Highbeam vs Traditional Banks: Which Wins for Ecommerce?

Welcome to the Ecommerce Finance Podcast. I'm Stephen Brown with LedgerGurus. With me today I have Samir Shergill, CEO and co-founder of Highbeam.

Samir, thanks for joining.

0:16 Samir Shergill

Thanks for having me.

0:17 Stephen Brown

Before we get into answering that question I posed, I'd like to understand your journey to ecommerce. How did you get into the world of ecommerce? Maybe a little bit of background to getting to where you started and built and have been growing Highbeam.

0:32 Samir Shergill

Yeah. By trade I was a software engineer, and I worked at Microsoft for a number of years on nothing related to ecommerce. But my first foray into startup land was at a company called AppNexus, which was an ad tech startup. And so I got exposed to ecommerce businesses through the lens of them doing advertising.

And I got really interested in this notion that advertising was becoming much more programmatic. Something we take for granted now, but at the time advertising was very kind of, you imagine people like the Mad Men on the martini lunches, making decisions on TV ad buys, versus programmatic ad spend on Meta or Google. And AppNexus was really at the start of that wave.

1:10 Samir Shergill

And then when AppNexus got acquired and I started my own company, I really got interested in this idea that the other most important thing for an ecommerce business is managing their cash flow. You kind of live or die by if you do that effectively, and yet the tools to do that seem so poor.

And so from that idea, I acted as a poor CFO for a number of my friends' consumer brands, and I really started to learn more about, if the data exists, similar to advertising, where advertising moved to programmatic, why are customers and businesses still making relatively poor financial decisions? And from there we evolved that into, well, the answer to this is to build a banking platform that has intelligence built in. And here we are four or five years later with Highbeam.

1:47 Stephen Brown

Got you. What years were you at AppNexus?

1:50 Samir Shergill

So AppNexus was 2012 through 18 or 19 almost.

1:57 Stephen Brown

Okay. So those were kind of the early heydays of, I consider that like wave two of ecommerce. Wave one was really crazy, people putting in servers, think of the early dot-com days.

2:09 Samir Shergill

The dot-com days, the pre Shopify website days.

2:14 Stephen Brown

Yeah, I feel like wave two was really the Shopify, Amazon Seller Central, Meta ad platform, all that. I feel like there was a second wave, and the second wave I think really enabled so many businesses to grow. And I feel like we're at the end of the second wave, but that's a whole different conversation.

2:25 Why bank technology never improved

Stephen Brown

But banking sucks for most businesses. Why is that? Why is it that the traditional banks are so bad when it comes to, let's start with something as basic as the bank portal. I don't feel like those have evolved hardly at all in the 30 years of the internet.

2:54 Samir Shergill

It's a great question.

I think that the answer lies somewhere in that banks are financial institutions with good reason, but they don't really compete on customer service, or have not historically competed on customer service or software or the experience that you have with them. Because they're competing on, do I have a balance sheet? Do I have regulatory compliance checks that I need in place? And to some degree there's been a huge barrier to entry to do that.

3:20 Samir Shergill

The way that happened probably the last 10 years is this new layer of neobanks, what we'll call broadly, where people like Mercury, Brex, Highbeam, others, they really act as the software layer and the intelligence layer to access the financial products. It's kind of like putting ourselves in between the balance sheet from the bank. And you still have a bank in the background with the balance sheet and the regulation and all that stuff. But you allow a technology company like Highbeam to be that interface, that middle layer, and provide all the software.

3:50 Samir Shergill

That unlocked, kind of for the first time, real competition. And that's good for everyone in the ecosystem. I think that now you'll see better banking solutions, more specialized banking solutions. And we're starting to see the evolution of financial services where the software will get better and the banks will be forced to adapt. So we're probably at the early stages of that.

But I think the logjam was there because there just wasn't a way to enter. There were no new bank charters historically until the last couple of years, and now suddenly everyone is applying for bank charters. It was like the taxi medallions in New York. Taxi experiences are so terrible because there are no new medallions. And so that was kind of the way we were stuck, which hopefully is going to change now.

4:29 Stephen Brown

And banks haven't felt like they've had any incentive to improve their technology, right? I feel like there was probably a big push in those dot-com days. And honestly, I don't feel like bank portals have evolved that much since those dot-com days.

It does feel like some banks and credit unions are using the same underlying technologies. I don't know if there are companies out there that are selling really crappy bank portal software that they implement, but I don't feel like they've evolved in line with the rest of the software ecosystem.

