Eric Ly, Co-Founder of KarmaCheck, on a New Approach to Background Checks

David Folwell: Hello, everyone. Thank you for joining us for another episode of the Staffing Show. Today, I am super excited to be joined by Eric Ly, who’s the co-founder of KarmaCheck. Eric, thanks for being on the show today. I’m super excited to be having this conversation with you. To kick things off, could you give us a little bit about your background and how you ended up in the staffing industry?

Eric Ly: Hey, David, it’s great to be here. I am a tech entrepreneur. By history, I’ve been working in tech ever since I got into my professional life. I’ve started a number of businesses. The most well-known is where I was one of the co-founders of LinkedIn, and that really got me into the people business. Definitely stuck and that’s how I actually got into the staffing industry.

Folwell: I mean, being the co-founder of LinkedIn is a pretty great achievement. How did you guys come up with the idea? How did LinkedIn come to be?

Ly: Well, it was many years ago in a previous internet era, the ones who started LinkedIn, very interested in a certain problem around, “How do we keep in touch with our network?” And being from Silicon Valley, there’s a lot of job mobility, people moving around jobs every two to three years. You want to keep in touch with those people who you enjoyed working with. And so, we really built LinkedIn as a way for us to keep track of our network. And fortunately, we found that a lot of other people had interest in that same capability.

Folwell: That’s incredible. And today, for our audience, we’re going to dig into KarmaCheck and talk more about that. But first, I want to dig a little bit into the LinkedIn side of things. What were some of the obstacles that you had with building LinkedIn and things that you had to overcome over the years?

Ly: Well, believe it or not, there was a point in time — and this is when LinkedIn started — when the internet was not a sure thing. We had just come off the end of the dot-com bust when the internet got too hot with all sorts of wild ideas, which some of them worked, some of them didn’t. It was really a doubt as to whether the internet was going to matter to everybody. And so, we were starting during those times. And I think we were part of the wave of companies that tried to restore some value, try to bring some real value to the internet and create something useful for people.

Folwell:  I mean, social media’s evolved so much and since LinkedIn has become the go-to for everybody in business, I think the amount of time that I spend on there on a daily basis, the amount of advertising budget I spend on there. Where do you see the future of social networking going?

Ly: Well, that’s a really big and broad question. LinkedIn today I think has close to a billion people on it. And some of the other networks, social networks especially, have a lot more than that by multiples. So, it definitely gets used. And I think one of the issues that I’ve been tracking is how do you have authenticity and also this veracity in terms of people and your identities, and especially the kind of content that they put on these platforms, whether they’re true or not. And so, these days, there’s a lot of incidents of misinformation that gets reported. People certainly rely on that information for their news. And so, it’s really important to, I think, fix some of those problems. And I believe that where these kind of platforms are going is really trying to bring a degree of truth and greater trust to these platforms, so that some of the controversies and some of the toxicities can really be mitigated on these platforms.

Folwell:  I think that’s a great point. I always think about when I talk about Facebook and social media as a whole, I feel like people think that we’ve had the internet and social media for a long time. And I feel like we’re still in the gold rush days, where we don’t really know how to regulate it, we don’t know how to handle how it’s being used. And I feel like 50 years from now we’re going to look back and be like, “Man, you could do anything back then. You could post anything, you could promote anything.” And I feel like we’re just at the beginning stages of having to figure all of that out. 

Do you have any ideas on where you see that going in terms of how trust will be managed or the ability to identify and remove things that aren’t actually facts?

Ly: Well, that’s a great exercise in that I do agree that we’re in the early days, despite some 20 years that these platforms have been around, but we’re still very much figuring it out. And I think one thing that a lot of the platforms are trying these days, which I believe point to the solution, is this idea of verifying the people who participate on these platforms, the identity of these people. And so, the blue check mark, access on Twitter, the verified profiles, I mean it’s important to know when you see a piece of content on one of these platforms where it’s coming from. And if that person or even that organization behind the piece of content is some kind of verified or has a good reputation, then maybe you can trust the information that they are producing a lot more.

