67. Launching a Startup in a Regulated Industry

Bryan: Exactly. It really just helps people reduce their upfront moving costs and put that money towards their savings or a vacation or anything else that they want or moving costs, honestly.

Corey: With this being a fairly new concept, is that right? Or has this been offered in the past?

Bryan: Attempts at bringing insurance to security deposits have existed since the '90s but what's really happened since we came into the market a few years ago is that we've really built the first product that is being used at all. So there's kind of the framework that every other business that tried to apply insurance to save renters this money often charge something like between 17 and 20% of one month's rent as a onetime payment.

Bryan: So, if my rent's $1,000 a month, I'd have to pay something like $200. It's nonrefundable. I think the reason that these things didn't work so much in the marketplace is it doesn't really feel like when you choose something like that, that you're really getting away with paying a deposit. That's honestly more expensive than our highest cost plans tend to be.

Bryan: And also since you don't have the flexibility to pay it monthly, it's certainly a reduced payment. But at that point, renters starts saying, "Oh, I'm never going to get this $200 back, so I should probably go ask my parents or somebody to help cover the rest of the cash," to be able to make that upfront payment.

Bryan: So the reason things have really changed in the last few years is we really took kind of like the Netflix or subscription model of just... I'm a good renter. So are 98% of good renters. There's no reason this thing can't be a lot cheaper, especially for that $1,000 of rent that's kind of more typical in the middle of the country and in the South. Our plans can be as low as $3 a month.

Corey: Wow.

Bryan: And that really, really changes the calculus for renters where, I'm not paying a few hundred dollars upfront instead of a thousand, I'm paying something like three bucks.

Bryan: And then if my lease is over in 12 months, then I've paid $36 in premium as opposed to $1,000 that I now have to go chase my landlord and try to get back fast enough so that I can use it to move into my next apartment.

Corey: So you're entering these industries that don't have a reputation for having a low barrier for entry... Insurance, real estate... In your startup in New York, how did you first approach these large insurance companies, these large real estate companies with your idea?

Bryan: Sure. So I mean to back up even a little bit more, I didn't even realize that what we were building at first was an insurance product. I think that through our market research and real estate, we knew that this number was about right. Like 98% of the time, a renter puts up all this money, is good, does nothing, doesn't damage the apartment or anything, and then moves out and then, we have to do this all over again when they move into their next apartment.

Bryan: So it was only really when we started thinking about, what was the mechanism by which we could, I don't know, front the money or get ourselves into this transaction that it became very clear once we started talking to lawyers that... There's a word for what you're doing when you're insuring against some kind of risk. And that word is insurance. You're going to have a lot of troubles if you don't go down that path.

Bryan: So my other partner, Ben Lantos, came from Goldman Sachs and investment banking and he had to do a kind of a crash course in insurance, become licensed himself, get our company a licensed as an agent who can sell insurance. And from there it was really, really interesting.

Bryan: We kind of shopped this around to a bunch of different people and we weren't sure at first what we were really looking at either because those two things that I mentioned earlier about making this product a lot cheaper and then offering the monthly plan made this truly in an innovative product in the insurance space.

Bryan: I know people throw around the word innovation a lot with startups, but this was a novel policy that people didn't know how to price. They didn't really know what the risk looked like. So we could say all day long that people are good, insurance is a good solution for this. We think we can keep premiums low, but it was a number of things.

Bryan: The first was that we just went out and did some actuarial analysis to go along with sort of our market research. We found that basically compared to most insurance businesses, ours has a much higher likelihood of being profitable.

Bryan: If you think about auto insurance, it takes one car wreck to zero out the premiums you've collected on a whole bunch of policies. Renter's insurance, which is obviously much closer to what we do is even worse. You pay $5 a month for renter's insurance and your laptop gets stolen at a coffee shop, and again, 200 other policies gets zeroed out.

Bryan: So this is sort of the mechanism that we were using when we were talking to the insurance backers. And we were lucky to find one at first that was sort of a big reputable, but sort of boutique insurance agency who was our first backer that had an appetite for this stuff.

