Small Business Insurance Simplified

Small Business Insurance Simplified

In today’s episode of Startup Hustle, Matt Watson talks to David McFarland about small business insurance. Our guest is the CEO and founder of Coterie, a company that made it to our list of top startups in Cincinnati. He shares interesting insights about the insurance industry and the solutions for small businesses when it comes to securing insurance.

Covered In This Episode

Acquiring and maintaining small business insurance can be a complicated process. But Coterie’s services and other solutions can make it easier to achieve.

Listen to Matt and David’s conversation about the topic. They also discuss the problems that entrepreneurs encounter when choosing a policy and how to work them out. Aside from that, the duo also share their insights on automation, hybrid workplaces, and more.

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Highlights

  • The startup community in Cincinnati (02:08)
  • David McFarland’s journey into being a founder (03:48)
  • The critical problem that Coterie tries to solve (05:16)
  • What is a general business insurance policy? (06:58)
  • Common issues in choosing the right insurance policy (07:55)
  • How Coterie helps clients answer difficult questions (09:53)
  • Coterie and its services (11:20)
  • On automating processes today (13:58)
  • David’s go-to-market strategies and partnerships (15:35)
  • The best partnerships that are perfect for Coterie’s service (18:25)
  • About the local talent pool in Cincinnati (20:26)
  • On hybrid workplaces (22:50)
  • Raising funds for Coterie (25:13)
  • The founder’s thoughts on mentorship and guidance (28:14)
  • Where is Coterie headed in the future? (29:01)
  • On sharing knowledge with the startup community (31:30)
  • Financial strategies in funding startups (32:32)
  • On finding new investors (36:00)

Key Quotes

I’m really curious at how working is going to shape itself going forward. Because you’re going to have certain people who you can trust; who are going to work hard. You basically give them clear objectives and key results. They’re going to work no matter where they are, whether it’s in an office or remote. And they will gravitate to companies who will treat them like an adult.

– David McFarland

Our focus is to build and foster a world-class team to bring speed, simplicity, and service to commercial insurance.

– David McFarland

You can almost do the same thing for certain scenarios with the insurance. We’ve automated so much of this data collection that we can very quickly make smart decisions without manually making a bunch of gut decisions.

– Matt Watson
Business Innovation

Rough Transcript

The following is an auto-generated text transcript of this episode.

Matt Watson 00:01
And we’re back with another episode of the Startup Hustle. This is Matt Watson, your host for the day. Today, we’re continuing our series about the top startups in Cincinnati. And today, we’re talking to Coterie Insurance. How do we pronounce this, David? You better tell me.

David McFarland 00:19
It’s Coterie Insurance.

Matt Watson 00:23
Coterie Insurance. Yeah, I got it right. We should have to pregame this. I’m way off. Well, thank you so much. And so with David today, David McFarland. David, before we get started, I want to remind everybody that today’s episode of Startup Hustle is powered by FullScale.io. Helping software developers is difficult. Full Scale can help you build a software team quickly and affordably. And has the platform to help you manage that team. Visit FullScale.io to learn more. Well, David, welcome to the show.

David McFarland 00:53
Thanks. Good to be here. Matt.

Matt Watson 00:54
How does it feel to be a top startup in Cincinnati?

David McFarland 00:59
We, it feels good. In general, we strive to be a top startup. Whatever we do, we’re fairly passionate people who could get after things. And we particularly like the Cincinnati area, and hopefully, we can continue to add to it. But overall, it’s a good feeling.

Matt Watson 01:23
I’m gonna guess Cincinnati is not a place where people think there are a lot of startups. What’s the startup community like in Cincinnati? I’m gonna think it’s probably kind of similar to Kansas City. But what’s it like in Cincinnati?

David McFarland 01:35
Yeah, it’s a good question. I’m not from Cincinnati. I’m a little bit different than the other Cincinnati folks in that respect. Cincinnati typically has a pretty homegrown population. Let’s say I’ve been fairly transient most of my life, growing up in South Florida and a little bit in Georgia.

Matt Watson 01:55
Hey, wait a second. You’re saying that Cincinnati is not at the top of the list for people when they’re trying to figure out where to move to?

