George Madrigal, the founder of boutique financial services firm Penserra, speaks with Elian and Juleyka about how honoring his relationships and keeping his word were key to his success, from raising capital, to developing his leadership style, and identifying the right teammates. Our Latino business moment of Zen helps us connect our values and self-knowledge to our business practices.
This episode was supported by our LBAN Alumni Founding Sponsors Windrose Vision or and VND.
Elian Savodivker:
Hello and welcome to Scaled: The Latino Business Story.. I'm Elian Savodivker, Director of Engagement at LBAN, the Latino Business Action Network.
Juleyka Lantigua:
And I'm Juleyka Lantigua, SLEI-Ed alum and the founder of LWC Studios.
Savodivker: On this show, we invite Latino business owners from all over the country to share stories from their journeys as entrepreneurs to help us contextualize the world-class research we do here at LBAN.
Lantigua: Our guest today is George Madrigal from the financial services firm Penserra. George is a SLEI-Ed alum like me and I was so excited to meet him and get to learn more about his journey.
Savodivker: He is one of our standup alumni and we covered so many different topics with him, from developing his business strategy to his leadership style to how he fosters trust and integrity in his team and his network. And of course, we got into a very grounding conversation about raising capital.
Lantigua: That was so good. I mean, he's so comfortable talking about money and the obstacles and the difficulties, but also the way to go about securing your business financially. I honestly felt so encouraged and I loved the advice that he gave me.
Savodivker: And so with that, here's our conversation with George Madrigal.
George Madrigal:
My name's George Madrigal and I run a company called Penserra. We are a boutique investment bank so we've been around since 2007 and we cater to institutional clients and we do everything from global equity trading to investment banking, to money management to fixed-income trading, so quite a bit here for a small firm, and we compete with much larger firms.
Lantigua: So why start this type of company? It's very niche.
Madrigal: Yeah, it's a great question. And the timing was horrendous, you know, I launched the firm in '08. That's when we actually opened our doors. It was three weeks after the Bear Stearns collapse and so that was a horrendous time.
Lantigua: Were you not reading the news?
Madrigal: Well, I was, hoping that it would change. I had no idea how bad it was going to be in the end, and so I did it because it's what I knew, right? I was in the investment industry for years and I worked for a larger company, for Barclays Global Investors, and so it was what I knew and I didn't know what I was getting myself into at the beginning, but I learned very quickly.
Savodivker: That's great. And George, obviously, you're going after some pretty big clients, you're also competing with some big names. Those first three years are really tough for any company and especially yours, starting in that timeframe. What were those strategies, around sales, around your team, that really led you to be successful?
Madrigal: I think at the beginning, I had to understand really, really well who my clients are, what's the likelihood of me winning that business and putting together a very detailed timeline and plan of what I thought that revenue would look like. I'm very, very meticulous and so it ended up being a very lengthy spreadsheet and then I probability-weighted the likelihood of winning every client and you have to do that and it was over time, I literally did it for the first five years knowing that it wasn't going to be easy.
Madrigal: And for me, that is the most important thing before you launch a business is really understand who your competitors are, how you're going to compete, if it's going to be as a low-cost provider or you're going to have a differentiated product, and then to build a business plan that maps that out for you and mapping out revenue, that's a challenge, and so I think doing all that together in advance is what laid the foundation for making my firm successful.
Lantigua: Okay, but George, that's all internal, right? This is all the stuff you do internally with your team by yourself, thinking through, anticipating, then you got to go and pitch to these clients on that spreadsheet. What was that pitch?
Madrigal: Because we have various service lines, I compete with a lot of different types of companies, but on the marquee side, on the high end, you have someone like a Goldman Sachs, right? How do you compete with Goldman Sachs when you're a small company and you're pitching clients like a Boeing or a McDonald's or a large pension plan? I mean, good luck, right?
Madrigal: So to answer your question, you have to focus on what you're good at and you have to be able to articulate why a customer should do business with you, and for me, it was very simple. It was, "Look, you were a former client of mine at Barclays. I serviced you for 14 years. All I did was walk across the street and change my name, but the offering's still going to be the same and here's why."