5:02 Samir Shergill

Yeah, that's an understatement.

If you think about even nine to five and the payment rails, which may be a little bit technical, like ACH as a payment technology, why is it only available within certain hours? And anecdotally this is because people go home, and you have to literally print out a dot matrix printer and you have to transfer it around. Things have not evolved. You're still sitting in an age where real time instant payments are facilitated by third parties like PayPal, but not the banking system.

5:31 Samir Shergill

And so it's really been this, there's been no pressure to innovate, because there's not been enough competitive force in my mind. But increasingly I think that is starting to happen.

But historically, and especially for small businesses or mid-market businesses, I think that's been an even further underserved segment. A lot of banks would care about their large customers, and they care about the consumer experience to some degree because it's one size fits all. But SMB mid-market, there was a servicing cost associated with it.

5:54 Samir Shergill

You think of historically, you had maybe a small business banker in a small town, and you sat down with him and talked about your business, and he kind of gave you some advice. And that was the relationship you had at a personal level. But once they took away that personal relationship, what did they replace it with? They replaced it with a terrible portal that hasn't evolved.

And so I think that that's part of the reason why banking has deteriorated over time. It's actually probably worse today than it was 50 years ago, from a banking experience for a small business. But I think part of what we see is that as an opportunity to redefine that through technology, and that's why we exist.

6:31 What a neobank actually is

Stephen Brown

Now, you used a term that I don't usually hear used without some rejection, which is neobank. A lot of times when I talk to companies like you, they don't like that term. I like that term.

But maybe explain what it is you guys are, and how a neobank works. Because I don't know that everybody always understands this concept. Are you guys a bank, or how does that work? So maybe just explain how you guys function in relationship to your partner banks.

6:58 Samir Shergill

Yeah, it's a great question.

I think that the way to think about it is, what we are is the software layer that sits between a partner bank and the end customer. And we are completely transparent, if you go through the Highbeam UI, on which bank we're partnering with, where the money sits, what the FDIC insurance is and all those things.

And so a way to think of it is, instead of that bank having a branch down on the corner on the street, they opened a branch through Highbeam. And Highbeam is responsible for providing all the services and software, so you get the best of both worlds. But the banking partner, who's Thread Bank in our case, is fully the institution that's regulated, that has the deposits.

7:40 Samir Shergill

And I always encourage people to be as educated as possible on things that are important, like how much FDIC insurance do I have? Where's my money sitting? Which is the bank that has it?

The banking industry is a heavily regulated industry, where companies like us, we choose to partner with the best banks possible to be able to provide this best of both worlds vision. Now, whatever you call it, neobank or financial platform or cash management platform, at the end of the day we're in the business of storing and moving money on behalf of our customers by partnering with our banking partners. And we of course take that very seriously.

8:20 Samir Shergill

And I think the benefit to the end customer is you get the best of both worlds. You still get access to the financial products that you would otherwise not get, because of the scale that we provide, and you get the technological services that we would do.

So to give you a specific example, something as simple as, you want to set up an auto sweep from your operating account to your high yield account or money market account on a minimum balance of $200,000 or whatever it might be. Now, most small businesses would not get access to that, or would have to pay significant fees to their bank to go get that. We'll provide that for free, because we're doing it through software at scale.

So you kind of get the best of both worlds, where you get access to financial products and the software layer that we provide to the end customer. Does that make sense?

9:05 Stephen Brown

Yeah, absolutely.

And I think what people don't always understand, I worked with banks early in my career, I was doing enterprise software before I came over to do ecommerce accounting. There's a lot that they have to deal with. And I think they've just prioritized the compliance, the security.

If you imagine what a hacker would target, right? Bad guys want to steal from a bank, so do hackers. So the amount of infrastructure and spending that they have to do to secure those systems, because all those systems are what is keeping track of everybody's money and loans and payments. There's a lot of infrastructure, and I think they've just prioritized that.

9:50 Stephen Brown

But what I love that's happening is the neobanks, or these financial platforms, are becoming what the business owners want, while the banks are doing banking stuff, licenses and regulation and whatnot.

What's really interesting is, one of the big names in this space has been acquired by a bank. Brex got acquired by Capital One. So I have this grand theory that maybe all these neobanks are going to eventually become a part of a bank, and then you'll have the best of both worlds. There are others I see that are going and getting their own banking charter, which is an interesting thing as well.

