How to turn a fintech startup into a global corporation?

Oleg

Today, I'm excited to have the Founderof Tipalti on the Devico Breakfast Bar. Starting off without any expertise in the payments industry, he turned a small startup into a large company, corporation, that has over 1000 employees. I remember that in one of our previous conversations, you mentioned that your initial expectations about Tipalti were rather modest. You didn't suppose that the company would grow so much. How have you managed to achieve such remarkable success?

Chen

How I've managed to achieve the remark? So, we started fairly slow. As you say, I didn't have high expectations. I was just introduced to this problem that we're solving, and the problem was intriguing, and started working on it. The very first few weeks, I was completely on my own. After that, I hired you to help me testing a few hours a week, then more hours a week. And then, you had a whole team or several teams helping a few years in. But I started literally on my own because it was just a problem that was intriguing for me. Little by little we built more capability and more. Because it was more about me solving a challenge, I took the hardest part of the challenge and built the complex parts. I was just going to the harder problems at first. And when we started fundraising, and hiring, and growing the company, it was really meaningful because we already had substantial assets, substantial technology, substantial services, value for our customers. And I happened to reflect just literally in the last few weeks about where we are. And yeah, by now we're in a position where we've built so much assets, so much unique, hard-to-imitate assets: software, and technology, and licenses, and capabilities that take years to develop. It's just very hard to compete with us right now. It's very hard to imitate us. It'll take hundreds of millions of dollars and many years. There are some shortcuts, but not enough to do that. So yeah, I think it was just a patient, slow-cooking kind of building a company to where it is now.

Oleg

Thank you. Tipalti rapidly expanded from 280 employees in 2020 to over 1000 employees in 2022. That's definitely impressive. With such a rapid growth of your company, how have your role and responsibilities changed? What keeps you engaged and passionate today?

Chen

So yeah, two different questions. So, the latter one, what keeps me engaged? So, I'm a product person at heart. And I like to say that Tipalti is the gift that keeps on giving for a product person. There's always more to do for our customers – different things. We started with accounts payable. Now we call it finance automation. It's such a broad and diverse set of functions that are somewhat connected to each other, but it's really a few dozen discrete functions, you know, from managing suppliers to managing taxes, to payments, to regulations, to currencies – just a very broad set of challenges. So, for a product person, it's exciting. Now, AI – how do we embed AI? And how does it interact with the rest of the product? And how do we, as a product, enable finance people to benefit from AI? And how do we internally benefit from AI in our execution of our day-to-day business? So for me, it's just a very engaging, very challenging product to build.

In terms of my role, my role really changes. Almost every 18 months, it's a different role. And unfortunately for both you and I, we have had curveballs thrown at our companies from the geopolitical sphere that requires leadership. I think Andreessen Horowitz coined the term 'wartime CEO'. You and I are a different breed of wartime CEOs. Unfortunately for us, we really have wars in our countries, so it's a different exercise. So yeah, initially, when I started Tipalti, when I started working with you, I did everything other than testing. You helped me with that. But I did everything. Then I did a lot, and I knew everything. Then, I delegated, and I knew everything, and I knew almost everyone. And then, it just degrades, and now I learn about some things when I read our own press releases or our own internal communications. And the role, it grows from, you know, interviewing every employee, then interviewing senior leadership. Now, a large part of the role is, at least in the last few years, it was about solidifying our culture. When I was younger, when the company was smaller, when my prior companies were smaller, I didn't really understand the importance of culture. At a thousand employees, culture is critical for your success. It's critical for my team's success.

So I find myself as the chief steward of the culture of the company, definitely hiring senior leaders. Also, letting go of people is also a critical part because culture and values are what you do, who you celebrate, who you promote, who you hire, but also who you let go. So, that's also part of it. And now it's a lot about preparing ourselves. Almost every few years, it's about preparing the company for the next wave of growth. How do I prepare myself? How do I learn about the next few years? For me, it's the first time I'm doing this job at this scale. So, how do I prepare myself? How do I help my execs to prepare themselves and the tier below? We really like to promote from within. How do you help? Every rank, from an individual contributor to manager, to senior leader, to execs to help them grow in their roles to be able to help the company. Some of the team members that work with me have been working with me for 12, and 11, and 10, and 9 years, like really, really tenured team. It's a superpower for the company to have the team stay with me for so long. Those who can, and those who can't, that's fine as well. They've done well for the company and they move on. And I think it's a good outcome for everyone as well. So, these are some of the things that I need to work on as my role changes, again, every 18 months.

