Podcast

Scaling Up [S5.E1]: Eating the bank’s lunch with Nathan Walsh and Michael Starkey, Co-founder of Athena Home Loans

In this episode, Nathan and Michael share their insights into disrupting the home loans market - one dominated by large, staid, high-dominating, incumbents. We discuss their approach to consumer branding, acquisition strategy, creating and maintaining competitive advantage, and new ways of working.

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https://open.spotify.com/episode/2HIvoArXfPjvrJVMnbY901

Ed (03:34): Nathan and Michael, absolute pleasure to have you on scaling up. I’m lucky enough to spend some time with people in the venture capital world and I always ask the first question, who are the highest functioning founders in your portfolio in the ecosystem? And without a doubt they always come back that it’s you two. So that’s a high bar to set for today. So hopefully we can unveil some nuggets of gold. I want to start way back in 2017. You two were sitting in a coffee shop at the bottom of the NAB building in Melbourne, probably amongst some people in some grey turtlenecks. No doubt if I was a fly on the wall in that coffee shop, what would I have heard?

Nathan (04:13): So, it was actually one of those very energized conversations, almost cliched scribbling on napkins. Mike and I had worked together for many years. We knew each other really well. We’d seen each other going through sort of good times and bad. Coming in with a high trust environment and I think it really came back down to a conversation about the flow of money and how markets around the world, non-bank ends up being a very large part of the overall home loans market in Australia is very dominated, 93% by large banks. And I think we sort of came back to that idea around how you can actually design a very different funding model and that then flowed through into insights around how we could do things very differently for consumers, very differently from technology as well. So, in some ways I think we’d be probably a little bit red faced around the naivete of some of the things we talked about there.

The learning curve over the last couple of years has been incredible. But maybe those core insights around you can cut the spread between what you’re paying an underlying funder and what a mortgage broker does. If you actually simplify that value chain, take out cost capital complexity, you can actually, if you’ve got that flexibility, design things for a consumer that are very different and then you can do so with a really efficient funding model.  every detail below those core insights totally different. I don’t know, Mike, what do you reckon the core was there from day one?

Michael (05:31): That was exactly right and I think Nathan, you had the idea and Nathan’s a very creative and visionary person and you brought that insight as to really, it’s a macro observation that people close to the nuts and bolts of a given mortgage process wouldn’t necessarily lift their heads above and sort of make that observation. And Nathan had done so from outside of the mortgage world because you were, you had started, and you were running NAB trade at the time I was on the deposit side. But I do remember brainstorming that and saying, Nathan, I would quit tomorrow to do this business with you. I remember saying that. So, there was a lot of excitement from the get-go.

Ed (06:01): And of course, it wasn’t your first rodeo as founders while being inside NAB started the NAB trade from, I don’t know, zero to $40 billion platform that it was a big business for the bank and Michael, of course an executive, but had previously founded I-select. So, what was the vision as to what you wanted to build and how you wanted to build it? Having been through the process before, as you say, there’ve been some great learnings and we’ll dig into those, but were there any key messages around what the vision was at that point in time?

Nathan (06:31): Well, Mike had done sort of a venture funded start up before mine was corporate funded, so within a portfolio and always sort of felt like living life with a Nike sneaker on one foot and a gumboot on the other. There’s a lot of things in a corporate venting context that are very similar, but some things that are so radically different from doing something outside of corporate. Clearly starting from blank share of paper, assembling teams, designing technology, user-centric design processes, regulate, there’s lots of the actually execution that that was a really great practice run. But of course, the conversations around funding the staging of investments, the risk profile of the team you bring aboard completely different. So, I think what it was useful for though, was actually looking to say how can you design something really different in a regulator category? So, understand that both transform but do so in a way where you’re very cognizant of a lot of constraints and maybe a model where online trading was actually probably a digital business before it was even called digital. So, you’d actually seen the dynamics play out versus a market like mortgages much, much earlier in that journey. So, to some extent asking questions of what could be, it helps you frame some questions.

Michael (07:40): Yeah, and I think the decision making in a large corporate is really interesting. It’s very difficult to execute a strategy because of so many people that then have to agree on and then with the amount of turnover in management, that strategy gets discarded after one year. So, we saw pockets of really powerful strategy in NAB, for example, in the mortgage space in 2010. But the ability to have end to end control, make a decision and stick with it for a long-term strategy, that’s the appeal for me and not have it kibosh by a change in CEO or that that was really the appeal of building something.

Ed (08:12): You talk about trying to put two Nike running shoes on and out of this to me, you’re wearing them today. There they are. Part of this is, I’ve heard you say before, you are very focused on turning the process upside down. Many businesses go for money first, they get well funded, they have a business and then they try and attract the talent. And Michael just touched on something there. In fact, you didn’t want your strategy to be inhibited by people and from day one you were very focused on talent first.

