Finding alpha through operational excellence

Zack Kanter is the founder and CEO of Stedi, an API-first healthcare clearinghouse. After bootstrapping a wildly profitable auto-parts business, he sold it to tackle "the most complicated problem" he'd ever encountered: business-to-business transaction exchange. He spent years building EDI infrastructure, threw away the entire codebase eight times, and found extraordinary traction in healthcare. Stedi recently raised a $70M Series B co-led by Stripe and Addition. In this conversation, Brett and Zack discuss why venture capital means "going pro," why execution is never actually a moat, and how "eating glass" became Stedi's competitive advantage.

In today’s episode, we discuss:

• How 16-year-old Zack turned $2,500 into a wholesale empire
• Why bootstrapping means being "constrained by capital" and how VC removes that ceiling
• Why Zack rebuilt their EDI product eight times before launch
• The snake swallowing a deer: what extreme product-market fit really looks like
• What software companies can learn from discount retail and Toyota
• Why Stedi’s new hires are told "everything’s your fault now"
• And much more

Where to find Zack:

• LinkedIn: https://www.linkedin.com/in/zkanter
• Twitter/X: https://x.com/zackkanter

Where to find Brett:

• LinkedIn: https://www.linkedin.com/in/brett-berson-9986094/
• Twitter/X: https://twitter.com/brettberson

Where to find First Round Capital:

• Website: https://firstround.com/
• First Round Review: https://review.firstround.com/
• Twitter/X: https://twitter.com/firstround
• YouTube: https://www.youtube.com/@FirstRoundCapital
• This podcast on all platforms: https://review.firstround.com/podcast

References:

• Aetna: https://www.aetna.com/
• Amazon: https://www.amazon.com/
• AWS: https://aws.amazon.com/
• Blue Cross Blue Shield: https://www.bcbs.com/
• Change Healthcare: https://www.changehealthcare.com/
• Cigna: https://www.cigna.com/
• Clay: https://www.clay.com/
• Costco: https://www.costco.com/
• Ford Motor Company: https://www.ford.com/
• GM: https://www.gm.com/
• HIPAA overview (HHS): https://www.hhs.gov/hipaa/index.html
• Jeff Bezos: https://x.com/JeffBezos
• Kanban / TPS (Toyota): https://global.toyota/en/company/vision-and-philosophy/production-system
• Microsoft Teams: https://www.microsoft.com/microsoft-teams
• NetSuite: https://www.netsuite.com/
• O’Reilly Auto Parts: https://www.oreillyauto.com/
• Peter Thiel: https://x.com/peterthiel
• Porter’s five forces: https://www.isc.hbs.edu/strategy/pages/the-five-forces.aspx
• "Reality has a surprising amount of detail": https://johnsalvatier.org/blog/2017/reality-has-a-surprising-amount-of-detail
• Slack: https://slack.com/
• Stedi: https://www.stedi.com/
• Summit Racing: https://www.summitracing.com/
• Target: https://www.target.com/
• Walmart: https://www.walmart.com/
• Zapier: https://zapier.com/

Timestamps:

(01:24) Zack’s first business

(08:54) Why the first customer is tricky

(10:12) The downside of bootstrapping

(11:42) Why venture capital is like “going pro”

(14:20) The confusion between ownership vs. control

(16:08) Building a company you don’t want to leave

(20:46) Do things better than other people

(24:49) Stedi’s early years

(31:43) Physical vs. digital product-market fit

(34:41) How Stedi scaled decision-making

(40:08) Stedi’s journey to product-market fit

(45:22) Finding founder-approach fit

(50:42) “All software is a cascade of miracles”

(52:52) The surprising lessons from discount retail

(57:50) How the Toyota production system influences software

(1:01:31) What it means to be a high-agency person

(1:03:09) The core trait Zack looks for when hiring

(1:02:57) Maintaining conviction in unconventional practice

(1:14:19) When should you start to hire managers?

(1:17:42) “Reality has a surprising amount of detail”