Neil Patel

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Rob Frohwein has been starting businesses since he was in high school. Now he’s helping other business owners with their finances. His latest fintech startup, Keep Financial Technologies, has acquired funding from investors like Launchpad Capital, Cambrian Ventures, Andreessen Horowitz, and Thomvest Ventures.

In this episode, you will learn:

  • Product market fit versus proving your economics to investors
  • Operating in a high-interest rate environment
  • Equity versus debt funding

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    About Rob Frohwein:

    Rob Frohwein recently co-founded Keep Financial Technologies, which is focused on embedding fintech to eliminate the recruiting and retention challenges facing nearly every employer in the world.

    Prior to Keep, Rob co-founded, and was the long-serving CEO of Kabbage, a pioneering small business fintech, which raised $400m in equity, served 500,000 U.S. small businesses, and delivered $16B in capital prior to its sale to American Express in October 2020.

    Rob is an inventor on 17 U.S. patents, has written three books on intellectual property, co-hosted a talk format radio show on work & careers, and was named a Top 50 CEO by Glassdoor in 2018.

    He also holds a lifetime visitor’s pass to the National Baseball Hall of Fame, which he earned in connection with one of his earliest entrepreneurial endeavors.

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    Connect with Rob Frohwein:

    Read the Full Transcription of the Interview:

    Alejandro Cremades: Alrighty hello everyone and welcome to the dealmakerr show. So today. We have a very exciting guest I mean is a founder that has done it so many times I mean he started you know going at it with his ideas and with how to bring solutions to the world. You know, just as early as being in high school but you know without further ado. Let’s welcome. Our guest today. Rob for a wine. So welcome to the show.

    Rob Frohwein: Hey thank you so much I Really appreciate it. Love being on.

    Alejandro Cremades: So originally born in New Jersey you were raised there. You know by your parents. Your father was a physician and very close to Philadelphia so give us a walk through memory lane. How was how was life growing up.

    Rob Frohwein: Life growing up I I lived in the where I grew up a lot of people when I think of New Jersey they think of ah the Sopranos and um, ah, pretty. Ah, you know pretty much pollution industrial. But I lived in the garden part of the garden state. Ah, really agricultural area halfway between Philadelphia and Atlantic City so it was ah it was a it was a nice rural area. Um had the challenges of being a rural area but ah, but yeah, that’s where I’m from that’s where my parents decided to raise all of us.

    Alejandro Cremades: And where do where do you think you got that entrepreneurial book because it sounds like you know you were really into it. You know from an early age.

    Rob Frohwein: 2 brothers.

    Rob Frohwein: You know it’s that’s actually somebody nobody’s ever asked me that question. But yes I was from a very early age I thought of ideas and I would see a problem and I think it became muscle memory for me. Ah, where I see something not working right or creating a challenge my mind would immediately go to some sort of solution. So when we started separating out trash for recycling I thought well why not have a trash can with 2 compartments you know because it’s really a pain to only have a one compartment trash can when you’re doing that. Little stuff like that and I think I you know but I don’t know where that came from. Maybe it was just I was growing up in an area that was kind of very relaxed, very chill. Didn’t have a lot going on and so my mind wandered and that’s where it wandered I I just. But so fascinated with the idea of starting something.

    Alejandro Cremades: Now your case, you know you went to you ended up going to college and then right after that you know you decided that the consulting you know was perhaps the way to go and and I’m sure that the whole world of consulting. Perhaps it they helped you to really you know think about ideas or think about about perhaps. Solutions that you would bring because I find that consulting it helps you to to grab a big problem and then break it down into small problems and then you tackle one after the other. So I Guess how do you think that that consulting experience shaped the way that you approach problems.

