Why 90% of Startups Fail: The $2.2B Lessons | Sadi Khan, Aven CEO

EO

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Video Summary

Starting a company is an incredibly difficult endeavor, demanding an exceptionally high level of conviction from founders. This conviction should surpass any previous commitment in their lives, as the journey can span decades without guaranteed compensation or recognition, and often involves facing rejection. The speaker emphasizes that entrepreneurship is a unique, prolonged hardship, distinct from even painful experiences like kidney stones. If the primary goal is financial gain, there are far more efficient routes than starting a business. True motivation should stem from an unwavering belief that the problem being addressed is the most critical in the world.

AAN, co-founded by Sadi Khan, aims to dramatically reduce the cost of capital for consumers. The company recently secured over $110 million in Series E funding at a $2.2 billion valuation, doubling their previous valuation. Their mission addresses the staggering $1 trillion in credit card debt in the U.S., where consumers pay nearly $200 billion annually in interest alone. AAN's innovative approach centers on making secured debt, like home equity, as accessible and efficient as unsecured debt, which is currently expensive.

The company's flagship product, the AAN home equity-backed credit card, combines a home equity line of credit with a credit card, aiming to reduce interest rates by 50% in as little as 15 minutes. This innovation stems from a deep understanding of the inefficiencies in accessing home equity, which is the largest asset class for U.S. consumers but takes weeks and thousands of dollars to access. AAN is committed to continuously developing products that offer the lowest cost, most convenient, and transparent access to capital for homeowners.

Short Highlights

Founding a company requires an exceptionally high level of conviction, expecting decades of work without guaranteed pay and potential rejection.
AAN's mission is to reduce the cost of capital for consumers, tackling the $1 trillion in U.S. credit card debt and the $200 billion spent annually on interest.
Their core thesis is to make secured debt (like home equity) as transactionally efficient as unsecured debt, which is currently expensive.
AAN's flagship product is a home equity-backed credit card designed to offer a 50% interest rate reduction in as little as 15 minutes.
The company prioritizes hiring and retaining elite technical talent, looking for raw intelligence, strong work ethic, and mission alignment.

Key Details

The Extreme Difficulty of Starting a Company [0:00]

Many people are told that starting a company is difficult, but they don't truly believe it until they experience it themselves.
The speaker has witnessed this disbelief in many aspiring founders and has also become one of those who issue this warning.
The most crucial advice for any founder is to have an exceptionally high degree of conviction in the problem they are choosing to solve.
This conviction should be greater than for any other commitment made in their life.
The hardship of a startup is a unique and prolonged type of difficulty, lasting over a significant period.
If the primary motivation is to make money, there are many easier ways to achieve that.
Founders should only embark on this path if they believe the problem is so important they are willing to work on it for decades without pay, recognition, or with potential rejection.

I think the most important advice I would give any founder is the level of conviction they should have on deciding this is the problem that they're going to work on should be extremely high.

AAN's Mission and Funding [2:40]

Sadi Khan is the co-founder and CEO of AAN.
AAN recently announced a Series E fundraising round, raising over $110 million at a $2.2 billion valuation.
This valuation represents a doubling from the previous year.
AAN's core mission is to reduce the cost of capital for consumers.
Currently, consumers in the United States hold $1 trillion in credit card debt.
Consumers pay approximately $200 billion annually solely on interest payments, not including the principal.
A 50% reduction in these interest payments would save U.S. consumers $100 billion every year.
The company's thesis is that unsecured debt in the U.S. is expensive but easy to access, while secured debt, backed by assets, is cheaper but inefficient to access.

AAN's mission is to reduce the cost of capital for consumers.

The Problem with Consumer Debt and Inefficient Access to Capital [4:45]

Home equity is the largest asset class owned by U.S. consumers.
However, accessing home equity typically takes weeks and incurs thousands of dollars in origination fees.
AAN was founded to solve this problem by making access to home equity more efficient.
Their flagship product is the AAN home equity-backed credit card, which functions as a home equity line of credit and a credit card.
The goal is to reduce interest rates by 50% in as little as 15 minutes.
AAN plans to continue developing new products to provide the lowest cost, most convenient, and transparent access to capital for homeowners.
The speaker retired from Facebook and, after a short period, felt a lack of societal contribution, leading him to seek ways to help people become wealthier.
One way to help people become wealthier is by helping them save money.
A graph from the CFPB shows that total credit card revolving balances have grown to $1 trillion over decades.
Simultaneously, credit card interest rates have remained consistently high, between 20-25%, for over half a century.
Despite technological advancements like the internet and new currencies like Bitcoin, the cost of capital for consumers has not decreased.
AAN aims to make accessing home equity, a major consumer asset, more efficient, reducing the weeks-long process and thousands of dollars in fees to potentially 15 minutes with significantly lower transactional costs.

If we can reduce that by 50%. Then we will have saved US consumers a hundred billion dollars every single year.

