Aaron Patzer on How to Take your Start-Up to the Next Level

Ryan: Next up we have the CEO of Mint.com, Aaron Patzer. As you probably heard, Mint got acquired by Intuit, for something crazy like $170 million. Aaron took that company from nothing to acquisition. Hes got a lot of interesting things to share with you about what works and what doesnt. Please give Aaron a big hand. Aaron: Today, I wanted talk about how I went from an idea in March of 2006, funding in October of that year, a launch a year later, and then two years after launch, a $170 million acquisition, to the day, by Intuit. Its really idea into $170 million in just three years. First a little background on me that you might not know, other than my cool 80s shorts when I was 6. I am a geek at heart. I am a developer much like many of you, originally, computer science, and electrical engineering. I used to try to sell my designs for Legos and Construx back to the companies. Ive always wanted to be an engineer. I actually had to transform myself, while building this company, into that other guy who does Fortune photo shoots, and silly things like that. I wanted to talk in the context of if youre a developer, how do you actually do this. There are 3 phases that well go over today, that I consider in startup life. The first one I call the garage phase. Thats when you have less than $100 thousand in funding. This is either youre financing it yourself, if youre borrowing money from friends and family, youre racking up too much credit card debt. The whole goal here is to validate that you have a legitimate business idea; Ill show you how we do that; create a prototype. It doesnt necessarily have to work end-to-end, but to create a prototype, something that is real and something more than slideware. Then to go out and raise seed funding, and Ill talk to you about how I did that; launch an alpha product with some customers, it could be a couple dozen, it could be a couple hundred, it could be a couple of thousand, and then once youre funded, the whole goal is scaling, scaling both the organization from a hiring perspective, and scaling your users and your technology. The first step is to validate that business idea that you have. A lot of people come up to me and say, How do you know youve got a good business idea? The criteria I give them is anything that really irritates you, wastes time, pisses you off, if you can solve that problem and a lot of other people have it, then youve potentially got a good business idea. The original idea for Mint was not personal finance at all. It was actually goal-setting software. I had this idea where you could quantify all of your goals in life in terms of time and money. If Im going to get this college degree, if Im going to go to business school, its going to cost me this much, its going to take me this amount of time. If I want to buy a house its going to take me this long to save up for it, and sort of plan out your life for the next 20 or 30 years. I went around and talked to as many people as I could about this idea. A lot of people, when they come up with a business idea, they keep it inside. They dont want anybody to steal their idea.

I think thats a horrible idea. I think you should tell everyone and anyone your idea, without fear that theyre going to steal it. Its all in the execution. A good idea is really a dime a dozen. When I went out and talked to people, there was probably 1 out of 80 people who said that they would actually use this goal-planning software, but because it had this money component inside of it, because you had to figure out how much you needed for a particular financial goal, because the idea was to link to your financial accounts; that component resonated and I found out that people had a real issue with existing tools like Quicken, and Microsoft Money, at the time. That customer feedback, early, before I even started developing was key to the success of Mint. Tell everybody and anybody about your idea. The second point in validating your idea is it has to solve a real problem that is going to exist 5 or 10 years from now. I see a lot of business, like 87 businesses that are Twitter derivatives. I saw something on TechCrunch the other day that was something to help you manage your contacts and your followers on Twitter better than they do, because they dont have good pagination and its a pain in the ass. Thats a transitional business. Thats a feature. Thats not a business. One good test is for you to project forward, into the future, 5 years will this be a good business? Will this problem still exist? I was talking to somebody last night about YouSendIt. Its a company thats raised $10-20 million in funding, but its really based on the fact that people cant email around big files. I think thats a transitional problem. I dont think it is a real business. Maybe thats controversial to say. I dont think it is. You want to solve a problem that is still going to be here 5 years from now. When youre in your garage, the whole goal is to prototype your product. You might be wondering; when you go out to raise seed funding, how are people going to value you? You dont have a product, you dont have revenue, what are they going to think, how are they going to value you? Im now an angel investor, since Ive exited Mint, and we have an unwritten rule in Silicon Valley about how we value companies. Its sort of plus $500 thousand for every engineer because they are the ones who do the actual work, and minus $250 thousand for every slick talking, well-suited business guy. He looks cool, he talks the game; these guys are awkward, they dress in t-shirts, theyre weird around girls, but they do the actual work. You value them far more than anybody else in the organization. In the early stages, a lot of people say to get two founders, get a business guy and a technical guy. The business person is going to be idle too much of the time if theyre not at least a product person and doing UI, UX, or something like that. The result of the garage phase, at Mint, was I dont think Ive ever showed this in public. This was the original Mint UI in July of 2006, when it was basically just me, and Matt Schneider who you might know from his contributions to YUI and the JavaScript community, working on this. But, it was real. It wasnt vaporware, it wasnt slideware. It actually worked. It didnt connect up to all the banks, but you could click around on stuff. In retrospect, it looked like crap but it had the basic concepts in there.