Nathan (08:44): Yeah, so someone said being in a scale up now we’re really seeing the benefits of maybe where we started where there is almost our build from bottom up where you maybe get founders who are trying to do everything for themselves. They’re almost hiring the minimum required to scale and then they add layers of management as, as the complexity in scale of the business grows. We very much took the opposite approach of what’s the team that we wanted to have in place when we were a multi-billion-dollar business. And a market like mortgages, there is some complexity, right? You need absolute excellence around marketing but also treasury and risk operations. So, there’s quite a lot of verticals that need to sort of really work well together. That was I think, the real challenge for picking people who both could be that layer of leader.

But at the same time when there’s five of you around a rickety table, you’ve just got to be willing to hold a mop, right? You’ve got to actually be the people who can roll up sleeves and get stuff done. I think the benefit of being in a mode where having worked in large financial institutions for a decade on both of us, you kind of knew there was really some great talent that that could have been much better deployed long-term people playing a long-term game for long-term outcomes. And so, bringing those in and then building that vision of how do we actually get the first week, the first sprint, the first code written all those components, but do so with a very clear vision of just what this game is going to look like over a series of stages, rather than having to replace that level of management over time. So, we proudly brought that team into the room that was sort of, I think probably the calling card from the beginning to say, this is the group that can run a major mortgage business, here’s what would look like. Being able to talk about the talent in each of those verticals. And it’s actually the same team around the table today. So, to some extent we’ve been very fortunate just that the group of people and it’s been a huge part of both the success and the fun of what we’ve been doing.

Ed (10:27): No doubt, it’s a huge foundational stone to put in place at the very start. And when we talk about scaling people and culture, which we’re going to carve out some time for at the end of this podcast, we’ll come back to it for sure, just to really dig into the nuts and bolts. Let’s get into the business model and maybe the market to start with massive opportunity. Everyone in Australia knows how big the home loan business is. Your legacy competitors, the four large banks as you say, control the market and yet slow moving, huge return on invested capital in in the mortgage market. For them it’s their bread and butter. What was your core insight as to what you could provide the customer as a proposition?

Nathan (11:11): Yeah, it’s probably worth just for those who aren’t familiar with this market, just giving a very brief view. So, Australia’s a fairly small economy globally, but actually there are markets like mortgages that’s 1.9 trillion of assets. It’s actually a very large market even focusing domestically quite different than other offshore markets. So, take the US non-bank’s actually are more than half mortgage originations. You’ve got places like Rocket Mortgage and better and others are ending up very large scale. 93% of Australian, home loans are written by banks and that’s very concentrated in a small number of very large legacy players.  What that translates into is disruption around technology, disruption around trust, disruption around funding models. The obvious advantages that a bank used to have of we’ve got our own proprietary large data centres, systems, all those other components, clearly an opportunity to just use modern cloud-based solutions.

So to some extent nothing novel other than the fact that hasn’t been applied into our segment about how you actually can design and manage software very differently and therefore bring a reg tech mindset to what is still a fairly complicated sort of value chain, a disruption around trust that these are home line customers are some of the unhappiness customers in retail banking. NPS scores typically negative, so large, large pools of detractors and banks have actually gone for short term productivity at the expense of their customers. So, things like charging on average the customers who’ve been loyal half a percent more than what their new customers look like, so what’s called the loyalty penalty. And that translates into tens of thousands of dollars of interest over a life of the loan. So really an opportunity to come back in and not just use better technology, better systems, more efficiency, but actually really challenge some of the assumptions about some of those industry conventions and do things very differently.

And then I think lastly banks are very complex machines to optimize taking small ticket deposits and translating them into long term lending, but of course there are very large funding pools, outside deposits that aren’t we can go and access with a much simpler funding model. So really when you think about the changes on technology and the fact that the world is changing outside banks so much faster, unmet needs are very large numbers of customers and the ability to do so very cost efficiently, we think that there’s a big opportunity out there and it really is very similar model in some ways that say Rocket in the US or many other players, how do we bring that to a $1.9 trillion local market?

Michael (13:27): And it’s interesting, the innovation doesn’t have to be technology, and you think about the origination process for mortgages, obviously very slow and cumbersome and clunky for a bank, but this is a 25-year product, so customers have gone through that. But really turning the strength of the banks, which is a huge balance sheets and they’re huge back book profits of the bank off mortgages, turning that into a weakness by saying, well actually we’re going to come with a blank sheet approach that says you will not pay more as an existing customer than a brand-new customer to the organization. It’s not a technological innovation, but it’s probably the most innovative thing we’ve done from an offering point of view.

