The $2.2B Founder's First Advice | Sadi Khan, Aven

Don't Start a Company (Unless You Have This)

00:00My first piece of advice to most people would be don't start a company. The reason I say that, you know, a lot of people told me that starting a company is really hard. Everyone told me this. I do not believe them. Everyone says this to every potential founder.

00:10I have now said this to many condo and I could see it in the eyes that they do not believe me that they think, "Oh, how hard could it be?" I do believe it genuinely is very, very hard. I think the most important advice I would give any founder is the level of conviction they should have on deciding this is the problem that they're going to work on should be extremely high.

00:31It should be a higher degree of conviction than almost anything else they have ever done in their life to that date. I've had kidney stones in my life which are very painful and very hard. A startup is a whole new type of hard. It's hard over a very long area under the curve.

00:47Look, if you just want to make money, there's a lot better ways to go make money. You should only start a company when you have such a high degree of conviction that this is the most important problem you should solve in the world that you are willing to go for decades without getting paid, without being recognized, and potentially being rejected by everyone all around you to go work on this problem and nothing but this problem for decades at a time.

01:13I'm Sadi Khan. I'm the co-founder and CEO of AAN. We announced our series E fundraising where we raised a little bit over $110 million at a $2.2 billion valuation. This is doubling our valuation from last year. Aan's mission is to reduce the cost of capital for consumers.

01:30Today, there's $1 trillion of credit card debt in the United States. Consumers today are paying almost $200 billion a year on just interest payments. Not the principle, just the

Meet Sadi Khan & Aven

01:41interest payments on it. If we can reduce that by 50%. Then we will have saved US consumers a hundred billion dollars every single year. Our thesis is very simple. We think that unsecured debt in the United States is very very expensive but transactionally very efficient to get access to.

01:56On the other hand, we think that secured debt, debt backed by assets you already own is much much cheaper for consumers but is transactionally quite inefficient. Take for example home equity. It's the largest asset class that US consumers own today.

02:10However, it takes weeks to get access to your home equity. And it costs thousands of dollars in origination fees, both for you and actually for the lender. Aan set out to solve this problem. We built our flagship product, the AAN home equity back credit card.

02:23Home equity line of credit in the back and a credit card in the front with a goal that in as fast as 15 minutes, we want to reduce your interest rate by 50%. A isn't stopping there. We're excited to continuously invest in building new and better products that are the lowest cost, most convenient, and most transparent access to capital for homeowners across America.

How One Graph Created a $2.2B Company

02:53About 7 years ago, I retired from Facebook and stepped down and I was taking some time to figure out what I want to do next. Retirement was very challenging for me. I've been an engineer and a product manager my whole life. I felt that I didn't have much value I was creating in society in my retirement time.

03:10It didn't last very long. You know, my wife would claim that I was only retired for 3 months. I would claim I was retired for 6 months. So, the truth is somewhere in between there. But I became excited about this core thesis that I think most people in the world when they're looking to solve problems will end up solving problems that are about helping society be healthier or be wealthier.

03:30And if you want to help society be wealthier, you either want to help people make more money or you want to help people save money. One of the interesting graphs I stumbled upon at this time was this actually this publishing from the CFPB which published this graph which to this day is actually our Northstar graph and it's a graph that shows that the total revolving balance the total balance on credit cards since inception of credit cards has grown to up to a trillion dollars over the last 3/4 of a century.

04:01And so this graph kind of just goes up and to the right and it doesn't seem like it's decreasing anytime soon. But there's another very fascinating line that was overlaid on this graph. And this line shows you the interest rate on this credit card revolving debt over the same period of time.

04:15So over half a century, the interest rate on credit cards have actually hovered between 20-ish to 20-ish 25% for this entire period of time. If you look back in history over this time, we've invented the internet. We've invented all of the modern tech companies we see in Silicon Valley from Facebook, Google, Nvidia, Amazon.

04:34But we haven't been able to reduce the cost of interest on a trillion dollars of credit card debt in this period of time. Heck, at this point, we're inventing entirely new currencies from Bitcoin to Ethereum. But the cost of capital for consumers has really not changed.

