This week Darrell and Becca are joined by Klarna’s Co-founder and CEO Sebastian Siemiatkowski to talk about how the company is expanding beyond by now pay later space to become a neobank. Sebastian walks us through his European startup journey, breaking into the US market, how the importance of calm leadership through a market downturn, and what’s next for Klarna.
This week Darrell and Becca are joined by Klarna’s Co-founder and CEO Sebastian Siemiatkowski to talk about how the company is expanding beyond by now pay later space to become a neobank. Sebastian walks us through his European startup journey, breaking into the US market, how the importance of calm leadership through a market downturn, and what’s next for Klarna.
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Darrell Etherington 0:02
Hello, and welcome to found I'm your host, Darrell Etherington and I am here with my extremely skilled and talented co host,
Rebecca Szkutak 0:09
Becca ScrewAttack. If I can even claim those titles, Oh, of
Darrell Etherington 0:12
course this is I'm just building your legacy over the course of these podcasts by adding new epithets every time we do the intro, and then you can just claim them all afterwards, like on your CV or something.
Rebecca Szkutak 0:24
Yeah, this is like generative AI in real time with real people, also known as a conversation. That's right,
Darrell Etherington 0:30
yes. So welcome to the show you of course, if you're listening well, I mean, hopefully you know what it is. But we talk about the stories behind the startups. If you're a new listener, thank you for joining. And we hope you will leave us a review. We hope also that you will subscribe to the show if you haven't already, and that you will share the episodes around with friends loved ones, you know, whoever just passers by on the street, it's fine. We like it. We'd like word of mouth best thing ever. But today, we have a special guest. Today we're talking to Sebastian, see me at kowski, the CEO and co founder of Klarna, which is a global payment method that allows customers to buy now and pay later. They've also recently moved into being a NEO bank, and we get into how that's going for them. All right, let's talk to Sebastian. Hey, Sebastian, how's it going?
Sebastian Siemiatkowski 1:22
Good. How are you?
Darrell Etherington 1:23
Good, good. So what we usually have our guests, when they come on the show is explain a bit about their company. I'm sure a lot of our listeners are probably already familiar with Karna, you're a bit larger, more established than than a lot of our guests. But do you want to still give the elevator pitch? If you have it to hand? Maybe you're rusty at it? I don't know. Can you give it these days?
Sebastian Siemiatkowski 1:41
Well, yeah, it's a good question. I always find it so difficult to work on something and been nerding about it for 17 years. And then you're like supposed to summarize that in 30 seconds. It's just so difficult. But I think you know, Kalon is a major bank and payments company today. We obviously mostly famous for like the Buy Now pay later service. But actually we do about I could say we're the largest third party payments network in the world, larger than than Amex. Slightly smaller than PayPal, we have about 150 million consumers worldwide, about 30 million in the US, we offer them both the ability to pay directly the full amount or split in parts. We also offer banking and financial services. So we are a NEO bank. And then I think we have a pretty distinctive different brand than most other financial institutions. So that's kind of a summary of it. We're about 6000 people, we're about $2 billion revenue,
Darrell Etherington 2:30
right? Yeah, I think I mean, even in the time that I've been familiar with it, it seems like you've just grown and added so many things and added so many services and expanded. So I understand that it can be hard to kind of zero in on like, what exactly are we anymore? But yeah, this is just some trivia for the listeners. But I think I was part of when we launch it on Shopify, because I was at Shopify briefly. And this was quite a few years ago now. But very cool. I remember it. It was exciting. We worked with your team is great. This does not bias me in any way listeners.
Unknown Speaker 3:09
But,
Darrell Etherington 3:09
yeah, I mean, amazing what you've been able to achieve. Do you want to like take us back, if you can to the starting and sort of the origin story and how you even decided to do this to begin with? Short?
Sebastian Siemiatkowski 3:20
Yeah, so I was I'm an immigrant kid, Polish background, born and raised in Sweden, when I grew up Silicon Valley was this magical place far, far away. I've seen some movie with Bill Gates versus Steve Jobs. That was pretty much well, yeah, you know, and then, and then I unfortunately, never learned to code, which is the biggest disaster in my life. But apart from that, I was a business school kind of student went to the best business school in Sweden, everyone where they wanted to go to Goldman Sachs and Morgan Stanley work at McKinsey. And for whatever reason, I've always been inspired by like the founder of IKEA, and you know, Richard Branson, or whatever, I had this idea that I should start a company. I went on a crazy trip with my co founder, traveling around the world without flying, which I think was a little bit ahead of its time. I'm kind of proud of it nowadays. You know, you're not supposed to fly anymore.
