#009 RegTech Revolution with David Polonsky
Navigating Compliance and Revenue Growth in Financial Regulation
Guest & Host
David Polonsky & Steven Morell
Welcome to Speak Revenue, the podcast where we emphasize that revenue is not just a goal; it's a result. In this show, we shift our focus from the output to the inputs. We engage in conversations with sales leaders and entrepreneurs about their remarkable journeys. Our mission? To uncover the true root causes of success. Explore the world of RegTech alongside industry expert David Polansky as we delve into how FundApps revolutionized financial regulation compliance, achieving remarkable revenue growth in this dynamic sector. Gain insights into the strategies and challenges that have reshaped the landscape of financial technology.
September 25th, 2023
Steven Morell: Welcome to our new episode of Speak Revenue. Remember, revenue is not a goal. It's a result. We turn our eyes from the output towards the inputs. We speak to sales leaders and entrepreneurs about their journeys. Join us on our quest to uncover and learn the root causes of success. Let's unpack what works for them and what didn't today with my guest, David Polanski. David, thank you so much for joining my show.
David Polonsky: Thank you, Steven. I'm happy to be here.
Steven Morell: David I'm super excited to have you here. We spoke a little bit before the show. For our audience real quick, who are you, what do you do, and why are you so successful?
David Polonsky: That's a great question. I guess I'll take that as a compliment. I am David Polonsky. As Steven just mentioned, I am the head of North America for a company called FundApps. And one of the things that we have done with fund apps as one of the early employees eight years ago, we've grown into one of. The predominant rec tech companies globally. And we've embraced our niche, as I like to say, and we now count many of the largest asset managers and hedge funds in the world as clients. So I'm excited to talk about that today and about our journey and how we're able to grow, how we did.
Steven Morell: In a startup type of way, what problem do you solve?
David Polonsky: Yeah, so we focus on regulation. It's very, it's one of the fastest growing, so we're in the FinTech bubble. RegTech is one of the fastest little areas in FinTech. And what we do for our clients is we look at global regulations. So we, our clients are some of the largest hedge funds, asset managers, pension funds, sovereign wealth funds, et cetera. But they all have the same problem. The world is getting increasingly complex with regulation. So if you're investing as your pension might do across the world, having to comply with Japanese regulation versus Moroccan regulation versus American regulation is increasingly difficult. It costs a lot of money, and if you don't do it right, you could get fined lots of money and you have a lot of reputational damage. So we were . Our goal was to solve that problem, how we could make the complexity of regulation more uniform. So we try to get what we call a plug and play experience or, so a client, once they're on board with us, they are gonna have the ease of say compliance no matter where they are trading in the world or doing whatever, but they need to do for financial regulations. So financial.
Steven Morell: In simple terms, you are the stay out of jail card for everybody who's investing.
David Polonsky: Stay outta jail, sleep better at night, whatever motivates you. But we deal with it. We deal with a lot of nervous compliance officers who maybe had a rough go with a regulator. The one in Germany, boffin, is notorious for shaking people down. It's a very stressful job. There's personal liability on the line, and it's an area that is fortunate for us is only getting more and more difficult. Like I said…
Steven Morell: Now I ask you: I know that you originate in Europe. A lot of countries, different regulations. Perfect place to start something like this. The US is, by the way, great as well because we have 50 states. Everyone has a little bit of different regulations. So I know that you moved from London to. New York, and I understand you were the first person on the ground in the US you parachuted in and then built the North America operations there. Tell us a little bit about what made you move to the US as a company, and what was your first day like? What is the first thing that you do when you expand to the us?
David Polonsky: Yes, Steve, you're completely right. Our founder, Andrew White, he... the niche was evident, obviously, in Europe with how it's just more regulated anywhere else in the world as the time in, in, in the late what was it, two, 2016 we saw that we were starting to get more inbound leads. A lot of 'em from our clients in Europe who had either offices in New York or we just had like people who were dealing with global regulation and we were really the first into space. And so one day we were looking at the pipeline and we were seeing that 15% of the pipeline, around 10% of the revenue was now coming from North America. And at the time, it was actually interesting. There was a segment that we didn't really plan for, but Canadian pension funds. We were getting a lot of interest from. And we can talk more about that later, but we're seeing that the Canadian Pension funds had a great mix. They're, they focus on regulation almost like the European counterparts, and they have the resources and budget of the American counterparts. So at that time, Fund apps was a small company. There were 10 to 15 people. And we're looking around and saying, this is the time we're gonna do it. And I had a conversation with the founder and we decided that, we're gonna, we're gonna do this. We're gonna go ahead and launch our US office. One thing that's unique about fund apps is, that time we were bootstrapped, we did not have any VC money. We didn't, we had, we were a profitable company, which is the benefit of . I guess the benefit of being bootstrapped is that you're forced into having to be profitable or the company's not gonna exist very long. So we looked at our opportunity, we didn't have a huge runway to play with it, so we had to do it very economically and very strategically, and that was my mission.