Oleg

Thanks, Chen. One question about the moment when you started growing and delegating things. For me, of course, I was doing a lot myself in the beginning. When I started delegating, it was not easy. How it was for you?

Chen

It was very natural to me. I think I always needed to delegate, right? Because when I started, I wrote all the code. I actually recall in the very early years, when I was still very heavily involved in the coding itself, there was a prospect, and they presented a problem they wanted to solve. And I felt we can easily solve their problem. But, if I now delegate that and let a product manager, and the architect, and engineer do that, it'll take months. But I know that within a week, if I just do nothing but that for a week, it'll be ready. And I did it, and it was ready, and it still is a great product of ours. But I was criticized by my team that it's not sustainable. Like, you can do it once, but it's kind of the last time you can do it. And I tended to agree. We were a 30-person, 40-person company. I probably shouldn't do it moving forward. And that was kind of the wake-up call for me to focus more on delegating. And I started delegating on the engineering front and quickly just let go. It's the same team, great leaders who I trust, and they know better than me. I'm not at all at their level, not close even. So, once I did that and then, the same repeated in marketing, and in sales, and in other functions, in finance. I didn't have a finance leader for the first eight years of the company. For fintech, do not have any finance person in the company – it's kind of interesting. But yeah, I just do. I also accept breakage because oftentimes I hired more on talent and ability than on experience. I have to assume some breakage, some failure, and I'm comfortable with that. I try to not train but to help my team also be comfortable with some failure as they promote strong talent. If you want to promote strong talent, you have to assume that there will be some breakage, some failure. And as long as you're not a punitive company, you need to accept that as part of delegation.

Oleg

I totally agree. I just wanted to tell you that, for me, it was not really easy, but of course, I went through this. Otherwise, we wouldn't grow either. Yeah, it was hard, not comfortable. I wanted to control everything in the beginning, but then I relaxed. Given your deep insights into the industry, could you shed light on some of the transformation that industry is going through?

Chen

I think there are two major transformations I'm experiencing right now. The obvious one is AI. We're seeing everyone scrambling to find how AI can benefit them, how AI can impact them, what opportunities, what risks there are around AI, generative AI, other AIs. So, last year was the year where everyone got introduced to large language models and started playing with the technology. We're now seeing the first proper products with initial capabilities. There are some products that we've experienced for a while: Copilot, coding Copilot from Microsoft. Even with that, I think we're only in the early innings, and that product will develop and grow, and we'll be able to do way more.

But we're seeing a lot of opportunities in other areas of the business. And I think this year, from a business execution perspective, we'll see the early maturity of AI products. And probably the following year we'll see AI products really taking their place and solidifying their place. So, that's one transformation. The other is, let's call it, maturity of the end of free money. So, there was a period 2020–2021 when money was free. You would raise funding at crazy multiples, crazy valuations, and, literally, you are indifferent to raising the money. If you raise 100, 200 million at many, many billions of valuations, the dilution is so small, it's almost free. And many companies did that and raised money during those periods of times.

We're two years in companies that have the business model, that have the unit economics, that have leadership positions will continue to succeed, but we're seeing already the signs of those who don't have the business models and are running out of money. And even those who are not running out of money are changing their companies in a way that will allow them to survive for maybe many years. But just survive, you know, survival is not a very solid strategy. You need to continue to grow. And we're seeing a lot of inbound companies who struggle, or are looking for a buyer, or looking at us to be a buyer. We get a lot of inbound from companies around our domain to consider buying them. I think that is what we'll see. Some companies get sold, some companies just get out of business, and some become zombies, just surviving, reducing their burn rate so that they don't lose the money they have, and kind of cruise for a couple of years until they figure out what to do. So I think that's the other transformation the industry is going through.