David McFarland 02:01
It’s shocking, I know. But honestly, I was in more of a startup scene before coming to Cincinnati. I was in Chicago, downtown Chicago, and I had just helped start another startup, cochlear cover. And two years into that, I wanted to execute my vision on the commercial insurance side. And I looked around at a few different areas. I really liked the Midwest. And I know someone from the insurance space who is in Cincinnati. Cincinnati also had a pretty commercial solid insurance scene. And that person connected me to what I’d say is the newer startup scene in Cincinnati, maybe growing startups in Cincinnati, and the people were just fantastic. It’s small. It’s a small startup scene, but the people are a solid, good, supportive community, and decided to move me and my wife and kids and start the company there.

Matt Watson 03:07
Wow. So you decided to move there and start the company there? That’s right. That’s awesome. Very cool. Well, so tell us more about your background, how you got into this particular company, and the problem you’re trying to solve.

David McFarland 03:23
Yeah, happy to, you know, for anyone listening to this will at least listen to this, at least while you’re about to go to bed because I’m not talking about insurance, and that’ll help put you to sleep. I’m a recovering actuary. And I started off in the National Council on compensation insurance, which is not half as exciting as it sounds. But it was a good time. I learned a lot of stuff and saw a lot of the inefficiencies in the insurance space. And that was down in Florida that I started there. And I kind of had this idea of how I wanted to start an insurance company based on that. And from there, I went into actuarial consulting in Georgia, then helped do some of the first embedded insurance stuff and jewelry insurance in Wisconsin, and then started a personal auto insurer tech in Chicago. And all this, like with the idea of eventually starting something one day on the commercial insurance side. And then kind of timing and my education, at least in terms of getting experience in this stuff, lined up really well to start Coterie in September of 2018.

Matt Watson 04:29
Okay, and so what was the key problem you guys were trying to solve? Then what was that differentiator for? For you guys?

David McFarland 04:39
Yeah, the biggest issue is, I mean, at a fundamental level. Small businesses are massively underserved in commercial insurance, and where they’re not underserved. It’s just like a complete hassle to get, and the main reason is it’s like if you look at agents and brokers who are servicing this business Right now, they spend as much time on a $50,000 insurance policy as they do a $5,000 insurance policy? Absolutely. So why in the world are they going to spend any time on that $5,000 insurance policy? We’re making a 10th of the amount. So they just say, like get lost, essentially, right? We’re going to do it in a very tactful, nice way. But it’s to the customer, they’re, they’re getting glossed over. And so the agent broker does, has no incentive to go after the 32 million small businesses that are out there. So, what needed to happen was not necessarily a change with the insurance distributor, the agents, and brokers. What needed to happen was a change with the insurance manufacturer, right? But the carrier’s right, and how they were hooking into the distributors. And so our idea was to tackle the small commercial space, using technology and data to make it so that these agents and brokers could actually bind these policies in minutes, right, and unlock the massive total addressable market. That is the small commercial space. And so that’s the problem that we solve at the Coterie.

Matt Watson 06:09
So a good example of this would be like, just general, business insurance policy, right? What would be the simplest example?

David McFarland 06:17
Yeah, so like, let’s say you’re, you’re starting your small business, and you want to, it’s a retail shop, like, right? Like, you’re selling stuff, telling some T-shirts, whatever. So you go, and you rent some storage space, right? And right, when you go to sign the lease, it says, By the way, you need an insurance policy, which 99% of leases out there say you need to have an insurance policy in order to lease this. Okay, so you go to your agent broker, and they basically say, like, look, we’ll get around to it eventually. And it’s going to take the agent and broker hours to go through this underwriting process and all that other stuff. Whereas with Coterie, you know, our first iteration of the product, we had people binding policies and 7.9 minutes. Okay, now, it’s cut that even in half to 3.7 minutes.

Matt Watson 07:06
Is that because before, the brokers didn’t know what product to match up that knew that the underwriting was easy or whatever? Like, was it a product selection issue?