When I went to start raise funds, I talked to about 50 people, 50 venture capitalists, 50 angels. Every single one of them said no. No one will ever trust a startup with their finances online. Then I met Josh Kopelman of First Round Capital. I had a laptop running with the app server, the web server, the database server all on that laptop, in the trunk of my car. I gave him a pitch and he was interested. I ran out, showed him this mock up. He played around with it and because it was real and tangible we got our first seed funding. To recap: 1: You want to solve a real problem, in a large market, a billion dollar market. The personal finance market, even though Quicken and Microsoft Money, 4 to 5 people quit and there were some serious usability problems, they had sold 20 million copies of their software within the 5 years prior to me starting Mint. It was a billion dollar market. 2: It should also be something that has real revenue potential, you dont rely on advertising for it, something where you have a real revenue model, whether its freemium, whether its a subscription based model. I swear, just having a revenue model put us ahead of 95% of the competitors out there when we went to raise a round of funding. Back when it was 2006-2007 and we were raising this, social networking was all the rage. Nobody had a real business model on how they were going to make money off of it. We did and that put us ahead of the pack. 3: The last one is you want a sustainable advantage. Either youve got the best tech guy in this area, you have patents that youve filed, or you have the best user interface design. Otherwise, you become one of 10 companies that are doing roughly the same thing, and youll never be the leader in this space. You might be big enough, but you wont be the leader. Once youre in the seed stage, you have to show that you have a real revenue model; you can make a ton of money, and everybody when you go to the venture capitalists, prove this will have a hockey stick looking curve that is total bullshit. This was our actual curve. I presented this 3 or 4 years ago. It didnt exactly come true. Were less than a year behind, but whats more important is what is your per transaction or per user revenue. Facebook makes about $2 per user per year. Yahoo Finance makes $4-6 per user per year. Google, off of every active user, makes something like $40-50. Mint makes a lot more than the Yahoo and Facebooks of the world so proving that you can make money per user, or per transaction if thats the way you do it, is maybe more important than what the absolute numbers are. Its total bullshit and everybody knows it. Rather than just tell you what I did and have a revisionist history, here are the slides that I actually used in 2006, back when we had a different logo. I designed that logo, by the way. It was here are the competitors, Quicken and Money, they cost $30-70, 4 to 5 people quit within a month. But, there are 20 million of them and there are 65 million people who use online banking. Again, its a big market and big opportunity. Lower my bills uSwitch will help you find better financial products, because Mint makes its money if we can help you save money, if we can help you find a higher yield savings account, a mortgage with a lower interest rate, when should you consolidate your student loans, well make

