Signals Fintech Founders: Ness's Derek Flanzraich

Hello Everyone! Keeping today’s edition of Fintech Founders short and sweet. Today we have the pleasure of chatting with Derek Flanzraich, the founder of Ness. Ness is a health and wellness company looking to fundamentally realign the relationship between an individual’s financial and personal health. Put simply, Derek wants all of us as consumers to be rewarded for making smart health and wellness decisions. Eat at Sweetgreen? You get a reward! Spend money on a wellness retreat? You get a reward! Go get a critical health check up? You get a reward! Put simply, Ness wants people to put their money where there health is, and to provide the appropriate nudges and incentives along the way.

As a second time founder, Derek has a ton of amazing lessons learned for both founders, operators, and VCs. I hope you all enjoy today’s interview. Let’s dive right in.

Derek! Great to have you on for the interview. Tell us a little bit about yourself, your background, and how you came to found Ness.

You got it. Thanks for having me Dez. Yeah, so Ness is my second company. My first company was called Greatist. Both companies have come from the same deep and profound passion I have, but also my biggest struggle, which is health and wellness. I started Greatist 6 months out of college to build a brand that talked about health in a healthier way. I felt, growing up, like everything out there was for people who already had six pack abs, and for Gwyneth Paltrow, and that didn't feel fair to me. It felt like health and wellness should be for everyone, and so I started Greatist. We ended up building the largest site on the internet for millennials who care about their health and wellness. We reached 15 to 20 million people every single month through fact-checked, expert-approved content, all written, though, in the voice of a friend. We ended up raising a bunch of money, and we ultimately sold that business to Healthline in 2019. From there, I took a year and a half off from starting companies to help other companies start theirs, but then I couldn't shake this feeling, like, no matter how friendly and accessible you make health and wellness, there's no denying that it's so expensive for so many people.

So that's what brought me to Ness. I had this idea of, “What if you could actually align incentives long-term with people, both in terms of their finances and their health?” Today, health and wellness are expensive for most people, and that's primarily because health insurance doesn't pay for it. At a very basic level, even though experts agree that eating well, and working out, and taking vitamin D, and getting therapy are good for you, no one's actually incentivized to care, because the health insurance plan and the employer that you work for only think you’re going to be in your seat for 3-4 years, and because of that paying for your long-term health doesn't make any sense if you're going to switch jobs and switch plans.

And so with that in mind, we landed on this idea of a credit card company as a way to actually build that long-term relationship with people, and the idea of having the relationship and trust with the wallet would allow us to actually drive better decision-making and eventually use that data to actually build health insurance plans that, you know, just might reimburse for the things that people want and need, because long-term they'd still be around on this platform, and it would make financial sense.

So that's the kind of crazy vision behind what’s become Ness, which is actually to build a consumer credit card company as a wedge into the healthcare space. Today, what that looks like is our first card that just launched in a public beta. But essentially, it's a premium health-and-wellness-first credit card. The same way you might have a travel card, we reward you for your healthy spending and your healthy activities with more health and wellness. Unlike travel, we can reward you meaningfully better, because the margins are higher, and we believe health and wellness is now the primary lifestyle identity in this country, not travel.

So that's the crazy idea behind Ness, and we built an end-to-end consumer credit card platform at a time when few have. And we're very proud of what we've built. It's an exciting time right now, no doubt about it.

I totally agree. It’s a really exciting, but also challenging time in the fintech world today. Let’s focus on the value that Ness brings to consumers for a moment. What’s your favorite reward that Ness provides today, and what type of consumer are you going after? Who should use this type of product?

