Jeremy Weisz 15:12
You mentioned Stripe, and I was reading a post from someone I know and entrepreneur, it seemed like, I’m not sure why, but it wasn’t clear why their Stripe got shut down. So there was this whole thread of he was wondering what other platforms are out there that he should consider. So I’m curious what you’ve seen, right, from a diversification perspective, obviously, you probably recommend people have multiple processors, what are some other ones that people should think about if they’re solely on Stripe or something else?
Michael Zavet 15:51
Yeah. So I think to your point, it is important to have several MIDs, we call them right merchant IDs, and spread across a few processors because different processors do have different sensitivities. And sometimes things just aren’t working out, it could be just a technical issue, or maybe it’s a straight-up, account shutdown. So it’s definitely good to spread out your transactions. The other processors beyond Stripe that we see a lot of our merchants using are PayPal, and Braintree, which is owned by PayPal. And those are quite effective. Now, all three of those processors are low-risk processors. So if you are in a category, that is higher risk, then you may have to sort of look elsewhere. And there are processors that are more accommodating, for example, New Bay, we’ve seen to be more accommodating than Striper or PayPal. And of course, the fee structure does change as you sort of go up on the risk spectrum.
Jeremy Weisz 16:55
Yeah, but that was definitely, it’s a painful conversation, right? I mean, people are scrambling, they may come. I don’t know if in that situation where the person had that shut down. Is that able to be reversed? Or is that just a done deal at that point from what you’ve seen?
Michael Zavet 17:13
So it is to some extent reversible, but not practically. So in a TMS scenario, the only way to reverse it is by hiring legal and trying to come at MasterCard or Visa. And that is not easy or quick. They may be unresponsive and to try to sort of muscle your way through can get very expensive very quickly. So it’s not something that’s accessible to every merchant. Some may be able to. But I would say that it’s a fairly rare occurrence most of the time with EMF is done. It’s done deal and you’re now officially on that EMF list.
Jeremy Weisz 17:54
Let’s talk about a few examples, Michael so people can understand a little bit more. You at a DTC e-commerce subscription company. Can you talk about that company and I think they were had a 25% chargeback win rate. So out of the whatever 100 They were getting 25 reversed.
Michael Zavet 18:19
Yeah, so this is our first client. They are a subscription company to your point they send out, regular, like boxes, right. And basically, when we touch base with them, I mean, first of all, they’re doing quite well around 25 million in annual revenue. So they’re a solid company doing good business. But they’re a chargeback problem. It wasn’t at a point where they were risking their processing accounts. And they were using Braintree and PayPal and Stripe actually. So they were in the low risk category, but they were still losing upwards of $10,000 a month chargebacks. Now, they were also paying someone full-time to manage those chargebacks, which was around $50,000 a year. So not small potatoes in the grand scheme of things when your win rate is around 25%.
When we onboard them, once we kind of got a handle their systems, which didn’t take very long, we got their win rate up to 100%. So today, every month they’re actually retaining an additional $7,800 a month. And to top it off, it’s a set it and forget it so they don’t have to really even worry about it. They’re getting regular reporting from us. They’re also getting data and actionable insights how to improve their business processes. So it’s been a huge win for them. I’m not going to say that 100% is usual. It’s actually fairly unusual. But across the board, we’ve managed to increase our customers win rate by a substantial amount. They were of course, a golden case but in general we’re seeing at least a 10 to 20 percent win.
Jeremy Weisz 20:01
Yeah, I mean, if you look at the math on that, Michael, if they get we’re getting 10,000 chargeback and they’re paying someone, you know, 50,000 a year and they get 25%, they might as well just pay all of them off, because they’re losing money in that case.
Michael Zavet 20:16
That’s right. Yeah. And to top it off with a chargeback, not only do you lose, potentially the product that you’ve shipped in the time put in, but you also get hit with processor fees, because merchant processors actually hit you with a penalty every time a chargeback solidifies. And that penalty ranges sometimes it’s small, like $15 per transaction. And then other times, it’s quite a bit bigger. So, it’s injury to insult.
Jeremy Weisz 20:43
Yeah, I mean, I guess there’s probably some other reason why, like, it just signals to the processor, like these aren’t chargebacks. But in the dollars and cents, they’re losing money by having someone handle it.
