Making Something From Nothing: Kay Giesecke On How To Go From Idea To Launch

An Interview With Fotis Georgiadis

Fotis Georgiadis
Authority Magazine

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Learn patience. This helps with all of the above. If you expect that everything needs to be done or happen quickly, you will eventually drive yourself and everyone around you crazy.

As a part of our series called “Making Something From Nothing”, I had the pleasure of interviewing Kay Giesecke.

Kay Giesecke is Professor of Management Science & Engineering at Stanford University.

He is the Director of the Advanced Financial Technologies Laboratory and the Director of the Mathematical and Computational Finance Program. Kay is a member of the Institute for Computational and Mathematical Engineering. He serves on the Governing Board and Scientific Advisory Board of the Consortium for Data Analytics in Risk. He is a member of the Council of the Bachelier Finance Society.

Kay is the founder, Executive Chairman and Chief Scientist of Infima Technologies, a capital markets technology company building transformative prediction systems for fixed-income market participants.

Kay is a financial technologist and engineer. He develops stochastic financial models, designs statistical methods for analyzing financial data, examines simulation and other numerical algorithms for solving the associated computational problems, and performs empirical analyses. Much of Kay’s work is driven by important applications in areas such as credit risk management, investment management, and, most recently, housing finance. His research has been funded by the National Science Foundation, JP Morgan, State Street, Morgan Stanley, Swiss Re, American Express, Moody’s, and several other organizations.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a bit about your “childhood backstory”?

I grew up in East Germany behind the Iron Curtain. When I was fifteen years old, the walls came down, and the whole world opened up. It defined my childhood in an almost indescribable way. Not only was it unexpected and entirely different, but I was also old enough to experience and remember the communist systems as they were and didn’t know another way, so to speak. Communist systems were the opposite of what we are now. It was the complete opposite end of the spectrum compared to the world I had experienced before that moment in history. I was also at the right age to take advantage of the many new possibilities and explore them. And I was at the cusp of the time in life when I started thinking more seriously about my future and professional goals. The independence I gained at fifteen was inconceivable before that moment when the walls came down.

To think then, the concept of a startup was completely nonexistent. There was no such thing. When I look back to what shaped me as a founder and, more importantly, as a person, it was that defining moment in time. And I mean this two-fold. One was to experience the world in an entirely new way, but when we were under a communist regime, we had to be inventive and imaginative to get what we wanted. It was in that inventiveness that I learned to make more out of less and get creative. I’ll get into that more later in this interview.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

I don’t have a specific life lesson quote that I can point to, but I can point to life lessons I learned along the way.

When I was growing up in East Germany, you could not go out and purchase anything you wanted. There was a limited set of things you could buy, and if you wanted something — whether a toy, a game, or some sort of unavailable commodity — you had to be creative in order to make it. It forced us to be inventive and think differently and constructively. It was an unconventional upbringing. To be creative, inventive, and use our imaginations to make use of what we had available in order to have the things we ultimately wanted. This way of thinking has helped me tremendously in building a startup. In a sense, we were learning life hacks before that was an actual term.

With startups, you start out with fewer resources. Sometimes, we need to develop our own creative solutions — our hacks. How do we get to where we need to go without all the resources we’d hope to be available?

Is there a particular book, podcast, or film that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

I don’t have one particular book or other media that significantly impacted me, but I can share that I make time to read books, primarily fiction. I recently read Pachinko by Min Jin Lee, a captivating four-generation saga of a Korean family facing constant uncertainty and misfortune. What deeply impressed me was the characters’ kindness, persistence, and determination against all the odds. (Not unlike the situation one faces building a company.)

Ok super. Let’s now shift to the main part of our discussion. There is no shortage of good ideas out there. Many people have good ideas all the time. But people seem to struggle in taking a good idea and translating it into an actual business. Can you share a few ideas from your experience about how to overcome this challenge?