Folwell: Yeah. And I felt like that was moving in the right direction and now it’s just $8 a month for anybody to be blue check marked, right?

Ly: Yeah, apparently you think anyone verified for $8 a month is great.

Folwell: So, I think that this kind of segues well into talking about KarmaCheck and verification. And could you tell us a little bit about what does KarmaCheck do and how did you come about this idea?

Ly: Well, KarmaCheck is a background check company and we are in the business of verifying people’s credentials before they get some kind of employment opportunity, be it full-time or contingent. And we’re very much part of that trend and interest around providing verifications around identities for employers in this case.

Folwell:  And what is it about KarmaCheck that’s different than other background check software that’s out there?

Ly: Well, one of the things that we discovered when we first started the company, which was just a few years ago, was that there was an opportunity to bring something new and innovative to this background check space. So, background checks have been run for a long time by many different employers. We wanted to make the process a lot friendlier and we also wanted to make it a whole lot faster and more efficient. 

So, compared to some of the other solutions out there, we started with technology foundation and automated a lot of processes. So, that’s such that they go fast or efficient and maybe in some ways even less expensive. And so, we’ve seen an opportunity to really bring verification, not only to existing use cases, but also new ones where verification hasn’t been used before.

Folwell:  And one of the things that I remember reading about KarmaCheck is that you guys are blockchain focused. Is that the foundation for it or is that a differentiator for you guys still?

Ly: Well, we are very much inspired by the possibilities of blockchain. I know that’s been very hot the last few years. And so, the ideas around how people can control their own background checks and have their own wallet of credentials that they can use in most places, those are some ideas that certainly inspire us.

Folwell:  Awesome. And what are some of either the verticals that KarmaCheck works in, if you have specific verticals, and, or specific use cases that you have for staffing agencies?

Ly: Yeah. So, we definitely focus in the staffing scenarios. Because we’re built on very efficient technologies, we often support high velocity hiring use cases. And that tends to show up in staffing scenarios and contingent workforce platforms. So, we work today in a variety of different industries, but we’ve recently found that healthcare’s been very interesting because of some of the trends recently, particularly with the pandemic. There’s been an increased need for staffing in healthcare. And so, that often means automation and scaling with technology. And we’ve done quite a bit to help support healthcare use cases.

Folwell:  So, I mean, I know you said you’re being technology first, having automation in place are some of the key things in terms of what makes you guys different from other background checking software. And I think I saw you guys are pretty involved and integrated with a lot of ATSs as well, but is there anything else that sticks out in terms of what you guys do that’s different from the traditional process for background checks?

Ly: Well, there’s a lot of things that are different in the details of it, but one of the things that we really believe is we want to provide a great experience for the candidate. That is a lot of times the traditional software caters to the employer and they are the primary customer, but the candidate is becoming an increasing part of this whole equation. And so, we have a very easy candidate experience where they can enter their information and get done very quickly. And they can monitor the status of their checks right within that mobile portal. So, we’ve spent a lot of time in creating a real quality candidate experience and getting them involved as well. And we believe in the coming years, the candidate is going to be more and more central in this whole experience, and so we need to make sure that we bring them into the fold.

Folwell:  The folks on the candidate experience obviously makes sense. Andre Mileti was on this podcast a little while back and talking about how if the experience is not similar to an Instagram or an Amazon, like the drop-off for candidates going through the flow, if they have any hiccups that the abandoned cart is a real thing for staffing agencies as well, as candidates look at every interaction the same way they would for any consumer product they’re buying. And this might be a novice question when it comes to background checks, it’s not something I know a lot about. But the healthcare staffing summit, I don’t remember who was talking about this, but was somebody on a panel talking specifically about do you think there’s a world where a candidate could own their background check and then that’s theirs and they are bringing that to the different employers, and how would that world work? Because at some point, an employer is probably going to pay for the first one. Who pays for it, and how does that idea work?

