Disrupting a Legacy Industry with David McFarland of Coterie

Ethan: Hey everybody and welcome to the Startup Savant podcast. I’m your host Ethan, and this show is about the stories, challenges, and triumphs of fast-scaling startups and the founders who run them.

This week on the show we brought on David McFarland - founder and CEO of Coterie - a company who is (these are my words) cleaning up the mess of business insurance.

David is basically writing the handbook on creating a great user experience. He’s combining a deep understanding of what his users need with both public information and automation to create a massively superior product. And this is in a space where the incumbents have been in business for hundreds of years.

Long story short, there’s a ton of good that you’re going to get from this episode.

Before we start, though, remember to subscribe to the pod on whatever platform you’re listening on. We truly appreciate your support for the show.

Alright, enough preamble. Let’s get into my conversation with David.

David, how are you doing today?

David McFarland: I'm doing well, Ethan. How are you?

Ethan: I am living the dream. I know we were chatting just a little bit before the show started and we've talked about the monotonous gray mat that is one giant cloud surrounding Ann Arbor this morning, but we're working through that and it's going to be a freaking fantastic day.

David McFarland: I hope so, Ethan.

Ethan: All right, let's start at the beginning. Your startup is Coterie. Can you tell us what is Coterie?

David McFarland: Yeah. Coterie is a InsurTech startup. So what we do is specifically, we manufacture insurance and that's probably a new term to a lot of people. But I like to think about the insurance value chain as those who manufacture the insurance product, think of Travelers, The Hartford, State Farm even to a certain extent. And then insurance distributors which is the agents, the brokers, et cetera, who sell the insurance. Now, some insurance manufacturers have insurance distribution as well, State Farm, AmFam, Farmers at one point, Allstate. Ethan is very familiar with them.

Ethan: I am.

David McFarland: And we at Coterie, we manufacture insurance products. And we really focus on enabling the insurance distributors with specifically speed, simplicity and service so that they can actually make a profit off of selling small business. Because right now a small commercial is woefully underserved in the insurance space and we started with the intent to change that.

Ethan: So I remember specifically in my time as an insurance agent that selling small business insurance was difficult, not only because there just was so big of a requirement for information and such extreme detailed information for every different type of policy or every different type of business you were trying to sell, but also that whenever you put in all that information that so much of the time the insurance company just came back and said, "Hey, we don't write this." Are you all doing anything to try to solve some of these issues?

David McFarland: Yeah. So Ethan, at one point we're an Allstate agent and... First off, when you get these small commercial policies that come in, you're going to make nothing off of them. You're going to spend hours trying to fill out this information and then you're going to probably get a no anyway.

Ethan: Right, because I'm not even filling it out on Allstate paper. It's like I'm an Allstate agent but it's some third party brand that we have just some random affiliation with and I'm filling out all of these forms that I've never seen before, some of them are on paper. Paper. This was 2014 and I shouldn't have had a pen in my hand at any point, but it was just a mess.

David McFarland: And so it's no surprise that of the 32 million small businesses out there, 50% are uninsured. There's no incentive for anyone to do anything about this. And what we did was we said, "Okay, this is not good. This is broken." Agents don't like it. I don't think people want to go without insurance, it's just no one would serve them. So we said, "What if we actually bring speed, simplicity and service to this space?" And with as little as just a name and business address, we could actually bind policies. And this has the advantage of you as the agent or broker, don't need to know all the information associated with this business. And frankly, you're not out there measuring how far away the fire hydrant is from the business. Right?

Ethan: Right.

David McFarland: And 250 or 500 is the default answer just to get through.

Ethan: Right.

