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Banking on KC – Toby Rush of Smart Warehousing

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Kelly Scanlon:

Welcome to Banking on KC. I'm your host Kelly Scanlon. Thanks for joining us. With us on this episode is founder and serial technology entrepreneur, Toby Rush. In 2016, Toby sold EyeVerify to Alibaba for more than $100 million. Toby recently was named CEO of Smart Warehousing. Welcome.

Toby Rush:

Hey, Kelly. Glad to be here. Thanks for having me.

Kelly Scanlon:

Congratulations on your new gig there at Smart Warehousing. I mean that news isn't even a month old yet, is it?

Toby Rush:

No, it's a couple of weeks. Really official start date was September 1st.

Kelly Scanlon:

I'm really curious. I've known you for a long time, Toby. You're the quintessential entrepreneur. Why did you decide to join an existing company rather than launch yet another one of your own?

Toby Rush:

That's a great question, I was able to take a little bit of time off and reflect and say, what am I really passionate about? What do I love? Where is my zone of genius is what some people refer it to. And I was like, I love building stuff. I love building teams, I love building products. I like high growth, high scale, and that's why I've been drawn to entrepreneurship in general. And I've done the startup from scratch twice now, and I can do it again and maybe do it at larger scale, but I also wanted to kind of broaden the options at least in front of me.

Toby Rush:

One of the things that I looked at was cast a wider net and say, "Hey, is there anything out there that is existing, preferably not broken?" I mean, I can do a turnaround, but it wasn't super excited about a turnaround. But could take something that kind of had some, some good foundations, but really needed something to scale and had tailwinds with COVID. Where was COVID and trade wars, and just kind of a lot of disruptions out in the world helping?

Toby Rush:

As I started asking around, believe it or not, it was actually an investor that had been in both of my companies was also an investor in Smart Warehousing. He said, "Hey, you should go talk to Carl, he's a founder of Smart Warehousing, and see what he's doing. We think that's just an amazing opportunity." They've been in business for 19 years, have grown every quarter, have been profitable every quarter, but have never really done any sales and marketing, right.

Toby Rush:

And I'm like, huh, that's interesting. And the more I dove in, and looking at the last really six months, has been about six years of evolution in the e-commerce and direct-to-consumer space. We're ordering everything on our phones, online, having it shipped directly to our house. Retail is getting disrupted, supply chains are getting chaotic, and so everybody's rethinking how the supply chain works. And where Smart Warehousing fits is really they have built a technology platform that tech enables people to handle complex omnichannel fulfillment.

Toby Rush:

An example, if you're a merchant or you sell stuff, you might sell it on Amazon and eBay and Etsy and on your own website using Shopify, but you might also sell to Walmart and Target and maybe in Home Depot and Lowe's all at the same time. The packaging and the retail compliance for each of those different. And it gets fairly complex as you're trying to manage one and two-day deliveries, all these different ways of packaging it, well, we come in and we handle all the fulfillment needs for your customer regardless of what channel it fits into. They've got a really interesting technology platform.

Toby Rush:

It's fascinating, I'm used to running companies of 50 people. Now, we've got a company of almost 600. A very much scale-

Kelly Scanlon:

Definitely.

Toby Rush:

... but it's really cool. It's a deep technology piece to it. I think as a Kansas City company, Carl has been a great job creating the company. He's going to stay on board. It's a healthy company. He's going to really focus on driving warehouse operations and technology, and we're taking that to the next level. And I get to kind of take my lens and think externally, okay, and this is again part of the stuff that I love, where are the markets, where are the trend lines, where are the cracks and crevices that you can kind of scoot into and expand over the next few years?

Kelly Scanlon:

Yeah. And as you said, COVID has really upped the ante on everything that you just described, so perfect timing. I mean, if there's a silver lining that's perfect timing for this company anyway.

Toby Rush:

Yep. Very much so.

Kelly Scanlon:

Yeah. When our paths first crossed many years ago, Toby, you had launched Rush Tracking and that was a firm that developed RFID tracking technologies for industrial warehouses. And since, then you've been involved in several other startup endeavors that everybody knows the story of, EyeVerify. You've invested in several others. But when you launched Rush Tracking back in 2003, you were a bit ahead of the game with that technology. How do you decide which technologies are relevant to pursue, the ones that you're going to throw energy and resources behind? How do you make those kinds of decisions?

Toby Rush:

Boy, that is a million dollar question or the 100 million or the billion dollar question, is you want to get far enough ahead that you can work on something that isn't widely known today, but isn't so far out that is purely research, right? And so I would say rather than trying to find a technology, I was not nearly smart enough to do this with Rush Tracking, I actually did a much better job with EyeVerify, and I think even a better job now with Smart Warehousing, is what are the macro trends that are to your favor, right? Where are their tailwinds and where are their headwinds?

