is about only bringing up all of the negative in the world. I get the optimism of the contract works. But what if?

And now comes a list of 600 different things that they need to defend you. Now, as a ground rule, I always try to stick away from talking to lawyers, which is very interesting. Because they only bring you to the negative mindset. And then constantly as an entrepreneur, be positive. So I'm trying to avoid that. We're in the process of going public, which requires lots of lawyers. It does a hostile takeover over your life. All you talk is accountants and lawyers and that kind of stuff.

So I think it's very, very different. In the last two, three years, I found another really, really interesting kind of mindset that was very different to me. So I work in insurance because Ipo is an insurance company. And in insurance, there is a specific kind of personnel, which is actuaries. So entrepreneur is a risk taker by structure and the most risk-averse individual on the face of the planet who can tell you that once in 150 years there is a scenario for that is an actuary. So I have in the company people that are actuaries, which is the most foreign mindset I've ever met in my life. I'm like, yeah, we can do it because once every 17 years, I'm like, yeah, what are you talking about?

And the discussion is like, how many companies even last 17 years that you're even bringing this topic? And it's such an interesting mindset. What was the most interesting experience of risk taking in the entrepreneurial sense, Sabi and at Forest Telecom? Those are two companies that you started prior to Hippo. Talk us through the major lessons that you learned at those two companies that you brought forward with you or left behind when starting Hippo. Sabi was a company that was started with the premise of the world is maturing and aging. and people over the age of 50 have 91% of the net worth and 67% of the consumption, 63% of the net income.

Usually your parents are more wealthy than you. And even if they're not making more salary, they finish paying for the home. So they have more of net worth in their stuff. So the thought was that people that are older have more worth, the world is maturing in a faster pace than regular growth. So what I mean is there was a certain point of time because of baby boomers. which you can think about it as a Python or eight a pig, and the pig keeps on going through the belly of the Python,

and now they're all 55 and above. But they used to be 20 and 30 and 40. So now they're just maturing, this massive population that basically created almost all of the worth in the world, and these are the people that actually capture that side of the worth, but only 5% of the marketing budget is catering to them. So you have population that have 91% of the net worth, but only 5% of the marketing budget is actually catering to them.

Even in that 5%, I don't know, my guess is north of 80% is always negative. Who advertise to people that are above 50 pharmaceutical company? You don't have any friends, you're impotent, you are sick, whatever. It's like, it's always negative or the other side of it. It's like, have you saved enough money for your retirement? Do you have enough? It's always on a negative side. And I thought that's ridiculous because people live their life very differently.

my parents are like, I know, 60, 6, 60, 7 years old, super healthy, active, traveling and stuff like that. And they shouldn't be catered like that. We should be a lot more positive. So I thought there is a place for a brand that celebrates that and basically cater to them and not cater to the caregiver or just the issues and the challenges. And that's what we started, Sabi, which is a Japanese word, which is part of the Sabi, Wabi, you know, Wabi Sabi kind of thing.

So Sabi is a Japanese concept about the beauty and aging, that the patina and the passing of time over an object, over the hardwood floors. That's what brings it character. We basically started a company that the idea is let's create products that are more geared toward these individuals. So it can be anti-stimpery surfaces in the house and grab bars and things of that sort. Every once in a while you go to the hotel and you get the handicap room and it feels bad. And it feels bad because it was utilitarian, which is horrible because nobody, thought on the end customer and how does they feel they just tickmark that this is something regulatory that they need to do. And then you start to do some research and you see that we work

at some of the best designers in the world, redesigning and focusing on products that are a lot smarter and create new grab bars, new on-distipery service, new canes, peel boxes, which are so shameful, can they be with slightly more whimsical kind of stuff like that? So that's what we did with that. So if I'll come back to the point that you asked before, what did I learn, that maniacal customer focus and actually thinking of what the customer wants is at the center of everything, as opposed to let's start with where the need is and stuff. No, let's talk and talk and talk to customers and put in physical goods, as much as I hate it and I would never do physical goods ever in my life.

But there is so much joy in seeing someone actually using a product and you can actually follow up, follow a person on his day-to-day routine and see hundreds of different touchpoints that you never thought are important that you can incorporate into the product to make a product smarter, better, you know, something that brings you joy as opposed to shame. You mentioned that you'll never do hardware again or anything physical again.

Talk about speed in business, the importance of speed, what you've learned about it, how you deploy it. So hardware has limitations on speed because if we want to come up with a cool product that we want to launch you tomorrow, Patrick and stuff like tomorrow we're launching this product. So we need to design, maybe that can be fast.

we need to basically engineer it, okay, not so fast. And then comes a process, which is the most magical thing in hardware called tooling. So you need to basically find a block of metal that a laser goes and scatter. It takes like six to eight weeks in order to plug this block into a machine that basically manufacture on scale. So no matter what, you're in the middle of this process. It's going to take you two to three months and you need to do iterations on that. And then what about shipping?

you're not going to air freight everything because you're going to kill all of your margins. So now we need to ship. Shipping from China, now we're in a world where we can't even find containers. Let's say you find a container. That's going to take six to eight weeks and custom and shipping. So even if you turn it on in tomorrow morning, it's like it's going to take forever and the cycles. So hardware, it takes a long time. The interesting thing is that fintech and insuredic specifically also takes a long time.