David McFarland: And the customer just wants to get an insurance policy. And the faster that it's done, the agent will actually make money. And so what we do is we'd say, "All right. Come to us. It's going to be name and business address and we're going to tell you, after that we're not going to write it in seconds or we are going to write it and it's going to be this much." Complete with coverage recommendations. Complete with the endorsements that you need to attach. If it's a restaurant, we say, "Hey, this is a restaurant. We know it. We know the employee count is this. We know the sales are probably this. And you should probably attach this restaurant endorsement and probably some higher [inaudible]." Because all that kind of stuff exists. And then you say, "Okay. Yeah, it looks good." You click buy. Your experience, it took hours. Our average time to that bindable quote when we launched was 7.9 minutes. And that's average, not lowest possible time. Right now, it's two minutes 45 seconds.

Ethan: That's huge.

David McFarland: It's crazy. It's changed how we're doing these things.

Ethan: Yeah. Okay. So tell me a little more, all I need to know is the name and the business address.

David McFarland: That's right.

Ethan: Are you all going through all sorts of public databases or other private information to gather this other stuff, or are you just judging this business on its name and saying, "Hey, that's a good name. Let's write some insurance."

David McFarland: Oh, it's maximally invasive. I mean really creepy. In all seriousness, we collect roughly 3000 pieces of information just off name and business address. We know everything about where this company is, what they're doing, sales data, employee counts, stuff like that. We're pulling from tons of different points of information, including even weather and traffic. You can go to Google right now and figure out, "Hey, how busy is this place?" We're getting that information, we're getting reviews. All of these, so that we actually can understand what's going on at this place. And do we have it appropriately classified? Do we understand the exposures?

And that level of data that we get is frankly much more exhaustive than what you're going to put in on an insurance application. And no offense to agents or brokers, but it's also much more truthy, much more [inaudible]. Because we can't expect the agents and brokers to put in the perfect accurate information about sprinkler and fire hydrant, what the building's made of. The owner doesn't know that. Yeah, so we do all that [inaudible]

Ethan: That's huge. That's awesome. So let's jump into a different part of this. So here at TRUiC we have a lot of information out there that is meant to just provide knowledge for new businesses on the types of services and that sort of thing they need. And insurance, small business insurance has always been one of them. In fact, with my insurance background, that was actually one of the main reasons that I was poached to this company was to come in and build some of this insurance content. And one of the things that I found when I was speaking with different insurance agencies and companies and that sort of stuff is... And actually the way that I found it was interesting because I was on the phone with this guy and he was at a large insurance company and we had talked a few times and I said, "Hey, do you want to play a game?" And he's like, "Wait, what?" This is a professional conversation. We did not know each other well enough for me to say this but that's my style.

I said, "Do you want to play a game?" And he's like, "Uh, sure." And I said, "I'm going to name the top five business ideas that we have and I want you to tell me how many of them you can write." And he's like, "Oh. Okay, let's do it." And it turns out that he wasn't able to write 60% of those top five business ideas. Now, it doesn't help I think that one of the top was candle making businesses and that sounds like a fire hazard, but what do I know?

David McFarland: [inaudible]

Ethan: So this seems to be a problem, just the appetite of business insurance providers is so narrow. Is this something that Coterie is solving or are you guys trying to find those bread and butter lower risk types of businesses and mostly stick to those?

David McFarland: Yeah, that's a great question. So we built Coterie with insurance distributors in mind. So we're a fully partnership focused company and when we thought about, “how can we really meet the needs of our partners?” the concept of class appetite, what we call it, what we're going to write, how broad we're going to go, is a big topic. Now, you know this because you've been in insurance but there's two worlds of insurance, one is called admitted, one is called non-admitted. And admitted is basically most things, basically this says if something happens to the insurance company, the state will step in and help out beyond that. Non-admitted products is basically the wild west. This is like going to a bank that's not FDIC insured. And right now we're an admitted product in 50 states plus DC, so we're everywhere. And I'd say we have the broadest appetite out of any of the commercial carriers. We write a very large amount of small business.

And the reason is we wanted to make it very convenient for our partners to place business. Now, we're not everywhere where we want to be. We want to write those much higher risk things, but in order to do that, you have to have a non-admitted product. Because simply put, you can't charge enough on an admitted product and you can't get the right terms and conditions with a policy that says, "I'm just going to cover this. It's going to give you the coverage you need, but I'm not going to cover certain things that are more criminal and whatnot that may be normal for those types of classes." And so for that you need a non-admitted product. And so we're making progress toward getting that non-admitted product, that'll probably be in 2024, but right now I think we have a pretty large appetite and it's really conducive to our partners.