Toby Rush:

And so when I started Rush Tracking, oh man, I was so clueless. I was green, I was new, I was naive, and we just worked our tail off. And we got lucky in some places and we just worked really hard in others, and we made it work, but I can't say I was overly strategic in how we approached that business.

Toby Rush:

As we looked at EyeVerify, I'd been tracking or really working with mobile technology for years. I mean really since '01, '02 I started working with mobile. We didn't launch EyeVerify until 2012, right, so now it's 10 years been watching this and working in this market and I'm like, "Man, we're going to do everything on our phones. We're going to do mobile banking. We're going to do payments. We're going to do healthcare. We're going to work."

Toby Rush:

Back in 2011 when I was looking at the technology, very, very little of that was happening. The bet was these little computers in our pockets will become absolutely essential, and being able to authenticate into them is hard today and is only going to get worse. If we can make that as simple as looking at your device and that becoming your password, that was a big pain point today, only going to get bigger in a much bigger market trend, right? And so that's, I think, where I had positioned EyeVerify, and we were right.

Kelly Scanlon:

Yes, absolutely. Now, you did not invent that technology. Obviously, you'd been watching it, but you had a contact. You were introduced to somebody at UMKC who was working in that area and that's where you stepped in and you commercialize that. I mean, your first conversation, if I recall correctly, he kind of thought you were crazy to be able to commercialize it. Is that right? I mean, and tell me how you got him over into your camp.

Toby Rush:

Yeah, so a little bit of the story. UMKC had participated in the called Whiteboard 2 Boardroom, which is a program specifically defined what they think are interesting and high potential technologies at both universities and corporations. And so Whiteboard 2 Boardroom had done a little video and had really done a nice job trying to push that into the market, the ecosystem, and that had ended up finding its way to meet. Then I reached out to UMKC, met with Reza, Dr. Reza Derakhshani and their tech transfer office.

Toby Rush:

And initially, they were thinking, "Yeah, this is biometrics." They'd done this study, which is really funny, and the study came back, they paid a consultant. And he said, "Well, biometrics are used in airports, immigration and military. If you want to think about commercializing this technology, you should think about people who are already active and engaged in military and immigration and airports."

Toby Rush:

And I looked at it, I'm like, "That's a terrible idea." Those are super hard to get into.

Kelly Scanlon:

The government.

Toby Rush:

Yeah, the government. So hard to break into as a young company. However, if we can replace passwords on smartphones, now that's interesting. That has a lot of upside and it's a massively growing market that's not heavily regulated and super saturated with incumbents.

Toby Rush:

And so in working with Reza, I think the thing that really made it click between us is, he's really entrepreneurial as far as the professors go. He's creative, he's entrepreneurial, and we developed a really just a quick trust between the two of us. And so he had to do a little bit of convincing of me of, "Hey, how far can this technology go?" And I had to do some convincing of him of, "Hey, this is a really big market. If you can do what you think you can, here's what I think I can do." And then it really was a combination of the two of us delivering on both of those, right? He was able to really take that technology. Really, he became our chief scientist and took it from an idea in a lab to scaling. We had over 60 banks using it inside four years. We fortunately ended up selling that to Alibaba, and we have hundreds of millions of users.

Kelly Scanlon:

You have said before, I've heard you say before that you consider yourself to be an innovator rather than an inventor and I think we've gotten a flavor of that in some of the things that you've said today, but why do you say that and what's the difference?

Toby Rush:

An inventor, where someone who's really coming up with these ideas, they're a special breed. And I've got a little bit of that. Where I found that I am probably better suited is really being more innovative and entrepreneurial, and applying those ideas to markets. And I think, honestly, a big piece of that is because I love people and the relationship side, right? And so being able to see an idea that you think is interesting, see the market, but then being able to build relationships, build a team. You've got to attract the right management team. You've got to attract the right investors. You got to attract the right employees. Then you got to go out and you got to work with the those strategic partners and customers. I really enjoy the people side of it, which again, would kind of lead me more towards commercialization, innovation, implementation, not necessarily the invention side. Inventors sometimes have that relationship personality, that they love people side, but more often than not, they don't.

Kelly Scanlon:

Where does your drive come from, Toby, that entrepreneurial spirit? After everything you've done, you could just go and play right now, but you keep after it. Yeah, where does that drive, that entrepreneurial energy come from?

Toby Rush:

I think God creates us each differently, with different passions and different purposes. One of mine, again, is I just love building, I love creating. I don't see it as a "work" or just "a job". It's what I love to do, right.

