Ep615: Sean Harper – Iterate Until You Come Up With a Good Market Fit

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. And that mission has led me to create the become a better investor community. In the community. You get access to the tools you need to create, grow and protect your wealth. Go to my worst investment ever.com right now to claim your spot. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests, Shaun Harper. Sean, are you ready to join the mission?

Sean Harper 00:48
Absolutely. Let's do it.

Andrew Stotz 00:49
All right, well, let me introduce you to the audience. Shaun Harper is the co founder and CEO of kin, an insurance company built from scratch on modern tech to make it easier and more affordable to insure a home. He's a self proclaimed tech geek and has spent his career developing apps to revolutionize antiquated businesses. When he realized that the homeowners insurance industry was still being managed on like any other consumer financial products. Today, he saw an opportunity. Sean co founded kin as a tech based insurance agency in 2016, and has grown into a fully licensed home insurance carrier supported by a team of over 400 employees, with a focus on ease, affordability and exceptional service. Shawn and his team are changing the way insurance is done. Shawn, take a minute and fill in some details and tell us what unique value you bring into this wonderful world.

01:55
Thanks. Um,

Sean Harper 01:57
yeah, so I think I'm pretty good at identifying market opportunities. And, you know, I got interested in technology, when I was a little kid, I learned how to program when I was young. And then when I was in college, you know, I ended up going to a school that's really well known for its economics programs, the University of Chicago, and I just really started geeking out on finance and economics. And ever since then, I've really been interested, I think I've developed, you know, it's sort of a unique skill of really understanding the intersection of finance and technology. And, you know, if you look at the inside of a bank, or insurance company, or something like that, they actually are tech companies, right? Because it's all just bits and bytes, and algorithms can be done on the computer. And yet, a lot of these companies really aren't very good at technology. So I guess that's, that's my value to the world is, you know, I'm able to use tech to make these financial services cheaper, and eliminate a lot of waste, easier to use more customer friendly. And, you know, that's maybe not the coolest thing in the world, but I love it. And it's super important, because finance is such a big part of our lives.

Andrew Stotz 03:06
You know, I used to work for Citibank. And when I left, and I was talking with some regulators in Thailand here, and, you know, just generally in my talks to other people, I, I oftentimes say that, you know, if you would allow competition, you wouldn't have to break up the big banks, it's kind of ridiculous, they come up with this idea of too big to fail. And then they talk about, okay, but we got to break them up. And if you look inside almost any of these banks, and it's now Citibank just happened to be the one that I looked inside. But I know if you look inside almost any of these, they're just they're trying to do so much. First of all, they're trying to do everything. And it just, there's so much legacy. And if you would allow more competition in the industry, than you would see that these would, they would not be as big as they are. But maybe I'm a little bit of out of touch on that. And I'm just curious, how does that, you know, how would that type of idea, you know, fit with what you've seen? Not only obviously, you know, let's just say in the financial industry, as well, as you know, insurance? Yeah, so

Sean Harper 04:21
my last company before this was a payment processing business. This is an insurance business. These are both, you know, businesses that are super concentrated. It's incredibly hard to start a business in the space. And a lot of that goes back to the regulations and how they're, how they're regulated. And I think usually the government almost always, when the government is setting rules, they're doing it with noble intentions. They're trying to protect the consumer, they're trying to protect society. And it's never the First Order impact. That's the problem. It's the second order. It's the unintended consequences. And so they're like, Oh, we want to protect consumers. Let's put a rule. Oh, we want these big Used to be stable these insurance company, let's put a rule it's but another rules but another rule. And at the end of the day, they put so many rules in place, and so many barriers to entry that you don't have any competition. And so now they have to police every single action, when if they just let the market do its thing, you know, the competition would help the customer. And the competition would help keep these big companies honest. Yeah, so I think they a lot of the time sort of miss, you know, they create these unintended consequences that are really negative for the customer and ultimately make their job easier or harder, they make their job a lot harder. So, you know, I, I'd say kin, you know, we've had to elbow our way into this industry, because it's similar, you know, it's so hard to start an insurance company in any given year in the US. And it's probably just a couple new ones get started the whole country across all lines of business. And we almost died, we almost died like five times doing this for various reasons, because the industry is built to keep out innovation. And the reality is, you know, without, if you think about how like a normal market structure works, you have the big incumbent players, it's their job, to not, it's their job to be stagnant. It's their job to be stable and reliable. And to do the same thing, they do less, it's unrealistic to expect them to innovate, and be customer friendly, you need the crazy startups to do that. So without the crazy startups, there's no one to keep these guys honest. And it's, I think it's a really big problem. As you point out,