Ly: That’s a really exciting vision that we subscribe to as well. It makes it go faster for everybody in the equation. So, whether it’s the candidate or the employer, being able to bring you some of that past data is really important. And I think that there can be some interesting incentives that get put into this whole process, whereby whoever pays for it first maybe benefits from creating that information later on. So, for example, if somebody else needs to use that information, the original party can get compensated in some way.

Folwell:  Yeah, that’s interesting.

Ly: There’s even a scenario where candidates, we’ve seen some of this already happening in the market, where the candidate pays for their own background check. And as a result, they can separate themselves from the competition of fellow candidates.

Folwell:  Oh, that’s cool.

Ly: There’s some really interesting innovative models around monetization happening out there around this stuff.

Folwell: It makes sense, because it seems like such an inefficient thing when you think of somebody going to apply for 10 jobs, they get 10 interviews and then they go through, I don’t know, say five background checks, exact same background check, exact same information, paid for five times over. A lot of inefficiency there and it feels like there should be some way to save that money and just make it better for everybody. I’ve never thought about the candidate. I was like, “How would you get a candidate to pay for that?” And this is just something that is somewhat interesting to me. I actually at one point looked into starting a job board, and this was seven or eight years ago, where candidates could pay for a guaranteed interview. And this was back when finding a job was hard. This would not work now.

But we actually did some market research on that and found that people in some industries actually would be willing to pay for a guaranteed screening to know that it separates themselves out. That’s a cool idea. I hadn’t thought about it from that perspective. 

Are you guys doing that currently where candidates can be passed from where they have one background check, it could be used multiple times. Does that exist as a model today or is that a future state?

Ly: Yeah, we’re starting to do that today and we really do believe in the long-term vision of that. And so, we’ve seen candidates coming through our system multiple times, often from different employers. And we’ve encountered them and we’re able to create more efficiencies simply because they’ve been in the system before. So, even simple things like having to reenter their personal information to get a background check started, they don’t have to do that again if we’ve got their information saved from some other previous run. And so you can imagine that, for example, this information can be used on a profile as a badge to show that some of the information has already been verified. So, it does kind of get back to the idea of the blue check mark, that’s verified results of certain candidates.

Folwell:  Yeah, I mean that makes sense. If you’re applying for something, it’s like, “Oh, I’ve already got this, move me to the front of the line. You don’t need to take this step and I can go to work today.” So, that’s pretty cool.

Ly: And I was just going to say, employees, I think, really appreciate that because they’re trying to move very fast. Often, their customers demand talent very fast as well, especially in a case of staffing companies. And so, the ability to have candidates that don’t have to wait to get through a background check is highly valuable. And so, there’s win-win on both sides of the house.

Folwell:  Awesome. And what size and in terms of where KarmaCheck’s at, what size of organization are you, what’s your growth rate look like?

Ly: We’ve had a lot of interest from staffing companies, which has been our focus. We’re working primarily in two spaces these days, the mid-market companies that are growing and they’re trying to grow, they become bigger companies and they need something fast. They see a lot of value in us. We also work with enterprise customers that are trying to work at scale and create an efficient operations, internally to get candidates through. We’ve had some really good success there as well. So, hopefully, those two continue to be areas that we will see a lot of success in.

Folwell:  Awesome. We’re going to jump to the next section of the interview. That was a really great background on Karma. Kind of looking at tech in your experience, one of the things that I look at, LinkedIn, obviously, such a cool platform that you’ve built. Now you’re doing KarmaCheck and I know you’ve been involved in other startups. What are some of the lessons you’ve learned over the years with working with some of the biggest companies in tech and just as an entrepreneur, what are some lessons you would share with the audience?

