Recession-Proof - a podcast by Ramp

Dan Chen Transcript
[00:00:01] Dan Chen: I think the next step in that evolution is when the technology causes you to rethink a process altogether. It's that bridge from in the past when you might have said, "Here's an expense report and I'm going to submit it, and I hope Alex won't decay any of the items that I have there because I think they're all legitimate expenses," to saying, "Rather than make a paper process electronic, let's create an electronic process that's completely different."
[00:00:26] Alex Song: Welcome to Recession-Proof, a podcast by Ramp. Join us for in-depth thought-provoking conversations with finance leaders, executives, and investors on the current state of the market and what this means for your business through 2022 and beyond. I'm your host Alex Song.
Dan Chen, welcome. Thanks so much for joining the podcast.
[00:00:52] Dan: Hey, thanks for having me here, Alex. Great to be here with you.
[00:00:55] Alex: We've known each other for a little bit, and we've also previously been connected through a bunch of mutual friends, Morgan Stanley and Cross River and whatnot. Obviously, it's also very nice to have another professional who spent a portion of his career in the structure world as well. I think there's a lot that we can talk about during today's episode.
[00:01:15] Dan: Absolutely. I'm excited to be here. Thanks for your invitation.
[00:01:18] Alex: Very cool. Dan, maybe to start with, why don't you share a little bit about your background, your history, and what led you to your current role?
[00:01:28] Dan: I'd love to. On the personal side, the important stuff, my partner is a doctor who has an incredible career taking care of people locally and then public health as well, and the two of us parent four wonderful kids. Sometimes I wonder if we're actually going to make it [chuckles] through the week, through the day, but we seem to, and it's a joy. From a career perspective, I got my start in public accounting, spent a good run on Wall Street with a break doing consulting in business school. That span of time took me through the dot-com bust, took me through the financial crisis, and whatever you want to call us in right now.
Most recently I had a few years as a treasurer of Cross River, then at a community bank called Blue Foundry, which I had the good fortune to take public on its first IPO after 150 years of operation. Then a year at a venture-backed neo bank called Nearside, and just a few months ago started at Dell Tech, which is a financial group that includes an insurance company in Bermuda and a bank and trust company in the Bahamas.
[00:02:26] Alex: Awesome. [chuckles] A lot of years of experiences there. I think there's actually a lot that we could discuss. There's financial services, there's insurance, there's IPO prep, and clearly, there's navigating through crises while out of financial institution. I think of all the folks that we've ever interviewed, I think you may have had the most interesting and the most varied experiences over time.
Why don't we start with this, crisis management? You've been at a few different spots, you've gone through dot-com, you've gone through subprime, you've gone through COVID. We would love to hear a little bit about just prior experiences, navigating recessions in market turmoil. Secondarily, maybe you can compare and contrast a little bit with what we are seeing today.
[00:03:13] Dan: Absolutely. That's a great question, Alex. I think one of the benefits of time experience is pattern recognition, is a little bit of a sense of what the boundaries and experiences that you're going through, how you can build reference points from things in the past. I think upon reflection, what I'm most grateful for is that through a lot of these really challenging periods that I've seen, I've just had myself surrounded by incredible characters. Just really strong coworkers, really strong networks, really incredible relationships. I think that really is something that comes across in these situations. A lot of my time on Wall Street was at Morgan Stanley.
[00:03:53] Alex: Dan, out of curiosity, what desk were you on when you were on Morgan Stanley?
[00:03:58] Dan: I actually had two runs at Morgan Stanley, Alex. Back in 2000, I initially joined Morgan Stanley in their e-commerce team. We were tasked with making venture investments in tech companies and then the dot-com crash happened and the group was disbanded. Maybe it's the same Wall Street that's there today, maybe it was a different Wall Street back then, but we pretty much knew that the firm would figure out a home for us somewhere within the organization. I was able to, with the executive sponsorship, meet with a lot of different groups and ended up going into FIG M&A
I spent another year and a half in the mergers and acquisitions program covering banks, insurance companies, asset managers. Went back to business school, spent a few years at strategy consulting and I got drawn right back into Morgan Stanley a few years later and went into the ABS desk. I spent the next four years in capital markets covering consumer lenders, small business lenders, and got to do some incredible special projects. We did with the treasury department on Fannie and Freddie and home losses, home prices, and went into more generalist coverage for insurance companies at that point.