    Rob Frohwein: Yeah, well I worked for Anderson Consulting which is now Accenture and I was doing really programming software development for them and a lot of it was y two k getting y two Kk complying because we were 10 years away from that and everybody was nervous about that. Um. You know I I went into consulting for the exact reason that you said which was I thought I’d get exposure to a wide variety of industries and I’d really figure out what made me tick what I actually found was was quite different I found that the objective of that organization at that time and it may not still be this way. Was to have a situation where if I was a year and five months into the job or tears and five months into the job and I got hit by a train and I died they could go find somebody else that was there at Anderson for that exact amount of time and just plug that person in and and they’d have no loss in productivity. So the thing that really hit me wasn’t so much what I was learned what I thought I was going to get exposed to a lot of things. It was the fact that I felt like I wasn’t able to be creative enough and I was so desperate to use my creativity and curiosity to to work on things probably at an age way before I was ready to do it. And it actually turned out that way.

    Alejandro Cremades: And in your case you know you ended up leaving to start a business now. The business was around collectibles and it ended up not having the outcome that you had hoped for. Even though you got access to the you know Hall of fame for baseball which is a really good positive thing. I’m sure that the as the saying goes you either succeed or you Learn. So What was the lesson that you took away with you from that business.

    Rob Frohwein: Well it it. It turned out I learned that you could build a product but you need to understand product market fit was one like do people actually want the product you’re you’re creating a number 2 hey actually in a market it I had a limited amount of money I created a trading card set. Um, at the time I had signed a contract with Randall Cunningham who was the lead who was the quarterback for the Philadelphia eagles my favorite football team to do a like ah trading car set on his life and times. Um, and then the Nfl actually um, did not allow me to actually complete that set so I created a totally different set. And animated kind of sports card set around football. Um, and I just produced this trading card set and I got 6000 of these sets sold which sounds like a lot but not when you’re selling them for about a dollar 50 apiece. It’s not a lot of money. Um, so you know I learned that you really needed to figure out what the market looked like you really needed to figure out how to market and you needed to make sure you had a budget to market and I I just thought if I built it. You know the customers would come that they’re ah. Thoughts on this and their excitement about it would would match mine and and that’s not how it actually works in practice.

    Alejandro Cremades: And once an entrepreneur always an entrepreneur in this case, you thought it was law school what it was next for you. Why.

    Rob Frohwein: Well, you know what? I so I I got married very young. My wife and I recently celebrated our thirty first wedding anniversary. So I got married pretty young I was 23 and I um I was taking a walk with her one night

    Alejandro Cremades: Um, wow.

    Rob Frohwein: And you know and we always talked about like our future and you know might have kids I just realized like I’m a bum I’m not making any money I I have to have a skill that I can fall back on even if I want to be an entrepreneur in the future I need to have a skill um you know, separate and apart from just my undergrad degree. So i. Made a plan to go back to law school and that I would just make it happen and so I spent the next year and a half prepping to go to law school but in the interim year before I went to law school I worked for a company called the Franklin Mint which was at the time. Ah, the largest direct marketer in the world of collectibles and I ran a sales channel and that was really important in my life because during that year I learned how to actually market products and market products that you wouldn’t think people would want um like um like collectible. thimbleswithcatpicturespaintedonthem. But what it really showed me was like you can find markets. How do you find the market how do you market people how do you track the data and frankly all digital marketing right now finds its roots. And some of the direct marketing I was doing back in the early and mid 90 s for sure.

    Alejandro Cremades: Now after you know you end up leaving or leaving or graduating more than anything. You know you ended up getting really into law and you did become the general counsel of several companies. So first you did the whole law firm thing. Then from there, you jump more to get closer to the operational side and one of the companies that you actually you know were a part of which was sa media. It was a Vc back company and that was around the time where you know the duck com you know, bust you know happened and I think that. You know this this gives you an advantage nowadays because you’ve been able to really experience cycles you know in ah in a in a real way. So I guess what was the experience like to go through that and what did you learn in order to tackle cycles like maybe like the one that we’re dealing with now in a powerful way.