David McFarland 07:16
No, I mean, it’s a combination of things. Really, it’s like, the, what the agents and brokers do is they go to the insurance manufacturers, and they’re like, hey, this person needs a business owners policy, which has like general liability and property coverage. There, they’re a t-shirt shop, right? Like helped me get them coverage. And the insurance manufacturer, the carriers, they’re like, well, we’ve got more questions. Do you know why they are selling these types of graphic tees? Is it polos? Are they open on Sundays? Are they all these questions? Right? Do they serve alcohol? Why are you asking? Do they have a swimming pool? Right? No, it’s a t-shirt shop, right? And what we do is, instead of asking all those questions, we just reach in, and we grab data on all of these people. And we say, okay, we have two to 3000 pieces of information, we understand the classification of this exposure, we understand that 99.9% of the time, t-shirt shops don’t have playgrounds and swimming pools, so we’re not going to ask you those types of questions and the questions that we really care about where you’re gonna go get the data for it. And so on top of all of that, on top of just like making that whole process much more efficient. We also say, by the way, this is a T-shirt shop, and this is our recommendation on the coverage. So even if the broker and agent aren’t familiar with what they should do, we make the recommendations for them. Okay, and so that’s, that’s the big problem.

Matt Watson 08:42
We saw it. So how are you guys able to answer some of those questions, right, when some of the insurance, they would want to know, like, Hey, what is their monthly revenue? Or their average cost per product like somebody could steal? Or how much inventory do they have in stock? Or? I mean, I could see like, there could be a lot of questions, right that like, do they sell fake Louis Vuitton merchandise? Right, like, there could be like, all these crazy questions, right? Yeah. And so do I, so that makes sense. Like, I get it, so how would you be able to answer those, like, get some of those answers from the business owner? Right?

David McFarland 09:14
Yeah. And it’s important to distinguish, you know, what information from the business owner do you need to know? For like, just general curiosity? And what information do you need to know in order to price the product price risk transfer in an actuarially adequate way? And there’s a lot of debate on that, which is clearly demonstrated by the fact that many carriers do this in a number of ways. What we did was we set up a philosophy of focusing on its speed and simplicity. So let’s leverage the data to first the data that we can get so that we can. We can use that to price and make that the primary thing we get rather than burdening the agent broker and policyholder with answering these questions. And when you do that, when you don’t just say, let’s just ask, let’s just ask instead, you say, let’s dig in and find the data that we can use to price it, it forces you to build products in a new way. It’s kind of like, it’s kind of like the difference between we were just talking about kids, right? There’s the kid who comes and just like, Hey, Dad, how do I do this? Hey, Dad, how to do this versus a kid who’s actually just going to read the book themselves and trying to figure out the answer. It’s a shift in paradigm.

Matt Watson 10:40
But were you guys able to get the manufacturers of the insurance to change to what you needed? Or how did you maneuver that? Right? Because you’re not providing the insurance yourself? Right?

David McFarland 10:52
Kind of yeah, I mean, so we call ourselves an insurance manufacturer and what we do, okay, yeah, what we did was we create the products, we file them with the states, we service the claims, we do everything ourselves, so we’re an actual carrier. We’re not carriers, though. That’s no difference. What we are is MGU, a managing general underwriter, general managing agency. And what we are is we have carrier partners who basically give us the authority to create insurance products and manhandle them ourselves. So that’s why we call ourselves an insurance manufacturer. We don’t API out to other carriers and sell their products. Okay, because we want to create a really novel experience that relies on data first for the end customers and the distributors.

Matt Watson 11:41
Well, that makes a lot of sense. I mean, what you’re saying is, traditionally, a lot of this was done manually by the carriers, like they’re like, you know, they have to stop and manually make these decisions about the type of the business it is and the risks that could be associated, like, it was all manual labor and somebody deciding those things. Yep.

David McFarland 12:01
That’s right. It wasn’t very systematic. Yeah, it takes hours and days in that process. And then it’s not that they’re bad. But what happened was, most of the time, small commercial, was these pretty large policies. Honestly, it was more like mid market, like a middle-sized commercial. And then what happened was, it was like, well, I should probably get this for my small business. And the carrier’s like, okay, but they’re gonna have to go through the same painful process as these larger businesses. And it just never really got refactored, right. And so you have these small, two to $5,000 policies going something good.