Oleg

Okay. Got it. What are your thoughts in terms of the global economic situation? Since the rates are still relatively high, what can we expect in one, two year future?

Chen

I'm not a macroeconomic expert. I'm just reading, the relevant news and research. You see, the inflation in the US is subsiding. You hear what the Fed is saying? My expectation is that we'll see them starting to cut rates sometime this year. The general consensus is sometime, in the middle of the year, they will start cutting grades. And they will continue to push for inflation to get to 2%. I think that the goal is 2% or 2.2%. And yeah, so the Fed said that he will push for that. And I believe him, he'll do that. So, we'll see that we'll, obviously, improve business activity. When you reduce interest rates, it improves business activity. So yeah, in two years time, I'm hopeful that we'll see a resumption of some level, pre-2019, pre-COVID level of activity, both in the investor community and commercial activity. So, interest rates are keeping it all compressed. It's harder for companies, and hopefully, that will be released, starting to be released this year, unless something crazy happens. Yeah. Yeah. You don't know.

We have this annual customer conference. We had it in September. And in my keynote, they said there were three parts. One of the parts was that one-of-a-century or one-of-a-decade events, you have them every three months. Like, you have the COVID, then you have the financial crisis, then you had the bank collapse with Silicon Valley Bank, then you had the war in Ukraine, now a war in Israel. Like, it's happening at a higher and a higher pace, I agree with you. You don't know what's the next curveball. So far, we've seen a lot of resiliency in the market. Think of all the things that have been thrown at us, and still, you see decent resiliency. So, hopefully, this will be a better year. This will be a calmer year than last year. I think it's a low bar. It should be easy to have a barrier year than last year, but that remains to be seen. We're just in January.

Oleg

I think humanity should expect to have things changed to better because for the past few years, I would say, we're full. Okay guys, give us something good.

Chen

Yeah.

Oleg

Okay. Tipalti introduced AI assistant in 2020 when it was not such a mainstream. Obviously, that was great decision. Now in 2024, AI seems omnipresent. What's the next? Could you share what are you currently working on?

Chen

On the AI front? Yeah. So, AI has a lot of implications for our product, and our customers, and for us internally. So, on the product front, I forget who said that the right way to think of something like ChatGPT is like a junior assistant. Think of having a junior assistant by your side. He or she can do a lot, but you need to keep an eye on them and check their work. I think that's a good analogy. So, basic work can be done well with large language model AI. So for us, things like setting the ledgers, the accounts, just selecting, helping with the process. We help a lot with cumbersome, labor-intensive, boring processes: invoices, purchase orders, pushing paper from side to side. We can help more by helping categorize the spend and knowing which department, which type of spend. So, a lot on the categorization side. There's a lot of tech in invoices, in purchase orders, in the ledgers. So, there's a lot we can achieve there: OCR, improving the scanning of invoices because now you have the context. It's not just the shape of the letter, it's the word, and the sentence, and the paragraph. You have a lot more to work on to be able to do proper OCR.

The other parts are more directly related to our users. We have two types of users, if you will. One which is the expert, the finance person, the controller, the VP finance. They use Tipalti day in, day out. They know us very well. And the other user is the novice user. The random employee or manager that needs to make a purchase request once every few months, and they don't know Tipalti. For the novice user, using a chat interface to interact with us, or for the supplier that onboards with us novice, they will use us once, and that's it. Using chat interface makes the whole experience so much simpler, so much easier: less training, less enablement, less manuals. Just have a conversation with the chat interface, and we'll get you to the finish line. And on the flip side, for the expert, for this VP Finance, for the controller, we can, with the help of AI, answer complex questions.