And then I had to follow that up with a big element of trust, so my first few clients were people that I knew really well and in some cases I had to ask them for a favor. I said, "Look, you know that I have a lot of integrity, you know that I'm reliable, give me a chance and you won't be disappointed, but if you are, terminate me. Fire me right away. If I don't live up to what I say I'm going to do, just get rid of me. No harm, no foul." And so using that approach is how I basically won my first few clients.
Lantigua: Wow. You must have the trustworthiness of, I don't know, a pastor.
Madrigal: No one's ever accused me of being a pastor.
Savodivker: You meet George in person and there's a charisma there that you're just like, "Take all my money. You look like a guy, you know what you're doing."
Madrigal: I do know what I do in it and so does my staff, but really, there is a big element of trust and you build that over time, right? Integrity is built over time and your reputation is valuable, so I've never lost sight of that.
Lantigua: How do you integrate, in actionable terms, integrity and trustworthiness into the way you conduct your business?
Madrigal: It starts with the individual, right? So you have to have your own moral compass. You have to have your own set of ethics. You have to identify what is important to you first, before you can build a company that emulates that. So I think what the founder sets forth at the very beginning is critical to the success of the firm.
I want people that are going to behave in a way that they do what they say, right? That is the basis of trust and integrity. So if you say you're going to do something, then do it. If you say you're going to do something by a certain time, then do it. Okay?
Madrigal: I pride myself on being a, I call myself a "window washer" in the sense that if I see a dirty window, literally, I'll go out there and I'll get the Windex with a paper towel and I'll clean it. If I see an empty trash can that the custodians forgot to remove, I'll go empty it out. If I see dirty dishes, I'll wash the dishes.
Madrigal: So when I hire people, I give that example because I want them to do that. If you see something that's broken, fix it. If you say you're going to do something, do it. I don't know how else to articulate it, but it literally is that simple for me and if you hire people that emulate that, then over time, you just build up more and more credibility in the industry because people will believe you because they'll see what comes their way after you've promised them something.
Lantigua: All right, so that might be the most literal definition of servant leader I've ever heard.
Madrigal: And very simple. I like things simple.
Savodivker: Well, George, especially starting a company during an economic downturn and a difficult time, just walk us through maybe what some of those really difficult decisions and strategic decisions that you made over the years that have made the success that that is today.
Madrigal: I touched on one. It's the power of recruiting. I always value my ability to recruit good people. It could be anybody, like I don't necessarily want to hire, and no offense to people that go to Ivy League schools, I actually got my business degree from an Ivy league school, but you know what? I actually prefer the candidate that has worked super hard from the ground level, that has earned their degree. I used to wash cars, I used to work at McDonald's, I delivered pizzas. Like, I want people with a very strong work ethic, but recruiting, if I didn't recruit well, I would not have a good company.
Madrigal: And you don't really think about it until, a lot of cases, until it's too late or many years down the road, but recruiting, by far, I think, as an entrepreneur, is the most important thing because if you recruit poorly, good luck. It's such a waste of resources trying to fix somebody that is not a good fit for your firm or get rid of them. I learned that really early on, man, I made some horrible mistakes at recruiting, but over time, I've learned to get really, really good at it and find the right people and I think that is the biggest thing I contributed to my company early on.
Savodivker: Yeah, and I want to talk about that a little bit more because today, we're almost seeing the opposite effect of 2008, 2009, where you can't get employees, right? It's this hiring issue that's going out there. So when we flip it to looking at the current landscape that we see, what are your tools to recruit people, to say, "Hey, Penserra is really the right company for you and you should be working here."?
Madrigal: The most valuable tool to me and my senior leaders is their network. In fact, I just had a posting that I couldn't fill for, I don't know, maybe it was two or three months, and so I went to my HR director and I said, "What's going on here? Walk me through your strategy." And she was doing all the right things, but it's hard to convey the substance of a company or a job if you don't have face-to-face contact with that recruit.
Madrigal: And so what I did is I started reaching out more in a high-touch way to my network, like to people that I knew might have a connection to people that I was trying to hire, and we got candidates right away and I had my other managers do the same so we had more luck doing a targeted search within our network for a junior position and a more senior position than we actually did hiring recruiting firms or headhunters.