Totally. Okay. So, our first card we think of is like our Tesla roadster product, right. So, this isn't the Model X or the Y, really, yet, right. This is our first product. It's a premium product. It's going after people who have a Chase Sapphire Reserve, an Amex Platinum, or another very premium card, but feel some disappointment and dissatisfaction with the value they're getting in terms of the travel points, wonder whether the other dollars they're spending on their credit card are really worth it, and are passionate about health and wellness. If you feel that way, we've got the card for you. Now again, today we’re a premium product. It’s a $349 annual fee credit card, so it's a big annual fee, but it comes with a $200 healthy spend credit. Again, think of that like the travel credit. That's money you get back if you spend at any healthy merchant, and then thousands of dollars in benefits at other brands like Seed Health, Exhale, Higher Dose, Glamsquad, and a bunch of other amazing brands. The biggest one is Sweetgreen, where members effectively get every 5th salad free. And on top of that, as you spend at healthy places in our network, you'll get 5x back, and those points you'll be able to use in our marketplace of healthy products and services. We have stuff you’d expect like Sweetgreen, Cava, ClassPass, [solidcore]. But even things like a full body MRI scan from Prenuvo, or a 3-day wellness retreat at Canyon Ranch... You know, the idea here is, the more health and wellness you do, the more health and wellness you get. And we think it's the best bang for your buck for essentially all non-travel expenses that exist on the credit card market today.

Love it. And let's talk about the complex transitions you’ve gone through as a founder. You’re still building in health care, previously you built a media business. Now you've transitioned to fintech and you’re building a full stack credit card, with its own infrastructure. What was that experience like? How did you scale yourself as a founder?

Yeah, I'll admit I knew very little about fintech 2 years ago, outside of just being a consumer myself. I would not have built in fintech if I didn't think it was the necessary wedge into this larger vision. Along the way, though, I've fallen in love with the promise of fintech as a way to build a deep, profound, long-lasting relationship with people. I've also fallen in love with, like, payment systems. It's so fascinating, and I'm very proud of what we've built. Not many people have built a true, nearly from scratch, end-to-end consumer credit card.

Now of course, we rely heavily on our partners like Mastercard, like Galileo, like The Bank of Missouri, like Canopy, you know, best in class partners. But we essentially had to build a fundamentally different rewards program, a fundamentally different experience of using the card that's driving healthy actions, driving discovery, as opposed to just, you know, showing you an activity feed, which obviously we have as well. Each of these pieces we felt was necessary to build in order for us to frankly, capture the economic upside of the future, but also for us to compete in the competitive market that we’re in. We're playing against Amex, and Chase, and Capital One, and their credit cards. I love learning, so it’s been an amazing experience to dive into a new space but, I’m not an expert. The experts are the people we've hired on the team. We have some of the best in class, truly best in class payments, credit, and compliance team from places like Stripe, Amex, Sofi, Tally, Capital One, Wells Fargo, and so while I’ve definitely had to learn a lot on my own, we’ve been deliberate about building out a team with relevant domain expertise.

Yeah the team is so instrumental, for any startup. But also, I love the insight you just shared in terms of how you we’re deliberately thinking about the long term economic future for Ness by building up this full stack solution rather than purely just kind of renting a bank.

Yeah, that decision looks a lot better now, by the way, than it did a year ago. Wow.

Let’s unpack that decision. What drove you to go through that one-way door? How does that thought process start? How does it tactically manifest?

You’ve got this crazy big vision where, ultimately, you’re the vector of trust for the consumer, you’re owning that relationship, you’re incentivizing them to have better health outcomes, and then down the line what happens is also you're providing insurance to them. That’s a lot of steps to get through between A and B.

Hopefully we’ll be a lot of things in the future. I think the question you're asking, though, is, like, how we made the decisions we made and why we made them around how much we wanted to own ourselves. I used to describe it as, sort of, there's a spectrum, right? Like we didn't build our own ledger. We didn't build our own issuer processor, right? At the same time, we didn't just work with, like, a credit card as a service or banking service solution, we picked something closer to the “build it from scratch” side of the spectrum.

And that was a pretty ballsy decision. I don't want to give myself too much credit, but it was a bet on a big vision and a bet that we're not just building a credit card company, but we're building the credit card company. And for what it’s worth Dez, I think people are a little bit scared of big swings right now in this economy and in this market. I think that's the complete opposite way to feel. I think you should be, we all should be all in on big swings right now, especially in a space that tends to be not recession-proof, but tends to be durable. Credit and credit cards are not going anywhere, and arguably more people signed up for credit cards in the last quarter than they have in, like, the last 3 years.