10:20 Stephen Brown

But yeah, the portals suck. I'll give you my perspective from an accounting standpoint. I feel like what we can do is so limited. And as a business owner, I own two businesses as well, I co-own LedgerGurus and I have co-ownership in a little DTC brand, Solé Toscana.

One of the challenges I've seen is, I want to be able to move money. I don't want to go down to the branch, it's annoying. I want to be able to just do things from my desk like everything else.

10:45 Stephen Brown

And maybe this is me just coming from enterprise software, but I'm shocked at how many banking portals don't even have things like the ability to do read-only users. So your accountant can do accounting but not have access to move money. That blows my mind, that 30 years into the internet they have that.

And there are big banks, I won't name names, but there are big banks that have really crummy multi-user permissions, which seems just unbelievable for business banking where you're going to have many people that need different levels of access.

So what I love about what Highbeam is doing, and others in the neobank realm, is they're providing the experiences that we need. And that's kind of table stakes for all small businesses.

11:00 Why banks won't lend, and the merchant cash advance math

Stephen Brown

But let's talk about some of the things specific to ecommerce.

One of the biggest things that comes to my mind is the lending. And I think people don't think about this a lot, but the lending landscape for these businesses is really problematic. In my experience, traditional banks don't want to lend. They want to lend for buildings, for bulldozers, for trucks, warehouses. They don't want to do working capital for inventory. Unless you've built up a really long history of financial profitability and you have clean financials.

11:50 Stephen Brown

Usually what I've seen is our customers get some success, they run into challenges needing working capital to finance inventory purchases, and the big banks, or almost any bank, doesn't help.

Why is that? Why is working capital financing so problematic for ecommerce, and just consumer product inventory based businesses?

12:52 Samir Shergill

Great question. Actually, it's part of the reason why I started Highbeam.

I was acting as a CFO for my cousin's consumer brand, and I was doing the math, and they were taking one of these cash advances, an MCA, a merchant cash advance loan. And it seems like easy money, right? At the click of a button. And this is where a lot of fintech I view as fundamentally extractive from the business and not in its best interest sometimes.

Because what happened was the banks stopped lending to the segment, I'll get to why. But someone jumped in to fill the void, and it was a lot of those merchant cash advance people.

13:10 Samir Shergill

Not to paint them all with one brush, but a lot of this is just loan sharking. The MCA product is designed to get around loan sharking rules, because it has to describe an APR, but a lot of times loan sharking rules don't apply because it's just this structure they've set up.

13:30 Samir Shergill

Whereby you might think that, for example, you're getting a $40,000 loan at 10%. So the way it works is I have to pay back $44,000, you're going to take it out of my revenue, and it's a 10% loan. And people that are financial experts might say, okay, well that's a 10% interest loan, that's not great but not terrible.

Well, it gets worse, because you're going to pay it back in six months. So okay, so it's a 20% loan. Pretty bad. It's actually worse than that, because it's not like you're paying it back in one lump sum at the end of six months. You're taking the money away at each single point in time. Now it's a 40% loan. So you're like, a 40% loan? That's insane. Why would you take this money?

14:10 Samir Shergill

And not to say there aren't good reasons to sometimes. But the point is, I think what happened was these ecommerce businesses are working capital intensive businesses. And unless you keep a really solid eye on it, as you scale your business your working capital needs also increase. And then you have these variabilities in ups and downs. So if you doubled your business you probably need to double your working capital, unless you're being much more efficient. And so you've got to push more money into the business.

14:40 Samir Shergill

And these merchant cash advances are set up to take advantage of that. A lot of businesses we see, most of their free cash flow goes to servicing their interest expenses. None of that's flowing back to the actual owner of the business.

And so our point was, a lot of the banks stopped lending to the segment for two reasons. One, they don't trust the underlying data. They're not audited financials, they don't know how to read this, they don't understand the data, they don't want to do it, it's not worth their while. They'd much rather do one large $100 million loan than do 100 small $100,000 loans.

15:34 Samir Shergill

And then two, as you said, they're underwriting based on assets. So typically they're doing asset-based underwriting based on the building or the factory. It's very hard for them in this model where there's a lot of inventory that turns quickly over time, you have revenue flowing in and out. They're just not designed to underwrite it.

You really need an underwriting system custom designed for this segment that is still fair and reflects the risks fairly for the business. And I think that's where we and others have tried to standardize the industry, to say there is a product that can be both fair and easily available. Again, the best of both worlds. Something you can get access to, but that isn't this crazy rate that some of the cash advance people have.