[00:05:06] Alex: Very cool. We were probably within spitting distance of each other then back at 1585 because I spent a few years on the US Rates Trading desk. I think you probably were one floor below where I was at the time.
[00:05:20] Dan: I think that's right. I think those were great experiences. I think you got to see the value of a company with a strong network and a really strong culture. I think it's a fascinating thing when you think about networks and cultures that have value, and I think at the root of it, they come down to people choosing to ascribe value to that network and that shared experience. Absolutely, I think that was really valuable.
I think as we reflect upon the challenges of that financial crisis, that period that we shared together, they really were about uncertainty. Whether it was uncertainty about what the government would do in terms of rates, whether it was uncertainty in when investors would reengage in the markets, that's the central element of a crisis, of a recession. It's a moment where uncertainty creates a wide dispersion between what people view as the state of the present and the likely states of the future, and they all distill back to a challenge to a market held or core beliefs on how things work.
What I took away from 2007/2008, was that those moments create a lot of stress, they create a lot of uncertainty, they're rooted in uncertainty, but they're really about pendulums moving from one extreme to the other. To the extent that there are valuation models that are foundationally illogical, that are just a suspension of reality, they probably have a difficult time surviving those situations.
On the other hand, there are models that make a lot of sense, and they get pulled out with everything else unfairly. Given time and given the arc of technology, the arc of progress, the arc of just where we are going as a society as a set of businesses, they tend to come back into favor. I do believe that whatever we're in the midst of right now, it's not a permanent state because people are incented to be creative, to be thoughtful, to be ambitious, to try to build a better future. That means that these things will come back into favor if their business models make sense.
[00:07:22] Alex: What are you doing differently or the same between those two prior experiences and what we're seeing now? Again, it's a mixed bag as to whether or not it actually is a recession, but there's certainly a slight downturn in spend, clear downturn in the markets. There's inflation, people are a little bit worried. Anything differently that you personally are doing now versus before?
[00:07:46] Dan: That's a great question. I'm sure you have your set of experiences on this I'd love to hear about too. From my perspective, and maybe there's a simple saying that's been going through my mind in the past few months and it's that good times build bad habits and bad times build good character. I think when things are really great, it's really hard to think about the practices, the processes, the things that aren't maybe geared the way they should be because they get papered over by the fact that everything seems fine.
When things go bad, you sometimes go the opposite way. Things are okay, get thrown out because you're just so concerned about survival. I think that maybe it's a little bit of a stoic philosophy. The goal is to be somewhere in between both extremes at all times. I think the things that I'm doing differently professionally are not letting or trying not to let things go so far to the extreme that we react and act only in fear. On the other hand, when things are a little bit better, making sure that we reign in unnecessary spend, that we reign in projects that maybe need a little more diligence around the return and the profile and the effectiveness of them.
Personally, I think it's a different artifact too. I think as a leader in a finance organization, it is about building a culture that's resilient where people can stay motivated and focused despite the distraction that this builds. I think that distraction occurs on a personal and a professional level because we don't know everyone's personal circumstances, we don't know their home circumstances, we don't know the circumstances of their network and their friends. I think it's just a time to be particularly in a listening mode.
For me personally, as a manager of a team, what I've started to lean into the past few months are much more frequent small interactions with the people on my team. Instead of having one-hour catch-ups where you try to get a status update on a list of items, making sure there are numerous 15-minute catch-ups where there's no agenda at all. I'm hoping that helps. I'm hoping that gives them a sense of connection and knowing that they have a set of ears listening to them. I'd love to hear what your experience is right now, Alex.
[00:09:58] Alex: That really resonates. I think that's probably a slightly different experience because when I was going through 0809, I was just a wee little analyst the trading grants all right on the rates desk. Clearly, I was not really in a senior position nor was I even managing anyone. I will say, though from a personal perspective those years were very formative for me just to see literally existential risk and existential crisis for the US banking system. The likes of which we hadn't seen probably for decades or centuries right past.