Now, it’s true the audience we're going after right now are going to be the least affected, probably, in this economy, but at a very basic level when you think about the venture world, it’s about taking crazy swings. I got into this to build the defining, the redefining business, between people's health and their finances. We don't want to just build a product. We want to compete with Amex, and to do that successfully, we needed to take the time to do that right. We needed to take that ownership over core parts of our product. And our decision to that is looking really good right now. The BaaS solutions are suffering right now, and so people in the space who've chosen to build their core product on someone else's platform, they are suffering too and that makes them less compelling. But for us we didn't really ever consider that in our product roadmap because of the big app vision that we've got. And when you take a big swing, you gotta take the big swing, you know? And so that's what we're doing.

Yeah. Do you have less dependency on other platforms?

Yeah, and of course we do have some dependency. No companies now are built without dependencies. But, we have spent the time, and we’ve spent the money, and we did more things ourselves than a typical company at our stage would, because of the boldness and scope of our vision. That doesn't mean we've literally done everything from scratch and because of that, we do have some dependencies. But yes, we're a lot less dependent than other companies in the space.

In your mind, does less dependency and more flexibility translate to faster execution in the long term?

I sure would agree with that. There were a couple of things in particular that we felt were non-negotiables, things like when you call our customer service or reach out to them, we actually respond. We felt that was crucial for us to be able to really compete with the premium cards and card experience. We felt it was necessary that the app is ours and not built on somebody else's app platform.

We didn't really have a choice around the rewards program either because we built something completely new. Everyone, every other card in the market that I'm aware of is either cash back, pure cash back, or it’s points you’re earning towards use in a travel portal that somebody else has. We're not like that. We built an entire marketplace of health and wellness products and services, and we had to completely create an entirely different healthy merchant database.

We built a 20,000-strong merchant database mostly by consumers requesting points towards them. Nobody else has that. If we're right, that health and wellness is the new lifestyle identity, not travel, if we're right that people are going to use that more and value that more regularly, but still want that aspirational feel of saving up, then all of the infrastructure we’ve built, all of the upfront investment we’ve made will pay dividends. If our central belief is true, then we will have built what can actually be the platform for the next great consumer credit card company, and that's even before we get into managing and selling health insurance plans.

I want to circle back to something you mentioned about Greatist, in that you all were writing content in the voice of a friend. To me, I parse that as, you were writing content in a way that developed trust, and I want to compare and contrast trust developed through content, and the trust that you're developing through being someone's primary wallet.

Yeah.

How do you think about those things?

Basically, the same. I think every brand has a voice. I am a little bit more obsessive than your average founder around brand voice in general. But content marketing is something that’s essentially one of my calling cards, and even the companies that I use as a consumer or help out with as an advisor, that's always the thing that I'm pushing, because I think content is the most cost-effective form of marketing out there actually. It’s definitely the most cost-effective way to start a relationship with people, and we've invested very heavily in content from day one at Ness, and actually have today our online publication, which is like a Wirecutter for health and wellness products and services.

What do people not understand about creating compelling content? People will say they want to invest in creating content early, but just because you invest in it early doesn't mean you'll create an effective, scalable, low-cost acquisition channel for yourself.

Oh yeah, I think the answer is it's very simple, but it is not easy, right? Like all the best things in life, like building your credit card. It's simple, but it's just not easy. It's hard to get, like, a BIN sponsorship. It's hard to have the credit and compliance in-house legitimacy that they're willing to trust you and share in this risk with you. The simple way to succeed in content is to write amazing content, not a lot of content. All you need to do to win is to write the best answer on the internet for your target customer.