Ethan: That's really cool. You and I may need to have a separate conversation after this one.

David McFarland: We should. We should. And we embed, so we have one of the easiest products that's completely embedded into non-traditional partners. So we work anywhere where insurance isn't the primary thing being sold and we can literally embed into the software or websites of our partners, take in just that business name and address and then provide the bindable quotes and whatnot.

Ethan: All right, so just name and address. What if my business is brand new? What if I just started Ethan's Cool Plumbing Service and I gave you my house as my address, which I wouldn't do, I'd give you my registered agent, but that would be even worse.

David McFarland: We'd take it. We are one of the... That's another thing about our appetite. We knew that doing new ventures was something that we needed to do, and we built the products such that we can do new ventures. Obviously there's less data, but we take that into account when we're considering pricing implications and whatnot but we're willing to take that business.

Ethan: Sweet. All right. Hey, I'm a happy camper. All right. I want to jump to something a little bit different, and I want to quote you in the company profile that you filled out for us that everyone can find over on startupsavant.com/podcast. And the quote is, "I saw starting a business as a means to an end. The most effective and efficient way to change the insurance space in the way that I envisioned was to start my own business." Now, as I'm sure you know and most people listening to this note, starting a business is hard. Entrepreneurship is not an easy thing. So what was it about the insurance space that you felt like you wanted to change so badly that this idea of starting a company, this difficult thing was the easiest way to do that?

David McFarland: I don't know if it's being altruistic or lazy, but I was at my first job, I was an actuary for the National Council on Compensation Insurance in CCI. And I was just dumbfounded with all the data problems that we had. And I was just like, "All we need to know is business name." Really, what we need at work workers comp is what people are doing and how much they're getting paid. And I was like, "This exists in HR systems and payroll systems, and we're still filling out forms and faxing it to people. And those numbers are wrong." And the amount of money that's spent reconciling all this stuff. And I was like, "We could automate all of this and make everyone's life easier."

Because here's the thing, in insurance, you make money on really two components, the loss ratio which is how much you're paying in claims and the expense ratio. And in a normal insurance company on the commercial side, you may have 60% loss ratio and 40% expense ratio. Meaning of the premium dollar, 40% is to expenses and only 60% is to pay up the claims. And I'm like, "We could save so much money on that giant expense ratio portion, pass savings onto the customers and actually have a much more efficient, wonderful company to work with. And it was then I was actually driving in the car with my girlfriend who became my wife, and I was like, "I'm going to start an insurance company."

And I did try, I went into actuarial consulting and I attempted to help out insurance companies. And they were all dealing with the same problems. They had huge tech debt, systems built on mainframe and all this stuff that they couldn't just layer APIs on top. And so I was like, "Look, I can't get there from here." So I basically had to change it up and say, "All right, I'm going to do this. I'm going to start my own company." And don't get me wrong, one of the hardest things I've ever done. But anything that you just truly believe is something that should be done, and maybe I'm just really stubborn or dumb or whatever but you just keep trudging on even though it's really hard and not fun most of the time.

Ethan: Oh, absolutely. Yeah. And every time I go into my agent's office and I see them alt tab over into AS/400, and then I'm like, "Okay, go ahead and hand me one of those where there's originals so that I can just chew on some old school candy while you play with your old school computer stuff." I'm like, "Come on, it is..." These companies have billions and billions and billions of dollars that they're spending on silly commercials, that they could be upgrading these computer systems. So good on you. Please fix this. Please. Please. All right. So speaking of the tech and all that good stuff, I want to spit out some really crazy jargon here and see if you can make sense of it. What is a micro insurance offering through a gig econ mobile app?

