The following interview is a conversation we had with Sohaib Zahid, CEO and Co-Founder of Railz, on our podcast Category Visionaries. You can view the full episode here: $15 Million Raised to Build to Accounting Data as a Service Category.

Sohaib Zahid
Just start with a quick summary of. 

Brett
Who you are and a bit more about your background? 

Sohaib Zahid
My name is Sohaib Zahid, Co-Founder, CEO at Railz, classically trained as a physician. Long story. I left medical school, and recently, before joining Railz, I was part of a company which was distributing intuit through partners, referrals and so forth. So I was part of the provisioning API side of things, and that’s I got an insight into accounting data and the challenges that developers who are trying to access intuit accounting data were. Having met my Co-Founder Derek and started Railz, so I have to dig. 

Brett
A bit further into that background. So tell us about making that switch. So you left medical school to move into these new ventures, or when did you actually make the switch? 

Sohaib Zahid
I actually never wanted to go to medical school. I ended up in medicine because of my parents. So they’re both surgeons, so ask any Asian kid, a brown kid, their career is decided at birth by their parents. You have an option of becoming a doctor, a lawyer, an accountant, or an engineer. Everything else is off the table. So I think that’s exactly what happened with me as well. Naturally, my parents, being doctors, decided that, hey, all five kids are going to be doctors. So that’s how I ended up in medical school, and I decided to leave. As part of my degree, I was creating polymer plastics and create a way to fold them to dissipate forces around a structure. Ended up building a bike company, and that was my forte into entrepreneurship. 

Brett
And I see you sold a company in 2016, and then it looks like you sold another company in 2019. Can you talk us through those acquisitions? 

Sohaib Zahid
Yeah, so the first one was a bike company that I built, and were building hardware, but at the core of it was the technology, which was driving everything from navigation and collection of data to create safer, smarter routes. So we ended up selling that to a partner here in Ontario, a manufacturing partner to VW and Volkswagen Group called Warren. So we ended up becoming part of that. Like I would say to everybody that companies are not sold. Everybody says, you sold a company they’re always bought. So someone who’s looking to expand their business, their distribution, are going to acquire a company so that they can add to the revenue to the customers, and so on and so forth. So that’s what happened with our first company. I ended up joining them, stayed on for 16 months before I left. The second company was basically it was a hard sell into government institutions for energy. 

Sohaib Zahid
So we ended up selling to the first customer who started using us, primarily because that customer was overseas in Northern Africa, expanding into Asia. And they said, hey, we’ll just acquire you. And none of the founders had the Aspiration to move from Canada, so we said, Why not? And at that time, it was immensely hard to raise money for energy startups because most of the pieces were, I wouldn’t say exhausted, but they didn’t have good experience in the energy markets, so funding was not what we saw back in 2019, 2020. 

Brett
Makes a lot of sense. And a couple of questions that we like to ask, really just to better understand what makes you tick as a Founder. First one is, what founders do you admire the most and what do you admire about them? 

Sohaib Zahid
You might have heard about Gareem Bank out of Bangladesh, and Dr. Eunice has been the Founder who created Green Bank, and he was in microfinance. And his thesis was that if you’re poor in Bangladesh, you’re no different than someone who’s poor in North America. And if I can give you a micro loan to turn yourself around, your struggles are getting to the same no matter where you’re in the world. And his thesis was challenged across the globe very heavily. What I like about Dr. Judas is he’s very much driven by, what is this product going to do to my end user? Versus is my product going to make me a lot of money? So that mission critical mindset of what am I doing that’s going to have an effect on someone is what drives me. And I think that’s why I love how Dr. Eunice deployed Gareem and actually proved everybody wrong. 

Sohaib Zahid
His loans were defaulting less than 1%. Everybody actually returned the money and actually borrowed more. And he brought millions of people out of poverty and ended up expanding Gareem here in North America as well. So Dr. Eunice is definitely my pick for the Founder to admire. 

Brett
Nice. Yeah, I’ve heard a lot about him, but I haven’t taken the time to really dig in and study him and really understand everything that he did. I think there’s a book about him, right? Or did he write a book? 

Sohaib Zahid
He did. 

Brett
He did. 

Sohaib Zahid
I think it’s called The Story of Three Zeros. 

Brett
Nice. I’ll add that to my list. And on the topic of books, are there any other books that have had a major impact on you as a Founder? 

Sohaib Zahid
I wouldn’t say impact. The way I treat books is ultimately knowledge is power. And that holds true. Some books have pieces which are super useful, like one or two chapters. The whole book might not be very meaningful. But the way I treat books is it adding to my knowledge or is it adding to my information? So I have a list of books which are only informative, they’re only adding to my information. And then there are books which I say, you know what, they’re adding to my knowledge. And my spectrum goes from information. And if I have a lot of information and I keep reading about it turns into knowledge. So I wouldn’t say there’s one book that has an impact. It’s a collection of books. Also depends on what direction I’m heading. So I have ledger reading, I have reading that I do for my everyday business success. 