Matt Watson 12:39
To some degree, what jumped into my head is it almost feels like you know, when you go to buy something today, they can run a credit report on you, and very quickly, you know, systematically come to an answer, right? And it’s almost like, you can almost do the same thing for certain scenarios with the insurance. It’s like we’ve automated so much of this data collection, that we can very quickly make smart decisions without manually making a bunch of gut decisions.

David McFarland 13:02
That’s exactly right. That’s exactly right.

Matt Watson 13:05
That’s the analogy that jumped into my head. So well, this is very, very cool. I love it. As a business owner, in the past, buying insurance has always been a giant pain in the ass. And I always feel like I don’t even know what kind of insurance I need until, as you mentioned earlier, like, oh, well, I signed my lease, and they said, I have to have this thing. And it’s the same way, okay, I get this giant customer, and they’re gonna give us a bunch of money. But then in the, you know, the red lining of the contract. It’s like, oh, you also need an E and O insurance and Dino and insurance, you need this, you need this and some tech liability thing and whatever. And it’s always a giant pain in the ass. And I have no idea what I need. How small companies, you know, small startups figure that part of it out, too.

David McFarland 13:50
I think Asian brokers can help out a lot with that. I mean, also our technology helps out a bunch. It makes those policy recommendations based on what you’re actually doing. And the data that we get in. It says like, hey, we realize you know, your, your restaurant, right, and you’re a restaurant that’s open between these hours and has probably the set clientele for these types of sales. Well, based on that you need this type of coverage with this type of additional add ons to those coverage, to that coverage. That’s a pretty powerful tool. Another cool thing that we do that helps, especially new businesses, is we not only go through our agents and brokers, we also go through more non traditional channels. So like if you’re using your accounting platform, like a QuickBooks or something like that, we actually meet customers there. And say like, oh, yeah, based on the information that we get from these different partners and whatnot, you probably need this type of coverage and can actually all be bound right there in the software that you run your business on, which is pretty neat.

Matt Watson 14:52
Wow. So is that your key to market strategy is those partnerships.

David McFarland 14:57
Partnerships in general are good to market strategy, we don’t do anything DTC.

Matt Watson 15:02
Okay. So you say b2c, but it would really be b2b, right?

David McFarland 15:09
D to C direct to consumer but or direct to businesses?

Matt Watson 15:13
Yeah, exactly. Yeah. So it’s really business to business. But for you, they’re like the end consumer. Yeah.

David McFarland 15:21
We jokingly say we’re a B to B to small b.

Matt Watson 15:24
Yeah, yeah. So you see, the example you gave earlier was QuickBooks. So you have a partnership with QuickBooks?

David McFarland 15:31
Yeah. Yeah, they’ve been a great partner with us for almost two years now. Really solid team over there.

Matt Watson 15:39
So one of the things we talked about all the time was those types of partnerships, and the complexity of those was, was that a really hard partnership to get?

David McFarland 15:49
Yes. I don’t want to give ourselves hardly any credit, though, like, what happened was, it was really Right place, the right time. And not all partnerships are like that many, many more of them are more enterprise sales focused. But it happened that QuickBooks or Intuit was spinning up this intrapreneurial division that was focused on insurance. We happened to have a product that met exactly what they were doing, some SAS tools, like they want to create this ecosystem for their small commercial clients. And we fit what they wanted to do in terms of truly integrating a product into their software. And it just, it hit really well. And we decided to start working together. So that really wasn’t our effort. It was a couple of people who knew each other and made the right intros at the right time.

Matt Watson 16:45
So once you landed that big deal with him, did you guys have to? I’m just curious, because it’s always a topic that people bring up as a go to market strategy that’s really difficult to execute on. Did you guys have to make a whole lot of changes to your product and your API’s and the way you do business and all that kind of stuff? Did you have to bend to their will to make this work? Or was it just pretty much Hey, we’re ready to go and just run with it.

David McFarland 17:08
Thankfully, not too much. We built everything with an API microservices first mentality. And there’s definitely some customization that we’ve done for it and other big partners. But in general, it hasn’t. We haven’t had to bend over backwards, it was very commensurate with the overall thesis of our business. So just execution and nothing too out of the ordinary.