That was a pretty unique experience. What's also interesting is that as a young 20-some odd analyst on Wall Street, at that moment in time, it was very easy to just be consumed with work, and oh my goodness, whatever it is I'm doing got to be the most important thing in the world. I don't think I had the maturity yet at that moment in time to develop a broader context around work, around life, and whatnot. I think what that means is that now here we are 2022 having gone through the COVID pandemic, having gone through what we're going through today, it is now a little bit easier for me to contextualize it.
Despite everything you see on Reddit and Twitter and people comparing stock charts, what we are seeing today is obviously not what we saw in 2008. It's not even close. I think having that perspective, I would say that's half my job, Is just to make sure I'm able to convey that to my team and my company and also some of our customers. Where we can say to them, "On a scale of 1 to 10, here's where we are, here's what the data shows, here's what you should be doing, here's what you should not be doing. Don't panic." I think the benefit of time and experience definitely has been helpful.
[00:12:00] Dan: That's a great point, Alex. I think that context, the word you use to contextualize it to have that perspective, that's really invaluable. I think it's something where I feel like I've been so fortunate because I've had mentors and managers who've guided me towards that. Working backwards chronologically. During the financial crisis, I actually served on a nonprofit board that I'm still on and it was something that Morgan Stanley encouraged its employees to get involved in.
It helps a lot when people are complaining about whether it's their bonus or not getting a transaction, not getting the mandate to be lead left on a debt deal or an equity deal when you're sitting in a conference room and figuring out that it costs like $5,000 to feed someone for a few months. You're like, "Maybe let's make sure we can do that." Then rewinding the clock a bit further back, I took a few months off before business school, and during that time I found myself in East Africa, I found myself working at a cooking school.
I think those were really helpful experiences in that they gave me a very different context from what it would've been if I had followed like you said if we just continued our existence as wall street bankers doing what we always did.
[00:13:14] Alex: That's fascinating. Maybe let's switch gears a little bit. Let's talk about Cross River. I think that this one will probably resonate with some of our listeners because Cross River obviously pretty high profile and very active in the FinTech and FinTech lending space, these folks do a lot in the venture space. Maybe you can talk a little bit about your experience there.
[00:13:35] Dan: Cross River is just such an interesting enterprise, such a interesting approach to building a business. I think those who have worked closely with the bank and with the people there, the first thing that really jumps out is just to say there's shared values would be a radical understatement. There is a real foundation, a real purpose, a real sense of mission that permeates everything. It comes across in terms of the way the work is done, big and small. It comes across in the way that the people interact with each other.
For me, it was a radical experience, a radical change from my past experience. I'd spent a couple of years at PWC and then a couple of years at Morgan Stanley then at a big consulting firm called Carney, then back to Morgan Stanley and then MetLife. I'd worked generally at organizations with 10,000, 20,000, 30,000 people. I remember arriving at Cross River and I think there were 80 people there at the time and it was such a radical change in things. Then the degree of welcome they provided to someone new, the degree of warmth they provided to someone who came from such a different background was just incredible.
I was fortunate to have one of the best managers I've ever had in my life as a CFO there guiding me through my experience there. Not ironically someone from that Morgan Stanley network as well. I think it immediately helped me feel comfortable within a group and within the organization. I think it's so interesting that as a startup scales, and it was a startup bank in many ways. As a startup scales, it's so critical and I got to experience that culture remains at the core of what the organization is about and how it onboards people, and how it builds a sense of commitment and loyalty, and trust in it.
I know that Ramp invests a lot in building that cohesion across the organization. I found it incredibly valuable when the CEO of Cross River took us on an offsite. We spent several days getting to know each other. People that I otherwise did not spend a great amount of time with, I spent nearly every waking hour with for several days and those are relationships I value to this day. Frankly, that's a practice that I try to mirror now as a leader in the organizations that I work at.
[00:15:49] Alex: Very cool. Would be very interested to hear your experiences as treasurer actually. We do interview quite a number of CFOs and heads of finance but I think we'd love to learn a little bit more about just managing the treasury and the balance sheet side of the house. We were probably looking at some of the same transactions. You were probably looking at the balance sheet side, I was probably trying to compete against your deal team on landing some of those deals. How did those a couple of years go?