Sohaib Zahid
So I can’t put a thumb one. But my favorite one has been the Alchemy. It’s a short read. You can literally finish it in an hour or so, sitting by the pool. Just has tons and tons of hidden messages. So that’s my interesting read. 

Brett
Nice. I love that. Now, let’s talk a bit more about rail. So can you just walk us through at a high level what the company does and what the product does? 

Sohaib Zahid
So we are the single API to pull business financial data. That’s the one liner. What you do with that financial data is very unique to Railz. And accessing that financial data is easy. But using that financial data is hard primarily because the source is accounting. And now commerce and banking is getting added to it. But accounting data is complex. You have different accounting standards, different chart of accounts, across different accounting systems, hundreds of different types of transactions, ledgers. And there’s also a human element bookkeepers entrepreneurs, accountants who are putting data into these systems. And there’s a saying that accounting data is questionable at best. So we exist to turn that questionable data into useful data, into reliable data, into data that talks back to you, into a data that is much easier to create use cases for your small businesses. For example, if I have to put it into three big buckets, I would put it in embedded finance, which makes operational life easy for small business customers to do automated payables, receivables ACH, as well as reconciling your banking data to your ERP data and doing automated bookkeeping. 

Sohaib Zahid
The other side of it is the banks. How do they have a better relationship with small businesses. And the only way they can have a better relationship with small business if they understand them better. And there is nothing better than data to understand your small business. So pulling data on small business and having a 360 holistic picture of their financial health will equip you better to give them products that they need and can benefit them. How do you meet the liquidity needs of small business? Is only going to get answered by the data that you’re pulling from them on a real time basis. And then last piece is access to capital. Equitable access to capital without any bias. And again, that’s driven by data. How do you go from traditional sources of data I e. Credit scores, personal guarantees, to new and better sources of data? 

Sohaib Zahid
How do you add more to underwriting teams so they have a better understanding of the small business that they’re underwriting? So those are the three buckets that Railz plays in, and we make the lives of other bankers easy, our small businesses easy, as well as our underwriting teams much more easier. 

Brett
And can you take me back to 2020 when the company was first starting? What was it about this problem that made you and your Co-Founder say, yes, this is it, let’s go after this problem? 

Sohaib Zahid
Yeah, were saying, or at least I was talking to way too many companies within the intuit ecosystem who were accessing accounting data, but they weren’t able to utilize that accounting data because we, in our world, call it the normalization. So what that really means is, are all data objects transformed into some sort of a common data model? Is it ready to use without any additional processing? Is the data enriched for any missing accounting fields? And how up to date is so, ultimately, is the data reliable or not? So that’s the question that was being asked over and over again by companies who are building alternative finance companies, building cash management solutions, and so on and so forth. And the more I was talking to them, getting access to data is easy. There are multiple players out there who are doing that. But utilizing that data is immensely hard, especially for developers who have no accounting knowledge, for companies who have no inside data teams to actually massage this data before we use it. 

Sohaib Zahid
And it’s not like your banking data where you have, like, debits credits KYB. KYC. Yes, there’s normalization and enrichment that’s needed on the banking data, but it’s not as complex and complicated. So that’s where I started to look for a solution. And I met my Founder, derek. Super smart guy, top five mathematical minds in Canada. Lead quant at KPMG, at a very early 20s, was building top limb revenue financing company. And he showed me a normalization engine that he built to underwrite high risk businesses. And that’s where the conversation started. Why build just a lending company? Why not build something much bigger that a multitude of use cases, companies, and banks can use? Why can’t we be the platform for others to build on top of us? So that was Genesis. 

Brett
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Brett
And when it comes to building trust, that has to be mission critical for you, right? Because I’m guessing the information that you’re providing or the data that you’re providing, your customers are using that to make important decisions and the stakes can be high if that data is incorrect or wrong in any way. So what have you done to really build that trust and credibility with your customers and really get them to trust you and give you a chance? Because that’s something that every startup does struggle with. 

Sohaib Zahid
You’re absolutely right. I think the first and foremost is you and your team. That’s the first line of trust defense, I would say. If your team knows and has seen the problem firsthand and understands it really well and can guide your customer, that puts the first building block of trust, the second building block of trust is the product itself. Is it what you say it is? Often it’s very hard in the product genesis and it’s very typical of sales teams to over promise and under deliver. And I’ve seen and work with a lot of sales founders who will go and promise the world, but really they don’t have it. I’m like, you go promise your customer a Cadillac when you haven’t built a wheel. So that’s a big piece of trust. Say as is understand what your customer truly, really needs today versus what the big blue sky could be. 