Toby Rush:

Something I've recently taken up in the last year or two is woodworking. I love building stuff. I love building furniture. I'm on YouTube and looking at how to do this kind of color to proxy resins. I made myself a little coffee table. I'm in the process, I'm going to make myself a desk in my office. I think I just like building. Once I figure out how to do something, it's not nearly as interesting, right? I think I am just wired and geared to build things and to be very relational, and entrepreneurship just helps me maximize that in a way that's just fun. And it's obviously rewarding, both from a financial perspective, but also you just feel like you're making the world a little better place.

Kelly Scanlon:

Well, you said the word wired, you're just wired that way. Obviously, it started manifesting at a very young age because there's a story about your dad and two pigs being your first entrepreneurial venture. Tell us about that.

Toby Rush:

Sure. Yeah. Back then, I don't know that I would have reframed it as my "being an entrepreneur", just it's what you did on the farm, right? I grew up on a family farm in Northeast Kansas. When I was in fifth grade, dad came to me, he said, "Hey, I'll buy these two pigs if you split the feed bill and the vet bill, and you do all the chores." Well, I was going to do the chores no matter what.

Kelly Scanlon:

Right, right. No question there.

Toby Rush:

It wasn't like I was really gaining a lot there. And so that was really the first time you kind of got in and realizing, "Hey, every year, if I'm going to have any kind of spending money or want to go do anything, I'm going to have to make my own money." I started raising pigs, and they had babies, and sold them and did that again.

Toby Rush:

Then in junior high, I started throwing hay for a couple of farmers around town. And then in high school, had my own straw business and started selling straw to the sale barns around town. At the time, again, that definitely you could see the natural propensity to lead and to innovate and to kind of step out. But it was really just kind of a way that, one, how I was wired and I want a little extra spending money, and that's kind of how it manifested itself.

Toby Rush:

I wouldn't have called it, I was "being an entrepreneur", but then went K-State undergrad and started with Accenture, right? I graduated back in '98. I don't know that I would have said... In fact, I would not have said, I want to go be an entrepreneur. I really didn't know what that was. It wasn't until I joined a startup in Houston in 2001 that I really kind of got bit by the bug and I'm like, "Ah, this is what that looks like. I want to go do this all the time."

Kelly Scanlon:

Yeah, and there's a name for it. Yeah. I think a lot of early entrepreneurs, like yourself, didn't think of themselves as entrepreneurs as I hear them tell their stories. They were just driven to build and to create, like you said, to innovate.

Kelly Scanlon:

When you're out there and you're ahead of that curve, you're seeing things that nobody else can see just yet or that very few people anyway can see it, you're driving that innovation, how do you get others on board with you? Whether they're employees, whether they're investors or others, what kind of leadership qualities are involved in doing that? Because it's one thing to have an idea and to see how it might work, but to get people that you need to come along with you, that's a whole other challenge. Tell us about that.

Toby Rush:

Again, this would be... It feels more empirical than theoretical, right? As I think about when I engage with somebody, it's like, how do I develop trust? And I think just my demeanor and my personality and just the way that I approach life is very matter of fact. Okay, here's who I am and here's what we're trying to do. And so I'm able to build trust very quickly, but I'm also able to tell a story and cast a vision, right?

Toby Rush:

And I think people want to be excited. They want to be inspired, but they also want to go with people they trust. And so maybe the combination of those two things of I am able to establish trust very quickly. I manage that trust well, right. And so I try to really be conscious of that. And then I am able to cast a vision and tell a story that get people excited.

Kelly Scanlon:

You've said before that not enough founders in the pre-seed funding stage get that help that they need to build their company successfully, to help them build that foundation that they can then just take off from. Rather than just sit back and say these kinds of things and lob criticisms, you're actually trying to do something about it. Tell us about your idea for creating a venture studio right here in Kansas City. I know this was something that you were working on prior to COVID and I don't know if COVID has put that on the back burner, but tell us about that idea.

Toby Rush:

Sure. No, it is. I'm still passionate about the model and the idea, but it's probably going to be on pause for a few years. And I mean, in particular, I'm going to be focused on Smart Warehousing, but it is a model that I do like and would love to come back and do at some point.

Toby Rush:

The basic idea is there are a lot of cities that have a lot of density, right? If you're in San Francisco or Austin or New York, and you have this idea, you're surrounded by people that have already been down that path. They understand the approach. They understand there's a lot of people around you that can help you. Not because you have to go to some meetup to go meet somebody, they're just always around you. This density is much more natural.

Toby Rush:

And so as you get started, you have people that can, one, tell you your ideas dumb, right? And okay saying that that's just a bad idea. Or "Wow, that's really interesting. Have you thought about this model or this approach and, well, I think you need to get connected to this person and then this funder." It just flows so much more easily because there's this both density and an experienced, trusted network. In places like Kansas City and a lot of others, we have some of those pieces, they're just still pretty disparate, right? They're kind of spread out. You have to know the right person. There's not quite enough density.