[00:16:14] Dan: They were fantastic. I think you really hope to land roles where your prior experiences are, the summation of a set of experiences that brought you to that point. Working in ABS at Morgan Stanley, working at debt capital markets there and then at MetLife managing a fairly large book of assets and liabilities and being responsible for liquidity and portfolio management while suddenly having the FSOC, the financial stability oversight council, declare that you were a SIFI. I found myself in a position where I was flipping through 300 or 400 pages of government decision-making where we had to write comments line by line and debate it.
When I got to Cross River, I think what really benefited me was a broad set of experiences. Some accounting, a lot of treasury and liquidity management as an advisor, and now sitting at Cross River which really sits at the nexus of a variety of different types of FinTech businesses from Coinbase to a firm, you almost, in some ways become an outsource treasurer for multiple businesses. When we sat there and we would think about liquidity and liquidity risk, I think there's an interesting blend of using frameworks that exist, that are recognized and understood, and then decomposing the complexity on the remainder.
The part that we knew stood as good practice as a good foundation were Basel III liquidity frameworks. We said, ''Rather than reinvent something, we know as a community bank, we don't have to follow Basel III, but let's follow that, That's the highest and best guidance that's available." For the parts you couldn't understand like what is the volatility of a deposit when it's related to cryptocurrency? What is the volatility of a deposit when it's related to a BNPL platform and how quickly you need to draw down? We just fell back to statistics and said, "Okay, let's try to take the data. Let's try to analyze it.
Rather than go for perfect and build the perfect liquidity framework or the perfect treasury modeling, let's get reasonably close to it and then continuously iterate." The example I followed there, which the CEO was just incredible at was take that, explain it to the regulators, be honest about the fact that it may not be the perfect framework but it will continue to iterate and improve. I think that was incredibly valuable.
We were able to do that successfully. I think it's a testament as much anything else that innovative organizations are successful in their regulatory dialogue. That's the hardest part I think and the part where pattern matching and experience helps you a lot because you can draw upon other experiences and say, "We have this framework and if this framework had been in place through the financial crisis, if this framework had been in place through the .com crash, we would've had sufficient buffer. I think that's a fairly relatable and understandable approach for anyone to explain a risk framework."
[00:19:15] Alex: I love it. That really resonates with me particularly because these days, I think a lot of folks look at FinTech, they look at new high-growth financial technology companies. A lot of folks are somewhat dismissive, they look at it and they say, "That's just regulatory arbitrage, that business exists because of X, Y, Z. It's the thing that slipped through the cracks of the regulators." I think what you're saying is very mature. I think that it definitely demonstrates a healthy respect for the system regulators and institutions. The idea is that you want to work together. You want to build something together.
I definitely respect that you, and I think that that's super, super important for. I think a lot of entrepreneurs, particularly entrepreneurs in the financials or the financial services space.
[00:20:09] Dan: Absolutely. Look, I think technology forces us to rethink the way we work, and if we rethink the way we work, we have to talk about it with the regulators often. One thing that jumps out to me is when COVID started, we went fully remote and the PPP program started up. I just remember being amazed at how this 150-year-old community bank we stood up a SharePoint file that was just a roughly put-together set of forms, access database, and Excel spreadsheets. I would log into that file and see 30, 40 people working on it simultaneously.
From our CEO to our chief risk officer, the entire organization sat there and would make edits, would review, people making applications in real-time, and that's just amazing. That is a set of technology advancements that reduce iteration, reduce time for decision-making down to seconds when they would've taken hours before. As a former customer of Ramp, I think the next step in that evolution is when the technology causes you to rethink a process altogether.
It's that bridge from in the past, when you might have said, "Here's an expense report and I'm going to submit it, and I hope Alex won't decay any of the items that I have there because I think they're all legitimate expenses to saying, "Rather than make a paper process electronic, let's create an electronic process that's completely different and maybe a little more foundationally, aligns people to the right incentives." I'm a huge fan of [unintelligible 00:21:44] I think technology gives us a roadmap to helping organizations rethink how they work rather than just increasing throughput from an existing process.
