I’ve been really lucky that I’ve never had to join a company that I didn’t really want to be at. I had high hopes that Point Digital Finance (Point) would be a company where I would stay for a while. For a long while that seemed like a distinct possibilty.
This post would not exist if that remained true. One month ago I decided to move on. It was the right decision, but one that I was rather sad about. Getting to that decision was a long process and one that has changed how I view my future career steps.
How I got here
The last five years were really about discovery. I had spent nearly my entire career in smaller, earlier stage startups, with the temporary forays outside of that space maintaining the same core. I really felt the need to see what else was out there. Not as much to see if the grass was greener, but to verify if what I was standing on was even grass in the first place.
The move to Amazon made sense. I wanted big, international company experience and I was guaranteed to get it there. Afterwards came a period of wave chasing. I felt like we were in the middle of an asset bubble and the best place to be would be in something trendy. Scale (in AI) fit that bill but was a burnout and attrition factory. Point (in Fintech) also fit that bill, with the added benefit of being a lot saner place to work.
An Aside into what Point Digital Finance Does
Point offers homeowners Home Equity Investment (HEI). In a traditional home equity loan (HELOC), a homeowner get a loan secured against the difference between how much the home is worth and how much money is owed to other parties (equity). The homeowner then repays this amount over time, with payments for principal (the loan amount) and interest (the cost for borrowing the money). With an HEI, the homeowner sells off a portion of that equity and the new owner of that equity gets a share in the final sale of the home. No monthly payments, but the overall cost could be high if the housing market appreciates a lot.
This market has four essential roles, the homeowner that owns the home with some equity, an investor with money and interest in the equity, an originator that creates the investment, and a servicer that handles the maintenance of the investment over the term of the investment. Modern finance is really complex, but zoomed out far enough an investment manager has two primary jobs. The first (goal 1) is to make investments that grow the amount of money that they are managing (also called yield). The second (goal 2) is to not lose all that money. Where it gets challenging is risk and return are often directly correlated so investment managers tend to design portfolios with different risk buckets.
What does this aside to the aside have to do with the story? Well, One traditionally safe way to accomplish goal 2 is investing in single family home mortgages and single family home mortgage backed securities. But since about 2011 or so that investment has been really bad for goal 1, with 2019-2022 being exceptionally bad. Just as bad as this period was for investors in mortgages, it was great for homeowners in most markets who saw huge increases in home values. What HEI’s let investors do is tap in to Single Family Home market (traditionally safe exposure) but get returns on appreciation instead of the paltry interest rate. Goals 1 & 2 accomplished!
What I Think About the Market Outlook
The economic environment helped companies like Point establish HEI’s as a valid alternative to HELOC’s along with establishing regulatory guidelines. I’m proud of the work that we did at Point to improve our compliance to offer the same level of consumer protection as the well established HELOC market.
Of course we aren’t in that environment anymore. Interest rates are now higher than they have been in decades and the returns on the traditional products are more than sufficient for most portfolio needs. For complicated financial reasons, the traditional products are selling at a discount right now, so term yields are even better. The triple whammy is high interest rates historically mean depressed housing prices and therefore less appreciation. A riskier investment, with a lower upside, when yield requirements are already being satisfied has a really hard road in the financial market.
So it’s pretty bleak alternative home financing world and I’m having a hard time to having an optimistic outlook on the future. I could see the current holders of very low interest rates wanting cash without an additional monthly payment in the future, but that market could take time to develop. I also think that means making customers of formerly prime borrowers that have become subprime borrowers and I don’t have the financial sophistication to analyze the implications of that thought. Housing appreciation has almost always exceeded cost of financing which potentially gives room for the HEI model. My guess is that this requires a more certain macro-economic environment and that’s also something that’s going to take time.
I believe time is going to be a challenge for the incumbents in the market. It is really hard to create a new market, but once established, new players free of legacy encumbrance can efficiently sweep in. A pause gives them time to do so competitively. The fact that this is my concern exposes that I don’t really think Loan Origination is a fundamentally hard problem. I believe that part will be commoditized with the winners being the ones that can most efficiently match homeowners with investors. The moat is scale and not technology.
The market conditions weren’t the only thing in flux. Point’s engineering team was in the middle of the transition from “small company” to “large company (tm)”. The big draw to Point was that the culture was unique and refreshing, and I was curious what would remain as the company embarked on its rocketship-growth phase. During this period, the engineering team doubled, eng leadership almost completely turned over, general teams were turned into specialized product delivery teams, and we started augmenting our group with specialists. Processes changed as well with increased standardization on Scrum, a stronger emphasis on metrics, and a desire for longer term planning.
All of this requires a minimum baseline of resources to be effective and during the transition period there will always be a disconnect between the needs and the resources available. You need the right number of managers, platform and dev-ex engineering teams, the product managers to support those teams, steering committees, project managers to coordinate all the chaos, and a performance management culture to ensure that people are in the correct place and going in the correct direction. Of course nobody has this on day one, companies have to grow into and build out these functions. We often term these as growing pains and they do get better with growth. Unfortunately the market conditions meant we ended up getting smaller. Growing pains without growth is just pain.
Time for a Change
To tie the threads back together, the bleak market conditions made it harder to see a path forward. Everything has a tradeoff and the time spent at work comes at the expense of time doing other things. I had to make the hard call that this was now too high relative to the value and it was time to take that career break I had been promising myself for a long time.
It’s been one month and been great with time to do things that I haven’t time for in a while. I did some art projects with my daughter. I upped the mileage on my bicycle and signed up for another sprint triathlon. I might do some crazy travel bike rides. I binge read an entire book series. I started a side-project using svelte. Between all of this I spent a lot of time being completely unproductive. It has been awesome.
I also had the chance to reflect on what I’ve valued the most in roles I’ve had. I enjoy building environments for collaboration where new ideas can be surfaced. I like helping people achieve their goals and get better. I also like being around really smart people that can push my own growth forward. My favorite roles have been where I was close to the product and customers and could fully understand the problem. Most importantly, I get a lot of personal satisfaction from building software for people and having a large impact. So adding to the list above is finding the type of place where I get to do all that.
A major lesson is that market timing is really hard. I’m very happy that it is not my actual job. Inflation picked up, Russia invaded Ukraine, and valuations have seen a bloodbath across the board with “uncertain macroeconomic environment” becoming a popular catch-phrase. I was caught off guard by just how much of an impact this would have on the market segment that Point operated in and what that would mean for the culture. I did not anticipate multiple rounds of layoffs and feeling lucky that it wasn’t worse.
Another one a company’s teenage years are tough and transitions are hard. It’s nicer being on one end or the other.
A final one is proactive work to get closer to product and end-users is required. This is something that I lost sight of during the COVID lockdown years where everything was over Zoom. Often engineering teams aren’t well setup this way, but putting in the extra effort does lead to better results.
For the near term, nothing. I promised to give myself 3-6 months to relax, reset, and recharge (though this can always be prempted with something awesome).
After that I honestly don’t know, the market is too uncertain (uh-oh, that theme again). I feel less of a need to explore the greenness of grass on the otherside. I’d like to get back into growth oriented B2B solutions with a strong engineering culture. Ideally I would get the mandate to work on org level concerns rather than it just happening, but that’s a bit secondary. But really I just want to be in a place where I can contribute a lot, have some fun, work with great people, and generally make things better.