🎧🍌 Alloy’s Unconventional Path to $1.5B with Tommy Nicholas, Co-founder and CEO
Getting PMF on steroids with hands-on sales implementations, why you're most likely to give up on something hard when it first starts to work, and how hiring changes as you scale
Tommy and the team at Alloy have quietly built one of the most important companies in fintech. On the surface, Alloy is an identity and fraud prevention platform trusted by over 700 financial service companies. Digging deeper, they’ve built a platform that’s core to every financial services company that operates on the internet.
This conversation explores the early days of fintech, why more consumer financial protections actually lead to more fraud, and gets into the weeds of building a technical platform company like Alloy.
One of my biggest takeaways is that there was a period right before it all started working where Tommy almost gave up. We talk about learning to embrace that the hardest parts of company building are actually the best parts, and why you’re the most likely to give up on something hard when things first start getting better.
Alloy also uncovered an early secret: using hands-on sales implementations in the early days to get product market fit on steroids. Tommy explains how they did it, how hiring changed as they scaled, getting 100’s of no’s over 20 months raising their Seed round, and why TAM doesn’t matter.
A big shoutout to Charley Ma for his help brainstorming topics that made me and Tommy seem smart.
I also have a quick favor to ask of all of you reading this. I just started producing the podcast by myself (I still recommend Turpentine to everyone starting a podcast!). As part of that, I just signed the first sponsorship deal. If it goes well, I can hopefully do more, which means I’ll be able to hire some help 🤞
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Timestamps to jump in:
3:56 The platform to manage fraud
5:48 What fintech risk was like in the early 2010’s
14:34 Why company building never gets easier
19:30 Reasons the hard stuff is actually the good stuff
24:00 You’re most likely to give up when things start getting better
33:47 Doing hands-on sales implementation to get PMF on steroids
42:26 Deciding when PLG or hands-on sales will work best
52:33 Why more consumer financial protections leads to more fraud
58:14 20 months to raise $2m vs $200m from a spreadsheet
1:06:32 “Make yourself look like a good investment”
1:10:14 Why TAM doesn’t matter
1:14:35 How to hire collaborative problem solvers
1:24:38 Why Alloy didn’t do much marketing early on
Referenced:
Find Tommy on LinkedIn
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Transcript - (read on Rev)
Find transcripts of all prior episodes here.
Turner Novak:
Tommy, how's it going? Welcome to the show.
Tommy Nicholas:
Hey, thanks for having me.
Turner Novak:
Yeah, thanks for coming on. Really quick for people who are not familiar, can you just tell us what Alloy is?
Tommy Nicholas:
Yeah, well because we're on Zoom, I can't answer your question directly. I have to say the following sentence. Let me take a step back before I answer that question. It's a classic Zoom phrase. So the one thing to know about Alloy is that we solve this problem. In financial services, the thing that's different about financial services products and other products that offer digital stuff to consumers and businesses is everything that the users do in financial services is risky. If you open an account or send a payment, you might be committing fraud, you might be committing money laundering, or you might be taking on a debt obligation you can't pay back. And every single action, literally logging in, opening an account, touching your app, has risks that touch one of those three things.
And Alloy is a foundational platform to manage fraud, AML and credit risk specifically as it relates to the actions users take in financial services. We only focus on banks, FinTechs, credit unions and other regulated financial services providers in the US and then our office out of the UK and Europe. And so hat we do is we go really, really deep on the integrations, tech, partnerships, features, analytics, et cetera that make fraud prevention, AML detection and credit decisioning work, specifically as it relates to users of financial products.
And that's Alloy. We are best known for doing everything I just described in the identity verification world. Your first time you're coming to a bank to sign up for an account, they have to verify your identity, check if you're a known money launderer, check if you're somebody who is known to default on credit obligations, that's what we're best known for, but we've extended the platform to a bunch of other areas like authentication, ongoing risk rating, other things we can talk about, but that's really the foundation of what we are and the platform we built.
Turner Novak:
From there. Sounds like a pretty big problem. Sounds pretty complicated. How did you initially come up with the idea?
Tommy Nicholas:
Yeah, it is a big space and we'll probably touch on the different aspects of it that we work on, but we actually came to the problem as builders and that is actually our whole DNA. The people who started Alloy, we say there's three founders of Alloy. That's like if you look on the internet and you're like, "Who are the founders of Alloy?" It'll say Charles Hearn was a CTO. Laura Spiekerman was the president and co-founder, doing all the business stuff, and then Tommy Nicholas was the CEO with some unknown job for most of that time, but still doing the CEO game to this day, somehow. It's not the business stuff and it's not building the product, what is it? But there was actually a bunch of other folks, a guy named Peter Hanneman, a guy named Chris Mollo, Scott Clark who's still with us at the company who were part of the founding team and almost all of us are builders, engineers. I was the worst of the engineers, which is why I'm the CEO. That's how that-
Turner Novak:
They're like, "Don't touch the code."
Tommy Nicholas:
Exactly. They were like, you go be the CEO so that you won't take down production. And that was the bargain that we made. And so we all approached this problem from a builder's perspective specifically because we were all working together at a company that maybe we'll talk more about later that was doing ACH processing, which is like when you need to deposit money into your bank and you need to take it directly from another bank, that's ACH. It's like digital checks is the easiest way to think about it.
Turner Novak:
Which is commonplace now, right?
Tommy Nicholas:
Super commonplace now, but it was really, really hard 10, 12 years ago. This was 12 years ago. It was really, really hard to do ACH on the internet and the actual, there's only really two reasons why that was difficult and still remains somewhat difficult, but it was really difficult at the time is unlike card payments, there was no notion of tying a credential or some authenticated method to the payment. You literally would give people your account and routing number and they could pull all the money out of your bank account if they were a regulated financial institution. You would tell Acorns at the time, here's my account routing number, and they would have no way to even figure out if that belonged to you, and then they could just go take all your money and put it in Acorns.
Now as a user of financial products, that's great when it works, which is you just say, take money from my Bank of America bank account and put it in Acorns or whatever, put it in this investing account and use it. And that's great except if, what if that isn't your bank account or what if you didn't tell them to pull that payment? And so ACH is a weird, scary payment method because of that and because there's no way to figure out or there was and there's still... But there was at the time no way to figure out if you even had that money in the first place. So you said, "Deposit money into investment account and then buy Tesla stock." Well they go and execute that transaction. Tesla stock goes down, then it find out three days later, literally three days later that you didn't even have that money in the first place, well, somebody's got to deal. So maybe it's not even your bank account in the first place and there's no money in there. That was-
Turner Novak:
The holy grail of the worst. Yeah.
Tommy Nicholas:
Exactly. And so what we were working on at the time, this is not Alloy, just to be super clear, but what we were working on at the time and the company we were working for was doing a guarantee of all of those problems I just described to you. If you used the tech, they would indemnify the FinTech company that needed to link ACH accounts or whatever, whoever was using it, the Bitcoin wallet that needed to deposit funds to buy Bitcoin, we would indemnify them of all of that risk that there was no money in the end account or that the account didn't belong to the person. Or the third thing which was that maybe they were actually all of it belonged to them and all that, but they would go and lie and say, "Oh, I didn't make that transaction. That wasn't me." And use consumer protection laws to do first party or other types of fraud.
And as a builder, we were all engineers and product people. I was the worst as we've mentioned of those. But we were all struck by how much of the process of verifying customers, figuring out what their intent was, figuring out what their obligations were, we thought we were building something that ended up looking like what Plaid ended up looking like and that payment processor all in one. That's what we thought we were building. But all we ever spent our time on was risk management, fraud prevention, identity verification, money laundering detection for our sponsor banks, and credit obligation assessment specific to this one area that we were dealing with, but it was broadly similar to a lot of other things.
And it wasn't that there weren't products that existed that could help the credit bureaus know things about people's credit history and there were emerging products around identity verification or fraud prevention or first party fraud and third party fraud and synthetic fraud. There were products coming out, but as a builder, the experience you actually had was you had to build a system from scratch to manage how you made different decisions. You had to integrate with all those products, you had to figure out one product didn't work and then you integrated a different product and then you had to build analytics and you had to build workforce stuff for people to say, "Oh, we have to pause this and let somebody look at it and click a button." It was surprising. Everything else we did, there were core systems that just were supposed to work or be the fabric upon which you built these whatever, whether it was CRM or AWS for compute infrastructure.
