Changing The World Without A Map
Kernel is an Auckland-based index-funds management company that is revolutionising consumer access to the index funds market and also the sorts of businesses that capital is flowed through to. Not only does this give everyday people access to the tools of prudent investment strategies but it also connects them with companies who are solving our largest environmental hurdles. We talk to the founder Dean Anderson about the importance of sometimes just taking that first footstep without a plan.
Can you talk a little bit about your most defining leap of faith?
I guess the timing for me was leaving that stable corporate job. I actually left that with no plan, there was no plan to start Kernel. I don’t view myself in that traditional entrepreneurial sense, but I left the corporate job on the inkling that I just needed to do something different. I wanted to walk out the door and see what presented itself.
I’ve always kind of liked that in terms of, just getting a sense of feeling what the opportunity is and embracing that change. So I left and took a bit of time to spend with myself, think about what I wanted to do, what really mattered, and then actually jumped into starting the business.
So many entrepreneurs will talk about this calculated risk. They knew it was uncertain, but they had these factors in place. But you were saying that you left your job on an inkling and you didn’t really know what it was that you were going to do.
Correct, and I probably spent, I would say from the time I left, about six or seven months before I started out on the journey of designing and building Kernel. So it was quite a period of time. I did about four weeks of contract work in between to get a little bit of cash to help keep things going and then, into 2018, I started to design it and go, ‘actually, I’m going in on this’.
I think one of the big differences for the space that I’m in is that we are a heavily regulated business. We’re in the financial services sector so unlike a lot of other startups, we can’t just put up a website, start to build the business, see how it goes, see what traction there is, then go and seek investment. We had to go through a significant nine-month-long regulatory process. We had to have built the entire business before we even started. We had to have a couple of years’ worth of capital in the bank and everything written from a governance manual right down to the day-to-day policies and operations.
It was quite an unusual business to start, in that sense, compared to most other journeys that entrepreneurs will go through. Again, probably the biggest leap of faith and the hardest thing to deal with that was I obviously couldn’t sustain and fund that myself, so I had to seek external capital to get this off the ground. I also had to have the buy-in of several other third parties that are critical components to the financial services businesses that we run. That’s, on their part, a leap of faith in myself and that it was an idea they had to really back.
We had to raise capital on nothing more than an idea and go all-in on this thing; see if we build traction, if this thing’s got some legs. It involves pulling together a number of people from day one to actually get this thing off the ground. Then you have to have confidence that the idea is going to work.
What on earth was going through your head once you left the corporate world?
I would say that my time in the corporate space, I had very good managers around me and a very good culture. I had a very strong relationship with one of my managers and there were a lot of conversations about their own business, previously. They’d gone out and done things for themselves, as well as spending time within corporate. It was really just that whole tipping point of them giving me the confidence that the longer you leave it, the harder it gets. I really processed that and I had seen that as well.
When I was in this firm, we had acquired another business and I remember speaking to one of the founders that had sold it to us. They talked about this moment where the best thing they ever did was get made redundant. They were forced out to see what happens next and that actually led to the founding of their business. I think those couple of moments were the things that led me to go.
I had some financial security, I had no dependents and no children, no mortgage. I was in that timeframe and space where I could go, ‘Actually, I’m young, I can afford to take these risks now. I can afford to take some time and get started on this thing and if I leave it any later, then it will get harder’. And equally, I had full faith in the concept and really want to just go and do it. I think I would’ve regretted not having had a crack at it if I didn’t start it.
When you left and you had that space, did you have an idea of what it was that you were jumping into?
Genuinely, when I left, there were no plans at all. I didn’t see where I was going any further in this corporate, nothing jumped out to me as a job that I wanted to do next, in terms of continuing within the corporate space. So it was, ‘I’m just going to step out the door, off the plank and see what comes up’. I’m glad I didn’t rush into anything. The biggest thing there for me was not taking a job offer, because it was a general stepping out and there were a few offers and people were interested.
I was just at that moment, following that gut instinct of going,’Interesting job, but still not quite what I really want to be doing’. Then it built from there of going, ‘Okay, am I going to go down this path? Am I going to look and explore some of these opportunities again, another corporate gig?’ But it just started to not sit right and that built over several months. That’s when I committed to, ‘Okay, I’m going to explore this idea’. That started at the end of 2018 and from there, less than 12 months later, we had launched.
