Nik Storonsky, Revolut Founder: What Revolut Needs to Do to Hit $100BN Valuation | E1233

Intro (0s)

• A product provided by the UK is being compared to a product provided by another entity, with the latter being considered better due to its higher liquidity and lower cost, making the UK product less competitive (10s).
• The UK product is based on a different model, denoted as 'M', which contributes to its higher expense and lower quality (10s).
• A consideration is made for listing in the US versus the UK, with the decision dependent on which country offers a better product, and currently, the UK product is not considered superior (19s).
• The host expresses excitement to have Nik Storonsky, the founder of Revolut, in the office for an interview (38s).
• Nik Storonsky welcomes the host and expresses gratitude for the visit (41s).

Revolut’s Approach to KPI-Based Leadership (43s)

• Revolut is considered one of the most KPI-led companies, with a strong focus on goal setting and quantifying objectives (49s).
• The company sets 5-6 goals per year, which are then cascaded down to the department, team, and individual levels, with specific metrics to measure performance (1m11s).
• Every team, department, and individual in the company has metrics to describe their performance, which are reviewed quarterly through a performance review process (1m20s).
• During the performance review process, individuals are judged on the metrics they delivered, their skills, and their adherence to cultural values (1m27s).
• CLA Homel mentioned that Revolut is one of the most KPI-led companies, prompting the discussion on the company's approach to KPI-based leadership (43s).

Building & Hiring Team (1m34s)

• The approach to distributive management involves selecting team members who are self-guided and can reach goals without needing to be directed, with a focus on hiring "excellent" people who can achieve this, and the goal is to have 40 plus direct reports who are all strong or excellent performers (1m45s).
• The definition of excellent, strong, average, and below-average people is based on their ability to reach goals with minimal direction, with excellent people being self-guided, strong people needing to be shown the goal, average people needing weekly iteration, and below-average people often not reaching goals (2m0s).
• The majority of people perform stronger or excellent after three to four weeks, and if someone is not performing within the first three months, it is likely they will not perform well in the next year (2m42s).
• The most common ways to identify underperforming team members within the first three months include observing their weekly or bi-weekly progress, the depth of their analysis, and the quality of their work (3m16s).
• When there is doubt about someone's performance, it is often clear within a short period, and there is no doubt when someone is not delivering (3m33s).
• The approach to hiring has evolved over time, but the focus has always been on finding people who can deliver results, rather than those who are just talk-oriented, and management consultants and investment bankers are not always the best fit for this approach (4m7s).
• Employees should collaborate and work as a team towards common goals, rather than competing with each other (4m40s).
• The most painful scaling experience was hiring experienced professional managers through executive recruiters, which resulted in a high failure rate, with 49 out of 55 hires being fired, and a loss of around $2 million (5m11s).

Nik’s Leadership (5m21s)

• As a leader, one has become more friendly and comfortable with the media over time, likely due to increased experience in speaking with them (5m33s).
• Despite this, the focus remains on holding people accountable for delivering results, sometimes communicating in a harsher or softer way as needed (5m49s).
• A key area for improvement in leadership style is recognizing the need to learn and adapt when hiring for new roles, especially in unfamiliar areas (5m57s).
• To address this, one approach is to interview many people in the market to learn from their experiences and gain a deeper understanding of the role, before selecting the best candidate (6m32s).
• This approach is essential, as lacking experience in a particular area can make it challenging to assess who is suitable for the job (6m43s).
• The best CEOs are often skilled at resource allocation, able to squeeze the most value out of limited resources (7m9s).
• One area where this skill is particularly effective is in getting people to deliver results with minimal resources, being cost-conscious, and relying on brainpower to solve problems efficiently (7m30s).
• This approach is often more powerful than spending large amounts of money on external consultants or hiring expensive professionals (7m56s).
• In retrospect, the top costs for the company are marketing and people, with marketing being the largest expense (8m16s).