But when it came to make decisions about fraud, AML and credit risk in real time that touch users and touch regulators and touch your sponsor bank, and, and, and, you were just supposed to figure that out man. And that just seemed insane to us. And it turns out that it was not insane because actually there was not a monstrous need at that time for that in the market because digital financial services was small, but we all felt like it was a monstrous need because we were trying to do one of these bleeding edge FinTech things of which it felt like there were lots to us, but there actually weren't.
And we also thought that even to the extent where I do think we had some insight was to the extent that there wasn't a ton of digital financial services at the time, it was obvious there were going to be. And so we all decided to start a company together to basically go tackle that problem head on instead of as part of a larger set of things, just say just this one area feels like it's the future to us. Let's go build a foundational system, not a solution to any given problem, but more of an operating system, a platform for fraud, AML and credit risk decision making, particularly in realtime financial services. And that's what we sent out to do and turned out to be really hard. But 10 years later, here we are.
Turner Novak:
Yeah, I've heard that you're doing pretty good there. Is there just a headline number, like certain amount of revenue, certain valuation, employees, I don't know what's the best metric of success? Or what's public that you've shared?
Tommy Nicholas:
I was warned before this not to say a couple of things. So I'll say some other things. I was given a stern talking to. But no, we did. So a couple of things that are publicly available. We have over 700 customers in banking and FinTech. Over half of those are regulated banks or credit unions. So when we say 700 customers, we're not talking about a PLG motion where 700 people signed up. We have 700 very serious people, very serious companies doing very serious things with us and we're really proud of that. We have, I think at last count 258 employees and boy are we trying to get that number up as fast as we can. We have as many roles open as Greenhouse or whatever we use can... We're going to break their open roles on the platform, probably not, but that's what it feels like.
Turner Novak:
You're going to have to upgrade to their enterprise tier to add more.
Tommy Nicholas:
We got to pay somebody more money. But we're hiring very, very aggressively and we've raised $210 million most recently from Lightspeed and a bunch of other folks, Bessemer Venture Partners led our series A, Canapi led our series series B and Lightspeed led our series C. And we are approaching a very significant revenue milestone that I'm sure we'll talk about at some point. But we're doing quite well growing around 40% year over year. So feeling really good.
Turner Novak:
Nice. That's awesome. Well congrats. I don't know if I ever said that, but I mean, I know that you've been on a journey that we're going to get on, so it's cool that you've... I don't think you ever make it out, there's always shit going on, but it always feels like there's more to do, but as long as you guys have accomplished a lot.
Tommy Nicholas:
There is literally always shit going on and I think it would actually be bad if there weren't, it would be not as fulfilling of an experience, but it definitely never gets easier. And I think that's actually because of a very fundamental thing, which is if you're thinking about being a founder, this is the number one thing you need to know is it never gets easier by definition, because if you are doing your job right, all you're doing all the time is earning your way into new really hard problems to solve. If you have some point of view that you're just going to elegantly engineer the solution to one problem so well that it will scale forever and then you will be done, guess what? That's not how it is.
The way it actually is is you go get product-market fit for a use case with a segment. Well now you've got to figure out how to dominate that use case in that segment. Okay, well now you also got to figure out how to earn your way into the second use case with that segment. Guess what? That's just as hard as it was to do it the first time, except also you're scaling the first use case. So now you have to do two things. You have to do this magic really hard thing that almost nobody can do in the first place while you're scaling this other thing that is a known hard problem, which is dealing with a scaling company. And then you have to earn your way into the third use case and then you have to get into a new segment that you don't even know.
And that is the foundation that makes it so true that at every stage of growth, a huge number of the players you thought were going to work out don't work out, and they have to sell or they have to just change their view and become profitable. Nothing wrong with that but become a cashflow generating business that's never going to generate the returns on the equity that they thought, fine outcome. Or has to go start acquiring companies to look like they're growing. At every stage, you earn your way into these new opportunities and problems, and you either succeed or fail at capturing them. And so every 18 months it's a question as to whether you're going to be one of the companies again.
And I think I definitely thought, and we can talk more about it, but I definitely thought when we really got product-market fit on steroids, which took a long time, but when we got it, I had the naive founder perception of, this is going to be really hard but we're going to grind our way through this growth period and then a magical executive will show up and solve all my management problems or whatever. And it turns out to be completely the opposite, which is you immediately earn your way into a new, you either unlock being... And now, you either unlock becoming a company that grows in the forties, fifties, or sixties or you unlock being a company that grows in the tens or twenties and those don't look that different for the first six months of it, but lie over six years, that's everything.
So I think founders I say all the time should think more about what if it works? Not like how great will it be when it works? Actually, or maybe you shouldn't think about that because then you wouldn't do it. But that is the real question.
Turner Novak:
Only think about the upside. Do not even visualize the downside.
Tommy Nicholas:
Maybe actually, you know what? We need more innovation in this country. I take it back. It's actually great when it works, don't worry about it. Just get started. It's super fun.
Turner Novak:
Speaking of being super fun, regular listeners might have realized already, but I recently started producing the show by myself and it's hard, it takes a lot more time and money than you would think, but I just signed the first sponsorship deal and I'm excited to both talk about and also ask everyone to help with. This episode is brought to you by Numeral. Numeral is the end-to-end platform for sales tax and compliance. They handle registrations, ongoing filings, and their API provides sales tax rates wherever you need them with all the integrations you need. Numeral supports over a thousand customers in both the US and globally, and they pride themselves on white glove, high-touch customer service. Plus they guarantee their work and they'll cover the difference if they mess anything up, they're fresh off a fundraise, raising an $18 million series A from my friend Chetan Puttaguntaat at Benchmark, and my friend Nate just joined as the head of growth.
Similar to many guests of The Peel, this is the first podcast ad they have ever done. If you want to both support the show and help Nate figure out a podcast or a good channel for numeral, check them out at numeralhq.com. That's N-U-M-E-R-A-L-H-Q dot com, for the end-to-end platform for sales tax and compliance. Now back to Tommy.
Because I was going to say, based on you describing through all that, it sounds like you are in the midst of it or you got through it or you've learned to embrace it. Where are you in the journey? And maybe you just said it at the very end there, but how do you recommend getting through it?
Tommy Nicholas:
So you know what made me a happier person? And I am just generally a happy person. I don't mean I had big bouts of not being able to make it, but what really made me a happier person as a founder was realizing that earning the right to do the hard stuff is the good stuff. That there's not some magic other side, that that is actually the good stuff. And actually, so let me tell you what the bad stuff is. So when we started the company, we were coming out of a period of a lot of stress. We were working at that previous company, really cool, doing interesting work, but it was very stressful situation for a whole bunch of reasons maybe we'll get into later. So coming out of a stressful situation, but we all loved working together so we decided to start a company, we get into Techstars, we raised a little bit of money and we're feeling good about that. Like hey, we got through that, we raised some money, we got some early reference, design customers, this is great. We're going to make it. And so that was a good period.
We, from that point through maybe almost early 2018, sometime in the middle of 2017, but really early 2018, basically nothing super stressful happened because nothing happened at all, basically. We could not get our early design customers that signed with us, the products that they had signed with us to build, they didn't end up building. So now that's super horrible, but it's also low stress. It's like well we're not building for those customers. There were actually points in that where we were grinding and working 80, 90 hours a week trying to fix it. But by the time we were in the beginning of 2017, there was nothing to do some days. And I'm not saying that I actually went to the coffee shop and just sat there drinking. Yeah, no, because we're always trying to figure something out. But there was, we call it the doldrums when we refer back to it around here because they're just like, we felt like we had tried everything and we had a million balls in the air of customers we thought might sign or go live or different things, but none of them were landing.
And then all that work that we did over that intervening two, two and a half years, whatever you want to call it, all started to pay off in a way that felt slow at first but then it got really, really fast and it was like, okay, the small bank in Boston that we've been trying to land for 18 months is ready to go live. And we thought it just would never, we'd give it up on that. We were just like, that's never going to happen. Or oh, this other deal that we implemented nine months ago but never went live and we just gave up on, they just went live and now we have two customers. And then, it felt extraordinarily stressful going through the next two, two and a half, 3, 4 years because it's just this compounding, now you're just scaling hiring, can't hire fast enough, oh, I'm doing everything.