Michael Zavet 21:00
That’s exactly right. So, it turns out that there’s a few leaks in the ship, right? It’s the spending time and money when you can be reallocating those resources. And then it’s getting hit with the penalties, and then it’s getting hit with the losses of revenue.
Jeremy Weisz 21:17
How did you decide on pricing?
Michael Zavet 21:21
So pricing, it’s actually one of the things that we talked about quite a bit internally, because it’s a little bit complicated. When you’re starting out as a business, and you really want to attract clients, you price low, and you try to be very competitive with what’s in the market. And that’s what we did. We looked at sort of, what our competitors are offering, we believe we have a better product, how can we now make it interesting for customers and then prove that we have a better product. So, we came out with some pretty competitive pricing models. So we have two models today, one is on the dispute side, we’ll do 10% of revenue recovered plus $300 a month, or we’ll do 25% of revenue recovered with no base fee.
And it really depends business, the business they can do the math pretty quickly on where their savings would lie. And then on the alert side, it’s pay per alert. And that does range depending on the volume and profile of the customer. So there’s no like set number per se, but we always try to be very competitive there. We know what the market is sort of demanding when it comes to alert pricing. So we want to make a compelling argument to the client to either move over to us or to win their business.
Jeremy Weisz 22:38
There was another company that I think had $20 million per year in chargebacks.
Michael Zavet 22:48
Yeah, that’s right. This is a new client of ours, our first enterprise-level clients, over a billion dollar a year revenue business. With a $20 million dollar a year chargeback problem, this company is in the travel tech space. So, think all your bookings plus they do some FinTech as well. So, their company of scale, they’re winning around 70-some-odd percent. And they also have a full team, nearly 10 people that focus solely on these chargebacks. So with them, what we’re doing is sort of a multi-pronged approach. One, we’re trying to reduce their chargeback levels, with alerts, specifically RDR, which is rule-based alerts because they know, for example, that they have a subscription product that experiences more chargebacks.
So we can say, hey, these are the processors that are handling your subscription business, we’re going to set certain rules based on pricing or other criteria, that flags those chargebacks and just refunds them before they materialize. Then on the other side, we say, hey, we can bring your chargebacks up from, they were doing quite well that they run a tight ship, but they were still winning, just in the low 70% style area of disputes. And we said, hey, I think we can get it up upwards of 80. Plus, we can alleviate the amount of work for your team, which you can now reallocate to other parts of the business where you need them. And so that’s what we’re doing for them. But where it gets interesting is we see an opportunity with enterprise clients to build very customized products that are unique to them, because unlike SMBs enterprises tend to have more unique processes and tools within their toolkit.
A lot of the time they build out their own custom CRMs or have other unique products that are not so cookie-cutter. And so what we want to do is be very hands-on with them and create a very sticky relationship. And on top of that, going back to the data piece, when we feed them actionable data, and I give you an example, we noticed that some processors, or I should say issuing banks were siding with them more on disputes when it came to their subscription chargebacks. And so we were able to say, hey, you should follow more of these transactions through those processors that are siding with you, and reduce transactions with the ones that aren’t. And that alone is a massive savings for them. We’ll have the date on it soon. So I can’t speak to it specifically. But I imagine that that alone will potentially save them even more money than winning your disputes.
Jeremy Weisz 25:25
Yeah, what’s interesting is, I’ll have to send this to my friend, Eric Dubay, who basically helps travel companies kind of see what the best rate they can get and helps with their merchant solutions called Thermo Merchant Solutions. But, you know, he always talks about how high-risk the travel industry is, as far as the processing goes. So there’s a lot I’m sure for you both to talk about there. There was another one that it went from, which maybe seems insignificant, Assam, but when you’re talking about actual money, it’s not them from 70% win back rate to 80%.
Michael Zavet 26:08
Yes, that was the enterprise company they were speaking to just before and yeah, essentially what we did was, we took what they were doing internally, we analyze, what they were winning what they were losing, and we fine-tuned it to improve their win rate. So it seems like a pretty simple solution. But it does take a lot of time and a lot of enriching data.