Darrell Etherington 4:05
Yeah. But wait, just the past day where you're taking like sea vessels, and they'll realize, oh, wow, okay,
Sebastian Siemiatkowski 4:11
cargo ships, and you know, trains and buses. And then, actually, when we finally live in the US, which is kind of at the end of the trip, we got to LA and we were just like it's too easy to jump on a Greyhound. So we also hitchhiked from LA to New York, which was an amazing adventure. Yeah, it was it was really fun. So tons of great stories from that came back limit too early to continue my semester. So I ended up just looking for a job I was actually unemployed even went on like food, you know, get Social Security Services in Sweden supported me for Wildside putting some food stamps to pay for my food at that point in time and eventually ended up having a job in this extremely last place in the world. I thought I would be working is this like factoring firm doing account receivables for other businesses and I'm just like, okay, but now I'm here for a year before I can continue my studies. I'm just going to learn the most out of it. And it was just so hard to sell the services to these customers, nobody cared and I was on the phone. I was really cold calling I like I'm the boiler room guy. I was just lifting the phone. Right and and then I found out that there was the small ecommerce entrepreneurs that they were really keen on a new payment service. And what was the case the difference between Sweden in the US at that time was us everyone had credit cards in Sweden, everyone had debit cards. So shopping online with debit cards just sucked. What if I don't receive the product? People were really nervous, you know, shopping online, but remember, this is like, oh, four or five. So everyone's like, you know, and then traditionally, mail order companies had this like Bill Me Later type of services. So I was like, wow, that would be great idea. Have I even now even tried to kind of launch that at the company I was working out. But then the company wasn't really serious. And the whole company blew up anyways, later on. And so I left back, go back to my studies. And then I was just like talking to some fellow students like, hey, this would be kind of an interesting idea. And everyone was like, Yeah, you go ahead and, and die in in your small office, while we go away and make the big bucks in London at Morgan Stanley. Nobody was interested. Nobody was interested. But there was a shining star for us, right? You gotta remember, like, in Silicon Valley, there was already a lot of like, inspiration for you guys. But for us, in Europe, there was one company, and that was Nicholas Sandstrom in Skype was just like, pave the way that you know what, you can actually in Europe create one of these, like major internet companies. And so that was just an inspiration for us. And we just said, okay, you know, the three co founders kind of dropped out of school started working on this, and very different than your typical tech startup, because, you know, the idea of like, raising tons of money and burning through it before you became profitable is just not there. So we found a business angel. She was like, okay, look, guys, we asked for 30,000 bucks. She said, Look, I'll give you 60, you're gonna need more. And then, you know, I'll take 10% for it. And we were like, okay, great, that's awesome. We can't code she brought some a couple of coders on board, got them on board. And then, you know, we started coding. And actually, we became, you know, we promised our we would spend $30,000, to become profitable, we spent 40. And then after that, we were profitable. And then the company was profitable for its first 17 years of existence, before we had to, you know, go and compete in the US, which is costly. So it was very different. Like, we didn't raise a lot of money, we were really like, making money from day one, very sales focused, didn't understand. And our challenge was maybe you know, not your typical Silicon Valley one where like, when we were like, thinking about engineering, we were like, okay, whatever. And then by the way this, these guys had sold in us look, you should use this fantastic exotic language called Erlang, which is a functional programming language is going to change the world. And we're like, Okay, we'll build a system in that, you know, whatever, like, we had no clue what we were doing. But it started work, it worked really well with the customers in the immersion. So a lot of our merchants, as they started offer us as a payment alternative. They started seeing, you know, great lift in sales, consumer liked the product, consumer used it, our credit losses were, you know, reasonable. So we started making money, and then started growing really, the difference, again, to be us is growing in this market with 10 million people, right? So then we started going into new countries, and at that time was like, oh, we'll go to the major markets of Norway, and then whatever, until you figure it out, it's probably better to go to Germany and even larger markets, if you actually want to make a global success out of this. So that was kind of a short summary of the beginning.
Darrell Etherington 8:15
Yeah, so a lot there resonated with me, because I'm also not Silicon Valley based, like, Becca doesn't understand the rest of world. Valley. I know, you're American, you're American. And American. I'm Canadian. So you know, we're also very conservative, we tend to be conservative in the startup scene, right? Like, yes, there's risk, obviously. But it's very different. And people want to see, you know, positive business metrics really, really early on, right, which is kind of now becoming, I mean, anytime there's a downturn that sort of becomes the situation across the board. So they say, right, with all that they're still making bets and burning money and whatever else, but
Sebastian Siemiatkowski 8:54
but, you know, there is a difference, though, there is definitely a difference. And like, you know, if you in the US, if you nail it, right, the market is so big the revenue will follow. That is not necessarily the case, if you're in Sweden, right? Like if you have a successful business in Sweden, you can easily just by indirect cost, eat up your whole revenue, like because there's just not big enough market. Right. So there is some reason for why that works more in the US, I think,
Darrell Etherington 9:19
but what were your biggest challenges then early on? I mean, were none of your co founders technical like you yourself, you mentioned art, but I Okay, so that's kind of a big, like stumbling block going in, right? Because typically, there's, you know, maybe one person, usually one person is technical or something. And that kind of helps out with the early days of coding and stuff.