Ly: Well, there’s so many lessons. I really believe that each experience has been different. I think it’s really important. I started as a technology guy and always interested in interesting technical challenges. But as an entrepreneur, you learn very quickly that there has to be an applicability to the technology that you’re using. So, paying attention to what the market’s interested in, whether you’re solving a real pain point. And timing, frankly, is also very important. It’s probably the hardest thing for any entrepreneur to predict is to get the timing right. Often, entrepreneurs are optimists, they see the future before others do, so they’re usually a little bit more early than the rest of the world. And so, it’s important to have an appreciation for where customers are, make sure you’re timing it as well as you can.

Folwell:  Absolutely. And with that, some lessons learned there, what are some of the challenges that you see? I know there’s been all these layoffs and there’s a lot of kind of uncertainty still in the market right now, what are some of the challenges you see facing the tech industry today?

Ly: Well, the last few years has been, I think, a really explosive time for tech companies in general, and they enjoyed growing in the market. They’ve enjoyed getting a lot of investment. And this is a natural part of the business cycle, where there’s been a cooling off demand for products just because of the general economy has slowed down. And so, there is certainly uncertainty in the tech marketplace. But we’re definitely in a period of adjustment, I would say, where tech companies in particular have to work harder to make sure that their products really matter and solve pain points in the market.

But there will be a turnaround and there’ll probably be some new things that are interesting as we’re turning things around. So, right now, for example, generative AI and all the ChatGPT stuff is really exciting for people and there are new investments going into that space. There will be new ideas and new technologies that make people excited and interested as we’re coming out of this period of adjustment as well.

Folwell:  Yeah. The ChatGPT stuff is just absolutely amazing. Have you played around with it much?

Ly: Definitely been very impressed by some of the answers. I have to say that at KarmaCheck, we’ve been able to learn about our own business questions that we didn’t know about by asking ChatGPT for the answers. Now, are those answers correct and accurate? Well, we do have to fact check that because it’s based off of a ton of information that is both accurate and inaccurate. But it’s really given us a leg up in terms of learning about things that would’ve taken us a lot more time to research on our own. So, it’s been very impressive and we continue to use it and see how it turns out.

Folwell: Any examples that you’d be open to sharing?

Ly: Well, recently we have been talking to some people in the transportation industry. And in every industry there’s some specific kinds of background checks that need to get run, and we didn’t necessarily know a lot about that industry yet. We had dabbled in it before. But just to find out some answers to some of the industry-specific concepts and organizations that we didn’t deal with as a background check company, it was very useful to use ChatGPT.

Folwell:  I’ve actually started supplementing my Google search with ChatGPT in a fairly meaningful way. And I think sometimes it has the most brilliant answer where I’m like, “Oh, that’s exactly what I needed and I have confidence that it’s right.” And then every now and then I’ve asked it things that I also know the answer to and occasionally it comes back with something that’s absolutely ludicrous. And that’s the concern I have with it is I’m like all right, well, it writes with such confidence that you believe it, and that’s scary to think about what that means for the future state of understanding what’s real and what’s not. I mean, today you get a Google result back with 1,000 pages to browse through and you’re probably going to make it through three to five. But you understand Google’s not telling you this is the answer, Google’s saying, here’s a series of what probably is the answer. And now, ChatGPT, it feels like it’s here’s the answer and it’s interesting to know there should be a competence level tied to it or something.

Ly: Yeah, that’s right. And I think the work for people who are involved in those kinds of technologies is really improving the accuracy of the answers that it can generate so that you can trust the information more. ChatGPT relies on both the accurate information as well as the inaccurate information. And so, sometimes it’s hard to tell whether the answer that it’s giving you is actually correct or not.

Folwell: Yeah. One use case I’ve found that’s been pretty consistently valuable is just saying, “Summarize this, turn this into bullet, shorten it,” but basically taking content you’ve written that you want it to adjust and that’s fun to watch and do its work. So, it sounds like you’re using ChatGPT for research purposes. Any other major trends in the tech space or anything that you see that’s going to impact your business or the staffing industry?