There is no MVP. There is no, I'm going to start selling insurance to, to Patrick, you need a department, you need to file a rate and you need to approve it with the Department of Insurance. And the Department of Insurance takes time. And by the way, there's 50 departments of insurance in the U.S. So the fact that I'm live in California doesn't mean I can be live in Oregon and Arizona, which are like around the same vicinity.

Even that takes a while. And if I offer you the first product, if I offer you insurance, I kind of need to have a call center because maybe you have a question. And I need to offer you a claims because maybe you bought your home insurance and the following day, you're going to have a claim. So I need to take care of you. So there is no MVP which change our investors should look at anything on, specifically in Shortec, in many Fintech as well, depends if it's loans and payments and stuff like that. It just takes a while. And you're managing in FinTech, it's people's money. It's not a whimsical. It's a TikTok. It works. It doesn't

work. It's live. It's not like. I'm not saying it has its own merit and its own place. But if God forbid TikTok is not working tomorrow or they did a problem, fine. There's going to be people that going to lose money because their livelihood is on that. But it's not going to actively hurt a lot of people. But if I overcharge you and it's your money and you're going to, something's going to happen, God forbid, you have a total loss fire in your home and you weren't insured properly. So now I can't really make you whole for that. That's a way more important problem. So you can't f it up. You need to make sure that it's all working. Hence why it's not fast on the product side. What's fast is the iterations afterwards on how you bring the product to market, how you focus on the customer, how you iterate,

how you do AB testing. I believe that sense of urgency is one of the core strength of a startup. I have an ongoing fight to maintain it. It's a lot easier when you have 30 people. Now, whether we have 500 people, it's a struggle and a fight. We used to jump on every grenade that was thrown and fix whatever there is. Now, all of a sudden, there's process and there's this. And we should really, really make sure that it's allocated as we have on the prioritization. This is part of the fight of a growth CEO wants to push the company and maintain what I believe differentiated the company to the fact that we have hundreds of thousands of customers and we need to maintain a system and we need to add processes and some standardization.

So there's this ongoing fight that's going on. I believe that time to market, speed, iteration and things of that sort, what would negate us from being an incumbent? And you're bringing more people that are more seasoned that's pushing to the other side. side, and that's the inherent fight that I have right now in the company. How do you personally act to increase, maintain, inject urgency into the business even at this stage? What are you as the leader doing actively to try to keep that up? You lead by example. How you do things is how everybody is going to do things or as close to that. When I got married, a friend of mine came and said, listen, I'm going to give you two tips for the wedding. Tip number one is you're not the host.

So don't worry. You paid a lot of people to be the host. So you don't need to make sure that Patrick is eating and stuff is fine. Chilo on that. But the second thing, and this is the point that I want to make on that one, is wherever you're going to be, that's where the guests are going to be. So, if you want everybody to dance, so you need to be on the dance floor. You want everybody to eat, just go and eat. You want everybody to mingle and be in the bar, be in the bar. You can't expect everybody to be in a certain place if you're not going to do. You're like the, you're the focal point. You're the weight and you were basically the force of gravity. So if I'm as a CEO, I want to have a sense of urgency on sales now.

I need to focus on sales. And the gravity is going to lean towards that side. And I think my job is to constantly see where there is stuff that is needed and change the gravitational pool and be in that area. And that's what's basically going to push the focus on that side. And I need to constantly think of where is the problem right now, move the gravity and unlock all of all kinds of hurdles. Do you have a favorite example within Hippo's history of you doing this?

where you recognize something that needed movement or momentum, and you led the charge as the first person in? It's almost a daily thing. So, you know, we're in a world of insurance, which basically means that our view is that, you know, our reason to being as a company is to take care of you when shit happens. I don't know how to better explain it. And everyone's in a while shit happened.

There was a catastrophic losses in Texas where there was a massive freeze recently. So I need to work 24-7 and take care of. of our customers and our employees and all of that. Our claim and call center is in Austin where it was the mothership. Epicenter, yeah. Yeah. And we had, so I had to take care of 32 people to find them homes. My employees first, because we have people with kids that didn't have, you know,

with a two-year-old that didn't have heat. So I was on the phone with temporary housing, talking to a friend who have an hotel, if he minds putting the hotel online and bring it in so I can put my employees. After that, let's start taking care of our customers. I ordered, what was it, like a thousand lasagnas, you know, but it was my credit card because there was an issue at the beginning to basically go and hand over to customers that didn't have heat. And this is just one example. It happens on an ongoing basis. We have a problem with basically service levels deteriorating all of a sudden.

Why? We had a shift of leadership. We have a new CRM system until they learn, until they're not. And this is unacceptable to me. Like we're supposed to be the best intruding our customers, period. And if something doesn't happen, so let's acknowledge it. That's one. Instead of giving excuses and stuff like that, let's acknowledge it.

Let's do something which is even brute force. Let's take third party. Let's put all of our people over time and just take care of it. And in the back, make sure that all of the assistants are going live. So every week, there's a new thing that happened. Every insurance treaty requires my time. Now it's about going public, so I'm somewhat of the face of the company, so I need to be shown more with specific investors. Sometimes it's always like that.