Andrew Stotz 06:30
you know, having spent most of my life in Asia now, it's just sad to see America losing the whole point of capitalism. And you see other countries around the world, and particularly in Asia, that have really fired up the power of competition, and the power of loss, you know, when market players have to suffer loss, it changes the dynamic, and, you know, too big to failed is not, you know, and you know, the second thing too is, of course, you have central banks in Asia, that they're constrained because their currencies are free floating in most cases. And the they basically, if they don't have the power of the reserve currency, and America is, is really, really in an amazing position, and they're just squandering it. And it isn't going to last forever.

Sean Harper 07:33
Yeah, I agree. You know, a capitalism is what made this country great. Capitalism is I think, like one of the most positive forces in humanity. And you know, us still has some of the, you know, we have a very friendly overall culture towards capitalism and some of the best capitalists in the world. But it's on it's the, the trajectory is wrong, right? We're not, we're not leaning into what made us great, we're kind of chipping away at.

Andrew Stotz 08:01
I'm looking forward to my next week, ethics in finance class, where the students will be debating the following proposition. Stakeholder capitalism is superior to shareholder capitalism. Now, based upon our conversation, you know, where I would land with that. But I'm very interested to hear both sides of that debate with my students, particularly the younger generation to get them to think about that. So it's, it's a great, it's a great topic, I want to ask one last thing about your business. Can you tell us like, what is the unique angle that you brought into the industry that wasn't there or that existing competitors? Couldn't? They just couldn't get to that?

Sean Harper 08:47
Yeah, so there's really two parts of it. So the first is a business model innovation, which is our product, which is homeowners insurance, even though it's a digital virtual products, right, you're a piece of paper and a promise. Almost all of it is sold through these local branches. And it doesn't make any sense to sell a virtual product or a physical store. And those local branches are really expensive. They add, you know, 20% to the cost structure. So that's the business model innovations. We're getting rid of those local branches, we're going direct to the consumer. And then we have the technological innovation, which is historically, you know, so the tricky thing about homeowner's insurance, is that you could have two different homes on the same block, they get hit by the same weather. And they have completely different outcomes. And the reason is they're built differently, right? Like every home is different. They're all idiosyncratic. They weren't made in a factory. They're all made at different times. They have different rooms, different materials, you have two bathrooms, three bathrooms, whatever. And it's that the way that we've dealt with that, historically, in the industry, is by really asking the user for the The agent, the guy works in that branch to tell us about the home. That's insane. That's like if you apply for a credit card, and I asked you Well, I don't know, if you usually pay your bill. And oh, you do, okay, you pay your bills on time, I'll give you a low interest rate. That's nuts. So what we've done instead is we built this, all this technology that pulls in all this data is unstructured data, images, descriptions, text files, government records, real estate records, etc. and is able to tell programmatically, the physical properties of the home. And we're able to overlay that with the weather that it's likely to be exposed to and determine the accurate price for this. So we're able to give people who have really well built homes, a lower price. And that's all because the technology allows us to do it. So there's the business model innovation, the tech innovation, they kind of play together. I think the reason why the legacy industry hasn't been able to do this, is because they're very dependent on the legacy distribution. They can't cut those guys out, they live and die by them, they, they'd be dumb to do it, right. The insurance agent, the guys who operate those branches, they do control the customer and the legacy insurance companies can't mess with that, or they eat their own lunch. And on the tech side, you will the cool things about insurance, is it was one of the first industries to start using computers. Now the problem is because of the lack of competitive intensity, a lot of them are still using the same computers. Right? These tech systems, no kidding, that are running on software that's like 30 years old. And it just doesn't it, it's really hard to build a really great product when you're using technology that's 30 years old, because just think about how much technology has improved since that.