David McFarland: So a gig econ mobile app, these are the tools that gig workers use, freelancers use, to get jobs. And we've actually embedded a micro insurance offering to where you can with a click of a button, get insurance on a per job basis. That was actually what we started with and it was really amazing. Just from the very app that they were getting the jobs on and the system required that they have insurance, they could just say, "I'll just click a button and get a insurance policy with Coterie just for that project." And we do it all through the app, all in seconds, pay everything right there. It was really neat experience.

Ethan: What kind of gigs are these? Is this Uber drivers or is this people that are writing content for other people on the internet? What kind of gigs are these?

David McFarland: It's usually nothing transportation related. We don't have commercial auto yet. Yeah, it could be writing content. But primarily for us, it was electricians, plumbers, handyman type stuff.

Ethan: So then they are not necessarily ensuring 100% of their business operations, they are ensuring one job at Mrs. Carol's house when they want to go put in her ceiling fan, they're getting insurance for that job.

David McFarland: Yeah. And we really recommend that the ideal thing is you get an annual insurance policy from us. We can do the micro insurance stuff, but an annual policy is going to cover them for all the risks that they have which is ideal, really that's what you want.

Ethan: Sure. Sure. Was this just something that was an easy way to get in, or what made you start with this product as opposed to going out and becoming the Coterie that we see today?

David McFarland: Demand. It just so happened that... It was demand and a little bit strategic. So we had demand from a particular partner and we were like, "Hey, let's build for this." Someone actually wants to work with us and we have a little bit of a go-to market there. But also we wanted to build out the system to do these broad things, and then from there we could narrow it down to working with agents, working with brokers, distributing that way. It's much more difficult to build the way that everyone else has done and then broaden out from there.

Ethan: Right. Okay. So then this is a nerdy insurance question here but I don't particularly understand the backend of insurance, does an insurance company need to have millions and billions of dollars just sitting there waiting to pay out? And if that is the case, then this small insurance offering that you had and being a small company, did you have a huge cash stack behind you or were you buying products like reinsurance for these little bitty policies, or how did that work?

David McFarland: So what we are and there's two ways let's say to do this, you can either go the MGA route, managing general agency route, or become a full stack carrier. And MGA basically leases a full stack carrier, they don't actually have to put a hundred million dollars in a low yield savings account. And that's really nice because raising a hundred million dollars when you're starting off and just have an idea and a dream in a garage it's a little different.

And so what we do is we say, "All right, we're going to work with an insurance company. They're going to vest us with the authority to file these insurance products, create what we need to create, distribute, handle claims." All that kind of stuff. So they basically endow us with that. And we go out and do what we do. We don't have to handle any of the back office operational stuff. We don't talk to AM Best. They handle all that stuff behind the scenes and we pay them a percent of the premium to do that. Usually, it's around 5%. The alternative is you go start full stack carrier, which some people do and you do have to put a hundred million dollars in the bank, especially if you want to do commercial insurance where the AM Best rating is really big. You've got to have an A rated AM Best. In personal lines, you can get away with a Demotech rating and that usually has less capital requirements.

Ethan: Gotcha. Well, I just lost my place so we're going to cut this little section out of me just waxing on. This is really... There's a lot of interesting stuff here because I think that this shows that you can get into this agency or this type of model that requires... Or that people would think requires so much funding to get into without laying down the massive stacks of cash.

David McFarland: Yeah.

Ethan: That's super cool.

David McFarland: The MGA route has provided a much lower barrier to entry, and that has some good things, it also has some bad things. Some people think that it's easy to do insurance because now there's an easier route than going full stack. But the problem is you still have to deal with the complexity of insurance and it's a wicked game if you know of the book Range. There's like nice games and wicked games. Nice games, you have immediate feedback like, "I did this and oh, I was wrong." Insurance is wicked and that you do this and good things happen which are actually bad. "Oh, my product is selling like crazy. This is good." No, it means you're being adversely selected against and you're going to run a 130% block ratio.

Ethan: So this MGA model of starting an insurance company, let's call it, is this why we're seeing all of these new age insurance brands that are all direct to consumer and they say that they're going to save you money because there's no middleman, and they have crazy commercials as well? Is that the model that a lot of these new InsureTech companies are taking?