When you say explore this idea, was the idea sitting there, or did it just come to you one day?
The idea was high-level conceptual. It was the big picture thing and going, ‘You know, if I was going to design this thing today, this is how I would do it‘. I didn’t really have the full clarity on all the components and all the details that I needed to really make that work, but we felt a strong enough conviction that I could see what there was for our customers. Where I was really focused was that I knew we could design something better, that we could really have an impact to the end investor. That led to building that high-level structural plan of, what do we think this big picture looks like?
From there, I spent a couple of months working through, what the things were that we needed to actually make it happen. Who do we need on board to make this happen? That was the first few months and then once I had some clarity on that, that was kind of the testing of the concept. That was those moments where, when you’re getting into the nitty-gritty of just ‘ballpark’, what is this thing gonna cost, and is it sustainable?
At that point, when I was convinced of that, then that’s when we started reaching out to all of the third parties and trying to look for people to join me on this journey, again, from nothing more than an idea on paper, and get them involved and then we went from there.
Can you describe that feeling? There’s a lot of lead up to this, but when did you really feel like you had something?
I remember it when I lived overseas for a year when I was in high school, it was a similar thing. You have this ‘ignorance is bliss’, ‘she’ll be right’ attitude. I genuinely felt like once I had landed on here, ‘This would work, this will be fine’. You become so ingrained in it and because I didn’t have the stress of having to worry about external factors, it made it easier for me. The sort of things that would add a lot of stress and probably trigger emotions. I had that freedom of thought to just really go, ‘I’m loving what I’m doing, I’m loving the journey’.
I never went into this thing for financial reasons. I haven’t gone into this thinking ‘I need this to be successful to make money or do whatever’, I’ve gone into it because it’s something I genuinely want to do and I love doing. That made it so much easier for me during that whole process, it was ‘all in’, it’s going to work. It just wasn’t fear, there weren’t any of those emotions that I would typically have thought I was going to experience. I think every day you’re just so excited by the challenge, what’s going on, excited to get that one day further ahead and you just become so ingrained in it.
Could you ever have imagined that this would have been something that you would have been able to start as a side hustle?
Definitely not. Conceptually, I could have played around with the idea, but I think if I was in the corporate role still, I probably would’ve spent too much time weighing up the risks of the idea, versus the stability of where I was. When you’re in the job and you’ve got that, and you’re playing with an idea on the side, often I can imagine a lot of people are too focused on the risks compared to what you’ve got. ‘Okay, I’ve got a stable job, I’m on a good salary. Oh, this might not play out as I plan. Okay, I’m not going to have a go at it’. So I think there’s a lot of freedom by not having that stability, and again, also not having any sort of dependencies, I was free explore it and actually go in on it.
I’m finding this really interesting because, on a day-to-day basis, you have to take calculated risks, in terms of funds, but at the same time you were talking about the magic essentially of burning the boats at the shore.
Yeah. That’s a tension and again, not recommended for everybody. But I do come back to the business we acquired, one of them saying that the best thing was being made redundant, probably for everybody, once in their life, either stepping off the plank or being made redundant could actually be a really exceptional moment if you embrace it. Because it is that moment where all of a sudden, you’re not looking at what you’ve got or what you need, you are asking, what are the options? What do I really want to be doing now? It forces you to think like that and so, while economically it may not be the best plan to just to step out the door, sometimes if you’ve built up some savings and you’ve got a bit of a plan, for some people, that’s a perfect thing to go into it.
Another way to connect what you’re talking about and the psychology of investing is, it’s hard to embrace the opportunity if you’re so worried about what you’re losing. There’s a loss-averse mindset. Do you have any advice?
We talked about that sort of behavioural finance all the time. We place a far greater emphasis on loss than the gains, and there are countless studies on that, numerous books on loss aversion. We tend to get focused on that and it’s the same with investing. We try to talk a lot about the bigger picture here. When we talk about budgeting or financial advice, I hate things like, ‘save $5 a day and your takeaway coffee and you’ll have X dollars’. It’s not focusing on the things that really matter.