How Have Nik’s Views on Brand Marketing Evolved? (8m22s)

• Views on brand marketing have evolved, transitioning from being skeptical to believing in its value, although it is acknowledged that measuring its effectiveness can be challenging (8m23s).
• As a data-driven and performance-driven individual, it is crucial to be cautious when investing in brand marketing assets, ensuring they align with the company's goals (8m40s).
• Recent brand marketing efforts include purchasing assets such as AirPods, jet bridges, and IR, which are believed to be effective despite the difficulty in measuring their impact (8m46s).
• Brand marketing should only constitute a small portion of the overall marketing strategy, with the majority being performance-driven, allowing for more flexibility and experimentation with brand marketing assets (9m2s).

Takeaways from the Banking License Process (9m10s)

• The banking license process took longer than expected, and a key lesson learned is that it's better to obtain a banking license before acquiring a large number of customers. (9m28s)
• Having millions of customers makes the license process more thorough and time-consuming, as regulators assess the company's capabilities more rigorously. (9m45s)
• Smaller banks or those without clients have an easier time obtaining a license, as there's less to assess. (9m59s)
• Obtaining a banking license earlier, like Monzo did, can inhibit a company's ability to execute products quickly due to regulatory encumbrances. (10m9s)
• However, it's possible to build governance processes and structures efficiently, even with regulatory requirements, by applying brains and optimizing processes. (10m37s)
• The decision not to obtain a banking license earlier was due to a lack of experience and not knowing the right way to approach the process. (10m54s)

Relationship with Regulators (11m0s)

• The relationship with regulators has improved over time due to direct communication and explanation of the business in simple terms (11m1s).
• Initially, there was a perception that a young founder should not speak with regulators and instead hire an experienced banking CEO to handle the communication (11m7s).
• However, this approach was found to be bad advice, as speaking directly with regulators and explaining the business in simple terms has proven to be more effective (11m35s).
• Direct communication allows for the presentation of data that showcases the company's innovative approach and better results compared to legacy banks (11m56s).
• Legacy banks are not tech-driven and often use vague language to hide their incompetence or limited knowledge in tech-related matters (12m17s).
• Regulators prefer direct and clear communication, and presenting data that demonstrates the company's progress and innovation is key to building a positive relationship (12m30s).

Lessons Around Crypto (12m34s)

• Lessons learned from crypto include the importance of not speculating, as many use cases in crypto are still speculative, but some, like stable coins and instant money transfers, are valid and valuable (12m39s).
• The decision to include crypto early on is reflected upon as a good decision, with some use cases being entertaining for people, but others having real value (12m50s).
• Stable coins are seen as a valid use case, enabling instant money transfers and competing with Swift and the corresponding banking system (13m6s).
• The biggest challenge with the crypto product has been dealing with different licenses and rules in different countries (13m17s).
• Revolut's biggest challenge was obtaining a crypto license in the UK, which came with rules that resulted in a high rate of false positives, blocking legitimate transfers (13m21s).
• The company had to work with regulators to optimize these rules and reduce the number of false positives, allowing them to capture more fraudulent transfers and reduce wasted time for innocent people (13m59s).

Why Has No One Won US Neo Banking? (14m21s)

• The US is a unique market where no company has been able to win in neo-banking, with China being the biggest player but only a quarter of the size of Revolut, a European company that has been successful in the US (14m23s).
• One reason for this is that US tech companies don't want to be regulated, so they partner with banks to use their licenses, which slows them down due to non-automated processes and compliance requirements (14m48s).
• Partnering with a bank also means that companies can't use their balance sheet or deposits, making it difficult to offer credit cards efficiently, which is a major part of the US market (15m21s).
• Credit cards are more attractive to customers than debit cards, as banks can offer additional benefits and make more money from interchange fees (15m29s).
• As a result, companies like Revolut have struggled to offer a competitive value proposition in the US, with debit cards not being as attractive to customers (15m57s).
• Revolut's brand is not yet strong in the US, but the company plans to change this by launching a bank in the US and obtaining a banking license (16m21s).
• The plan is to first roll out Revolut's UK bank, then apply for a banking license in the US, which will unlock the company's ability to offer a full range of financial services in the US (16m48s).
• Revolut aims to win the US market by offering a single app with all the financial services customers need, including credit cards, which has not been done before by digital banks in the US (17m7s).
• The company is also expanding into Latin America, having obtained a banking license in Mexico and applying for licenses in Brazil and Colombia (17m50s).
• Revolut plans to capture the top four or five markets in North and South America and launch a bank in each of these markets (18m6s).