Sohaib Zahid
So product is a big foundation stone for building that trust and it’s as simple as if you told them it does X, it should do X. And targeting tech companies who are willing to take a bet on you is a much easier sell than trying to sell to a bank from day one. It’s not going to happen. It’s a very hard sell. You don’t have somewhat of a mature product, you don’t have any SoC or any of the certifications that are needed around data security and so on and so forth. So you might not pass the stress test of a big bank, but it’s much easier to go and sell to a tech company. Series A, Series B, Series C type companies who are building product at the speed of flight and if they can cut the development time from six months to a couple of weeks and save cost from six to seven devs to one dev, I’m like they’ll take a chance on you. 

Brett
And have you started yet to cross the chasm into the more traditional financial institutions and banks? Where are you still focused right now on just gobbling up as much market share as you possibly can in the more kind of fintech focused areas. 

Sohaib Zahid
So we’re now very heavily focused on the enterprise space and the banking space. And we have made a conscious decision a year and a half ago of focusing primarily on banks because we understood that space well and we cracked the code primarily in terms of how we distribute it. And we are deploying actually we announced the product yesterday at FIS Emerald Conference, which is one of our largest partners and distributors. So through them we are now deploying it to hundreds of banks. So we’re very focused on the banking market now. 

Brett
And when it comes to your market category, how are you thinking about your market category? Is it accounting data as a service or what’s your thought there? 

Sohaib Zahid
Like it’s data as a service rather than accounting data as a service. And I would say it’s financial data as a service is where we are. The business or the small business or the medium sized business or the large business has multitude of disparate data sets, though they all come to combine in an accounting system as the business matures over time. But if you understand the metamorphosis of a small business, the first thing that they do is register a business, go to their bank and open up a bank account. I’m like, no entrepreneur actually starts a business thinking that, hey, I really want to open up an accounting account. So the first thing they do is come up with an idea they need to put money in, opens up a bank account. They’ll probably second thing that they’re going to do is, hey, how do I get money in? 

Sohaib Zahid
And they’re going to think about a Commerce or a POS terminal. And then I think when they hire their first employee, they might have to pay them payroll. And that’s when they start thinking about, okay, payroll. QuickBooks has a payroll and ERP system. They’ll have to file taxes. And the company is becoming a bit mature through that whole metamorphosis of the company. Different financial repositories will be created. Now, ultimately the accounting will rule them all and will become the source of truth. But as the progression and the growth of a business happens, goes from your bank account to payroll account, POS to accounting, so it has to be financial data. And within the category, I think if someone’s thinking about financial data, they’re thinking it right. The way we think about it is accounting is the source of truth. How do we tackle the businesses who are a year old, two years old, and how do we tackle the businesses who are a month old or two months old? 

Sohaib Zahid
And how do we tackle the businesses who are thinking about opening up a business and trying to get things going, working with the bank? What can we do for them? So the first step for us is when we do the aggregation is pulling data if it exists. If it doesn’t exist, then what we do is we create benchmarking around businesses who have already filed a tax with IRS. How do we create financial benchmark to understand you? So what we do is we pull similar businesses in similar geography, and you can zoom into two similar businesses around you. So someone’s opening up a pizza store in New York, we can zoom in two similar pizza stores around you and can understand what the macroeconomic situation was like and if you’re going to sink or swim. Now, once we start to aggregate the data, then what everybody in the industry calls normalization, we call it standardization. 

Sohaib Zahid
So standardize the data on a flat file on a common model and so on and so forth, or step two, and then we go to normalization and normalize it on a much deeper level, so it becomes much easy for our developers and our banks to work with. And then lastly is we attribute it back to different use cases. And the way we think about the financial data is through the lens of a small business and how do they go from thinking of starting up a business and the whole lifecycle of growth? 

Brett
Super interesting. And can you talk to us a little bit about the growth that you’re seeing today and adoption and any metrics that you can share that just highlight some of the traction that you’re seeing? Our audience loves to hear metrics. 

Sohaib Zahid
120 plus companies on our platform today using us. Our biggest deployment is with FIS going into a little over 320 banks using us. We’re forecasting around 3 million daily transactions to go through our system over the course of next four months. As we take banks live, we are fully integrated into the FIS core in their new core, which is being deployed. So looking forward to bringing them on banks from regional all the way to populous. Banks using us to do different use cases. Team Super Lean I’m not a big believer of let’s add 20 more people to solve a solution. So we keep the team Super Lean in terms of keeping a check on our cost. But we’re excited to actually service hundreds and thousands of small businesses as a function of different banks coming online with us. 

Brett
And that’s the type of growth that I think founders listening in would dream of achieving, and everyone wants to achieve that. If you reflect on the success you’ve had so far, what do you think you’ve gotten right? What did you just nail? Or what have you done tactic wise to really contribute to that growth and achieve that growth? 