Andrew Stotz 11:40
Yeah, and when you think about other industries, where we allow free competition, you know, and it's actually when you think about it, every industry, we allow free competition, except for a few, like, you know, let's say insurance or banking. But when you look at that, you know, the innovation is amazing. If I think about my iPhone, or whatever that is, you know, and that, you know, competitive pressure is so, so critical. Well, it sounds like you've gotten something exciting. And I'm going to ask you, at the end of the show, what's your goal for the next 12 months. So I want to hear kind of what your goals are for the company then. And maybe also have you got any personal goals, that'd be fun. But now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to and then tell us your story.

Sean Harper 12:31
Um, so my I alluded this earlier, my previous company was a payment processing business, it was very similar dynamics, right? It's also through these local sales agents. technology hasn't changed forever, dominated by these oligopoly of these huge companies really bad tech. And I was early on it, you know, I started this payments company in was 2009, I guess. And it was hard, it was really hard to start this company, we'd raised a little bit of angel money. We tried one version of the product, it didn't really sell as well, as we wanted, we pivoted we sort of fix the product from had to build it from scratch, it's really expensive. Our investors were losing patience, I went out to raise more money. And, and it was hard, it was hard to raise the money. And you know, a big company, public company came along, and they wanted to buy us for our technology. And, you know, we lost our guts. And we sold the company. And you know, three years later, you know, all the other guys that were sort of either hadn't started the business, but there there are a bunch of really valuable you attack took over that industry of companies like Stripe, and square at the end, really big multibillion dollar exits that dominate that industry. Sorry, I don't want to talk someone will stop him in a second

Andrew Stotz 13:55
family show, don't

Sean Harper 13:56
worry about that. Or he's, he's he wants to say his piece. Yes. All of these companies had had, had really had these amazing outcomes completely dominated that industry wiped out the legacy competitors. And my company was sucked into the guts of this other, you know, public company and and you know, then three years later was gone. There was no trace of it. And it was like, Wow, what a disappointing outcome. No, it shouldn't I shouldn't have sold it. I made exactly. I made exactly the wrong trade. You know, I should have stuck with it, even though it was hard. And, you know, I regret that, you know, 10 years later now and I really regret it.

Andrew Stotz 14:42
And what was it that was motivating you at the time that to make that decision? Like what were the choices you were facing then?

Sean Harper 14:50
Yeah, as you know, is the responsibility of it. You know, when you're running a company, you have employees, you know, there's ups and downs. You know, it weighs on you

Andrew Stotz 15:00
So you were feeling the pressures of that?

Sean Harper 15:02
Yeah, a lot of pressure. Yeah, it was a lot of pressure. You know, it was. I think grass is always a little bit greener. Right? You look, you say, oh, wouldn't it be nice to go work with that big company? Take some money off the table? Yeah, buy a house, pay off my student loan

Andrew Stotz 15:17
be an employee? Salary. It looks

Sean Harper 15:21
great, right? It's like, wow, that'd be so relaxing to do that. And, you know, of course, it didn't, it didn't turn out that way. So, you know, I couldn't do that. Probably the other thing is, like, I underestimated how much I would not like working at another company.

Andrew Stotz 15:42
Um, how would you summarize what you what you learned from this

15:44
experience? Um,

Sean Harper 15:46
I just think, you know, the, to believe in yourself. You know, I think fundamentally, we have sort of lost faith in ourselves and our ability to execute on that. And we were very early, right. Like, it was a really good call, I think on the industry and the disruption that was going to happen. We saw it earlier, and we're the best spot to capitalize on it. But you know, sometimes when you're URL and it's lonely. And so we were there lonely, you know, and, and it got to be real tired.

Andrew Stotz 16:17
So how was the length? What was the total amount of time that you from when you started till you sold that? Um,

Sean Harper 16:26
we started it, it was, it was about four years, we were at that for about four years. And you know, the first year was pretty slow, right? We were just sort of trying to figure it out. And then, you know, then I stuck around at the acquirer for about four years after seven years in total.