04:47In the pursuit of helping society be wealthier by helping consumers in America save money, we thought that was kind of ridiculous. And we thought we can build better products for consumers to help them save money. And that's how we started AAN which is taking the largest asset class that US consumers own which is home equity which is also the most inconvenient to access.

05:09It costs thousands of dollars to access home equity and today it takes about 3 to 4 weeks to get access to your home equity. And we decided to make that much much more efficient by machining this process for maximum efficiency. We were able to bring this down to be almost as fast as 15 minutes with transactional costs that are orders of magnitude lower than anything else in the market and put it in a form factor that consumers are comfortable and already are familiar with which is a credit card.

05:33And we launched the our flagship product, the AAN home equity card.

What 12 Years at Microsoft & Facebook Taught Me

05:40[Music] Through my time at Microsoft and Facebook, probably the single most important thing I learned is the value of an extremely elite technical team. The differential between the 99th percentile or the 99th.9th percentile engineer and the 95th percentile engineer is fast, is not small, is a huge amount.

06:05The amount of resources you should spend on the acquisition and retention of the absolute best technical talent far surpasses any other investment you should make and can make. When we look for the best technical talent and at a my and I think the team's single highest priority is the collection and retention of the absolute best technical talent in the world.

06:26There are three main things we look for when we look for great technical talent. The first is raw intelligence. We are unapologetic about looking for the absolute smartest people we can find in the world. We will ask for SAT scores and other forms of standardized tests.

06:40As controversial as that may be sometimes I will personally review transcripts and look at exactly what grades people got on what classes. For engineers specifically we look for people who've taken courses in operating systems, distributed systems, compilers, games engines, the hardest technical courses one can take.

06:57And how did they do on them? And importantly, did they attempt the really really hardest closest that that can be taken? Intelligence is massively underrated and how important it actually is in helping build products and companies. So that is our number one and most important thing we look at in technical talent.

07:13The second is work ethic. You can have all the intelligence in the world, but if you don't want to apply it, if you do not have the motivation and the endurance to apply that intelligence, you're not going to create much output or much value to society.

07:25And so we look for people who have the endurance, the ability to work hard consistently over time. At AEN, every Sunday at 6 PM, our entire leadership team meets to identify and finalize and lock in our road map for the next 7 days. This allows us to operate with high precision and high velocity.

07:43And it gives us a very important thing which is we should not be wrong in our road map for more than 7 days cuz we revisit our road map every 7 days to make sure we're working on the right set of things and the right priority order with the right set of people.

07:57The third thing that's really important in elite talent is an alignment of the mission of the enterprise. In our case, the mission of reducing the cost of capital for consumers with the ambition level of that person. Trying to reduce the cost of capital for all of America is an extremely ambitious undertaking.

08:15So the person that we need to bring in needs to be super smart, super hardworking and has to have an alignment with this mission and an alignment with the ambition level of this mission so they can sustainably work on this for a very long time and push the boundaries of how we would achieve this mission day in and day out.

08:34If a to be successful, we will drive the single biggest change in the cost of capital in American history. And we need to find the absolute best talent in the world so we can do that. And if we can't find the absolute best technical talent, we will not be successful.

08:50And that is why we spend so much of our time and so much of our energy on this specific problem. And it's probably the most important thing I ever learned at Microsoft and at Facebook.

Most Founders Don't Know Why They'll Fail

09:03Aan's flagship product, the first product that we wanted to build was a home equitybacked credit card. The reason it was very important for us to understand the legal and regulatory landscape for this product is because this is a very highly regulated industry.

09:17It is both a mortgage product and a credit card product. And it's very important for myself as the founder to have a deep understanding of the regulatory landscape for this product to a understand can we build it and b to make sure we build it in a safe and compliant way.

09:33That's why I went through and read personally a lot of the regulations in the space whether it be DoddFrank Act, Card Act, Tila and others. I think it is very very important for the founders and the CEOs to be very deeply involved in the details of the products that are being built by the company.