Bryan: They have a little bit of excitement around insuretech as a space. There's a number of other insuretech companies that are doing things like better prediction for wildfires using things like aerial photographs. Same thing with coastal floods. Trying to find ways to just sort of better price these policies.

Bryan: That's really what we were able to do. We found our first backer and we got licensed in our first couple states and it's been kind of a process that goes on for forever. As we write business state-by-state, the regulations change in each state. We kind of choose which market we are going to operate in and now we have a few different insurance backers. It becomes easier and easier obviously.

Bryan: I think that as this space gets more defined and more people get more interested in it and as we write more policies, people are clearly seeing that we were right, now that we're three years down the line and that these things are profitable in terms of unit economics.

Bryan: But it still means that each time that we roll into a new state, it kind of becomes a matter of, what does the actual insurance paper we're going to write this on look like? What is the policy? Who's going to back it?

Bryan: And then for the real estate angle, it's similar, but what we've really seen is that, in New York we're selling to these big landlords. We tend to reach out to partners who have portfolios of at least 1,000 units or more. Our sweet spot is really more like the 10,000 to 20,000 unit portfolio.

Bryan: That's similar to selling, I don't know, enterprise software where you're doing kind of long B-to-B sales cycles. And with that we kind of build a lot of custom software and we've built a product that's sort of flexible for those needs.

Bryan: But what's surprised me as we've rolled out the company and grown it nationally, is that the product that works in a luxury high rise in New York City works just as well for a single family home in Texas that might have rent of $450 or $500 a month. At the end of the day, no matter where you're living, it's good to save up-front costs and keep money in your pocket.

Bryan: No matter who you are as a person, no matter how much you make or where you live, it's no more or less likely that you're going to pay your Rhino bill and be respectful to the property that you live in.

Corey: It's really interesting... And you used a word that I've never heard, which is insuretech. So that sort of reminded me when you think of insurance, it's a very old industry that goes way back. I'm really curious how technology has enabled Rhino to work within this space.

Bryan: Totally. I think that's a really great question. One thing that I think is really different about startups for me, I mean, I've been doing startups for 15 years now or something, is two things.

Bryan: One is that the scope of the problems that we're able to solve and startups is so much more broad than before. I mean, my first successful startup I worked for was basically an upload button. I wanted to upload a photo but I didn't want to post it on Facebook. But it was too big to send over email. "Oh great. There's a startup that can do this now." So it's been kind of crazy over my career to just see us all really as technologists taking on bigger and bigger problems.

Bryan: The insuretech space itself is sort of interesting because I think that, you think of these big incumbents, the State Farms of the world, billion dollar companies move slowly, aren't willing... At least my stereotype of them in my mind when I got started was aren't willing to take on huge new risks or try new things. And honestly, I think that's kind of true.

Bryan: I think insuretech as a space for the last 10 years has really been more about, "Oh, how can I sell renter's insurance to millennials? How do I make a really slick app to sell the same old product over and over and over again?"

Bryan: It's actually done okay for itself. There is a number of really well funded and insuretech startups that are on the IPO track that are really just doing that. We want to be a Geico for millennials basically.

Bryan: But this newer kind of track of startups that are doing things like I mentioned before of using machine learning and really big data to figure out how to better price things, how to offer insurance for people who otherwise wouldn't be able to get it. I kind of think that we're more along this line.

Bryan: And then getting into the space in terms of technology was a little bit interesting because we were able to write our first policies without doing anything outlandish terms of technology.

Bryan: I spent my nights and weekends before we raised our seed round building our first web products. We needed a portal for landlords to be able to go in and file claims. We needed an application process that could run some basic data on renters to make sure that... Run a credit check, accurately price their policy. This isn't groundbreaking rocket science stuff. It has its own challenges.

Bryan: But what I've been really excited about in the insuretech space is sort of if you can build core technology that's sound, the sky is really the limit. We'll always need to be able to provide our renters better and better pricing. We need to be able to provide audit reports to regulators on a moment's notice that are evermore accurate and evermore speedy.

