Deep Dive: Find the right co-founder and idea with Mo El Mahallawy, CTO and co-founder of Shepherd

This episode focuses on how to find the right co-founder and business idea, highlighted through the experiences of Mo El Mahallawy, co-founder of Shepherd, a commercial insurance platform.

1. Finding the right co-founder is crucial; Mo met his co-founder through the On Deck fellowship program, emphasizing the importance of network and community in entrepreneurship.
2. Flexibility in business ideas is essential; Mo and his co-founder pivoted multiple times before identifying a viable business model in commercial construction insurance.
3. The journey of finding a successful business idea often involves exploring various sectors and adjusting to market feedback.
4. External programs like On Deck can provide valuable resources and networks that help entrepreneurs succeed.
5. Persistence and adaptability are key traits for entrepreneurs, as shown by Mo's willingness to shift focus until finding the right niche.

1: Introduction

Mo El Mahallawy is introduced and discusses the foundation of Shepherd and its recent Series A funding round. Mo El Mahallawy: "Shepherd is an all-in-one commercial insurance platform focused on high hazard industries."

2: Finding the Co-founder

Discussion on how Mo met his co-founder during the ODF program and their initial interactions. Mo El Mahallawy: "Justin and I met through On Deck. I need to frame the first slack message he sent me."

3: Pivoting Ideas

Mo talks about pivoting from various ideas to finally choosing construction insurance. Mo El Mahallawy: "We pivoted several ideas before landing on construction insurance, which felt right given our unique insights."

4: Building the Business

Insights into the challenges of building an insurance startup and the importance of industry knowledge. Mo El Mahallawy: "Building an insurance startup involved learning from scratch and understanding the industry deeply."

1. Engage in networking communities to find potential co-founders.
2. Be open to pivoting your business idea based on feedback and market needs.
3. Utilize fellowships and incubators for support and resources.
4. Build a strong relationship with your co-founder based on mutual trust and aligned goals.
5. Regularly evaluate your business progress and be prepared to make tough decisions.

Today we’re chatting with Mo El Mahallawy, CTO and co-founder of Shepherd.
Shepherd is all in one commercial insurance platform focused on high hazard industries. The company is on an absolute tear and this month they announced a $13.5M series A.

Mo and I decided to sit down and record a conversation because the journey of Shepherd will resonate with many potential founders who are try to find those two key missing pieces: who might I start a company with and what might we build together?

Right as the world was shutting down due to COVID, Mo joined ODF3 where he met one of his co-founders at Shepherd — Justin Levine. Mo and Justin soon embarked on a journey to determine what they could build together that had potential to solve a real customer problem.

After pivoting through several ideas across a variety of sectors, they honed in on an area where one of them had a unique insight — construction insurance.

This is an instructive story about how to find co-founders and how to build a great business together. Enjoy!

Are you exploring starting a company? We’ve got a program for that!

ODF has helped 1k companies like Shepherd (ODF3) find their co-founders, get started and go on to raise over $2B. Applications for our IRL cohorts in San Francisco are now open. Learn more and apply at beondeck.com

People

Mo El Mahallawy, Julian Weisser, Justin Levine, Steve

Companies

Shepherd

Books

• None mentioned

Guest Name(s):

• None; Mo El Mahallawy is the featured guest.

Content Warnings:

• None

Mo El Mahallawy

It. Are you exploring starting a company? Well, we've got a program for that. ODF has helped 1000 companies like Traba. Levels and Finch get started and go on to raise over $2 billion.

Julian Weisser

Learn more and apply@beyonddeck.com.

Unknown

Hey, everybody. Julian here, cofounder and CEO of Ondeck. And today we're chatting with Mo El Mahalowi, CTO and co founder of Shepherd.

Shepherd is an all in one commercial insurance platform focused on high hazard industries. The company is on an absolute tear, and this month they announced a $13.5 million Series A. Mo and I decided to sit down and record our conversation because the journey of shepherd will resonate with many potential founders who are trying to find those two key missing pieces. Who might I start a company with. And what might we build together?

Right as the world was shutting down due to Covid, Mo joined ODF three, where he met one of his cofounders at Shepherd, Justin Levine. Mo and Justin soon embarked on a journey to determine what they could build together that had potential to solve a real customer problem. After pivoting through several ideas across a variety of sectors, they honed in on an area where one of them had a unique insight. Construction insurance. This is an instructive story about how to find co founders and how to build a great business together.

Enjoy.

Julian Weisser

Mo, welcome to the deep end. We're really excited to have you here. Maybe we could just dive in and you can tell us a little bit about your background and what you're building at shepherd. Cool. Yeah, absolutely.

Mo El Mahallawy

First of all, thank you so much for having me. Having went through ODF three now, just think really highly of on deck. It's been a big reason why Justin and I met and started this company. So thank you for doing that. Just really quickly.

About me, I'm Mo. I'm the co founder and CTO of Shepherd. What shepherd does is commercial construction insurance. We target middle market and above. So contractors that do somewhere between $20 million of yearly business all the way up to.

We have ones that do $10 billion a year in business. We're currently insuring or on the insurance program for four of the top EnR. So, like the fortune 500 of contractors in the country, names that you probably have seen around, if not some universities have buildings named after them. So some pretty big institutions that we cover. And we mostly build a lot of technology to speed up the process of underwriting.

And we built a lot of tech that we give back to our customers to better their business and their back of office operations. So that's really what differentiates us against some of the big competitors that we have. Prior to Shepard, I was at a small company called Airbnb. For about four years on. I was the first hire on the Lux product.

I had joined the company. And you go through this like three weeks of learn everything about engineering and then figure out a team that you want to work on. I've heard of this person named Daniel Loretta who now actually has a startup and he was brought on to, or he was at the company and he was responsible for starting Lux. And so I was like, hey, I want to join your team. He's like, great.