I used to tell my chief product officer was one of the first employees, if not the first employee that I worked with in the company. There was a point where it took me to a discussion. He said, listen, I don't get the love anymore because we used to talk all the time. And all of a sudden, I hardly see you. And I told him, that's the best thing that can happen to you. If you're going to talk to too often, then it's probably something is wrong. And it's not a good thing. So as long as you don't see me, it's a really, really good sign for you. I'd love to rewind the clock to 2015 and the founding moments or insights of the business.

What did the industry, the insurance industry, look like and feel like to you, right at the start of Hippo? And then I want to use that ground setting as a great excuse to talk about how the business has evolved. What did it feel like at the start? I'll tell you what the magic of insurance. At 2015, it looked like exactly. like it looked to me at 2005 and probably exactly like it looked at 1995. So that's the magic of insurance and that's why I think it's an amazing place to start a venture. So a lot of the seeding of the idea was when I was working with McKinsey in New York in the financial institution group. And amongst the customer that you serve are insurance companies. And you

serve them and they can't, you realize that they can hardly implement anything. There's politics, there's regulation, there is lack of systems. There's just a lot of issues. Like there's no, there's lack of speed. You know, we talked before about speed. This is probably the most stale kind of industry I've ever seen in my life. People are very content and happy to go at 4% a year. And you can actually do it by increasing some of basically the premiums,

which is fine because they're going up higher than inflation anyway. So everybody's contempt and happy. So I looked at starting the business in 2005. And it was the same kind of business that I basically set up at 2015. The difference is actually not that the industry change, is that the world change around it a lot more. So in 2005, the reason I felt like it's not a good time to start the company was three things. One is that you couldn't build a backend. So if we were talking about starting an insurance company, I would have done the research and then I would have said, okay, fine.

It's going to cost me $300 to $400 million. And it's going to take three to four years. and I would need to bring a company like Duck Creek or Guidewire to build a backend. And these are a services company, not for a technology company, especially at that point of time. I would need to buy Oracle Database 9. I would need to bring Accenture to build everything. They would ask me a question of how many customers do you think you're going to have at year 7? And I'm going to say, I think 250,000 customers, I'm going to say, fine, you're going to pay us per customer in year 7.

And that's how it was wired. I'm like, okay, I guess that's not the number one venture to start as an entrepreneur. know. Second thing is there was a lack of data. So whenever you wanted to start something, you would have asked, how can you compete with Allstate? They have 10 million households that they're insuring. They've been in business for 115 years. How can you compete with them? And the answer would have been, I probably can't. And then the third one was the world was in a different place of trusts of a new brand. Insurance is a game of trust. At the end of the day, you want to know that if God forbid something happens to you, the counter side,

is going to be able to take care of you and pay you and all of that kind of stuff. That's basically insurance. You're buying a promise. There's no product. It's the weirdest product in the world. It's a product that you as a customer don't want to use. And the people that sell you the product don't want you to ever use. It's a very weird kind of product.

And basically, what you're buying is the right to file a claim if God forbid something happened and you weren't fraudulent. That's what you're buying. The right for a claim. And I thought people would not trust a new brand. That was kind of the three things. So lack of ability to build a back end, lack of data, and I'm not sure people would trust in your brand.

Fast forward it to 2015, you realize that you can build everything on scale, using AWS for that, and Twilio for that, and Stripe for that, and Intercom for the chat. There's so much stuff that you can actually build on scale. And you don't need to commit for how many customers, because I don't know, as many customers are going to have, that's the customer that's going to have. And you don't have all of the legacy, because I don't need to come. commit up front for something that's going to be legacy by the time it's actually going live and I can build the stack myself and it's a lot more cost effective. So that hurdle basically

dropped. Second thing is there's a point that you realize it's the complete opposite side of data. We're in a world with an abundance of data. You have unlimited data. So you're in a world where it's a benefit to be a newcomer because there's no legacy. You can build on scale and data is an advantage as opposed to a disadvantage. And the third one, which was the brand and the trust and all of that, there was a point where I realized that, you know, Asaf is doing everything online. I'm getting my student loans from SOFI. I'm managing my money with wealth form. I'm trading in, whatever was, you know, e-trade now, Robin Hood, etc. Fine, influence is just one more thing. So it came to that. And then on top of all of it, I'm going to add one more random thought that I

realized is that the world is moving to specialization as opposed to bucketing things together. Because I get this question quite a lot. How can you compete with farmers and travelers and all of that? Because they are having bundling. And what we realized is that two things. One, the world is moving to specialization and have specific products that are way better for what you want to do. So it's actually going in that direction.

And insurance, it's still somewhat set up as bundle. but it keeps on being dismitigated. And we have a saying in the company that if you tie two walks together, they don't float. By you buying a crappy home insurance and a crappy auto insurance and connected, it doesn't make it a better product. It's still two crappy products connected together. So you should buy the right auto insurance and the right home insurance,

and it's way better for you as a customer. And it's moving in that direction. So I'm just adding it to the three points that I said about insurance is that I also had this conviction that being a monoline company, There is merit in it. It's interesting how in the internet era, it does seem to be easier to build a brand quickly, like bootstrap that trust if you're incredibly focused on one narrow thing. Because then people just assume all your effort is going into that thing and they're used to using a lot of products.