This is a well-documented part of the founder journey. I'm not breaking any ground here. And so then you start to convince yourself, okay, this is the bad stuff because this is so much is going on. But the reality is the bad stuff was that period before that when nothing was happening. That is the bad stuff. That is when you feel really unfulfilled, unsuccessful, bored, boring. And you know there's been other periods where I felt like there's been a peace, and every single time there's been a peace I'm like, try to enjoy it and try to know that it's going to end. But I really feel like I no longer say, I hope this is just how it is, because I know that if that's how it is for long enough and there's too much peace, it only means one of two things. Either we've run out of hard problems to solve and that's not going to be really interesting, or more likely that we're not earning our way into the next set of hard problems because by the way, the market is too competitive.
American technology companies are too competitive. There's no way you just sitting around and sitting on your laurels and not trying to accelerate something or whatever is working and winning. There's just like, I assign a 0% probability to that being true at really any given time. And so ultimately what you are hoping for is the right type of chaos. That's really the good stuff. And unnatural peace can be a sign of the bad stuff, even if maybe you play a few extra rounds of golf during that time, which I try to do when I earn the right to.
Turner Novak:
So I feel like you've mentioned this before, that there's this point where you feel like you're the most likely to give up is actually the worst time to give up. I don't know if I said that right. Maybe you know what I'm describing. It sounds like maybe you went through that. Can you just describe that moment?
Tommy Nicholas:
Yeah, this is something that I notice a lot, not just in founders but in actual projects, in company building. And I'll use the company building example I was just talking about to illustrate it, which is the point at which things are getting better and that you're out of the hard build is the point that people are most likely to give up.
Turner Novak:
And how does that usually play out?
Tommy Nicholas:
Yeah, so this is what it is. So let's use the example I just gave, which is we start the company, right? We're going up, we raised some money, everyone tells us we're great, we signed a design customer.
Turner Novak:
Yeah. You got a TechCrunch article and...
Tommy Nicholas:
The TechCrunch article and then the design customers' timelines are delayed. Oh wait, they're going to kill the project. Or the other design customer we had is pushing the project out to two years. Okay, now we're down here at the bottom, we're way below where we started. It's worse. And then we have to go fix all that, get the next customers. It's still getting worse. Okay, now a customer starts to go live, we're trending up, another customer starts to go live, we're trending up. Okay. So right at that point, we had the customers and we lost the customers, we had to go get the other customers, we got one live, we got the second one signed. Why is that the point in a project where people are most likely to give up?
It was definitely true for me that at that exact point I just described, I went to my co-founder Laura and I was like, "I get it. This is never going to... How is this ever going to happen? We're trying to sell to banks on these infinite sales cycles. And we need banks or the banks won't work with us. This is a chicken and an egg problem. How are we going to get over it? I used to think we would get over it but now I can't see the finish line." And Laura is much smarter than me and said, "No, I see this. I can feel how much people want the product we're building. And I just know that we are clever enough to figure out how to give it to them because how can it be that we're building something that people want so badly and we won't figure out how to give it to them?" And I was like, "I know, but two and a half years of evidence suggests."
Turner Novak:
Yeah. And you probably had a couple of customers and you're like, it's still not really working.
Tommy Nicholas:
That's what it is. Well it's because you have a couple of customers that it makes it so hard to imagine, because you're the farthest away in time from when you were hyped up, right? You've been going through this bottoming out for a long time. And if you just look back at the short-term progress curve, it's marginally up because you're turning it up, you know what I mean? It doesn't just jaggedly start going like this, you're turning it. And so you're putting the maximum effort into the most modest gain that you'll ever see. You're putting all of this effort and you're so long in time from when things looked like they were just going to work, that you basically get demoralized and you say it's going to be this much work just to turn this little bit. And it's been so long since I thought this was going to be easy and that's when people give up.
That's founders that have that experience, but also when you're building, I've experienced that here when we were building and launching new products where it's going to work. Oh, it's going to be hard. Oh, it's starting to work and then everyone starts to go, "This is never going to work." And I now know how to see it, and I can see, oh that person's in the giving up because it's working mode. You think this is now the progress line, it was going to be like this, now it was like this. And people are really willing to sign up for the turnaround. Nobody wants to give up before they've seen the thing turn around. But once it starts turning around, I did it, everyone does it, you start to extrapolate forward. This growth rate sucks but it's because you're still turning it up, you're turning it like this.
And I just see it all the time and I think it's a very common phenomenon that once you see it, you see it everywhere and then you can learn to notice it, point it out to other people, help people through it because it's so important to keep turning that upwards.
Turner Novak:
Yeah. Do you have a way to maybe dissect a way to figure out if it's worth continuing the turn or figuring out like this is not a real turn and we actually probably should get up? I don't know if you have any experiences.
Tommy Nicholas:
I used to think I was smarter than I am in a lot of different ways and I've spent my entire adulthood being humbled. And one of the things I used to think I knew was the difference between something that was worth doing and something that wasn't worth... Like a slog that was worth slogging and a slog that wasn't worth slogging, I have a horrendous track record on that. My friends who have slogged through slogs and the ones that have turned out to be a slog worth slogging and the ones that haven't, I couldn't have predicted. I'm never able to predict it.
So I've now got a new lease on that which is basically, it is actually where I started when I was younger, even younger, how I used to think, I'm back to my 15-year-old point of view, which is basically never give up because it's two things. One is you got got to have some point of view on, is the work the kind of work that you could enjoy? If it weren't this way where you're in this, do you like the work? Do you like the mission? I know that that's become a little bit so overused, it's unmeaningful, but do you still wish, and this is how Laura, my co-founder, snapped me out of this.
She was like, "Just skip one step, and just say let's skip the one step where we're in the slog. Do you still really believe that there will be a foundational system for fraud," and fraud and AML is mostly what we were focused on at the time, fraud and AML and then potentially credit, "that will be adopted by financial services companies?" "Yes." "Do you like working on that problem when it is something other than a rewardless slog?" "Yes." "Okay. Then, it's just never give up." They're going to have to drag our bodies to the graveyard before we give up is the only real way to make the decision because if you make the decision any other way...
I think all the magic things that come from just being hard committed all in go away when you start rethinking it. And I think you rethink it when you're presented only with an opportunity to really radically rethink it for some reason, which might be big life change, could be... There's a bunch of them that come up and maybe you take some of those opportunities as they present themselves to make another three-year commitment or a six-year commitment. But I think the best answer is there's no turning back mentality, because you unlock a lot of magical things with a no turning back mentality, longer-term thinking, other people start to believe that you're undefeatable, you can engender that feeling in others that's hard to engender in yourself. So if you can engender it in others and it's hard to engender... It's hard to manifest that feeling for yourself. So if you can help other people feel like they can draft on that feeling, that's such a powerful thing because now we are in partnership unbeatable and never going to quit.
Turner Novak:
Yeah, if you're unbeatable then I'm probably unbeatable too because I'm on your team.
Tommy Nicholas:
Exactly. Or if I don't feel like I'm unbeatable but I feel like I'm unbeatable with us as partners, and maybe neither of us actually feel that way deep in our bones, but the way we can create that as a group, you get a lot of those things that start to go and then you start to believe it yourself and then you can compound those things. So I don't really know, but I think my mentality now is more trying to reevaluate more the basics of do you still think the thesis is true? Because I do know people who I'm like, you need to stop working on this problem because you don't even believe the hypothesis anymore. The people who keep trying to pivot to different businesses because the hypothesis is I would like to start a business, I think that's perfectly worth giving up on maybe before you even start if I'm honest.
But if you're on an idea that eats at you, and it's going to eat at you no matter what, I think you want the world to take it away from you before you give up on it. Meaning you ran out of money and then you ran out of money personally and then, or whatever. Whatever the reasonable ends of that are. Maybe you shouldn't run out of money personally, but I just mean whatever the reasonable ends of that are, make the world take it away from you or realize you weren't that passionate about it and you were just trying to start it.
If you really do realize, as I did with one of the things that I was doing earlier, that I'm just doing this because I think starting a business would be a cool thing to be, I wasn't even trying to start a business in that one, I was trying to start a website, then maybe you can give up on it, but I think you want that to be the reason. We're out of options, we literally have to walk away from this or if we're honest, we didn't really care about this, we don't really think this is a good idea anyway. And I was just trying to, I just didn't like my job and wanted to do something else. Okay, well then you can give up but that's the only reason.
Turner Novak:
Yeah. Okay, so speaking of not giving up, you decided you're going to stick with this, I know one thing you did is you have this philosophy around sales engineers, and I know that's how you think about getting your next, I don't know, customers five through 10. So we'll say Alloy, you have a couple of customers, you decide I'm not going to give up, we're still going. How did sales engineers lay into that process?