$5,000 or taking three months off in the scheme of your life, in the scheme of that longer-term picture and the bigger opportunity, what your long-term career earnings are going to be, that’s the material and you could have a far bigger impact on your long-term financial freedom and mental health if you actually embrace some of those things and not get too focused on the scale of them on the short term. Taking six months out of work in the scheme of a 40-year career is really not that material. In the moment, it may feel quite large. But trying to just keep thinking of that longer-term, bigger picture is the key to most things.
Can you quantify what are some of the benefits that you personally feel, the rewards that you get from doing what you’re doing?
I think the thing that I love is the work that we’re doing every day, as cliche as it may sound. We have an exceptional team around me and I get to work with these amazing people where we are just fuelling ideas. That’s what drives me. It’s the continual exploring of ideas, thinking ahead. I think one of the things I really enjoy is we’ve broken the shackles of a corporate. We can think innovatively and are able to be in an office with a group of people doing that every single day. That’s what I love and so the benefit for me is having that ability to explore and test ideas, to see others really thrive in what they’re doing work-wise.
I think one of the things that we try and do is, and this is where I’m probably very fortunate with the team, have pure freedom to do what they want to do with ideas and concepts. We’ve built this amazing atmosphere with this collective faith between us all that we know what we’re working towards. Everybody knows what they need to be doing towards that, what they’re contributing and it’s so exciting and such a great atmosphere when you’re in a group of people like that, where it just has this natural rhythm. That’s what I’m thriving off and that’s what I’m really enjoying, going into the office and being part of that environment.
So is it fair to say that part of the culture is really this ecosystem where people can take their own leap of faith within the organisation?
Oh, very much so. So one of those leaps of faith that you want to do, I think they themselves all collectively are doing things and pushing themselves and challenging their own ideas and seeing their own ideas within it come to life. It’s almost like continually starting these little mini-ecosystems and businesses within it and all that same sort of journey. I think that’s part of what we’re trying to build within our team. We aren’t a large team, and I think operating like that ensures we can actually be highly productive. It gives me a lot of freedom as well to keep thinking about the bigger things and engaging with the team across it all.
Do you need to balance this very entrepreneurial, innovative spirit with some risk analysis as well?
I think that’s partly better for our business because of the regulatory structure and how we operate. But we try to balance that with always having in the back of our mind how we technically operate. We’re entirely digital so we’re trying to ensure that we’re building great processes and systems that streamline, because if we’re able to do that, it mitigates risk and it also removes the mundane operational stuff, so our team can also focus on the bigger picture.
In terms of the risk pace, I think what’s going to be interesting now is in these little moments where we will start to go through growing pains. We’re just at that point where our team’s gone from three people eight months ago, to 10 now. We’ll probably be 20 in another six months. So this is this time, and I think the team’s all aware when we talk about it, where things will go through growing pains, where we’ve gone from this little ecosystem of really close people, to we’re bringing in others into the fold.
What we’re looking for is continual diversity of thought processes and things evolving. We’re at this really interesting moment within the business and its life where things are changing and there’ll be some tensions, and that’s going to be part of the journey.
You’re talking about being responsible for the livelihoods of 10-20 people. Does that weigh down on you in a different way? Does that start to change some of your decision-making?
Yeah, it did from the very get-go. In those early days, those first few months, it was myself and a concept, getting that really clear and getting confidence. At that point, we’d raised some capital and I really needed to be convinced that we had secured the capital, that this thing was really progressing and was competent of progressing well. Because at that point I was basically asking two other people to join me, one of whom had two young children and a mortgage and leaving a corporate job to come and join me. He’s taking a far bigger leap than I ever took to walk out that door into this brand new venture. So I had that in the back of my mind and always in terms of making sure that things are progressing as we planned.
Those first few months were making sure we were well positioned and that actually this thing is really going to work, because these people, I personally knew. That’s the other thing that comes into it and probably for most startups, the first few people or the first few hires are close connections. I think that adds to it as well because I know those persons really well, I know their family life, I know what they could potentially be sacrificing if this doesn’t work out. That does weigh more through those first few months, and then now, we’re well-established, and we’ve got a successful business and long-term backers and those sort of things, so that’s kind of alleviated. But that first step of bringing on board those first couple of people and asking them basically to leave their stability, that was a bit stressful.
Did you give them any advice to prepare them?