[00:21:57] Alex: I obviously totally agree. That really resonates with me. Maybe switching gears a little bit, once again, let's talk about your experience at Blue Foundry. I think the topic of IPO readiness and taking a company public is a topic that we visit quite frequently actually with some of our guests on this podcast, but your experience is definitely pretty unconventional. Like you mentioned earlier, 150-year-old bank, but definitely not your credentials at a high growth type startup, whatever it is in this environment. We'd love to hear a little bit about what that experience was like, any reflections on it, best practices, and pitfalls.
I'm sure there was just a ton of work that you had to shepherd the entire organization through.
[00:22:44] Dan: It was a fantastic ride and I was really privileged to be part of it. It was a 150-year-old bank that had rebranded itself, renamed itself, was going through branch renovations. Many of the branches were 20, 30 years, between the last renovation. Dated. It's tough. It is a challenging market to be a community bank today. I think the statistic is three to four branches close every day and one or two community banks go away every other day. It's a market in decline, frankly. It's a challenging space to be in and there's a lot of consolidation.
What I walked into was a real vision and a real mandate by the board and the CEO to say, "We're not going to just passively accept that. We're going to raise capital and use that as fuel to regrow the business." I was really fortunate that I had their support to build this process out. I arrive there and I have an accounting and finance team of about 15 people. One of the challenges that I immediately faced was we knew we had to gear up a lot faster to be a public company.
One of the benefits of being a bank are you already filed financial statements with your regulators. This bank was already audited, so that's not the challenge. The challenge is doing it faster. When we would take 14, 15, 16 days a month to close the books, it was pretty clear we weren't going to be able to get to that speed. One of the earlier comments I made was the importance of having other experiences you could draw upon, and leveraging them to help you think through a riddle.
I remember as a consultant at Carney, we used a lot of post-it notes. We'd sit in conference rooms with CEOs, CFOs, controllers, heads of business and map people and processes out on the post-it notes, and used phone cameras a lot to denote different configurations and structures. That's frankly what I did virtually at Blue Foundry as well in helping to figure out this monthly close process. It was taking us 14, 15, 16 days a month to close the books. What I had to do was invest several days into mapping up every step of the process.
I had everyone on the team fully focused on it. Going into everything that Dan would do, that Alex would do two weeks before the end of the month into the two, two and a half weeks after the end of the month in order to close the books. What I quickly discovered was a lot of it was process-driven. It's your classic roadblock situation where someone has 10 minutes of work they need to do, and they leave it until three or four days after month end and that's held up everyone else.
I think a really basic process mapping, you don't have to pay consultants $3,000 a day to do it. It's an exercise of just having communication, having dialogue, and then having a shared vision of how do we re-stack things. How do we re-stack the things that people do? Can we get comfortable with taking on different tasks, shifting the tasks to different times? That really opened the door up. Another part of it was also though I think back on the finance leadership side, it was getting comfortable with what really needed precision and what really needed accuracy.
We changed from, for example, the allowance for loan losses tends to be something that takes a lot of time to calculate. You can wait until the month is over to calculate a very precise number for that month or you can double up your work a little bit, unfortunately, and do that calculation three weeks into the month and use an estimate for that last week. That's an example of something that we added maybe half a day's work, but it took off a week on the back end in terms of being able to close.
The second, and I think equally important element and I think that's really important for finance leaders at startups or established businesses is knowing your relationship with your auditor and knowing what you can and can't go to them with. I really thought I had a great audit team. I worked really well with them, but I knew that there were boundaries with what I could ask them for. There were boundaries with the advice that I should seek from them, there were boundaries in terms of what I needed to review with them. I needed to make sure that what was presented to them was your final.
It's almost like I think really smart people are used to going to their professor and being comfortable saying, "I don't know this, this, and this, help me walk through everything." Your auditor is not quite that person. Really quickly, really early on, I developed relationships and had engagements with other accounting firms and I would go to them for technical advice. That was frankly advice I received from mentors of mine who were CFOs at much, much bigger companies. I think that was a critical part of getting through complex matters.
When we decided to do loan forbearances, when we needed to change lease accounting, instead of worrying about coming up with the right answer on our own in a vacuum, I realized it was fairly inexpensive to go to an expert in the space, show them what we plan to do and have them spend a few hours to review it and make sure that it made sense. Then frankly, being able to go back to our auditors with a high degree of confidence that we'd applied rule-making, we'd applied principles correctly.