Tommy Nicholas:
Yeah. And we used to call the process that I'm talking about solutions architecting and it incorporated pre-sales engineering, post-sales engineering, product management, a lot of different things and all those jobs are different jobs in Alloy, now we have sales engineers, we have post-sales engineers which are solutions architects, we have product managers, product designers. But when we were really, really early, and... So the specific thing I think you're talking about and what was it that got Alloy to become a product-market fit on steroids, really differentiated, nobody else thought they could do this platform? It was this magic moment between getting your first couple of customers and a product that you and your CTO and the early engineers thought would form the basis of something, and then striking the literal constant deep mind meld with the customer to deliver on their timelines that don't keep them delayed while still building towards the platform that's going to be the platform for everybody, while still selling, all at the same time. We're selling, we're delivering and we're iterating but in a way that it is going to turn into the platform not a Frankenstein.
I think that skillset just turned out to be, when you talk about founder product fit or founder market fit, me, Charles, Laura and Scott and the early folks, that is the thing that we have founder market fit for of just keeping that an hourly, daily practice that turns out to be productive and building a lot of things in the process that turned out to scale for years. Even though they felt bespoke for the customer, they turned out to be rigorously built constructs that stood the test of time. And sometimes they don't and sometimes they do. What I think is interesting is I think a lot of the best technical platform companies that we think about had, I just can't imagine that Databricks didn't do that very well. They didn't just sit in a lab and build Databricks and then be like here are some Databricks, hope it works. There's no way that's how they did that. Or any of those highly technical platform companies that are integrated deep into the stack of the company.
And we work with one of the big cloud companies, and the way they interact with us, I can tell they're trying to really create that loop. But I don't hear the venture community talk about that as this thing that... I don't hear about it as a concept. And you can call it sales engineering or solutions architecting or technical product management or whatever. But that thing is what I feel has enabled us to take bold bet after bold bet and get very close to our customers without building the wrong things. Sometimes we do build the wrong things, but more often than not we get it right.
I'm actually curious your take on this. The reason I'm on this podcast is because Charley Ma was on this podcast and he and I are close and he told me to watch his podcast and see what I thought and maybe we could have a conversation, but I talked to him about this a lot. And I'm like, "Is this a secret?" And I wonder if it is a secret. And actually one of his portfolio companies is in our office right now helping us install onsite, working with our engineers to install something that they sell, but they wanted to make sure the installation goes right for us. And I told him, I was like, "I bet you know that I am so bullish on that company now because they're doing that." I don't need to know anything else other than our CTO selected them and they flew across the country and came in the building to make sure they got all the details right. Ultra-bull. Put me down. And-
Turner Novak:
Is this Arty by chance? Jacqueline and Robin?
Tommy Nicholas:
That might be the case.
Turner Novak:
I might have to actually bleep the names though, but I know they're in New York.
Tommy Nicholas:
Can neither confirm nor deny. I definitely can't confirm. And I just was like, that's the kind of shit I love. And I'm curious your take. I don't hear people talk about that.
Turner Novak:
I think it's, what's this concept with Palantir? It's the forward deployed engineer?
Tommy Nicholas:
Exactly.
Turner Novak:
I feel like it's starting to become more of a meme or just a thing. And honestly it's probably because Palantir's stock price is up 10X or 100X in the past, whatever, year. I feel like that's the thing that drives the narrative. It's like when you see a chart that goes like this and everyone's like, what can we learn from that and let's all copy it, which can be a good and bad thing, I feel like.
Tommy Nicholas:
Credit to my Chief of Staff Eli Koven, who's now off building sales and operations at a company here in New York, but he always used to talk about how he would read about the forward deployed engineers and he was like, "That looks a lot like what we do." But see when people thought about the forward deployed engineers at Palantir, I don't want to comment on Palantir as a company, I just talk about this thing, when people used to talk about that, they talked about it with like that's why that's a bullshit company.
Turner Novak:
Yeah, I remember. So it'd be 2018 and people would be giving presentations like this company is the next zero in Silicon Valley.
Tommy Nicholas:
Fake company.
Turner Novak:
Yeah, it came up a lot. As somebody who didn't know it, I'm like, oh, yeah. It must be a shitty company. But it's just my not being super close to it.
Tommy Nicholas:
And I always remember thinking, well either that does mean it's a fake company that's basically taking cloud infrastructure and building bespoke things for a non-discerning buyer, which is what everybody thought they were doing, or if they've got it right, they're basically just front running all of the implementation risk that could exist from a highly configurable technical platform and then driving insights back to the business because if you're putting forward deployed engineers, you're not going to be able to charge for those forever. You're going to have to productize stuff at some point. Again, the world is too competitive for somebody not to figure out how to productize what anybody's doing with people.
But if the feedback loops exist, it's a secret to just be like, okay, let's front run some costs and basically make sure the implementation gets wired into the fabric and then let's figure out what insights we missed that made that so hard to do. And then let's create a feedback loop where we can just turn that around and turn that around and turn that around. I think of that moment when you're building a technical platform early on as something where people go, okay go onsite and install data infrastructure, but that's not how you do it in the future, right? That's how you get product-market fit. I think with these technical companies sometimes the secret is that actually is how you do it. Actually, you should wire that straight into the DNA of every hire you ever make of what my co-founder Laura says a lot is, "Get on it."
Turner Novak:
Get on the plane.
Tommy Nicholas:
There's another word, but get on a plane.
Turner Novak:
Does it the story with the letter F that's in between there?
Tommy Nicholas:
Yes, it does.
Turner Novak:
Okay, there we go.
Tommy Nicholas:
She would kill me. She'd probably never said that word in that sequence. I would say it that way, but get on a plane, right? And I think it's so true. And I'm a tall guy, I don't like being on planes, but every single time I've gotten on one it's paid off in spades. And so when I look at startups, I actually really look for, I love it when I'm getting a drink with a founder and they're like, "God, I feel like I'm just doing all this stuff that can't possibly work in the future." I'm like, "Good, this is amazing. Actually you should do this forever. Don't ever stop." You got to make it easier, you got to automate it. But be with them, be close to your customer. Don't be scared of creating proximity between the technical people at your buyers. And so anyway, I think that's a secret that is getting out, but I think it's important one.
Turner Novak:
So to probably summarize, it's you do the implementations yourself and you figure out the things that just could go wrong, are going wrong, aren't quite there yet and it just helps you just build a better product that just helps them adopt more efficiently.
Tommy Nicholas:
Yeah, you're helping them. Putting people in front of the customer more consistently who are technical people helps you figure out, they might be, they might all sit, your customer might say, I can do all this myself, and you want that to be possible, but then the reality is you would be looking back 30 days after they've started and be like, how are you doing? And they'd be like, "I'm pretty good, pretty good." And then it's all of a sudden 200 days later and they're not renewing because there was some little thing that they just didn't think about and whatever.
If instead you put technical people close to the customer, two things happen. One is they just push them through that, whatever it takes. "Oh, turns out we didn't have an internal CRM. Well, here's how you work your way around that. I'll actually help you even configure something you didn't know could happen in the platform to do that." And B, they phone home and they go, "Hey, there's this thing happening with two of the customers I'm working with that we assumed we didn't need to solve for in the product because the customer would solve for, but boy it doesn't seem like it. It doesn't seem like they've solved for that." And you can create this flywheel of actually getting the stuff implemented.
Jason Lemkin says this about SaaS, which I don't think this is what I'm talking about, but just to give you an analog because I'm not really talking about SaaS, I'm talking about technical platforms. But he always says, "I had another SaaS vendor who said they could switch me from this to that. And I said, 'Well will you do it all for me?' And they were like, 'No, you have to do it.' And so we didn't do it." With technical platforms, that's death, man. We got to be, we got the details matter so intimately and I think there's a bunch of founder profiles that people should be looking for which are like, who are those people that are going to get on the plane, but also that know how to build that, I'm highly technical but the customer is going to want to be around me. I don't need to create separation between me and them. I can understand the thing 360.
And then I think a skillset I would want to see in company scalers is can you work with those kinds of people? Can you build more of them? Can we not be so afraid of having them in our company because we think everything needs to be PLG? I'm giving you the anti-PLG thesis here. Basically that's what I'm really doing is this is my, okay, you could be PLG or you can be this. I think those are the two ways you win. PLG means all the things that everyone knows about PLG, but there's some technical people wired into the fabric that's actually a little bit even more interesting, scalable. And it doesn't have to create costs that are untenable for either side. It can just be part of making it all work. And that's part of my startup thesis right now if I have one.