Steven Morell: Incredible. How is the US different? Customer wise, sales wise than us. A typical thing that I hear and that I can relate to, having been doing business on both sides of the pond in the US, nobody picks up a phone. I have. who secretly admit we do a triple tap. We just call with an unknown number three times in a row till people think Jesus, something happened to my kids in school or so, and pick up that number. And it's very difficult to come back from that. So how is the US market from your perspective, different from the UK market? And by the way, I just noticed the queen behind you.
David Polonsky: Yes. And I lived in the UK for seven years and got citizenship. I always gotta pay respect to the queen every morning. To rewind one of the things. So we decided we're gonna go for it. I pack up, I leave London, I move back to New York. And I'm, this is the heyday of WeWork. I have a little tiny glass box in WeWork. Me, and I have an Amazon Alexa to keep me company. And, I made a pact with our founder saying, we'll try it out in a year. We didn't find it . That it's receptive. Like we think I'll go back to London and we'll continue doing this in Europe. And we learn many things. So one of the things is, yeah, and I'm talking to our clients, if you like a chief compliance author who's like our main target, they might get 700 cold emails a day. They show me their outlook sometimes and it's just, Absolutely bizarre. Like how do you, I don't know how you could do business if you have 700 direct targeted messages per day. Similarly, obviously they all employ personal assistance now to be able to help them with the flood of cold calling. So yes, that is certainly a challenge. I think the challenge that we had was we had zero name recognition. We were this bootstrapped. British company trying to sell the largest hedge funds in NASA managers in New York. And besides our clients who loved us, no one ever thought about this before. Everyone was doing this in Excel. And so who was our biggest competitor at the time was Microsoft Excel, which everyone had for free. And they had some IT person who would build macros. And so when I went in there selling , A not cheap product. Sometimes oftentimes a six figure product the for a yearly fee to somebody that they're, they in their head, they're doing it for free right now,
Steven Morell: Let me dive in there. Let's stay very short, very shortly with the pricing. What's your ACV?
David Polonsky: So I would say between one, not like 1 5200 U s d per annum.
Steven Morell: Okay. Just that the audience can get the type of customers. Please keep going.
David Polonsky: So with, so we learned quickly that the audience in the us, so we were at one point we're actually booming in Canada. Every Canadian pension fund acted within 18 months and were super receptive to our product. And that was fantastic. However, in the US market, which is the biggest financial market in the world, we're not seeing the traction that we were hoping for. And so this required a lot of . Working very closely with our product team, rethinking our pricing model. So my background is in product. And one of the things that was useful is that I didn't I don't have a very traditional sales background, but I was able to work very closely with what we thought was our target client, our target prospect, to understand that it was slightly different from what they were after. Versus what I was doing in Europe. And so being able to relay, and not to get too much in the weeds, but being able to relay that feedback to the product team, being able to look at our pricing model. And one of the quick things that we noticed right away is that in FinTech and RegTech in Europe, they have a very much based off of a u m style pricing model in the us. People are allergic to that. They do not wanna be judged on their AUM- assets under management for people to know the industry. So in the US they're much more used to per seat models or per transaction or usage models versus in Europe. However, this was a completely different style of how we were doing our business in Europe. And while we weren't ready to go completely to that US model, we had to rethink and find a way where we could prove that we were not simply looking at one data point, but looking, reflecting on all the data points and changing our model for that US market. So that was one of the biggest things. Our go to market plan is rethinking both the product, rethinking the pricing, and also trying to find a way to use it . Those kinds of key core clients that we had to help spread the word in the US market.
Steven Morell: How did you do that?