So, we are in finance automation. And I can give you a simple complex question. What was the spend on demand generation in the UK last quarter? It's a very simple question in words. In actual, obtaining this, you'll need to download a few reports, you need to cross-reference the reports. You'll spend an hour on that. But with AI, and we're building this capability, you can actually type that question. Ask that question. You will type 'What was the spend on demand generation in the UK last quarter?', and you will get an answer within seconds. So, for the expert user, we will enable very quick way to obtain complex information, to story, to report it, to reiterate the same report, send this information monthly. And you'll get a report on a monthly basis to your inbox and things of that nature. So, these are some of the examples of things we do for AI. And then, for internal uses, we see a lot of benefits in many areas – in engineering, in sales, in marketing, in finance, in HR, and knowledge sharing, knowledge access – a lot of opportunities there.

Oleg

Thanks. What nuggets of wisdom would you give to budding entrepreneurs? Based on your journey with Tipalti, are there any specific dos and don'ts you would particularly emphasize?

Chen

I think there are many dreamers – many people who have dreams, who have ideas, ingenuity. The difference between an entrepreneur and the ingenious person is in the doing. And my recommendation for any aspiring entrepreneur is to first and foremost get your hands dirty, build something. I just saw a video with the Founderof Airbnb, and he said he was trying to sublet his apartment during some event in Washington, I think. And just for the sake of it, he wrote a quick website, and published it, and was able to get people to rent, and that turned into Airbnb. So, you just do stuff. And in a way, it's also the story of Tipalti. I had a person with a problem. I thought it was a quick project I will do for that person, and I'll move on to something else. And I built it, and it turned out to be a little bit more and a little bit more. So, it's all about the doing. Completely not comparing not Airbnb nor myself to the genius in Picasso, but one of the great traits of Picasso was that he was doing a lot of work. He was producing a ton of art, and therefore, part of it was also ingenious art. So, we're not Picassos by no means, but the doing is really the key for being an entrepreneur.

Oleg

I would add also not to be afraid to lose.

Chen

Yeah, I agree.

Oleg

As the company experienced rapid growth, were there any challenges related to recruitment and onboarding top tech talent, and how did you address them?

Chen

Top tech talent?

Oleg

Yeah.

Chen

There was always competition on talent until the last few years. The last few years, there's still competition, but it's a little bit different environment. I think I saw in the news today that there are 10% less tech employees in Israel than last year. And given that the previous years were probably 10-15% growth, it's a major gap. It's kind of huge gap between the growth we had and a decline. So, now, I think it's a little bit easier environment than it was before. We were always successful in hiring great talent, predominantly because we are very careful with the leadership, with the managers, with the culture, and people. I think by now we have a reputation of high-quality managers, high-quality leaders, high-quality execution, and that we promote from within. And so, we're an attractive company. In Israel, we're one of the dominant, high-growth players. So, we are a very well-known company, and people look forward to working with Tipalti.

More broadly, we used headhunters when we needed sometimes. And for me, a critical point to think about, I think the quickest I've ever hired an exec was 6 months, and the longest was 12 months. So, I was willing to go 12 months without a leader in a critical position more than once, and I found great leaders. On the flip side, we've made, as a company, sometimes mistakes when we kind of got exhausted from the hiring process and said, 'You know what? That's the talent. Pick the one you like the most.' Sometimes it works, but sometimes it doesn't, and then correcting it is very expensive and very painful. So, my recommendation is to be very strict. The top talent will define what the second tier is, and what the third tier is, and so on and so forth. So, if you compromise on the top leadership, you really are compromising on the whole stack of employees below that.

Oleg

Have you personally set up Tipalti without profound knowledge of the payment industry? Do you find domain expertise important when it comes to hiring engineers or other key roles?

Chen

Engineers, definitely not. Most of the engineers we hire do not have domain expertise. I say that we like to promote from within, and we do, and we promote a lot. But they can also say that in the last year, we hired some senior leaders from the outside, and there's also great value in that. So, we are a growing company, fast-growing company. Getting some of the people to come with experience, with knowledge, having been there and done that, there's value to that. As for domain expertise specifically, we generally do not hire with a lot of domain expertise. You would say product managers, you really need to have domain expertise, but there's just not enough domain expertise in Israel in our domain, and we have to hire and train. By now, you know, we're all 13 years into this journey. So, we are the domain experts. Our product leader is in his 11th year with the company. So, he is a global domain expert. So, we have a lot of domain knowledge inside, and we train our employees.