Jeremy Weisz 26:33
As you get these, there’s a lot of resources that needs to be used when a company on boards, and you’re processing a lot of data, and they’re talking about in the beginning, do you say to bootstrap? Do you say to raise capital? And that kind of the pros and cons for you?
Michael Zavet 26:56
Yeah, absolutely. I’ve been in a position where, you know, through my various ventures, I’ve done both bootstrapping and raising capital. And in the beginning of Shieldify, we decided to bootstrap because fortunately, we were in a position where we were able to do that. And of course, not everyone is and there’s obviously no shame in raising capital. And to some extent, it’s also great to raise capital, because one, you get, hopefully, good partners involved people who have an aligned interest with you and can help grow. And then the other part is that there’s less personal risk, of course. So, for us, the path in the beginning was Bootstrap, because we wanted to build out a product.
And it’s, of course, also more difficult to raise capital, the earlier you are not to say that it gets easy in later stages, there’s always going to be challenges to your business model, or competitive landscape, or whatever it is. But that being said, for us, we bootstrapped until we had a functional MVP. And then we went out and started getting business and actually getting some revenue through the door. And that’s where we decided for us to go from where we are today to where I mean, not to say that this will take us ultimately where we want to go. But to get to that next level of technology of sales, that raising capital was the path because we needed to have flexibility. And in order to get that flexibility, we needed, you know, more capital available to us. So that’s where we’re at. Now, we’re, we just kicked off a fundraise, actually, in mid-December, we started and it’s going well, so far, we’ll hopefully close that out by the end of Q1. And yeah.
Jeremy Weisz 28:42
Who’s a good partner for you in that respect.
Michael Zavet 28:46
So we’ve been targeting primarily VCs this time around. And in the past, I’ve raised from everything from friends and family to institutions. We decided not to do the friends and family route, because we really did want partners that can introduce us to potential clients and other partners. So for us, the ideal investor is someone who has a network of other investors that they can bring to the table, especially as we look at, you know, further rounds in the future, as well as potentially customers that they can bring to the table. Ideally, the more especially enterprise-level customers that they can bring the better and more attractive investor they are for us.
Jeremy Weisz 29:29
I’m curious, as you grow, Michael, what are some of the features you added because the clients are demanding it? I mean, so it sounds like you started off as the alerts and then it grew from there.
Michael Zavet 29:43
Yeah, that’s correct. So we started with alerts. We identified the disputes were a big problem for a lot of companies, especially those that, you know, again, we’re in the lower risk category. So we built out the dispute portion, and now we have to refine that dispute portion. When we talk about the Use your products now we’ve started building out the data architecture, to allow us to really categorize and enrich the data that we’re receiving. So data will be probably our next big product. And then after that, we have a few models that we’d like to test that I can’t speak to them yet because they’re proprietary but, but there are some unique solutions surrounding chargebacks and disputes that we are planning to test out later this year. And then from there, we’re going to look at other fraud protection services or client journey-type products where we can accurately track a client’s journey through the purchase.
Jeremy Weisz 30:41
Michael, first of all, I have one last question, I just want to thank you for sharing your journey. Your lessons ever come check out shieldify.com to learn more. My last question is just any resources throughout the years that have helped you that could be a book could be a mentor of yours. And something you learned?
Michael Zavet 31:06
Yeah, I’m an avid reader. So, there’s a lot of great books out there. I would say that. One is Zero to One that is a book that I’ve really enjoyed. That’s Peter Thiel. Another really great resource for me, is a book called Never Split the Difference. And I found that book by Chris Voss has been an incredible resource when it comes to sales and negotiation. I actually, I read the physical copy, and I have it on audiobook as well. And I really listened to it every year. So it’s really a good one to study.
Jeremy Weisz 31:48
Yep, I did an interview with Chris actually. And so people could check that out. And we got a lot. We talked about a lot of topics in an hour. So that’s also my goal. I totally echo that. That’s one of my favorites as well and actually read it from a parenting perspective, not even a business negotiation perspectives, if you have kids out there. There’s a lot of negotiation that happens to win there. You want them to put their coat on or do some cool things. So I actually read it because of that. But it is a fantastic book. So Michael, thank you so much, everyone, check out more episodes of the show and shieldify.com And we’ll see everyone next time.
Michael Zavet 32:33
Thank you Dr. Jeremy. Appreciate you having me.