16:01 Why MCAs aren't regulated, and multiple accounts

Stephen Brown

Yeah. You call it loan sharking, I like to call it the payday lending of ecommerce businesses.

But to me it's deceitful. They say it's a 10% loan. And I think consumers have gotten accustomed to understanding APRs, annual percentage rates. The 10% doesn't translate to an APR. Like you were saying, when you do the math, and it's a little complex, not crazy complex, a little complex, to me it's deceitful.

Why isn't this regulated? Why do you feel like these companies can get away with what I would argue is deceitful advertising of rates?

16:44 Samir Shergill

Well, the cynic in me says that there's probably a lobbying group somewhere that managed to carve out an exception for MCA products.

The reality is though that almost all these companies do have to disclose the effective APR if you ask for it. So my advice is always, before you take any money from anyone, doesn't matter who it is, ask them explicitly, can you tell me what you estimate the APR to be? And they will always have to give you an answer. If they don't, that's a big warning sign.

17:09 Samir Shergill

We've actually built some tools as well. There's a whatstheapr.com that we built, that was just, put in your offer and we'll spit out what we think the APR is, so some people get a sense of this.

I think one of the most important things people can do is understand the cost of capital that they're signing up for, and then weigh that against the operational decisions they would have to make to not use the capital. I think sometimes people try to conflate operating problems with financing solutions, saying, well, I have this problem but I can solve it with $20,000, so I just need to take the $20,000 no matter what the cost is.

17:50 Samir Shergill

And that's where the more that you can have tools or technology that can help you assess what is the cost of this money, how realistic is it that I would pay this back.

I'm sure you talk to consumer brands all the time. Most small business owners have an intuitive sense of their sales. They know how much their top line is, they fall in very closely. They might have an intuitive sense of their margin or EBITDA, which is like, I think it's about 20%, but that's still an abstract.

18:20 Samir Shergill

When it comes to their actual cash, how much did I pay in interest? How much did I actually pay myself? How much did the cash flow end up being to various sources? It's very hard to figure out, but it's also very hard to intuitively understand. And yet at the end of the day, that's what matters, and why most small business owners started businesses was to get cash out of the business.

And so you have this unfortunate problem where intuitively you understand sales and maybe margin, but it's really hard to get to the root of where the cash is going. And that's where these MCAs and other kind of predatory lending, that's what it is in some ways. They just prey on that, where it's not affecting your sales or margin, but it's sucking all the cash out of the business.

18:44 Stephen Brown

Yeah. And I think you've brought up another really good point.

The traditional banks are very risk averse. There's a reason a lot of these big banks are big, they've been around for a long time. And when they do a loan against a building or a truck, they have risk models that allow them to say, hey, if this loan goes bad I can sell this asset and probably get X amount. And they kind of know what their default rates are, and they're going to be able to risk adjust that.

19:20 Stephen Brown

I hate to say it to all those of you listening who think your inventory is amazing. Nobody knows how to sell your product but you. The value of your inventory is almost zero to anybody else, because they don't know how to sell it.

And so part of what I see as a problem with the big banks and the traditional banks, even the small banks, is that asset is not something they could convert back into cash if you have a problem with the business. And so they shy away from it.

19:50 Stephen Brown

Because of that you have these MCAs, or sometimes they're called revenue based loans, where they're taking a piece out of every one of your sales. And they obfuscate the reality of the cost with this fixed fee, which doesn't translate directly to an APR. You have to do some math, it's a little bit tricky.

And so it's easy to get swooned into flexible payback terms. Oh, it's only a 10%, because that's what I see a lot of times, sometimes a little bit more. And you're like, that's comparable to what I would get for a traditional bank line of credit. And people get these loans, and like you said, I think if people knew I had to pay an effective APR of 40%, people would probably be like, whoa, no, that's a bad deal.

20:26 Stephen Brown

And I hate the fact that some of these companies are also the key technology partners for sellers. So you have a trusted relationship on one aspect of doing business with them, but on the other end it's like that loan shark with a bat who's squeezing you. You just don't know it, because they've tricked you.

20:47 Samir Shergill

And I think that's where my philosophy, and what I try to do, is be as transparent as possible.

It's very personal, because your business is very near and dear and it's personal. And so when someone makes an assessment of the risk on your business and says it's a 20% or 10% or 50% risk, you take that very personally, as you should. But I think my role in an ideal world is to be as clear and transparent as possible about what we can and can't do and why we decided on that risk profile.

