Aaron Patzer's Start-up experienceAaron Patzer, founder of the online money management website Mint.com, started his first business-PWeb, a web development company-at age 16 in his hometown of Evansville, Indiana. After graduating from Duke with B.S. degrees in computer science, computer engineering, and electrical engineering, and getting an M.S. degree in electrical engineering from Princeton, he moved to Silicon Valley. There, he worked a short stint at IBM, where he earned three patents working on the Cell microprocessor for Sony's Playstation 3 game console.

 

After growing increasingly frustrated by his experiences using the personal finance software available at the time, the 25-year-old Patzer left another San Jose start-up, Nascentric, in March 2006 to start his own business, convinced he could build a better product. Eighteen months later, he rolled out his business model for Mint.com at the prestigious Techcrunch40 entrepreneurial conference and, despite facing off against 700 other start-up ideas, was named the conference's top company. By the end of that year, Mint had more than 100,000 online users and, thanks to its phenomenal growth, was on its way to raising $17 million through several venture capital rounds. Mint's success soon caught the eye of its rival, financial software giant Intuit, which subsequently bought Mint for $170 million in cash in November 2009. After the buyout, Intuit kept the Mint.com website intact and made Patzer executive VP of its entire personal finance group. Today, two million consumers continue to use Mint.com to track nearly $200 billion in transactions and $50 billion in assets.

 

Recently, we spoke to Patzer in a lengthy interview. This is *Part One *of a two-part interview. In this first part, we focus on his early entrepreneurial efforts, his experiences launching Mint, and the lessons he's learned along the way.

 

SBOC: You seem to have been bitten by the entrepreneurial bug early on, starting two different businesses before graduating high school and founding a third-a side business based on one of your inventions-while still a grad student at Princeton. How much did those previous entrepreneurial experiences inform your decision to quit your job (at yet another start-up) and begin work on Mint.com?
AP: One of the big things that I learned by doing these initial businesses was that for service businesses, it's hard to scale them. The problem with the businesses that I did in high school is that you have to go through the sales process to get new clients and only then can you bill for your hours, so it scales with the number of people that you sell. The next thing I tried to do, the bioinformatics company at Princeton, involved cost because I was producing a product. When you do that, whether it's a microchip or a widget or a piece of software, you produce it a million times or a million people can use your website and it scales much more elegantly. The problem with the bioinformatics business, I found out, was that it was actually a much smaller market than I thought and I tried to do it while I was in school. So I didn't give it 100%. It would be the equivalent of somebody doing it on the evenings and weekends. So, what I learned there was that if you've got a good business idea, you have to give it 100%.

 

SBOC: So, it sounds like you learned the advantages of a product-driven business versus a service-based one?
AP: Yes, and I would say that Mint is more of a product business. In a sense, it's not a physical product that we're selling, but it's something where you produce a product once, in this case software or a website. Quite frankly, to service one person or a million people on Mint, it takes the same amount of effort. You have to have all the links to all the banks, you have to be able to graph things and whatnot. So if you build it once you have a high fixed cost, but then your variable costs are almost nothing when it comes to software or software service, whereas in a traditional service company your costs scale with your revenues, almost in lockstep.

 

SBOC: Any other mistakes you avoided or myths that you dispelled from those earlier start-up businesses?
AP: The one other thing that I realized is that there is a difference between a startup and a small business. A small business typically starts out with one location or with one set of clients and then it expands out to two branches, expands to a particular region, or expands nationally and that rollout can take 10, 20, 30 years. With a technology-based startup like Mint, you're attempting to go national, or international, from day one.

 

SBOC: Did that realization change your timeframe for what you were trying to accomplish with Mint?
AP: I had a different mindset. What that means is that, for a start-up, you need to raise a lot more money and there's a lot more risk, because the product has to be available to everybody in the United States, perhaps, at the very beginning and you have to be prepared for that. Whereas if you're running a bakery, you just have to service that community, and if that bakery works, you start another one in an adjacent town and then a couple all over your state, in your region, and so on.