all those suggestions automatically. Those dont give you any insights of your finances, so that was sort of the comparison. Then we said we think we can do lead gen in all of these areas. We can tell people to get their credit score because that affects the rate on your student loans, or on your auto loans, your credit cards. We can tell them to get a credit card with more rewards or where you pay less interest; when to switch to a brokerage that doesnt cost you as much, and a couple of other categories. What we said was for credit cards, we can make about $60 in lead gen revenue. People might switch their credit card, at most, every 2 years. For brokerage, they only do it once. Maybe 10% of people would switch their credit card, whereas only 5% would switch their brokerage account. I pulled most of these numbers out of my ass. But, they werent completely unreasonable. I didnt say that 100% of Mint users were going to sign up for a new credit card, or for a new brokerage account. I recognized that only half of our users invest, so thats going to be less than the number who use credit cards, or who would apply for a credit score. You multiply those numbers across and you get what revenue could you make in each vertical, each year. There was a rational thought process. You could sort of justify each number, sort of. It turns out that 3 years later, those numbers are actually really accurate. Then you say there are 20 million people who bought Money and Quicken. You could make $30 in revenue per user per year if you did all these verticals, so its $600 million to $1.8 billion opportunity each year, just in the U.S. Youve got your big market. Youve solved a real problem; personal finances are complicated. You can never keep up with who has the best interest rate, when to refinance. We can do that stuff automatically for you. Its in a big market, and we had sustainable patents. After all of this in the seed state, we were at $750 thousand and we built the first product that the first 20 users were on. Thats all that ever used this UI and it looked like this. Its getting incrementally better. Its still not great, but it was a prototype. That allowed us to raise a couple of million dollars in funding, and at that point its not just for 20 something engineers sitting in my apartment. You actually have office space and you start to hire real professionals. Any of you who are developers, I trust that you can hire developers reasonably well. You can give them the correct problem sets. I always give people things like a depth first search or back when I used to interview for C++, how do virtual function pointer tables work, and see if they understand the real depths. But, youre going to have real difficulty hiring marketing people, bus dev people, because you dont know those areas. Theyre really good at bullshitting, but the problem is that 95% of them suck. Theyre not worth anything. They come out of the woodwork. Its way harder to find a good developer and you guys are far more in demand and control than you think. I get 2 to 3 Harvard or Stanford MBAs a week that I mostly turn down. The big book that I recommend for all of you developers, that will let you hire in repeatable, rational, methodical engineering sort of way is a book called Topgrading. The way it works is a sequential interview process.

What I do when I interview is I literally say, Where are you from? Why did you pick the college you picked? Why did you pick this major out of all of the ones that you could have? What did you do during your summers at Berkeley or Stanford? You graduated from Princeton, great school. You could have done anything, why did you choose this particular position? The why is always more important than the what. Youll start to discover that people went to a particular university because they surveyed the whole landscape and thats exactly the right choice for them, that they picked 5 different companies, applied to all of them, got job offers from 4 of them, and they knew exactly what they wanted to do. Or, you get the story where I applied to two places and this was the only one that gave me a job, or my friends were going there so I thought it would be fun. For each job they were in, Why did you choose that job? What do you feel youre proud of accomplishing? Why did you leave? You start to see patterns. What youre really doing here is pattern recognition. I had one guy after his first company said I left because I had a real problem with my boss. He explained it and it seemed completely normal. Sometimes that happens. Then we got to the second company and he said, My boss was a jerk so I left. Then the third time, My boss was bit of an asshole, so I left. I was like, I dont want to be the fourth asshole in this chain. The other thing is, doing the sequential interview process, its repeatable. You know what to do each time. Its not one of these people are prepared to answer the question of what is the hardest project you worked on. CSS Tell me about that. This is almost like the story of their life so you spot gaps. People almost lull into this, Im just friendly, Im just telling you who I am. Its almost like a first date in some sense. They show their true colors. I highly recommend it as a rational, repeatable way for engineers to interview non engineers. Weve got this prototype up and running. What else did we do to actually put ourselves in a good launch trajectory? About 8 or 9 months before we launched Mint, we started a personal finance blog. We didnt really have much money at this time, so we couldnt hire any writers. We did the blog mostly ourselves. We went around to all the other personal finance blogs, and we said, Would you like to write a guest post for us? Half of them said yes, as long as we linked back to them. We would do this series called Train Wreck Tuesdays. One of our users would write in about financial disaster in their life and that always made people feel better because everybody is screwed up in their finances. Everybody has overdrafted their account or made a bad investment or whatever. Seeing that someone did it 10 times worse than you just makes you feel a lot better about yourself. We got all of this free content and started to build our blog up. We did a series, Whats in Your Wallet, so wed take a picture of all of our credit cards for every employee and theyd have to write down and justify why they used each credit card they had, why they had the brokerage that they did, and give their best financial tip.