He likes sat beside the eas because we didn't even have a dedicated space. And he's like, I'm going to go form a team. And I was like, holy shit, what am I doing here? And then a week later we became like five people. And then at some point we were 120 people.

We launched the luxe product. Some of my work was like some of the most visited surfaces on airbnb.com. And then after that I worked on the marketing tech tool within Airbnb. So if you received a marketing email from Airbnb that came from a tool. In the past, yeah, it was a great product.

It's awesome, it's super cool. And it came through the acquisition of luxury retreats. So I got to see that as well. Big integration, big Airbnb. So that was a really cool experience.

And then prior to that, I was at a company called Peak, which still operates today. They're kind of like the salesforce for tourism operators. And then prior to that I was at tilt, which eventually got acquired by Airbnb. And, yeah, so that's kind of where. It'S really interesting that you brought up Daniel because we actually overlapped briefly at a company, Vertaealth, but also he did ODF.

Julian Weisser

Was he the one who referred you to. How did you hear about ODF in the first place? Do you recall? Yeah, I do remember. So my story with ODF actually kind of starts with Eric.

Mo El Mahallawy

So Eric was doing these know before even formalizing on deck as what it is today or what people know it. And so I've been invited to these informal dinners or get togethers. Funny enough, some of the people I met there, I guess I met Alex and Lucy, who eventually started scale. But it was a really good, amazing group of people. Then it became formalized.

And then one of my friends, Ben south, who was ODF two, I believe, or ODF one, he had referred me and said I should join this, and it'd be a great opportunity for me to go through that process and find a co founder. I had strong intentions to eventually want to leave Airbnb and start a company. I didn't know what, I didn't know with whom, but I did know one thing for certain, which is I had to wait for my green card as a canadian. So waiting for that process and know, starting on deck and kind of here I am today. It's so, you know, he sold his last company that he started out of on deck.

Julian Weisser

He's now at Aave. It's cool to see all the connections. I think that we'll talk a lot more about what Shepard is and sort of why you sort of decided to build shepherd. But I think that we should probably start by talking about you and your co founder, Justin. What that was like in terms of how you met each other, how you sort of evaluated working together.

I'm not going to give too much of a specific question. We'll kind of dive into a bunch of areas here, but maybe just talk a little bit about your co founders. Start. Yeah. So I actually have two co founders, Justin and I met through on deck.

Mo El Mahallawy

I kind of, like, pinch myself or try to remind myself every week that I need to frame the first slack message he sent me because we have it, and every once in a while we'll resurface and be like, this is where it all started. But I was in on deck three. On deck three was very different in the sense that on deck one and two, on deck one, I guess, was the first one who's experimental on deck two was starting to happen. And in person, that was the one that Justin attended. And then on deck three was supposed to be in person, but it was during March 2020, and this thing called Covid hit.

And so even I remember there was like, the kickoff was like an overnight thing. And when Covid happened, it was like, all right, we're going to delay this for a week. And then it turned into, we're going to lay this for another week. Then it became like, we'll delay this until further notice. And then it became like, okay, we'll delay this indefinitely.

So in the beginning, it was really strange to believe that I was going to find a co founder and work on this thing for the next 510 years with somebody I'm going to meet over Zoom. And if you kind of, like, roll back the tape meeting people or doing all these Zoom calls back before March 2020 was still a very od thing to do, let alone you're going to essentially kind of hedge your carriage to another person and be like, all right, we're going to go on this journey together. It had its like, at its time, what was really cool is I got to sit at my desk and meet a lot of different individuals and learn a lot of different stories just come from the comfort of my seat and learn about what different ideas I want to explore or different experiences that people have that may overlap with mine and we could work on together. But this was probably end of March or beginning of April. I get a message from Justin.

He says, hey, thought your profile is really interesting. Yada, yada. Would love to hop on a call and chat. And at the time I was like, yeah, I'll talk to anyone. Totally cool.

Julian Weisser

See what's going to happen. So we started to chat, to speak, and definitely started to find a lot of synergies between the way we think and so on and so forth. Justin's incredible. He had started his career as a civil engineer in New York City, working on some big construction projects. Wanted to learn a little bit more of the back of office, so he transitioned into a risk management role.

Mo El Mahallawy

And throughout his time, he discovered this really painful process that was just taking way too much time. And so he decided to leave big construction to start a tech company to solve that specific problem. About two years later, ended up selling it to a company out here in San Francisco called Building Connected, which was venture backed series B company. And then really quickly they sold to Autodesk. And so before he knew it, he went from big construction to leading company, leading risk services for the construction industry within Autodesk.

And it just happened to be that Autodesk was doing this big consolidation of buying various startups. So Plangrid was an acquisition that happened around there around that time. So he became friends and got to know Tracy Young, who's the CEO of Plangrid and a few other startups as well. So his background was incredible. I did not know anything about construction.

I knew it was kind of interesting and there was a lot of problems, but I was pretty naive, to be honest with you. I, at the end of day, was an engineer from Airbnb. And so we were like, okay, let's work together. And we decided to work together and then started this kind of journey of like nine months to where we got to today. But the journey started off with kind of funny story.

Justin's like, hey, I got this really painful idea. A lot of my friends are creators. And at the time, again, this was like March or April or May. Of 2020, everybody was at home consuming a lot of content. It so creators were, and the creator economy was super hot at the time.

And so he's like, I got a lot of friends that are creators, and the biggest problem they have is, like, organizing their work and organizing their work with others. We should create an Asana for creators. And I was like, oh, man, this is a really difficult idea to do. It was like, I came from Airbnb, you came from Autodesk. We are not the right people to do this, but we trusted each other.