Turner Novak:
That makes sense. So for people who don't know PLG is product-led growth. The way I've heard people describe PLG that I actually like and I'm like, oh yeah, that was actually pretty smart, I'm going to steal this and use it in the future, is it's more of a pipeline strategy. It's not a sales strategy, people just don't discover your product, put in their credit card and spend a million dollars on it the next day or whatever. It's a way to fill up your pipeline and then all the things that you'll do to sell someone something you do, but the leads just magically show up in your pipeline because your product is so good and people are signing up. So you can maybe jumpstart some of it, but you still need to do the forward deployed, the sales engineer, do the implementations yourself.
Tommy Nicholas:
Here's the test I would give for, I think it's hard to do PLG and what I'm describing all at the same time. I think you can try to do parts of it, but here's the test I would give to founders to think about should I invest more in PLG or should I invest more in a... Forward deployed engineers is the extreme version of that. We don't do that here. We go give the technical resource that we think makes the project successful based on what the project is to the customer, that's more how we think about it. So we have very technical people in the sales process being very hands-on, making sure everything is just so, but then we figure out who is needed to go, do they need somebody who's more going to do ETL for them because they just don't have that and we need to do some ETL processes to make the fraud prevention work? Or do we need somebody who can be pretty hands-on with their engineers to get the little nitty-gritty? So that's how we think about it.
Would it matter for the long-term health of your customer if they got some number of set of things in how they wired you into their product wrong? Is there a 10X swing in some little detail of what they decide to use you for or not? That could be a 10X swing in the long-term value that you can create and therefore reap from the customer if they got one thing wrong. And the more times the answer to that is yes, the more you need to go and never have an interaction with the customer that doesn't include somebody who's helping them. And for the super technical platforms, I think the answer becomes yes a trillion times.
So for example, at Alloy, one of the things that we do is you can integrate with an API and a set of SDKs where you're saying here's a customer, go do a bunch of things that that'll instruct you in your product like in a point and click way to do, and then come back to me and tell me if the answer is I guess yes, fraud, or no, all good, or there's some next step that needs to happen.
And it's a true statement that if the technical people at the customer doesn't understand that the way they need to integrate that whole suite is to let the suite orchestrate all those processes and not have there be some second layer behind us that goes and says, well because these different data points came back, do this other thing, if they don't understand that, they miss that and they're creating a second layer of orchestration on top of our layer of orchestration, then now all the people who bought the product, like the fraud people who want to go click buttons in Alloy and say, this is when we send people to step up and this is when we don't, they actually don't know if that will do that or not.
Turner Novak:
Because they built a Google sheet or something else on top of Alloy.
Tommy Nicholas:
Right. So they go click a button and run a test in Alloy that says, tell me if this would be effective change to my strategy. And it says yes, and they hit go, and then nothing changes because there was some other thing, whether it's a manual sheet or some second layer of code that they weren't familiar with that's overriding what we're saying to do. Well that's one of a hundred different things that could be like that. And so we want people to be partnering with them, even if it says it really explicitly in the docs, right? People make, they're like, "Well, you don't understand this about our business." Or "You don't understand that about our business." We do actually, we actually do.
And if we were having a conversation you could understand the consequences of that. And I just think there's a lot of companies that are like that and the ones that embrace that component of who they are and just decide to be really good partners, it's not about making the products any easier or harder to use. It actually makes it more imperative that you make your products easy to use, but it's about creating a relationship where you're guiding to this great outcome and then figuring out what you need to do differently. And I think companies that do that really well are 100X better set up than companies who abdicate that responsibility.
And again, the test is does it matter? And if it doesn't matter, well then don't do it. But if it does matter, don't run away and just think, oh, it was too hard. I see a lot of startups that I feel like died and I can see it. I'm like, I see that they died and I go, I bet they thought this was gauche.
Turner Novak:
And they could just be hands off with it when they really should have leaned in further.
Tommy Nicholas:
They probably tell their investors, oh it was too hard of a problem.
Turner Novak:
That's a pretty good excuse, I mean that excuse makes sense. It's a generic excuse but too hard, too difficult. We couldn't build it. Yeah, that's a perfectly down the fairway, standard reason.
Tommy Nicholas:
Right down the fairway. When I get scared of even a peripheral competitor, it's when I feel like they're doing this. That's when I'm like, okay. When somebody comes out and tries to say they have a product maybe that has some feature that we don't have or whatever, nine times out of 10 we have the feature and we're actually the best in the world at that, because we are just a product and engineering shop that has been hammering away at building the best product for this one thing in this one industry for 10 years. And good luck everybody else is usually my mentality.
But when I think somebody's in there figuring out the nuances of the way that some part of the technical stack at our customers works and how they would fit into it and really guiding and advising them on that, I'm like, I almost don't need to know the other details. I'm like, okay, that's going to be a problem. And I think, yeah, I think it's going to be a theme. I think watch that theme, watch that forward deployed Palantir hype theme over the next... And it takes a lot of different flavors, but keep your eye out for that.
Turner Novak:
Okay. And so, one thing, we probably should have talked about this a little bit earlier, but I want to hit on it now because I guess maybe we're in the weeds of fraud, compliance, the Alloy product, I guess, the implementation. You've mentioned something in the past that the more consumer protections there are in an industry or a market, the more fraud that happens. That sounds counterintuitive because I would think, oh there's all these controls and there's all these protections around consumers, you can't commit fraud. Can you just explain that? How is that even possible?
Tommy Nicholas:
Yeah, so the way I've often brought this up is why is fraud...? The word fraud actually basically means a different thing in Europe than it means in the United States because they've regulated. Have you heard this, that Europe has more regulations on technology companies than the United States? Is that something that you've heard?
Turner Novak:
Oh, yeah. I feel like that's the current narrative. It's like, what is it? The US leads in AI, China leads in something, and then like Europe leads in regulations or something.
Tommy Nicholas:
Exactly. I feel like it's been on the news recently. And so, one of the areas in which they regulate differently than the United States tends to be areas around fraud. But I think sometimes to the positive. And so an example would be they were very rapid adopters, the earlier adopters of chip and PIN, which we now have here in the US, which solves for the problem of what happens if somebody just takes your physical card, can they basically impersonate you? And it's like, yes, in the US still to this day it is yes, it's increasingly no, but it is yes. And then for online transactions, they were earlier adopters of 3DS types concepts where you do an e-commerce transaction, but there's a second factor of authentication that would, so they can't just steal the numbers off your card, they would have to also have your phone to even be able to complete the transaction at some level.
Turner Novak:
Oh, interesting. We don't have that in the US, do we?
Tommy Nicholas:
It's a protocol that exists and is adopted, but it's not mandated. It's coming. So you're going to start to see a lot more, do a second factor before you go do things. And another thing that they have very different regulations or different standards on are how to manage identity verification and other things. But basically as a broad statement, the way that fraud gets perpetrated is one of two ways. Either on one side the customer gets defrauded and that's what everything I just talked about is trying to combat.
Turner Novak:
So this is like me with my account at Bank of America. Someone steals my identity or steals my bank card and drains all my money.
Tommy Nicholas:
Exactly. So what happens if that happens? So then you go and say what? You go and say, "I didn't do that." Right? And then Bank of America, you would say, I didn't do that because you didn't do it.
Turner Novak:
Yeah, even if I did do it, I'd probably try to see what I can... Hey, that Disneyland trip, that was not me. Some crazy-
Tommy Nicholas:
I've never heard of coinbase.com. I've never heard of it. So then that's the perfect point, which is you would call them and say, "I didn't do that." And they would give you their money back. Well, a regime that favors the consumer and says, "Don't ask any questions. In fact we're going to scream at you if you ever get it wrong in denying your claim," that you can either be lying or you can go steal somebody's stuff and basically create a bunch of charges, and then somebody along the way is going to say you never made them, they never made them, and the money is going to get charged back versus if everything is more of a highly authenticated experience without as many of the fallbacks, then you have less area to defraud the institutions.
And the US has just aggressive, and I love this about the US, I think it's a good thing. It just creates a bit more of a problem of aggressive. You just call your bank and any type of transaction period, hard stop that you didn't make, they just have to figure it out for you. And it was actually the case that when they came out with Zelle, and then a lot of the more real-time payments, it was one of the first times they had to confront, well now we've got people logging into online banking. We really think it's them sending money to people. And then they're saying, "I didn't do that." And then we're saying, "Do you mean you didn't do that, or somebody tricked you into doing that?" And they say, "Oh, it's the second one. They tricked me into doing it."