Ed (14:03): It seems to me, and having talked to you before, this question of price and convenience keeps coming to the top of mind and this challenger brand around where digital first, there’s a clear counter position to the banks, but we’re going to create trust through transparency and everything we do is going to be underpinned by that right through to the organizational culture. How have you thought about really building this brand trying to scale the acquisition cost of the consumer?

Yeah, so the core insight savings service simple, right? That’s, that’s easy. But I think what was fascinating is really going through a really rigorous sort of process of just understanding how do you build the emotional connection and tell the stories around that. It’s actually, I think some of the more exciting days we’ve ever had was sitting behind one way mirror as you’re watching some of the consumer testing and really you could come in with a very simple, let’s just bash the banks and say they’re ripping you off, or let’s just give a very, this is the dollar savings. But when we started to translate that into meaning this is actually helping you pay down your home loan faster, this is the outcome you can achieve of being debt free.  Consumers who when they first got into the property market, we’re really excited and felt proud, wow, this is a big deal to buy a house after a couple of years, just that feeling of this is something I’m never going to get rid of.

Nathan (15:16): I mean people literally talking about it like it’s a face tattoo that I got when I was younger and I’m going to live with it for the rest of my life, right? I think once you actually built out not just something that proposition wise meets a need, like you’re paying too much, it’s easy to switch, but actually turn that into a really clear emotional driver of we’re on a mission to help you pay down your home loan faster. All of a sudden that creates real opportunity to go out and do things differently. So, for example, we’ve gone out and said, look free yourself from mortgage bondage wrapped buses in leather and driven them around some of the capital cities here in Australia, really telling this story around you can do things differently. So, I think creating that emotional connection with the consumer and that vision to say, wow, I can take a 30-year loan and make that 25 years of what would that five years of my life now look like? That’s an area where there’s the level of connection goes beyond just the dollars and cents of that’s $50 a month in my pocket it becomes, I think of incredibly motivating.  it’s one of the things we really excited about is not just having a proposition that meets a need, but don’t be boring about the way you communicate that. That’s a big part of the efficiency of the overall marketing spend is how do you actually capture attention very efficiently in terms of the storytelling around the product itself.

Ed (16:26): Sounds like you’ve read my notes, so I was going to talk about you pushing the boundaries on brand, but that’s a fantastic call out. What would be to your mind, the biggest difficulty on the, on the consumer side of the business that you’ve faced that has been unexpected in terms of scaling your business?

Nathan (16:41): Well, I’d say we should call out and recognize just what an amazing job our chief marketing officer Natalie Dinsdale has done, the team that’s been assembled. I think there is clearly the art of actually creating cut through in terms of all of your performance marketing, but at the same time, the science behind how do we make sure every step on that journey is you’re getting incredible cost efficiency. So, we’re in a mode today where 70% of home loans are sold via mortgage broker. It’s roughly 24 months to recycle that cost of customer acquisition. When you’re selling through a broker channel, it’s sort of a large scale, but there’s, there’s real cost we look at to take that 24 months and bring that down to four to six months, right? So, the efficiency that you can get in terms of how you’re recycling the acquisition costs, and clearly if you’re recycling in four to six months for an asset that’s worth five, seven plus years, then all of a sudden that becomes a very interesting economic model.

I think it is that combination of that real performance focus, but at the same time then the art that’s coming through. So, I think that’s the big component. And then I think the other part about that is then the proposition that sits behind that. So, then as you’re building out, how do you make sure that you’ve authentically got a very strong story, the things that really got your product market fit on day one, you’re actually continuing to extend those out. So, moving from a proposition around refinance, so customers who already have a mortgage moving to a cheaper mortgage. We moved just six months after we went live to supporting new home purchase. We’ve done a bunch of extensions over the last couple of years since then. So most recently launch of our fixed rate product and then a couple of really big ones coming at the back end of this year with offset accounts and, real time payments.

Michael (18:12): Yeah, I mean starting without a brand, well without a known brand in a direct-to-consumer business, when you don’t have a dedicated Salesforce out there selling your product, that’s hard, right? And there’s not a lot of shortcuts. We did have a little bit of luck in in our first year in that we had some rate changes. We were able to sort of get some breaths off the back of it and all the rest.

Ed (18:31): And the treasurer, of course.

Michael (18:33): The treasurer called us out on TV and radio several times. So, we had those as tailwinds, but building a brand from scratch is a multi-year journey and we feel like we’ve done a really good job, but still probably 70% of Australians haven’t heard of us. So, there’s still a huge amount of upside to where we’re going with this

Ed (18:50): Huge runway ahead. And behind this marketing machine though is some real process power. People joke, there’s plenty fintech’s, but lots of fin and not much tech. In your case, there is end-to-end platform that you have built where other challenger brands to my mind of just sort of created this marketing engine and outsourced a lot of this technology. What is this process power enabling you to do, not just now, but what does act two look like with the ability to scale a whole range of different products?