09:53I think in the case of founding a new company or building a new product even at a big company often times the core value is the inventing of something new something that hasn't existed before or something that hasn't been built yet before in order to build something new I think you must first understand the history of what has been tried before so that you can efficiently build something new most new ideas are terrible most new ideas are bad there are very very few new ideas that are actually better than all the old ideas before.

10:27And so in order to assess that, in order to deeply grock whether or not your idea is better, it is often very useful to understand what were the ideas at least the big ones that have been explored and built before. Why is your new idea better than what has already been built before?

10:43And in order to do that, you must often invest the time to understand and learn very deeply about this industry and this domain and all the smart people that have come before you so that you can come up with good new ideas and assess that they are indeed better than what has been built before.

Do Half of What You Think You Should

11:06In the first two or three years of building a we made a series of product decisions and a series of people decisions and a series of process decisions. I think in the product we would have been even more ruthless in prioritizing the feature set that we were building for in the first version and I think this is you know generally true for for most PMs when they launch a new product they if you were to look back and ask any product manager what products they've launched before and what they would do differently almost all of them would tell you I would have cut these you know five out of the 10

11:37features and shipped a smaller narrower version of this product to a fewer set of people and really deeply gone into a kind of a more focused product feature set and so I think that also applies to a and I think it applies to the product that we built.

11:51I would have kind of made it narrower and simpler in the first version. The other big thing is in the early days there were these really funny stories of consumers going through our origination process but not sure that this was real. And we would get tickets and calls to say we don't know if you guys are a scam or not.

12:11And we would have to respond including sometimes myself saying no we're we're very real. We're a real company and we're here to help you get access to your home equity and we have a real product that you can use. And sometimes it was that ability to talk to somebody at the company and the abble to hear from somebody's voice at the company that gave them the confidence to continue uh and go through our application process.

12:35Um I do think one of the interesting things that happened with with AAN is that we were able to find people who were kind of on the on the on the border of potentially considering a home equity line of credit. And many folks were actually sometimes in the process of applying for a home equity line of credit to to other other lenders and then they would see an ad from us and go, I wonder if this is true.

12:59Can I get a home equity line of credit in as fast as 15 minutes? And they would almost test us out as like a almost like an experiment to see if this is like real. And when they went through the process, they would be kind of amazed and shocked.

13:13and then they would actually book an account with us instead of whoever they had started off a home equity line of credit application with before us. And so that was I think an interesting kind of lesson learned. And you know many people in the beginning didn't believe that this was possible to do.

Why Feelings Are Your Biggest Scaling Enemy

13:36My ideal form of leadership is one that maximally rational. I observed and and learned a lot of that from Mark at Facebook. The reason this is important is because being extremely rational is a very predictive behavior and being predictable as a leader is very very important because people can then replicate or predict what you would do even when you're not there.

14:01And that is important for people to be able to reproduce your decision-m system even when you're not present. And my goal as a leader is to make decisions that are so rational that if everyone else also had the same information that I had, they too would all make actually the same decision.

14:19And the two incremental things that I provide as a leader that let's say an individual contributor in the company don't necessarily have is that I have significantly more context and a lot more information sometimes than others. And my job is to actually make sure as many people have that context as possible.

14:36and two, I have the privilege of being able to optimize for a much longer time horizon than anyone else in the company. So these two things are the incremental value propositions that I bring to a decision that is not always possible for every single other individual contributor to always bring.

14:56But if they were to actually have those two things in their mind, they should be able to compute to the same conclusion that I come to. And that is my goal as a leader. If I were to just make decisions because I emotionally felt like this was a good decision or not.

15:10The problem with that even if I'm occasionally right, they're very difficult to scale because if I I can tell somebody that decision that I felt we should do X and because of my authority, some people will do X. But when that person needs to explain it to two more people, it is very difficult for that person to explain it to two more people other than just saying, well, Saddy feels that way.

15:31instead of explaining here's the logic of why we made this decision and that logic is a very scalable form of decisioning that then you can like actually send to a lot more people to execute effectively and this is really important because a lot of what you know an early stage start or frankly any company does is try to perfect its execution and the only way to perfect execution is to have extreme clarity and to have extreme clarity in what we are trying to do you must often have extreme clarity on why we are doing it in the first place.