Bryan: That's to say nothing about, to back for a second about just startups in general is that we feel like we're this new kind of startup that wants to embrace regulation. I think that we're coming out of a decade of not to... I will name names I guess, but the Ubers and Airbnbs of the world that just took growth at all costs, transformed cities.

Bryan: I think there's obvious pros and cons, but basically we're able to push things through so quickly that now regulators have had to find ways to figure out, "What are we going to do with this? Can we just put this whole market to rest or what are we going to do?"

Bryan: So our approach has been kind of the opposite from the very beginning is we want to work with regulators. We actually are about housing affordability. We want to make a product that works for renters primarily but also works for landlords, works for municipalities and their legislatures.

Bryan: And to us, housing is such an important part of community that we need to be able to play by the book. So that's sort of where we focused. And I think that by just using simple tools and focusing on, "Okay, how do we make sure that our data is sound and reportable and that we're doing everything above board," focusing on that kind of technology rather than whatever the buzz word of the day has really allowed us to not only scale the business but also build trust within the market.

Corey: Let's explore that. So you mentioned you have a range of startup experiences from an upload button to now insurance. When you came in as CTO, how did you make decisions about what your stack would be? What do we build in? Where do we start?

Bryan: Sure. So I think I have two answers to that. I mean the first is yeah, I worked on an upload button. I spent four years at a dating website that grew to a few million users very, very quickly. I spent a year at Samsung working on smart TVs and then I built some mobile applications in fashion.

Bryan: So yeah, I've been sort of all over the place. I think that it was interesting... This was my first time that I was able to choose the core technology myself. Nobody else cared what I was going to build the first MVPs in, what we were shipping to investors.

Bryan: So my first answer is an easy one, which is just that over those 15 years I had been using Ruby on Rails almost exclusively in my day job. I have explored it and assessed and loved other technologies and for a number of reasons, just like any other developer, to keep my brain sharp and to keep myself from sinking into boredom and that kind of thing.

Bryan: But it was a mixture of... I have now done Ruby on Rails for 15 years. It's clearly, at that point, you need a good reason not to use something you have so much skill in.

Corey: Sure.

Bryan: But at the same time, using Ruby on Rails, choosing Heroku, choosing to use sort of project-based architecture is sort of the word we use around here. Instead of thinking about monolith versus microservices, just thinking of, "What is this product," or "What is this project I'm working on? Let's start there." And we can break things out as we need. That was sort of all very easy decisions for me.

Bryan: I think I needed to show something to investors that showed that I knew what I was doing and that I could get this product off the ground. So I reached for the tools that I knew and loved and pushed my git repo that I was working on up to Heroku. Basically I made these decisions without ever really thinking about them.

Bryan: But what I've been very pleased with is that I've never had a moment where I've had to sit back and think about how to re-architect any of this stuff or how to ever make it scale, even though the business has been growing 10 X year over year over year now. The technologies we've chosen have scaled with us, both in terms of raw performance and architecture, but also as I've grown the team.

Bryan: So I think that, being able to hire Rails engineers has been amazing. There's plenty of them. They're often great. The culture is one of excitement but increasingly more pragmatic. It's just this trusted technology.

Bryan: The one difference for me in terms of actual tool is that, again, I've been using Rails inside and out for 15 years. I want to make sure that I'm not blind to new technologies. So we have also built an external API that powers some of those listing sites I mentioned before where you can search our inventory to see if an apartment that you're listing on your listing site is deposit-free, you can query our API to do it.

Bryan: Some of our partners are using it to tie into their property management systems to invite renters in near real time to rent at their places. That external API, we chose Elixir and Phoenix.

Corey: Oh, wow.

Bryan: That's been exciting to me because even though we don't churn on that API as frequently as we do on the other main applications, we at least have this fun space to kind of explore and test out a new technology that we might embrace more in the future. It's also honestly served us really, really well.

Bryan: So I think that, just choosing kind of a mixture of boring but good fun technologies that we don't ever have to worry about, "Oh no, what, what Frankenstein monstrosity have we built?"