We're going to go on this path. Let's do it. What do we got to lose? So we went through that, did a lot of exploration. It didn't work out.

So then we're like, okay, what is the number one problem that a lot of creators have? And the thing that consistently came up is finding talent. We're like, great. We're going to create like a fiver or upwork or something like that specifically for content creators because they need really good writers, they need really good editors and videographers and so on. And we'll figure out additional tech or whatever it is to differentiate from all these other platforms.

So we went out to do that. We got tons of users. We actually were able to or made money off of this thing. But the problem we kept running up into is we would go to creator and be like, you got 100 applicants for your writing writer application. We've used a lot of tech.

We narrowed down to the best five. Here you go. How much would you pay us? And then when's the next time you want to post a job? And they're like, great.

This is awesome. Probably I'm good here for six months and I'll pay you guys $20. So it was like, damn, where you don't have a really good venture, backable. Business, crazy and frequency problems there. Exactly.

And again, we were having a lot of difficulty as well. We had a bunch of creators in our network, but how do you go from like ten to 20 to 100 to 1000? It was really hard for us to figure out that path. We just didn't know the secrets or kind of how to distribute in this market. And we went through a bunch of series of different ideas, but here we are.

We ended up kind of doing full circle, like shepherd construction. Insurance is a world that Justin knows really well. And then we went through y combinator. And Steve, the third co founder, joined us right after that, in April of 2021. And so he left his job as executive vice president at Chubb, one of the biggest insurance companies in the country, overlooking the whole construction book of North America.

So he's really the domain expert when it comes to insurance and underwriting. And then Justin, construction tech and insurance, and then me, everything technology. So that really kind of brought the full team together. Maybe we could talk a little bit about how you guys decided, you and Justin, since you guys were sort of started. And then Steve eventually joined as the third co founder, maybe we can talk a little bit about that process, because it sounded like you guys were interested in potentially working together, kind of regardless of the idea, or you just sort of hit it off and you even working out idea that maybe it sounds like you didn't have a ton of confidence in, but you were excited about working together.

Julian Weisser

Can you speak a little bit about that? We did, like, a questionnaire, and we followed that questionnaire, and we kind of created our own questions as well, and we answered it, and we looked at both of our answers, and there was a lot of alignment between some of the things that we wanted. Naturally, if it's 70% good, then I think, to me, it's 100% good. You can't align on everything, but we definitely really aligned on the kind of organization that we wanted. And it started to kind of speak into what shepherd has become.

Mo El Mahallawy

So, for example, we were very fond of being in person right from the get go. So we actually got our first office may of 2021. So we got vaccinated, and then, like, a month and a half later, we had an office. And everybody at the time thought we were crazy, and remote work was the future. And to some extent, there's a lot of remote work, and it will be part of the future.

But the culture that Justin and I wanted and we aligned on when we were even doing that questionnaire is, like, we don't know how long Covid is going to last. We don't know how long we're going to sit at home and work. But once we can, we want to get back in the office. We want to be in person. We love the camaraderie.

We love the celebration. We love the elbow to elbow kind of work. And it's really helped shape the company and kind of the path and the success that we have today. It's not for everyone, but it really worked for us. Just kind of like having some of the things, like no bullshit culture, et cetera, experimentation, so on and so forth, those were things that him and I really cared a lot about, and we brought a lot of that into the ethos and the fabric of the company.

And so, yeah, so that was that. And then, honestly, going through different ideas, what we kind of had at the time, just being very transparent, is like, I was waiting for my green card. So we had a little bit of the luxury of time, of working together, experimenting on different ideas, going through the highs and lows, when somebody's really excited and leans into one of our ideas, and somebody's like, this is not going to work. So just going through the working and earned experience that we didn't have because we just got to know each other, really kind of formed and solidified our relationship as co founders in order to. Then eventually, when we got into YC, it was like, all right, 6th gear, foot on the gas.

We're building this thing, and it's going to be the next ten years of our lives, and it's been three years since. So, yeah, I look back at those times, and it was very formative for who and what we became today. So there are some companies that seem to kind of have the initial insight. Maybe one of the co founders has the insight, they find the other co founder, and they're pretty much just straight off to the races. And obviously, there's a little iteration around, maybe go to market or sort of what the actual product promises and how it delivers that promise to the customer.

Julian Weisser

But ultimately, there are those types of companies, but those are few and far between. Most of them involved a lot of wandering and sort of figuring out what it is that you're actually going to build. You went through quite a few pivots before you actually landed on the thing that maybe speaks to your core strength. The thing that it reminds me a lot of is Finch. Because Finch sort of had a similar journey where the two of them, Ansel and Jeremy, they were kind of working through ideas together and seeing what was the thing.

I know. Ansel told me the last time we spoke, and you spoke for ODF 19. He said, we worked on trying to build something for fortune tellers at one point. So how did you think about sort of that process of going through the ideas and sort of understanding when to move on? Because ultimately, I think that some of the challenges with this isn't that you try ideas that don't work, it's that you stick with the wrong idea for too long, or there are probably other issues with it.

Mo El Mahallawy

So we have a really funny story here, which is, come October, I get my grade card. And at the time, we've explored a bunch of different ideas. Marketing, tech, sales, tech, all kinds of things. At this point, we were like, kind of reaching for whatever. And one of the things that we landed on is building a SaaS tool for customer success.

So the insight there was customer success as a role was growing and was becoming more, more and prominent, more important, especially 2020, when everybody's freaking out and starting to shed a lot of the software that they're using. Customer success became really important in terms of thinking about churn, thinking about upselling, et cetera, et cetera. So we wanted to build tools for that role or that kind of team. And at that point, we spent quite a bit of time doing the talk to your customers before you build. So we had spoken to about 40 different companies, about 90 to 100 different individuals, and there's a couple of fun insights here.