Sebastian Siemiatkowski 9:35
Yeah, I don't know if this, like I remember Sequoia telling me at some point of time that like they have never invested in a company with no technical co founders and they will never do it again. I don't know what they meant. At all asked for it. Maybe I don't want to know more. But you know, no, I think that was I definitely found that one of the biggest challenges being a young manager was managing things that you don't know yourself. Right. So it's one thing I was coming from the sales marketing side, I understood how a great sales process look like and how you close contracts and get business done. But I had no clue when somebody was telling me, you know, we need to code this, and it's going to take 12 months. Okay, you're
Darrell Etherington 10:16
like, I believe you, but because
Sebastian Siemiatkowski 10:20
so so it was very struggling for me. And I think also, because the business started growing fairly big, you know, fast by Swedish standards, at least right? So we were growing fairly fast at that point of time. You know, I always felt that running an organization of 200 people, you kind of know, people, you know that. But the second you went above 100, I was very lost. So, to me, if I look a client between maybe Oh, nine to, you know, 13 or something, I felt that we totally lost traction, right? So, you know, I was running around and tons of meetings, but there was really nothing happening, like the company like we started hiring all these senior executives would bring them on board, people with tons of opinions. And there was a lot of discussions, but I don't really feel that we were doing that, well, we had an underlying momentum in the original business that made it look so our p&l growth look great, investors were happy. But when I was looking at the internal momentum, or a ability to turn out new products, and improve our services, and so forth, I felt they were very, very limited. And so it was very frustrating for me that period of time to figure that out.
Darrell Etherington 11:25
Yeah, I think I mean, that echoes the experience of a lot of people in a growth phase, especially the first like large growth phase, when they're bringing on a lot of that management apparatus. And you just, there's the frustration with the fact that you're not like translating work into output directly anymore, right? Like, I mean, Toby has expressed that a lot of Shopify and I think continues to right, we just saw him wipe the board of all meetings with more than one person or whatever. Like, how did you kind of come to grips with that? Or how did you deal with that? And what kind of processes do you think other people can take to either avoid that or to correct it when it happened?
Sebastian Siemiatkowski 12:01
Well, I actually think that sometimes I feel fortunate that in my opinion, Klarna wasn't this, like, we didn't build a search engine that became this money printing machine in our basement. And then everyone is looking at us. And every management idea that we come up with is labeled as a massive success, just because we have a money printing machine in our basement. So like, you know, I think when Google was announcing this 20% creative time, we were like, okay, oh, my God, it's Google. And they're saying you should give everyone 20% of creative time. So we obviously tested that nothing happened, no new products came out. We were okay. You know, we put we put Lego into conference rooms, we took away the Lego in a conference room, like, yeah, like, we tried all these things. And so like, I think, because what we didn't recognize just yet at that point of time, is that the question wasn't like, was 20% of creative time something that Google could afford, due to the money printing machine in the basement? Or was it generally actually what had created the money printing machine in the basement? Right. And I think that's often what people get the other way around, and then potentially, it is right. So I think it was, it was very confusing to try to you were seeing all these impressions, people writing about things that works, it doesn't work, and so forth. And it was very difficult, I think, to that. Also, in our case, we quickly came to believe that our product would not work in the US. And we already believe that the US was going to be important to create a truly global company. So in oh nine or 10, we decided to pivot the company, right. And the pivot was that we were going to move from offering this Buy now pay later service only, and become a thought checkout of the merchant. Right. And at that point of time, we had identified some injuries, I remember doing this board presentation to my shareholders at the time, I was like, okay, look, there's gonna be this opportunity to offer like a global checkout solution that helps, you know, merchants sell in every country in the world, solving for shipping, solving for local payment methods, and so forth. And there's three companies that we should be on the Wotch that we think kind of see this opportunity. This one this young Collison, you know youth out of Ireland, that seems to have, like, realize that, you know, building beautiful API's and things that developers like, that's a great idea, right? Then there's these Dutch guys that have been in the industry for a while that know what the heck they're doing. And they're called Atlassian. And like, I even had this fun, because I went down to see Peter, the Co Co Founder, because at that point of time, my company was bigger than his and I said, Peter, you got to sell your business to me, because I'm just going to run you over. But that was a bad beginning of our relationship. I tell you a couple of years to repair that relationship afterwards. But
Darrell Etherington 14:44
but but I'm trying I think
Sebastian Siemiatkowski 14:48
I was trying to threaten him to sell the business. But anyways, and then we said pay Paul is going to continue to do well, right and, and the funny thing is, so we were going to go down this checkout idea. And we actually launched Your product got some momentum about it, and then I could just see how it was slowing down, right? So a way that I still kind of find these emails, you know, written in 12, or 13, where I'm like, okay, and just announced 50 Local payment methods in Asia, we were struggling to add one local payment in Germany, that we also owned. And I was like, come on, I can just see that the momentum of our product is not moving at the same pace, right? Yeah. And it was extremely frustrating for me, because I started seeing the momentum of stripe denied. Yeah, and, and I was like, You know what, we're doing something wrong, we have money, we were actually larger than we had realized the same vision. But we failed. And they won, right. And I think the nail in the coffin in our case, was when Daniel Eck, my friend at Spotify, signs an agreement with Ardian. He's my neighbor, and he goes to the worst competitor. And I'm like, Okay, it's time to look yourself in the mirror in 15, and say, we failed at this, right. And so at that point of time, it created this, and I felt that between 10 and 15, it's not like our business and grow, we grow from a billion dollar, we get the unicorn valuation in 10. And then we got a $2 billion valuation and 15. So it was a burn, okay, good outcome, even for US investors. But it just wasn't what we aspired to do. And so in 15, at that point of time, I had the benefit of taking a new management team on board. So I kind of reshuffled the whole management team. And instead of having these external executives hired from all over the world, I took internal people that have done really amazing things within Kleiner, and I promoted them to even if it felt scary, and I was like, Wow, are they? You know, are they senior enough? Are they going to be able to deal with this much responsibility? Yeah. And then we basically we're in this kind of, in 50, we're like, Okay, this checkout idea, again, and stripe is killing it, forget about it. What are we going to do? Like, where should we take the company? I mean, we could sell it, we could IPO it and whatever, and say bye, bye. But it was just not never what we aspired to do. So we sat down, and we said, okay, let's pivot again. Right. And that's when we created the vision and direction we're on it now. So that was like one thing, can we create a new big, hairy goal that we really believe in that we think is exciting. Because we realized, to some degree, we had had the correct business insight in 10. To recognize this massive opportunity, an audience stripe combined, it's probably over $100 billion in market cap, right. So that we have realized we understood the market and where it was going. We just didn't execute. Right, right. And so then we said, is there a new update this kind of when we went into path, well, now it kind of neobank Shopping application direction, Super App, whatever. But then the next question was, what are we going to do differently? Right? Like, how are we going to execute differently this time around, and then we started really rethinking our whole operating model. And the way we were working internally, and we started seeing momentum coming. So we started actually seeing that finally, we started seeing results. So
Rebecca Szkutak 17:48
Well, one thing I was going to ask about is, since you guys did get started in 2005. And I know a big conversation over the last year has been Oh, so many startups, so many investors have never been through a downturn. But you guys have, you've been through different market cycles at this point. And I'm curious, especially because you guys have gone through these different pivots and sort of have this market awareness did going through that period early on, sort of help inform any of these decisions just sort of help guide as the market started to heat up again, or do you think it helped guide you now? I'm just curious, because so many companies just haven't gone through that yet. You guys have?
