As part of my series about the “How to Navigate and Succeed in the Modern World of Finance,” I had the pleasure of interviewing Max Simkoff.
Max is the Founder and CEO of States Title. Max started state Title in 2016 after personally experiencing the friction and labor caused by title insurance in the homebuying process. Since then he has worked to provide an innovative solution to homeowners, brokers, and mortgage bankers. Max is an entrepreneur with experience in founding and operating technology companies. Prior to States Title, Max was Founder and CEO of Evolv, Inc., an enterprise predictive analytics software company, which he led through their acquisition by Cornerstone (NASDAQ: CSOD) in 2014 where he served for two years on the senior executive team post-acquisition as the Vice President of Strategic Initiatives.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
In 2011, I went through the process of buying a home and I found it to be impossibly complicated. I had to find a real estate agent, gather years of employment, income, debt, and asset data, get “pre-approved”, go on tours, make an offer, and then, finally, close the transaction.
The closing process was an hour-plus of sitting in a title company office being walked through what seemed like hundreds of pages and dozens of signatures and initials on items that I couldn’t possibly understand.
Title, for me, exemplified both everything that was broken about the closing process and also the best opportunity to change the experience dramatically. It was poorly understood (by me), inefficiently administered, and palpably frustrating (for both me and the closer sitting across from me).
It struck me that it could have been clearly communicated, effortlessly structured, and, perhaps most importantly, utilized as a critical and necessary step in delighting the customer at the end of an experience that should be memorable not for its complexity, but instead for its salience as one of life’s most important moments. I sat there at my closing, and then in the months after, thinking about how title companies were missing a massive opportunity to transform the experience of one of life’s most important and memorable decisions — not only for their end customers but for their own hard-working associates who were having to go above and beyond to work with outdated technology and suboptimal processes to serve their clients.
My personal home buying experience and my prior history using data to transform decades-old processes made me believe there had to be a better way. Prior to founding States Title, I was the founder and CEO of an HR analytics software company called Evolv, which I ran for 8 years (before it was ultimately acquired). In that time, I learned that predictive analytics has changed the nature of what’s possible using data. At Evolv, we convinced an army of skeptics to start listening to their data and allowing it to inform the critical decisions. Predictive Analytics allowed them to transform their industry by predicting who the best hires would be, leading to more productive companies and happier employees.
The title has access to probably 100x the data that we had at Evolv, and predictive analytics technology is now 100x as powerful as it was just 10 years ago. And thus, States Title was founded on the idea we could make a better experience for all parties involved in a mortgage process through data and predictive analytics. We have spent the last 2 years harnessing available data, validating our predictive models, and continuously innovating in partnership with our customers.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?
We were building our initial data model for our instant underwriting algorithm, and we needed data that was very hard to come by. There were only a few companies that had what we needed. We found one that would sell the data to us. We negotiated the price, and it was very affordable. We were ecstatic that we bought data across 50 states to build a national underwriting model, and we got it an affordable rate.
The file was transmitted to us and it was only for the state of Arizona. We went back to the company to find out what happened to the rest of the data. They told us we had only bought data for the state of Arizona, and to check the contract. They were right. We thought we were purchasing data for all 50 states but had in fact bought data for one state. We did not have enough budget to buy data for the whole country, based on the pricing we negotiated. We admitted our mistake and the company agreed that for twice the cost of data in Arizona, we could get the rest of the country.
This was almost a very painful mistake! In a world of DocuSign and agreeing to things quickly, it pays to slow down and always read the contract.
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
I read the New Yorker religiously and there have been a few articles that had a profound effect on my outlook on business. During the dotcom era, there was an article about both the immense power and the hype surrounding broadband internet. At the time the idea of having internet that was 10 or 100 times faster piped into everyone’s homes sounded crazy. I distinctly remember reading it at the time and thinking in five to 10 years this is going to be a reality and it’s going to change the way that the whole country operates. Of course, that did happen. The article was an eye-opening moment on how something that seems unfathomable in the present can become a reality in a relatively short period of time.