We started to collect email addresses; this was 8 or 9 months in advance, so we would have some baby users. Because we built up so much traffic, we actually had about 20,000 email addresses, a month or two before launch, when we needed to start to scale the system and put people in. That was too many for us to handle. Then we emailed those guys and said if you put a little badge on your site that says, I want Mint, on your blog, or wherever, we will give you priory access. We got 600 people to put a free banner ad for our site on theirs. That gave us great page rank because all these sites are now linking in and thats how Google measures whether youre reputable or not. All of a sudden, all the other keywords for our blog posts on budgeting, on personal finance, on investment, started to rank higher and bring in more and more traffic Then the 600 people got the velvet rope treatment. They got into the alpha version before anybody else. They felt privileged, felt special, so it was a good deal for them. It built a lot of loyalty, gave us great page rank, gave us free advertising. I highly recommend it as sort of a guerilla tactic in building your first marketing program towards launch. The next phase is we started putting hundreds, actually about 9,000 people on before we launched, in September of 2007, at TechCrunch 40. This was our UI, so you can see how its evolved over time. We saw all the scalability issues come across. We saw accounts that wouldnt update, banks that werent connected. Sometimes we still have a bit of that but there was a lot more, so we tested it with real users. This allowed us to build our architecture in a very scalable way. We were scaling the organization by hiring people properly, non-engineers properly, and we were scaling our marketing program by doing that blog with the exclusive I want Mint badge. Then we launched at TechCrunch 40, and about 6 weeks before, I hired a PR firm, which I think is very important. When we were at TechCrunch 40, it was a conference, and I noticed that they were on two or three floors in San Francisco, but they had forgotten no one was renting out these two conference rooms right next to the conference. At TechCrunch, you only have 7 minutes on the stage to present, so you dont really have any presence. We actually rented these adjacent rooms for $600 each, really cheap. We passed out flyers for free mint mojitos during the event. We got tons of foot traffic. We had a non-stop presence where we could do demos. We had the entire team out there in their Mint t-shirts. We had the people from the PR agency in their Mint tshirts, along with some of the interns and other people, so we looked like a much bigger group than we actually were. It was well branded. We had that presence. We were offering free alcohol, and somehow we won the Peoples Choice at TechCrunch. I dont know how that happened. You take that win and you can go to Business Week, or CNET or whoever and say, dont you want to talk to the winner of TechCrunch, or the winner of . It doesnt matter what conference it is. Its just that you won, and you did it in sort of a rogue way. You leverage that to the next step and the next step. Thats how we launched and how we won, and then once we won, financing was easier.

Because we were doing the screenshots over time, here is Mint today; it continues the evolution. Thats it. Questions?