Two different things I'll talk about. And by the way, I share this story with everyone who joins the company because it's a little bit fun. We had talked to all these people. We were like, okay, we know what we're going to build. We're super excited, and we're like, let's do what everybody was doing, excuse me, at the end of 2020, which is two people on a deck, and let's go raise some money.

So we go, and in parallel, while we're raising money, we're still doing a lot of customer development. And so it's just Justin and I, we're like, hey, we're doing this thing. We've done all this research, et cetera. And we got really lucky because we ended up talking to every venture capital firm in the valley, like, whoever, you name it, we talked to them, and they were super excited to talk to us. And you could see that we heard so many great things about you guys.

Great pedigree, great degree, blah, blah, blah. All these things. What are you guys working on? And then we talk about our background, and then we jump into what we're working on. You could almost see people's face kind of like, sink in.

They're like, oh, crap, this is what you guys are working on? And so that was like one signal. And at that point, we probably got like, hey, love you guys. Great idea, all these things. Let's talk again in six months when you're further along kind of rejections.

So that was like one peril that was happening. The other peril was we got to a point where, and this is kind of a little insight, or nugget, is we started to ask some of our early, like, our conversations, we would ask them a couple of different questions that were telling that we're not building the right thing. Or actually, even if we were building the right thing, there's no money here. So we would ask them. For example, by third conversation, we'll be like, here's a software, here's some designs.

Figma, would you pay for this? And we would talk to a VP of success and they would say, no, I have no budget. I'm so sorry. This is great. Really excited for you guys.

But I don't have budget. And if we didn't want to ask them directly, that we would ask them, when was the last time you bought software or asked for software for your team? And it's like, oh, yeah, never. Like, I don't have any budget. My team uses Salesforce.

That's what the sales team, the sales team gets all the allocation, so we can't help you here. So we started to clue in that we probably should have asked these conversations from conversation number one, and especially when it comes to some of the SaaS ideas that we had, it took us too long to actually get to the point where we could build whatever anybody wants as like design partners. But will they pay for it? And then at what point will they pay for it? And how much do we have to build for them to pay?

Were kind of some of the big questions that we started to ask ourselves. And what we discovered at this point is like, we spent all this time doing all this market research, but we were going to build something that people really didn't want. It just happened to be around that time. This was December when we were fundraising. We also got into y combinator.

And so we decided we're going to do YC. Two weeks before, Justin and I sat together and we're like, all right, what are we going to do here? And he said, I have two ideas. One, Asana ish for construction. And I was like, oh, no, not Asana.

Or he said, lemonade for lemonade, the insurance company for construction. And that was one that we both leaned in and we thought was really intriguing and really exciting. We truthfully didn't know what that was going to look like or what was it going to shape to be, but that was one that we were both excited and we were both willing to kind of bet the YC three months on. And so first week of YC, we hop on a call with our partner at the time, we're like, hey, do you remember this idea that you accepted us with? Yeah, we're not doing that anymore.

We're doing lemonade for construction. And they're like, okay, so what does that look like? And we're like, we don't know. We're going to figure it out. And so we spent three months doing all kinds of conversations, building all kinds of things, showing it to brokers, showing it to insurers, until what we realized is if we really wanted to have a meaningful impact on the industry and do something really different, we had to become an insurer ourselves.

And this was also guided by a lot of conversations with Steve, who eventually joined us. We had a lot of conversations with him about, like, here's what we're thinking or here's what we're looking at. And he really helped us guide around, like, no, it's actually this or that, or here's actually how I think the world is going to go to or move to. And then it became kind of like a no brainer that this is the team, it should be the three of us, and this is the kind of company and what we should be building. So that's kind of how we came together.

Julian Weisser

Why do you think it took you a while to potentially work in an area that one of you had significant experience in? It feels like you went towards stuff that was cool and interesting, but not necessarily something that it wasn't in sort of like short term rentals and it wasn't in luxury rentals or whatever, and it wasn't in sort of the construction space to start. Do you sort of have a sense of why that was? And a lot of people sort of have that happen in their journey. They kind of like, circle back to the thing that maybe one of them or both of them have some real serious background in.

Mo El Mahallawy

Yeah, I think there's many different reasons. And obviously, if Justin was here, he would have a very different reason than I would, for example. But I think when you work in something for really long, you sometimes forget or kind of start to be blind to some of the secrets that you've earned. And it's just like, this is the way it is, right? And so as a result, it's like, yeah, you don't necessarily want to.

Maybe you kind of dismiss a lot of the problems that are kind of so obvious to you that are not obvious to others. I think the other part is, it's cool to change things. The grass is greener on the other side. Let's try different things. So, yeah, we could have tried to do something in luxury or short term rentals, and at the time, right before the pandemic, there was many different concepts of Airbnb, so we could have came up with something.

You know, I think regardless I look back at that time, and I think it was really powerful for us because we got to experience a lot of failure. We got to experience a lot of being in the trough and people saying no to us. And that kind of really hardened our swords a little bit and kind of got us to a place where we felt, as a team, a lot stronger, a lot more confident, and then we're kind of ready to jump into the thing that we actually knew pretty well. So it kind of took us to go full circle. But I'm happy that that happened.

And I think for a lot of people, when you meet somebody for the first time, you decide to work with them. I think it's, like, a healthy thing. I see it as, like, necessary evil that we had to go through. But my explanation to why that happens is, yeah, you sometimes got to kind of step away to go back and realize that, oh, yeah, these are actually really big problems that for a really long time, I was not seeing. But now with fresh eyes again, you start to see them as big problems.