David Polonsky: So what we found is again, I, this might be niche to our part of our industry that we're in, but when we're dealing with compliance they are interconnected. All these companies, they all have giant WhatsApp chats in every city where . These compliance officers all used it almost like a therapy session. So we found out that it is quite closely connected. It's not as competitive. You go to a hedge fund in London . Versus a hedge fund in New York. The traders, the front office, they're gonna be quite secretive about what tools they're using, what they're doing. 'cause they're looking at slight advantages over one another in the compliance world. What we found was that they actually are quite collaborative because this isn't an area that you're trying to like, get a slight edge. You're all trying to stay out of jail, not getting fined. And so when they found a good product, We found that they actually, that was our best source of spreading the word was that they found this product, that found that solved a very painful niche. And so we try to help them promote that. So in, in conversations like, oh, do you know anyone who else might be good to speak with? And once people, I guess this is a testament that we had a very strong product, was that people were actually more than willing to help us . Be part of the growth and the journey. So doing reference calls was huge and being able to have some blue chip names here, and so being able to rely on that brand that our product had, or I guess not the brand, but the reputation from the users helped us grow a lot in the us.
Steven Morell: It sounds like a lot of people's business is, but let me go back because I think this is a frequent problem that, or challenge that a lot of startups are facing. that how you overcame the I can do this with Excel argument. I.
David Polonsky: So it was a combination. One, the amount of regulatory change. So in Europe they introduced something called the transparency directive, which was monumental. The US introduced certain regulations, places like Japan and Hong Kong. So like one, there were macro effects. In the industry. And regulators also started finding more. So there was both the macro impact of just the industry becoming, just becoming harder and harder to do in Excel. And also at the same time we were, I remember when I joined over eight years ago saying that we were in the cloud, it was not accepted. People do not handle sensitive information short. But the cloud was not mature enough. It was not widely used enough, so we're battling the fact that we were in the cloud, but that, but the cloud was also what made our product head and shoulders above our competitors, the fact that we were cloud-based, the fact that we could push out updates the second, the Hong Kong regulator change something to be out the next day we had a clear advantage using cloud. But in America, . They were so petrified of the Clod and AWS, which is our cloud provider. So two things happened. One, the regulation just got more and more difficult. Two, with certain SOC 2 and ISO 27001. Like all these standards became more obvious and more comfortable. So we could go to a CTO and say, look. Your data's safe with us. So those two things happening at the same time really happened almost at like perfectly and then combined with for us Covid where everyone had to work remotely and all the on-premise solutions fell over. So those three things happening elevated us to a whole new level.
Steven Morell: No, that makes, it reminds me of the early days of Salesforce where it was vice versa. Salesforce was struggling to get a foot in Europe where all the big companies that could afford Salesforce would go no, I want something on premise. I'm not, Giving my company data on the internet. I, I think this industry by industry as you disrupt those industries has to face this obstacle. Tell us a little bit about your go-to market motions. You are talking to a compliance officer. They get 700 emails a day. I can relate to this. I've been a compliance officer in a FinTech startup many years ago when things were still pretty simple. And I'm getting a lot of emails. How do you reach out to them other than word of mouth?
David Polonsky: We try.
Steven Morell: Question, simple, do you do outbound or inbound? And my definition of outbound and inbound is outbound is if you talk to people who don't know you. Inbound is if you talk to people who know you.
David Polonsky: Yeah, so we tried both outbound inbound techniques. I'll tell you some successes and failures. I should also start by saying, since you've raised Salesforce, we, we chose . HubSpot because we wanted to have it . An inbound focused CRM system. So we knew that we looked at our target audience and said, we're selling to compliance officers. From what we have gathered, these are people who are not as receptive to outbound. If we give them a lot of good information, we want to be a thought leader. This is the approach that we want to go with. So we chose a CRM to align with that, first of all. But when I came to the US I tried everything, direct mail. I remember we came up with clever schemes like that to directly poke fun at people using Excel and try to make analogies with that. Sending them to thousands of compliance officers. And the hit rate was God awful. It was terrible. And then we tried obviously conferences, sponsoring conferences which we found successful in the morning. And what we found was, The more niche we could go. And there's thousands of conferences in the financial world, the more niche we could get, the better and better. And that's where we were, but we didn't know that. And if you Google it, we weren't getting the results that we wanted. So again, this was talking to our customer. Where do you go? Where are you getting it? Value audit. We learned something really important there. We learned that compliance officers need to get credits in order to remain certified and be able to be accredited. And so there were certain conferences that they had to attend in order to remain accredited. Obviously these were a goldmine for us. So finding that niche was great for the US and finding the conferences that were reputable versus the ones that were full of other vendors, was an important part of the journey. Figuring out direct mail wasn't really that strong of a suit. So for us it was building our reputation in our niche. And I mentioned the games about being proud of the niche and being able, and . Being able to talk in depth and really technically, 'cause I didn't have a sales engineer at the time. We had a sales engineer in Europe, they're gone half the day for my working hours. So being able to go at their level and speak to a compliance officer and be as technical as they are was really helpful. And that and our brand grew because we separate ourselves from the competitors. We're, we call 'em Swiss Army knives. They have 50 products. They all do, eh, mediocre. We have very niche products that excelled, and people who found the quality in our products spoke to other people. So it was that network effect.
