00:00:52 · Miguel Armaza
[00:00:52] S1: Welcome to Fintech Leaders, where we explore the stories behind today's most innovative financial technology companies. Coming to you from New York City, I'm Miguel Armaza, co founder of Gilgamesh Ventures, a fund that backs early stage Fintech entrepreneurs. If you enjoyed this conversation, I invite you to the overview on Apple, Spotify, or YouTube. In this episode, I interview Steve Stagner, CEO of Crete, an AI powered roll up that's set to deploy over $500,000,000 over the next two years to modernize the accounting industry. Backed by Thrive Capital, Bessemer Venture Partners and others, Crete is acquiring US accounting firms and transforming them with OpenAI powered tools. Steve brings battle tested insights from building Mattress Firm from a single small franchise to a 3,800,000,000 Fortune 500 giant. In this episode we discuss why people, process and technology in that exact order is the only formula that works for AI transformation, how Crete partner equity model differs from traditional PE roll ups, letting firms keep their culture while accessing enterprise grade AI tools, why firms that don't embrace AI will lose, and how Crete has already seen 30 to 50% efficiency gains through AI powered trial balance normalization and audit testing and a lot more. Steve, thanks for stopping by the Fintech Leaders podcast. I think what most people wanna hear is how AI is transforming your business, And you have a lot to talk about this. But before we go there, tell us about your background. I think you went from from franchisee to leading a Fortune 500 business. Tell us a bit about your world.
00:03:09 · Steve Stagner
[00:03:09] S0: Yeah, well, Miguel. I'm super excited to be here and join you today and share the story about Crete and what we're doing. So I really appreciate and deeply grateful for you taking the time. Yeah, super excited about joining this industry. My background is one that I would, if I were to summarize it, I would say that my journey is really about scaling and transforming and leading organizations through different stages of growth. Think there's kind of three distinct chapters that I've had, which I think are pretty applicable to what we're dealing with today. The first chapter would be my entrepreneurial chapter. And that's where I started with $1,300 in one store. I was 24 years old that I started as a franchisee of Mattress Firm and ended up building a $60,000,000 business. And that was very informative because one, you really understand the value of people and you understand the value of like literally doing, I did all the accounting, did the real estate, I did the advertising, you kind of run the whole business. And so you learn all of the kind of critical work and life competencies that will help you kind of scale a company. And I would say that during that chapter, I doubled down on the value of learning and development and invested heavily in my people. And that led to the next chapter, which was I ended up becoming the CEO of Mattress Firm Corporate and sold my franchise to corporate when a private equity firm came in. And so I got my first taste of being on the receiving end of this phenomenon that I'm sure we'll talk about today which is a little bit about what's happening with private equity. And I gotta tell you, we went from 200 stores to over almost 3,000 and I took the company public. It was a great ride. We went to 10,000 employees, 3,800,000,000 in sales, and I learned just an incredible amount about the importance of scale and culture and how that translated over time and how integration of technology and implementation of things can really work or not work. Got a lot of gray hair from that but it was a really great experience which then led me to my third chapter which was after twenty five years of leading retail organization from one employee to 10,000 plus, I ended up exiting and becoming an executive chairman for a private equity firm that was basically doing roll ups in the consumer space is where I focused.
00:05:34 · Steve Stagner, Miguel Armaza
And I worked on a couple of platforms that are very similar to what we're doing today in the HVAC space and the roofing space and the veterinarian clinic space. And that's where I met Jake and Frank who are the founders of Crete. And so really have a broad background here to help us navigate the structure and the strategy and the scale needed to build this dream that we have. [00:05:57] S1: We've talked in the past and you mentioned a core principle for you is people, process and technology. [00:06:09] S0: Correct. [00:06:10] S1: Can you double down, like you share kind of why have you developed? How did you arrive to this process, to this order? How did that apply to your retail background with 10,000 employees? And how does that apply to today?