Nathan (19:21): So, I think it’s interesting when you think about a lot of fintech’s that are doing maybe shorter-term unsecured consumer lending, business lending, very high margin, very forgiving for loss rates. When you’re lending half a million dollars over 30 years, you’re looking to do that at very thin margins. You’ve got to really manage that credit process, making sure that this is a responsible lend for the consumer with a much greater degree of rigor, right? So, the sort of the loss rates we’re aiming for is very, very low. And the key challenge then is saying, well how do you remove friction from the process? Well at the same time writing incredible quality in terms of loans that you’re writing. And so, ultimately that’s a process where legacy, get a broker to help you fill out a bunch of really complicated paper-based forms, hand that in, it can be weeks until someone even picks it up, right?

So, the typical turnaround time to get unconditionally approved in Australia right now would be approaching a month, right? Versus a model where you can go fill that in all online, you can aggregate data, click submit, and then within the next 30 seconds there’s over a hundred different business rules that are being run across those loans. We are going out automatically and extracting data from a whole bunch of other services. You’re getting feedback conditional approval within 60 seconds, you haven’t even left that episode, you’ve already got the vision to say this is now what comes next. What’s quite exciting is if it doesn’t fit the loan for us, what we’ll also do is then run that through to say, now we’re also find a loan for you. So, we’re targeting really prime loan, so an 80% lbr great credit record, there’s lots of people who don’t today fit that criteria, but let’s make sure that we’re actually helping find a great loan for those customers as well.

I think a real opportunity to think what are all the steps forward, understanding great credit, the math behind that. And then where there are the complexities, where’s the exception processing required, how do you make sure you’re able to have team step through each of those steps? We can make it very simple in terms of digital process, but under the hood there’s always people reviewing each file making sure this is a great loan. And I think probably Mike, it would be great to sort of talk about what that translated into over the last couple of years in terms of the quality able to come through and therefore the funding we’re able to get right through covid.

Michael (21:22): Yeah, that’s exactly right. I mean, our vision has been exactly as you observed there, which is that to control the end-to-end value chain all the way from acquisition through origination servicing. And then our own funding program will give us the ability to scale this out more effectively. Just on the back end there, as Nathan said, I mean through Covid we had a really low amount of arrears. We had very good quality coming through. We peaked at around about 0.2% of a whole book on some sort of form of payment deferral versus the banks were at 10%. So, it was just a more than an order of magnitude better in terms of performance. And that did allow us to enjoy strong support from funders throughout what was a pretty tumultuous period there. The vision of owning the end to end and as Nathan sort of began with that, connecting wholesale money to retail borrowers and having every stepping between allows you to not only scale out on the borrower side, but then develop a really flexible funding program at the back end and deal to different appetites in the stack. I mean, the diversity of our funding program now is one of our real strengths. It’s a real pillar for our growth going forward.

Ed (22:47): There has to be some secret sauce and I think you’ve just called out around this funding model to be funding over 3 billion of home

Nathan and Michael (22:58): 3.6.

Ed (23:00): You’re growing so quickly; my numbers are old but 3.6 billion of home loans. I think the vision initially was there’s a better way to fund and that was direct where there are deep pools of capital in Australia away from this warehousing and securitization piece. How is this playing out and do you think the data and the transparency as to what you are capturing can move you to a greater and more efficient funding model?

Michael (23:23): Yeah, absolutely. I think right from the start, the strategy was not to be a bank. We were very deliberately chose to be a non-bank which means we can’t gather consumer deposits. We were about collecting wholesale funds and delivering those to retail borrowers. The vision there was to be very capital efficient in the way we grow. That’s really important from an equity point of view because if you think about a bank model and if you do the back of the envelope for every billion dollars, if we were a bank, we would probably have to find 50 million of equity capital. As Nathan said, we’re growing to the billion. That would just be a huge equity raise just to support the mortgage, let alone the tech bill and everything else just to support the mortgage book. That’s a real strength of that is where we started.

We started with the very basic warehousing arrangements with one counterparty. We’ve grown that out to multiple wholesale banks, including international wholesale banks. We’ve also done really innovative whole of loan transactions; Newcastle Permanent was the one that we announced last September and then Cerberus-Bluestone earlier this year. Those are capital free all together. So, we shift the loans off the balance sheet altogether, even though from a customer point of view, nothing’s changed. If you put all that together, the amount of capital that we have tied up in the business has dropped precipitously since launch and we see a vision of that moving down to a 10th what we would need if we were an ADI for example.