Corey: Sure.

Bryan: Okay. Now that we've raised a series A, it's time to scrap out that MVP that we built and spend a year rebuilding everything from scratch. I don't foresee us ever having to do that, so I'm feeling increasingly like they were the right choices.

Corey: For those who have not worked in Rails... I've also worked in it for a long time. It was my first web framework.

Bryan: Yeah.

Corey: But for those who haven't, why Rails? How has Rails enabled you to do this project-based architecture where everything is really purpose built and you're not refactoring everything once a month?

Bryan: Sure. Yeah. It's funny because I think it has a reputation of being kind of a toy that you grow out of and that absolutely has not been my case.

Bryan: For people who haven't used Ruby on Rails, I honestly believe it's the best web framework that exists. I think that maybe 10 years ago there was this big push in the Ruby community where people were saying, "Ruby not Rails. Ruby is this beautiful language that has its own merits. Yes, Rails is a great framework, but let's focus on this beautiful Ruby thing."

Bryan: And it's true. Ruby is an expressive language. If you are kind of code golfing, it often takes very few lines to get things done. The performance story for Ruby has come huge, huge strides since I started 15 years ago. I mean, 15 years ago it was honest to God like maybe the slowest language you could choose and now if you benchmark it against other, dynamic languages that are similar like Python or PHP or PERL, you know it's increasingly better. I think in many benchmarks it outperforms those, but it's at least in the same ballpark. So there's no reason to say, "Oh, I would use Ruby but it's too slow so therefore I'm going to use PHP or Python."

Bryan: And then in terms of web framework, I just think it's a mixture of things. Kind of like my own business, Rails started with some core principles that are honestly outstanding. This thing called convention over configuration, which gives some sorts of people who are new to it some headaches where you have to name things a specific way you have to name files and place them on the file system in a correct place for Rails to kind of pick them up and find them.

Bryan: But once you just kind of understand those patterns and you just kind of use them by default, the strides you make are huge. We've been able to bring up some people primarily from the Node JS world, which I think is very similar. You're building sorts of obviously web applications in a dynamic language, but the people who have more of like a Node or Express background on my team are often surprised when we start looking through their pull requests and offering feedback and code review that, "Oh hey, you don't actually need an external library for this. Rails provides it."

Corey: Mm-hmm (affirmative).

Bryan: Or, "Oh Hey, if you just frame this slightly differently, Rails provides this whole other way of doing it. And then this 100 lines that you just wrote gets refactored into two." And that kind of stuff happens all the time and it's something that I kind of take for granted as a long time Rails person.

Bryan: And then yeah, getting into the scalability stuff. I mean 10 years ago, Twitter had all these scalability problems, then they rewrote the product in Scala and that sort of burned Rails' reputation for building high- performance websites.

Bryan: But it's great. They have a WebSockets framework for real time stuff. Lots of people build JSON-backed to API, so it's not just for spitting out server-rendered HTML. We use React and all that TypeScript and all the new fancy JavaScript stuff on top of it and it works great.

Bryan: So to me, it's just this great mixture of... At this point it's a very, very proven solid technology that has proven itself. There's a library for everything once you need it, but it still has that startup feeling of you fly with it and you can get stuff done.

Corey: Well I'm sold, Bryan. So how did you pick your hosting platform?

Bryan: It's so funny. I think that had I ever had a moment where I was going to think, "Oh, you know what? Now that Rhino is this serious business and we're making money and we've raised all this money and everything and we're growing a team, now's the time when I need to build a real serious platform and I need to choose a real serious host."

Bryan: Had I looked at it that way, I still would've chosen Heroku and I'll maybe get to that in a second. But the funny thing to me is I never chose it. I was again building this product on my nights and weekends before it was even a real thing. I would just had some Rails apps on my computer. I wanted to share where I was with my co-founders. I wanted a staging environment and a production environment so I could test things that wouldn't break the demos that they were giving to investors.