David McFarland: A lot of them took that to begin with, and then on a lot of the hype that they were getting, they were able to raise lots of money to become a full stack carrier. And there's a little bit of a story in there. So most of the time... I don't want to speak for every company out there, but they went the route of D to C which inherently has higher loss ratios, lower retention and really terrible cost of acquisition.

Ethan: Really?

David McFarland: Yeah.

Ethan: Interesting.

David McFarland: And when you combine all those things, that doesn't give you the greatest lifetime value. However, they got a lot of sales, because potentially they were mispricing the product. And again, insurance is a little bit of a wicked game and that you put something out to market, "Oh, you get really good feedback. You're selling like crazy." But that actually means you're getting adversely selected against. You're the lowest price because you've mispriced the product, and you don't know that until a year later when all the claims start coming in.

And so it took a while for the investors to figure out like, "Oh, this is a company that has very bad value because the products that they're selling are losing them money." So what began as investors being very excited about the growth rates of these companies has now led to a lot of skepticism with a lot of the companies who have done well, because they don't really have good books and business. So that's where we're at in the InsureTech space right now.

Ethan: Gotcha. That makes sense to me. Okay. So insurance, there are these slew of big name providers that we've all heard of. You've got the Allstates, the State Farms, the Farmers, a lot of these companies have been around for more than a hundred years. And we've had tons of founders come on the show and say, "We're looking at industries that are ripe for investment." That's not the word. I'm going to come up with the right word here.

David McFarland: Disruption?

Ethan: Yes, thank you. These industries that are ripe for disruption because they've just been around for so long. But we're seeing these huge companies that are still the top, the number one in the game, number 1, 2, 3, 4, 5, 6, and 7 probably. Are they just doing such a good job at keeping up or have they somehow built themselves a moat that it does not matter that they are not technologically advanced, that they can still operate and continue to be number one?

David McFarland: Yeah, it is going to be tough to displace the top guys. Frankly, insurance, it can be pretty sticky. New business, insurance is not the stickiest, the retention isn't great, but year two and beyond that business stays for a long time, except auto switches a lot but if you have someone who's been on the auto side, they'll stick around. And so you have these top players who have been top players forever and they've got this just massive renewal book, and that it's not going anywhere. These people are happy. And again, low loss ratios from high retention, that LTV of that book. And so they're willing to take a few hits on the new business side.

Not only that, the amount of capital, the amount of surplus that they have just loaded up from years of being here, it's going to be really tough to push them. And when you have these new entrants, the new entrants have to suffer through the slog of going through all the new business stuff, building up the renewal book, and then hopefully displacing them but it takes a while and you have to be patient.

Ethan: Okay. So assuming in a couple of years when you sell Coterie for $10 billion or whatever, and again assuming that you still have this care for the insurance industry and you still want to make these changes, but maybe now you've made the changes within Coterie but everyone else is still operating the way that they're operating, is this something that you're still going to try to attack? I know you mentioned earlier that you tried to do some insurance consulting or that sort of thing, but do you think that there could be an opportunity for some tech-based company to come in and provide a solution for these legacy names that they're actually going to be interested in taking, or do you think that they're just fine the way that they are and they're just going to keep going?

David McFarland: It's tough to say. I think it's possible to change things at the legacy carriers. They're making progress in that direction. The biggest issue it's also the biggest opportunity, they're making so much money on allocating to where they're currently allocating. That ROI is massive and so that's why they're just like, "Eh, I'm not really concerned that we're not going to get this multi-billion dollar market over here because we're making billions over here." And so you're like, "Okay, I understand that." Because otherwise they'd have to invest hundreds of millions of dollars in order to change all of their systems so that they could make a small improvement in this part of their book. And they're just not interested in doing that, so that leaves it out an opportunity for people like me to come in and say, "Well, I'll invest not hundreds of millions of dollars and take that because I don't have the debt." And that's beneficial.

