In 2006, LendingClub set out to disrupt the out-of-date lending industry in the United States with an approach that no one had ever seen before. In 2016, LendingClub was disrupted from reaching their goal due to a controversy that would set into motion a series of events that put into question the entire model of lending that they pioneered.
Watching unicorns rise and fall in this day and age is Hollywood script type material, but the reality is this wasn’t a fall, this was nothing more than a bump in the road that can often be seen when true innovators push the boundaries of the status quo. Take Apple that almost failed back in 1997 before rehiring the founder and man they fired, Steve Jobs to forever reinvent our mobile lives. Take Jeff Bezos, who has been questioned since nearly day one about his approach to building Amazon. So many investors have lost out on huge returns because they didn’t believe Bezos could build a product so powerful that profitability would have to be inevitable.
In the case of LendingClub, one man was tasked with saying how do we reset people’s expectations, rebuild confidence in an industry we created, and once again set on the path to reimagining the consumer lending market? Scott Sanborn, CEO of LendingClub has led a group of 1,500 passionate individuals back to their position as the preeminent leader in the peer-to-peer lending space over the past year through focus, tenacity and an emphasis of staying true to their core values.
What LendingClub is doing right now is analogous to the pioneers of mobile (Apple) and e-commerce (Amazon), but this time the stakes are even higher, because we are talking about reimagining the most antiquated, and yet most important industry to our lives: financial services. I believe very strongly that Scott and the team are charting a new course for finance that will prevent what would be the next financial collapse and will help improve the financial lives of millions of Americans. Exciting days are ahead for the LendingClub team.
Check out my discussion with Scott as we discuss overcoming adversity, growing an organization amidst a challenging regulatory environment and find out what it takes to build a powerful consumer financial brand while of course driving towards Simple.Innovative.Change.
CL: Scott, you have spent your career working across consumer oriented brands in varied leadership roles and have spent meaningful time as a CMO including at LendingClub. Can you tell us a bit about the steps in your career and how your career has led you to this point?
SB: Through my career I've always had a balance of working with the very analytical side of my head and the creative side of my head. It even started in college, which included me going from being an economics major to a literature major. After graduating, I initially started in advertising, and what I loved about advertising was that there's a business problem you're trying to solve and you're trying to figure out how to enter a market, how to price a product, and how to communicate, but you have a creative solution through your marketing.
I moved from traditional brand advertising, when the internet became a thing, into online advertising, which really satisfied that more analytical part of my brain. Because, the problem with traditional advertising has always been that it is very hard to directly connect your effort to the outcome, whereas with online advertising that connection is much more direct and visible. In the early days of the internet it was all about helping businesses understand, "What is my strategy online, and how should I engage with this new channel?"
From there I moved to the Home Shopping Network where I helped launch their e-commerce business, which became quite successful and they became a top-20 e-commerce player. What I loved about moving client-side was really owning the whole business outcome. I viewed my role very much as using marketing and sales, and the customer experience to drive business results.
I went on to work in several similar roles, but eventually wanted to look beyond retail. I was fascinated by services, financial services specifically, because of the size of the market and how un-disrupted it still felt to me. That’s how I ended up at a company called E-Health, which is like an Expedia for health insurance, where I held a Chief Revenue Officer role that oversaw everything from customer operations to marketing and business development.
During that time, I had been a huge fan of the business model at LendingClub from the outside looking in, and I had talked to the company a number of times over several years about their work. Finally, in 2010 when I felt like the time was right at the company, and that they had solved some of the problems that I couldn't help with, and still had a set of problems that I felt I could help solve, I came on board as CMO.
CL: The LendingClub story is a fascinating one and one that I've followed from the early days. So how does it feel to sit here and realize that so much of what is here today and the proliferation of all these different lending platforms is really because of this company and this team and what you have been able to build?
SB: I think it is exciting. It's very gratifying to see how the initial idea has gained traction and how that has spawned new players who are bringing new energy and new ideas to different segments of the market. I think the clearest benefit is looking at how much value we've driven to consumers and investors.