Are you working on any exciting new projects now at States Title? How do you think that will help people?
One of the most exciting things we are working on is “instant signature.” We firmly believe that people should be able to close a mortgage by tracing their finger to sign documents and have those documents explained to them in plain English, and be able to do it in the comfort of their own home.
This will ease the stress of burdensome paperwork and inconvenience of fitting in an office appointment in a process that is long overdue for modernization. Most consumers today expect things to be instant and this gives them control over the length of the process. They can read documents in advance, take the time to understand what they’re signing and then sing with the tap of a button. The process can take as long or as short as a consumer wants it to be and because most consumers expect things to be instant.
It is a very complicated project that requires us to look at the nature of risk in signature and fraud prevention and we’ve got a bunch of people from across the company involved.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?
The vision and purpose of the company when it was founded is the same today: to take a frustrating, painful, and expensive part of one of life’s most material financial decisions and make it simple and affordable. In the current environment, I believe that purpose has become more compelling, both to our people and to our customers.
It is a simple premise but then and now I believe the mortgage closing process is painful and too expensive and that needs to be fixed.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
I have a simple guiding principle: “be honest.” As a startup founder, there is a lot of pressure to have the biggest, broadest vision, so it’s easy to want to embellish things. However, if you tell people that the company has a significant problem that’s existential, and if you don’t solve it the company doesn’t survive, people appreciate that more than telling them about why the company is going to be the most successful company in its industry. The reality is most companies don’t survive and very few are the most successful companies in their industry. If you are just honest with people about what would be what things caused the company to fail, then they’ll get more focused on fixing those things, and you will get better results.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
The main strategy that we are using right now is short webinars with credible speakers on topics that are important to their audience. Our webinar topics aren’t directly related to doing business with us, but are focused on providing our customers with valuable information. We just launched an “Ask the expert (in a crisis)” series that will delve deep into leadership principles and address the hard decisions that lending institutions must make.
If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
Think about how big of a business you want to build and how much personal sacrifice you want to make at what point in the development cycle. If you don’t need to build a huge business and you want most of your personal sacrifice to be upfront the bootstrapping is a good decision. However, if you want to build a huge business, and you want a lot of your personal sacrifice to be spread over a longer period of time, I would advise going the VC route and expect that there’s a heavier risk / reward tradeoff.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
Broadly speaking, I would say you measure through stakeholder value. There has been a lot of talk of this recently at business roundtables with the decision to use stakeholder value as a broader term instead of just shareholder value. I agree that stakeholder value is important but I see it as table stakes. You treat your employees and customers well, so that you can focus on shareholder value as the primary valuation. You have a fiduciary responsibility to provide a return for those invested in your company, and for us that includes many of our employees.
To get an optimal valuation of your business, focus on solving a difficult problem for customers who are willing to pay for value — the valuation of your business will follow. People have been arguing, since the beginning of the founding of Amazon, whether its valuation was justified, and yet I don’t recall a single Amazon executive ever trying to rationalize the valuation. They’ve been a company that was relentlessly focused on delivering high value and products for their customers, and in doing that their valuation followed. Netflix is another great example and I doubt that anybody at that company has ever worried about how Wall Street values the company. They’re far more worried about how they deliver an extremely valuable service in a way that customers feel like they get more value over time not like they’re getting charged more money over time.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
My answer in the present as we are dealing with COVID-19 is that there is no restarting or re- boosting growth. If you’ve been growing your business for a long time and you’re stalling in the current time, it’s probably best to focus on survival. Make sure that you have enough cash, visibility, and a plan that is conservative enough to make it through this crisis and then on the other side you can focus on growth.
In the last 10 to 20 years there’s been a lot of talk about innovation and digital transformation but there wasn’t a lot of talk about just pure hustle and being nimble and having those be stated qualities where you have a formal focus. To grow it is important to have an ability to adapt to change and to create business continuity plans that are dramatically different in the span of a week. Those are the kinds of skills that will be valuable for companies to have that hopefully they’ll have learned going through this situation.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
Running out of money. The best advice I ever received was that my number one job as a CEO is to make sure the company doesn’t run out of money. It sounds like a really trite thing to say, but when you’re growing a business that typically relies on outside funding that’s an extraordinarily challenging thing to do.