Julian Weisser

It seems like there's actually a significant amount of value in it. Running into these challenges with somebody who you haven't built a company with before early on, because if you go towards something and maybe you just sort of luck into it, or it's some combination of luck and insight, and you kind of work on something that kind of starts to work pretty well out of the gate, you don't necessarily have these lurching moments where it might really test the durability of your relationship and sort of, I mean, I can imagine it obviously didn't happen in your case, which is so amazing, but I imagine there are a lot of times when people, they start working with somebody on an idea. Maybe it's not the best idea. Maybe they're three or four company ideas away from landing on shepherd or landing on Finch, but they end up in a place where they hit that lurch. They hit the thing where it's like, oh, wow.

It actually isn't working in the way that we thought it would. And then they realize that they maybe don't have a good, sustainable relationship. Maybe the relationship was only based on this idea and this sort of interest, but once they actually encountered some adversity, it started to pull up the seams a little bit. Yeah, for sure. And I think there's, like, a popular saying within Silicon Valley, which is like, startups don't die from homicide.

Mo El Mahallawy

They die from suicide or implode within, which is very true. Right.

The biggest risk to startup is inner relationships. And it starts with the founders, and it starts kind of like with the leaders and the team. And I think even I looked at a study a couple of months ago that was looking at all the top reasons why startups fail. And it's very rare. It's common, but it's not as common as people believe, that it's competitors or competition.

It's oftentimes it's like, actually the team, and then it's like the market, and then it becomes like competitors. So, yeah, you're totally right. Which is the way even I look at it. My best analogy for it is, I'm sure you've watched movies where they show you, as they're preparing the sword or whatever, you got to heat it, and then you cool it, and you beat it up, and then you heat it and you cool it, and that makes that sword stronger. And so the same way we kind of went through that process, and it just made us a lot more resilient, a lot stronger, as like, a founding team kind of having went through the peaks and troughs.

And ultimately, it's built a relationship where shepherd and beyond. I look at my co founders, and I have 100% trust in them, and they're closer than some of my closest friends that I've known forever because of kind of like that experience and the shared experience that we went through and kind of the resilience throughout that process. But to your point, I think other founders that kind of hook onto something that ends up pulling them forward doesn't necessarily mean it's going to kind of hold that relationship throughout. Maybe we can, or not throughout when things go bad. I should say that makes a lot of sense.

Julian Weisser

I mean, it seems like there's this really important opportunity to go through that experience together early on instead of kind of like in an ideal world. The ideal world might actually be to go through these challenges and these pivots early on because it kind of allows you to fortify as you're describing it. Maybe you could talk a little bit about what that process was like once you landed on kind of the idea that you felt pretty excited about this lemonade for construction, what did you do next? So Justin said, I've got these two ideas. We're going to go and decide on one of them potentially, and we're going to tell our YC partner that we're abandoning the idea that we applied and got accepted for.

But what were the things that you did immediately after saying, hey, this lemonade for construction seems like a really good opportunity? Yeah, I think that the first thing that we try to do is piece the puzzle to try to figure out just kind of like educate ourselves on kind of like, what is the value chain of the industry and where are kind of the holes and the problems. We knew that we were pretty confident that insurance hasn't changed, and it's big incumbents, and they have very, very low incentives to do anything or change anything. And so we started to kind of educate ourselves on, what does that look like? What does insurance look like?

Mo El Mahallawy

How does a contractor get insurance? Who do they speak to? Who are the different parties who kind of have leverage? What does even tam and money flow look like? And then starting to break down and try to understand the industry as a whole and where the industry is moving.

And the insight that we got really early on is, and this is kind of like earned experience from Justin. Having built a construction tech company, which is contractors are buying more construction tech tools, the construction tech industry as a whole is just exploding. There's so many different companies doing really, really interesting things, everything from productivity all the way to safety. Thing is, a lot of these contractors are not getting rewarded for using those tools when it comes to insurance. And insurance on average, is 1% of yearly revenue.

It's a pretty large amount. And so we started to kind of piece together and realize, as we talked to brokers and we talked to insurers, as we talked to underwriters, as we talked to contractors, as we talked to entrepreneurs building construction tech companies, that the value chain was kind of broken there, which is you use tools, you pay for them, they help with your safety, you get no reward on the back end. And so what we figured is maybe we could build a brokerage, but that wouldn't really help solve that problem. And so we had to take one step back and realize that actually we need to build an insurance company that would actually incentivize and reward contractors that use those tools by giving them lower insurance. And so that was the thing that we came to market with.

So just spent a lot of time just talking to people and piecing it together. Luckily, because of Justin's experience, having built a construction tech company, has worked with brokers and has known underwriters and new people in the industry. And the thing I should mention is his company as well, that he built and sold, he partnered up with a big insurance company called XXL. So he already had a Rolodex and contacts from that world as well. So piecing together, putting that puzzle piece together, and realizing that, okay, this is actually the thing that we should be building and bringing to market started to become obvious to this.

Now, building an insurance company is not like building software. So there was quite a bit that we had to do, and I can talk about that in more detail, but quite a bit that we had to do even to get to a point where we have a product and market and actually generating revenue. Throughout that time, we did build software. We try to build a bunch of different experiments for brokers. It was a way to get the conversation going.

It was a way to see if we could create loss leaders ahead of offering an insurance product. But those were ultimately, some of those early experiments did not pan out. And the thing that we ended up leaning back on is we're selling insurance. So I think financing is an important question for a lot of businesses. Sometimes businesses can bootstrap.

Julian Weisser

Sometimes they can raise a small amount of money. Sometimes businesses have a really high upfront cost of capital associated with it. How did you think about financing the business? And I guess the second question that would be tied to that is, do you think that the way you financed the business in the past would be viable today? Or how might you have to change it in today's environment if you were to be building a company similar to Shepard today?