What were the most important things you did to bootstrap trust? It still is an insurance business. It's not a DDC brand or something where you can spin up a brand story. You still need people, even if they think your sole focus is home insurance and that's good. you're still brand new. So what worked when it came to bootstrapping trust quickly? We were lending someone else's brand. That's the best example that I find. So there was a point where you realize the following thing, which is most people actually don't buy home insurance. What you buy is you buy a home. If you buy a home, you need a mortgage. And if you need a

mortgage, you need a proof of insurance. So you are a side product of home buying. And because of that, we realized that it started with distribution, but it actually has to do with brand. In order for that, I want to work with everybody that has to do with home purchasing. So we work with companies like Better Mortgage and Blend on the Mortgage side. We work with DOMO on the title side. We work with banks. We work with mortgage services. Companies like HomePoint.

We work with Compass and Relogy on the real estate side, with Lenard and Toler. brothers on home builder's side. We work with everybody that has to do with that. So it's really good for the distribution, but to your point from before, how do you build trust and what do you do with that? You're basically lending the brand of Chase. If you're getting a mortgage from Chase and Chase is saying, Patrick, do you want to add insurance? You're like, yeah, yeah, yeah, yeah. You're just doing it. I'm basically writing Chase's brand because if Chase did it and they plugged me in, then I'm probably good enough and I have the halo effect of the Chase brand. And that was part of this old thought of how do we increase customer satisfaction until we're going to have scale enough and word

of mouth and branding and marketing and enough people that have claimed, which was a positive experience and people saw our net promoter score, which is whatever, 75 and our claims one. These things take so a while. So we were using other channels brand to basically gain, call it trust by proxy. Obviously it begs the question. I think I've seen you talk elsewhere about one of your top strengths being distribution and maybe even partnerships more specifically. How did you convince them? So same problem, one degree removed. So what was the key there? Relentlessness. When I was a young business development person, so my VP was talking to me about how you build business development. And there is a, it's a bottom up kind of thing, which is we're going to get

three, four small customers. And once we're going to get three, four small customers, then we're going to try and get one medium one. And then it's going to take us two ears and we're going to bring through to a three medium one. And then you're going to try and hit your whale. It's kind of like you grow into that. Hey, I'm not

patient enough for that. It never works well for me. I'm starting from the top. So we brought Comcast and we brought Lenar and we brought and the interesting thing is it's probably not a high each ratio. But once you find that the CEO of Lenal gets what you're trying to do,

the entire organization is basically going to align. And then all of a sudden, you actually start with the whale, in this case, the close partner of us and they're on our board, et cetera. And you get recognition and the other people in the industry are looking at you instead of like, it's a nice step. What did these guys got that they already, like, we have to do that as well. So you actually go top down, which is a lot more effective, but it requires my job to be, I don't know, 50% of time chasing these people. I think that you build a relationship by being very honest and very transparent and not overselling because it's never going to fly. And basically it started with a partnership and it becomes a friendship or something that all of our partners are friends in some way. and there's many times where we need to make choices that are not for the benefits of people,

but for the benefit of the partners because you're taking a very long-term view. Over a while, you build your reputation that this is what you do and you'll start winning. It begs yet another question in the chain, which is, you mentioned earlier, there's no MVP here. Like there's a lot you actually have to build and do regulation, 50 states, all this stuff. I guess I'd be curious to hear more about what the original building blocks of a business like this were. But when you show up for these partnerships, what stage are you at? what have you already built? It seems like you always need to be a little bit ahead of where you actually are

and time that right. Talk me through that. Like, what had you built when you were talking to these people? Always a lot less than what I thought I built. And then the tech team said, no, no, you're crazy. We cannot do that. I'm like, you just told me it's okay. There's a significant lag in business development deals.

I have failed to see a business development deal that is, you know, less than like six month. It's like warp speed. There needs to be an organization and thing. They're going to say, listen, we can put it in Q1. it needs to be in Q4 and it's never going to work in Q4 because they have another. It's just the good thing is that you're actually buying time in business development. You're selling a facade where behind it.

It's there's nothing in it. It's like a movie set. And you know that you're also, even if you're going live, it's not going to be on scale. It's fine to have people moving the papers around in the back and you're buying yourself more capabilities over time. What you also realize in Silicon Valley is probably, you know, don't catch me on the number. I would say 80% of business development deals don't work, but you raise money on business development. So you always come to the pitch with the VC, and we just got,

bam, horizon. And they have, you know, 50 million customers and two to the two. And it's going to be just one out of, and everybody's like, oh, that's awesome. And it never works. Never. But you raise money on that, which enables you to build some other stuff to scale into the next thing. And it never works, not because of strategy, because of implementation, because of because the person that you did the deal just moved to another company and nobody cares about you and you become an orphan kind of project on or there's another priority and this quarter wasn't doing well. So they're about increasing margins and not, there's always reasons. It's not bad or illegitimate reasons. It's just that business development usually doesn't work. So one of the thing that we did

is we doubled down on the business development. So the people that led our B round were Comcast and the people that led our C round were L&R. So they were. were on our board, they had a certain level of incentives with like some warrants, which were like only if they're doing hundreds of thousands of customers and stuff like that, up to a point where it's like, I'm happy to give you, if Patrick gives me a million customers, I'll give you 5% of the company because when you're doing 10,000 customers, I'll happy give you that because the appreciation in the value of the company is a lot more than the 5% I'm going to give Patrick. So you're doing all kind of incentives, you're bringing them to the board, you're investing in this relationship,

which improved the chance of a business development deal to work basically our 100X or whatever it is. The tough stuff is that we're in Silicon Valley and Silicon Valley worship name brands VCs because that's what they built. This is the neighborhood that and people, they built a brand. So every time you're announcing around, they're like, really?