A Product That Had the Biggest Impact (18m19s)

• The introduction of the business account has been the biggest needle mover for the company, with significant growth, but it's challenging to compare the success of product launches over time due to the company's larger scale now compared to five years ago (18m25s).
• The company has also recently launched EES and RPS, which are growing super fast due to the company's larger scale (18m36s).
• It's difficult to predict which products will be a mega hit, and sometimes the ones that are expected to succeed don't, while others that weren't expected to succeed do (19m2s).
• One product that was expected to be a mega hit but wasn't was the seller events feature, which was designed to compete with credit cards and loans but had a poor conversion funnel (19m24s).
• The company has a high bar for new products, with a focus on whether they can be 10x better than existing solutions, and considers the opportunity cost of investing time and resources in new products (20m13s).
• To determine which products to launch, the company has a committee of experienced people who provide their opinions, and products are launched if there is a positive consensus, not launched if there is a negative consensus, and still launched if there is a mixed opinion (20m49s).
• The company has 20 plus bets running at a time, and over the last three years, they have launched 27 bets, with around five or six being highly successful, five or six not working at all, and the rest being somewhere in the middle (21m11s).
• The successful bets are given more resources to scale up, with the amount of money allocated depending on the product's performance after launch (21m47s).
• The company evaluates the performance of new products over the first few months after launch to determine how much money to allocate to them (21m55s).
• When launching new products or features, the approach is to allow the top 30-40% to grow and scale, while others may be limited to a single team or allowed to hire additional staff, with the goal of eventually scaling up successful products. (22m1s)
• The middle 5-6 products can be challenging to manage, as there is an opportunity cost associated with investing in them, and it's essential to determine the best course of action for each. (22m18s)
• The company uses a tracking system to manage the hierarchy of information and decision-making, with a dashboard that provides a clear visual representation of each product's progress and performance. (23m24s)
• One of the most exciting products currently is EIM, which has been successful and is considered one of the best in the market, with a beautiful and user-friendly design. (22m41s)
• When evaluating new products, it's common for them to show promise from the start, with growth in the first few months, and it's essential to build conviction in the product over time. (23m6s)
• The company receives a large number of product ideas, but the tracking system helps to manage and prioritize them, making it easier to make decisions. (23m15s)
• The importance of simplicity is acknowledged, and the goal is to solve the problem of overcrowding through a simple and intuitive interface that shows the right product at the right time. (24m11s)
• The example of a car is used to illustrate how a product can have a lot of functionality while still being simple to use, and the goal is to achieve a similar balance with banking products. (24m26s)

Private Banking (24m58s)

• Revolut's next desired product to develop is a private bank, which would be a cool addition to their services (24m59s).
• The reason for not developing a private bank earlier is that it was considered too early, but now the company has a large customer base and many customers with substantial account balances (25m7s).
• Some Revolut customers have millions in their accounts, and the company believes it is now the right time to build a private banking service for individuals with significant liquid assets (25m18s).