Madrigal: So even in tough times, if you take the time to use your network as best as possible and you take the time to talk to these candidates, then you can get them excited about joining your company and taking this particular position. I mean, I just spoke to a junior recruit, right? How many CEOs actually screen candidates? But I did and we found some really good ones that way. So it's just a lot more effort, especially in this environment.
Savodivker: I love it. I'm telling you, Juleyka, you have one conversation with George and you're like, "I'll join the company. I'll do whatever you want, George. Let's go. Let's get going."
Madrigal: And pass the word. The word of mouth is so valuable.
Savodivker: Yeah.
Lantigua: All right, so let's talk a little bit about the tech side. I'm really fascinated by this stat that I'm going to share, which is that research shows that 19% of Latino-owned businesses report developing and selling technology or software. Interesting. Compared to 14% of white-owned businesses. To me, that is one of those aha moments because most people would assume that we're more in the services, in construction, in hospitality, but the fact that 19% of us are creating and selling technology or software is really indicative. Tell us a little bit about how you go through the product development cycle and what goes into that.
Madrigal: Mainly, we evaluate the landscape and try to purchase technology that's readily available and readily supported, and we do that because you can, over time, swap out that technology for better technology without having to lay out the gazillions of dollars that are required for technology development.
Madrigal: However, when you can't find technology that fits your business, you have to create it and we are in the middle of a technology development project. We're about 12 months into it. And there, we took this approach of trying to find a quick win by identifying technology that was already out there, or maybe that offered 50% of what we wanted, and then further developing it. And we couldn't find it so we just decided to start from scratch.
Madrigal: We brought in people in-house that had expertise in various attributes of programming. We started there and heavily incorporated the users, right? If you're developing technology, and I think we all know this because it's very logical, you have to understand how the end user is going to leverage that technology to do their job or their function better, and so we spent a lot of time at the beginning just making sure that the programmers understood explicitly how the technology was going to be used, how it might change over time and start there.
So we really frontloaded the effort so the programmers basically had an understanding of a super user before they started programming. At the start, it's to optimize internal processes for people that are client-facing. Over time, the client's going to have this themselves. For me, that's what helped contribute to a very successful outcome. In addition to that, we really had an eye for what we wanted now and what we could wait for down the road. So having that long-term vision's important.
Savodivker: And one of the things that we look at at LBAN is not just how people can use technology for their clients, but for their internal team and you're doing that, but it also sounds expensive, right? To put all this work to do it in-house. One of the things that our LBAN research looks at is how Latinos need to, even Scaled Latino-owned employer businesses need and are exposed to more personal financial risk than white-owned employer businesses. We've had multiple conversations around this, but can you walk us through what that looked like early on and even now as you're taking these big projects?
Madrigal: Yeah, so capital raising is a challenge, we all know that and can appreciate that, and so when I started, I did a couple things.
One, I knew for a long time that I was going to launch my business and so I started saving money to look out for my family in preparation for not making any money for, potentially, a very long time and that's exactly what happened, I didn't make money for the first three years, I didn't pay myself at all, and so that was Step #1 was self-financing.
Madrigal: Step #2 was, "Okay, well, I need a lot more money. How do I go about raising that?" And so we often think about tapping our friends and family, and I didn't do that. Trying to compete with the Goldman and BlackRock and all these firms, it's nearly impossible, so I knew it was high-risk so I really didn't want to expose my friends and family to that, but what I did is I went out there and started talking to everybody in my network and then had friends introduce me to people that might be interested.
Madrigal: And so that's how I found my first amount of capital was through a ton of pitching over and over again until I found somebody that could understand my vision and might be able to help me not only with capital, but with guidance, basically strangers that I met through another network, and that's somewhat unusual.
Madrigal: But with capital, I found that after launching, one of the best sources for me was a bank. I used credit cards at the beginning, I don't like to think about that because of high interest rates, but I definitely tapped into credit cards, but banks and credit cards were, early on, how I kept my business running, and then, over time, it eventually grew and my capital needs expanded with my firm and I went to mezzanine financing, which is higher-interest-rate, higher-risk type financing. I went through that for some mergers and acquisitions I was looking at, but I've always come back to a banking relationship.
