The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch1 Mars 2021

20VC: Klarna Founder Sebastian Siemiatkowski on Scaling Europe's Most Valuable Private Tech Company, How To Motivate and Challenge Your Team Most Effectively & The Biggest Lessons From Working with Mike Moritz

Sebastian Siemiatkowski is the Founder and CEO @ Klarna, the company that makes online shopping simple, allowing you to buy what you need today and pay later. To date, Sebastian has raised over $2.1Bn for the company from the likes of Sequoia, Silver Lake, Blackrock, DST, Northzone, Creandum and even Snoop Dog to name a few. Klarna has been an incredible 16-year journey for Sebastian with it now being the most valuable private technology company in Europe with over 3,500 employees.

In Today's Episode You Will Learn:

I. The Importance Of Learning To Learn Fast

What is the best way to learn fast?

"People talk about it like there's this learning curve, and the best spot is at the place where you're challenged to the precise point where you're almost giving up, but not entirely. That's exactly it.

"And I have this amazing swim teacher for my children, her name is Petra, and she's just fantastic. I just love watching her because she has this ability of taking my children in the pool and pushing them to that exact point where they are almost, almost giving up, and they're learning at such a pace. And if I can recreate such an environment in Klarna, if I can create an environment, if I can be part of creating an environment where we put people in that position where they just are exactly at that curve where they are challenged, supported, and kind of at the edge and being given the ability to learn really fast and really discover what it means to have an impact."

Does Sebastian compare his work to other companies'?

"I don't think that much about what other people or other companies or other things out there could have done different. And there's pros and cons to that. But the benefits of that is that it speeds up my learning. Because a lot of people – and I've realized that as I manage other people – is that because they're so obsessed with trying to think about what other people could have done differently, and why situations arose, and why it wasn't their responsibility and so forth, they spend a lot of time on that, because we've unfortunately been brought up in some kind of guilt that it's bad to do wrong, and it's bad if it's our fault, and you want to avoid that.

"And these psychological constraints, unfortunately, hinder people from developing much faster, because if you go into every situation and say, the only thing that's relevant here is what I could have done differently, what I could have learned from this – if that's the only thing, it's just like, whatever, I accept my responsibilities. What could I have done differently? If you only focus on that, you just learn much faster."

How does Sebastian transform his self-doubt into a positive?

"I think self-doubt is not nothing. It's not a bad thing, right? It's a very healthy thing, if it represents you continuously trying to understand, am I doing the right thing? Is this something that I want to do? Am I making the right decisions? So I think it's extremely healthy to do that. I'm not saying it's not painful or tough when you have it. But I think it's a very positive thing.

"I'm much more worried when people tell me they have no self-doubt. And then I'm like, uh-oh, because that means that you're not really reflecting on your actions, and you're not learning from them. So I wish I could give you something more comforting than that, but I would actually say enjoy it. Be happy that you have it, and it's gonna make you a better person."

II. Sebastian's Management Philosophy

What does Sebastian believe companies can learn from soccer?

"I love the fact that Michael Moritz wrote this book that I still haven't read, so it's kind of funny that I'm referring to it, but he wrote this book about Ferguson, that manager of Manchester United. And I think it's very relevant, because today, the saying is that for people to be motivated at work, they need to have a higher purpose, the company needs to do something good, and so forth. And I am not disputing that, that is very true that it contributes to people's sense of purpose, and so forth.

But before you even get to that level, we have to ask ourselves, what is it really that makes people motivated and enjoy themselves? And I think when I think about that, I often look at sports, because why do people love soccer? What's the higher purpose of winning Champions League? People say, oh, there's a massive higher purpose, but not entirely, you're not really making the planet better by winning. Still, people are massively engaged in these things. Why?

"Because it's a team effort, there are clear roles, you know exactly what you're supposed to do – I'm supposed to put the ball in that score. And then it's very clear how you win, there is a referee that stops people from cheating. And so there's a lot of things in that environment that makes it motivating, that makes people engaged, and those things are usually lacking in companies."

How do you know when someone is at that crucial point of the learning curve?

"The problem with a company is that it's a much more complex environment with a lot of other things going on in parallel in people's lives. And so I have definitely occasionally missed to see that people are beyond that point."