Sebastian Siemiatkowski 18:24
Yeah, I think that, I think yes, I mean, I do, as much as I still am a big fan always gonna be a big believer in the drive of youth, there is some value to experience, right. So I do feel that like the fact that we've seen that when COVID hit, some of our investors started calling me and saying, you will have to cut down on your investments, you have to pull back and I said, Look, I'm not running a small boat anymore. I'm running a container ship, I think it's worth waiting a few weeks to evaluate if it's really that, right. And at that point in time, that was the right thing to do. Because it turned out there was an acceleration for a few years instead, right? And so we didn't even know we saw some competitors actually even, you know, cutting down because they wanted to act quickly in that situation. What happened in our case was, we had already in our business plan to do a fundraising this year. And we were out in the market slowly starting to talk in the market around March. And it was just like, every conversation we had was like, Oh, we will like the business. Amazing. Next year, PayPal is down 10%, which was like the typical peers like so you know, like every every week, basically, our peers dropping dramatically. And when I saw that, potentially, I hope to believe that it was based on that experience that I've had, I said, Okay, look, this is it. This is that change. Right. It's not just a, you know, temporary flukey thing. And then I think the conclusion then was that like, for everyone involved, it's going to be a benefit. To be moving decisively. As much as it's tough and challenging to take decisions necessary. We're going to have to move fast and be you know, right out and then I think, to some degree, we also get this done downside to that because I think beginning when people reported about planners layoffs and the new valuations, there was still a tendency to describe it as client specific rather than markets changing, right. I think today people think about it slightly differently. And it's strange to some degree that that was the case in May, June, because, you know, already that publicly listed companies had already taken a massive beating anyway. So yeah, but yeah, I think it helps. And obviously, you are a little bit more like, it's never emotionally easy to go through these situations. But I think at least you have a little bit more of like, you know, you know, you're not, it's not the end of the world, like things are going to sort out your, like, you are probably a little bit more like, Okay, calm at least, I'm not saying that. You're obviously very challenging. It's very saddening, but at least I think there's a calmness to have a steady hand, right? Yeah, I hope, I hope to believe at least doesn't mean you don't make mistakes you do still, as media has happily pointed out doesn't mean that we haven't made a lot of mistakes in those. But still, I think that like, at least you, you can feel a little bit like, Okay, you have to do it, it's difficult, but things will get better. And I think you can admit that as well. Because obviously, you have to be very mindful of the people that in this case, we had to unfortunately part with, we also have to be mindful of the people that are staying like and make sure that they feel comfortable and safe and believe in the future and stuff.
Rebecca Szkutak 21:19
I know, when you raise that round back in July, I want to say, and you were very transparent and candid about the change in valuation. And that's just not what we've seen. And we're starting to see a little more now that startup founders are more comfortable talking about, like, why stuff is getting valued at a lower amount this time around and stuff like that, but you were kind of the first founder I came across was just open about talking about it. This is why this is what happened. And I'm curious if being so public about it, was that an intentional choice? Or did you feel like you had to or just, um, like, walk me through what that was, like, just being so transparent about that process?