 

That's a very different dynamic from "small business." So I want to give that as a caveat, that my experience has been primarily the start-up kind, where you go and raise money-venture capital; typically you do that so you can go national all at once. It's a high-risk, but also a high-return proposition if you make it, but few do.

 

Thanks to that mindset, I have developed a few rules for starting a business because a lot of people ask me ‘How do I start a business? How do I come up with an idea? How do I validate it?' The number one thing I tell people to ask themselves is ‘Does your business solve a real problem?' It sounds simple, but you'd be surprised how many people out here in Silicon Valley-probably 80 to 100-are starting something like a Twitter derivative company. The way you can find something that solves a problem in your daily life. Anything that takes too much time, irritates you, or pisses you off: if you can solve that problem, that's a business. So long as, number two, you have a big market or a lot of other people have that same issue.

 

SBOC: That's an interesting point and something that you've mentioned in the past with regard to Mint.com-that the algorithm you developed to solve one of the main complaints you had with Quicken was just a feature, but not enough to start a business. You still had to figure out a way to monetize that feature, which you were savvy enough to do from the beginning by linking up customers with products that could save them money and then taking a fee from the merchants.
AP: That's exactly right. What was a feature, you expand upon it and expand upon it and then it becomes a business. My number two rule for starting a business was, as I said, you have to be in a big market. Well, every adult in the free world has to manage their finances. Mint helps you to see what's coming in and what's going out, how to plan for your future, where you are spending too much, how do you get a better interest rate, how do you get out of debt. Those are the questions we're answering.

 

And my rule number three is ‘Do I have a competitive advantage?' For me, that initial competitive advantage was the algorithm that lets Mint categorize transactions correctly. Yes, that alone was just a feature, but then if those transactions are categorized correctly, not only does the user know where their money is going, but we know where their money is going. So we can say to someone, "Hey, you spend $200 a month on TV and the Internet, did you know you can get them bundled together in a package for $150?" Or "I see you have $20,000 lying around in a checking account earning 0.25% interest. If you moved your money to this other bank, you could earn 2.0% interest."

 

SBOC: For an engineer and self-described geek, I was struck by how much of Mint's rapid success you attributed to savvy marketing practices, particularly your somewhat relentless pursuit of the Mint.com domain name. Why was that such a key element?
AP: You lose a lot of word-of-mouth marketing if your domain name is not something that can be spoken and spelled unambiguously. For example, there's a Silicon Valley company called simplyhired.com, but is it simplyhire.com or simplyhired.com with a d? One of our competitors in the personal finance space was wesabe.com, which I thought was named for wasabi, that green stuff that comes with your sushi, but it's not, it's some derivative of Japanese and Spanish. And then another competitor was Geezeo.com, and no one knows how to spell these things. And so we went with Mint-four letters, spelled unambiguously, pronounced correctly. Even in Europe or elsewhere, or even with an accent, it is simple and clear. Mint is a place where money is made. Mint is also a term for top quality and condition, and mint is cool and refreshing. And the cool design scheme is green just like money.

 

SBOC: In addition to choosing just the right name for your business, you made a concerted effort to hone your marketing pitch and optimize your search engine ranking early on. Talk a bit about that campaign.
AP: We put a lot of emphasis on marketing. My dad is well versed in marketing and he actually came to work with me for about two weeks out in California early on, before there was really any Mint.com business per se. I had thought marketing was a very sloppy discipline, but he taught me how to make it more rational. One of the things that we did, we would type up concept pages and take them to the Mountain View California train station. These people were willing to talk to us because they were bored, just waiting for the train. We got a broad spectrum of life, young and old, male and female, all the different races and ethnicities. So we would approach them and ask them to read a short statement that might say ‘Mint.com can be your money ninja, it goes out and cuts through high interest rates,' or ‘Mint is your free software financial advisor and money manager.' After reading these paragraphs, we'd ask a series of questions and rate the responses along the lines of: highly interested, somewhat interested, no interest. Then, from those responses, we would change the phrasing in those concept statements to get them just perfect. Then those phrases were the exact ones we used on our homepage.