    Rob Frohwein: Yeah I learned a lot we. We went through several rounds of layoffs. So I learned about hiring um going through the cycles of having to let people go and the pain that that causes people I learned about you know what. What’s needed to get a product out on the market and demonstrate not just product market fit that you could actually execute and get a product out to the market period. Um I learned a lot about management and how to manage a board and how to manage you know other members of the executive team and people’s expectations mostly learned it because I don’t know that I did it. Particularly well at that time. Um, and when that company was winding down I agreed to help it go through its wind down over the course of the last several months of 20 of 20 ah one 2001 it was from those offices. Um that I actually watched 119 unfold so all this stuff is indelibly kind of marked in my brain and I ah, um, you know I found you know I found that I I learned a lot and I you know and I wanted to build something different going forward that I needed. Ah I needed to still be an entrepreneur that it had the other thing I think I learned is. That it didn’t kill my spirit. It didn’t kill my entrepreneurial spirit and I think when you go through all those things and with the exclamation point of nine eleven happening and you still want to be an entrepreneur. In fact, that is four days after Nine Eleven happened is when I decided I was going to start.

    Rob Frohwein: My own set of businesses and go after it myself and so you know I think that’s when you really figure out whether you’re you’re meant to be an entrepreneur or not.

    Alejandro Cremades: Well hey I guess that was the universe you know slapping you across the face and saying Rob wake up. It’s time to go at it again as an entrepreneur is your time and I guess saying you know at that point you started laba group of you. Basically you guys were doing stuff on ip. Ah, service-based day more than anything business or not the the bc back the companies that nowadays you’re you’re you’re rolling out and also you started your own offer firm. You know that you built to over sixteen lawyers now I guess that you know this allowed you also the time to really test through things to really. See you know what worked? What didn’t work. But more importantly, this was the immediate steps that needed to happen in order for you to come across the idea of cabbage which ah, really happened you know during a brainstorming session for ah for a client you were preparing for a client meeting and then all of a sudden you know the whole idea of I mean. Ah, massive idea massive market all of a sudden comes knocking so what happened.

    Rob Frohwein: Yeah, you know what? I think there was actually some things embedded in that whole experience had when I first started those businesses in oh 1 o 2 3 um I didn’t have a trust fund I had two kids my wife was stay at home mom at that point. Um, we really didn’t have any money and I would lie awake at night literally worrying about how it was going to pay bills I mean some real horror stories from that period of time in my life and I think those things were so embedded within me. The idea for cabbage which was to help provide working capital to small businesses was something that immediately clicked in my mind and and looking back at it I think it clicked in my mind because it’s exactly what I needed um several years before and it was you know it was really a. A combination a confluence of factors that came together one was that experience I had had before number two was I I asked myself this question would you do in some brainstorming which is what would happen if a company like Ebay bought a company that provided credit and at that point they had not bought a company called bill me later which was. Something they did about a year later um and I said well they’d probably provide working capital to those poor small businesses that need it just like that business I had many years ago and I also realized at that point I was working with it for another company I was helping them I was helping another company that was using.

    Rob Frohwein: Apis from companies like ebay um to pull down data about small businesses and about things being sold online and I thought what if you could take that data the idea of providing working capital to small businesses put this all together and you could underwrite these small businesses. On a real-time basis that would be pretty interesting that idea stuck with me for about a year over a year until I decided you know what I I have to do this idea. It keeps nipping me in the heel which to me was a sign. It was a good idea sometimes you need to let ideas you know like percolate for a while. Um, and the good ones will stick around There’s a um, there’s a really funny interview with Paul Mccartney where you know he says that you know he never wrote music down and they said oh my god can you believe the number of additional Beatles songs that. If you had just written these things down how many more Beatles songs. Why why didn’t why didn’t you write them down and he said well if I couldn’t remember them then they couldn’t have been very good. Ah and you know and it’s very similar that with ideas which is you know these ideas keep coming back to you. And it’s something’s probably worth a little bit more investigation.

    Alejandro Cremades: So all of a sudden The idea comes back to you just like the music to Paul Mccartney and you decide it’s time to pick up the phone and to call Katherine and Mark so why at that point you thought that you had to take action and why you thought that they were. The right individuals to receive your phone call.