I’m sure many say this, but it’s definitely more challenging than I thought it would be. I can understand why execution is everything — ideas are, in fact, cheap, and rather, it’s all in the execution. I now can see the wisdom in that sentiment. Everything took longer than expected, and it’s important to develop patience.

Because of my academic background, it wasn’t easy to put a meaningful timeline on development especially. It is one thing to develop a prototype in an academic setting but then taking it out to the commercial domain is another battle, a different skill set. My team and I learned new skills, techniques, and approaches to take the concept from the academic lab to a viable commercial business, which is now Infima. Infima is a fixed-income predictive analytics provider focused on the mortgage market.

After several years, I also made the decision to bring on an experienced CEO, Hendrik Bartel. I liked what he was doing at his former company, Truvalue Labs, applying AI systems to ESG problems. We talked over a series of six months or so, and it all happened very organically. It was with Hendrik and others that I sought out insights and held regular discussions as we looked to make decisions at Infima. Part of overcoming some of our challenges was to enlist the help of others, all with a varied set of experiences, skills and expertise. It made for informed decision-making.

Often when people think of a new idea, they dismiss it saying someone else must have thought of it before. How would you recommend that someone go about researching whether or not their idea has already been created?

To come up with an idea, it’s usually because someone already has experience and is fairly immersed in a space or topic rather than sitting in a vacuum. Many have a professional background or know someone who has experienced challenges doing something, and the solution to that problem leads to an aha moment. Hopefully, before deciding to take an idea to fruition, there is a lot of leg work done beforehand, as well as validation and insights from others. At least, in my experience, that’s how we came across an idea.

I’d also advise someone to do your due diligence and gather data points through independent research. Knowing the space is the number one priority, but you can never rule out that other people are working on similar ideas. They could be doing it in stealth, or it can be an idea incubated at a large company, and there is no record of it whatsoever. This reality shouldn’t stop you, but it does point back to my point of due diligence. And it goes back to what I mentioned before -ideas are cheap; it’s all in the execution.

For Infima, it wasn’t an aha moment. Instead, we developed the core technology in an academic research setting at Stanford. The idea to start a company came to fruition from the reception we received when presenting to financial industry people. That was the trigger point — not the typical way — but more of a set of circumstances coming together at the right time. We had something that was really resonating with the investment community, although we didn’t initially plan for it to become a commercial venture. It’s about doing the work, then figuring out the path to commercialization.

For the benefit of our readers, can you outline the steps one has to go through, from when they think of the idea, until it finally lands in a customer’s hands? In particular, we’d love to hear about how to file a patent, how to source a good manufacturer, and how to find a retailer to distribute it.

Filing for a patent is certainly something I can address. At Infima, we did go through the process of submitting patent applications. It’s an expensive, lengthy, and time-consuming process. I’d advise anyone looking to do so to think about the ROI. Is it necessary, and what’s the intended result? Those are some of the questions I’d ask.

We learned there are certain things that you cannot patent — such as mathematical algorithms. There’s something called “lack of patentability”. The US Patent and Trademark Office (USPTO), in a sense, wants to see something physical — software can be an entirely different ballgame. They changed some of their criteria several years ago. I’d go back to a business person or idea person asking why they need it before they invest in it. You may want to consider keeping the secret sauce confidential in the end if there’s no real gain from a patent.

What are your “5 Things I Wish Someone Told Me When I First Started Leading My Company” and why?

If someone had told me how hard it would be to build and manage the right team, raise funding, build out the technology stack, find the right partners, and do all those things a startup founder does while balancing family life and staying healthy, I probably would not have started the company in the first place! The truth is that you need to have a very generous amount of optimism to start a company. Ignorance was not bliss at first, but I’ve learned a lot along the way. I have a top four that I’d like to share:

  1. Surround yourself with the right people. This is always important, but especially so when you’re first starting out. You have to be able to trust people who can collaborate with you, but who can also take an idea and run. It takes a special type of person to work in a startup, and it’s not just about having the smartest people. You also need people who care about deadlines and quality yet also have empathy amongst others when someone needs to pick up their kids from school.
  2. Make time for family. Early on this is a tough one, because you’re trying to move your company forward, but if you don’t put boundaries in place. If your family isn’t happy with you, you won’t be your best at leading a company. When a founder makes his or her family’s importance known to the rest of the team, the team also feels safe to do so, too.
  3. Take care of yourself. It’s easy to understand why so many founders crash and burn after months of not eating well, not sleeping enough, and not taking time to relax. Early on I saw that I wasn’t feeling as well and wasn’t as sharp as I could be, because I wasn’t taking care of myself. It’s really important that you create a plan and allocate time to take care of your basic human needs even when you’re in start-up mode.
  4. Learn patience. This helps with all of the above. If you expect that everything needs to be done or happen quickly, you will eventually drive yourself and everyone around you crazy.

Let’s imagine that a reader reading this interview has an idea for a product that they would like to invent. What are the first few steps that you would recommend that they take?

As a first step, understand the industry at a very granular level and develop deep domain expertise. I’d also recommend speaking to people in the industry, gathering intel and insight. Validate the idea and your assumptions. Surround yourself with others to glean advice and build a diverse team with a set of skills that complement each other. Also, think more about the execution of the idea, not just the idea itself. How will you take it to market? Is there even a market? And so on.

There are many invention development consultants. Would you recommend that a person with a new idea hire such a consultant, or should they try to strike out on their own?

For me, I never worked with an invention consultant as this wasn’t really a “thing” or machine we were inventing; rather, it was about developing Deep Learning technologies for the mortgage and housing market.

What are your thoughts about bootstrapping vs looking for venture capital? What is the best way to decide if you should do either one?

In most cases, it isn’t easy to bootstrap a product that takes several years of research and development to get to the first version. But that’s my point of view and experience, it depends on your circumstances and the idea you are trying to bring to the market. Otherwise, you may struggle to finance that development time before there is a product to sell and any signs of product-market-fit. Fundraising is a time-consuming process that takes away time from development and running the business. So there are many factors to consider. We knew that raising external funding was the path for our success.

Ok. We are nearly done. Here are our final questions. How have you used your success to make the world a better place?

With the predictive tools for mortgage securities market participants that we’re building at Infima, our users get a more comprehensive outlook of the opportunities as well as the financial risk they are taking on. And especially the risk that they are taking in these markets and in their funds and being more aware. We all want to avoid another major financial crisis, and when we saw the crisis in 2007–2009, it was largely due to the housing market. Investors did not really understand risk, which had a catastrophic ripple effect. It’s clear they need better ways to understand risk. The more people understand risk, the more we can avoid these bad situations. The financial crisis and role mortgages was not only a national event. It was worldwide and pulled us all into a recession. It is not just about making money; there’s a larger societal issue at play. Transparency through data and more insight into risk-taking could benefit us in many ways.

You are an inspiration to a great many people. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger.

Climate change is top of mind as it affects everyone in the world. Some might not see how a mortgage analytics company could make an impact, but we believe that we could indeed fight climate change by developing technology that addresses the climate impact on mortgage securities by helping investors to make more informed decisions towards more sustainable housing investments. We view this as meaningful now and see that it will become an increasingly important and exciting area in our industry in the future.

We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US, with whom you would love to have a private breakfast or lunch, and why? He or she might just see this if we tag them.

I would really like to meet Federal Reserve Chairman Jerome Powell. While he might not be everybody’s first choice since he’s not a flashy person, his decisions have such a massive impact on the US economy and, in fact, the entire world’s economy. Whenever he and the Federal Reserve Board make decisions, they have an enormous effect on Main Street and affect real people’s lives. His job is extremely difficult these days in the face of high inflation, COVID, and a looming recession in the US.

Thank you for these fantastic insights. We greatly appreciate the time you spent on this.

Thank you as well. I appreciate you reaching out for an interview.

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Fotis Georgiadis
Authority Magazine

Passionate about bringing emerging technologies to the market