21:20 Samir Shergill

And the more obfuscation exists, the worse it is for the business. So you've got to be very skeptical of the easy button sometimes. Understand a little bit more about what is the real risk here, the cost of capital and why.

And for a very early stage business, the reality might be that rather than taking a 50, 60% APR loan, you need to go find someone that's willing to invest equity in the business. And that's hard and people don't want to do it, but that sets yourself up on a much better footing for the long term than servicing this debt on an ongoing basis.

21:50 Samir Shergill

And what I call it is the debt spiral treadmill, which is now you're always having to get another MCA, another MCA, another MCA, and you have no room for error.

That's really what I find unfortunate, is when you have a business that has some product market fit, it already has something that's growing, but the reason it fails is not because of any dent of the person not working hard, or the product, or the marketing, or any of that. It's because the financial management was such that you made a few bad decisions and then you got on this treadmill of debt and you just couldn't get out from underneath it.

22:30 Samir Shergill

And so to the degree that people, obviously working with partners like yourself, but also that can avoid that fate by access to responsible financial products, responsible lending, and just some basic good practices on cash management, cash forecasting, cash understanding, I think that makes such a difference.

And it's hard sometimes for people that don't have a finance background, but I think with the tooling that exists and the services that exist now, it's possible. And that to me is the most critical thing to do from, I'll say, about a million dollars of sales to $200 million of sales. That's the most important thing you can do for your business, is to feel like you have a handle on that.

22:55 Stephen Brown

I want to go back to something basic, which is multiple accounts.

Traditional banks, an owner has to have multiple accounts, oftentimes there are fees. And I've become a huge fan of multiple accounts within a business. In personal life it's okay to have one checking account and kind of do a lot of things from that, maybe you sweep some extra money out into different investment and savings accounts.

23:30 Stephen Brown

But within business I've seen a lot of interesting challenges over the years. Somebody compromises your account, it's a nightmare. I've had customers where this has happened and your account gets locked down.

So as I've seen all these different nightmares, I've learned to set up a strategy. I have a money in account for my businesses, and all I use it for is taking money in, and I always take the money out of that, so that can't be compromised. And then I use different accounts for payments.

23:51 Stephen Brown

I learned a couple of years ago about the horrors of payroll tax disputes, how the states can really clamp down accounts if they have a lien on your business.

So I segmented my accounts based on their purpose. Money in, payroll, AP. And you can get really crazy with things like Profit First, where you can have accounts for this, that, and the other that are really just holding accounts in large part.

24:19 Stephen Brown

But the traditional banks do not make this easy, because you have to go in and sign docs every time you set up an account. And there are usually minimum balance fees, which makes it really hard to have these holding accounts that maybe you want to zero out periodically.

This is something I love about the neobanks, you guys make it easy. Let's just take Highbeam as an example. How many bank accounts could I have with Highbeam if I was working with Highbeam?

24:50 Samir Shergill

We'll cap you at about 100 right now. But if you ask for more, we'll give you more, if you can come up with a good use case. For the first 100 we won't cap you, and that's all free of charge. Because at the end of the day, it's just software on our side.

25:02 Stephen Brown

Yeah, just banking. I spent a long time in software as well. Banking is just numbers in a database somewhere, and this number lives in this account, which is just another number.

Why do you think banks charge so much for minimum fees? Is that just part of their historical revenue models?

25:25 Samir Shergill

Well, again, the cynical part of me says it's because they can. And once you've standardized it across multiple banks, it becomes a standard.

I think at some point there might have been a servicing cost associated with the paper of someone actually filling something out. But because banking hasn't really evolved, they maintain the same structure as if it was tellers and paper, and they haven't moved into the software-led world.

25:51 Samir Shergill

So I think part of the reason is their infrastructure is still very much rooted in, I have people and paper and large buildings, and they didn't come at it from software first.

These are fixed costs and unit costs that I have associated with the actual movement of money. Someone gives me a check and someone has to take that check and process it. Well, if someone just clicks a button and the money moves, there's no longer a person there that deposits the check and writes in the ledger. Their previous structure on how they charge fees was based on that. And they're like, well, let's just carry that forward, let's just make a bit more money here. And until there was an alternative, people have just continued to do that.

26:23 Stephen Brown

Got you. And I think the average person, that's not how banks make their money necessarily.