 

SBOC: So, in essence, you were conducting your own focus group and search engine optimization testing?
AP: Yes, and we did it for free and that's something anybody could do.

 

SBOC: Amidst all of your start-up and small business experiences, you spent a brief period after graduate school working at one of the largest corporations in the world, IBM. What was that experience like?
AP: I spent about six to nine months working there and I did not particularly like it.

 

SBOC: Why not?
AP: On the one hand, it was incredible because I was working on the Playstation 3 microprocessor joint project with Sony and Toshiba. This was a project that had 500 engineers and half a billion dollars invested in it, so the kinds of assets and technology involved were just years ahead of their time. That was impressive. But at a big company, particularly if you're coming up from the lower rungs at a place like IBM, you feel like if you don't do anything for a month, would anyone even notice? So I sort of made a promise that the thing that motivates me in my work, even more than money or praise from your peers, is ‘Does what I'm doing matter? Does it matter to that end user, that consumer?' I knew I wanted to do something else, something that was consumer-facing.

 

So with Mint, I also wanted to make sure that everybody, every engineer, felt that they mattered too. So they could say ‘You know what, I did the alerts feature and now we send out seven million emails a month,' or ‘I did the investments feature and now people can track their money better.'

 

SBOC: Talk a bit more about your organizational structure within Mint. How autonomous are the engineers?
AP: Well, certainly, our engineers work on a team to get any big feature out; it's not a one-man show. But each of them can pinpoint what they own. The other thing that we do that is shocking to some people is when we get a new engineer, we will put them on one of the new features that we're building. At one point, we had a new engineer come in and he didn't know how to use Flash or the technology behind it, but we said, ‘OK, you've been working here for only two weeks, but you're going to lead the development to build the investment feature, which will be the biggest feature we launch in the next six months.' Another engineer came in recently and we said, ‘Alright, the next feature we plan to roll out is one that gives the consumer the ability to manually enter transactions like checks that haven't cleared yet and you're going to do that.' And, yes, it may take them longer than if we'd given that task to someone who has been here awhile, but we like the idea of ramping people up quickly in sort of a trial by fire.

 

SBOC: Even with your rather extensive background in business start-ups, you have often referred to the rollercoaster of emotions and the bouts of self-doubt that sometimes plagued you after quitting your day job to work solely on Mint, as well as the skepticism that you encountered from almost every investor you pitched your idea to. What was that experience like and what kept you going?
AP: Yeah, lots of times I heard, ‘No one will ever trust a start-up with their financial information.' Those earlier business start-up experiences helped, but I think it was about having a rock-solid confidence in oneself and a bit of stubbornness. And whenever I got down, I'd just look at my Shakespeare quote from Measure for Measure: ‘Our doubts are traitors and make us lose the good we oft might win by fearing to attempt,' which says your doubts stop you in your tracks so you don't even try. Or if I got really down I would listen to Frank Sinatra's song ‘That's Life.' You know, the lyrics that go ‘as funny as it may seem, some people get their kicks stompin' on a dream.'

 

SBOC: How to keep a monthly budget, save more money, set and achieve financial goals: these sound like mundane tasks, but in a way, they turn out to be rather transformative and self-empowering tools for customers.
AP: Especially long-term. At the end of the day, money is a tool for living, it's only a tool for doing other things that you care about. If you don't have it, you can't do those things. So, in a sense, we are in the business of transforming lives.

 

Note: We'll be running Part Two of our interview with Aaron Patzer on Tuesday, July 6. In part two, Aaron will discuss Intuit's purchase of Mint.com, and how Aaron was able to maintain its independent identity a full six months after the buyout.

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