When I started Tipalti, I definitely didn't have domain expertise. Oren, who's my Co-Founderand chairman, says that he has a lot of experience with people who are close to the problem. I wasn't close to the problem, but I had the first customer who was close to the problem. So, be close to the problem, but without domain knowledge just allows you to be without restraints, without the 'oh, this is how we do things in this industry.' There's a lot of value in that. You can also succeed coming with domain expertise. It's not mandatory that you don't come with domain expertise, but there's a lot of value in my experience in Tipalti not coming with domain expertise. It's actually the second time that I'm successful by not coming from domain expertise. In both cases, I was thinking about the problem differently than people in the domain. So, I think it played a valuable role.

Oleg

Great. Yeah. There are a lot of stories when you just don't know that you cannot do it, and you do it in your own way because you are not aware that it's impossible to do. And you find a way how to do it. Now I'd like to move to the topic of IT outsourcing. I know that Tipalti uses a hybrid model. You have an extensive in-house team, while also outsourcing certain activities. Could you please outline the key benefits and potential pitfalls of this approach? Are there any changes as the company grows?

Chen

Yeah. So, when I started, August, September, October of 2010, and I think you started work with me maybe in February of 2011, something along those lines. I don't know if you have the exact date, but something along those lines. I needed a resource. At that time, I wasn't able to justify full-time resource, and I needed someone to work with me part-time, and you provided the right solution at that time. And as we grew, obviously, that changed, and we needed more and more full-time resources. But you developed the know-how of Tipalti and were very efficient in that. And we also had access to talent that, to be completely honest, was less expensive than what I could hire in Israel. So, that played a key role. We were always a very frugal company, very lean. And for me, it played an important role, still does. We're now global, and we have offices all around the world. And some of these offices were opened because we wanted to tap into lower-cost resources than in our major metro areas. So for me, it provided flexibility, it provided lower cost, concentration of resources. These are some of the reasons why we use this hybrid model.

Oleg

Okay. We have been working together for about 13 years. Over this time, with your company's growth, how has your perspective on outsourcing evolved? What tasks do you believe can and should be outsourced, and which ones must be handled in-house?

Chen

So, we're working with you. My ops team have a team in India, and we have multiple outsources. So, let's say in engineering, there are some core capabilities that we will not outsource, probably.

Operationally, I think we outsource a lot operationally. So, both just labor intensive, no clerical work, let's say. But more than that, even some integration, some developments. I'm trying to think: is there anything I will not outsource? So, leadership of the company, obviously, is not outsourced. It's internal. And there are some strategic aspects of the business that we want to outsource. We outsource only certain aspects from our perspective. We outsource only certain aspects of engineering – those that are interfacing with external systems. And we focus on that, but yeah, we outsource a lot. I think we try, and test, and succeed, and test, and succeed. I don't think there was any failure, by the way. I don't think we ever. You know what? There was some failures. So we once outsourced a development of an integration that was critical for us. And, we ended up bringing it in-house. So, critical aspects, that mission-critical aspects, we won't outsource, but other than that, I think, we are outsourcing a lot.

Oleg

Okay. Thanks for the response. How does your internal team monitor the work and performance of outsourced teams? In your opinion, is it important to closely integrate outsource teams with your in house team?

Chen

So, you know better than I do how we monitor your team's work. I don't really know that. On the ops side, the ops side is very metrics-driven, like their units, how many tickets, how many escalations, time, SLA. So, a lot around the SLA. I don't know how the work with your team is monitored, but wherever there is an SLA to be monitored, that makes it for an easier monitoring.

Oleg

What would you advise to those who haven't had experience with outsourcing yet but would like to give it a try? And what should they consider while choosing their ideal outsourcing partner?

Chen

I never told you why I chose you, you know. Do you know why I chose you? Or maybe I told you. Did I ever tell you why I chose you?

Oleg

No. Good question! No.