I mean, obviously they're making money, but they're making money by taking the money you put into deposits and lending that back out, investing, doing bank stuff. I'm sure there is a revenue stream from all these fees, but I'm also sure that it pales in comparison to where the core of bank earnings come from, which is being able to redeploy capital and make money off of interest or loans.

26:59 Samir Shergill

Totally. A bank's health is judged by its net interest margin, or how much they pay out on deposits and how much they get from the loans that they make off those deposits. And there's a lot of regulation to make sure that the risk is appropriate. But that's what makes or breaks the bank. Everything else doesn't hurt, is the way I'd put it.

27:30 Samir Shergill

But I think it's also a legacy of what they view as most important in their business, the ability to get deposits, yes, but more importantly package those up and make loans on that.

Whereas you as a customer, as long as you know your deposits are safe, and you know that they're FDIC insured and the federal government will stand behind them. And look, we offer $3 million by default, there are different ways in which you do this. You don't really care what the bank is doing with that money. You care of course that it's safe and regulated, but your main premise is, do I get the experience that I want? Do I get the technology that I want?

28:00 Samir Shergill

And the banks have just not had to do this. It's not been competitive, so they're just not building the features.

And what's interesting is if you look at different countries, things are even worse in Canada, where I'm from. Because in Canada you have five banks. At least in the US you have hundreds of banks. In Canada you have five of them. And the portal, if you can imagine, is even worse than they are here. The barrier to entry is really high, and it's the classic capitalism free market problem versus an oligopoly. And I'm sure there's a country somewhere that has one bank and it's completely state run and it's even worse.

28:40 Samir Shergill

But I do think that there is now a push towards being able to be competitive and do those things.

It is interesting to me that your banking relationship is one of the most important things that you'll have as a business, and yet that's not evolved. And the value you derive from your banking relationship has been almost a one-way street, where you're giving these fees, you're paying the stuff, you're grappling with this terrible portal, and you're really not getting that much back in return. And I think that's something that will change over the next five, 10, 15 years.

29:05 Why specialize, and the complexity of ecommerce money

Stephen Brown

Now I want to lean back into the ecommerce specific stuff, because the accounts thing is what every business faces.

You've talked about intelligence and some of the things you guys are doing around consumer brands, and particularly consumer brands selling online, which is the world that we've lived in with LedgerGurus.

Let me ask you, why did you guys decide to do a specialized industry focus financial platform, versus something that's more generic? There are quite a few generic business financial platform companies out there. What was your thesis in focusing on one industry?

29:47 Samir Shergill

Yeah, it's a great question.

Most banks or credit cards, it's the same bank or the same credit card, and the financial product applies to every single business. And in our mind, the reason that is true is because the people are the specialists. LedgerGurus specializes in consumer brands, or the CFO might specialize. The intelligence is specialized, you understand the business really well so you know what to do. But the financial products are kind of a commodity. You look at a credit card and all you care about is the rate that you get on cash back.

30:20 Samir Shergill

Our idea was, if you can combine the financial products with the intelligence, then maybe you can build a better bundle or package for the customer.

And so an example of that might be, because we know that your Facebook ad spend shutting off is a major problem, when you use our credit cards to pay on Facebook or Meta, we're going to make sure, one, it always goes through. But two, by being the bank account, we can toggle between one day cash back if you have excess cash to maximize cash back, 30 days if you don't, or 60 days if you really need the float. So the same card number, you don't have to update it in Meta, but it can toggle between maximum cash back, 30 to 60 days.

31:00 Samir Shergill

Now, the only way we would build this is if we understood our customer really deeply and they have a specific use case on when they spend on Meta.

We think the segment is large enough and interesting enough that you can actually build a very scalable business by understanding the business needs deeply, building financial products specific to those business needs, and then applying the intelligence on top to make usage of those financial products easy. So we'll do things like provide a cash forecast or other things like that that you can use to plan your treasury or working capital.

31:30 Samir Shergill

We'll lend to these businesses. Most banks won't lend. The reason we can lend to this segment is because we're only specialized in this segment. So our underwriting takes into account your Shopify sales and your Facebook ad spend and your ROAS and things like that. I would not be able to lend as effectively if I was also lending to restaurants and services businesses. But because I specialize in consumer brands, I can build this bundle of banking, cards, working capital, intelligence, that hopefully is much better than the business saying, I'm going to get banking from here, a loan from here, cards from here, and then try to stitch it all together to understand the picture of where my cash is going.