Nathan (24:41): And maybe at its heart there we are a double-sided business, so we’ve got to think technology design thinking to meet the needs of different segments of borrowers. But underlying what Michael just described is this idea to say you need to bring that same design thinking on the funder side. The challenge with things like traditional securitization marks is they’re actually perform well. The challenge is typically platforms are not funding aware, so you end up with Excel spreadsheets and excess databases sort of meeting those needs. It means that the underlying funders don’t actually have great transparency, real time loan level transparency to what’s going on and the moments when people aren’t comfortable and relying on a ratings agency saying this is sweet, this is not things like the GFC, they’re the moments when actually having this is exactly what this loan portfolio looks like today.

This is the loans in your portfolio right now, here’s what that looks like. Being able to be in a position where during the middle of covid where I would actually just say not just in aggregate we’re up to, but this is what your portfolio looks like, it’s these three loans and then, here’s what the LVR looks like. You’re in a position where transparency means that can make decisions and assess in a very different risk profile. Ultimately getting to better cost of funding translates into us being able to provide better value back to the borrower side and a real virtual cycle of attracting better quality, borrowers into the mix.

Michael (25:55): That’s right. And we’ve got, I mean we would have at least 15 different funding partners and often they have very different needs. Newcastle Permanent and APRA regulated entity, they have to report through to APRA. We have to report as if we were at an upper ND ourselves and we’re able to do that. So, it’s a great platform for growth.

Ed (26:10): It seems a very clear value proposition to these capital providers. Again, the same question I asked on the consumer side. What has shocked you in terms of scaling this funding piece as to what both previous NAB executives you knew this business inside out, has anything caught you off guard in regard to trying to scale the funding side of the business?

Michael (26:31): Getting on the first rung was probably harder than we thought. I think once we had two, three, 400 million worth of funding there, just given the quality of what we’ve written, we’ve been able to successfully scale that out without too many hitches. But we probably underestimated how hard it would be to lock away the first one or 200 million. It’s a real chicken and egg there where the equity guys want to see that you funded the funding, guys want to see equity capital, so how do you break that? And we had some really good partners to help us navigate that back at the end of 2018, start of 2019 when we launched. But ever since then, I think it’s actually been really quite smooth.

Nathan (27:04): Yeah, absolutely. So, I think we were asking the question of how do we scale funding before we have the track record for ratings? And I think we assumed that was a three-year problem. As Michael said, that was really more crossing chasm was more of a six-month problem, which then could really accelerate. Even things like Covid really just didn’t interrupt that progress. So, I think when you show that you can actually deliver high quality borrowers with high quality data, that matching of funding to consumers becomes really quite a simple problem.

Michael (27:34): And mortgages are very big tickets. Think of the average mortgages, $500,000. If you want to write a thousand mortgages, you need 500 million. The amount of money you need just to get to a reasonably small scaling mortgages is a lot and that’s what makes that getting on that first rung a challenge.

Ed (27:51): Fascinating insight. Let’s shift gears to something that I know you are very passionate about. Athena is what I would call a culture first business from day one. You had the values laid out, the vision for what you wanted the culture to look and feel like. Can you give some insight as to why that was so important to you.

Nathan (28:10): When you’re in a very large corporate with inflexible technology, the business almost assumes that tech is the big hand break on getting things done. When you get to the model of just the efficiency where great engineers, great underlying components, actually it’s the quality of decision making, the pace that things can get worked through ends up being by far the bigger issue. Technology is not the constraint. I think we came in with this idea to say the proposition that we want to deliver to customers and who we want to be with each other. The marketing positioning and then our values and behaviours. We didn’t think they should be different things. When you sort of come in with this idea that we want to be an organization that’s being radically, we just want to be straight up with customers, we want to be able to move at speed, we want to be able to break what’s broken, this idea of break with convention, all of those components, if you’re going to authentically deliver them, you have to sort of ask the question of what are the values and behaviours that then support those components, right?

It’s so much easier to be straight up with a customer if you’re being straight up with each other. Working through a process where the same process of asking who do we want to be to the world is who do we want to be with each other? That was I think the starting point of the proposition sort of radically simple in a way. It is fascinating though that those conversations when you’re a team of a dozen people, which is much more just how do we play nicely with each other, suddenly becomes so different when you start to get to scale. This probably becomes one of those ones for that constant pruning and focus things that you need to let go of in terms of that value proposition as you scale versus things that you need to really focus in and continue to invest in in culture.

But overall, I think that key point around passion for change how do we lead with heart and then how do we actually bring a real action bias make everyday count? We’ve got our sort of set of stories behind each of those. We think we’ve actually over the last 18 months of covid in a remote world, the payoff of actually really having thought that through and having a team and an infrastructure that really believes deeply in what we’re trying to achieve that mission and the how behind that. I think that’s meant that even though probably 40% of the team has actually joined us during remote world, that there’s a very clear vision about what we are looking to be. That I think that’s been sort of a real cultural balance sheet that we’ve been able to draw on over the course of the covid world.