Chen

Okay. Again, I was a single employee, a company with a single person. I was the company, and I was trying to hire someone to help me with QA at that time. And I went on today it's called Upwork, it used to be called Odesk, and I posted a job there, and I got probably 50 responses within 24 hours, right? So, one way to select is by the price. Yeah, I interviewed one, two, three and was very disappointed with the interaction. And then, out of the whole group, the only person who, in response to the post, asked me three questions was you. And you asked three important, deep, meaningful questions to do the job. Like, I don't remember what the questions were. I can actually find it. But I found you thoughtful. You actually read my post. I remember that I shared the iframe, like it was a component. I shared the component. You went in, you looked at that, you asked a few questions. So for me, and it's also true when I interview for leaders or people in Tipalti, I look for their knowledge. I look for their being an inquisitive, thoughtful, deep person. If the outsource is just managing head counts and costs, then that's what you'll get. If the partner is thoughtful, and learn about your company, and understands, asks questions, understands your challenges, then he'll be a real partner. If they are just about heads, and costs, and times, then that's what you'll get. You'll get heads, and costs, and time. If they are deeper and if they are thoughtful, they will understand your business better, and the result will be better. That was my experience with you and in a few instances after that.

Oleg

Okay, got it. To what extent has our collaboration impacted the success of your project, especially in the initial period when you were working on it alone or with just a small team?

Chen

Look, I thought I can do almost everything at that time. There was one thing I just could not do. I don't know if other can; I was not able to test my own development to a good enough quality. So, I was able to do everything: I was the support, the sales, the marketing, the operations, everything. I was just not able, and I was seeing that I was releasing bugs and releasing low-quality products. So yeah, you were critical. You helped me bring the product to the right quality, to release a solid product that obviously worked and led to the success. You're the first person after me to work on Tipalti, and I credit you with the initial success. And yeah, and the flip side is your success. You know, we kind of weren't in touch – in close touch – over the years. And then, when we spoke about a year ago, and you told me about your success and where the company got, that was amazing! And for me, to think that we started, and I see a few hours a week working with me, and now you have this formidable company – that's really inspiring.

Oleg

Thank you. Really nice to hear it. You are the first customer and the only customer who stayed with us for such a long period – for over 13 years. Amazing! That's impressive!

Chen

You know, Tipalti is a company with one metric that I'm very proud of is that we have 1% annual churn. And I think it's a very special metric.

Oleg

It's extremely low.

Chen

Yeah, extremely low. And when I speak with customers, or prospects, or bankers, analysts, investors, I say that there's a story in the figure. The story is that we're doing something good, we're committed to our customers, we're serving them, et cetera, et cetera. So, the same is true for you. We didn't have to stay with you 13 years, right? We have more than a thousand employees. We could have replaced, but you're a good partner. You're doing great job. You're helping us. It's a great relationship. So, the proof is in the results, right? It's more than words. It's the actual work together for so long.

Oleg

What specific aspects of our services exceeded your expectations? Are there any areas where you believe improvements or enhancements could be made to better align with your business goals and requirements?

Chen

So look, to be honest, we started working directly together, but it's a long, long time since I've been close enough to the work. So, I can say at the time that I was closer to it, the depth, the fact that you really understood, that you went deep, that you were thoughtful, that you were part of the team. Even once, I forget when it was, but we flew you to Israel to meet with the team.

Oleg

Yeah. I remember we were sitting in the mall, eating burgers. We were only, I think, around 15 people there, something like that.

Chen

Yeah, 15 people.

Oleg

Yeah, 15. Maximum 20, but not even 20.

Chen

So yeah, you are part of the team, and we wanted to bring you to better embed with the team. And I think that was the valuable aspect, for me, at the time. But yeah, I lost, I'm not close enough to the details anymore.

Oleg

Chen, thanks for your time. It was really impressive. That was the warmest video podcast so far because you know why. There is the reason. But it's really amazing. Thanks for your time. Thanks for the insights, for information. You're a very experienced person. I'm always happy to learn from you, to get some information. It inspires not only me, it inspires everyone, your success. And I'm wishing all the best to Tipalti and hoping to continue working together.

Chen

Same here. I appreciate the partnership, and thank you for having me on this podcast.