Sebastian Siemiatkowski 21:59
Well, I think probably a little bit of a comes like, you know, we're in an odd situation, because actually in Sweden, every company's finances, private or public or public. So I can go and look up a private company's finances as much as the public ones on an annual basis, not on a quarterly basis, on average. So to some degree, it comes a little bit from like the environment in which I exist here in Stockholm, Sweden. And then another thing that I think people don't really understand, in my opinion, is that Klarna, we were early advice, and I think it was good advice. We were early advice, don't do prep shares, don't do liquidation preferences do common shares only. So we always only raised common rounds, right, and our valuations were always in common stock. And then in addition to that, because we became a bank, and we're a fully licensed bank this round, we weren't even allowed to do a proof share trust structure. So we could only do common, so there was nothing to hide, right. I think, to some degree, I do believe that, like some of the companies I've seen raised in this environment post, I believe the valuation is not really the same, right? It's different, right. But it's obviously very difficult in a non public environment to figure that out from a media perspective of like, what does this really represent? So I think that there was also that element. And I think also in transparency, I mean, I do believe that like, you know, we would have loved to continue investing at the level we were investing. Like, we I still believe that there's this massive banking, or logger Polly and you know, these massive companies with trillion dollar market caps that are there to be disrupted in this industry, I don't think they've really served customers best interest? Well, I think there's an amazing opportunity to make a difference in the space. And I think also what people tend to forget, as they look at it now, a year ago, our burn rate was, you know, close to a billion dollars a year. That sounds a lot. But if you put that into perspective of the company reaching, you know, 45 to $50 billion market cap, you're looking at a 2% dilution on annual basis to sustain that investment rate. So as long as investors were supporting, and leaning into the future, as much as they were a year ago, it's actually reasonable to be investing that much into the future, right? Because people are giving you that money. And it makes sense. It's almost an unlimited addressable market when you're, you know, in FinTech and financial services, because it's so massive, it's an industry. It's one of the largest industries in the world. So it's not actually entirely off, right. But then obviously, the sentiment shifts and people want to see profitability now. And then I just wanted to be honest with the mic. Okay. So you know, it is what it is, but we will adopt, right. And we we were very clear when we were fundraising. So we had this beautiful pitch that we created in March, April, which was like, Oh, look at the future look at the industry, we're going to disrupt and then in May, that pitch was reduced to back to profitability. In 12 months, how do we become profitable again, like that was like the end pitch at the end. But yeah,
Darrell Etherington 24:50
but I mean, that's a very reasonable approach and I think it's one that a lot of people just didn't take or don't know how to take like their very head in the sand or whatever. Like You know, I've heard a lot of companies that just had encountered that same thing. And were kind of like just totally gobsmacked by it, like, ran into a funding environment where all of a sudden people they were talking to, you know, just a few weeks prior, who had been like, great. I mean, you look great, the business was great, I'm really happy about it. And then a few weeks later, it's like, I there's no chance I'm touching this with a 10 foot pole, and not for years now. Right? I guess it gets to what you were talking about with the maturity and with like the experience of having seen it previously, that you were able to do that. And, you know, I think you're right to in assessing that you received criticism that may be was undue at the time because you were early, and being somewhat prescient, whereas other people were dragging their heels a little bit, right. But it must be tough. Like how much goes into that decision? How much goes into making the call of like, oh, we are going to do this, and this is going to be the result. And this is going to be the public perception. But long term, it's going to be the right call to me.
Sebastian Siemiatkowski 25:58
Well, I think that, you know, that's the role of a CEO, right, which is the difficult part of the job or a founder that sense is that I have multiple stakeholders to take into considerations, right. So I have my shareholders, I have my employees, I have in this case candidate, both employees that potentially will leave and employees that are going to stay, I have regulators, but I also have customers, you know, I have my immersion partners. And so, you know, you don't have the luxury of taking a single person perspective, right. And I think that like, you know, even when you ended up in this typical internal slack conversations, like why can't we all keep our computers when we're leaving, you're being cheap, right? Like, maybe, and, you know, maybe that was fair, maybe we should have had, but it's also like, it's easy to state that in a Slack channel, then you calculate the value of those computers, and you realize that you're looking at like, okay, but you know, it's not like money is an unlimited resource. If I then give the computers away, that may be that if I still need to hit the same budget, I may need to remove two or three more headcount, right. Like there's a trade off between all this like, and that's often the kind of complexity now I'm not saying it's that obviously black and white, obviously, there's always room and you can do things, but to some degree, there is an aspect of that, that this everything is and that's that's the difficult thing, I think, is to try to but but I do believe the most important thing, you're not going to do everything right. It's just like the most important thing, in my opinion, is to be willing to act fast. And we had I had a discussion with a board member about whether we should announce the restructuring and the layoffs before we closed our funding round, or not. Right. And I think in this case, I actually decided against some advice to do it before. And, um, in this case, I, you know, this is very rare that I have I'm right, I'm usually wrong. So but in this case, I actually think I think it was right. It's like, I think it also you gotta remember that like we wanted, and we needed to support him in investors as well. And unfortunately, the way reality looks like it was important for them to see that we were taking actions and moving right. And that's important for me, both for our customers, our merchants, and as well as for the remaining 6000 employees. And it's never easy. I'm not talking about empathetic side is just very sad, and very tough. But, but also like what you have to do, right?
Darrell Etherington 28:07
Yeah, yeah, I mean, we saw some of that this week. And just to pull back the curtain a bit on like, the internal discussion, like, I think we had this Carbon Health or something like just laid off a huge amount of people, I think, last week, and then they just announced $100 million funding round from CVS, like earlier this week, right. And optically, it's like, that is hurt. It's gonna hurt the people that were involved in that layoff and everything else too. But it's also probably just business sense, exactly the right move to make behind the scenes and for similar reasons that you're discussing, right. But there's always a human cost. And it's always going to be, you know, painful and difficult. But it sounds like, even in that case, it's like, yeah, but to the ultimate benefit of the people who remain, is this still, right? Like, had we not done it this way? It's going to hurt them worse, there's going to be more people that have to go like there's all kinds of additional problems that you've run into.