Another mistake that I’ve seen is not doing what I call a pre-mortem. This does not happen enough. People like to do post mortems when things go wrong. They plan for things to happen a certain way, and when something goes wrong, they get together and analyze what went wrong. One thing that Larry Summers taught me is the value of the pre-mortem. Anytime you’re about to do something really important, that will use a lot of company resources, a pre-mortem is a valuable exercise. You take the plan fast forward the clock 12 to 24 months, and imagine if things went dramatically bad. What would be the reasons that they went bad and what would you do now, knowing that outcome. Realistically, more often than not, things don’t go according to plan. When you map out the things that could go way off track, you can address them ahead of time.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
Some of the best ideas for innovating modern finance come from people who have no finance experience. A good example is Stripe. The Collison brothers sought to make it easier to make payments on the web and the company has single handedly become one of the most well known, most valuable, finance businesses in the country.
The second piece of advice, which probably sounds like it’s in contradiction to the first is to make sure that you surround yourself with advisors who are experts in how the finance industry has developed over time. When I started, I had no real estate or FinTech experience but started a FinTech company in real estate that is now dramatically changing a big chunk of the service industry. This allowed me and the people that I started the business with who similarly didn’t have a lot of that experience to think outside the box on how we would reimagine this particular process. However, I still got people like Stuart Miller (current Executive Chairman at Lennar), Larry Summers, Ben Laswky (the first Superintendent of Department of Financial Services in New York), Matthew Zames (the former CEO of JPMorgan Chase), and John Kanas (the former CEO of BankUnited), to help keep us on the rails and to utilize the benefit of their expertise where we needed a third piece of advice.
Look for resources and funding for financial services businesses from nontraditional sources. We funded our initial plan with venture capital, a pretty traditional business source, but our second round of financing came in the form of a strategic investment from a reinsurance firm that we were doing a commercial deal with, and a public mortgage technology company who some would say was a competitor. Our acquisition of North American Title Company was primarily financed by a loan facilitated by the former owner of that business which was Lennar, an incumbent homebuilder. While our financing came from non-traditional sources, they were from people who were invested as stakeholders in the broader picture of what we were trying to do. This enabled us to be much more successful than if we were to keep going back to the well of venture capital raising a Series B. In the modern day of financial services, look to those nontraditional sources that are in the ecosystem.
Be paranoid. We’re now facing arguably the second Black Swan event in the financial market, in less than 15 years. Right. Having two of those in 15 years where they wiped out entire sectors of the financial services market. If this tells us anything, it’s that we should expect those kinds of things to continue to happen and we should prepare for them. And the only way to prepare for them is to be paranoid.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
Mostly I would recommend that this is not for the faint of heart. And most people are probably not cut out for it.
I have talked to more potential founders in the last couple years that had an idea that they believed could be a great business, and they were right. I always advised them to fully confront the reality of the amount of personal, financial and family stress involved in starting a business. We don’t talk about it enough, and we should. Many people are financially ruined, and many marriages are destroyed by people who started companies and were successful. My advice would be, especially in a time like this, is that if you can find a less volatile and more certain career path, it would be worthy of running the test of whether you’re willing to do what it takes. So the key to not burning out is to fully understand the personal toll it will take, and assess if it really is the best path for you.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
For me it’s not so much starting the movement but supporting a movement that’s already received a lot of attention, which is economic inequality. You can pick the numbers you want to look at but the rich have gotten richer and the poor have gotten poorer and long term I don’t think that bodes well for a harmonic society. The more we can do to figure out how to level the playing field from an economic equality perspective, the better we become. The most important vehicle is self-sustaining employment, and employment that leads to career advancement. That is probably the best tool to eliminate economic inequality.
How can our readers follow you online?
You can find me on LinkedIn — https://www.linkedin.com/in/maxsimkoff/