Andrew Stotz 16:45
Okay. Maybe I'll summarize a few things that I take away from what you've talked about. Well, first thing, you know, when you said it was hard to raise capital, it makes me think, and this is where kept raising capital is the literally the cutting edge of capitalism. And when it's hard to raise capital, it's because you probably don't have a good market fit with your product, you don't have a great plan with your product. And that's why it's hard. And so thank God for capitalism in that sense, because it really does, you know, push you to iterate until you come up with something that the market, you know, appreciates. The other thing I was thinking about is, I have a client of mine, and he, he, I helped him to sell his business, a software business to Microsoft. And, and he was here in Thailand, and then he had to go to work for Microsoft, obviously, after they bought it. But pretty similar, you know, he is pretty miserable in Microsoft and watching, watching them, you know, in gorge, this massive software that they had created into the Microsoft machine, and then and then trying to figure out what's going to happen, and eventually he left. And eventually Microsoft sold that and then eventually, that whole software, you know, thing that they had created that was so amazing to run hospitals, basically just went goodbye. And to see the whole process of that and happen for him was just really, really painful. And I think you just, you know, remind me of that. I think also, I think a lesson I learned from that was when you sell your business, don't go work for the buyer. And I've watched this with him. And I think that the best way to do that, because he couldn't have completely separate himself from it. But I told him now as I look at it, I've said to him that I would say, be an advisor with a limited amount of time. And so you're an external person that they're paying a fee with a certain amount of time per week, let's say 30 hours per week that you're going to devote to that. And that just severs the relationship in a in a in a way that doesn't cause trouble because there's just no way I mean, very few companies are going to buy another company and just let them do whatever they want. They're going to bring it into their fold. And so the other thing that you talked about was, you know, believe in yourself. And you also talked about you know, sometimes, you know, you're just early and you run out of there's a couple of different runways. We talk about runways, one runway as capital but the other runway is I would say emotional. I often call it a confidence runway, that if people if you yourself start to lose confidence or the people around you start to lose confidence. It doesn't matter if you have a lot of cash. They are going to be you know, the runway is running out. And so I think that for everyone that To listen to this and starting a business, you've got to go as fast as you possibly can to get to I always say, it's starting a business as a raise to three to 5 million, let's just say $5 million, because you must get $5 million in revenue to be able to afford the management team, the infrastructure for the business to be professional. Otherwise, it's just a one man show or one woman show. And you know, there's nothing there. So I have a lot that I thought about, is there anything that you would add to that?

Sean Harper 20:29
No, I wish someone had given me that advice.

Andrew Stotz 20:34
Yeah, and how I'm just curious in when you when you started kin? How were you able to apply what you learn to get better at what you at the startup process?

20:46
Yeah, um,

Sean Harper 20:48
you know, the, I think one thing that I did with Kin is the my previous business was really started based on like, a personal passion and experience that I had. And with Kenna was a lot more methodical about it. And it doesn't make for as good a story. But I was really looking for a pattern that I recognized from my first business, and from stuff that I learned when I was a management consultant. And, you know, is really analytical, and I tried on I took a year to discover the right business opportunity. So I think, you know, just being systematic about it is really important. You know, and I also learned a lot about sort of how to appeal to investors and how to build a team and how to recruit people, I got a lot better at selling, I think it's something that was really under appreciated that I really underappreciated when I was, you know, in my 20s and early 30s, that now I started, I started again, when I was 36, was a little bit older. And, and I just gotten a lot better at selling over that time period, and also lost some of right, like, I had this thing that maybe a lot of like technical people have, or they're sort of allergic to it, and they think it's like impure or not cool, and they want just want to make the best products that have the best technology. And I just kind of got over that. Like, you know, actually the way you make things happen in this world is by convincing people of your vision and that is what selling is, and there's nothing cool about it, it's it's awesome, actually the ability to convince people of something new if you're if you're writing if you believe in it, and if you're authentic. And so, yeah, I think that was a big change for me, you know, just sort of, you know, being systematic, and, you know, getting over my own allergic reaction to selling.

Andrew Stotz 22:39
So based upon what you learned from this story, and what you've continued to learn, let's go back in time and look at, let's say, your self, then or somebody, let's think about one of our listeners, who's in that situation, what one action would you recommend that they take to avoid suffering the same fate? Um,

Sean Harper 23:01
yeah, you know, I think you need to surround yourself by people who have conviction. And, you know, one of the issues that we had at the time was, you know, we, we probably didn't have enough people around us who really believed in the idea, and it's, it's a particularly painful because, you know, eventually a lot of people did end up doing something that was very similar to what we built, and building huge, huge, barely successful businesses out of it. Now, part of that is we weren't executing, right, like we, part of it was the early part of it was we didn't execute as well as we could have. And part of it is we lost workouts early. And I think the third one is probably the biggest. And we just didn't, you know, and maybe it relates to the issue around selling, right, like I hadn't, I hadn't built around me, this crew of people, right. I had my core group of employees and co founders. We didn't have the right investors and supporters and mentors and everyone who would who were there to be like, No, you this all made sense, right? Like, it makes sense. A year ago. It makes sense now, like, you got to keep going. Yeah, I wish we had done that. So you got to surround yourself with believers, I think.