Sebastian Siemiatkowski 28:55
Yeah. And I, at least what we tried to do from our side, it's hard to predict the future. But we tried to make sure that like, let's do it properly in one time, rather than do it in in small increments trenches? Yeah, I think so. But again, like, every company is unique. And there's a lot of way of doing things and so forth. So I'm not going to sell advising people. I think everyone has looked at their own prerequisites. And now they do this. But yeah,
Darrell Etherington 29:18
I mean, the other question I have of that is, how does it affect your kind of long term planning? And you know, that ambitious goal that you were talking about that you had to kind of put it aside and then say, well, we need to get back to profitability in 12 months? Like, are those plans just in reserve? Do you re shape them? Do you throw them out and start again, like, how do you think about that?
Sebastian Siemiatkowski 29:37
I think in our case, after so many years, I think it's like just as much as we identify the business opportunity, that kind of mix of stripe and Ardian in 10, and we were right about it, we feel very, very convinced that the direction we're at now, like I genuinely believe that in financial services and banking, there's going to be a massive disruption. I think The retail banks and the legacy players incumbents are under extreme threat. And to some degree, what we're seeing in FinTech right now, is actually to the benefit of fintech. Because a year ago, everyone had to worry if you're a CEO of a bank now it's like, oh, yeah, it was just this fad. Yeah, let's go back and do things like we've always done right. And you're like, yeah, and at the same time, Nubank is killing it. revolute is killing it. Klarna is killing it. Like, there are a couple of players that are out there. They're just like, every day, you know, growing in this kind of China's also doing well, I mean, there's a couple of ones. So to me, it was just like, No, the the end goal is exactly the same. But obviously, we will just have to go about that end goal differently. And we'll have to focus more on other things than we used to do before. But I've been it's actually one of my proudest aspects of all of this is just how the 6000 people were today, how extremely fast and how they really embrace this shift, right? So this focus shift from just grow, grow, grow, to like, okay, let's find the opportunities for profitability. And I actually, this was one of the advice from Daniel Eck at Spotify that I really enjoyed a few years ago, when I was talking to him about like, how does he balance between growing and efficiency and stuff like that. And he just said, I don't think you can mean, you actually don't think you can do both at the same time. And I was like, I was probably just like it to some degree. It's not necessarily from my perspective, like, it's been very growth oriented for a few years, we'll give it an all, it's not entirely unhealthy to give now, one or two years to really, you know, focus on the efficiency side, and make sure that we're doing the right things, and that you know, and stuff like that. So to us, none of the aspirations of where we're going right now has changed. And I actually feel like in 15, to me, it was already clear that stripe and argon was winning. But I don't think all investors and the collective had fully appreciated just what an amazing momentum these businesses were building up. And I think this is very similar to me with us and some of the other Neo banks and kind of, you know, in the center of your square block for that sake, as well, that like there's a tremendous underlying momentum in these businesses. And there's a massive addressable market. So like, I just think that that's just to some degree, we're actually going to benefit from the fact that like, big legacy incumbents are now going to say, Oh, good. This was just a fad, right?
Darrell Etherington 32:22
They'll return back to the comfort of their inertia, and you'll be able to kind of add innovate them. Right.
Sebastian Siemiatkowski 32:27
Right. And then also, like, unfortunately, for some of our smaller startup clones or competitors, the downside for them obviously, is that, you know, funding is drying up, right? So yeah, for us to kind of our over that hurdle. I actually think it's, to some degree beneficial, not that I would have wished for it. But it's not necessarily for the long term business opportunity, a bad thing,
Darrell Etherington 32:47
right? Yeah. Cuz a lot of the newer ones don't have the option to move into a profitability mode. Right? It's like they're nowhere near that. Yeah.
Sebastian Siemiatkowski 32:52
And I'll give you a you know, a not so well hidden secret, but Klarna makes a billion dollars in gross profit in Europe. Right, let me just give you like. So like, yes, we've been investing heavily and growing fast in the US. And as a consequence of that, we've been posting EBT losses on the total. But we have a very strong solid business in Europe, that is extremely profitable. So
Darrell Etherington 33:15
right, you're doing that as a choice. It wasn't like you open to huge Exactly. That you can no longer close. Yeah,
Sebastian Siemiatkowski 33:23
I think that's actually something that I've sometimes especially trip more traditional business media, I find it a little bit odd that you can mix losses with investments, because to some degree, these are investments, right? Like, yes, I'm showing red numbers, because I'm investing heavily not because I'm lost making and I haven't non functional business model. There aren't companies like that. But that's not necessarily the case for all these companies.
Darrell Etherington 33:44
Yeah, I think that I mean, the other thing that I would just say around that, or ask around that is like, is it the case that you then just move up some of the plans for profitability, like you turn on the profit dial earlier than you would have otherwise in favor of growth? Or is it more like, oh, let's pause those initiatives for now and then come back to them? Or is it a mix of both?