The Importance of Elite Technical Talent [10:50]

The speaker's experience at Microsoft and Facebook highlighted the immense value of an elite technical team.
The difference between a top-tier engineer (99th percentile) and a highly competent one (95th percentile) is substantial.
Investing resources in acquiring and retaining the best technical talent should surpass all other investments.
At AAN, the absolute highest priority is the recruitment and retention of the world's best technical talent.
Three key qualities are sought in great technical talent:
1. Raw Intelligence: The company seeks the smartest individuals globally, looking at SAT scores, transcripts, and grades in difficult technical courses like operating systems, distributed systems, and compilers. They value individuals who tackle the hardest courses available. Intelligence is considered massively underrated in product and company building.
2. Work Ethic: Intelligence is useless without the motivation and endurance to apply it. AAN looks for individuals who can work hard consistently over time.
3. Alignment of Mission and Ambition: Candidates must align with AAN's mission of reducing the cost of capital for consumers and possess the ambition level required for such a large undertaking. This allows them to sustainably pursue the mission for extended periods.
Success for AAN hinges on finding and retaining the absolute best technical talent.

the differential between the 99th percentile or the 99th.9th percentile engineer and the 95th percentile engineer is fast, is not small, is a hugeT difference.

Deep Understanding of Product and Industry [15:10]

The speaker emphasizes the importance for founders and CEOs to be deeply involved in product details.
For AAN's home equity-backed credit card, understanding the legal and regulatory landscape was crucial, as it's a highly regulated industry involving both mortgage and credit card products.
The speaker personally reviewed regulations like Dodd-Frank, the Card Act, and Tila to ensure the product could be built safely and compliantly.
Building something new requires understanding past attempts to do so efficiently.
Most new ideas are initially bad; only a few are genuinely better than existing solutions.
To assess a new idea's merit, one must understand the history of similar ideas and products.
This requires investing time to learn deeply about the industry, domain, and the work of those who came before.

In order to build something new I think you must first understand the history of what has been tried before so that you can efficiently build something new

Product Development and Early Challenges [18:50]

In the first 2-3 years, AAN made product, people, and process decisions.
The speaker believes they could have been more ruthless in prioritizing the initial feature set for their flagship product.
Many product managers would retrospectively cut features from their initial launches to ship a narrower, more focused version to a smaller audience.
AAN's initial product could have been simpler and narrower.
In the early days, consumers were often skeptical, questioning if AAN was a scam due to the speed and nature of their offering.
The company received tickets and calls from users unsure if they were legitimate, sometimes requiring personal intervention to reassure them.
The ability for a real person to speak with a potential customer often provided the confidence needed to proceed.
Many early users were on the fence about home equity lines of credit and would "test" AAN's 15-minute process, often switching from other lenders once they experienced the speed and convenience.

we would get tickets and calls to say we don't know if you guys are a scam or not.

Maximal Rationality in Leadership [22:55]

The speaker's ideal form of leadership is maximally rational, a principle learned from Mark at Facebook.
Rationality leads to predictable behavior, which is crucial for team members to understand and replicate a leader's decision-making, even in their absence.
The goal of a rational leader is to make decisions so logical that anyone with the same information would arrive at the same conclusion.
A leader's incremental contributions are typically more context/information and the ability to optimize for a longer time horizon than individual contributors.
Leaders should share this context and information to enable others to reach similar conclusions.
Decision-making based purely on emotion, while sometimes correct, is difficult to scale. Explaining the logic behind a decision is far more effective and scalable than simply stating a personal feeling.
This clarity in "why" is essential for perfecting execution in any company, from the CEO to the individual contributor.

If I were to just make decisions because I emotionally felt like this was a good decision or not. The problem with that even if I'm occasionally right, they're very difficult to scale.

Profitability and Mission Alignment [26:50]

To achieve AAN's mission of reducing the cost of capital, the company must first survive ("not die").
Survival requires generating profit and operating as a sound business.
Profitability should be derived from the savings brought to consumers, as this represents the value created.
The goal is to be profitable by saving people money, aligning profit with the mission.
The speaker dislikes pros and cons lists, finding them ineffective.
A more effective decision-making framework involves:
1. Identifying and prioritizing the key decision axes (e.g., price, performance, reliability, style for a car).
2. Evaluating each option against these prioritized axes.
This method focuses on underlying priorities rather than just comparing options directly.
This decision-making process is taught at AAN's boot camp and is used by the speaker for personal and professional decisions.

Our profit should come from savings that we bring to the consumer because that's the value we've created.

Simplifying Life and Optimizing Environment [30:40]

The speaker advocates for simplifying life as much as possible.
He wears the same clothes daily (black t-shirt, blue jeans, vest).
His personal life is described as "boring" and routine: living close to the office, not drinking or partying, enjoying family time, cooking twice a week, and going to the gym.
He optimizes his workstation setup across three locations (office and two homes) with identical keyboard, mouse, and monitor layouts to minimize setup time and typing errors.
AAN's location in South Bay, rather than a major city, is chosen to provide employees with calmness and focus, away from urban distractions.
The speaker embraces a "boring" life, finding happiness in predictability and a lack of surprises.