And so to go back to your question, it may come at that point. I think we're doing a pretty good job of continuing to take market share. And it will come to a point where they can't ignore it because new entrants are taking this away from them in mass. And so that calculus may change at that point and they may shift and say, "Okay, this is something that now has a higher ROI because if we don't do it, the cost of not doing is going to be detrimental to us." If that's the case, I think what we're doing just on the data side and the quoting side could be revolutionary in a number of insurance companies. But again, they've got to get to the point where it actually makes sense to do that.

Ethan: Makes sense to me. All right. Let's talk a little bit about Coterie's funding. How is Coterie funded?

David McFarland: We're funded by investors, VC. I think like everyone, we take on venture debt as well every once in a while but mainly VC.

Ethan: Okay. Obviously there are lots of different types of VCs, there are lots of different types of companies that are being funded. But I think when people think of the stereotypical, I run a tech company and we have an app that is direct to consumer and it has hundreds of millions of users and X, Y, Z and all that good stuff, this is clearly a different game than that.

David McFarland: Yeah.

Ethan: So what is it that makes Coterie and companies like Coterie so attractive to investors, VC dollars?

David McFarland: Yeah. In the beginning, for better or for worse, it was growth. I think people quickly figured out like, "Hey, really high growth doesn't necessarily mean really good insurance entity." We thankfully had really high growth with really good loss ratios which is unique. And when you have that, when people see like, "Oh wow, they're growing really fast and they're beating the industry in terms of how low their loss ratio is." That's compelling to investors. They actually see that we do have good lifetime value. And so we've been able to demonstrate that. We've been able to demonstrate really good adoption with our user base, our partners who distribute our insurance product. And I was looking at our top 10 the other day, and I think the minimal increase year-over-year was 158%.

Ethan: Whoa!

David McFarland: That's fantastic, right?

Ethan: Yeah.

David McFarland: That's what you want. And the thing is, it's not complicated. Valuable companies create value. And so if you're creating value, then you're going to see that actually come out in the data. What are your long-term customers doing? Are they writing more? Are they doing more with you? Are you actually providing value to your end consumers? And the way to find that out is one, look at the data, but also talk to them. We talk to our partners a lot. User interviews, when we're releasing things. We're doing our products, making notes. We want to create something that's actually valuable to our partners, and so we speak to them about how we can add value.

Ethan: What a novel concept.

David McFarland: Yeah, it's crazy.

Ethan: All right. So again, in that profile there, there's something that was mentioned called Signal NFX that you all have used to connect with investors. What is Signal NFX?

David McFarland: Yeah. I'm a big fan of Signal by NFX. So NFX is a VC firm out in the Bay Area, and they have a free product. You just Google Signal NFX, and you can click in, they have investors by stage and by industry type. And you can just click on that like say, "Well, I'm a series seed company and I'm in the agritech space." And you click series seed agritech. And it's just pages of investors who focus on series seed in the agritech space. And you can see their average check size, where they're leading, not leading, stuff like that. And from there, I literally just create lists in Excel. And then I contact my network and I'm like, "Send them that. Hey, tell me who you know and if I can get an intro." And that's how we do it.

Ethan: So even though you've got this clearly targeted list, you still try to go through your network to get that soft intro, right?

David McFarland: Oh, yeah. Yeah. If I can't get a soft intro, then I will just cold reach out but the soft intro definitely helps.

Ethan: All right. So this is going to be the most basic question that I've ever asked anyone ever, but how do you build that network that is going to get you into those rooms with those investors?

David McFarland: That's a... Give yourself more credit, that is [inaudible]

Ethan: A basic question but hard answer.

David McFarland: Yeah. I was stupidly fortunate. I kind of cheated. So when I was at a company's... Multi prior to this, I was involved in a corporate venture capital area of my company, so I got to meet a couple of people. Through that, I met a guy who was at another CVC, corporate venture capital group, that was looking to start a personal auto InsureTech. He asked me to join him. I told him, I was like, "Look, I'm going to start something on the commercial side. I'll help you but I want to learn how to do this, including fundraising, all that kind of stuff."