    Rob Frohwein: It’s also a good question. Um I had started businesses in the past by myself for the most part and they hadn’t they had had varying levels of success. My earliest you know and I I just realized and I also realized something about the company ZaMedia we were a consumer like. Chronics company as well as an entertainment focus company. We had nobody that had expertise in entertainment or consumer electronics in the business. So every mistake we had to remake in trying to build that company and so I wanted to find people who had the experiences that I didn’t have. Mark had a lot of experience raising money and building a couple of other companies and in metro Atlanta area. We built the company in Atlanta Katherine was an expert in the area of financial services and fintech I have a funny story about how I came to understand that about her watch I won’t bore you with right now. But. You know those were the 2 people I felt like had the had those types of skills that I needed to help bring together in order to make this company successful and I think it’s really important to find that those types of ingredients in your founding team.

    Alejandro Cremades: So what ended up being the business model of cabbage for the people that are listening to to get it.

    Rob Frohwein: Yeah, so when we started we were focused on providing working capital. So basically small business loans with a bank partner to small businesses that sold online. We eventually expanded that to include all small businesses. So think of these not just as companies. Are selling products on ebay through Amazon’s marketplace but also also businesses that are coming and repairing your dishwasher. It might be the person who owns the restaurant or the bar or the dry cleaner down the street all sorts of small businesses out there and and the way we did it which was hyper important. Was. We asked them to give us access to data services that related to services that they used to run their business so this could be anywhere from for the online sellers the marketplaces where they operated on um or it might be for all the other businesses their bank account the accounting package that they use. Could be an inventory system that they use all sorts of different things and it’s funny how sometimes you get lucky because getting access to that data on ah on a real-time basis which means they actually gave us direct access v apis to those data sources. Allowed us to offer them. You know alone immediately as soon as they came to the site we didn’t have any other review period necessary number 2 we could offer them a line of credit and the reason why that was so important was.

    Rob Frohwein: Because we stayed connected to the data. We weren’t sure why we decided to have them stay to stay connected to the data but we made that decision early on that more data better because we stayed connected to that data. They only had to take you know if we gave you an offer for $50000 you could take 5000 now and you could come back at any point thereafter and take more capital if you had an open to borrow limit there and because we constantly were connected to data. We were underwriting them on a daily basis and so we know how they were performing then we eventually expanded the business to include bank accounts payments. Ah, credit cards debit cards, gift certificates other things but we grew the business to serve half a million small businesses over the ensuing you know decade plus.

    Alejandro Cremades: Now The the the beauty of lending is that you have product Market fit almost instantly and I think that that also you know has The. We see the positive. You know all of a sudden you know you have people lining up but also the negative because you got to go about structuring things and making sure that you’re not going to die out of Success. So How did you guys navigate that.

    Rob Frohwein: It was ah it was ah it’s kind of a thrilling thing to think you know it’s that one product where you know everybody knows what it is. They know what it’s valued at they know how to use it so you’d have to explain anybody any of those things you have to explain a lot of other terms. You know, obviously how much they’re going to get and what the pricing is going to be and what the repayment responsibilities are um and when you’re in the money business. You’re always looking for inventory. So it was a situation where we were in due diligence for. You know ten twelve straight years which means we had to keep a data room always up to date. We always either had an equity investor looking at us or a dead investor looking at us and we always had to be able to provide lots of data back and it’s a. Lending. It’s an ebb and flow situation. You get some equity. You build some products so you can release them to the market. You know you get some debt so you can provide that money to your to your customers. You show some success and then you rinse and repeat you have to go out and get more money. Um, it’s a very very and you have to be very careful too because it is not hard to lend people money. Everybody will take money It’s very hard to get people to pay you back and pay you back on the terms that you have requested.

    Rob Frohwein: And so that’s really the art and science of it All is making sure you lend to the right people. Um and that you have the right systems in place to make sure you get the money back.