For example, the personal loan market was actually shrinking when we first started. It shrank like 57% from 2007 to 2010, and yet we were still able to give people access to this credit at a lower cost than they could get it for otherwise. And we still do. Now, it’s exciting to see what other people are bringing to the party to help drive that kind of value, even to other categories of financial services.
This industry was a hold-out because it's complicated and because it's highly regulated. But now that we've shown that the technology can drive value, we're seeing similar innovation in Insurtech and other places.
CL: There's this great photo from the day of the IPO back in 2014 in which you can see just how elated you were. At the time you were the CMO and it was a very happy day, but when you stepped into the CEO role recently it wasn't necessarily under the happiest of conditions. So, how have you handled the ups and downs of being a part of the Lending Club team, and how are do you lead the team through these challenging periods?
SB: Ever seen that graph that shows what it looks like from the outside -- this straight line up to the right -- and then what it feels like – an erratically up and down line? It’s always been a bit of a roller coaster, in the best way. There have always been new challenges to solve and new pressure points that you need to relieve.
Last year was markedly more intense than those past. How did I get through it? It wasn't even a question in my mind. I am super-committed to this business and I continue to have just incredible conviction that we are still in the early innings of what we can do. The way I think about it is, suit up and get in there.
What did Churchill say? "When you're going through hell keep going?"
CL: That's the answer you want to hear, by all means. Since becoming CEO at LendingClub, what have you learned about your own management style and how are you navigating the transition to this role?
SB: I think I knew going in, and what has proven itself to be true, is communication is critical. Communication with employees, communication with your customers, communication with your investors and stakeholders. You can't do enough of it.
So much is swirling and changing in real-time, which means you need to keep everyone in the loop. In those early days after I stepped into the CEO role, I can’t tell you how many times we pulled all 1,500 employees together and marched them across the street to a hotel, to fit them into one room and explain, "Here's what's happening. Here's what we know. Here's what comes next." That was certainly critical. And then I think setting very clear milestones for the company to rally around like, "What are the things we can control and how are we going to focus all of our energy on nailing those very specific things?" And in some ways managing in that environment is actually easier because it's so clear, right? These few things matter, and they have to be delivered, and all energy can go to those.
Lastly, we have focused tirelessly on assembling the right team. When a business is growing 80% to 100% a year for so many years it's hard for the organization to keep up, and this was an opportunity to say, "Okay, new reality. Let's look at what the right foundation is for the next decade of Lending Club." Making sure we focus on assessing the right kind of talent that we plan on needing and getting them pulled in has been really critical. I'm very excited that the people we've brought in have all within weeks added tremendous value and hit the ground running. That feels very good.
CL: To that point, what type of individuals are you looking to bring into the LendingClub family to establish the right culture and foundation for the next ten years?
SB: One of the keys to our success, which will not change, is this ability to blend people know how with people who question how it's done, and, ideally, have that be in the same person.
Going back to my hiring I kept thinking, "I'm not a financial services guy. Why should I join this company?" And the answer was, "Because I'm not a financial services guy." But in order to be effective I need to surround myself with a few people who are so that we, together, can say, "Okay this works, so let's not re-figure this out. But this other thing, let's ask ourselves, 'Why is it done that way and is there a better way to do it?'"
So, we're looking for people who bring that intellectual curiosity, that passion for innovation, the ability to evolve and change, and also ideally have a base of experience that enables them to identify where the third rails are and what path has already been trod and can identify where we want to forge new ground.
CL: One of the other reasons that I wanted to speak with you is because I often speak with seed and series A Fintech startups that'll eventually face the challenges of being a larger organization if successful. So, what do you think are the challenges associated with trying to be an innovator while also being a larger organization?
SB: We have thought a lot about this, and I have individually talked to a lot of companies about that transition. I can remember in the early days talking to Google. Google was an investor in LendingClub, and we were chatting with some of the executives there about, "How did you guys maintain your culture when you were growing, and had people you didn't know hiring people you didn't know?" Their answer was, "You don't maintain your culture. You maintain your values."