Well with the card transactions, historically, they've just been like, "Okay, tricked you into doing it. Refund." They don't have to do that, but that's been the environment. And with a lot of this real-time payment stuff, they were like, "Do we have to do this?" And so that's what I mean. It creates the conditions the more consumer protections are. Another example is credit bureaus. Credit bureaus have a lot of consumer protections on them. For example, if you get on creditkarma.com and you see a credit line that you didn't open, you can call that credit bureau and say, "Get that trade line off my profile." Well, what if you're lying? How are they going to figure that out?
Turner Novak:
Oh, yeah. So I could have two maxed out credit cards that are legitimately mine and I'm in trouble, and just like, "It's not me," and they take it off and I can go apply for more cards.
Tommy Nicholas:
You got it. And there's other things you'd have to do to pull that off, but you can do those things. And so things like credit washing. So every time you create a consumer protection, you create an avenue for fraud. That just as a broad statement, that's effectively true.
Turner Novak:
Wow. Fascinating. Yeah, I mean I would think that they exist to prevent fraud, so, huh. But that does make sense.
Tommy Nicholas:
Turns out.
Turner Novak:
One thing I know that you have a lot of experience with, we talked about working through the desert, the doldrums, the ups and downs. During that time you did have to fundraise, you may be fundraised before, during and throughout of it. You described a little bit earlier that it sounds like things are going a little bit better now, but can you just describe I guess that journey and what you've learned, what it was like going back to the beginning?
Tommy Nicholas:
Yeah, our first fundraise was $1.5 million. We were trying to raise $500,000. We raised 1.5 million. Look at us.
Turner Novak:
Wow. Yeah. Oversubscribed. What, 3X oversubscribed? Yeah.
Tommy Nicholas:
At some valuation in the single digits that would make your hair spin in this era but it felt incredible to us. We were super pumped about it. And that fundraise was actually pretty easy. And I've talked about this a few times, which was, it was somewhat difficult, but it was mostly easy. And that's because raising money is easy when you're growing fast with a spreadsheet that just works, and that's the easiest. It's the second easiest when you actually have no growth at all and you can't even produce a spreadsheet because we're pre-launch, just a story, all of the upside in the world is believable. You get a hundred percent allocation on the small percentage chance that this is going to be the next whatever the fastest growing company of all time is. And then the minute you launch, there's now a 0% probability it will be the fastest growing company of all time within three months because something hard happens and so you're just not that company.
Turner Novak:
Yeah, it's like that one meme with Silicon Valley where Russ Hanneman is like, "Revenue. No, no. You can't generate revenue because then they expect more of it."
Tommy Nicholas:
He's right. That was a joke, but that is, I have no notes. Completely agree. But the problem is how long can you keep that up? Not very long. So then you have to get the revenue and you have to cross that chasm. So we raised $1.5 million, super pumped about it. Then a year later when we thought we were going to have some of our early customers going live, which I've already mentioned took some time, we tried to raise another $2 million or something to capitalize on some of that early success, which then ended up taking longer as we've discussed, it took Laura and I 20 months to raise that $2 million. We got a hundred nos that were serious nos. Hundred, a hundred. Not like don't take the intro, like had a conversation, a hundred nos, seven investment committees at the seed. We went to seven investment committees and came out with a no.
Turner Novak:
So this is like you go in a suit or looking snappy and presenting it to a bunch of people?
Tommy Nicholas:
Turner, well, no. But-
Turner Novak:
Maybe you should have, maybe that's why you should have worn a suit.
Tommy Nicholas:
That was definitely the theory of many people around the table at the time.
Turner Novak:
Oh, really? Okay.
Tommy Nicholas:
I can definitely tell you there were people with that theory. And you never go to investment committee and get the no at the seed. They do not do that. That is like a one in five. That is very rare. It was such a slog.
Turner Novak:
Okay, so maybe you were going to explain it, but what was going on? Why was that happening?
Tommy Nicholas:
Well, I'll tell you that, but what's funny is our series A was not easy, but it was easier. And then basically I never spent time fundraising again because, and then we raised $180 million from that point on. No, more than $200 million from that point on. And it was basically for two reasons. One is, and this is what I was talking to you about before, I figured out that maybe I should have been wearing a suit. I don't know. I think people are better off trying to be the best versions of themselves that they can possibly be. And I could become a suit guy, I could invest in that and become a big suit guy and then I would feel comfortable and confident in a suit. That's not who I am. I could become that person. That's not the person I am. So that's probably not what it was.
It was actually just that there's a way that you have to be and a way that you have to tell stories around products that when you're fundraising that I just had a lot of trouble embracing, which is that you got to get your head out of the caveats and the weeds, and you've got to paint the part of the picture people need to understand before they get into the weeds with really, really high specificity and conviction that is just about getting to the story.
And everything that I tried to do that I don't do anymore, I don't think, when I'm fundraising about, let me try to get you to understand how many details I know about this and how hard it is and how interesting some of the problems are, massively distracting. In fact, I like hard problems. So you start to make the problem seem really hard to the investor, and now that they're really thinking about can that guy solving these really, really hard problems like this? And maybe they fall in love with the fact that you know so much about it and you seem like such a good problem solver, but more likely they get more intimidated by the problem and you distract them from the really big important things you need to understand.
And so I used to really get sucked into a lot of the nuances of this. Instead of saying, hey, what's different about financial services is this risk stuff. Here's some really easy ways to understand how big of a problem that is. Here's a really easy to understand why this is a no-brainer ROI for every single one of our buyers. We've taken a different approach that's really easy to understand and this plus this plus this equals a billion dollars of revenue and that's what we're going to do. Whenever I talk to founders now about how they're pitching, I always see that version of myself that wants to fall in love with the details.
And something I think I'm getting better at is stopping them and going, "I heard this very short story. This is happening. This is happening. So this will happen and billion dollar of revenue. Does that sound right?" And they're like, "Yeah, that's exactly it." I'm like, "Just say that." And then they come back two weeks later and they give it to me again and I'm like, "Nope, but wait. Remember?
Turner Novak:
You're still not doing it.
Tommy Nicholas:
"Remember? It's this and then it's this and then it's this." And they're like, "Yeah, but there's all these other things." I'm like, "I'm telling you, I'm telling you, that comes after." So that was the one thing is I really got religion around that and the series A process actually really clicked for me, like the meetings that were going well, and that was the difference between the meetings that were going well and the meetings that weren't. The other thing is it's just, man, the score takes care of itself in a more obvious way, which is like, it's not and that's like the details add up to the bigger outcome. It's more like at some point the customers just talk. They're paying you, they're growing, they're staying, they're referenceable and it's obvious that you're doing something different. And so investors start coming to you with more of the thesis stuff done and then it's just easier from there.
But I can't believe that, this is still the way it works, I think, that raising $2 million when you're in the weeds, trying to get the first couple of customers live is so hard and raising a hundred million dollars is three phone calls. But that's the truth. That's the truth. And I think what founders can do and learn from is really find somebody who gets you to, here's what do they need to hear. That's also true. It's got to be both those in my view, that's not everyone's view, but it's got to be both those things. What do those people need to hear that's also true? And we got to stick to that. And we got to reverse engineer everything we're doing so that they hear what they need to hear, that thing that is also true, and that all the rest of it flows from there because that's the magic formula.
And then the business starts to work and that is a very different version of storytelling. I turn out to be a better fit for that version of storytelling of, let me explain to you why what you see is real and durable, but man is it hard to do that? You can't see it yet, but let me paint you this super crisp and clear vision. And I really respect founders that can do that naturally. I think founders that can't do that naturally, which is 99% of founders, find a sparring partner that keeps you honest on that and just invest in it. Commit to it.
Turner Novak:
Yeah, makes sense. Maybe another way to think about it, this is the way I describe it to people. You need to remember that the investors are just trying to make money. So you just need to remember, you want to look like a good investment and then that comes from a lot of different things. But I feel like that's something that's easy to forget is like you're an asset that they're buying into at the end of the day. So can they get 100X, 1000X return on investing in you as founders as an investment? And then that ties into numbers and here's how big we can be. We think, depending on what stage you're at, we think this is how big the market is because of these many customers at this size, product roadmap, this is what our LTV might look like. I don't know, this is all an art, but-
Tommy Nicholas:
It's such a good point. And something that my co-founder Laura really helped me finally get religion on that is another way of explaining this, is remember, they're going to have to explain it to somebody else. They're going to have to explain it to somebody who doesn't give a shit about you, hasn't met you, has no rapport with you, doesn't care about you. They might meet you. And if you're thinking about sales, right, you'll find out who these people are and you'll go meet them. But they're probably going to have to explain to somebody who doesn't know you and doesn't give a shit. And what are they going to say?