Mo El Mahallawy

Yeah. So Shepard today operates as something called an MGA or MGU, which stands for managing general agent or underwriter. What that means is we're responsible for everything to do with sales and marketing and claims handling documents and policy generation et. But underneath us is a fronting carrier, and behind that is reinsurance panel. This is very similar to if you look at some of the neo banks like Chime or sure you have, Brex sits on top of a licensed bank.

And then if Brex is offering loans, for example, the bank may originate the loans, or the money may be supplied by something behind that. So that's how we operate today. What's great is, like, we don't own any claims, we don't carry any of that on our balance sheets, which is awesome. That being said, to set up a lot of that took quite a bit of time. So when we went through IC and Steve had joined in April 2021, we raised a seed round of $6 million with participation, well, led by Spark, with participation from Susan and Procore and a handful of angels, we didn't come to market and were able to open kind of our doors for business until March 2022.

So that was about a ten month period where we had to piece together getting a fronting carrier, getting reinsurance support, writing guidelines that describe the products that we're going to bring to market and what can and can we not do? It's like really, really complicated. It's a lot of meetings. Most of all, it moves at the speed of insurance as well. And so we needed to capitalize ourselves in order to get to that milestone.

And then, let alone we needed to capitalize ourselves to show our reinsurance partners and so on, that we have enough Runway to actually be in business and start to generate revenue and get to scale where it's worth their time and their effort. So we needed to be pretty capitalized to begin with, to be honest with you. That being said, insurance is really good business when you have policies. Our average policy size is $185,000, and on average, we take about 10% of that. That's the economics.

These are renewing on a yearly basis. There's thousands if contractors in the country. Our tam is huge when it comes to that. Insurance is a very strong, resilient business. It's just getting to market is really, really difficult.

Julian Weisser

And maybe you can speak a little bit about what that fundraise process was like, because you spoke earlier about sort of how you were raising. You went to talk to investors initially about this idea that maybe it seemed like that when you actually started to dig into potential buyers, the money wasn't there, maybe the decision making power wasn't there. And investors seemed to kind of shy away. They were really excited to meet, which often happens for people who are exceptionally talented. They're really excited to meet exceptionally talented folks, but then they kind of edge off towards the conversation once they realize maybe the idea isn't the one that they're most excited about, or they don't think it necessarily plays to your strengths.

You kind of fast forward a bit. You've done YC, you've added a third co founder. You're kind of going through, and you have this idea that really plays to Justin and Steve's strength. You're an incredible technologist, tech enabled insurance. Like, obviously, there's a lot of value in adding more sophisticated technology there.

What was that like? Because it seems like it went pretty well. You got some great investors, but it also seems like you were pretty early on in terms of product. As you're saying, it's a huge process to go from the idea to actually being live. Yeah, that's a really good question.

Mo El Mahallawy

The punchline is there was strong alignment between founder market. That's like the biggest thing. We had the right people. We truly, truly had. I think it was Paul Graham who said, you want the hustler, the hipster and the hacker.

Right? That makes the perfect team. And that totally makes sense if you're building consumer or if you're know SaaS, for example, in our know, what we had was the kind of perfect trio of, you had Justin CEO Construction tech insurance, had that overlapped, partnered with insurance companies, sold a construction tech company, just like great leadership skills. And then you had Steve, who's like the domain expert when it comes to insurance and underwriting and guidelines and working with reinsurance and had like a really strong name, like when he left to start Shepard with us, there was like insurance publications that wrote about him leaving. So like pretty big deal.

And then you have me, the technologist. And so it's really rare where you find that combination of folks who come together and then say they want to build a construction insurance company. And even the thing that I did not mention to begin with is we see ourselves beyond construction. Construction is like our wedge, what we know very well, what we have experience with. But construction is the most high hazard and it's the most complicated.

And when you start to abstract pieces of it, you start to apply those pieces into other industries, like agriculture or manufacturing or energy, just because construction is like everything from excavation, woodwork, bridges, hospitals, demolition. It's the whole thing. Whereas agriculture is like, it's farms. And so if we could figure this out and solve it, we will build enough and garner enough trust and support to actually go to other industries. But to begin with, we had that perfect team.

So there was perfect founder, market fit, we had strong backgrounds, and we had already started to kind of get traction around, like, here's what we're going to do. Here's what we're going to build. Bringing on Procore was a huge support as well. Procore is like the Jira or Asana of construction. So just like bringing all of that together and obviously Natalie Sandman at Spark and Courtney at Susa, just like entrusting us, kind of brought it all together.

And so we were kind of off to the races going from there. What you said about how you're working in maybe one of the hardest industries with regard to insurance in terms of the complexity, in terms of the risks associated with it, reminds me a little bit of the idea of, like, do the hard thing first in the sense that if you had started with agriculture, not to say that that would have been good for you in terms of you have experience in construction and all that, but if you had started in agriculture, a lot harder to imagine you potentially ratcheting up the difficulty in going into construction later. But if you've already been able to prove yourself in one of the more difficult domains, easier to move into adjacent markets that actually have less risk and less complexity with them, does that seem like an accurate sort of take on that? Yeah. The biggest currency in insurance is trust.

And so even being able to, if Steve, Justin and I were, I'm making this up, but, like, three engineers at Google, Facebook and Airbnb or Uber, Twitter or, like, we would not be able to build enough trust, or it would take us a tremendous amount of time to build enough trust with the insurance community, with reinsurers, with brokers and so on to actually bring this thing to market. So the biggest currency is trust. And the fact that we had really strong trust for our team to give us support for construction was already kind of an insurmountable challenge to take on, then we were able to do it. And we're very thankful for all of our partners. But if we were to do the easier thing, maybe it would have been a lot easier to get to market, for sure.

Or maybe it would have been like, you guys are a bunch of construction people. Like, what are you doing doing agriculture?