No, we openly discussed what the risks were and they were willing to do that. I think that was the key, we had to have that conversation. Thankfully as well, the people that were involved from the very early days had had their own businesses in the past or had been involved in this space. One of them, her partner was involved and that person was involved in another startup that had battled along for five years. He had previously had his own businesses and managed to sell one. So they were both aware of the challenges and risks that come with being involved in a small or a new business.
But it weighs on you personally, knowing that particularly if you’ve got children or a mortgage and those sorts of things and because you’ve got a personal connection with them, then it just feels, you carry that weight a little bit more, but we got around that by just talking upfront. To me, it was also pitching to them raising capital that year, and then having full belief in this idea as well. You want people like that, they’re coming in early to really get what the idea is, and also backup because everybody in those early years is going to commit a lot more than just the nine to five. It goes beyond normal hours and input that they have in the business.
Is there any advice that you could give to someone who has a concept and they are standing in front of either an investor or a potential recruit? What advice would you give in terms of how to sell their vision?
I think the key there really, for me, was having had those few months of really testing it myself, picking at it from a number of angles. Coming back to the fact that this was a highly regulated business to start. It does force you to really pick at the idea a bit, thinking about the detail and then going and asking the questions. I was fortunate as well. I won’t have the expertise to speak to others but this was an area that I’d been involved in. I did know the financial services space very well and so I think that helps.
The challenge for a lot of people is getting realistic and understanding just generally starting a business, never speak to what the idea is. Starting a business itself is actually quite a big undertaking and people don’t put enough time to the starting of the business component versus this is the idea of what we’re going to build, for example. Setting up a business, going through those processes, understanding what’s involved, the challenges day-to-day of payroll, managing staff, all those elements are the things that people should put some time to as well, before they go out there and try and convince somebody to come on board or give them capital.
Were there things about that process that you just did not see coming?
Nothing major, but I wished there was a service when I was setting up the simple technological things, setting up payroll systems, and all those sorts of elements that come with just setting up the business. There are far more than you realise. I’m thinking on the idea and the business here, and we’re a small team and we’ve got to set up all the structures and do these things and get registered with ID and raise the capital. There are a number of things that you just have to learn as you go. There was nothing major that ever jumped out that caught us by surprise. Again, I was fortunate to have a couple of people in the team who had started a business previously that I could use as a sounding board.
As well as the details, were there psychological things that you weren’t prepared for, or that you needed to work on?
I have a couple of very supportive members in the family that I was close with, that I would talk through the idea with. I think our team was so very open with everybody about what is going on. That helps because I think you need to be able to share that burden. I think people actually really get into the business and the idea if they’re fully understanding what’s going on, so we were very transparent with everything that’s happening and from the very get-go, that was key.
I think particularly, through that first 18 months, every now and then you’ll have a day that is just [shrugs]... And then it’s surprising how often they could actually have a piece of news or something happens the next day and it just completely surpasses the previous day. I think by communicating that, just venting when you need to share, it allowed me to let it go, carry on, go to the next day, knowing full well that at some point there’s going to be another great piece of news and it’s going to be the next high. So you don’t carry those moments along with you. I think that was probably the key thing for me and what I’ve found successful.
Was there a certain momentum that was pushing you through that, whether it’s connected to the same ambition or something else?
It comes back to just really trying to embrace those little wins that you get. We celebrate them and I know that’s really what fuels me. I know my drive is around seeing something grow. I love this idea that this thing is building and we have these little milestones and we’ve reached our next target or the new hire; those sorts of things. That’s what really motivates me; keeping focused on those and really embracing them.
There are some days where you just get home and again, I’m fortunate to have a really supportive partner at home that I can go home and just say, ‘Yeah. It was a s*** day’ and let this out and go, ‘I was really disappointed, so-and-so didn’t work’, and then you get over it. Eventually you go back and over time, the wins and the successes get closer and closer together, and you start to feel like things are really at that tipping point and you’ve got the momentum behind it. It’s just about persistence with it.
You’ve spoken about the ambition to make it easy for investors, but you are building thematic funds and you are really tapping into, what I believe is some of the future of capital flow and putting capital to work. In terms of these areas, could you have imagined that you would be having the impact that you are starting to have in these places?
