A Product Market Fit Show | Startup Podcast for Founders
00:27:00 · Shmulik Fishman
[00:27:00] S0: Two things. I think, between the seed and the A, we were able to form a real business plan around the company we were building. During the seed round, we had one or two clients. We had this Level Goals. We had this primitive product. I wasn't able to articulate yet the industry we were in. When we had reached the A, I had done a lot of market analysis on what is Equifax, and Equifax is going to do something like $2.7 billion this year in income verification services. How big is the income verification services market? Apparently, it's $11 billion a year market. It's a huge market. Because we were able to articulate the market we're in, the business plan we have for that market, and yes, some really good traction and growth and a very sticky product – once you start using Argyle, you just keep using it. Those are the set of metrics we needed to get a real investment check. I think it also – the other part of the Argyle business and it's still true today but it's very true in those days, this is an expensive company to build. Building and maintaining payroll integrations to thousands of registered payroll service providers is not cheap. It's infrastructure, and you have to have the infrastructure working at very high up times. That was part of the investment thesis. Let's invest. Let's build real infrastructure that does income verification. A promise that, if people build it – if we build it, people will come, and that has been – that has panned out for us. It did take me articulating to Bain, to the market that there's a huge business there, that this is not just a fun and games company.
00:28:45 · Pablo Srugo, Shmulik Fishman
[00:28:45] S1: Do you think that would've been possible for you to do as a first-time founder? I think there's one thing with, hey, I've got two million ARR, five million ARR. Here's an ARR multiple, and you raise an A. It's another thing to say I'm actually over here on ARR, but I want a round that's this big because I'm going to build all the staff and then it'll come. There's a different level of risk that the investor's taking. Do you think that's more suited for a proven founder like you then, or do you think it still would've been feasible as a first-time founder? [00:29:14] S0: I think TAM is super important and being able to articulate what is your TAM? How are you tracking against that TAM, or what is your SAM? You need to be able to say those with conviction, and you need to be able to say that your revenue is tied to them and have a good thesis around it. I think that matters more than what your ARR is in the aggregate, or if you're a first-time, or a second-time, or third-time founder, can you articulate the business you have and the industry you're building it for? Can you articulate a plan where you can be 50%, 40% of that market? That's what investors want. They want to know that you're going to be become the winner in a space, and they're going to invest and give you dollars based on that analysis because it's the analysis they're doing when they write the investment memo. You're doing the hard work for them. I think that has a lot more about are you one million or three million, first-time or second-time?
00:29:14 · Shmulik Fishman, Pablo Srugo
[00:29:14] S0: I think TAM is super important and being able to articulate what is your TAM? How are you tracking against that TAM, or what is your SAM? You need to be able to say those with conviction, and you need to be able to say that your revenue is tied to them and have a good thesis around it. I think that matters more than what your ARR is in the aggregate, or if you're a first-time, or a second-time, or third-time founder, can you articulate the business you have and the industry you're building it for? Can you articulate a plan where you can be 50%, 40% of that market? That's what investors want. They want to know that you're going to be become the winner in a space, and they're going to invest and give you dollars based on that analysis because it's the analysis they're doing when they write the investment memo. You're doing the hard work for them. I think that has a lot more about are you one million or three million, first-time or second-time? [00:30:13] S1: I love that answer. It’s a perfect segue to my second question, which was what was your story? What was your plan? You’re basically saying, Equifax, they do $2 billion in revenue. We can take some of that. At this point, you're doing gig worker stuff, which is this little ignored niche. What's your plan to take the rest, the kind of core market?
00:30:13 · Pablo Srugo, Shmulik Fishman
[00:30:13] S1: I love that answer. It’s a perfect segue to my second question, which was what was your story? What was your plan? You’re basically saying, Equifax, they do $2 billion in revenue. We can take some of that. At this point, you're doing gig worker stuff, which is this little ignored niche. What's your plan to take the rest, the kind of core market? [00:30:31] S0: What the analysis included is there's Equifax, which is this huge player in this space, but Equifax itself is still a small part of the overall industry. It's an $11 billion market. Equifax is less than three billion of it. What is the rest of this market? The fun answer is that the majority of income verification services happen manually, so our largest competitor is paper, is phone banks, is emails, is scanners. That was such a crucial part of the analysis that to win in this market we – yes, do we need to win against Equifax? Yes, but to win this market is really to replace paper. That’s just such a great concept that your competitor is that legacy analog methodology. [00:31:19] S1: Just to be clear, these are companies using paper, or this is – who's using paper? How does that generate 8 billion in revenue?
00:31:19 · Pablo Srugo, Shmulik Fishman
[00:31:19] S1: Just to be clear, these are companies using paper, or this is – who's using paper? How does that generate 8 billion in revenue? [00:31:26] S0: Yeah. It's the cost of all the staffing agencies that pick up phones, that send out emails, but it's also a lot of servicing companies. There's a great partner we have today. There's also part of this analysis called Ocrolus, and the only thing that Ocrolus does is scan PDFs and give you the OCR data of them, right? It's a huge business because there's so much paper out there. There's all these sort of businesses that are just providing incomes verification for paper-based models, and that's what the $8 billion is. [00:31:58] S1: That was -- your story was, listen, if we can just tie into all the payroll, we'll have all the data, and then we can just automate the whole thing. No need to call. No need to email. It'll all be verified. [00:32:06] S0: Just a great formula is find a better mousetrap. Build a product that's just a better version of a product that already exists. First, it's a lot easier to sell. There's a bunch of people that already buy the product. It's a lot easier to invest in because it's just like here is the higher margin version of something that's already out there, and that's the formula we were using.
00:32:06 · Shmulik Fishman, Pablo Srugo
[00:32:06] S0: Just a great formula is find a better mousetrap. Build a product that's just a better version of a product that already exists. First, it's a lot easier to sell. There's a bunch of people that already buy the product. It's a lot easier to invest in because it's just like here is the higher margin version of something that's already out there, and that's the formula we were using. [00:32:28] S1: That's actually a question for me which is, when you're selling to these companies, whether the lenders or whoever they are, are you selling an ROI story, or are you selling just a replacement story? Hey, today you're paying X thousand dollars a month for verification. Pay me half of that. I'll do the same thing. Is that more the pitch? [00:32:45] S0: It's both, but we lead with the latter, which is we're a way to reduce costs. We're a more automated solution. You're going to need less staff. I know some people are worried about saying that out loud. Argyle means you have to have less personnel internally or externally. There's less manual review. You're going to just spend less on verification services. [00:33:04] S1: One thing that I find is hard is when you go in and you say you're going to save X hours, right? Do you make that a dollar value? How do you get as hard as possible on the clarity of the savings?