Literally, I left that conversation, and sat down with several team members in a room and said, "Okay, what are our values?" It was remarkably easy, actually, to identify what our values were. We put those down on paper and we revisit them, probably annually, maybe every 18 months or so and say, "Do they still resonate? Are they still right for this stage of the company?" Essentially all of our initial values have remained intact and we've added one or two as we've grown to reflect the new stage of the company.
Since then we have remained crisp on what our values are, and we have made sure we’re hiring to those values, and that our performance reviews reflect those values as well. That's how you keep the essence of a company and that integrity of the company as you grow. The reality is, as you get bigger and layers get introduced and processes get introduced maintaining that value system will help the company stay, essentially, intact and stay functioning well.
CL: That is something you see with a lot of larger organizations as they grow. The layers start getting added and the complexity comes with it and then suddenly these organizations have all of this bulk that's not really driving the mission of the organization. And that's a challenging thing to watch.
SB: It's interesting. That comes down to having the right decision-making framework, setting clear accountability, making sure people know where they can and are empowered to make a decision and what kinds of risks they can take.
We're allowing people to be wrong in areas where it's not threatening the business to be wrong. I can tell you, when I was running operations, somebody came in and said, "Oh, at my old company we had a change advisory board,” which was a board that would review any potential changes. Think about with us. We're launching new product features all the time, and those product features have implications on the customer, which has implications on your operations. So, we have an advisory board that involves all of these people to say, "Hey, are these changes okay?"
We rebranded it and said, "Okay, that sounds like a great idea, but it's a change acceleration board. That's the name of this team, and that's why you're here, is not to tell us why this change won't work, but it's to tell us how you're going to implement it, and how you're going to implement it as quickly as possible." Getting that mindset right in the company is really important to making sure people know who's the decision maker, how much authority they have, and that it's okay to be wrong. Because there are certain things we can talk about until we're blue in the face, but let's just do it and we'll see who is right. It's a lot faster than analysis paralysis.
CL: As you roll out new products and expand how do you manage growth versus profitability, and how do you manage growth in a highly regulated industry while still being really innovative?
SB: The growth has really been an outcome of the value LendingClub brings to the market, which is if you've got a compelling offering for borrowers they take your offer. If you have a compelling offering for investors they provide capital to fund the loans. We really, historically, leaving aside 2016, had not been constrained on either side, so we set a plan and we executed against that plan. With the learnings of last year we're, obviously, being more deliberate and are near-term course setting. But I think we built a company and we've built systems that are scalable and that allow us to continue to add to our customer base and grow in a way that is responsible.
CL: As a former CMO how do you think about branding the organization to become a household name consumer financial brand?
SB: One of the appeals for me of joining the company was exactly that. Go back to 2008 and 2009. The system had collapsed and some viewed the participants in the system as having caused the issues in the first place. Consumers were angry that their dollars were being used to bail out banks. And I looked at LendingClub and said, "Wow, this, in a lot of ways, is an antidote to the sickness that everybody is feeling." And on a practical level I felt that the business model made sense. On an emotional level I felt like this brand has incredible appeal, and I was very excited to build it.
I can remember when I joined I said, "God. I really don't love the name LendingClub," and the then CEO said, "Well, then, change it." At the time I said, "No. We can't focus on that now. Let's focus on building a business and showing that we have traction and then we'll focus on filling in the other pieces of the brand." When you have a single product like we have had historically, it's really more of a transaction that we've been enabling. As we add other products I think the full potential of the brand is something I'm excited to realize.
Our auto refinance loan is an example of that. People come to us because they're expecting a great experience and value. In personal loans we say, "We know you have a loan. It's not a very good one. It's a credit card. Do this instead." We're now able to say, "Hey, we know you have an auto loan. It's not a very good one. We've got a better one for you. Do this instead." As we start to round-out their experience in other touch points I think that that's going to give us a lot of momentum going into the future.
CL: As you become that recognizable consumer financial brand, what role do you see Lending Club playing in the continued building of the alternative lending and investments space?
SB: A leadership role. There's a lot of ways you can define scale. For me that's how many customers have we served, and we've served 1.8 million very well. They are very happy with us and we're glad to have them and we're looking forward to finding other ways to add value to their financial lives.