"In Sweden, there's this course called Situation Adopted Management, which basically means that there is no single management technique. You look into the situation, you try to understand it from multiple angles. And then depending on where that individual is, and how you perceive the mental status, and the mood of that individual, and so forth, you try to adapt. Either you coach or you challenge or you instruct or you do different things. There's not a single methodology that will allow you to deal with those situations. But a lot of it is empathy. It's the ability to look at people and read them, and try to understand, and ask them questions, and understand where they are."

III. How Sebastian Manages Complexity At Scale

What are Sebastian's biggest lessons learned from Klarna growing to 3000+ people spread across multiple offices across the world?

It's the manager's job to deal with the complexity in a company
It's not for everyone

What role does Sebastian believe a manager should play in a company as it scales?

"I think a lot of times as a company grows, what ends up happening is the thing just becomes so complex. So management tries to organize the company in a way that makes sense to them and that is easy to understand for them. But the consequence of that often, unfortunately, is it makes no sense for the person who's actually doing the job. So they lose the purpose. Why am I coming to work? What are we trying to achieve? All of these things get lost.

"So what we said is, we have to do the exact opposite. The critical element is that the people who are actually supposed to do something – not the manager – the people actually supposed to do something, if they program or to do a marketing campaign, or whatever they're doing, they need to come to work every day and feel I know exactly why I'm coming, I know how I'm contributing, I know who I'm contributing for, I know what value I'm creating.

"And if that thing creates tons of complexity for us, as managers, because the whole system becomes much more complex, then that's what we're getting paid for. That's the one. That's why we're getting a good salary. Because we need to manage that complexity."

What does Sebastian look for in talent?

"Keep very close on the recruitment … Especially in a country like Sweden, a country where a typical saying is, alla ska komma med, which means, everyone should come, everyone should join. And it's very nice. And I appreciate that with Swedish culture, I'm not trying to really call it. I think it's fantastic and it's a fantastic society. But as a consequence, it took us some time to conclude something which maybe in the US or maybe even in the UK as it would have been much more obvious, which is that it's not a company for everyone. It is a company for the people that want to have that challenge, that want to be in that environment, that think that's interesting, that want to learn a lot fast, and want to get a lot of things done. And that's not everyone, and that's okay.

"Like when you play soccer – some people play soccer for fun, other people play to win the Champions League. People do it for different reasons. And they have different ambitions with it and different objectives with it. And the same applies to us.

"So it took us some time to realize that we need to tell people, look, just so you know, this is not going to be your standard company, you're going to be expected to do a hell of a lot of things, you're going to be expected to be challenged, you're going to expect it to do your utmost. And we're going to try to support you and help you and grow. So just know what you're getting into, before you get into it."

IV. Retail Banking 10 Years From Now

What does Sebastian see as the future of everyday banking services?

"One thing I would say, it's going to be a much smaller industry. And that's because it is ridiculous that moving money back and forth is a trillion-dollar industry. That is ridiculous. There is no good reason for that whatsoever. This is going to be a much more cost-efficient, much smaller revenue business than it is today. But even though it would be much smaller than it is today, it's still massive, and Klarna has the opportunity to be one big player in that industry, similar to what Tesla is doing in cars or whatever, that's what I want to do. And I feel we have all the prerequisites to accomplish that."

"There's going to be this push that's going to transform this industry and the people are going to lose on it are the suits in the marble offices in the city centers. That's where the pain is going to be felt, but the winner is going to be the consumer."

What do the next five years look like for Klarna?

"It's a little bit like self-driving cars – we all know it's going to happen, the question is when. And based on what I've seen in the last 15 years, and I've seen how retail has gone from retail to ecommerce and all these trends, this decade is going to be the disruption of retail banking.

"At the end of this decade, there will be a couple of new total players that will be very dominating in this space, and the rest will either cease to exist, will merge and try to acquire some of the new ones, or maybe a few of them will manage to reinvent themselves. But this is going to be an extremely interesting time."

Sebastian's Favourite Book: The Neverending Story

As always you can follow Harry and The Twenty Minute VC on Twitter here!

Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

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