Andrew Stotz 24:11
Yeah. One last thing from my side, I was just thinking about, you know, when we think about capitalism, a lot of people like to kind of maybe badmouth big companies, you know, and all that. And, but what I would say, first of all, you know, surviving is such a remarkable achievement in the world of capitalism. But the other side, let's talk about the other side of capitalism. Let's talk about the 1 million men and women this year around the world whose businesses are going to close who are going to lose all their investment, all of their money all of their time, and they're going to lose it all. And they're going to lose it for very different reasons, sometimes purely random reasons. Sometimes bad business. behavior, some time, bad products, sometimes bad investors, all of the many, many reasons. But this, again, is the cutting edge of capitalism. The losing, that happens in the world of capitalism is damn painful, not just emotionally, but in every way. And that is the power of capitalism that you then can take what you learn and go from an initial startup to another one, and, you know, be successful. So what's a resource that you'd recommend for our listeners?

25:34
Um, you know,

Sean Harper 25:35
there's a book I read when I was young called against the gods. It's about statistics and probability probability and sort of early capitalism before we even had an economy out of this. And sorry about my dog.

Andrew Stotz 25:50
No problem. Or stop.

Sean Harper 25:53
I'm on a podcast stop. Yeah. This is what he wants. He wants. He wants this right here. Oh, you got it. I love that book. Yeah, I just. And that book is such a great framework for thinking about how the world works. Yeah.

Andrew Stotz 26:11
Fantastic book and a great recommendations. Ladies and gentlemen, I'll put that in the show notes, as it says on the front, worldwide best seller against the gods, the remarkable story of risk by Peter Bernstein. And I always judge books by how many dog eared pages I have in it. And I have a bunch in this one. So great recommendation. Great recommendation. Last question. What is your number one goal for the next 12 months?

Sean Harper 26:39
You know, the market for tech companies is not great, right now, you know, for us, we finally reached you know, we have this year, about $250 million in revenue. And we have something that's really working, right, it's working in a big in a big market. And it's working, our customers are happy, and the economics all kind of makes sense. So a big goal for us this year was to get to profitability, right? To take ourselves out of having to raise money every year from investors. I've been telling people, you know, in my company, this is a year where it's cool to be boring. We've got something it's working, what are we gonna do next year, we're gonna do just same thing, but just just more of it. Right? Like, we don't need to get too crazy about it. Like, let's just keep our heads down, let's execute really well. You know, the whole economy and everything is gonna get better. I don't know when. But right now, like, you know, let's just, let's just execute and be boring.

Andrew Stotz 27:35
What a great goal. There's a book I would recommend that helped me in the past called the six month fix by Gary Sutton. And it's easy turnaround guy. And the first you just use the first line in the whole book, the first paragraph will just really pissed me off. Because he said, Hello, Mr. CEO. I'm the turnaround guy. When I come, you leave, because I can do what you won't. And he made me realize that the thing we have control of is our costs. That's the only thing we ultimately control today. And so making a business profitable for the listeners out there, if you're, you know, you are making good revenue and all that. Sometimes there's times where you've just got to say, All right, we gotta get profit out of that. So that's an exciting, you know, 12 month goal, and I look forward to seeing how it goes. Thank you. Yep. So listeners, there you have it another story of loss to keep you winning. If you haven't yet joined the become a veteran investor community, just go to my worst investment ever.com Right now, as we conclude, Shawn, I want to thank you again for joining our mission. And on behalf of a Stotz Academy, I hereby award you so forget about that. Chicago, University of Chicago. This is alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience? No,

Sean Harper 29:06
I don't thank you for having me. I appreciate it.

Andrew Stotz 29:09
Great to hear your story and learn from you. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that. Today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying. I'll see you on the upside.