16:03And I think that clarity must stem all the way from the CEO and the founder to the individual contributor who's working on the smallest and the minutest of diffs that need to go out the door. I think it stems from a philosophy of trying to be maximally rational.

16:20The reason for this is is quite simple. If we were to achieve our mission of reducing the cost of capital for as many consumers as possible, the first most imperative item we must achieve is we must first not die. If we are dead, then we aren't helping too many people reduce that cost of capital.

16:39In order to not die, we must make sure we generate profit and are to a certain extent a good business. Then we derive well, how many people can we save how much money for? And that becomes like the maximal optimization function in a sustainable way.

16:54And therefore I think having a very disciplined approach to the profitability of the business while at the same time maximizing our mission is actually quite rational for us to pursue. The most important goal for I think everyone and any company and any person is to create a lot of value in the world.

17:12And profitability comes from capturing some amount of that value that you create for the company and doing it efficiently. If you kind of think about like today there's $1 trillion of credit card debt in the United States. Consumers today are paying almost $200 billion a year on just interest payments.

17:30Not the principle, just the interest payments on it. If we can reduce that by 50%. Then we will have saved us consumers a hundred billion every single year. Our profit should come from savings that we bring to the consumer because that's the value we've created.

17:47And our goal is to be profitable by saving people money. And I think that achieves our mission and is very rational and missionaligned to what we are trying to achieve in the world.

Kill Decision Fatigue Before It Kills You

18:05One of my somewhat controversial opinions around decision-m is that I really hate pros and cons lists. They're like maybe one level below useless. I think a much more effective framework to make a decision is to first of all lay out what are the axes of this decision that are most to least important to this decision that you're going to make.

18:25and then to list out each of the options and to lay out where this option kind of sits relative to that particular axis. So for example, let's say you need to make a decision on what car you want to buy and you know the axis that matter are things like price, things like performance of the car, let's say reliability of the car and let's say style of the car.

18:50much more effective than trying to build a pros and cons list between like let's say a Toyota Camry or a Honda Civic is to list out what is your priority of each of these axis. Is it speed/performance? Is it style? Is it cost? Is it reliability?

19:06And once you prioritize this set of axis, then you can look at your option space and see which one fulfills the highest order priorities for your decision-m. I'm such a big believer in this. We actually teach this process in our boot camp at AAN.

19:21I tell people in boot camp that this is a process that I've used to make almost all my decisions in my life. And I would argue this was also a process that I implemented when I was looking to get married very early on in my life. This is a very important framework to help people make decisions not just in their professional life but I still think in their personal life.

19:43And I think the simple focus away from the options and more into the prioritized list of axis that matter is much more functionally beneficial to the quality of a decision-m. I will add that I wear the same clothes every day, the long sleeve black t-shirt, the blue jeans and and the vest.

20:03I am a very big believer in simplifying as much of my life as possible. I have a very boring personal life. I live 5 to 6 minutes away from the office. I moved my home to be near the office. I don't drink. I don't party. I don't really go out that much.

20:21I enjoy spending time with my family. I like to cook twice a week. I have very kind of regular routine with my family on the specific nights of the week that I cook for my family. I go to the gym and I work because I have a very simplistic life.

20:36Another thing that I for example like to optimize is my computer keyboard, mouse and chair layout. And so I have three workstations, one at the office, two in home. And all of them have the exact same mouse, exact same keyboard, and exact same monitor layout so that I can very optimally get to my workstation and begin working instead of setting up or adjusting, you know, my keyboard or my mouse.

21:03I mean, you probably know this already. If the keyboard is off by even a millimeter, your typing error increases massively because you have to adjust. One of the reasons our company is located in South Bay and not in like a major city like San Francisco or San Jose is that we want to provide our employees some calmness, some serenity so that we can focus on the mission at hand and not be distracted by the hustle and bustle of of around us.

21:29And I like to have like frankly a very boring life. You know, I I think I told somebody this is if I were to know everything that will happen to me between today and my death. I'll be very happy. I have no need for surprises or excitement. Um I love boring.

21:46Boring is great. If my life could be just boring, I'll be very happy. [Music] [Music]