[00:27:53] Alex: I like it. I know on that last point, it's something that you and I both feel pretty strongly about, which is really to develop that community of other like-minded CFOs and finance leaders, so that we could go to folks for advice and guidance on. Sometimes very granular and very tactical things.
[00:28:12] Dan: I think it's such a valuable ecosystem to have. I think we work our way up a funnel or up a pyramid. However you want to display the structure, and we lose sight of the fact that there's such value in community. There's such value in people who have also had experiences that may be relevant to what you're going through. We talked earlier about contextualizing and pattern matching. When you have a network and a community that's strong, you exponentially improved your ability to do both. I think what it comes back to is can you build authentic relationships with people who are your peers at other businesses.
Alex, you're someone I've known for several years now. It's fantastic when you meet people who believe in this and invest the time in doing it.
[00:28:58] Alex: One of the things that for better, or for worse, I think with the pandemic and working remote, it's certainly made, I think IC work much more efficient. You don't have to deal with the commute, you're very focused, you're at your home, but to a certain extent, I do think it makes cross-functional work, and being a manager definitely is a little bit tougher. Just because you're not really there to rally the troops in person, you don't really have the organic interactions. You do have a lot of scheduled meetings, inorganic interactions. I think that is something that we are definitely taking a very strong look at, just to see how do we develop mentorship.
Not just mentorship between a supervisor and a direct report or a skip level, but cross-functional mentorship, I think is pretty important. I think historically, that was always able to happen organically, but in a work remote environment, I think it's been a little bit tougher just to manage the cross-functional relationships, building the trust, and quite frankly, just to lift morale. I don't know. Do you have a view on that and how have you been able to navigate the last few years of this hybrid/work remote environment?
[00:30:17] Dan: You're absolutely right. I think that's a critical observation that cross-functional dialogue is maybe one of the things that suffers the most when you don't have that in-person random hallway interaction. I think it's a challenging riddle to solve. I think return to office plans are difficult to do right. I'm a big fan of Henry Ward and what he talks about, and I think two years ago, he started talking about return to work and how Carter would have specific days. The goal was not to give everyone flexibility, just for flexibility.
People obviously can work in and out of the office, but how do you create those random interactions that have value? Great questions.
I feel like we are at the beginning innings of a new world of work. I think we're going to go into the next inning where companies and people self-sort into models that they are more comfortable in. I do think this muscle of working remotely of building teams within a silo and cross-functionally, we're just at the beginning of understanding how to do that. I don't pretend to have the right answer. I don't know anyone who has the right answer.
I think the only approach you can have is a degree of willingness to learn and eagerness to learn and study what seems to work well and what doesn't work well. I think when things are great, it's about speed. It's about just doing what works and doing more of it. When things are challenging or you're experiencing something new, it's all about agility. I think uncertainty, downturns, force you to be agile. I think things like remote work or hybrid work or return to office require a lot of agility from managers, and staff as well. It's a tricky question, Alex.
I do feel that there is no substitute for in-person interaction. As an illustration, I just flew six of my team into the New York, New Jersey area last week. They flew up from the Bahamas, they flew up from Bermuda, they flew up from Miami and we spent three days [inaudible 00:32:20]
[00:32:21] Alex: By the way, that's because your current company actually is based in the Bahamas.
[00:32:26] Dan: That's right. Over half the employees are in the Bahamas. Incredible experience. I flew them up here and we spent a day in a WeWork industrious type space. Then we spent a day in New York City. The goal was not just going through projects, going through status updates. That was not a part of what we did at all. It wasn't about tasking people with things to do. It was about building a shared sense of vision, a shared set of operating principles, and really agreeing to what our mode of communication, what our tactics would be day to day.
More importantly than that, just creating space for people to interact with each other and getting to know each other. As a leader on that team, it was important for me to bring people together and give them the space to do that, but also to give them their own space to experience New York, and build their own relationships with each other. I think that's a piece of it. Whether it's all going to an escape room together or going to a ball game together, we have to build these interactions because when you sit in a room with someone else, you're collecting thousands of data points about their mannerisms, their intonation, their posture.