At the end of the day, it's like, that's the biggest thing for insurance. And we were just really lucky and fortunate to have the right people, the right team together and founding this company and bringing really strong early people to the founding team as well, that garnered enough trust in us and enough support to do this really difficult thing that eventually, when we want to open the doors to other industries, we've earned that trust even further because we did the hard thing. Maybe we can step back a tiny bit and talk a little bit around the idea of when you're in these early days of exploring concepts with Justin, maybe you could speak a little to sort of how you kind of kept yourselves accountable, sort of tracked progress. Did you work with other people? How did you know that you were actually working towards something?

Julian Weisser

Because sometimes when you're in this state of ambiguity in the early days, it can kind of feel like maybe you're just treading, maybe you're not necessarily making as much progress. How did you measure sort of what success looked like in those early days? Honestly, that time is like the hardest time ever because, yeah, you're right. How do you track progress even if you're seeing some progress? What if you're just kind of going down the wrong thing?

Mo El Mahallawy

Right? Because you could get some. In our case, we got progress with this one idea, and then we're like, how much would you pay? It's $20. We're like, no way.

We can't build a business around that. And we could have been like $20 better than zero and continued to build out this thing around that. But, yeah, it's not just like being self diligent and tracking your own progress to make sure that you set yourself goals and then you achieve those goals, and then what ends up happening, whether you're kind of going down the right path or not, is kind of TBD. But for us, we kind of were trying to be really regimented around working together. So I was driving over to his home and working out of his home office three days a week.

We had goals around how many people we're going to talk to. We would build some mvps as well and then just put in front of people. But to be honest with you, if there was any single advice that I give to any of my friends, I always tell them, are you trying to get design partners? Great, try to get them to ask for money or, sorry, try to get them to pay you money, even if it's $100 and you're going to charge like $1,000 a month later for this thing. But just like, even if they give you $100, that means it's like enough of a pain for them.

And that progress in them saying yes and going through the process of paying you $100 is like more progress than having another 50 conversations. That being said, still, they could give you $100 and you could be working on a meh idea and very meth market. So that advice obviously has a lot of caveats, but that was what we started to realize is if we want to make progress, we got to get down to. Do people find this to be a problem? Can we get them to pay for it?

Can we get enough people to say yes to this? Then can we build something for them and then start to kind of get usage within that? That was like the biggest kind of thing that we were trying to aim ourselves towards. That's like when we were looking at various different ideas in terms of insurance. Progress is like, can we bring a product to market?

And then we write our first policy and we make money. And so now progress became, can we do this more often and bigger policy sizes, so different kind of progress. Let's stroll down even a tiny bit more because that was super interesting to hear. Sort of like this idea of, hey, will people pay us at all? It doesn't need to be the full amount.

Julian Weisser

There is a process that they'll need to go through potentially to even get to pay us $100 internally. Especially. The larger the organization, the more painful it is to get them to swipe a card. When you were actually thinking about sort of like the week over week sort of stuff, what did that actually look like? It was like really twofold.

Mo El Mahallawy

It was, are we having more conversations? Are we having second and third conversations with folks? Are we getting closer to this thing that we think is the problem? And then the other parallel is, are we building designs and showing it to them to kind of get to where we want to be or where they want us to be and or are we building some sort of product to actually be like, here is what we can do for you? So those were like the two lines of progress.

We were really hunting for design partners. So, for example, when we wanted to do one of our ideas was marketing tech. We're like, hey, Salesforce, marketing cloud sucks. There's all these different marketing tech solutions. I had worked on marketing tech at Airbnb, so it was like, okay, let's go and build something here.

And so we would talk to a lot of marketers and we'd try to figure out what they're looking for and we would show them examples. We would create designs and that was kind of our way to measure progress. Whether we're getting closer to this is what we're going to build and we know people are going to pay for it. And the further we were from there, then we felt like we need to make progress towards that. Now, a lot of the ideas never got to that point, to be honest with you.

So even, for example, marketing tech tools, there was a slew of different problems. So we never got to, yes, we're ready to start building this thing and charging a bunch of money and getting a bunch of design partners because early on we couldn't even get to the point where people were like, yes, I'm ready to switch my thing that I'm using to you guys, and I'm willing to pay you guys $100 today or I'll pay you $1,000 tomorrow. Nobody wanted to do that. And so that was a way for us to kind of conclude that, one, we either didn't know some secret or some way to enter the market and we could have kept plugging at this for a long time, but honestly, none of us were marketers and really didn't understand the problems deeply or two. We had kind of figured out a lot of stuff, but we just maybe were not talking to the right people and we weren't making progress on that or three.

We had talked to all the right people. We don't know any secrets. And honestly, the problem is so big that we can't even enter the market. So we're not the right people to build this thing. We're going to move on to the next thing.

So that's like, kind of ways that we try to figure out. It's really, like, through proxies. But there wasn't, like, a step by step process for us to be like, okay, we're moving closer, or moving further. It occurs to me that a lot of people hear the term design partner. Some people might not know what it means.

Julian Weisser

Others might have different definitions of sort of like what a design partner is paid, unpaid. How would you describe sort of what an ideal design partner situation is? The whole thing about design partner is you want someone who's engaged enough, who's going to kind of guide you and spend enough time with you to help you build this initial version of the product that eventually could get them to a place where they actually adopt it within their team, their organization, et cetera. So that's the way we viewed it. It doesn't have to be paid.

Mo El Mahallawy

We would have been okay if somebody was willing to allocate a number of hours to us on a weekly basis. So let's call it like an hour or 2 hours twice a week, 1 hour, twice a week. That's like a significant investment from someone to come and say, like, yeah, I want to build this alongside you, and I want to guide you. The challenge with there is like, if you only have one, then you're building a product for one person. Ideally, you want to have multiple so that you could start to find the Venn diagram and overlap between multiple and then build that kind of overlapping product.