32:10 Samir Shergill

So that's really the thesis behind it, and what we're continuing to evolve, is a single financial platform to manage all your cash. From the moment it hits your business to the moment it leaves, full visibility. And then you can maximize all these things that have been historically hard to do. How do I maximize yield? How do I minimize interest? How do I make sure I don't pay any fees when the money leaves? We're trying to automate a lot of that.

32:35 Samir Shergill

It turns out that for consumer brands, because there's such a big flow of money in and out, let's just take a $20 million consumer brand with a 10% margin. There's 20 million coming in, $19 million or $18 million going out. And if you can optimize the 20 million in and the 18 million out, and while the cash is there, the peaks and spikes that yield interest, that's probably like three, $400,000 worth of value, which is like 30, 40% of your margin. And that's really hard to do unless you have a dedicated partner that really understands what you're trying to do.

32:52 Stephen Brown

Got you. There's so much complexity to ecommerce. We decided to specialize in this world about nine years ago, is when we started down that path. We had a few brands and we'd kind of done everything.

There's so much complexity when it comes to money with ecommerce. The ways that money gets into your business, it's more than just Shopify. Everybody knows this. You have to provide PayPal, you have to provide Afterpay or whatever, I'm forgetting the name of that category of product. There's a sense of, make it easy for the customer to pay, so you go out and you get every method of payment. And each method has different payout methodologies. Each sales channel has different payout methodologies. Shopify kind of fans out into how they pay, Amazon's got the two-week thing.

33:47 Stephen Brown

Everybody's a little bit different. And then if you layer in wholesale, there are all sorts of weird dynamics. And that's just the money in.

And then there's a lot of dynamics going on, I know you guys have some stuff around ads. And one of the things I've seen customers talk about over the years is they want real time accounting. And I'm kind of like, I don't know how realistic that is, because there is a level of applying accrual-based accounting principles, which, I've talked about on the podcast before, accrual based accounting is where most business owners get lost.

34:13 Stephen Brown

But a real time understanding of cash, that is absolutely critical. And I feel like what you guys are trying to do is understand that, and you're doing that with the lens of what these businesses are doing, instead of trying to put a lens on for every type of business under the sun.

34:35 Samir Shergill

That's exactly right.

I think that most people get into ecommerce because they love the product or they love the marketing. Very few get in because they love the cash flow finance part of it. But unfortunately that's really critical.

And what we're trying to do is say, can we give you the real-time visibility into cash, as you mentioned, but really show you what it's costing you to get the money in, what it's costing you to get the money out, what it's costing you for your loans, what you're making on your yield, and then help you optimize that.

35:10 Samir Shergill

Because you really can't hire other people to optimize it for you. It's expensive, it is not worth it.

But beyond the visibility, which I agree is essential, the next question is then, what can you do to help me minimize the cost and maximize my yield, minimize my interest? And that's really where we try to work as closely as possible to say, let us help you do those things.

And sometimes people are amazed by the dollar figure that's cash in their pocket that they can get from optimizing this. It's like found money that they're not optimizing today. And that's where I really find people say, wow, I can make a couple of hundred thousand dollars a year, up to a couple of million dollars a year, because I'm just not optimizing this in the way I should.

35:49 Where the industry is heading

Stephen Brown

Got you. Let's wrap up talking a little bit about the industry.

We've both focused on a specific industry. It's been a tough couple of years for these businesses. How are you feeling about consumer products and ecommerce today and looking ahead? What are some of the conversations you guys are having at Highbeam about the industry?

36:13 Samir Shergill

Yeah, look, I'm an optimist. I'm long-term bullish on the industry.

Partly because, if you go macro, the US economy runs on consumer spending. Consumer spending is tied directly to consumer goods. And the growth in consumer goods increasingly comes from emerging consumer brands, DTC brands growing, scaling quickly. That's the engine room of creation of value for this US economy, essentially.

36:50 Samir Shergill

I think larger and larger companies, like the CPG holdcos, are really becoming holdcos where they're acquiring brands, looking at the smaller brands to grow.

So to answer your question, big picture macro, I think things might change, but it's quite positive. Now, in the short run, what I find is a lot of these businesses don't have a buffer to be able to manage through tariffs or something unbecoming. There may be long-term positive, but they don't have the buffer. And that's really where I see even healthy businesses getting wiped out, because the buffer didn't exist.

37:30 Samir Shergill

I think there the question really is, one, how do you create that buffer to be able to outlast the ups and downs that might exist? And then two, sustainable brands that are really founded on the key fundamentals, that you're building something someone wants, there's brand value, they love the product, those things are eternal.