Matt Watson 17:35
So what other kind of I’m curious about what other kinds of market partners do you have? Like I could see somebody like paychecks, and like companies like that, that deal with a lot of small businesses would be a good fit for you?

David McFarland 17:45
Yeah, so our favorite verticals are merchant services. accounting firms, payroll, really how we look at is where are there lots of small commercial customers, right, like small businesses? Where is their data, right, with data rich environments that we can leverage for the pricing and whatnot? And three, where is there at least some type of insurance trigger? And not all three have to be true, but two of the three should probably be true. And like, like QuickBooks, there’s not an explicit insurance trigger there. But can we create triggers based on the data that they do have, for example, maybe they go from a residential address to a commercial address that’s reflected in QuickBooks, we can then say, Hey, you probably signed a lease that says you need insurance, by the way, we can help you with that. Maybe they go from a zero employee count to a non zero employee, right? Sure. Those types of triggers where we can say like, Yep, this is something we can use to target on the insurance side.

Matt Watson 18:57
Very smart. Very smart. I love it. Thanks. Well, I do want to remind everybody that today our sponsor today is FullScale.io. Finding expert software developers doesn’t have to be difficult, especially when you visit FullScale.io, where you can build a software team quickly and affordably. Using the Full Scale platform to define your technical needs. And then to see what available developers, testers, and leaders are ready to join your team today. Visit FullScale.io to learn more. I’m curious, David, what does the tech community look like in Cincinnati? The only software developer I know that has anything to do with Cincinnati left and came and worked for me like 20 years ago. So there are no developers left. I guess he was the only one. The only one we have, so what is the community like there? I’m just curious about having a tech company in Cincinnati. What does the local talent pool look like there?

David McFarland 19:46
I am. I’m not a great person to ask about this. Because one we’re a pretty remote company. Okay. Yeah. So we’ve always been remote even before COVID I’m not trying to pretend to be a hipster or anything like that. It’s just how we were.

Matt Watson 20:04
Oh, you’re totally hipster. It’s okay.

David McFarland 20:07
Just my four kids and going to bed at eight o’clock makes me.

Matt Watson 20:12
Wild man.

David McFarland 20:13
Yeah, you know me. So, the environment here, I think, frankly, from what I know about it, I think it’s a fairly healthy tech environment. There are some really good schools here that result in good entry level tech workers. I think NKU is a really strong one in particular. And then, of course, you know, you have Dayton, up north and University of Cincinnati, and Xavier, other good, good institutions. We also have some just you know, gyms of human beings, like people who work hard and are just amazing, folks. And, you know, the Midwestern mentality. Yeah, that’s right.

Matt Watson 20:51
Yeah, we’re from the Midwest, baby. We get it. We’re different right here. Totally different than West Coast and East Coast people in Florida, are different.

David McFarland 20:58
I grew up in South Florida. I hate it a little bit. But I’ve just, you know, I’ve been really impressed with that Midwestern work ethic. It’s a fantastic app. So again, I can’t speak too much about it. But I think it’s pretty strong here.

Matt Watson 21:19
So you guys have about 140 employees. And they’re mostly all over the US everywhere. Just random.

David McFarland 21:26
Yeah, I’d say like 15% is here in Cincinnati, and the rest are scattered everywhere. throughout the US.

Matt Watson 21:32
You have a small office in Cincinnati. Yeah, yeah. Okay.

David McFarland 21:36
It’s convenient to our small offices, right by one of my wife and kids favorite parks. So occasionally, I’ll get to walk right over there and see their day.

Matt Watson 21:48
Yeah, well, you know, the whole remote versus non remote part of this is fascinating. So the company I work out today is primarily an office, I work remote out of Kansas, and they’re based in Minneapolis. But it’s, it’s interesting, you know, the dynamics of all of it. And so many people are used to working remotely now that they’re never gonna go back to the office. But we also know there’s a certain percentage of people, there’s no way they can work remotely. It’s so, it’s an interesting dynamic that we have and a local company. I was talking to them here the other day, they did it. So they are in office, like two days a week and then remove the other three days. And like some people really struggle with that. It’s like they work two days a week and the other three days, they think they basically like to have everything so I don’t know, it’s an interesting time that we’re going through right now with everybody trying to figure out how this remote thing, you know, works.