Michael (30:25): Yeah, and full credit to you Nathan and your leadership because at the very beginning when we were literally only the half of the LT, so in the first week or two of the business we were up there in Carrington Street, we did sessions on culture and what we wanted it to look like and what we valued and what we wanted that to be. And now of course that morphed often changed over time, but the fact that amongst everything you needed to do to start a business as ambitious as this, that we set aside time in those first couple of weeks to have that conversation, I think speaks to the importance that we all felt that that deserved and you led that. I think having that really early conversation was really important.

Nathan (30:59): I think maybe the place where that probably plays out the most is actually the way functions work together. I think it’s really possible with the right leaders to have amazing functions great engineers or a great product and we do have those things, right? But in some ways the magic is actually how do those teams work together and the starting with the why not the what ends up being that mode to say when some of these are harder questions, right? How do we do X? What does that look like? Who are we, what does it mean? What’s the choice that we make really in the detail right now? But without having to do a round trip up to any level of seniority. That’s, I think when the payoff comes from actually having made some of those investments up front.

So, we’ve actually did a refresh of those last year and, some slight evolution simplification. So there’s sort of a lot of ongoing focus of saying the decisions we made in that sort of first week and first year we got some things right, giving ourselves the permission to change our mind on every dimension that we like In the end, I think it is a big part of how we attract and how we retain just really wonderful talent. How do we get people working together without the elbows in a very different mindset? And a lot of these are people who’ve come from large organizations, right? This is not finding this magic talent pool that’s never lived and worked in some of these organizations. It’s how do we create these incredibly talented, smart, hardworking people that probably never had the benefit of fully leveraging what they could do to operate in a very different world and a different way together. I think that’s what sort of come out of that. And I think we still get comments from people as they, as they join of just what that feels like. As we move back into a sort of being all co-located and being together, I think that’s just really going to come together even in more.

Ed (32:37): I love the concept of a cultural balance sheet. A bit of an odd question, but what have been the big debits and credits that have been inputted into that balance sheet as you’ve scaled? I’m sure they’ve changed over time, but what have been the key kind of moments in the scaling journey?

Nathan (32:51): Maybe the question when you sit down with a bunch of founders and have a conversation about what was the hardest moment of a scale up journey and the number of versions of a story that someone describes are being chased into the bathroom of you need to make a decision on ABC because they’d scaled, but actually decision making and authority was still so centralized back into a really a great founder. I think we’ve always taken that mode of saying how do we get the authority to make decisions and the people have got the information that people make decisions being much tighter, right? Coming back to that point about the culture balance sheet and the debits and credits, it is starting to say where are the places where we’ve done a good job about getting people able to make decisions with confidence, with the full context of why, right?

It’s not just the technical question, but actually sometimes they’re quite big, big conversations where I’d say we’ve probably learned is the way you actually set up that business model can make a big difference, right? So, we’ve for example, the design of how our squad’s work. We’ve evolved that many times along the journey. When we started out with squads that were very centred around more technology assets went to Salesforce squad for example, right? And of course, that meant that it was very hard to get alignment because they were involved in almost every problem, right? We’re now in a mode, we’re having scaled up now from three up to eight squads, very much focused of different stages of the customer’s life cycle from, first engagement, apply, originate, et cetera. It does allow you to get teams focused around really specific OKRs and problems.

But it also means some of those cultural questions really come to the fore, what does great look like from design? How do I make sure I’m using the next two-week sprint? really with the right way you’re in a position where you can really delegate a lot of authority down not just into a leadership team level, but furthermore deeply down into the organization. Because that big challenge is always how do you move from maybe some of the traditional models where founders are involved in every decision to a scale organization where you can be comfortable that we are living and breathing and Athena that the goddess would be proud of, where it’s actually in many cases it’s people who’ve arrived and working remotely through covid, still making choices that we would be really comfortable along the way. That’s ultimately the test of is it working or not working, is ultimately what do we end up doing and what are the choices that we feel you’ve delegated down and you actually make doing the right things along the way.

Michael (35:10): And I think in terms of I’m really excited getting back to a physical co-location with our new offers this week because I do think that the informal structures and the corridor conversations do contribute a lot to that cultural balance sheet. I would say, if anything we’ve drawn down a bit over that in the last six months and, you and I will have a phone conversation, we’ll set something in motion, and it won’t be as easy to cascade and communicate that effectively. So, if there are any points of debit to the balance sheet, I think that’ve been driven somewhat by covid and lack of co-location. I’m really excited that we’re back together now.

Ed (35:44): Let’s talk about that. As you mentioned new office, I’m very interested and it’s such a hot topic at the moment, this remote versus in office. What’s the best balance? How can we maximize efficiency? How can we keep our employees happy if they’re enjoying remote? And how can we make sure there’s a redesign of not only how we’re operating but how our physical spaces look as well. Maybe can you just give some insight into the conversations internally as to how you were thinking about dealing with it?