Are they going to say, "You'll never believe the secret that they've unlocked? There's this really interesting funny market that nobody's looking at and they're just going to drive a Mack Truck through it and it's just so incredible and nobody else better find out about this." Or are they going to say, "Do you know about the Bank Secrecy Act? Sorry, was it the Bank Secrecy Act? Was it...? Man, maybe it was Dodd-Frank. Anyway, there's some..." We're over, right? And you need to remember how do you get that person to say, "God, I just learned this secret. I can't stop thinking about it. And I just really feel like this founder is just going to drive a train through this problem and I can't wait to be a part of it." And everything that's what you think is building this relationship with one person, it's got to turn into that other thing. When you believe that, you can start to reverse engineer your way into, okay, well what would it actually take? And it takes repetition, bizarre amounts of repetition.
Turner Novak:
Of the story, of pitching it and just-
Tommy Nicholas:
Of the story. Remember, it's this, this, this and this. It takes being really committed to getting it back to that story. Those are the things that it takes. And remember, they're going to have to say it to somebody else. That's true of sales, that's true of fundraising, that's true of all of this stuff. I like yours. Remember they need to make money.
Turner Novak:
It's the most simple form of it.
Tommy Nicholas:
It's good, it's good. They're going to need to make money, and if you forget that, remember they're going to have to convince somebody who really only cares about making money, who's never met you. Now what are they going to say?
Turner Novak:
Yeah. And then even then, even if you meet the founder of the firm, the head guy at insert brand name fund, they have investors, they have LPs and there's got to be like a hey we've got this Alloy. It's this fraud risk, every financial services company, compliance and their fraud and the whole product of financial services, don't lose money and make sure that you don't get scammed. We can take a percentage of the revenue of the entire financial services business. That's the pitch, right? And people are like, oh, what's the TAM? Hundreds of billions of revenue. Yeah.
Tommy Nicholas:
That's it man, you just did it. That's what they need to turn around and go, "Fraud is killing financial services. We hear it from every single FinTech we've invested in, and Alloy has just thoroughly solved it, and it's crazy. Fundamental business of financial services. Protect your customers, don't lose money. Alloy is going to be like the AWS of that for the FinTech revolution." And that's it, Right? I would never tell that story when I was younger. I just couldn't do it. Because there's some detail of that that's not exactly right. I just couldn't tell that story. And we spent so much time, dude, trying to do TAM analysis.
Turner Novak:
Oh, really? For yourselves or for an-
Tommy Nicholas:
For an investor. What's the TAM? What's the TAM? And then someday we never talked about it again. You know what I mean? 2019 came around and turns out it doesn't matter. Nobody cares.
Turner Novak:
Okay. Do you know what the change was? Was it just our social proof around this is a real market?
Tommy Nicholas:
Social proof and then just the storytelling got better, because when people say, "Hey, can you do some TAM analysis?" You missed the story. Because the first meeting Laura and I ever took, first fundraising meeting we ever took, we thought we did such a good job. And one of the VCs was a product guy and one of them was just a VC, and the product guy was... Do you know what I mean?
Turner Novak:
Just a VC. He's just a spreadsheet guy.
Tommy Nicholas:
Yeah, exactly. Say no more. And the product guy, we had a great conversation, he was pretty fired up about it. And then the other guy didn't say anything and at the end he said, "Is FinTech a big market?" And we were like, "Well, yeah. Yes." What do you mean? Financial technology? I don't even know, is it like a $200 billion revenue market selling technology to financial services companies or something. But he was like, "Oh that's interesting. Doesn't seem like a big market to me." And we never heard from them again. And it was like one of those things where I was like, we had this huge conversation about the product and all this stuff and there was this guy who was sitting there the entire time going, "Is there even $200 million of revenue in that market? Does that even exist?"
Turner Novak:
He said million? 200 million?
Tommy Nicholas:
I don't know what he was thinking because I was just so stunned by, is FinTech a big market? Now if I had told the story differently, he never would have said that because he would have been like, "Oh, you're talking about the global financial markets and the underpinnings of that and the digitization of that." But I had somehow gotten this person to think that by FinTech, I meant, what was it at the time? Cash App or something, that being the only thing I could possibly mean. And someday you just get better at telling that story. And I think if somebody's asking you for a TAM analysis, maybe just go find somebody else to talk to.
Turner Novak:
Yeah, you got to probably start from scratch.
Tommy Nicholas:
That's what I think.
Turner Novak:
Figure out the story. Yeah. So one thing I guess I'm curious in terms of you've got all this... Well, actually one sidebar. Based on all the conversation about fundraising, it's really interesting when you talked about you couldn't remember how much you raised later on, but you remember viscerally those very small precise numbers. It's fascinating just throughout all these convos on the podcast, I'll have founders raise a billion dollars and they don't remember the numbers. They're like, "I don't know. It was like 600 or 700, 800. I don't remember." You get to a point where it's like, it becomes just, I don't know, I don't want to say it's on easy mode or just someone else does it because it's a spreadsheet, but it's like you have this visceral connection to we raised $632,000 and it took us four months.
Tommy Nicholas:
I know the exact numbers and exact pre-money valuations of the first two raises to the dollar. That I know. I don't remember a lot of the others, but I know to the dollar those.
Turner Novak:
Yeah, it's fascinating. It must be because the business works, the product works and it's just, it's easier. There's less friction. The three phone calls.
Tommy Nicholas:
Yeah. I also just think it was because I thought we were going to die. So there's something about not dying that's really quite memorable.
Turner Novak:
Yeah, fair. Okay. So you've, I don't know if we're going through a story or narrative or whatever, but you figured out fundraising and you've done some hiring over the years, right? I think you mentioned earlier you have 285 employees. How has that evolved for you guys over time? And what kind of traits do you usually look for?
Tommy Nicholas:
Yeah, speaking of numbers, I know very precisely 2, 5, 8, not 2 8 5.
Turner Novak:
2, 5. There you go.
Tommy Nicholas:
Because of what everything tech company has gone through over the last two and a half years trying to figure out how you really think about growing spend while you are growing revenue, that's now become in my bones somewhere of how do we decide to grow teams? And what's great about that is now I think we've had to do a lot of very specific thinking about what kind of folks are going to be successful here. And we are hiring a lot of them and I'm really excited about that. I'll tell you about that in two phases. What are the things that I think we got right that we've kept with us and maybe some of the things we got wrong in the very early days. And then what are some of the things that we've been thinking about more recently that I think are good, interesting things?
So from the very early days, something that we got committed to pretty quickly was figuring out what the cultural non-negotiables were at Alloy and making hiring, firing, not hiring decisions around those, and the values that we really spend a lot of time looking for in that process. The number one, one, is a very specific definition of collaboration. We really want people who foster collaboration by... I think collaborative people are smart because nobody wants to collaborate with a not smart person. They're humble because nobody wants to work with somebody who they know that they think they know everything, and they are welcoming of, they go think about who could come together to solve a problem faster. It's not work with two people instead of work alone. It's you are always doing the thinking of, could I do this faster with somebody? And they're welcoming into that environment.
So we think a lot about that. Will this person increase the amount of collaboration? Because when you create an environment where people are angsty about having to collaborate with somebody, it massively slows things down. And then we care a lot about celebrating the differences of the people here and we take a very employee-centric view to that. Will this person be somebody who's able to contribute to an active celebration of the differences of all the folks that work at Alloy? We invest a ton in our ERGs for example, and really empower them to do stuff and run events at Alloy.
Turner Novak:
You said ERGs?
Tommy Nicholas:
Yeah, our employee resource groups. So that would be like, we have one for Hispanic folks who puts on, they have a budget and they put on events that, instead of us trying to do that as the company, we empower people who want to do that as a group to build events and have people go to them and take over parts of the office and stuff like that. So we invest a lot in that. We try to hire people who are scrappy, meaning they don't think they're too good for any particular problem, just do what needs to be done. And people who are bold and want to do big things. And I think we did a good job early on of figuring out how you identify the non-negotiables. Somebody who will be antithetical to people who want to have an environment where we celebrate our differences or will be anti-collaborative or can't be bold and try to do big things and are scared to do that or think they're too good to do certain things. And so that's more the cultural non-negotiables.