David McFarland 22:40
So, yeah, it’s, I’m really curious at how working is going to shape itself going forward. Because you’re going to have certain people who you can trust who are going to work hard. And you basically give them clear objectives and key results, and they’re going to work no matter where they are, whether it’s in an office or remote. And they will, they will gravitate to companies who will treat them like an adult.

Matt Watson 23:08
Yes. And there are some people in this world that can never act like adults.

David McFarland 23:12
Exactly. And they’re going, what’s going to happen is if they try and get in those companies, where they treat people like adults, they’re going to get fired, they’re gonna get let go. And then they’re going to end up back in the corporations that just, you know, this, this is this is the way that we all go. And I’m very curious if we’re going to have an increased polarization of like, high performing companies and low performing companies.

Matt Watson 23:37
Yeah, it’s and it’s, it’s a difficult challenge, right? And, and the people you hire that, you know, work in different parts of the country have kind of different cultural background work ethic, all these things, right. So having a, you know, in office company in California is gonna be very different than in Cincinnati, and the culture of the people and how well they work in office versus remote like, and then at Full Scale, we have three nearly 300 employees in the Philippines, and they are all remote 100, almost 100%. And we don’t really have a lot of challenges, but it’s just different. You know, my point is, like, just different people in different parts of the country to different cultural kinds of work ethic differences to make it come out. That’s right, from what I’ve seen.

David McFarland 24:16
Oh, yeah, absolutely. Absolutely.

Matt Watson 24:20
Well, so tell me more about your guys’ company and the future and what you guys are doing. It looks like you’ve raised a fair amount of money from what I read here. Hopefully that’s not top secret. Yeah, no, it’s not. You’re good. So really into dollars. This is crazy.

David McFarland 24:38
Not not billions.

Matt Watson 24:40
Oh million. Sorry, million.

David McFarland 24:42
You’re good. You’re good. We’ve raised about 75 million to date. And most recently, most of that has come from our series B which was a $50 million equity raise for the money. The money is fantastic, right? It helps us execute on what we want to execute On but really I think my favorite part of the raisins has been the investors that we’ve been able to bring on. And I think for any, any founders out there who are, you know, going through the process, and hopefully they’re not going through the process right now it’s a brutal time. But if they are like, remember the important parts with this, again, that’s the investors that you bring on, are going to help you, right? They’re not just there to funnel money into your bank account. But you can get really quality people who will help your business succeed. And that is, money is important. But that is equally important.

Matt Watson 25:39
So your investors, have they been strategic, where they could be like resellers and go to market partners and stuff like that, or what kind of, you know, investors have you brought on.

David McFarland 25:50
It’s a mixture, we have some investors who are strategic, in that they moreso, like reinsurance companies, insurance companies, stuff like that, who helped us on the insurance manufacturing side. And then we have other investors who are more just VCs private equity type stuff. And their experience in running and scaling businesses has been invaluable as we’ve grown.

Matt Watson 26:17
They actually have really helped you because a lot of times, it seems like they just write a check and disappear. And they don’t help but you’ve you’ve actually got a lot of support from them.

David McFarland 26:24
Yeah, maybe that’s because I, you know, annoyingly talk to them too much. But they still pick up when I call, which is nice.

Matt Watson 26:34
Well, so before this company, had you founded any other companies before?

David McFarland 26:38
I was employee number two at a company called clear cover, which is a personal auto insurer tech in Chicago, and was Chief Actuary head of insurance product helped build things over there made it clear to the founder and CEO, Kyle, when we were talking about starting it, I was like, Look, I want to learn what we need to do from a founding standpoint, so that I can do this on the commercial insurance side later. And he was really supportive, helped me learn a ton about starting an insurance company and all the funding stuff, reinsurance, everything like that. And we’ve stayed in contact, we actually had dinner in person last night. I’m here in Chicago, a little bit. But he’s just been a huge supporter throughout this whole process.

Matt Watson 27:33
Well, I mean, that’s the challenge of being an entrepreneur, right if you don’t know what you don’t know, when it comes to a lot of these things. And you run into all these scenarios of like, I don’t really know how to navigate this. I can just sort of wing it. But if you have mentors and investors and stuff like that, it can help make all the difference in the world.