Nathan (36:13): Yeah well, I remember back in sort of March 2020 when we were sort of in the office just basically announcing the team Friday showcase that we’re not coming in on Monday, right? This was actually before the government called it, we said, no, we going to move to remote just given where things were up to. Just the way that all laid out where we’d gone through and tested function by function to say, look we know its cloud based in theory, everything’s doable remote, but we are in the detail. Was there a signature acquired to authorize a payment or some other component, which how do we eliminate all of those? Probably the first level of just how well things can work remotely, right? I mean you can deliver great service to customers; you can acquire and onboard new teams, you can run all your innovation squads with some real productivity.

We had a lot of conversations about what does that mean, right? Do we actually embrace remote? And we know there’s sort of a lot of organizations have gone remote first and, in the end, we’ve come back to say, of course post covid, there’s always going to be a lot more flexibility. There will always be people making choices, but we’ve almost gone through function by function to say this is actually how we want the business to run and recommitted to this idea around collaboration and co-location as being the core. We’ve got a, most of the team operating from a, from a single location here in Sydney. There’s functions like our customer service that we actually want to pretty close get to that being five days a week, right? So yes, a team leader can listen to calls and give QA and all those other components remotely.

But yeah, it’s better to have someone be able to walk up and down a team in real time and give that feedback. There are other functions where actually can work really quite well.  There’s just some engagement moments. But, if you’re, if you’re talking about some of the operation functions, then there are some things that can be done through a more remote world. But probably what we ended up doing was designing some real estate to be quite different, right? Really designing for collaboration at the heart of what we’re doing. We got fortunately, very, very close to renting out some new office space. We were already overs stacked back in March. Michael fortunately was able to cancel that at the sort of hand break turn just before we made our payment. The office we’ve now designed is completely different than where we, where our head space was 18 months ago.

Really picking an area where you end up with quite high density in terms of the working spaces the individual desks, but allocating a very large part of this to collaboration zones with the whiteboards and all these other components really with that idea to say you could work at your desk, but for the days you’re doing individual work home is fine for that too, but how do we get to the point, to Michael’s point earlier that we really do think that there’s moments where the magic happens just so much better when you actually can be sitting there in real time and having a conversation and continue to use Miro and all the other great tools in remote. We’ve been really pleased with that. But at its heart we think we can actually design better experiences, keep the easy things easy, deal with the hard problems well, where you’ve actually got teams spending time together looking each other in the eye and actually getting a different level of conversation than what’s always possible in a purely remote zoom-based world.

Michael (39:03): Yeah, and I think there’s in any work environment you’ve got formal and informal structures. The formal meetings and processes can run reasonably efficiently over Zoom. Although some of the collaboration pieces, some of those formal pieces that you’re much better off in in co-location, but it’s all greased by the informal get togethers, the cup of coffee or you pass someone in the corridor, and you can just square off with a misunderstanding that may have happened in a meeting. There’s a fair amount of momentum after you’ve built that collaborative culture and you can trade off that momentum for months and months. But over time that’s going to erode particularly as you have new starters who’ve come in and never met anyone. Our view is that a business can’t just operate off a set of formal zooms, sessions that you need the informality as well with that, so we are pretty strong in that philosophy.

Ed (39:51): One asset on your cultural balance sheet that you invested in early to my mind is a CPO that being a chief people officer, not product officer. What role has that person played in this scaling of the culture of the organization and how important has that person been?

Michael (40:10): She’s amazing. Leanna. It’s really interesting because we had a lot of conversations at the very beginning about our experience of HR in a large organization. And of course, there’s lots of really great individuals there, but we had I would say poor experience there and we almost do it in a mode of

Nathan (40:29): Scar tissue.

Michael (40:29): Yeah, scar tissue. Well do we need hr? And of course, we did need hr, but we just didn’t need that version of it. And Leanna actually comes from, not from an HR background per se, but actually delivery. She’s a person who actually intimately understands the challenges of actually getting things done in a business and to be able to bring that lens through to the people side. She has enormous respect from, from everyone in the team. She plays a very active role in shaping the culture, but at a very individual level. But Leanna actually wears a lot of hats in our business. She’s our company secretary and she’s just managed the whole office migration. She’s probably one of the most pivotal people that we have in the, in the, in the business today.

Nathan (41:08): Hell yeah.

Ed (41:11): In terms of that role being deeply strategic, as you called out, many people sort of have the view of HR as onboarding and hiring or exit interviews, but in fact refocusing that role to being a cultural beacon and being deeply strategic into the scaling fabric of what Athena needs to become. Was that a conversation that you had as founders?