I have never seen content fail when done right, though, because Google's job is actually to deliver to you the best answer on the subject. And so, if you genuinely write the best answer on the subject for your target customer, I have never seen it not get to the top. And the best answer on the subject doesn't always mean the longest, or the prettiest. It just has to be the best, and being the best could mean you’re speaking to your audience in a voice that resonates, or you’re sharing information in a way that they are more likely to engage, but whatever way you do it – that’s the mentality to have, and we have it here at Ness. I think one of our unfair advantages is our understanding of how to build an audience. We have nearly 100K people coming to our website, we have tens of thousands of people subscribed to our bi-weekly newsletter. We think in aggregate our content marketing will allow us to not only acquire customers for our card at a lower CAC, but we also think that it’s an important way for us to build and deepen that relationship and that trust that you were talking about. We're making recommendations. We're finding the coolest, newest things in health and wellness, and we're bringing all that into the app experience of the credit card. So we're actually driving you to spend more. We're helping you spend better. It all is like this flywheel, and this cycle that we built purposefully, because we think it's not enough to just give you some points when you do the right thing.

Let's talk about the waitlist that you mentioned. How do people get on? What’s the secret sauce? How can the lovely readers of TWIF jump ahead?

So yeah we have a waitlist. We’re still in beta and we're being pretty thoughtful, as TWIF readers will probably appreciate. There are also some pretty serious liquidity and capital constraints that come with running a credit card, and as we grow, those constraints will matter a lot less to us, but today it's still important so we can't just let everyone in. You also have to qualify for this initial premium card, which is, you know, a premium card, so there's a high credit score, and we've developed a pretty great credit policy, but the long story short is go to our website and find out.

There you go!

Our website is nesswell.com, which is just wellness flipped. The company is called Ness. Ness Well is our corporate name. If you go to the site and sign up for our waitlist, there's an option to fill out a longer level survey, and giving us some more information around, basically, why you want the card and, and what's valuable to you about the card, and if you take that survey, we’ll probably let you off the waitlist.

Hint hint, wink wink, do the survey. So, Derek, a few last questions and we’ll kind of wrap things up. One thing I really love about today's entrepreneurial environment is just how much learning and information is out there. I really care about helping share the learnings that other founders have while they're building along the way. It’s been a consistent theme here at TWIF as well as my own personal newsletter, All Things Venture.

So with that in mind, I think the first question I have for you on that front is: You're a second time founder. You're back in the saddle. When you contrast starting Greatist right out of school, what are the things that you would have done differently as you start Ness up today?

Oh my gosh, how long have you got? Yeah, at Greatist, I used to write, every year I would write the lessons that I've learned, and there were so many of them. You know, as a first-time founder, 6 months out of college, no clue what I was doing, I don't think I was very good in the beginning. I still think I'm definitely better than I was then, but I'm still working to constantly get better and improve. There are so many things that are built into this business, so many things built into this business that are like direct, direct result of the learning that, really the mistakes, that I made at Greatist, and that I learned the hard way.

And I'm learning so much here too, right, like, we're a remote-first company. That was not how Greatist was built. That's a totally new thing, with totally new challenges and complexities, and also advantages and opportunities.

A couple specific answers to your question. One is the extreme importance on who we hire. How quickly we let people go if they're not a fit, and how we make sure that when people are the right fit, we are investing dramatically in them, and giving them the resources they need to grow as fast as possible. For a long time at Greatist, I felt like we're all a family, and I learned pretty quickly that it's more like we're a team, and there are other teams to play on that you might be successful on, and it's my job as, like, general manager of that team to make sure that we've got the best player in every single position, and the best thing for all of us is to win a championship. There are many seasons for us to try to win championships and the best way to succeed, and the likeliest way to win a championship, is to make sure every individual player in their role on the team is growing as fast as possible. Right? That's how teams win championships, through tremendous growth.

And so we have built a whole process, actually, around that called Our Mutual Missions at Ness, in which every quarter when people start, 6 weeks in, and then every quarter thereafter, we check in on, “How are we doing? How are we helping you progress to the next stage in your career? What resources and experience and network do you need to build to get there? How can we get you that as much as we can, and as fast as we can, so you can grow and develop as quickly as possible to the next stage of what you're looking for?” And we do that because we know it'll help us to be more successful. And I guess that's just one example. But there's lots of things like that, that we formalize with process and structure.