Questions
Ryan: There are a couple of questions over there. Q: You said earlier to validate your idea. How do you do that? Aaron: What I mentioned, in terms of validating your idea, is talk to as many people as you want to see if its a real problem, to see if people get it. Remember, Mint was actually called Carpe Vivas, seize life in Latin, and it was a goal-setting software. I talked to 80 people and only 1 of them came back saying they would actually use this. Tell as many people as you can, and theyll start to poke holes in it. They will say, I dont get that. What about this? Did you know that other service existed? Youre like, Oh shit, no I didnt know that. Theyre really good because you think you have the greatest idea in the world. But they will poke holes in it that you just didnt even think of. Its really important not to be super secretive; get your idea, and float it. The other thing I did is Im from Evansville, Indiana, which is a Midwest town. I would go back and talk to my parents friends about the idea to see if they were interested. The other thing we did was we did things called concept statements. Wed write down Here is what Mint is. Here are the features and benefits. It was more on the marketing side. Instead of asking your friends all about that, because we were in Silicon Valley and you have a bunch of engineering friends, and youll get the same answers; its a cool, nerdy thing but it doesnt have wide mass-market appeal. We would go to the train station in Mountain View where you have normal people hanging around, with time on their hands. Theyre not necessarily in the tech industry, and wed ask them What do you think of this concept of Mint is your money manager? or Mint is your software financial advisor? We tried different positioning statements. We tried different feature sets, before we built most of this stuff, just on paper. We went to the train station and asked normal people what they thought. Ryan: More questions? Q: What is the story behind the domain name, and at what point did funding happen? Aaron: This was in CNET yesterday. Caroline reported on it. I originally bought mymint.com for $3,000 out of my own pocket, when I was self-financing the company. Name matters. Our competitors were Wesabe and Geezeo. The first time I ever heard of Wasabe, I was like Wasabe is like the stuff you get with your sushi. It took me an hour to find it, so you will destroy your word of mouth unless you have something that is easily spelled, that has all of its vowels in it, thats doesnt have repeating consonants like 3 zs in a row. Its just a bad idea.

You dont choose your domain and brand name based on domain availability. Do it based on what your product is. A mint is a place where money is made. Its green and refreshing. Its the color of money. It makes sense, on a lot of different levels; its a contraction of money and intelligence. We couldnt afford the mint.com domain name until we had our Series A financing, or about there, until we had some financing. The way that happened is it was one of the toughest negotiations in my life. I called up the guy. He was a big hedge fund multimillionaire, hundreds of millions of dollars. He said, I bought $600 thousand worth of art last week. Money is not a motivator. I want an asymmetric return. After months of negotiation, should I lease it or will he sell it to me, I said, I will give you $181 thousand in Series A equity. If we do well, youll get an asymmetric upside. If we go bankrupt, youll be in the situation as a preferred investor to get your money out first. I wont let anyone else from New York into this round of financing, so you can brag to all of your buddies on Wall Street that youre the only one in this deal with a bunch of prominent Silicon Valley venture capitalists, and that appealed to his ego. He has as much money as he needed. That was what it took, and he believed so much in the company that he invested in the B round as well, to his credit. He made a ton of money off that domain. Ryan: We have time for one more. Q: Im a big fan of the Mint interface. I was curious you talked about it a couple of times, but at what point did it make the switch where you guys realized UI is critical? Its one of the things we always study, is the Mint UI. Aaron: I think the UI and the product design are a big part of our differentiation. The way we perfected it is we put it in front of real users. I find that probably only a third of Internet software have actual, real people come in, where you do a proper usability study. We would take people off the street, give them a $10 or $15 Starbucks gift card or something. We had a woman who brought her kid in a stroller in, screaming and crying while we were doing this usability test, realistic scenarios. Give people a mixture of ages, not all guys, you need some women in there, older and younger people, whatever. The first UI we put them up against, they didnt understand it. Those dumb users, they didnt understand how genius we were and it was our fault. The signup process didnt make sense. So we tried 5 different metaphors for how you add accounts and we decided on the one where there were little credit card things that you could click on and the fill in the information, and that made a big difference for our first-time user experience. We also hired designers with a very specific skill set. We hired people who had a computer science background, where they could come up with the idea in their head, and render it in Photoshop, program it in HTML and CSS, and do a bit of a usability/user experience product management roll, sort of three roles combined into one. Having that in one person means a very high bandwidth system, and it also means that the idea that they had is rendered true on the website, instead of going from the graphic designer to I cant do this, I cant cut it this way. Its going to be too large. They can make all those tradeoffs themselves. That was important.

Ryan: Give him a hand. I really appreciate that. Its fun to see a lot of the behind the scenes stuff and I enjoyed the negotiation on the domain. Its some good tactics there.