David McFarland 27:50
I mean, that’s life in general, right? Yeah.

Matt Watson 27:53
It’s like being a parent, man. We were both parents before, like, you just figure the shit out. But sometimes Grandma and Grandpa are huge resources. They know.

David McFarland 28:03
Yeah, that’s right. And like, you don’t realize how smart your parents are until you have kids yourself. Yeah, it’s nuts.

Matt Watson 28:12
Yeah. So what is the future for you guys? Where do you see this going? You see it branching out into different types of insurance? Or, you know, where do you see this going?

David McFarland 28:22
Yeah, our focus is to build and foster a world class team to bring speed, simplicity and service to commercial insurance. So we start off in that small commercial space. And there’s there’s other venues that can really benefit from leveraging data and technology in general. We target those areas, essentially by large total addressable market, as well as high expense ratios. So like, where is insurance operating today? And like, are they paying a hefty amount in expenses? Because they’re manually doing things? And that’s very objective data that we have available. So we can kind of say like, yep, small commercials, the obvious first choice to massive Tam and expenses are through the roof. And then like, what are the other lines in commercial insurance that exhibit similar quantitative issues?

Matt Watson 29:11
Can you fix all the problems with our health insurance?

David McFarland 29:15
I’d stay away from health insurance.

Matt Watson 29:18
I asked him for topics we could talk about or not talk about and health insurance probably shouldn’t be on the list. of insurance. Nobody wants to go there.

David McFarland 29:29
Well, like, Okay, put it this way. If Jeff Bezos, Dimon, and Warren Buffett can’t fix it, I don’t know how I can.

Matt Watson 29:40
You’re gonna you’re gonna save us all. Yeah, Lee.

David McFarland 29:45
The problem? There’s a lot of problems with it. But incentivization is definitely a major one there. Oh, it’s messy.

Matt Watson 29:54
All right. Well, as we start to wrap up the show here, I want to remind everybody that today’s episode was brought to you by FullScale.io. Do you need to hire software engineers, testers, or leaders? Full Scale can help. We have the people on the platform to help you build and manage a team of experts. When you visit FullScale.io. All you need to do is answer a few questions and let our platform match you up with our fully vetted, highly experienced team of software engineers, testers, and leaders at Full Scale, we specialize in building long term teams that work only for you learn more when you visit FullScale.io. So what other kind of, you know, experience can you share with our listeners that are entrepreneurs out there trying to follow your path, trying to get to where you are sounds like you guys are on the cusp of being a unicorn here is my guess. And you’re doing some big things and what you know, how can you give back and share some knowledge to everybody else?

David McFarland 30:50
Yeah, I’d say focus on things that are or be willing to make the decisions that are first-order negative second-order positive, that’s one of the best pieces of advice that I was given. And what I mean by that is, like, it’s true for business is true for life in general, like things that are first or negative mean, like they hurt initially, but long term, they’re beneficial, right?

Matt Watson 31:15
Somebody wants to make those decisions.

David McFarland 31:18
Exactly, like saving for retirement, right? Like, yeah, painful, because I have to give up, you know, spending money now, but I’m not gonna eat cat food when I’m 80. It’s good, right? Like, we want to have a good retirement. And, you know, exercising all these things is good. Having children is a really good example. Right? Very painful. Early on, but supposedly, when they’re 25.

Matt Watson 31:41
That labor was painful, that’s for sure.

David McFarland 31:44
Yeah, that’s true. So, in business, I think businesses are the exact same way, and there’s probably some, you know, universal, weird economics that happens, right, like laws, equivalent exchange or something like that, that exists in the background. But most of the time, you know, when you pay up early, right, it’s going to pay dividends over time. And this, I mean, we see companies all the time, you know, who accumulate tons of tech debt, right? Tech debt is largely because we’re making decisions that are short term positive, but long term negative, right? are saying, Oh, well, we’ll just cheat a little bit here. We’ll take on a little bit of debt here. But over time, it accumulates. So there are sometimes reasons to make short term positive decisions that are long term negative. In general, I think it’s most conducive if you can, I hate to say if you can, you always can. But make those decisions that are short-term negative and long-term positive.