So he took me to the funding conversations, the pitch conversations, all that stuff. And I started building a network through that and through him. And so when I actually did go off, he was very supportive and helped me continue to get connected throughout the network and et cetera, et cetera. And basically it's very viral, you connect to one and then they connect you to these and they connect you to that, and that your network expands pretty significantly through that. There's also a guy who's in Ann Arbor, Mark, he's with RPM Ventures. I don't know if you're familiar with him, but that guy's ubiquitous. And there are a few people in the industry who are ubiquitous. They know everyone. They are everywhere. If you find one of those people, they're a gold mine and they're usually willing to help you out.

Ethan: Well, maybe I'll have to get a soft intro to Mark from you.

David McFarland: He's a good one. He's a good one.

Ethan: There you go. All right. So do you feel like you found most of your investors through the Signal NFX platform and then through these soft intros, or was there a different way or another way that you've seen more or less success with?

David McFarland: In the beginning, it was primarily through soft intros and the NFX Signal. Now, it's a mixture of... And this sounds totally like primadonna but it is, they reach out to us and they're interested in how things are going, meet new investors like that. It doesn't hurt to put yourself out there. I would recommend at a certain stage be more mindful about who's reaching out. No offense to associates or anything like that, but a lot of time the associates are just there to gather information, they're not actually looking to do a deal and that can be just a waste of time on the founder.

And so if it's someone who actually wants to talk to you and they're interested in your business, they're usually not sending an associate out. Sometimes they will, it depends on the firm. But if it's a managing director or something, talk to those guys. They know what they're... They're really interested in you. And that's another I guess unsolicited advice to VCs, if you actually want to talk to a company, truly want to talk about something not just gather information, maybe don't send the associates to do that work. Send out people who can actually do the deal.

Ethan: All right. So this seems like a good tree to bark up since you're already here giving advice, do you have any other advice for either founders that are looking to get funding or VCs that are looking to write some checks?

David McFarland: I'll start with founders who are looking for funding. I'm going to take a circuitous route to get here. I'm an actuary, we have to take tons of annoying exams over years. And we study for hundreds of hours for each one of these exams, and there's a big difference between study methods. There's the people who go and lock themselves in a room for four hours and study, and then there's the people who make the calendar of what they're going to do, and the people who have to cut out all the things, and the people who research and reviews and all that kind of stuff. And they never actually get around to studying because they're so busy doing all this other stuff.

Just do it. Just go out and reach out to the investors, create a list and go. It's so often people either are afraid of rejection or they're too consumed with the short term, "Oh, I did this." And they focus on micro productivity which is time wasting. You're doing something that's going to take three to six months. You're not going to have success until money's in the bank and that's a long game. And you're going to have to just have days where you slog through lists and it's going to suck. It's no fun, but do it. Just do it.

Ethan: Do it.

David McFarland: And it is a lot better than these short-term happy feelings that you did this little thing, but then you don't have any money in three to six months. Not ideal. And no one's magically going to call you up and just say, "Here's a term sheet." No, you have to put down a hundred names and call all of them. 99 are going to say no, one is going to say maybe and then you got to squeeze that maybe until they're a yes.

Ethan: Yep, there you go. And then one more I'll add to that, we had a guest on in one of our very early shows, his name was Saul Brody. Super cool dude. He gave this piece of advice and I'll just say it for everyone listening out there, if you haven't heard that episode, go check it out. But the advice is, when you make that list, when you go to just do it, put them in order of importance from the top down most important and then the bottom is the we're going to call just a call, and start from the bottom. Because if you sound dumb, if you don't know the right things to say, then sound dumb in front of the people who really don't matter. And get that lingo, grab those names, whoever they mention. That way when you get up to the top of the list, you know what you're talking about, you know the names they're referencing, you know all the businesses, you know everything around it. Start from the bottom of that list. I loved that advice and I've taken it.