Ly: We see continuing need and opportunity around automation, and that is not only to rely on to help make processes more efficient, but also, I believe, it’s going to help contribute to this idea of a quality candidate experience. That is when you can deal with lots and lots of candidates who have maybe their particular concerns and interests and dealing with them at scale. That’s where technology, especially, well-developed technology can come in and play a role, frankly.

Folwell:  Yeah. It’s been incredible to watch the adoption of automation tools within the staffing space over the last five to 10 years, and just to see it’s escalating and also paying dividends for those that I think are adopting it earlier on. With that, you probably have some more insights. I noticed you guys had released a State of Hiring and Recruiting report recently. What are some of the key insights that have come out of that report?

Ly: Well, yeah, we recently did a report with some other companies that participated. We found some really interesting trends. One is that, in general, there’s definitely a general interest around adopting more technology as we’re moving into a world where the pace of hiring is increasing and where the pace of, let’s say contingent workforces is increasing. People are getting to shorter and shorter assignments basically and placements, and so they’re getting placed more often. But we’re seeing the same kind of trends happening again and again, which is we are in a period where talent is generally hard to come by. And so, the cost of acquiring that talent is something to be considered.

And we found that a lot of human resources teams, talent and acquisition leaders, 51% of them have spent more than they thought they would in terms of acquiring talent. And so, that’s really something to watch out for. There’s also not getting the right talent, particularly in the staffing industry, getting the right talent is so important because it means so much to the top line and the bottom line of the business. And so, not being able to do that by not being able to attract the right candidates or key candidates has been really a challenge as well.

Folwell:  Yeah, I think I saw a stat on, you mentioned the hiring, people spending more on hiring than they anticipated, that the cost per application, I don’t remember the exact numbers, but it went up like 40% year over year or it was the spend on Indeed and job boards went up to 40%, the number of applications went up 3%. So, it was basically not quite aligned there. Do you have any recommendations for people that are listening to this in terms of how they could improve their hiring and recruiting process?

Ly: Well, I think very important to not only make things official, we’ve talked a lot about that during this time, but I think there is something about creating an experience where it’s convenient and fast for the candidate to deal with whatever onboarding recruiting processes there may be. And so, the candidate often is interested to get an opportunity, get to their first paycheck and get through it. And so, to the extent that that experience can really be a pleasant one. It’s usually one of the first touch points with that organization that’s really important for candidates to be provided with that.

Folwell: Do you have any research or data to back up that specific aspect of the experience? And does it impact the net promoter score or do anything about drop-off rates or changes in terms of what it looks like using a simpler background check versus other options?

Ly: Yeah. I mean, thanks for prompting that question, David. In our industry with background checks, drop-offs are definitely one of the challenges. Sorry to say that nobody enjoys doing a background check, it’s sort of a necessary evil. And so, part of the onboarding process usually suffers from pretty significant drop-offs. And one of the things that our company has been able to do is to really significantly reduce that. Again, going back to the cost of acquiring a candidate, all that effort, all that money spent on finding the right candidate, it goes to waste. So, if you can’t get them to get past….

Folwell:  The next step.

Ly: Yeah, exactly. And so, we’ve been able to really put a significant dent in reducing drop-offs, which is really important for the rest of the process around recruitment and onboarding.

Folwell:  That’s great. And I know we’ve talked a lot about the background check side of things, but where do you see the future of background checks going?

Ly: I think there’s something to be said about just making them more persistent, more reusable. So, the idea that checks that have been done before don’t have to be done again, allowing the candidate to have a wallet of that information where they can share it at will in the ways that they want to, I think that’s a very powerful idea. And so, I think that actually creates wins not only for the candidate, but also for the employers as well. 