    Alejandro Cremades: And obviously for lending people you need to raise debt capital. So how do you go about subsidizing Debt capital.

    Rob Frohwein: Ah, so you know the the interesting thing is you when you when you go out and I talk to a lot of young entrepreneurs right now who are starting businesses not similar to cabbage but probably you know in the same area as lending for this or that. And right now they’re trying to optimize for a very difficult capital set of capital markets meaning that cash right now is very expensive and so they say well I can’t take this cash because then off to charge my customers so much more and I don’t want to take advantage of them in that way and and and the rest of it and. What I always tell them is you have to figure out what it is that you’re trying to solve for right now. What you’re trying to prove if you’re trying to prove that you have a great market and you have people who want your product and they’re willing to pay you back. It’s incumbent upon you to go get the capital and frankly probably overpay for it. Doesn’t mean you should turn around and charge your customers a heck of a lot more because of it because they’re not, you’re not proving your model. You’re proving a different model right? A more expensive model. Um, and it’s incumbent for you to if you were if you think that at scale you’re going to be able to access capital. You know instead of at 15%. You’re going to be able to access it at 5 then you create 2 income statements. 1 income statement is your actual income statement that shows you’re paying 15% of capital. The other one is that you show your investors is when I get larger and I be able to access capital for 5%

    Rob Frohwein: This is what my income statement will look like and by the way you charge your customers What you would have charged them with 5% capital that way you’re actually proving your model you’re proving what your business is going to look like at scale and it’s a really important thing because there’s just and that means you have to go out and raise more equity Capital. Ah, just the fact of the matter is that’s that’s your burden to bear to prove your business just like everybody’s got a burden to bear to get to product Market Fit. You didn’t have to worry about that. This is the thing you have to worry about.

    Alejandro Cremades: And with ca also you guys raised quite a bit of money you raised an over four hundred billion in on the equity side through 6 different bc rounds that you guys did billions that you raised to on the deb side to be able to operate the business and then eventually. Company got a acquired by amexs Cnbc reported it for over 850,000,000 of a transaction but I guess what was that process like going through an acquisition like that.

    Alejandro Cremades: So then so then in this case, you know the um, the transaction ends up happening with American Express and then you know you you stay there. You know there I mean you had a conversation with them. But you already had something in mind. You already had something in mind and that was not staying for long with Amic. So what happened there and then what happened next.

    Alejandro Cremades: So it sounds like keep financial. You know was decent and enough and also kept coming to you just like music songs. So in this case, you go at it and you know eventually Katherine you know also joins you again, you know on on this journey. So. For the people that are listening. What are you guys doing at keep financial.

    Alejandro Cremades: And always he asked everything you know when you are are a repeated successful entrepreneur entrepreneur investors throw money at you and that’s why you raised that killer seat round. You know, not not long ago last year where you have people like andresin I think you raised a allu a little bit over 9,000,000 is that right.

    Alejandro Cremades: Wow.

    Alejandro Cremades: So Let me ask you this if you were to go to sleep tonight boop since we’re talking about investors I talk about vision two because that’s why you sold them as Well. So if you were to go to sleep tonight and you wake up in a world where the vision of keep financial is fully realized. But does that world look like.

    Alejandro Cremades: So like a beautiful world Rob now obviously you know there were talking about the future. Let’s talk about the past. Let’s talk about the past with a len of reflection. Let’s say I was to give you the opportunity of being in a time machine and I bring you back in time you know, maybe back to that moment that you were still in school and. Wondering you know like what you could do you know what kind of business you could start if you were able to have a chat with that younger Rob and give that younger Rob one piece of advice before launching a business. What would that be and why given what you know now after all these companies that you started.

    Alejandro Cremades: I Love that show rope for the people that are listening. What is the best way for them to reach out and say hi.

    Alejandro Cremades: Amazingson mason well Rob thank you? So so much for being on the deal maker show today. It has been on on earth to have you with us.

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