You need to use those data points on subsequent interactions to help you know how they're doing. It's harder now. It's harder. Within a team and across teams. I think that just means you have to devote more effort into it. I wish I had an answer. I think it's a bit of the future of work and it's a study I spent a lot of time on Bane's website and the Crystal's website to try to understand what others are doing there.
[00:34:03] Alex: I think far too often, and even for this podcast, far too often, I think we tend to spend a lot of ink or spend a lot of air time talking about work, functionally. What should we be doing and how do we reforecast and what procedures need to go through to make sure you have robust control framework or get through the next audit? I think at the end of the day, at least 50% of the job probably is managing relationships. Making sure people feel good, they feel motivated. You are there as a buffer. You are there as a sounding board when folks want to complain about something or when folks need something.
I feel like that should be more than 50% of my job is just to make sure that I can be that buffer for them so that if someone is frustrated with X, Y, Z, they want to lash out, it could be me as opposed to the work they're doing, for example.
[00:35:07] Dan: 100% agree. I think technical proficiency is obviously a gating item. You have to know what you're doing, but beyond that, being really great at something, but not being able to relate or build a team or connect with people I think that caps where you should be within an organization, but 100% agree. I think it's really understanding the fabric of the organization, the people. Being that buffer is important. I think it makes you better at your practice too. I think about the forecasting work that I had to do in one of my prior roles, and the baseline of forecasting was go to person A and B and ask them to give you an estimate for what they could do.
What I found pretty quickly was those kinds of interactions were creating zero-sum games where they would give you an estimate and either they would exceed it or meet it. I think if they sandbagged and gave you a really low estimate, you would have to go back, realize it was not a realistic estimate, go back and push and you just ran in circles. One psychological practice or discipline I brought into forecasting was helping the different people who would look at the forecast see the downstream implications of their forecast on other areas of the business.
Then rather than cornering them into a single number, a single estimate, helping them get comfortable with a range of estimates and the two or three major drivers from each of those estimates. I found it let them feel like they were being heard. I felt like it let them highlight what the drivers of their business were and it improved the quality of the estimates they provided. Frankly, as a finance leader, that put me three steps ahead where when there was pushback on why is loan production just X? I had the answers already. I said, ''If we want to lower the rate that we want to offer to the market, we could have Y instead.'' I think that really put us in a better organizational spot.
[00:37:04] Alex: Very cool. Maybe let's embark on maybe the last topic that we can discuss, which is what are you focused on today. You're at Dell Tech Insurance Company. I understand that you guys are pretty active in perhaps the crypto space. What's top of mind now, whether it's the macro environment, the markets, or just as you are building out your team at your current shop? I would love to hear what Dan is focused on for the rest of 2022 and 2023.
[00:37:33] Dan: Yes, no, thanks, Alex. I'm super excited in the role that I'm at. We're a really innovative financial group. We've got an insurance company that is absolutely a market leader when it comes to lines coverage, when it comes to DNO coverage for innovative spaces including crypto, including FinTech, including alternative therapeutics, we're absolutely at the forefront of it. It's a rapidly scaling, highly profitable business. As the foundation for the group, we have a bank that's been around for over 75 years. Been profitable throughout that period of time, cash flow positive, really a core private banking business that's been around a very long time, but a real willingness to be innovative.
What I love is I'm at this organization, it might be headquartered in the Bahamas, the bank, but I find that the team that I'm working with, they have all worked in places I've worked at as well. They're all X big four CPAs. They're highly engaged, highly incented to make something new, to be creative, to be thoughtful. I just think it's an exciting time. I wanted to challenge myself with a few things. I wanted to challenge myself with leading a team, not just on the west coast or on the east coast, but in a different country. I wanted to be part of where crypto is going. I do think that in the United States, we tend to take a US-centric view of the world.
It's often hard for us to pull ourselves out of that lens. Crypto is not just about an alternative to the dollar or an alternative to the S&P for Americans. Crypto really is about a democratization of wealth, a democratization of innovation. What jumps out to me is when you are in Ukraine and you're facing a challenging circumstance, crypto means that relatives, friends on the other side of the planet can get assets to you or get wealth to you or help you make it another week, day, month, year, whatever it might be.
