My fintech startup operator experience from scaling Chime
It's all about unit economics, tradeoffs and ROI
I’m thankful to the folks at Compound Wealth for letting me do an over-engineered interview about what it's like to be an operator at a startup that goes through hypergrowth. I'm so proud of our team's ability to make Strategic Finance & unit economics a core part of how Chime succeeded.
I think about unit economics broadly - sure it's contribution profit & LTV but it's also the ratio of LTV:CAC and payback period. Importantly at Chime, we thought of things in cohorts and on a unit basis. And we went beyond pure financial profitability metrics like margins. That allowed us to do unconventional things like offer a product like SpotMe which allows people to spend on a zero balance (higher risk) for free. On a profitability basis, that would never make sense. But if it lowers acquisition costs (CAC) it could still reduce payback.
Also important was the fact that we could simplify the unit economics framework into something every stakeholder could understand (Finance or otherwise). We all were speaking the same language and making decisions with data rather than intuition. It also made us laser focused on the way transactions worked and where we could optimize. We built an entire business with high contribution margins under consumer debit interchange. That's not easy but can be done if the entire business understands and optimizes for unit economics.
If you’ve got time and don’t mind a few bad puns, you should read the full interview in Compound's Manual (and check out all the other useful information in tehre), but here are a few key highlights:
On enabling collaborative decision-making – “I attribute this to our focus on analytics from the beginning (and is something I now look for when joining a new company). From inception, the analytics and data infrastructure at Chime was a key operating muscle. Melissa (our head of marketing and analytics) had built this incredible infrastructure and had hired an actual rocket scientist as our data engineer. There was so much investment in it and this was at the Series B or earlier, which allowed everyone to access and analyze data without having to know SQL or complex data analysis. ”
What Samir was most proud to work on at Chime – “One thing I did was help quantify tradeoffs between different outcomes in simple ways by building a unit economics framework. It was a single unified decision-making tool for evaluating and proving return on investment for key decisions. This enabled us to, for example, turn a product decision into something that would normally be based on intuition and instead rank the options based on the highest return on investment.”
On what the unit economics framework enabled – “One of the other use cases was to evaluate whether we could offer a free overdraft product to our members. It wouldn’t have been approved by a traditional finance team – we didn’t charge anything (except for an optional tip) and it essentially advanced money to folks who were already at a zero balance. In theory, it was providing money to people who had no ability to pay it back. It was relatively high risk and had no guaranteed revenue, but we knew this was incredibly valuable to our members. [...] Using the framework we were able to justify a product that never would have been otherwise approved.”
A framework to evaluate the upside of company equity – “To estimate the upside, you can do simple top down and bottoms up analysis. Top down would be looking at competitors in the space and see how big they are or how much they’ve been acquired for. Bottoms up would be looking at financial metrics or growth rate and assessing how much confidence I have in the business to grow a certain amount. I don’t get too in the weeds here but it can be a good gut check.”
On considering selling shares in a tender offer – “One other thought: coming from the Finance side of things, if a company holds a secondary sale for their employees, the company is usually fine if the employees sell some shares. It’s not necessarily viewed as a loss of trust in the business or a suspicious action – your company understands that it’s a financial decision and that even if you believe in the company long-term, you still might want to diversify or use the cash to do something like buy a house or support your family. There’s no requirement from the company to keep all of your eggs in one basket.”