Steven Morell: Did you ever notice that the Swiss Army knife has a wine opener? What type of army is that? Anyway, a very relaxed army. When you reach out when you go to conferences is that generating inbounds or how do you just sponsor them and there is your name? Do you do speaking engagements? How do you convert this? A close deal.
David Polonsky: So I'm gonna butcher it if I forget the name of the effect that I, that one that I believe in. But it's coming back to the fact that there are obviously huge industry players. The Cs, the Bloombergs, there's just these huge bodies that sell all the products in the world that people have that name recognition. So for me, a successful conference, so we know we go to conferences, we know compliance. We are gonna be there sometimes, we sponsor, sometimes we just attend. But it's the idea that even if we don't. Have the most fruitful conversation. It's the fact that people get that name recognition. There's some effect you hear a name three
Steven Morell: Now they know you.
David Polonsky: Yeah. If you hear a name three times, there's a trust factor. Okay? If you hear a name one time you're not gonna remember the next time. If there is an email coming from that person or someone at, on that WhatsApp group says, oh, we've, we solved the problem with this. But if you see fund apps, At the conferences you, it comes up. You might get that, maybe that cold email that comes in from an SDR. You'll see the name like, oh, actually I heard this coming before. Oh, it came up in the WhatsApp chat. Once those different parts of your brain start recognizing the name of the company, it does have an impact on people. That's why marketing is so important. That's why people spend billions of dollars on these ad campaigns at the Super Bowl or wherever else they understand. Maybe it's not just like having a conversation where you're able to do your elevator pitch, but you're getting that name recognition out there as well.
Steven Morell: Are you now 2023? Almost Q four. Are you now in a replacement market where you have to replace your competitors or are you still harvesting Excel users?
David Polonsky: Excel. Yeah, the Excel days are done. I very rarely hear about people using Excel anywhere. Every, like maybe once a quarter. Thankfully. So what that's been explained is what that's been. Replaced by people using what I call Swiss army knives. That reference where it's like they have a system for their bookkeeping that does their trading, that does this, that has a little compliance component. They might use that one because it's cheap and it's part of their infrastructure, but it's not built for purpose. We're we, our, my specific industry is going through a lot of m and a activity. , any of our main competitors have been acquired in the past 18 months, and that causes a lot of disruption. It also gives a good opportunity for us because their clients are going through that disruption. They're, and as people know with m and a, usually you're gonna see. A lapse in service, a decrease in service. It takes a while for companies to reorg afterwards, and it's a great opportunity for a company that is still majority employee owned to be able to grasp that market. So for us, the gains changed a bit. There's less proprietary, there's less, less Excel. But the total adjustable market for us has continued to increase as the regulation increases. We introduced new services that could hit different parts of the market. So we are very strategic in how we're thinking about our next year to three years of growth. Because we have a pretty unique opportunity with both what's happening from the macro level with the industry, but also our competitors being all acquired. And, reor right now,
Steven Morell: mentioned SDRs earlier, that makes me wonder how you have set up your sales team and your sales motion? Do you have any? Full cycle AEs that do the prospect we are prospecting as well as closing the actual deals. Or do we have them set up in teams of SDRs, BDRs / AE sales reps that, opener closer where one sets an appointment and the other tries to bring that home.
David Polonsky: I guess like the overall structure we decided on was a regional structure. Fund maps has New York based, London based Singapore base and all those structures have SDRs, what we call sales managers, which you, I think you, you call 'em ae. And then we also have account managers who are responsible for growing current business that like current clients.
Steven Morell: Do they work together in a pot? Does a, an account or a customer stay in the same group of people?