Nathan (41:37): Well, I think that probably comes back to what Michael was sort of saying, that there are a lot of important just compliance type things you need to do to meet your people obligations. It’s easy for HR to almost be dominated by that component as opposed to that’s an infrastructure, but the actual layer of how do you make sure that your people leaders are armed with that ability to actually deliver a great experience to customers that you’ve got an employee value proposition where if you’ve got great talent doing great things, and we brag shamelessly across all of our areas, these are people who always going to get phone calls and have many, many options. They could move in an instant. Having that point to say people are confident that what they’re actually achieving as part of Athena as a team, the experience they have of day to day, the fun, the spark, the vision being part of building something really exciting, that there’s actually a lot of really strategic conversations to wrap into saying, well, how do you bottle and make that experience something that can work not only in a small team, but as you, as you get to larger groups, as you have to do things remotely. Leanna and a very small team do an incredible job of, of supporting that and then working with the people leaders around the organization.

Ed (42:43): One last people and culture question, you were so deliberate from day one, so thoughtful around this cultural architecture that you’ve created. Again, the same question I’ve asked for the other aspects of the business. What has caught you off guard or what has been the biggest scaling challenge that you probably didn’t think of day one that has popped up since?

Nathan (43:05): I think it’s interesting that the investment to get the right next layer, like it’s quite deliberate when things scale out. The complexity is you almost need an additional layer of just that change process being around that. We’re in a beautiful position now where we not only have the eight squads in place, but we’ve actually gone and got the right product leaders in each of those areas. So again, our chief product officer Mira Hohn is an incredible leader, was from before day one. The way she’s run, that’s been incredible, but as she’s now got that additional layer, what we can actually do to delegate authority down into teams because we have that infrastructure, is we feel that what we’ve actually achieved over the last six months is probably double what we achieved in terms of throughput over the six months before that.

I think it’s probably just those scale moments when all of a sudden you really are trying to move authority, information, decision making down because the scale and complexity of the business has grown. They’re quite interesting moments where incredibly talented individuals, but if you’re trying to scale out, then the build out of that infrastructure is something that needs to be very deliberate. And so, that has worked incredibly well, but it’s probably only after the effect realized how important that was and the job that Mira in product and Pete in technology and they’ve done an incredible job of bringing in a new generation of leadership into the organization. I think we are seeing the benefits of that and probably just then almost thinking through, wow, that was probably a much more momentous moment than probably I had, I should have thought that through in advance a little bit more.

Michael (44:36): Yeah, it’s a big difference going from rolling your sleeves up and doing every single thing yourself through to managing a very small team directly through to managing leaders. That transition has taken place in tech, in product, in risk, in certainly in operations and in marketing as well. It’s across the business that transition has taken place over the last 18 months.

Ed (44:56): Fascinating insight. Last question to wrap this up. Five years’ time let’s fast forward the clocks. Looking back, what will success look like over those five years and what do you think are the big hurdles to jump over for Athena?

Nathan (45:12): I think we are looking to have a hundred thousand Australian families move their home loan to Athena for them to have paid down their home loan faster and saved a bundle in the process. Shifting some of conventions that are very predatory on consumers into something that is much more authentically delivering value back to a borrower. And then doing so in a way where we are showing that you can deliver exceptional quality through efficient digital processes. The funding models don’t have to be as centric on some of those legacy banks. It’s quite a transformation that we’re actually aiming to achieve and hopefully much of that is infectious of forcing others to move much faster to resolve some of these pain points in the market as well. I think we’re both excited at the idea of building a large-scale exciting business here, but also doing so in a way where we are really thinking about the purpose and outcomes we’re trying to achieve.

And maybe something you haven’t mentioned, I think one of the things we are really looking to do to scale that is we’re embracing the B Corp movement here. We’re in the process of applying for that certification where we’ve embedded that back into our company constitution. We are thinking from that balanced score card, not only of shareholder outcomes, but what does that mean for team, for community, environment, all those other components. I think that’s the really interesting challenge that a lot of start-ups start with their general intent sort of don’t be evil, but at some stage, given all the complexities of running complex businesses, it’s easy to lose sight of what that magical look like. I think trying to really ground back into institutionalizing those as we scale up so that we’re not losing sight of that original vision, mission, and excitement of what a thing is trying to do in home loans.

Michael (46:51): Yeah, we’re purpose driven, and we want to save Aussie’s money and we want to have fun along the way. We built this not to flip and we built this to really make a, make an impact on the business. Biggest challenge Nathan, I would say there’s just so many opportunities that come our way. The challenges actually focus. We know we can do what we do really well and scale it out, but we do get a lot of opportunities come our way.  I think staying focused on that main game is probably our biggest challenge over the next five years

Ed (47:17): Michael Nathan lived up to every ounce of expectation. Thanks for your time. That was wonderful.

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