First of all, we run a range of funds and the first 12 months, we really spent most of our time designing the operational processes. Once we got that nailed, it gave us freedom. In particular, we run a range of global funds in the list of global equities. What we wanted to be able to do was replicate a global index directly ourselves and by each company to match the index around the world, rather than say, wrapping up an offshore fund or getting somebody else to do it. I was exceptionally proud that we built that, all entirely ourselves, entirely proprietary in-house.
We were running these funds with three people in an office on High Street, cheaper than any institution has done it in New Zealand. It was a huge achievement for our team and what that enabled us to do now, and what we’re benefiting from, having put that work into designing this thing, was that in February, we launched a couple of the index funds, and so we’ve been able to design and build funds that haven’t existed before that are more future-focused.
So that comes from putting the energy and effort into solving the operational processes then giving us the freedom to design the end product on the back of that. To see that come through and I think, we see that, and it’s important that we have the innovation and these signalings going through into the investment market. We’re just about to announce three sustainable investment funds and one of those, in particular, has been this labor of love for about nine months designing this new index. It’s a real market first, and it’s because we’ve put that foundation in place that we’re now seeing that momentum build and, as to your point, we’re actually able now to have an impact on the market.
We’re able to offer people access to sustainable investment funds, that haven’t existed, at a lower fee than ever before. That’s a real step forward because it allows people to really signal what’s important to them. It influences exactly how companies are operating and these are quite important tools going forward, particularly if we think about societal and climatic issues that people are very conscious of at the moment.
Has that really opened up a new level of potential that you might not have even thought about a couple of years ago? Do you find yourself thinking about other levels of impact?
Kernel itself is also set up to be an operator from day one; very future-focused. We’ve been very conscious of how we operate as a corporate citizen. I was very purposeful that when we set up, it’s far easier sometimes to do these things from scratch. That’s where I guess we see innovation and new businesses starting all the time, but it’s easy to start this thing from scratch where we’re entirely digital. I was very purposeful in saying we’re not having a printer in the office. As soon as we leave the printer in here, then that’s going to lead to the behaviour that we don’t want. We’ve minimised our travel and use compostable sustainable materials for marketing; we’ve offset all of our carbon.
We try to act as we see fit as a corporate going forward. We run a range of investment funds that cover various forms of sustainability and it depends on people’s views, what we try and design. We’re not a dedicated sustainable investment manager. We have some funds that aren’t traditionally labelled in that sense, but what we do try and do is act as a good corporate citizen and design the best things possible when they’re in each category, trying to be taking them one step ahead.
So the sustainable funds, for example, that we are launching, they are a first for New Zealand. They are using the latest design in terms of how people are constructing sustainable funds globally. We’re trying to be really future-focused and thinking about what’s ahead and designing that in the best way possible.
When there were three of you, and you were doing what no other institution in the country was doing at the time, what was it that enabled you to have that level of innovation?
We did have the technical skillset within our team to actually go and tackle this. What enabled it was this attitude of, well, just because it’s not being done, it is possible to challenge the processes of how things have been done previously. Also, our business isn’t alone in delivering this, we do have critical third parties that every investment manager has to have as part of their business. They were critical in terms of getting them to buy into what we were doing to also have them thinking differently.
Collectively between us, we were able to redesign that process to enable it to happen. So it was constantly sitting down as a team, with our third parties and challenging the existing process and going, ‘Well, we want this outcome, how do we get to that? It’s done like this now, but why and why are we going through these channels or doing this process? Why would we not build it like this?’ And so, again, I think that process of, somebody does it somewhere in the world as well, I’m sure we can do it. We got into the process, started building it and you know, it was complex, but we could always see a way forward and we managed to build it.
If you were to give advice to anyone in any scenario, in any industry, in any sector, looking at how to take that leap into the unknown, what advice would you give them?
Taking a leap into the unknown? I come back to that of what made it work for me, was not sitting on that idea for too long. Actually, just taking it. There’s not much you can say to encourage somebody to do that. If you feel that it’s your moment to do it; don’t think about the risks, don’t weigh up the alternatives, just embrace that inkling that you’ve got, and you’ve just got to do it. There’s not much more to it than that. That’s pretty much all I did. It’s the moment to have a go and I’m not going to dwell on the alternatives.