So you took Comcast? What the hell is that? And then I need to start explaining, I don't know if you know, but Comcast have 28 million households that they're basically serving and they want to move to smart home and they want to do some stuff so I can target 28 million customers, which is quite a lot for a company that had, I don't know, 100 customers, and

have a deeper discussion. And then it makes sense, but it's not trivial. And you find yourself explaining why you did that instead of raising money from Sequoias and Excel and stuff like that. So we took a route of strategics, but only if they bring us distribution at any given point. And I think it's actually one of the things that were the most successful for the company. Can you talk a bit about the lessons you've learned on innovators dilemma by building in the insurance space? Because you've already mentioned how in most ways the product was the same in 95 and 05 and 15. Like that doesn't seem to be a lot of product innovation. What are your thoughts in innovators dilemma and how has that influenced what you've built?

I'll try to address it in several ways. One, nobody is disrupting insurance. It's not an internet product. it's a regulatory product per state. Everything needs to be approved and admitted itself. It's not something that is allowed. So by structure, you have a lot less innovation. Now, on the flip side, we think there's still a vast amount of innovation that can happen.

It's just not disrupting. It's about evolutioning. And so usually what happened is when I'm sitting in a room with investors, then I'm asking them, guys, okay, I'm going to ask you a question. Who are you guys insured with? And it takes them a couple of minutes. And usually I get an answer like, all farm. No, let me, Allstate.

No, State Farmers. That's it, farmers. So they know the name of the company, although they're not sure it's their company. And the second question is like, okay, and what's the difference between Allstate and Farmers and Travelers? I don't know. I have no idea. And what we try to do, because we're competing in a field that our competitors are spending north of a billion dollars a year on creating brand names. You know them because you're like, you can't open a TV.

not see commercials yeah yeah five second after you saw the commercial i'm going to ask you what was the commercial for and you have no idea but it was one of them farmers or less it's it was one of them and one of them have team team and the other one tam tam tam and these guys have quarterback one and like which one is which you know the brand you don't know what they are and there's no differentiation on the product so at hippo we're differentiating on the product and the main differentiation is to focus back on patrick as a customer because this is an industry the the main point that you realize is that they forgot with the customer. The customer for this industry for 100 years was the agent. So there's got to be just a million ways to create a business model

around the home once you have a trusted relationship with a homeowner. So what is your vision for the firm? Are you an insurance company or are you something different? If we come back in five years and you've been successful in your vision, what does that mean? I think you eat the nail it on the head. The vision of the company is, we call it protecting the joy of homeownership. It's about home owners. It's about focusing on them. And what you see is that there is this massive gap between the romantic view of Patrick buying a home and you're going with your partner and you're like, oh, let's look at this home. And all you have is these googly eyes. Well, this is going to be magic. The kids are going to roam around the front yard and going to ride the bike and I'm going to

water the plants in the back. And I'm going to drink coffee and read my New York Times over the weekend, you have this like romantic view of what home ownership is. And then you move to the house and three months later, you have a buddy-f kind of moment. It's like, oh God, the plumbing doesn't work well. And we have a problem on that side. And I really need to fix this thing. The window is rickety and the back door doesn't lock. And you find yourself, damn, I thought I have a full-time job. All of a sudden, I have another full-time job, which is taking care of the home. And you know what? It's not fun. So we're trying to help people basically be the best of. homeowners they can and help them take care of everything. I view it as we're going to be the

1-800 number of every shit that happens in your home. And it can be very broad. It can be, you're locked out of your home and you need a locksmith. Call us. Don't go to help and find a random person that's going to come. Call us. We're going to send a locksmith. You want to install a shelf. We're going to help you with that. God forbid there's a water leak. We're going to take care of that. Your fridge is going to be not working anymore. We can help with that. Maybe have, I don't know, relationship with a sodding expert, you know, kind of thing that can give you the backyard grass. And whatever it is, it's I want to be the place that takes care of your home and focus back on the customer. We also have a belief that a better maintained home going to have less losses and less

losses is going to be beneficial for me on the loss ratio, as well as happy customers going to recommend. It's a differentiative as we talked about before because what's the difference between farmers and travelers? I don't know. But what's the difference in Ipo? Because they constantly helped me take care of my home. I'm actually trying to have more touchpoint with my customers in an industry that's trying to have least touchpoint. I think you build a brand by adding value to the customer and focusing back on them. I'm obsessed with this idea of static business models changing to what I call streaming business models. And this is a great example of that where rather than just one and done policy, see you never, it's this ongoing relationship that you're able to build because of data,

because of the orientation of the business model, et cetera. In every example that you've given us, that's kind of fun and interesting about what you're building, there's this commonality, which is sort of like a first principles approach. You're just looking at the situation and wondering, all right, what's best for the customer? Like, let's just do that rather than do things how it's been done in the past.

So I'd love to do a sequential series of questions on different parts of company building and product building. And just hear your sort of unique first principles take on them. Maybe starting with culture. So you've built several businesses now. How do you think about culture, how important it is, how you can be intentional about building it, and the reason that it's worth investing effort into it? I think it's key.