David Polonsky: Yes, so it would be regional based now. So we do have SDRs back to the kind of outbound versus inbound conversation before we found again, being as targeted as humanly possible has been a huge thing that separates us. Fortunately, I'll give you an example. Fortunately for our SDRs, there is some public information about I. Regulatory filings and stuff. It's stuff that you cannot automate. You can't have a blast with 5,000 emails on it, but if you spend the time, you'll learn a lot about your target prospect, and if you could write a specific email towards that, we found, hit rates much, much higher than when we use it. Just like what we call machine gun style, just. Hold now. Now what that SDR is responsible for is finding the correct client or prospect having a call to understand, qualify them and then transitioning them to what we call a sales manager who is gonna do the full cycle of basically the introductory conversation and demo to and for us. A deal. A deal could take quite a long time. It's very technical. This is a product that once people buy, they're not gonna wanna buy anything for another three to five years. They really wanna . Buy it and be confident in it. And we're also dealing with, again, knowing your customer, we're dealing with compliance officers. These people are drilled to be detail oriented or they're not good at their job and to make very rational decisions. Or again, they're not good at their job, so you're not gonna, obviously there are situations, someone gets a big fine, they might be going a little bit quicker, but for most people it's a very. Deliberate process. And so that's where the sales manager or AE comes in and brings in sales engineers who try to tailor the process very specifically. So if we're talking to somebody who, their strategy is very Asian, their New York hedge fund that's very Asian focused, we're gonna tailor as much as we can as well.
Steven Morell: Let me put this together. You are warming them up with brand marketing by attending all the niches. Events and try to be there speaking in engagement, but also just visiting and hand shaking and having the small talk in the lobby. And then you hit them with a mix of cold calls, email follow up and you schedule all demo calls and then you take it from there. And is there an expand motion after you close them? So is a land and X bond, or do you hit them with six, six digit numbers
David Polonsky: Uh…
Steven Morell: Month one?
David Polonsky: Yeah. That's mostly right. And it's a mix of inbound, outbound again, that network effect. What we found is that mostly everyone in our network is connected. So if I'm talking to somebody in California, they're definitely connected to one of our clients in New York, which is something I couldn't 10 years ago, eight years ago. But now we have it. Oh, maybe asking our clients. That's an important part of keeping the current clients happy is that you could ask them to do that. So that's, but once they do it, usually people take, we have a flagship offering and then we have other services and things they can add on afterwards, and that is relatively new to our business. But then it gets handed over to what we call account managers and the account manager is part of that land and expands. And that is something, we saw recently that 50% of our client base are now taking more than one of our products, which three years ago that number probably would've been 10% and now it's over 50%. Land and expansion is a big part of the SaaS model, of course.
Steven Morell: David, last question. You moved to the US a couple of years ago. First man on the ground, get everything going. Looking back, if you could send a message to yourself on day one landing in New York, what not to do, what would that be?
David Polonsky: What not to do, WA would be to change expectations. Change expectations of how a process, a go-to-market products process works, understanding how much pivoting and adjusting and tweaking it requires. But, all these things like that disaster direct marketing campaign where, funny we mentioned court screws and Swiss army knives and all these wine, that direct market campaign. It was a fund apps branded wine opener. Saying I wouldn't open a bottle of wine with a rock. Why are you doing Shely disclosure with Excel? So Excel wine. So it's a funny theme that you actually touched on, but those kinds of things. Understanding that it's not gonna be an overnight thing, especially working in a niche and understanding that what worked in Europe is not gonna work in the US, it's not gonna work in Asia, and that you have to. I would, going back, it would've been earlier on just talking more and more with the US clients and understanding the differences with the European clients. It would've saved us some time for sure. But it was a really important exercise to do that, the way we did that. And yeah, expecting things. There's no quick, there's no quick success. Is the thing. So when we're building forecasts and targets for the US. I just assumed that everyone and their mother would've instantly understood the success of it. But it was slow. It was like a virus. So Canada loved us first, and then slowly it hit New York and then California and then, we have a little bit of South American, but it's understanding how network effects work and understanding that anything. And some companies are fortunate. They have fortunate and unfortunate, they have a ton of backing VC money. They could throw so much money at problems doing it. As a bootstrap company, you just have to think about things differently. You can't bet huge betts. You just have to tweak and see what's hitting and be able to look at how many times I looked in HubSpot at reports of Either for marketing efforts or looking at things like why deals are going slower and just understanding the tools to try to make ourselves more efficient.
Steven Morell: I think the common message from all successful people I had on this show is there are no shortcuts. David, thank you so much. All right, everyone. That brings us to the end of this episode of Speak Revenue. I thank our guest, David Polanski for joining us today and all the super valuable insights that he shared with us, a huge shoutout to our listeners. Your support means the world to us. Please remember to check our website : speakrevenue.com for a full transcript and additional resources. And if you enjoyed the show, please leave the review on Apple Podcast, Google podcast, or wherever you go for your listening needs and really help to get the word out, follow us on LinkedIn, Instagram, and since yesterday also on YouTube. We'll be back soon with another great guest. Until then, stay couriers, keep listening and stay safe. Talk to you soon. Bye.