That makes kind of everyone hopefully pretty happy. But at the end of the day, it's like, you don't want to build something that people don't want. You actually want to build something that people do want, and you're collecting feedback on a constant basis from those people. So that's like the way we thought about design partners. Ideally, if they were like, yes, I'll pay you money.

That's what we kind of pushed for. Then we got to a point where we know they're really committed. They're not just putting time, but they're also putting money, and they're putting time to even get that money to us, however nominal that money is. So that was kind of like the way we viewed design partners. The last thing I will say about money is I'm sure you've heard of the 99 cent app.

It's like the difference between downloading a free app or a 99 cent app. It's a dollar. It's like less than a coffee. But that mental load and kind of thought is like a big difference why people don't pay to get that app. Although it's like, again, that was another thing that was like our litmus test, which is if you can't get us $100, then you probably don't care enough about this problem.

Julian Weisser

Yeah, that's super helpful. I think people take away a lot from that. I think that there are a lot of people who look at companies and the ideas that they're building. They don't necessarily sort them in terms of categories of risk. And I think that one interesting sort of blend of risk is sort of market versus execution risk.

And not every company is 100% execution or 100% market risk. Usually there's some sort of spectrum there. It seems a lot like the creator stuff that you were talking about, especially the creator side, when it came to helping them find copywriters or something like that. There was a lot of market risk associated with it. And ultimately, maybe the market risk proved to be so considerable that there maybe wasn't a market that was super exciting, at least in the way that you were going about it.

On the other end of it is insurance. Seems like it might be more execution risk heavy versus market risk heavy, but can you speak a little to that? Yeah, I mean, insurance has been around for a really long time. And some of our competitors, some of the names that we know and love, which are like travelers, Liberty, Berkshire, Zurich, these are all big players in commercial insurance. Some of them have been around for like, 150 years.

Mo El Mahallawy

So when it comes to market, the market's there. The market's growing. The market's not going anywhere. Insurance is $1.2 trillion spent in the US. About 650 is on property and casualty.

So that's everything to do with property and your vehicle and construction and all that stuff. And the other 650 or around that is health and life. So that's kind of how insurance is split. It's existed for a long time. It's only going to get more complicated.

Whether there's going to be an insurance market, there's no question it's going to be there. It's all about execution here, because at the end of day, we're taking market share from old incumbents that are not innovating and are not doing good for their customers and are kind of, like, lazy and not providing more than just a piece of paper that says, here's your insurance. And so for us, it's all about execution. Can we stand up this company? Can we outcompete our competitors?

Can we have a big enough impact on the industry to earn us market share? It's all completely execution risk for us. There is obviously some market risk. Insurance hardens and softens, means, like, people start to take on crazier risk, and they become a lot more looser. That means that they could outcompete us because we are a lot more limited when it comes to how much capacity or what can we do from an insurance product perspective.

So those are positions that, yes, there is market risk there, but if anything, it's because the market has hardened and people are a lot more conservative, has allowed us to come and enter the market and offer something new and different. So that's kind of like where we see there's market risk for sure for us. But it's almost, if I had to say it's like 90% execution risk, I would say the last one, actually. The thing that some people don't talk about, actually, is, like, funding risk. Right?

Like, do investors even have appetite to fund companies or innovators in this industry? And that's a risk that has to be considered as well. That's really cool. Well, mo, thank you so much for being here. This has been great.

Julian Weisser

I think that your experience going through the journey of building this company over the last couple of years now, which is kind of mind boggling to think about, is, I remember when you did ODF, and it doesn't feel like it was that long ago, but at the same time, it was a couple of years. At this point, it's just been incredible to see, and I'm so glad to see you, Justin, Steve thriving Shepard, doing really important work for lots of businesses all over the world. Is there anything that you want to leave folks with, folks who are listening to this who are maybe considering starting companies or people who know, considering applying to ODF, or just people who are kind of considering what's next? Like, maybe I want to join a high growth company like Shepard. What would you say to these people?

Mo El Mahallawy

Number one, we're hiring. No, but other than that, number one is we're very thankful for Ondec because it's been very formative to both me and some of the people that I've met throughout my program and even beyond are still some really good friends. Like, for example, Kevin. Kevin Huang was in my cohort and I just saw him on Friday and we hang out at least every month. But we became really good friends because of ODF as an example.

And there's many other examples like that as ODF did not just help me find my co founder and build a company, but also make friends. So I'm really thankful for that. I think the second thing is, I'm sure everybody says it's really hard to start a company and it truly is. It's really challenging, but it's very rewarding. I'm very thankful that I feel very lucky that I found the right people to work with a problem that I didn't know too much about.

But I now becoming a domain expert, a team that is just incredible and hardworking and just so loving and welcoming. It's been awesome and I highly recommend folks to try to take a shot and do this. And programs like ODF are a great way to take a bet on yourself. Meet someone that wants to take a bet with you as well. And it could be kind of like life changing or could kind of help you grow and learn in many different ways, or it may not work out and that's fine.

You could take a bet again. So I think overall this has been like a great experience and it kind of really started with ODF. So I'm really thankful for that experience and obviously everything that you've done and the team has done. So thank you for that. Thank you, Mo, and thank you for being a part of this.

Julian Weisser

Thank you for being a part of the community. And thank you for joining us on the deep end. Cool. Thank you. Thanks for having me.

Mo El Mahallawy

Thanks for joining us in the deep end. If you enjoyed your stay, give us a review on Apple Podcasts and share this episode with your friends and colleagues. Help grow the show with us. We've also got show notes and more episodes. See you next time.

Unknown

Ideas beyond deck.com.