CL: As we look to the vision of the future loan markets, do you think that startups will increasingly become the sourcing mechanisms of loans with financial institutions acting more as the wholesale banking providers?
SB: I think we're not done seeing the different types of models that could emerge and how they could participate, and I think that's part of what's exciting. Not all of them will be great ideas, and not all of them will work, but some will.
We are certainly seeing an interest now from the traditional financial institutions to participate in some way. Some are looking to do it directly, like Goldman Sachs with Marcus. Others are looking to partner with some of the existing providers and either use their technology to make loans to their customers or provide capital, and that's a huge win for the customer.
If you look at our model, banks provide between a quarter and 30% of our funding and they have a very low cost of capital. When you combine their low cost of capital with our low operating cost it allows us to give, especially that super-prime customer, an incredible value that they couldn't get at these institutions directly.
CL: Before we end this conversation we need to talk about the fact that you were just named the CEO of the year. Congratulations on an immense accomplishment and what does this recognition mean to you at this point in time?
SB: Thank you for that. I am grateful. I feel like it’s something that is a reflection far beyond me. It really incorporates the pretty incredible efforts of about 1,500 people who when things got very, very difficult they stuck around and dug in. The amount of hours worked by the core of the LendingClub team who dropped what their day job used to be and said, "How can I help?" is inspiring. We had people in finance join the auditing team. We had people in small business join the investor team. People rallied and really demonstrated their commitment to the company, and that's what really helped us stabilize the business and build the foundation to resume growth.
The Minute Rundown with Scott Sanborn
CL: If you could provide one tip to someone considering being a CEO, what would it be and why?
SB: Understand your strengths and weaknesses, and surround yourself with people that allow you to play to your strengths and help you address your weaknesses. I can't emphasize enough the importance of having the right team around you, especially depending on where someone is in their career.
If you've come up this particular path and are used to being the one driving, when you get into this broader function it can't just be coming from you anymore. You can set the agenda, but you need input to that, and then you're really relying on these teams of different degrees of expertise to drive that vision through.
CL: What is something you wish you'd known back in 2014 when Lending Club first went public?
SB: That's an interesting question. Let's talk about why we went public. Since we offered a public security we were already a public filer of our financials and we saw that the incremental burden of becoming a public company was something that was attainable.
As we measured the benefits from a brand perspective of going public in terms of awareness and credibility, the value on both sides of our customer equation seemed to be there, and I think all of that has proven to be true. It also provides access to capital to fuel our ambitions in terms of growth.
So I think all of those assumptions were sound. On the flip side, when you go through an event like LendingClub did in 2016 that clearly would have been a lot easier in a private setting.
You've got to know what you're signing up for and what the incremental burdens are of being a public company.
CL: If you could model yourself after one founder who would it be and why?
SB: That's a fabulous question, and one I'm going to take several minutes to think about. You asked the question about a founder, and I think that in and of itself leads to a certain personality type. You create something from nothing and that can often come with the downside attributes too. Keying off of my LendIt keynote, I would have to say Jeff Bezos. He is somebody who saw an opportunity, and found a way to enter the market in a way that was delivering a value. And, he has just continued to drive incredible, relentless innovation, that has continued to benefit customers for two decades now.
The LendingClub story is one I have followed for many years and I have also invested in the loans sourced on the platform. It is pretty incredible that we as individuals now have the ability to invest in loans as if we were the bank. Consider the fact that 99.6% of investors on the platform have experienced positive gains across their LendingClub portfolio.
If you stripped away the news headlines from the past year, what you are left with is just a really unique and innovative product for all parties involved. That great product just needs the right guiding hands because the user experience speaks for itself.
That’s where Scott comes in. He has the right appetite for innovation, the right consumer knowledge set to build a powerful brand around a great product, and the perfect stabilizing nature to enable everyone to do what they do best at LendingClub: build amazing financial products.
Scott’s management style and focus on seeing LendingClub succeed is invigorating. This is a story worth following. I have no doubt big days are ahead for Scott and all 1,500 members of this fantastic organization. Peer-to-Peer is the way of the future. The pioneers of the industry have landed and they are here to stay.
Chris Lustrino owns LendingClub stock.