Madrigal: I partnered with First Republic Bank and with CIBC, and together, between the two of them, I have a steady source of borrowing. From one and the other, I have a more technical facility called a subordinate credit revolver that I use for CIBC for $10 million, actually. And so you constantly have to evolve as you think through capital and talk to people about what the different options are, but at the beginning, I started off very simple and it's become something much more complex.
Lantigua: Okay. Fellow business owner here. As I often remind Elian, I am also a SLEI-Ed alumna, Cohort 10.
Madrigal: Yay.
Lantigua: Anyways, George, I am just starting out, my business is four and a half years old and I dream of getting to the point where you are, of course. So what advice would you have for someone like me in terms of the types of revolving credit, access to capital that I should always consider or have active, have access to actively as I grow my business?
Madrigal: That is a great question that I don't get asked too often, but there's a couple things. I think every business owner has a different tolerance for risk.
Lantigua: Mine is really high, though, so give me the goods. Mine is really high.
Madrigal: Okay, so I'm more risk-averse than you. I'm kind of in the middle, like I started off very, very poor and so I don't like not having money anymore and so, say, with my business, when I started making money, the first thing I did was I started accumulating my retained earnings, right? And I told my partners. I did not pay a dividend to my partners for 10 years.
Lantigua: Whoa.
Madrigal: Can you imagine that? I didn't give them a dime or myself a dime from profits. I told them, I'm like, "Be patient. We're going to build something here of tremendous value, but be patient. We're not going to give you any distributions early on, but when we get there, you'll get them every year and they'll be very robust."
Madrigal: And that's what we did, and so we accumulated that reserve over 10, maybe 11 years before we paid distributions. We paid our first distribution two years ago, okay? And they were thrilled. I didn't get too crazy. As I started making money, I would slowly take more bets and so I'm a little bit of both. I'm a risk-taker, but I'm also very conservative by nature.
Madrigal: But to answer your question, as a business owner, you should always have a line of credit, like, at a minimum, credit cards and a line of credit. You just have to have them. And then the more revenue you have and the more your needs grow, you should think about expanding that line of credit facility. I think, at a minimum, you need that, but if you're not in tremendous growth phase, you should retain some earnings. On the other hand, if you're growing like crazy, look, there's nothing wrong with growing at a loss as long as you have financing behind it, but you have to fuel that growth over time.
Lantigua: George, thank you so much for that, actually. I've been considering opening up a line of credit, but I have like an allergic reaction to debt, but I think you're right, I think it absolutely makes sense. I am definitely going to call my banker and talk to him about a line of credit. I think it's a really good idea.
Madrigal: The other thing that's really good is to find more equity partners, right? And I know that's awful, and as owners, we don't like to give away part of the company.
Lantigua: No, we don't.
Madrigal: But at one point, I had about 20 partners, okay? I'm down to about 12 now and there's probably 8 that are core owners. I own 41% of my firm. However, if I would've been stubborn about it, one, I probably would be out of business, and two, I never would've expanded into all the areas that I did.
Madrigal: And so equity, it can be an expensive form of capital if you're successful, but early on, it's a cheap form because your valuations are really low, your company's not worth a lot, it's a great way of building in a level of comfort, right? Building up your balance sheet with liquidity or being able to take on a large project like a technology project or acquiring another firm. If you can get common equity in your company with the right partner, don't overlook that. That is better than debt.
Savodivker: George, I know you have so much experience, you've done so many different things with your business to make it the success that it is today. For those that are looking to get to your level, what would you recommend to them? What are your tips?
Madrigal: I always tell people, "Don't do it. Don't be an entrepreneur." The first few years are so painful. I mean, I can't even tell you how painful they are. Making no money and risking everything or close to everything, that is such a painful thing and so you have to make sure that you're mentally prepared for that and that your significant other is mentally prepared for that and that your budget is prepared for that.
Madrigal: So my advice would be, "Prepare yourself to be in the trenches. Prepare yourself to fight every day for what you believe in." Because you have to succeed. If you don't do that, there's no way. You're going to be out of business. That'd be Step #1 or Advice #1.