Matt Watson 32:52
I’m just curious, do you have a good example of one of those that you had to make? That was a big moment?

David McFarland 32:57
Yeah. I mean, like, starting the, when I was starting Coterie, I was, so my wife was pregnant with our third child, she was in her third trimester. And we were in a company that was going exceedingly well, right, the clear cover was taken off like a rocket ship, I was at a really good job. And we made the decision of, hey, let’s try and start this company. And, again, that’s a short-term negative, hopefully, long-term positive decision. But the added complexity of that is like it had this vision of really changing how commercial insurance is done. And we had some investors who were really interested in putting in money. And on the, like, we were pretty much there, not a term sheet there, but like, you know, verbally like yeah, like they want to support this. And the week before we moved to Cincinnati, I was at a going away party for me and my family and talked to one of those investors, and they said, Hey, David, you know, we really liked this idea. But here’s the thing. This whole idea of you being the insurance manufacturer and you create the products doesn’t do that. That’s too complicated. Just resell other people’s products, just API don’t act, you know, it’s, it’s too complicated to try and file the product, just do this other thing. And I could have done that. It was easier. It’s a viable business model, right? But it was cheating on the true vision of the company and what I thought could be something that was truly remarkable. And so it’s like, yeah, no, no, like, Okay, well, we’re out. Oh, that’s not very good. It was. Yeah, sure. I could have turned around and said, hey, no, no, no, I’ll compromise, but no, we didn’t. We are without any investors. We still moved to a different state in the third trimester and craziness and had to find new investors. And thankfully, we did. And we actually signed a term sheet on August 20. With a new investor. My son, my third child, was born on August 21. The day after that, yeah, it’s pretty neat.

Matt Watson 35:16
How long did it take you to find those new investors?

David McFarland 35:19
To me, a couple of months. I mean, I think we moved in. Yeah, it was early June. And so you know, from early June until August 20. I had to pay people in hopes and dreams. That’s about it.

Matt Watson 35:32
Was it like your lead investor that pulled up? Yep. Yep. Yeah, that’s right. Well, I mean, but as you have explained to me, if you had gone that other direction, it would have been more like any other marketplace, right? Where you’re just trying to match up people who want insurance to, you know, which carrier policy would have got what they wanted, right? Where to really do what you wanted to do. You need to break those walls down and like, be the carrier almost not be the carrier, as you said, but almost be like the, you know, you can make the final decision of whether or not to write the policy based on what information instead otherwise, you’re just like a database matching people up.

David McFarland 36:07
Right. That’s exactly right. And I mean, there’s a great business to be that business. But that wasn’t my vision.

Matt Watson 36:13
And that’s very unique. There are probably a lot of people who do that.

David McFarland 36:16
Yeah, yeah. There are a lot of them. They are my customers and partners. So I want to speak to that. Sure. Sure. Sure, sure. Yeah, yeah, that’s yeah.

Matt Watson 36:27
And the difference is, you know, take, but the key is taking it to that full digital platform that you wanted. That was a key differentiator, and you would have given up that dream. And that differentiator is so good for you for sticking to it and making it work, man. Thanks. Thanks. And now you’ve got some pretty amazing things.

David McFarland 36:43
Yeah, it’s been good. It’s been good, thankfully. So that one is, at least you know, it was short-term, negative. Medium-term. It’s been positive. Hopefully, we get to the long-term positive part too.

Matt Watson 36:54
All right. Well, thank you so much for being on the show today. If anybody wants to learn more about you guys, where should they go?

David McFarland 37:03
They should go to Coda reinsurance.com. They can also check us out on LinkedIn; we’re also on Instagram, and you know, a few other social media sites.

Matt Watson 37:13
On TikTok? Do you have cool dance videos and stuff?

David McFarland 37:17
Not me. So maybe that’ll come with insurance getting on TikTok. That’ll be interesting.

Matt Watson 37:26
All right. Well, David, thank you so much for being on the show today. All right, take care. We’ll see you next time.

David McFarland 37:31
Thanks, Matt.

Matt Watson 37:32
Take care.

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