I think it's super, super important. I'm going to add a couple of things. First, culture is about what you do, not what you say. The number one principle of the company is you say what you do, you do what you say. That component itself is where people air all the time. If you told me you're doing something, do something, but I need to basically make sure that I'm doing it. you build culture by constantly delivering and what you said you're going to do. And the biggest enforcer of a culture is actually the DNA.

It's about hiring people that have the same kind of level of culture, talking about it all the time. And then they're going to be the ambassadors to keep on trickling down and feed it into the organization because there's a certain point where you can't do it. And what? Okay, I can go and talk once a week to all of the people. That's not what bring the customer is how you behave when something happens. These are the stories that basically trickle down.

This is what people see. This is what people watch. And you need to be very consistent with that. I want to say one more thing is, so HIPAA is the correction to all of my previous fuckups. I had several companies. I had different beliefs. I believe that you need to work harder than anybody else. You need to work 24-7.

And, you know, how can you compete with the big guys? I'm going to compete because I'm going to actually work a lot. And then you realize that you actually make mistakes and it's not the right thing. And it's a marathon and not a sprint. And you're going to burn everybody down. and it's okay that I'm going to work in a certain way. I'm actually not expecting my people to work in a certain way. I think that since that time, I also have two kids.

And I think it's really important for me personally to be a present dad and to try to have dinners with him, et cetera. I'm not talking COVID where the entire equilibrium changing the world that all of a sudden you're like, my kids are sick of seeing me. I mean, like before that on a regular basis, but I want to have a company that people are happy to go to work, work there are 96 or whatever they need to work, but it's also a mature organization. So what I mean is there's no face time.

I don't want to see you. You have your job. So just do it. And if you need to go to a recital, please go to the recital of your kid. It's completely fine. But you manage your own time afterwards to do the work. I don't care where you're at. I care that you're doing the job that you need to do.

And you raise a flag if you don't do it. And the ability to constantly deliver on that and act in a certain way, that's what builds the culture. it's becoming harder in COVID and when the company becomes big. One of the things I don't like about COVID is that it makes all of these things to be a lot, it makes people to be more mercenaries than missionaries. You try to hire missionaries to the company and to build missionaries kind of thing. You need to have ongoing touchment with people.

And when half of the company, you know, usually people said the company is growing like crazy. Half of the people are less than a year in the company. Yeah. Now add to that and never step the day in the old. office, never saw another employee, never, it's a lot harder and to instill culture into them. When it's all remote, it's very, very difficult and it's something that I don't think anybody cracked till now, but it becomes a lot, one of the challenges of COVID, hence why you constantly need to deliver on what you're saying, and hopefully it would trickle into everybody.

What have you learned about the importance internally and externally of building stories and narrative? Super important. Storytelling is how you basically communicate. You don't communicate with like bullets and points and stuff like that. People remember a story. People, it's vivid when something happened. I think I'm okay that. I'm not that good. If I'm telling a story, I need to deliver on it. I'm not telling a story because it's really, really nice. I'm telling a story that I mean it. You can test me on that. You can check me on that. And if we failed, please call me on that because otherwise we can't improve. What have you learned about managing a product roadmap? So a lot of the story of Hippo is that you're rebuilding what it means to be an insurance product. There's a lot

of elements to that that you've walked us through. Above all that is managing it. So what have you learned about that part of the business? Probably one of my biggest growth areas. Now that the company is a lot more bigger and stable, there is a product roadmap. We have a monthly, we have a quarterly, we have a yearly. We're trying not to change too much. We became realistic that we actually give 25% of the capacity for all of the craziness that we're going to change anyway. So the product Worldmark is only for 60, 75%. There's a certain part that you just acknowledge that we can do 100 because we know that we're going to change it.

So let's just acknowledge it and keep a 25% allocation, and the all ideas that we're going to come up with is extra capacity. There's some matureization in the company. I'll give you an example. We're usually running sprints in the two weeks kind of increments. And we started adding one out of like four sprints or stuff like that is a quality sprint. We never had quality sprints. We were just, you're just sprinting.

But then you're realizing that you're starting to carry bugs and all kind of stuff like that. So you had to stop and say, guys, no, no, no, this sprain is a quality spring. All we do is fix up all of the bug because you start to realize that you have bugs that you knew about for the last three and a half years. And then it's like, why the hell haven't we fixed it? We haven't fixed it because it's not that top priority. And we kept on developing other stuff. And we're like, no, no, we need to bring it to the right kind of level. So we started embedding that into the process. Our product roadmap is somewhat more rigid. I think it's very rigid, compared to my character. The team thinks it's not rigid enough, which is fine. It's a good balancing

actor. What do you think about the customer? We started with the lesson you learned from early on was just respect the customer. What is it about the customer that you have to respect? Is it the better, cheaper, faster preference that they have? What does that mean to you to actually respect a customer? The main point in insurance is that you pay fairly. And if you are honest and weren't fraudulent, I'm going to make you all if God forbid something happened. And this is the promise. It's a very simple promise. You pay us for something, God forbid something happened. We're going to make sure that we take care of you. And that's the number one promise that we have with the customers. And that's what I'm constantly basically pounding at the team. That's what we need to do.