Bryan: And what I've now done for more than a decade is just, "Oh, I need to put this Rails app on the internet. Great. I know Heroku is a wonderful tool to do that." I literally just git push what I'm working on and then it's online in a few minutes. So I just did that.

Bryan: And the thing that I think people are surprised by who maybe haven't used to Heroku is that it's an amazing tool for that. But then there's never that moment where Heroku becomes not the right tool. Right?

Bryan: So as we've grown up and as the team has grown from us three co-founders to the 50+ people we are now and the 100 we probably will be by the end of the year, and the customers have grown from none to several to many... There's never been a moment of, "Oh God. Now we need to grow up and build our own custom infra on AWS or whatever."

Bryan: And in fact, the opposite has happened. When we got started, AWS gave us a ton of free credits to use, like tons of money. And I thought as a cost saving measure, maybe it would make a lot of sense to move our databases out to AWS just to save like 100 bucks a month on hosting.

Bryan: That ended up being a fool's errand because once we got established, we lost those startup credits and then we had to do a project to move those databases back into Heroku.

Corey: Uh-huh (affirmative).

Bryan: And in those two years, that it had been between when those databases were first on Heroku back out to AWS and then back into Heroku, the tooling and stuff that Heroku has built for Postgres changed dramatically. And if I had known that these tools had existed, it would have been completely worth it.

Bryan: So we have all these tools, we've built a data warehouse, we can now roll back to any arbitrary point in time. We have these automated backups, we have these great metrics dashboards... All this stuff that we would have otherwise had to invest time and resources, if not building our own, then tying all these third party services together, it would just be silly. We're not an infrastructure business. I'm all about saving people upfront costs when they rent apartments.

Corey: Yeah.

Bryan: So the more that we can just rely on Heroku's platform, the better; which is to say nothing about things that we've been getting into more and more. We just opened our first ticket to talk to cloud solutions architects at Heroku. As the product grows and scales, we increasingly have more challenges that aren't just as simple as, "Oh, add some caching here, speed up this database query, make sure there's no N+1 queries."

Bryan: So it's been amazing. We're using the Heroku enterprise platform and it's been cool to just get on calls with architects and say, "Hey, we have this track of work we're going to do maybe two weeks from now, but could you take a look at this, provide any insight that you have, maybe things that are core to the Heroku platform that we should be looking at..." So that when we get to that next sprint, we already have an idea of where we should start.

Corey: That's great. I've had a similar experience with Heroku where I started with it alone in my living room, launching side apps or working on a business. And then your needs grow. And there's Heroku Enterprise and solutions for scaling and planning a more complex architecture on the platform.

Corey: It's sort of the full spectrum, but so many of us, like you, started with Heroku as individual developers in our spare time, which I think is really unique.

Bryan: I totally agree. I totally agree. And I think also, it's not like we're paying that much more for Heroku. I feel like I often meet with other engineers and startups who have these months-long projects where they're trying to cut their AWS bill. So I honestly think that for what we would pay elsewhere, we're just actually getting a more robust product to build on.

Bryan: So I just think that even if I had built a bunch of stuff custom on AWS or Google Cloud or something, I'd still at this stage be looking at Heroku as a thing to migrate our platform to just because the resources I can take advantage of are incredible.

Corey: So Bryan, I can hear the passion in your voice for helping renters and you've accomplished that by sort of shaking up a regulated industry and introducing something new. What advice would you have for an entrepreneur looking to create change in a regulated space?

Bryan: Yeah, so I think regulated spaces are actually the most exciting place to start new startups. I think that if nothing else, the barrier to entry and the moat that you build around yourself once you get through all the red tape is really kind of an incredible thing.

Bryan: I mean, look, it took us almost three years to get where we are. I'm talking about this, we're helping laws get passed in Cincinnati. All this stuff is happening. It was a grind getting this thing off the ground. I think that we needed big landlord partners to agree to use it. We had to get actual insurance backers. We had to find ways to get the data together to write these policies. We had to get state regulators on board.