00:06:28 · Steve Stagner
[00:06:28] S0: Yeah, great question. So it's interesting. I've been through moving from Excel level, Excel based inventory systems to all the way signing a deal with Steve Ballmer with Microsoft Dynamics on an enterprise system with a public company and thousands of stores. And it's interesting in every single case where we've done some sort of big technology integration, what happens is it starts off with excitement that we're going to get this new system and it's going to work great. But then very quickly you end up in the valley of despair, which is what happens is it's a lot of work just transforming and people get frustrated. It's mainly because people have ingrained norms in the way that we do things. And when you change, change management is really the art of it. And so for example, when I was CEO of Mattress Firm, we'd already taken the company public and we launched an enterprise system, signed a deal with Microsoft Dynamics and spent like $12,000,000 on it, started launching in the first test markets And what happened was my people were very frustrated. There was a lot of conversation and chatter around how we made a big mistake. And so I sent a team out there and we all went out there and got involved and very quickly realized surprise surprise it wasn't the technology, was the training. And in other cases I've learned that bad data plus other good data doesn't equal great data. So to your point I've just kind of developed a formula of people process and technology that the technology is an enabler and it's always great. But if the people don't understand how to use it, they're not going to use it. And if the data is not clean and mapping very clean and clearly, then it's not going to be productive and give us the quality of the result that we want. So what I'm applying here at Crete is we're on the precipice of the greatest transformation of technology in probably the history of the world with AI entering the space. And so it's super exciting, but as we start putting these tools in, what I'm really challenging our team to do is to make sure that we're, to make sure that it's done in a way that will be adopted and with quality is that we're making sure that we're process mapping everything, that we're bringing people along, we're testing small, we're learning and we're adopting. So I call it crawl, walk, run.
00:08:54 · Steve Stagner, Miguel Armaza
We're crawling before we walk, we're walking before we run and then we're running. And that's really the approach that we're taking and over my career that approach has been super successful. [00:09:06] S1: A lot of people are excited about AI but also a lot of people are afraid especially as it relates to the labor market and the consequences that AI might have, this new LLM wave, of course. But you're saying that technology, including AI, is just an enabler, right? I call it an amplifier and not so much a replacer. How is it different this time? If not, why? And if it is also, I'd love to hear your point of view.
00:09:34 · Steve Stagner
[00:09:34] S0: You know, look, mean, I think if you go back over time, when the printing press came out, there was concerns about how that would change the world and the production line and the internet and now AI with the newest technology here. AI doesn't invent anything. What it does is it basically predicts and it predicts based off of the data that it has. I think that there will be humans. I'm not going to say here that I don't think that humans won't be at risk of losing some jobs. I think that humans that don't embrace AI will be at risk of losing jobs. And so I think that you have this PhD in your pocket now. You have this opportunity to kind of leverage technology as a thought partner and then do the more valuable work that is possible. So if you take like tax returns, over the past three years I've had a pretty complicated tax return. It's roughly 500 pages. And I have a top 10 firm tax preparer that is a partner that works on my account. I won't mention the name or the firm. But as a client, what happens every year is I get a list of things to do to turn in and I get a bill and I pay that bill and it's expensive. What hasn't happened is any tax planning. And this is a partner in a top 10 firm. And so I do sense the pressure coming up on April 14 of getting everything turned in so that we can make the assessments. But what I do think is possible is that so much of that work, whether it be on the business side or the personal side can be automated because just transferring numbers is not necessarily value add. And if AI can be a tool that allows people to shift the mundane work because the flip side is they're also very stressed. They're going through a lot of stress trying to, it's very time based as we know in this industry, it's very timeline based and they're very stressed to get everything done and then to get it done right and there could be human error. And if leverage you AI to take all of this data, normalize it, validate it and tick and tie it up against the current laws and everything and then allow the professionals to do what they do best which is to start focusing on the insight. And the exciting thing about where we could develop the partnership and grow the business or grow or do tax planning on the individual level. I think that that's really what is so exciting about AI.