Revolut in 3 Years Time (25m28s)

• In three years, Revolut aims to be in 50 markets, up from the current 39, and be the number one in 90% of those markets in terms of growth (25m35s).
• Currently, Revolut is number one in 19 or 20 markets, and in three years, the goal is to be fully localized as a bank in 40 markets, providing local accounts, credit cards, payment methods, loans, and more (25m56s).
• The company aims to be as competitive as local banks or even more competitive in these markets (26m18s).
• In three years, Revolut hopes to have 30 to 40 million daily active users, up from the current 10 million (26m28s).
• The most important market for Revolut in three years is likely to be Europe, where the goal is to win every single large market, specifically the top 10 markets (26m40s).
• Currently, Revolut's market share penetration varies from 5% to 70% in different markets, with an average of 10%, and the goal is to increase this to 30-40% in the top 10 markets (26m59s).
• Achieving a 30-40% market share in the top 10 markets could result in a 4X increase in business compared to the current state (27m7s).

Will Banking Stay Fragmented or Consolidate? (27m13s)

• The makeup of banking is expected to fundamentally shift in the next generation, with a current huge fragmentation in the banking market (27m15s).
• The banking market is highly fragmented due to different regulations and markets, resulting in banks being very local and finding it hard to scale outside their country without proper technology (27m35s).
• However, technology allows companies to scale and build a global bank across many markets, providing a unique opportunity for growth (27m42s).
• A similar trend was observed in the venture business, where VC funds initially focused on specific regions before moving towards a more globalized approach (28m2s).
• The banking industry is expected to move towards a world of globalized banking players, with a significant reduction in the number of banks and a few large global players dominating the market in the next five years (28m16s).

Is Revolut Going Public? (28m30s)

• Revolut is already run like a public company, with strong controls in place due to being a bank, so going public would not require significant changes in the business (28m35s).
• The motivation for going public is to provide liquidity to investors and employees, as seen in DataBricks' recent secondary transaction, and to allow VC investors to sell their share holdings and return money to investors (28m51s).
• Public markets offer more liquidity compared to private markets, and Revolut's goal is to reach a $100 billion valuation, which would be difficult to achieve without going public (29m10s).
• When considering listing, the UK is less liquid and more expensive than the US, with a 0.5% stamp tax on trading, making it a less competitive option (29m35s).
• Unless a better product is offered by the UK, Revolut would likely list in the US due to its more liquid and cost-effective market (30m9s).

Response to Moving to Dubai Rumors (30m17s)

• Nik Storonsky spends some time in Dubai every year, and Revolut has a team there, as well as being in the process of obtaining licenses, but he does not live there permanently (30m19s).
• The culture across different Revolut offices around the world is the same, with common characteristics including smart and hungry people who work hard and want to achieve things (30m39s).
• Despite being in different locations, Revolut offices do not have independent cultures, but rather a unified culture across all offices (30m37s).

Maintaining Tight Cap Table Control (30m48s)

• Maintaining tight control of the cap table is crucial for preventing secondaries, private transactions, and side deals that can hinder a company's ability to raise primary funding. (30m53s)
• When a company lacks control over its cap table, early investors may try to sell their shares at a large discount, competing with the company's primary fundraising efforts and potentially preventing the company from raising funds. (31m16s)
• Early investors may be motivated to exit quickly, even at a discount, as they have already made significant profits, which can be detrimental to the company's fundraising efforts. (31m22s)
• To prevent these issues, the company has implemented various controls to maintain a tight cap table, although the specific measures are not detailed. (31m39s)

Competitors Nik Respects Most & Why (31m41s)