Sebastian Siemiatkowski 34:04
So in our case, we had to make those changes in the size of the organization that we had to go about. And we did that. But, you know, obviously, there were some new teams and some new stuff that we recruiting for much further long term. But we did challenge the remaining 6000 People live it and said, Look, you know, the champion, the plans are the same. You've figured it out. And they're figuring it out. Right. And I understand that they're making trade offs and stuff like that, but they're figuring it out. Right. But what we did do is change some of that to your points, like priorities, right? So there's some stuff like they started focusing more on, you know, optimizations and making sure that, you know, we weren't found different things and that there's been this amazing stories that are shared internally of like, you know, somebody realized that nobody had cared to optimize our text messages that people use for OTP well enough, and actually, today we had our size we're sending like millions of those. So actually, that was like a cost saving of 20 little box that, you know, just
Darrell Etherington 35:03
forgivable sins and the good.
Sebastian Siemiatkowski 35:06
That's exactly it. Right. So and that's again, what was amazing. I've been so humbled and grateful to everyone in the company, how they shifted their focus on the amazing things that they've accomplished since then. Right. So yeah, we know we're scraping by,
Darrell Etherington 35:20
I think more than but we're basically out of time here, Sebastian, but I really, I've, it's been a great conversation. I really appreciate you being so direct and transparent to about how to handle the current times which are doom and gloom. But me and you, I think, have the advantage of having lived through one of these before and worked through one of these before back. I don't know if you've worked through the 2008 one, probably not right. I was 12. Okay. So no,
Rebecca Szkutak 35:49
I just love people make jokes about that on Twitter, like, oh, well, what were you doing during the last financial crisis? And sounds like I was attending a middle school debt?
Darrell Etherington 36:00
Well, I mean, that was what it was, like, for me for the for the 2001. Like, you know, like the actual.com burst, I was just hearing kind of the stories of it. And you know, all secondhand, but it's really useful to talk about having some perspective on it, and to talk about, like, what are the opportunities that are there, as well as the challenges that come along? And I think, Sebastian, you've done a great job kind of outlining that for us. So So Thanks very much.
Sebastian Siemiatkowski 36:22
Thank you. And that's the only like, I've already believed that, like, you cannot like I can't change the reality of the world out there. Right. But what I can impact on my own actions and how I act about it, right? That's the only thing I think. And then again, I you know, I think leaning into it, more than anything else, right is important. I always think about that when you sit in the restaurant, right on, something's wrong in the kitchen. The worst thing you know, is like, all the waiters disappear. Like, it's okay, I realize it like things are bad, you mess up, you do mistakes, but I mean, people have to you have to lean into it. You have to like, go and face it, right? Like, and if the waiter does that, and come and says, I'm really sorry, terribly sorry, your steak is late, because there's someone that you're fine, right? Like, I mean, you're gonna be happy, you're gonna be disappointed isn't hard, but it's always about like, you have to lean into it. And it's painful. And it's it's it's tough. And it's difficult, but because the only the only way.
Darrell Etherington 37:16
Yeah, yeah. And that analogy. I think the alternative is what shut down the restaurant, the chef, the chef's and the waiters. I'll leave at the back door. You never eat a steak. You don't get to take it off. Right, let alone to wait a little while. Yeah, thanks again. And yeah, we really appreciate you coming on.
Sebastian Siemiatkowski 37:32
Thank you for having me.
Darrell Etherington 37:38
All right, that was our chat with Sebastian, I suppose we are talking earlier and talking again. Now. I'm just trying to do a BNPL joke, but there isn't one. But Becca, what do you think of Karna and kind of how they are positioned right now? No, I
Rebecca Szkutak 37:55
thought that was a great conversation, I thought he was really kind of transparent about all of the things they've had to do last year with the valuation cut and some of the layoffs. But the one thing I wish we had gotten to, and I just felt like I couldn't squeeze it in because he was being so transparent about those other topics that I didn't want to slow them down or cut them off, was sort of this notion of the Buy Now pay later aspect of their business. Obviously, that's not the only thing that Klarna does. But they fairly recently entered the US. And I think just based on sort of chatting with friends and other people who don't have a super huge knowledge of the startup ecosystem. I think they're mainly known here, at least so far for that aspect. And I know there's sort of growing negative sentiment about Buy now pay later, it's pushing a lot of Gen Z's into debt. A lot of people are not fully sure what they're doing when they sign up for it. So I wish we had talked to him a little bit more about kind of how Klarna can help one quell customers fears about Buy now pay later, because when done, right, it's totally a fine service, of course, sure. And also just make people aware that kinda does all of these other things, too. I don't know what you thought about that.
Darrell Etherington 38:58
Yeah, I think he was really I don't know if he was intentionally doing this. But I think it's partly that this is their expansion is into this neobank sort of market. But he was also talking about that aspect of it a lot. And it might be to remind people that there is an identity for the company beyond the BNPL stuff, especially for our audience, which tends to be us and definitely associates them with that space. Yeah, I think it's, it's too bad. You're right, we would have been interesting to get into it. I think it's especially interesting for someone like Klarna because Karnas original value prop wasn't even really that it was just modernizing the payment system for a market that never really got into credit cards in a way that America got into credit cards. So it's kind of ironic that they ended up in this primarily credit facility business, which is what BNPL things are even if we don't think of them that way, right? Yeah, like their whole thing was, well, we just make it so you can pay online with your debit card, as opposed to a credit card because originally like Swedish people and then German people, like they don't use credit cards and that's it. Like they don't, right. So yeah, it would have been curious about his thoughts. It's one of those things where it's like, well, we'll get them next time back. We had a good enough time, I think he'll come back on. But yes, it's clear that they are looking ahead at least macro, like at the company level to a time where that is perhaps not their core value proposition and probably not their core identity, right? Because he talked a lot about this neobank opportunity and how big he sees the neobank opportunity as being right now. I was curious what you thought of that? Because it's not like a it's a new conversation around the neobanks. Right. So do you think something's changed now that makes it that makes the incumbents more susceptible to disruption than they ever happened before?
