CEO of Sezzle: FinTechs should be their own worst critic

If Sezzle CEO Charlie Youakim had to write a book about the FinTech bubble bursting in 2022, he’d call it “Crazy Money.”

That bullet came up in a conversation between Youakim and PYMNTS’ Karen Webster during the first discussion in the new series “FinTech Reset: The Pivot to Profitability.”

Webster threw out some startling statistics to set the stage, noting that approximately $130 billion was invested in FinTech startups in 2021 alone, a 169% increase over 2020. During that year, Twitter and Block founder Jack Dorsey was worth more as an individual than US Bank, and for a while PayPal had a higher valuation than JP Morgan.

It’s all to illustrate the “mad money” that investors and venture capitalists threw at every idea, as the growth-at-any-cost mentality set aside profits and sustainable business models, promising “growth”.

“We had such a hot market for so long, it was just money chasing money; the ground had left the building,” Youakim said, recalling companies that raised $300 million to $400 million, and when the hammer fell, some had only $20 million in revenue.

“It’s absurd,” he said.

In the buy now pay later (BNPL) installment credit room where Sezzle operates, the mad money atmosphere found some FinTechs paying $500 apiece to acquire a customer.

“This irrationality of money pouring in and creating competition for customers and mindshare created tons of irrationality where rationality used to exist,” he said.

Into 2023, Yoakim said Sezzle is profitable, but it took hard choices and tough actions to get there.

Pivot to profit

For Youakim, a survivor of the dot-com bubble, it started to feel a lot like déjà vu again in late 2020 when Sezzle telecommuted during pandemic shutdowns and he spent some of his time in Puerto Rico. There, he watched as cryptocurrency money began to flood the real estate market, and developers worked seven days a week to put up $38 million houses for this newly minted crop of crypto millionaires.

It just didn’t add up, he said, and soon FinTechs took their place alongside crypto companies, promoting a false sense of business prosperity and success.

“It became pretty clear that things were getting inflated because you saw this crypto money coming in and you could sense that these weren’t real businesses, not real ideas,” he said. “It was just, ‘Make a coin, convince a bunch of people to invest in it, and you’re going to make a bunch of money’.”

The war in Ukraine that started in February 2022 was a turning point. Inflation was already rising to scary levels, and VCs were questioning business models. Even Sezzle’s stock took a hit.

But Sezzle had already started strategizing how to turn from acquiring as many new customers as possible to becoming a profitable business when yellow arrows started flashing red.

“That’s when I started feeling, ‘Oh no, things are going to start going south,'” Youakim said. “That was probably in November 2021. So we started talking internally about what we needed to do to get to the point of profitability as a company.”

Make the tough calls

Sezzle found itself “challenged unit financially as a company”, which meant some deals with large trade customers had to be repriced, he said. Going back to corporate partners and renegotiating pilots was difficult, and not without consequences as some of those deals fell apart.

In addition, he said too many cohorts of the portfolio were unprofitable due to processing costs or lack of purchase frequency and had to be cut. Due to Sezzle’s scale, many of these changes took months to implement, including lending parameters that were tightened and unprofitable cohorts that had to be removed.

Sezzle also began encouraging customers to use automated clearing house (ACH) wire transfers instead of cards for payments, which Youakim said was easy compared to other difficult choices that had to be made.

“We had to do a layoff,” he said. “I’m not proud of it. It’s the only time I’ve ever done that in my career, and I never want to do it again.”

Along with that, Sezzle dissolved its international operations because they were some of the most unprofitable on a unit financial basis.

Fast forward to late 2022 and early 2023, and some of the frustrated partners began to see that Sezzle was aware of market problems and transparent in its approach to fixing the model.

“Because we were so early on the pitch, I think in some ways it’s a feather in our cap because they saw, ‘Hey, this partner, Sezzle, had a lot of foresight,'” he said. “‘They saw this coming and adjusted earlier than most.’ Most people want to work with smart partners. I think in some ways it helped us with those relationships because we were so honest about it.”

Building a better business 101

Changes enacted during this time included a different view of how to spend capital responsibly when surrounded by others who spend like the proverbial drunken sailor.

Youakim spoke of management at other FinTechs “who wouldn’t mind playing financial mind games or tricks as to where the true costs are,” citing the example of the FinTech that spent $500 to acquire a customer.

“It’s not realistic,” he said. “It is not sustainable. It’s a game. You’re just playing a game to float higher numbers, but the game is really going to come down to you in the end.”

Be your own biggest critic

Another part of the internal work the company did was a series of town hall meetings with younger employees who had never been through a market crash, at least not as working adults.

“Most of them have never experienced a downturn,” Youakim said. “They don’t even know what the hell we’re talking about, quite frankly. We explained that we had to go from growth to profit in the town halls. I would take basic business courses on gross profit, profit margins, operating costs and how we need to have operational leverage.”

Employees were terrified of reactions from stakeholders, and not without reason. He said he knew changes the company made would upset some stakeholders — and they did. His job was to manage and “mitigate that part of the journey.”

Today, as one of those who took the bitter medicine and is thriving, Sezzle’s advice to FinTechs trying to do the same comes down to a few basic but important tips, Youakim said.

The first is to “be the biggest critic of your own business,” which is an unfamiliar mindset to many, he said. He also advises to look clearly at barrel speed and burn rate.

“If you only have 18 months of runway, … you should make sure you’re already profitable in six months, so you have some cushion,” he said. Otherwise, you will be the subject of “will they make it” talk.

“I think the pendulum has definitely swung towards profitability,” he concluded.

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