We definitely hope to move towards a more efficient way of doing background checks, and I don’t see any downsides to that honestly. The trajectory of going through that every time or a new placement is something that candidates would rather avoid if they can.

Folwell: It makes sense on the background check for employment. And all I can think about is I just went to the doctor the other day, a new doctor, and I was like, “We need that in healthcare so badly as well.” It’s like, how are we repeating this on a piece of paper every time we go into a new place?

Ly: In a lot of places, yes.

Folwell: Yeah, that’s really great. With that, I’m kind of jumping into the speed questions here and get a little bit personal. So, what advice do you wish you were given before entering the staffing industry?

Ly: It’s definitely a people business, and so get ready to build relationships and take care of your customers and do that really well. I’ve always been a believer in that, but good to have that as a piece of advice for anybody entering the people business.

Folwell:  Absolutely. And in the last five years, what new belief, behavior or habit has most improved your life?

Ly: I think I’ve learned to not read emails right before I go to sleep, and just to turn off my mind and try to do something enjoyable. That’s helped me to sleep better and to be more productive the next day. And I can’t tell you what a difference that’s made in terms of my productivity. So, getting off of email at the right time of the day.

Folwell: That makes complete sense. I’ve recently tried to stop the start of the day from being email. At least give a buffer, don’t do it in bed.

Ly: Exactly.

Folwell: What is one of the best or most worthwhile investments you’ve ever made? Could be an investment of money, time, energy, et cetera.

Ly: Yeah. So, I really believe that as an entrepreneur, it’s very demanding professionally, but it’s really important to take care of your mental wellbeing and to really not burn yourself out or burn your candle at both ends or three ends, however many ends there are to the candle, and to just try to strike some kind of productive balance between those two. And so, if you’re able to do that, you’re actually going to become a more productive entrepreneur. So, that’s how I’ve tried to live my life in the last few years.

Folwell: That’s great. I’ve definitely struggled with that over the years with the entrepreneurship as well. What is the book or books you’ve given most as a gift and why?

Ly: There’s one called Built to Last that I’m a big fan of. Really talks about the philosophy around how you build very successful companies and talks a lot about things that you wouldn’t ordinarily pay attention to, things like culture and values and BHAGs, big hairy audacious goals. Those are all great concepts. So, it’s a bit of a dated book now. It’s written in the modern era, but I find that a lot of the concepts are still very relevant for today.

Folwell: Awesome. And how has a failure or apparent failure set you up for later success?

Ly: Well, you certainly learn more from your failures than your successes. And I think it’s important to think about those failures that have occurred. I think for me, one of the failures, and I guess my first startup is really understand the importance of who you hired to the organization. And making sure that when you hire people, they’re not only capable of doing the job that you’re asking them, but they also have kind of the right mindset for being in whatever environment that is, including being in a startup environment. 

And so, it’s really important to make sure that everybody has the right alignment. And that’s going to just prevent a lot of the possible issues and conflicts that come up as you’re trying to execute. After all, the war should not be inside your company, because we’re all fighting the battle of making it outside in the world there. So, I think that’s something that I’ve tried to improve upon with every company and business that I’ve become a part of.

Folwell: So, really identifying alignment with mindset as well as skillset and making sure that you’re getting the right people, and that’s great advice. And last question is, what is an unusual habit or absurd thing that you love?

Ly: I like swimming a lot. So, going back to this kind of mental wellbeing, exercising really helps you to clear your mind and get ready for the next day, even if your main focus is improving your business. So, I try to take some time off and do some exercise and be mentally ready for the next day, next challenge.

Folwell: Awesome. That’s great advice. And with that, any closing comments that you have for our audience?

Ly: There’s a lot of opportunities, I think, for using technology in the staffing world, and we’re very excited to be part of that solution.

Folwell: Eric, really nice having you on today. Enjoyed the conversation very much, and I appreciate all of your insights. Thank you so much.

Ly: Thank you. Likewise, David.