However, this thing can tweak. I'll give you an example. If I'll pay everybody really, really fast for whatever they say, then all of a sudden, they're going to be very, very happy. If you told me, listen, the damage is $5,000. I'm going to say, Patrick, he's six. of course you're going to be happy, but I'm going to do a disservice to myself as an insurance company because I can never make money out of that. So what we're basically saying is treat the customer like you want to be treated yourself. Be very honest with them. Don't tell them bullshit. Tell them exactly, this is what covered. Let me explain to you. Treat them as adults. Be very honest with them. Be assertive, but be attentive. And be empathetic because people, when they use

the product, shit happened. You didn't buy a shirt. And it's like, oh, that's going to be a nice to have. There is a total of fire, God forbid. You're not going to have a home for six months or whatever it is. This is not the time to have an adversarial kind of thing, which is by structure how this is said. Can you be empathetic and explain and take the time? Our call center is not measured on time on call with a customer. I always tell the people on the phone that if Patrick calls and they're going to ask him, Patrick, who are you insured with now? And he's going to say farmers. And they're going to ask you all of the questions or, you know, You want to walk me through your current policy. Let's review that.

I'm completely fine that they're going to say at the end of the day, Patrick, I actually think that farmers covering you very well. I think it's completely fine. And I'm telling them, fine. You're in the long-term game. You're not in a short-term. I don't care about your conversion. There's a good chance that Patrick is going to refer five of his friends because they were so honest.

They checked it and they said it's fine. And maybe in two years where farmers are going to miss something, there's a good chance you're going to move to us. And if you're building something over long-term, that's what it means for me to focus on the customer, do the right thing on the long term and not just short term. And most customers are appreciating that. Over time, if you were honest, if you were loyal, if you took care of them,

if you treat them honestly, you can be pissed. You were expecting something. But at the end of the day, at the bottom of your art, you do know that someone treated you fairly. You went from very fast startup attacking an industry, which really hasn't changed much over a very long time. And you're going public. So hopefully soon you'll be the incumbent.

How do you think about defensibility of the business? So insurance has got this regulatory aspect, which we've talked about a little bit. It's got these huge brands that everyone could name, but couldn't really tell you what that means. These are things which take time and are hard to attack and protect those businesses. How do you think about protecting your business as it matures? If we keep on focusing on the customers and we're going to do well by them and going to take care of them and we're going to hit on our vision, which is protecting the joy of ownership, I'm actually super relaxed.

It's fine. So that's on the micro. We just need to keep on delivering on our promise to our customers. On the macro, it's really, really interesting. So home insurance, it's $105 billion market in the US a year in premiums. And it's actually growing up at $5 to $6 billion a year. And it's going to keep on growing like that for a long time. There's several reasons.

One, there's going to be more homes in the US next year than this year. It just is. Two, labor and material have a tendency to always go up way, faster than inflation. Just look at what happened with timber and stuff like that. And, you know, in the last year, it popped by like 80%. So he has a tendency to go higher than inflation, which means that if you increased it by three to four percent out of 105 billion, that's a four billion dollar increase in the market. And the last component is our homes have a tendency to basically get more complicated and sophisticated over time. So when I grew up, I used to brush my teeth in the

morning and stand in line with my brothers for the one bathroom that we had for all of us. And now, everybody has an onsuit and everybody has an open kitchen. Our homes became more complicated, and that entails more risk to the home, but also more premiums. And the point that I'm making is that fine, if you have more bathrooms, and of course, there's going to be more losses because there's going to be more water damage, but it also means that there's going to be more complexity in it. Now, if you have a market that is that big, and there's only one player that is north of 10% in that state farm,

and then the second one is less than 10% of the market. So it's very, very fragmented. You can build a monster company by being the number 16th insurer, which of course is not our goal. But the point that I'm making is that it's not a winner take hold. We're so wild from VCs that Gartner's saying that by 2027, and this market is going to be $2.7 billion. And then you have 15 companies chasing that. So you can build a really, really big company.

I can be less than 1% in the market in like three years and have $1.5 billion in premiums. That's not a bad outcome. And I actually think this is just the beginning. So you have such a vast option to go up. It just uncapped. My partner, Rick McArthurne, who's our president, always say that we're not even in the stage

where we're collecting the lowering in foods. We're still collecting the foods from the floor. And my CMO always say, and we're still hitting the watermelons in there, you know, when we're walking. It's such a vast market. We are so early in it that it's not about competition. There's more than one way to skin a cat. I don't need to cater to every customer. I just need to cater to the customers that we want and they think that this is what they want.

A more modern take on insurance that's going to help them take care of their home in general. And I think there's a vast opportunity in that. Let's go back to where we started, which is trench warfare. That is entrepreneurship. There's a lot of people that listen that are just starting companies that are thinking about starting a company. It seems like hopefully we'll be entering a new golden era for entrepreneurship after maybe a long period where there weren't enough entrepreneurs. The tooling you talked about is a big part of that, et cetera. I'd love to close our conversation by spending 10 minutes on this topic.

Just what you've learned about this trench warfare, which is hard. It's really difficult, but ultimately really rewarding. Maybe we'll start there with the rewarding part. What is so rewarding about it? why should people contemplating this life do it? Firstly, I think there's too much one-thop-en-olds than entrepreneurs. Because it's easy and you can get money, a lot of people are in it for the wrong reasons. And people do not understand how tough it is.

There's a mental toll, there is psychological tool. It's not an easy thing. It's like, as we said, it's a trench warfare. And it's like, fine to do it for a day or two. But to do it for a long period of time, it has a toll. people always think that once you reach a certain scale, it becomes easy. It's really, really hard at the beginning. But once it's like a big company, no, it's not.