I'm happy to talk more about that, but I think what's been more interesting now, recently over the last three or four years after hiring a lot of people and trying to figure out what qualities really work and what doesn't work is trying to think more about how do you identify somebody who's a problem solver at their core. And that's part of what makes me like all the teams that I mentioned earlier, what teams we put on technical solutioning of various kinds. I just have so much affinity and respect for the high octane problem solvers and people who look at a problem almost as an exciting thing. Like ooh, look at this problem. Can't wait to get my hands on it. Those people are such gems and I really spend a lot of time looking for those folks and that's on the ground. I love people who love a hard problem.
Turner Novak:
So how do you find someone like that? If I'm a founder and I'd love to hire somebody that just goes solve problems for me. How have you sussed that out ahead of time and known like, oh this person is going to be great at Alloy. So helping us solve problems.
Tommy Nicholas:
Yeah, man God this is so hard because you can't put people in a situation where they actually have to solve a hard problem during an interview process. So actually I like just asking people about a hard problem they've solved. That's one, is actually surprisingly, a lot of people choose a not hard problem and describe it, and there you go.
Turner Novak:
So then you just say, that doesn't actually sound that hard.
Tommy Nicholas:
Yeah, you just say that to yourself and then you move on. And then another way is we do try to work on problems in every interview that we do. And that's become, people will tell you you can't do that. You can't do work assignments. We try not to give people a ton of homework or anything, but we try to do something. We're going to work on something together and see how you think about and tackle a problem. And I think people who, yeah, it turns out there's no better way. And so okay, if we're not supposed to do that in hiring processes anymore, then I don't know how we're going to find people who know how to solve problems. It's the only way. We just got to work on something together. Even if it's in the room, during the onsite, from scratch, let's just work on it. We got to work on it together.
In engineering, it's getting harder and harder and harder to do this because if you're doing any remote interview and you give people a problem that they could use AI to solve, they maybe that's good because they're being clever, but it's becoming like a harder and harder and harder thing. So it's forcing us to be more and more and more clever around, well, I mean we don't need somebody who can write a linked list specifically. We need somebody who's a good problem solver. So how do we put people more in a situation to do that? So that's on that end.
On the leader end, that's been a more... I think every founder and CEO of a growth stage company has gone through this. What does a leader really look like that can work in this environment? And finding people who can straddle that. I can get all the way down into the work, but I can also think about the strategy and I can also contribute to the systems that connect all of that together. But I'm also a professional at trying to convince you I can do all of those things, because that's what professional executives are. How do you figure out how to break through that and figure out what's real among that I could get in the weeds, I can be up here in strategy and I can also participate in all the connective tissue? That was something that I think I did really... I was almost a random number generator in my level of quality early on.
Turner Novak:
Okay.
Tommy Nicholas:
Just maybe right, maybe wrong.
Turner Novak:
That's an incredible description. Because you just no skill at doing it whatsoever.
Tommy Nicholas:
No skill. Exactly. No skill, roll the dice. And I think I've gotten a lot better at it. And that's partially just because I just know how to talk to folks and understand their mentality. And also just part of, because I've gotten just more committed to spending more time with people before they become leaders here. I've just been spending a year on some of these hiring processes. I've actually we just hired, I'm pretty sure we can talk about this. We just hired a COO who really runs a lot of the things that actually touch our customers. A guy named Dustin Lawler, and he comes from Datadog and did a lot of those jobs, whether it was support or professional services or building internal systems for knowledge and enablement and stuff like that. Did a lot of that stuff at Datadog and I'm really pumped to have him. I think he might be right there. I think I can see him.
I met him because I was thinking about this role over a year before we decided to do it together. I had to convince him to do it and that was a lot of different things. But that's how I've been doing that hiring. And so on the hires we have to make a lot of, I think you're looking for those qualities that turn out to be representative of a problem solver. It's just something we're always trying to spend more time figuring out how we can do that better and better and better.
But then on the executive, like hiring the leaders, it's like you tell me if you know anyone who has a better answer than this, I just take a lot of time. That's my best answer I have right now, and if there's a faster answer, I would just really love it. But right now that's my solution to that problem is just be really thoughtful, meet a ton of people, get an insane number of data points, and then pretty much be able to tell, okay, I know what's out there, I know what these people are like. I got to be all in to go get this person to join the company and whatever it takes. That's my mentality.
Turner Novak:
One way I've heard people describe it is I like to hire ex-founders. So it's the big picture all the way down to the weeds, the implementation, he can write the code, can do the customer service for whatever the product or the problem is, but also can be a CEO at the same time. So I think maybe elements of what you're saying is when people say, "Oh, we like to hire ex-founders and they come in and own a problem set."
Tommy Nicholas:
I can't hire any ex-founders because I can't have somebody threatening my job. I got to be, yeah.
Turner Novak:
You got to be the one getting all the PR. Well you guys actually do no marketing, right? You've historically really shunned marketing. Why did you do that? Because usually you want people to know you exist.
Tommy Nicholas:
Incompetence on my part mostly. Now, I think we do marketing very well now and I'm proud of our marketing. But yeah, we really spent the first six, seven years of the company not really rigorously focused on marketing. And it actually does go back to what we talked about earlier. It's just deep obsession with the solution to product to platform to solution to product to platform flywheel, it's just the only thing we cared about. And I just still to this day, before I got on this, I was talking to a solutions person about a solutions thing, and the minute I get off, I'm going to go talk to a solutions person about a solutions thing. I actually probably should do something else with my time. But it's just, we were just so obsessed with that flywheel.
And now that we invest a lot in marketing and I'm actually really proud of our marketing leadership and a lot of the things we do, but they come from that DNA of, for example, I think one thing we do really well is we put together client events to get our clients together to talk about, guess what? Solutions to their problems that we might build or that they might share with each other. So a lot of the things that I think we do really well stem from that mindset. And now that we've invested a lot in marketing and we'll continue to invest a lot in marketing, we're actually investing... It also has a lot of thematic similarity to what I talked about earlier with pitching. It's how do we get people to better understand the specific problems we think we can solve for them so that they'll give us an opportunity to solution them for them and really go deep with them.
We take ICPs, ideal customer profiles and ideal customer use cases, and just say, okay, if that's what we really think we win at, what's it going to take to get those people to know that we do those things? So we still take this solutions mindset to marketing even though we're a lot more invested in it. When I said incompetence earlier though, I mean that. There is another level of it which is just like, why didn't we do marketing for five, six years or whatever it was. We did some, we had a website that we never updated or whatever.
Turner Novak:
Here's a website, we're doing marketing, we're on the internet.
Tommy Nicholas:
We bought Alloy.com. Some of that is just the biases of my competencies reflect what we can become competent at in those early years. And that's part of why those other leaders, spending so much time on them matters. Because if we decide we are going to become a world-class go-to-market and marketing organization, some of that's going to have to come from what I'm good at, which I think is that product and solutions and how does everything fit together mindset and flywheel.
But some of it's going to have to come from other people who say, "I know what good looks like." And if I were to say one thing to founders about what it takes to scale from product-market fit through big revenue milestones or whatever, it's like, what do you know what good looks like? What things do you know what good looks like on? What things do you know what good looks like? That's a hard sentence to say. And just commit to that and know you know what good looks like and be uncompromising on it. What things don't you know what good looks like and which of those are going to be critical for your company? Go figure out what good looks like.
And if you can use your investors for one thing, it's to constantly task them with what does good look like? Who can I meet? That's what good looks like. Who can I meet? Who can I meet? Who can I meet? And a lot of times they're going to be like, "I don't really know because actually nobody's good at that." It's like, okay, we got to find somebody who's good at it though, so let's all be on top of that. But I think once you know what good looks like, you can do whatever it takes. But until you know what good looks like, all you're going to be doing is compromising all the time. Compromising, compromising, compromising. It's pretty hard to build a company through compromise.
Turner Novak:
Nice. So then that's a pro-tip for anyone that's listening to this and they're an hour and a half in and they're trying to sell to Alloy and to Tommy. Just come to the office, do an onsite, and you're more likely to close the deal.
Tommy Nicholas:
Dead ass. All right, Turner. I got to go. Bye.
Turner Novak:
This was a lot of fun.
Tommy Nicholas:
Yeah, I enjoyed it.
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