You know, I found a little bit of something on the Meta algorithm that spiked for two months, but the product isn't great and people don't really love it. Those are ephemeral and those businesses won't succeed. But in some ways you want the marketplace to not let those businesses succeed.

38:00 Samir Shergill

So my advice, maybe too strong a word, but what I've seen is businesses that can take somewhat of a long-term view and build a buffer and plan for the next year, two years, and have a sense of how they can outlast a little bit of that, are the ones that survive. And the ones that are most susceptible to the short-term variation are the businesses that don't have that buffer, or don't have a plan, or just try to hope for the best.

And it's hard as a small business owner to keep track of all of these things. So I think that's part of the challenge of this segment. But it's a very long-winded way of saying I'm a long-term optimist, but of course there are short-term issues, and that's just the reality of where we live.

38:23 Stephen Brown

And in my perspective, I feel like ecommerce has enabled great product ideas to test, to find a hold, before they have to go out and scale. Because selling wholesale is really hard.

I think there were a lot of the early ecommerce businesses that were doing arbitrage. You had the drop shippers, that was kind of one of the big things. But really in my mind it's making it easier for innovation. So people that come up with really great ideas, just think about it, a lot of traditional consumer products, they get into a stable state and they don't innovate.

39:10 Stephen Brown

And so what I love is seeing companies that have, hey, there's a better way, there's a better idea. There are ways to make that idea into reality and then to get traction with selling online.

And so in my mind, those who are more innovative, who have a really strong product mindset, it's going to continue to be a great place to succeed. I do think with the challenges we've seen around tariffs and cost of marketing and all of the other things, it does require a higher level of financial sophistication. Which is why I think it's great to see companies like Highbeam and others who are trying to provide better tools and the ability to operate more effectively.

So I am with you as well. I think I'm long-term optimistic. I just think we're going through a shift into a new wave of ecommerce.

39:55 Samir Shergill

And I think even to that point, with every new wave. You mentioned the early waves, like as people got mobile devices, it turned out that they were discovering products on Instagram, and Meta became the dominant way for how people discover products and advertising. And before that the web was new. And there are going to be new channels and new ways to connect with consumers.

I really believe these businesses are going to be at the forefront of discovering new ways, and who knows in an AI driven world how that looks like.

40:30 Samir Shergill

I'm confident that those are the businesses that will crack the code first, and will experiment and will find innovation.

This is the innovation engine of the US economy. I think the tech hype and all the VC backing is one thing, but the US economy runs on consumer goods spending, on consumer brands. The innovation engine of that is rooted in DTC. That is where the best ideas come from when it comes to products. That is where the best ideas come from when it comes to marketing, and that is where it'll continue to come from.

41:00 Samir Shergill

And I think we should celebrate it. I think that's the part where people that are excited to go build and scale there should continue to do so. And if you're focused on the fundamentals, where you have a product that you love, you have marketing that you love, you're going to go find those things. There are no gimmicks and easy shortcuts in this stuff in the long run. But with those tools, and that's why we exist, we're excited to support that ecosystem.

41:30 Samir Shergill

I think my mission, or what I really view as why I feel so proud in some ways to be able to build Highbeam, is our customers are people that are really trying to build businesses and bring things to life, and there's optimism. It's hard. It's hard to bring these things to life. And it's harder still if you don't have the right financial management around you. And that's the part where, uniquely for this segment, that is a critical need that we can hopefully help with.

41:50 Samir Shergill

But for people that are focused on their own products and marketing as they scale this, that sense of optimism is what gives me hope. And it's why I love talking to our customers.

I used to be in enterprise sales, both at AppNexus and earlier, and it always wore me down when I talked to some SVP of procurement, which I'm sure you've previously actually done. But when I talk to a brand founder, who on the surface, their business might not be doing as well as some enterprise company, but they're still optimistic, they're positive, they're trying things, and that's great. I feel like we both get to work with those people, and that's part of what I think makes me happy and energized and kind of ready to build.

42:01 Stephen Brown

Awesome. If somebody wanted to connect with you or Highbeam, what's the best way to do it?

42:13 Samir Shergill

Samir at highbeam.com, S-A-M-I-R, and our website is highbeam.com.

42:18 Stephen Brown

Awesome, thanks for joining today.

42:19 Samir Shergill

Thanks so much, Stephen.