It's actually harder. I need to deliver on numbers. I need to constantly, I have people, I have 500 people I need to take care of. It's not getting easier. But I do think that we're in a world where there's an abundance of tools, abundance of capital now. This is probably the golden era to do something. I'm talking more about technology ventures and things of that. So I think technology saved the world in the last year.

Think about what's the narrative for this craziness? I'm not talking just about the vaccination. You couldn't have got food home. You couldn't have done calls. You couldn't have done schooling. If this event would have happened 10 years ago, it would have been a very different kind of scenario. So we're in a world where technology actually came and saved the world. You can actually see it in the public markets as well in the appreciation of what basically people put on.

technology stock. So I think we are getting into an era, which is kind of like a golden age, but it's not for the faint of heart. It's not easy. People should know that if you're doing it, you're doing it, you're doing it for the long term. And you're doing it because it's the right thing for you. And it doesn't fit everybody. A lot of people are wired to someone tapped them in the back. It said, oh, Patrick, that was a really good job. Nobody's going to give you a good job. It's all about you. I think people need to be very honest. One of the things that it's a very weird, you're a bipolar kind of person, is in the Dup and all.

You're talking to the outside, like everything is amazing, and inside, you're like, it's gut-wrenching, that nothing works, and you need to be very brutally honest in what doesn't work, because otherwise you can never fix it. And you have, like, these two,

on the outside, it's amazing. On the other side, like, listen, guys, it's shit. It doesn't work. And it needs to be done all the time. A lot of people are not handling it very well, and it's something that is important, but there's always this saying

that it never goes, up and to the right. It always up and down and up and down. Eventually is a very fragile beast. A startup is a very fragile beast. There's so many things that can kill you. Over time, you know, you become more resilient and there's less of these crushing moments. But at the beginning, the difference between a success and not success, it's super random. It has many times stuff that has nothing to do with you. People should just be aware of what they're getting into and have honest discussions with each other on what does it entail. I'm actually not trying to. I'm actually not to dissuade people from doing it. It's magic for the people that wants to do it. As I said,

it's about choosing the team, choosing what you work, and choosing the culture, which if you care about these things, then nothing is better. And we're in a world where wealth accumulation is becoming obscenely fast. It took centuries for the Rockefellers or whatever to build. And now in a span of four or five years, you have kids that are 27 years old who's becoming billionaires. The monetary price is also very, very high for people that are highly successful. on entrepreneurship, which wasn't the case before. It seems like there's a perverse set of expectations around the feeling of these rewards. Money is one reward.

People that succeeded this game tend to get very, very wealthy. Talk about what it's felt like to get very wealthy. Like, has that ultimately been something that feels good? Is that what people should be aiming for? Or is this more about service and people and experience? Getting wealthy is not a bad outcome. Let's be honest. It's not a bad outcome.

But I think there's a certain level of wealth, which is almost immaterial. and it's not about that. So for me, my biggest drive in life is learning and it's about constant learning. And I think the pace of learning that you do as a CEO running a startup and that is growing is insane. We can have a discussion on public markets, IPOs, spec and stuff like that that six months before, I didn't have a freaking clue what it means. Six months before, like, you know, devices and systems and sales. And you constantly have to reinvent yourself. and learn, which that's the biggest driver on my life. But wealth is good and it's helpful, I think, up to a certain scale.

There's a certain point that I get a lot more. Every person in Ipo has equity in the company. I mean, every person in the call center, every salesperson, every service person, have equity. And not negligible equity, by the way. So for me, there's more of a joy on the hundreds of people that we have on our call centers that some of them are going to be millionaires and for a lot of them they're going to make hundreds of thousands of dollars which is life-changing money more than an engineer in here

will made x or y and you're going to have 15 other options later the ability to influence and impact people that were out of this world is something that i get a lot of joyful and metals to me and the fact that we're doing it as a team and not as a solo kind of just as safi is doing it is something that really, really is important to me. I think it's a wonderful place to end and turn to my traditional closing question that I ask everybody, what is the kindest thing that anyone's ever done for you? Oh, God. Well, I have like 500 different things, thoughts that are popping in my mind.

What's the meaning of kind? Is it like doing something that was unexpected, that the delta between what you expected and what you got was so high? Was it something that a person did that was above and beyond? It's very easy for a person that has a lot of stuff to do to be basically very kind, but people who couldn't and gave you. So I don't have a good answer. I'm just sharing you all of the craziness that goes in my mind now. The one theme that I have is that people choose to keep on working in HIPO and work with me every morning. So I think that smart capable people

always have an option. And I want people that come to work at EPO to make the positive choice that this is what they wanted to do, not because they don't have any other option and they need to bring bread to the stuff because I think all of the people that we have in here are super talented and can work. So for me, there is an act of kindness by people that every morning choose that working in hip-in working with me on this venture is what they're choosing to actually do. And I view it as one of the things that drives me and really motivates me. Asap, I think if you looked up entrepreneur in the dictionary or the encyclopedia, you might find your picture there. I think you're just a sort classic quintessential builder. This has been so much fun to do together. Been really looking forward to it.

did not disappoint. Thank you so much for your time. No, that was awesome. As you know, I'm a big fan, so thank you so much for doing this with me. Pleasures all mine. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.