• Revolut's competitors that are highly respected include Nubank, which is strong in its home country with high rates and credit card rates, and GP Morgan, which has a very good team in the US. (31m49s)
• In Asia, companies like WeChat are very strong, and the market is harder to win due to differences in UI and product paradigm, as well as cultural differences. (32m16s)
• Quantum Light is a business that uses data science models to select the best startups to invest in, and it has outperformed 95% of VCs in back tests. (34m17s)
• The business uses a team of 20 people to build and polish data science models, which provide a list of companies to invest in, and the team looks for the entry point, typically at Series B, to have enough data to select the best companies. (34m41s)
• The goal of Quantum Light is to select winners better than the best VCs, and while selection is one thing, winning is another, especially when competing with other prominent investors like Sequoia and Index. (35m7s)
• The founder learned from raising money multiple times that many investors follow the crowd and are emotionally driven, rather than making scientific decisions, which led to the creation of Quantum Light. (34m2s)
• Revolut tested over 300 features, selecting the best 25 that statistically provide a signal on whether to invest in a company, with features including the quality of investors, lead investors, and data on the lead, as well as the founder's background and experience (35m28s).
• The model used to select investments tracks the Internal Rate of Return (IRR) for every single fund and uses this data as an input to determine whether to invest or not (35m45s).
• The quality of the founder, including their education and age, is an important factor in the investment decision, with statistics showing that founders aged 25-35 have the highest success rate (36m26s).
• Education is also a key factor, with top universities and STEM degrees showing a positive correlation with the success of a company (37m2s).
• The current education system is not perfect, but data shows that it is still an important factor in the success of startups (37m0s).
• Revolut's founder spent five months raising the Series A funding round, which was the hardest round to raise, but ultimately closed at a valuation of $5 billion (37m30s).
• The founder believes that the relationship between the company and investors is important, and that trying to haggle down the valuation can damage this relationship (38m17s).
• The founder has a few favorite investors, including those from Index, TCV, and Ribbit, who are known for being smart and supportive (38m32s).

Definition of Success (38m48s)

• The definition of success is considered to be simple, measured by the percentage of goals that have been reached. (38m48s)
• Success is achieved when one's goals are met, regardless of what those goals may be, such as being happily married with kids or making more money. (38m58s)
• Money is not believed to be a direct cause of happiness, but rather an additional instrument that can be used to achieve certain goals. (39m10s)
• One of the most important goals to achieve is entering the US market, particularly for European startups, as it is often the opposite with US companies succeeding in Europe. (39m26s)

Quick-Fire Round (39m43s)

• Most people believe that a balanced life allows for happiness and achieving goals, but in reality, an imbalanced life focused on goals can lead to success and potentially happiness as well (39m48s).
• Throughout Revolut's growth, every year has been very imbalanced, but it has become more structured over time (40m19s).
• A typical day involves a lot of pressure, pain, and stress, with 99% of the time spent solving unpleasant problems that no one else can or wants to solve (40m38s).
• To cope with the pressure, it's essential to have a lot of energy, which can be achieved by building a lifestyle that brings energy, such as regular exercise and a healthy routine (41m10s).
• The daily routine varies depending on the time zone, but it typically starts between 6:30 and 9:00 a.m. and can go on until 11:00 p.m. (41m21s).
• The person most respected and learned from is not a specific individual, but rather a group of friends who have built very large businesses, some of whom have never used venture capital (42m16s).
• If there were no fear of failure, the approach would be to keep trying new things, as that's already the mindset when trying new things (42m40s).
• In the last 12 months, there has been a change in perspective on the importance of location, realizing that there's more to lifestyle and infrastructure in other cities beyond just London (42m50s).
• Working from different cities has made it possible to become more open-minded and appreciate the benefits of various locations (43m16s).
• If Revolut were to be started again today, the approach would likely be different, but the specifics of what that would entail are not mentioned (43m24s).
• When advising a young person coming out of university on optimizing their career, the advice given is to first know what they like to do and enjoy doing, and then pursue a career in that area, as enjoying something is crucial for success (43m35s).
• The brand that is most respected is Apple, due to their ability to build cool products and a strong brand, while also managing to stay outside of scrutiny despite being a huge monopoly and charging a lot (43m49s).
• If given the opportunity to be the CEO of any other company for a day, the choice would be a company in the biom medicine or genetics field, as it would be very interesting and a new challenge (44m16s).
• If starting Revolut again, the approach would be to do everything faster and much cheaper (44m32s).
• A question that is not often asked but should be is "why do you do what you do?", as people rarely ask this question, and the answer is a combination of needing to do something to avoid boredom and having a passion for changing the ecosystem in the industry (44m43s).