Rebecca Szkutak 40:42
Yeah, neobanks is such a weird category in my mind, because on the one hand, I'm like, This is great. A lot of new banks bring people you know, quote, unquote, unbanked people into having access to these kinds of services. And a lot of the innovation that they have is were ends up benefiting those of us who do use a traditional bank, because the traditional bank ends up trying to adopt it or trying to sort of create something similar. So that's all good and fun. But I just the new bank thing is interesting, because I still, and I say this about time I say this about a lot of things. I still don't know anyone who uses them. Hmm, yeah, I just do. And I'm not saying I mean, I'm not saying I have like a ton of friends or like I know, kind of like what the trends are for, like broader consumer behavior or anything like that. But there's so many, they say they claim such a huge market share. And there's such a big market opportunity that you'd think you'd at least know someone who use one of them, but I don't steal. So I'm always like, that just like taints my view on it a little bit. I'm like, this is a great idea. And if they are successful in it, that's awesome. These sorts of innovative banks are very much needed. But I just have a hard time grasping, like the adoption, and the total addressable market.
Darrell Etherington 41:56
Yeah, I do, too. I think it's obvious to me from one side like that the incumbent banks have like a lot of power and a lot of stagnation, right. But your side is equally obvious that like, if you look around, you don't see many people flocking to the available options that are out there. Now, even if they are dissatisfied with the service they are receiving, right? What now that I'm trying to think of it and bring to mind like do I know people who are using those services? I don't now, but I did, during kind of the first wave of this type of thing. I remember all I'll name checking why not. He's a he's a friend, friend of the show friend of TechCrunch. But drew old enough, had some kind of like Neo bank account, and he brought in the card to the office in San Francisco and was like, Oh, look at this car. And we all look the car. And we're like, Oh, that's cool. That's a cool card. Maybe simple. That seems like, right. Anyways, the long story is like, the bank went away eventually. And like, it was a mess, like, stuff was basically kind of off and accessible for a little while. And then he got it out. But like, you know, it was a headache. And I think that's always the challenge you have with this stuff is like, Oh, do you have the reliability? Because we're for whatever else they have. Most of these banks have that reliability that the age old institutional banks, right, particularly in countries like Canada, where I am where it's effectively a government supported monopoly when it comes to the banking system, like there's only really five and there's not really allowed to be any others essentially. So yeah, it's a really tough market. I think he had made some good points about how there are signs that this could be the turning point, like the fact that yeah, you have a economic downturn and then maybe it means that the slate of competitors is wiped clean, but in a way that allows someone like Klarna who is like not starting from zero, right? Right has a successful business to build off of that's in the financial services products industry, maybe has a better chance of succeeding and some of the smaller people
Rebecca Szkutak 43:51
definitely and I think of some people say use the Buy Now pay later services through Klarna and then are thinking of switching banks and know that Oh, I went I did that thing with Klarna and I bought a Peloton even though I think Peloton is after pay, but like I think so yeah, because I'm doing that right now. But if you if you end up buying something through those services, and then you are thinking of another bank, and you see that they have those options, and you had a good experience with them. I mean, there's definitely truth to that for sure. And I always say I'm not gonna say who I bank with, but every time I call customer service, I have to be like, talked off the ledge of like not closing all my accounts, cutting up on my cards, and like this happened last Friday. So like, I totally get that there's always going to be kind of momentum for people looking for other options. So if especially if they can get that in with the Buy Now pay later with the other services, people will get that name recognition. And then maybe yeah, definitely could be helped them in a way that some of the other fintechs in the space don't have.
Darrell Etherington 44:51
Yeah, give them definitely a fighting chance. I think I want to just commend you on your good OpSec for not naming your bank, audio product that will be publicly disseminated. On behalf of our security reporter Zack Whittaker. You know, I really enjoyed talking to him though I liked his straightforward approach to things. I thought he was very candid and matter of fact about a lot of issues, especially about having to do layoffs and having to deal with financial downturn, and having to deal with the realities of valuation. And interestingly, the level of scrutiny that is available and expected in the Europe for a privately held company versus North America two, which is not something I was really aware of previous.
Rebecca Szkutak 45:33
No, me neither. That's super interesting. I know the SEC is like flooded a couple of times that they would like like to do something similar to that here, but I mean, nothing's happened. So that's definitely interesting to hear that they do that. Yeah.
Darrell Etherington 45:47
All right. Well, that was our chat was Sebastian, and thanks for listening. LB is hosted by myself Managing Editor Darrell Etherington and TechCrunch plus reporter Becca skew tech were produced by Maggie Stamets with editing by Cal Bryce Durbin is our Illustrator Alyssa stringer leads audience development and Henry pic of it manages TechCrunch his audio products. Thanks for listening. We'll be back next week.
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