I think crypto is transformational. I think there's a lot of uncertainty in the space, just like there's uncertainty in any new space. We remember delivery services. We remember adding .com onto not-great business models and how that failed back in 2000. Maybe we're in that mode right now in some ways for certain elements in the market. That just means, I think that some of the weaker models go away and the more resilient models have maybe a few months or years of a challenge ahead, but ultimately, if this is transformational, it'll put us on a different track altogether and it'll create space for innovation.
What I love about it is just incredible team throughout all of the companies within the group, fantastic leadership. I feel like I'm a bit of a conceptual junkie across banking and insurance. In this role, I get to be involved in both. It's a real privilege.
[00:40:25] Alex: Not to put you on the spot, but would want to ask you a little bit about one thing that is very tactical in nature, very, very specific. Now we're getting very granular and technical. I know you love this. I know you love this stuff. D&O insurance, that came up in your conversation just now. I know that there's a lot of stuff out there on just the evolution of D&O and what's been trending in recent years. Can you speak a little bit to that? Also, I'm sure some of our listeners are probably going to be shopping around for D&O in the coming months. What, if any advice do you have just about the market, shopping around, et cetera?
[00:41:05] Dan: I think on the D&O side. I certainly experienced that as Blue Foundry went public. I experienced the sticker shock of how much D&O insurance costs as a public company. I think it's important to realize that as you widen the pool of investors, as you widen the pool of stakeholders in your business, there's potentially more harm that could be done. Your business model itself can create that risk. Being public can create that risk. I think what you want to be thoughtful of is what's an appropriate degree of coverage, and how do you dimension it out? Because it's a very personal conversation for companies, for boards, and for management.
I don't think it's formulaic. I think your market float, your market cap is a piece of that equation. I think the size and scale of your business is a piece of that equation. I think the number of consumers you touch, the types of industries you're involved in, the regulatory elements of your business are also inputs into that. I'm certainly not an insurance broker or qualified to state what the right amount of coverage is. I just think it's important that people realize that as you scale up your business, as you bring in newer board members that maybe have reputational capital risk, as you scale up organizationally add on investors, D&O insurance is a critical part of your financial strategy.
You have to be thoughtful about where you're spending it and building an appropriate level of coverage then you can attract the right people on your board, and on your management team.
[00:42:27] Alex: Very interesting. I think a lot of the folks here who are recently, or maybe soon to be shopping for D&O insurance, they know who to go to now. [chuckles] They have a nicer on the line. Very cool. Last question I want to leave you with, and again, you've been super generous with your time already is, anything in the next six months or anything in the next year that you are especially looking forward to?
[00:42:55] Dan: Great question to have. On a personal side, my oldest is starting his first year of high school. It's a big evolution in our family and our experience as a family. It's a little terrifying to imagine him leaving the house in four years, but that's a big change coming for us in the next year. Professionally, look, I think we're going to see the bottom, however deep the bottom is going to be. At some point, we'll see the people who are afraid of risk, the people who took on too much risk, leave the system as investors, as stakeholders, as employees.
The market will de-risk itself over the next several months. At some point, we've hit the bottom, and they'll be an incredible platform for growth for the businesses that are there. I think what will happen quickly is we'll forget some of the things that we're doing right now, which is being really careful and thoughtful about allocating capital, being really thoughtful and careful about reviewing expenses, and reviewing strategy.
I think the greatest risk we have is losing that discipline as things start to pick up. We stop the agility, we stop the willingness to question, and we just go to running as fast as we can. I think if we can personally, and professionally keep that balance between the two, we'd probably put ourselves in a great spot for the first foreseeable future.
[00:44:18] Alex: That's great. That's awesome. There you have it. Dan Chen, CFO of Dell Tech. Started his career, public accounting PWC, Morgan Stanley structured credit, an ABS guru, Cross River Bank, et cetera, et cetera. Such a pleasure having you on the podcast and obviously a humongous amount of experience that you were able to share with us. A lot of really interesting reflections. It's been awesome having you here.
[00:44:44] Dan: Alex, always a joy spending time with you. Thank you.
[00:44:47] Alex: Thank you so much.
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