That is a great anecdote, and the benefit of that experience is that today, you have the battle wounds, the scar tissue of not firing quickly enough. Which is a drag on the team.

Right, I think, by the way, getting your team comfortable with that is hard. Like for us, we try to hire slow and fire fast. It doesn't always work out that way. Everyone knows that's what you should do. That's another one of these things that's easy to say, but like, difficult to actually execute on. But we have like a 3 month check-in. It's like a very simple thing, but we call people Nesslings, you know, because they’re Nessies, if they work at Ness. We call them Nesslings for the first 3 months, and literally 3 months in we have a check-in, and we're like, “Is this a fit for you?” Like it goes up on your calendar. And it is in some ways like a filter, right. It's like an escape valve, to have that conversation, which is like, “Hey, yeah, this hasn’t really been working. We've been giving you that feedback. It's not that you're bad. It's that you just might be able to be more successful somewhere else.” It gives everyone kind of an out, in this, like, powerful way, which I think is really important.

Again, you know, I would love to say that I'm an amazing, infallible talent hound. I think my hit rate is pretty good, but you never know until you've hired someone how great they are. Building your culture in a way that actually says “Thank you” for letting someone go, because, like, they were driving us down, is hard to do, but I think relatively important.

Yeah. And everyone's on their best behavior in interviews, quite frankly, so it's skewed, to a certain extent.

And it rewards, for what it’s worth, people who have certain talents that aren’t always the talents you need in a company, you know.

Yeah, yeah. Ok, so last serious question, then I have one fun question after this, you’ll enjoy it. Specifically for Fintech founders looking to raise a Seed or Series A round in this environment, what’s your advice to them?

I mean, the short answer is, have, like, a good business to invest in, and a real, true venture-scale vision for how that investment can pay off.

And define venture-scale vision, because there can be a gap in that vision.

Yeah. Look. I think there are many different types of founders who want to build many different types of businesses, and there are examples of special businesses that kind of fell into that. But I think for the most part, the bigger you're thinking, and the clearer it is how this can actually become a billion dollar business, the more clear that vision and that path is, the more you can excite investors to really see that, and sit there and think, like, “Wow, you could actually build that.” I think, without that, it's very difficult to raise money. And then from there you need to actually show that you're executing, and the business fundamentally works, and all those pieces. I'm glad that that's become more important.

You know we're lucky to be in an area that, like, as long as we can answer and address some key questions, cost of acquisition, interchange, overall attach, wallet share, etc. we’re in a space that people understand. People understand the card model, and the scalability of these businesses. That's not always true. But I do think, like, I'm glad, actually, that now we're holding things up to the mirror a little bit, and being a little bit more honest about whether things are really working. But that vision ultimately is the part you can't compromise on, even if there's more of an emphasis on the fundamentals of the business, the profitability, the efficiency, the “Is this working?” type of questions.

Great. Love it. Alright, last question.

I'm ready.

And this is my fun one. What location do you think the next White Lotus will be in, and what location do you think the next White Lotus should be in?

Wow, that is like a, yeah, okay. So we've done Hawaii, and we've done Italy, right? That was the last one? Okay, I think, obviously, it should be on, like, Mars. I think that'd be really fascinating, like, you know, some like, truly different planet. That would be fun if they like, you know, like really went out there and did something crazy where it's, like, all the people, you know, the Richard Bransons, who decided to get on the thing and, and get sent to the first White Lotus opening on Mars. Where will it be? It'll probably be like, Tasmania, or something like that, you know, like, Australia, New Zealand. Something like that.

Hmm. My, my money is on Asia.

I could see Asia, Asia isn’t far off.

Right? Derek, this was awesome. Thank you for sharing a little bit about your story. Thank you for sharing your vision for Ness, and thank you for sharing all the lessons you’ve learned along the way.