Bryan: It was not easy and it went really counter to my experience of build something cheaply and fast, get it off the ground, getting in front of customers and iterate. That is my bread and butter and it's what I know how to do.

Bryan: So to be honest, it was... I wouldn't say it was frustrating, but it was challenging at times for that first year of just, "Oh man, I'm not building anything yet. We need to find ways to just get our business valid on paper first."

Bryan: And it also wasn't the cheapest thing. I think going back to my silly upload button example, that's something that you can build an entire business from the ground up in your living room if you want to and decide how big you want to grow it.

Bryan: Before I was able to write a line of code or accept our first renter, we had to jump through a bunch of hoops. And that's not without costs. We had to hire lawyers and it wasn't the easiest thing in the world. What I will say though is that again, it's incredible.

Bryan: So the idea of the security deposit replacement, now that it's starting to get proven out in the market and we found such great product market fit, now is the time that we're seeing a bunch of investors looking around saying, "Oh, who else can we invest in? What other new businesses are here?"

Bryan: And to me, the honest to God answer is that you've missed the boat. I mean, we're now three years down the line of if you started doing that business today, you also, best case scenario, you're not going to accept your first customer for a year. And then you have the next couple of years to learn what we've already learned.

Bryan: So the competitive advantage you have of just getting a product through is amazing. And if you can be as lucky as we are to also push through a product that people really want, you honestly just kind of become unstoppable. Those same exact challenges that made it difficult in the first six, nine, 12 months are now the things that work to our advantage.

Bryan: I mean, if a new competitor came up in a space where we are already operating, the insurance regulators are going to say, "Why are you necessary? Why should we approve your product? We already know this Rhino insurance program. We think it's wonderful. We're requesting landlords to use this Rhino program. So, why are you trying to work against this kind of progress that we're now completely in supportive of?"

Bryan: To me, I think that's part of it. And then I think the other thing is just bigger and bigger challenges. I think that, over the last 15 years being able to build this framework of... When I was in middle school and high school, the internet was being built as we know it. And then social networking and kind of the core plumbing of the internet was the first kind of stages. And then, how do we build these businesses like Uber and Airbnb that kind of allow people to spend their money more flexibly, commit to things in less longterm cycles.

Bryan: But now that that's all done, I think it's time for us as people building startups, to look up a little bit and say, not only should we be building things for good, there's a lot of ways to apply technology that we don't necessarily feel great about when we get home after a long day of work. But how can we solve challenges that are, again, not rocket science, not necessarily even huge technological advances, but how can we dig in a little bit deeper and solve problems that honestly will improve the lives of millions of people?

Bryan: I think things like insurance, real estate, healthcare, nutrition. Honestly, a number of these startups are just asking to be started. I have friends that are starting a company this year based on menopause, for example. Couldn't be any more different than what we're doing here at Rhino, but they're finding similar things, which is just, "Wow, we've all been focused on these internet problems and there are so many communities that are being underserved by the information they're able to receive by being priced out of affordable products that can help them."

Bryan: We work with another kind of a sister company of ours and in this Kairos family of incubated companies is a company called Little Spoon as well, which does nutrition for baby food. Same thing. Gerber baby food is fast, it's convenient, but how can we build healthier alternatives but still scale it into this thing where millions of parents can reliably receive nutritional products for their children every single week that makes...

Bryan: Again, it's not a make or break thing in a person's life to have healthy baby food or necessarily save a few hundred dollars in a security deposit, but there are so many places like this where yes, it's harder to get a business off the ground than just running Rails new on a new SaaS startup or something.

Bryan: But if we can build on the shoulders of things like all of these logistics companies that now exist and really apply it towards something that's helping people, that to me is not just the underserved marketplace, but the place where technology has not yet been applied and there are just millions and millions of ideas just waiting to be taken advantage of.

Corey: Well Bryan, you've really opened my eyes to where you can build a tech startup. There are so many industries out there that are ripe for new technologies, so this has been a great conversation. Really appreciate you being on Code[ish].

Bryan: Thank you. It has been my pleasure.