Sohaib Zahid
I think one thing that we started to understand was, do we want to service the banks, the fintechs, or do we really care about small businesses who will eventually benefit from what we’re building? And it just goes back to Dr. Eunice’s thinking and what he was building to like, who is eventually going to benefit? So that’s when we made a conscious decision of if we only service fintechs, we probably bring on maybe 50, 00, 10,000 small businesses even at mature fintechs. And the attrition rate is high because fintechs closed down fast. And then were seeing the market to slow down and we’re seeing some companies pulling back and we have seen the recession, like the glimpse of it at least, markets pulling back. So we made a conscious decision, okay, what would be our distribution channel where we can actually target hundreds and thousands of small businesses? 

Sohaib Zahid
So that’s when we actually shifted gears to start to work with banking cores and distribution into multitude of financial institutions and fintechs who would eventually service hundreds and thousands of small businesses. So that’s where we start to shift our architecture, our engineering resources, our go to market resources and just start to focus one thing and one thing only. Rather than let’s go after everything. So we stopped doing let’s throw everything on the wall and see what sticks to let’s just go after one thing and one thing only and focus on the cores. 

Brett
And if you reflect on the go to market journey so far, what’s been your greatest go to market challenge and how do you overcome it? 

Sohaib Zahid
Building a sales team sucks. Finding good salespeople sucks. I’m like there aren’t a lot out there. I would say the good ones are very hard to get. So I think the focus should always be ultimately who’s going to use it. So that’s where we started to focus on. If we go after one off banks and start to build like a really big sales team, I think that would be the demise of us. We’re just not good at it. And when I say good, I mean world class, phenomenal sales force type sales team. I’m not talking about building a team of ten to 15 and average sales numbers. I’m talking about really kick ass sales team. So that’s where we realized that FIS type people know how to sell to banks. We need to learn how to sell to FIS. We need to know how to sell to Bottom Line and Jack Henry’s and Fiserve and so on and so forth. 

Sohaib Zahid
And how do we integrate with the core and work with them? So our weak point had been sales teams, and that’s also where our new strategy of banking cores is doing great for us. Now, having said that, we didn’t say, hey, let’s just kill the whole sales team. We still sell to fintechs, which is more automated, self serve. We’re focusing more on dev docs, we’re focusing more on developer experience. We’re also very focused with our sales team and very targeted in terms of how they spend their time. 

Brett
And if you could give yourself one piece of advice with everything that you know now if you were just starting the company again today, what would that piece of advice be? 

Sohaib Zahid
I think get to know your Founder a lot more before you start a company. Spend as much time as you can with your Co-Founder. When we started the company, we didn’t know each other. We were strangers coming together because we knew the idea, we knew the market very well. It seemed like the stars were aligning for us to start it together. And also COVID didn’t help. Working remotely didn’t help. So don’t just get to know your Founder on a transactional work basis. Really get to know them. So the challenges that we had early days, I’m like, they’re gone. I’m like, I sync super well with my Founder. It has taken me years to understand and to know. But one piece of advice is always know your Founder really well. 

Brett
And final question here before we wrap, let’s zoom out into the future. So three years from today, can you just paint a picture for us of what that vision is for the company and what it’s going to look like? 

Sohaib Zahid
We want to make the life of small business insanely easy. The whole metamorphosis of small business that I talked about, I don’t want them to be thinking about, hey, I want to open up an accounting system, then I want to hire a bookkeeper, then I want to make sure that all my books are closed so I can file the taxes. I have to call them up. That whole exercise that a small business owner does, I want to take that away from them and I want them to focus on the work that they love and they do every day. So we’re on a mission to automate that completely. And the whole idea is to automate the bookkeeping piece of it. They go, they just open up a bank account, we take care of which accounting system they want to use, we populate all the data into it, we reconcile it, we close the books automatically for them and they can do one click taxes and they’re good to do their payroll. 

Sohaib Zahid
So all that area of accounting, bookkeeping, back office running, we want to make that insanely easy for the small business. And more so, we want to help the banks give small businesses what they need rather than blindly pre approve them for a product that they don’t even need, which is a complete mess. So we want to make sure that’s completely automated as we build different data products for our small business customers. 

Brett
Amazing. We are up on time, so we’re going to have to wrap here before we do. If people want to follow along with your journey as you continue to build and execute, where should they go? 

Sohaib Zahid
LinkedIn is the best place. I always respond to anybody who needs help and is looking out for answer to a question that I can help with or an intro. So follow me on LinkedIn. Awesome. 

Brett
Well, thank you so much for taking the time to chat, talk about what you’re building and share this vision. I’ve really enjoyed our conversation, and I know our audience is going to as well. So thank you so much for taking the time. Really appreciate it. 

Sohaib Zahid
Thank you so much for having me. Really enjoyed it. 

Brett
All right, keep in touch. 

Brett
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