Madrigal: Advice #2 is, and this is hard for some people, but, "Don't be afraid to make mistakes." Like, I make mistakes every day and I ask dumb questions every day and still make mistakes. You have to have a thick skin, you can't be afraid of being embarrassed by what you don't know, and so I would encourage all entrepreneurs, really, just to make mistakes. That's how you learn because once you make a mistake, you'll never forget, so I think, for me, those are the two biggest takeaways if you're going to take the path that entrepreneurs take.
Lantigua: I love that. I really love that.
Savodivker: That's great.
Madrigal: Yeah.
Savodivker: Yeah. George, thank you so much for being with us today. You are an incredible source of information and guidance. On behalf of all of us, thank you so much, George.
Lantigua: What a pleasure to meet you. Thank you so much.
Madrigal: Thank you as well. It’s been a privilege to be here and thank you for listening.
Savodivker: Juleyka, that was absolutely incredible. I mean, George is...
Lantigua: I love him.
Savodivker: Yeah, he's great. He's great. Just a wealth of information, right? And just such an easy going guy to speak about some really, really important topics.
Lantigua: Oh, totally. He also seems like somebody who understands because he seeks to understand, on an ongoing basis, what's going on with this team, what's going on with the projects and that's exactly what you want in an entrepreneur, because part of what you have to do is anticipate the next thing that your client and your team is going to need, right? And the only way that you can anticipate that is by really always being aware of what's going on with them. So great conversation. Loved talking to him today.
Savodivker: And George uses social capital, his network, the network of his network to grow his business and to grow himself, how he got capital and how he grew his employees, right? And all of that was through social capital. Really interesting to see, and especially coming from a Latino and how he was able to grow that.
Lantigua: Yeah. I also really, really appreciated how he talked about when he didn't have any capital, because I think that is unglamorous, but it is so truthful for so many of us. I did take out a loan from my own 401(k) and I did give myself a year and I paid myself $12,000 in salary because my accountant said, "You have to pay yourself something." And if more of us shared that part of our story, more people would come into entrepreneurship with their eyes wide open and with a real sense of the rewards and the sacrifices that come with this path, which is incredible. This path is an incredible path to be on.
Savodivker: I really love that he said having a supportive partner. That's key. It doesn't have to be your wife or your husband or whoever, but you need to have a person that you can cry on and say, "Hey, I made a lot of mistakes today." And they can say, "You got it."
Lantigua: Yeah. I often talk about the one thing I would do differently is I would have a co-founder, but I understood that it was such a high risk that I didn't want to be responsible for someone else taking on such a huge risk with me. I thought, "Well, if this fails, I will be the only person impacted by it." But absolutely, almost five years in, I definitely feel the absence of that, of having that partner who is equally invested, equally anxious, equally happy every step of the way.
Savodivker: And now here's our Latino business moment of zen, inspired by our guest.
Savodivker: Know thyself. Latinos are important job creators. Latino-owned businesses employ over 2.9 million people and in general, they grow their number of employees at a faster rate than white-owned businesses. Latino business owners are also more likely than white business owners to provide opportunities for growth and for advancement to their employees.
Savodivker: Now, close your eyes, inhale. And exhale.
Know thyself. Know who you are, what your values are, what's important to you. Let who you are inform your leadership style, the company culture you create, the way you build relationships and leverage your social capital. Know thyself.
Open your eyes now and carry on with your day.
Savodivker: This episode was supported by our LBAN Alumni Founding Sponsors Windrose Vision and VND. Scaled: The Latino Business Story is produced by LWC Studios for LBAN. Virginia Lora is our producer. Kojin Tashiro is our sound designer and mixer. Elizabeth Nakano mixed this episode. Paulina Velasco is managing producer. To learn more about the work and research LBAN is doing and our Business Scaling Program at Stanford, please visit LBAN.us, that’s l-b-a-n [dot] us. Thanks for listening. I’m Elian Savodivker.
CITATION:
Lantigua, Juleyka and Elian Savodivker, hosts. “Integrity and Trust Are Essential to Your Business Strategy.”
Scaled: The Latino Business Story,
LWC Studios., November 7, 2022. LBAN.us/scaled.