Toby Rush:

I think the venture studio is rather than kind of hope to invest in companies 6, 12, 18 months after they'd gotten started, what if we started at the very beginning? Because the other phenomenon that I've seen is, I've engaged and I made plenty of mistakes myself, the first 12 months, you can make some, call it, life threatening or company threatening mistakes, right? You start with the wrong co-founder. You hire the wrong team. You bring on the wrong investor. You're not focused on the right markets. You're not willing to iterate. And this is some really basic things that if you've been down that road a couple of times, you simply know this is kind of how you do it.

Toby Rush:

And by the time they go start to raise money, they've already made some of these mistakes, and you spend a lot of time trying to fix these mistakes that early first-time entrepreneurs have made in their companies. Whereas the venture studio kind of addresses both of those. It says, "Well, hey, let's start companies from scratch," with the entrepreneur, so they're right alongside us. We're almost like co-founders, where we can help them in those first 6, 12, 18 months understand what's a big market? What's an interesting technology? How do you build the team? How do you get those first few steps done?

Toby Rush:

Well, surround them with experience, right? And then help them get to that seed round where now they can kind of go out and raise an outside round of funding and be in a much better position. We would actually fund it for that first 12-18 months, right? You take the capital problem away, you take the network density problem away, and that's what that venture studio provides.

Kelly Scanlon:

You're an investor yourself now, so what advice do you have for local startups who are looking for funding?

Toby Rush:

It does vary by stage, right, so it's hard to give a generic answer. The earlier stage of the company, I think it is really important to pitch two things, what is the market and the idea? Is there a big market trend you're trying to plug into? And you got to pitch yourself. Because no matter what your idea is, the business model, the approach, the go-to-market strategy will change and shift over time, right? It may not pivot off the idea completely, but how you go about it will absolutely change. When you're at that really early pre-seed, you've got to convince the investor of, this is a big market, this is a big pain point, and I am scrappy enough, I'm coachable, I'm confident and I'm hungry, I'm going to go make this happen. Right, so you got to sell those two things.

Toby Rush:

Now you start moving into the seed or the A-range, now you got to start pitching traction, right? You're at the seed stage of, "Hey, we've got this early traction. Here's the early product market fit. We've built this tech, now I'm starting to build a team." Right, so how good is the team that you're building, and have you knocked down some of the big question marks around the company and the concept? By the time you get to the Series A, you need to have real product market fit, right, and that's a little bit different for each company. But you've got to prove that you are able to solve the problem you set out to solve in an efficient manner at a price point that the market will buy, and you need to start scaling.

Kelly Scanlon:

Sometimes too people who are new to this don't even understand the distinctions that you just made among the different kinds of funding and they're just like, "I need money." They don't understand the different stages and what's required at each stage. Thanks for spelling that out.

Kelly Scanlon:

Toby, you have accomplished so much. What is it that you still want to accomplish?

Toby Rush:

Yeah, I would say a couple of things that I think about along those lines, one is can I scale something really, really big, right? I've started a company from scratch twice. One of those I got from zero to a hundred million in four years. That was pretty fun. I don't know that it could beat that, but could I take something and get it to a billion is a really fun thought, right? That's a different stretch. It's a different skillset. It's a different way to stretch myself. I'm pretty excited about what I'm doing now.

Toby Rush:

And then the other one would be, is there a way to create a model, and this is where the venture studio is, really to be able to use those skills and scale the venture creation itself, right? How can I help others scale more efficiently in a model that economically works for everybody, relationally works for everybody. It fits into the ecosystem. It's a net positive addition to the ecosystem. This is something that I would still like to do, to be able to, again, well before and who knows what's after that. I don't know, I think I learn and grow every few years and my perspective on life continues to grow with that, but I'll continue to build no matter where I'm at.

Kelly Scanlon:

No question about that. We're going to be seeing a lot more of you, Toby. Thank you so much for being on this episode of Banking on KC and for continuing to invest in Kansas City.

Toby Rush:

Absolutely. Thanks for having me.

Joe Close:

This is Joe Close, president of Country Club Bank. Thank you, Toby Rush for visiting with us this week to share your insights into entrepreneurship and innovation. Toby has a knack for being able to see applications of technology where others don't. He's also a builder who is willing to put in the work to make his vision a reality. He invest in himself, in the people who work with him, in his companies and other up and coming entrepreneurs, and in Kansas City, the community he still calls home even after commercializing biometrics technology that has had a world changing impact.

Joe Close:

As Steve Jobs said, "The people who are crazy enough to think they can change the world are the ones who do." At Country Club Bank, we applaud the visionaries who can see a better world and want to be a leader in that change. Come share your dream with us. Thanks for tuning in this week. We're banking on you, Kansas City. Country Club Bank, Member FDIC.