David McFarland: Yeah, practice your pitch. And it's better to practice your pitch on the bottom of the list than the top of the list.

Ethan: All right.

David McFarland: Yes.

Ethan: All right. So we're moving close to the end here. I know you've got a busy day in front of you. We're going to start the wrap up. What is next for Coterie?

David McFarland: Next for Coterie, we're continuing to expand our product appetite. Like I said, trying to make it even more convenient for end consumers. Over in 2023, we're going to be really improving a lot of efficiencies and just making delightful ads to the product. And then towards the end of 2023, you're going to see more expansion into workers' comp. We've actually launched workers' comp in a very small way, just testing it internally basically but it's "live." We're going to expand that to our partners more broadly in 2023. And then really in 2024, we want to get into that non-admitted space where we can provide even more value by writing more of the businesses that our partners write.

Ethan: All right. So I know we've already talked a little bit about advice, but that was funding specific. I just want to get your number one piece of advice overall for early stage entrepreneurs.

David McFarland: Do the things that are short-term negative, long-term positive. So many times people want to do things that are short-term positive but end up being long-term negative. Saving for retirement is short term negative, you got to put money away but it's long term positive because you're not eating cat food when you're 80. And when you do that, it compounds on itself. You get a lot of benefit in the long term. Whereas the people who continue to compromise and do this and that in order to shortcut their way forward, they don't get the long-term benefits of truly great businesses. And it starts from the beginning, it's very difficult to make a bunch of short-term positive decisions and then all of a sudden change direction because you've built up a lot of debt. Instead, start from the beginning with short-term negative but long-term positive decisions.

Ethan: I think that is an excellent piece of advice. All right. Where can people find David online and how can our listeners support Coterie?

David McFarland: You can find David online via LinkedIn, you can search David McFarland, I'm the CEO and founder of Coterie. And you can find Coterie, we're on LinkedIn too, we're also on Instagram and a lot of other things but you can find our website as well at coterieinsurance.com.

Ethan: All right. Easy enough. You know what? I have one more question, coterieinsurance.com, there was a story about Coterie Insurance. What was going on with coterie.com? For the viewers out there who are just listening, we've got a head palm here. Face palm, I guess [inaudible].

David McFarland: We have a little bit of a lag. Sorry about that.

Ethan: Yeah, that's fine.

David McFarland: This happened, it's back. But what happened was and this is just painful for me to admit, when I was starting and didn't have any money whatsoever, I was thinking about names and whatnot and I was like, "Oh, I really like Coterie." And it was available, coterie.com was available. And I was like, "Sweet, I'm going to reach out. No one knows what this word means so it's probably going to be cheap." Person responds, it's like, "Yeah, we'll start the bidding in the tens of thousands of dollars." And I was like, "Whew, that's not going to work."

And I said, "Yeah, good luck selling it for that." Well, a couple of months later, I'm starting Coterie and coterie.com is no longer available and instead it belongs to a diaper company. And I am forced to have coterieinsurance.com. And when I was pitching and doing all these things, everyone thought that I was a diaper company which it was tough enough to get over the fact how do you pronounce your name, and then they're like, "Oh yeah, you're the diaper company." I'm like, "No, I'm not the B2C diaper company. We do insurance." So yes, that was not one of my proudest moments as a founder. Penny wise, pound foolish.

Ethan: Yeah. All right. So that's slotted into the number two piece of advice, buy your domain and don't just mess around with it. I've had pain on that side as well.

David McFarland: Cool.

Ethan: All right, cool. This has been awesome. Tons of fun. Everyone, we're going to put in all the links we discussed and everything else we talked about today in the show notes, over at startupsavant.com/podcast. David, this has been a true pleasure. I hope that things continue to go well for Coterie and for you.

David McFarland: Thanks, Ethan. Thanks for having me on the show. It was a delight.

Ethan: Alright that’s going to be it for this week’s episode of the Startup Savant Podcast! Thanks for tuning in!

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Thanks again for hanging out with us - and we’ll see you next week. Until then, Go build something beautiful.